In response to a lawsuit filed by a Hinshaw & Culbertson hospital client, the Secretary of the U.S. Department of Health and Human Services (the “Secretary”) published a final rule in the Federal Register on July 25, 2003 deleting 42 C.F.R. § 411.54(c)(2)(i)-(iii) from the Code of Federal Regulations (“CFR”). The Hospital had filed suit against the Secretary to compel the Secretary to delete these regulations from the CFR because even though these regulations had been invalidated in 1990 by a court decision, Medicare beneficiaries continued to contest the Hospital's bills under these regulations. When Medicare was determined to be secondary, Medicare beneficiaries who received liability settlements were refusing to pay the Hospital's bills citing to the invalid regulations still in the CFR. The invalid regulations would have prohibited the Hospital from collecting its full hospital charges from both the liability insurer and the Medicare beneficiary. Instead, the hospital would have been required to bill Medicare in all MSP cases. Medicare beneficiaries who received large liability settlements wanted the Hospital to bill Medicare and receive the lower Medicare payment. Once a hospital bills Medicare it must accept the lower payment and cannot be paid its full charges at a later date. The beneficiary then receives a windfall because it does not have to pay the full hospital bill even though it received a liability settlement to pay the full bill.

With the publication of the final rule, the Secretary confirms the right of hospitals to collect their full hospital charges from the liability insurer and Medicare beneficiary when a liability settlement is received. This was the second MSP victory for this client. In April 2003, the client won another Medicare MSP case in U.S. District Court when it was sued by a Medicare beneficiary trying to invalidate the Hospital's lien it had filed against the beneficiary's liability settlement proceeds.

The impact of the final rule is significant because it affects all hospitals nationally. Medicare beneficiaries must now pay the full hospital bill from the liability settlement proceeds where Medicare is the secondary payer.

A Word Of Caution To Hospitals
Hospitals that elect to pursue liability settlements, rather than to bill Medicare in MSP cases should be cautious. During the course of the litigation with the Secretary, counsel became aware of a letter written by the CMS Central Office to one of its regional offices which stated that a hospital must cease all efforts in pursuing the liability insurer and Medicare beneficiary if it had not received a settlement payment before the expiration of the timely billing period for billing Medicare. In other words, once the time for billing Medicare and receiving a conditional payment expires, and the hospital has not received a settlement payment from the liability insurer, it must cease all collection activity and it will not recover any money whatsoever for its hospital bill. This policy letter was not discussed in the final rule and it has not been published by CMS.

A Hinshaw & Culbertson Medicare Reimbursement attorney is of the opinion that the CMS 2000 letter is inconsistent with the Medicare MSP statute and probably is not enforceable unless CMS promulgates it as a regulation, and advises any hospital that pursues a liability company and has not been paid by the expiration of the Medicare timely billing period, to perfect its Medicare appeal rights by billing Medicare under protest right before the expiration of the timely billing period.

Any hospital that would like to receive a copy of the above unpublished CMS policy letter can do so by contacting their regular Hinshaw attorney.