It’s unclear what changes the contractor might make and whether it will follow last month’s decision in Haro v. Sebelius, but its temporary suspension of  “rights and responsibilities” letters and demand letters has caused problems for plaintiffs. One attorney notes that an insurance company refused to send a settlement check without Medicare’s demand letter.

After a federal judge in Arizona held that the Centers for Medicare and Medicaid Services (CMS) had overstepped its authority regarding Medicare reimbursement claims in Haro v.Sebelius last month, the Medicare Secondary PayerRecovery Contractor (MSPRC) temporarily stopped issuing “rights and responsibilities” letters and demand letters. It has finished reviewing the rights and responsibilities letter and resumed issuing them on June 10, but it is still reviewing the demand letter.

In the meantime, “there are thousands of injury cases across the country being held hostage” because they don’t have final demand letters, said Jay Vaughn, a trial lawyer in Florence, Kentucky. He noted that he recently settled a case with an insurance company, but it refused to send the settlement check without Medicare’s demand letter.

The suspension also delays conditional payment letters, because MSPRC sends them out 65 days after rights and responsibilities letters. This delay “will affect plaintiff attorneys’ ability to evaluate cases, evaluate settlement for clients, and meaningfully participate in settlement discussions,” said Caitlin Palacios, a Washington, D.C., lawyer.

In Haro, the court enjoined CMS from demanding payment of a Medicare Secondary Payer (MSP) reimbursement claim and threatening collection actions before an appeal or waiver request could be resolved. It also said the agency may not demand that attorneys withhold liability proceeds from their clients while a disputed MSP reimbursement claim is pending. (2011 WL 2040219 (D. Ariz. May 9, 2011).)

The plaintiffs included beneficiaries and an attorney representing beneficiaries. Judge David Bury wrote that “the secretary’s application of the 60-day reimbursement requirement to support immediate collection activities against beneficiaries when the reimbursement claim is in dispute is neither rational nor consistent with the statutory scheme providing for waiver and appeal rights.”

The lawyer plaintiff had argued that requiring him to pay incorrect reimbursement claims would create a conflict of interest because doing so would go against his client’s best interests. The court held that no statutory authority supports a direct action against lawyers and that CMS cannot hold them financially responsible for MSP reimbursement if they do not turn their clients’ awards over to Medicare.

The court also certified a class of “persons who are or will be subject to MSP recovery, and from whom defendant has demanded or will demand payment of MSP claims before there have been determinations of the correct amounts through the waiver or appeal process.”

It’s unclear what changes MSPRC might make and whether it will follow Haro, lawyers say.

“The changes should be good for clients and their attorneys who wish to seek waivers and compromises,” Palacios said. “Previously, the demand for payment of disputed funds up front under threat of collection actions–even before the waiver or appeal had been considered–had a chilling effect on those considering seeking waivers and compromises.”

Vaughn said he hopes that any changes will streamline the process. “The Medicare reimbursement process has caused a lot of frustration and confusion among the practicing bar–attorneys on both sides–and insurance companies,” he said. “It shouldn’t be that hard.”

Phoenix lawyer Frank Verderame said Medicare may try to go through Congress to get around the Haro injunction. Meanwhile, he noted, the uncertainty in the MSP process is “creating a hardship for elderly and disabled clients.”

“It’s a chronic problem that’s not going to go away,” he said.