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Don't get trapped by a settlement release: are the releases you sign exposing you to Medicare reimbursement liability? Know the risks before you settle.

Article Excerpt
Plaintiff attorneys settling directly with tortfeasors such as product manufacturers, should be aware of a recent alarming trend. Those tortfeasors who lack separate insurance coverage are increasingly proposing release language that may create reimbursement liability on the part of the client and plaintiff attorney under the Medicare Secondary Payer (MSP) statute. (1) Plaintiff counsel should carefully consider the possible consequences of this release language, as it may expose the lawyer to liability that would not otherwise exist.

Specifically, in the settlement agreement the uninsured tortfeasor requests the client and the plaintiff lawyer to indemnify the defendant against any government claim under the MSP statute. Congress enacted this law to reduce Medicare costs by making the government a secondary provider of medical insurance when the patient has other primary insurance coverage. (2) The regulations prohibit Medicare from making a payment when there is a primary payer involved.

Additionally, when the client alleges third-party liability, Medicare makes a payment conditioned on being reimbursed from any recovery under an insurance policy that covers the liable third party. To recover such conditioned payments, the statute empowers the government to bring a direct action against any entity that is responsible for making payments, or any other person or entity that has received payment from a primary insurer. (3)

Many defense attorneys believe that Medicare's strongest right of recovery is directed toward this third-party defendant, regardless of whether the settlement was paid by a liability insurance carrier or a tortfeasor that lacked separate liability insurance. However, every time the federal government has tried to assert such a claim against the uninsured tortfeasor, the courts have rejected this broad interpretation of the MSP statute. (4)

Despite the weight of judicial opinion to the contrary, many tortfeasors settling directly with the injured plaintiff say that a plaintiff attorney's failure to account to Medicare leaves them vulnerable to a subrogation claim by the government for the Medicare share and possibly double damages. This belief--a product of unchecked feat, government publicity, and subsequent innuendo--appears baseless. However, defendants are acting on this fear mad asking plaintiff lawyers to sign release and indemnity agreements containing provisions that put plaintiff counsel at risk of personal liability for the subrogation claim.

The legal landscape

The two most recent opinions on the matter are the Fifth Circuit's ruling on December 17, 2002, in Thompson v. Goetzmann (5) and the ruling by the U.S. District Court for the Eastern District of Virginia on March 20, 2003, in Brown v. Thompson. (6) In Goetzmann, the government sued plaintiff attorney Stephen Goetzmann and his client, as well as the defendant (the manufacturer of a hip prosthesis with...

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