State AGs Probe Asbestos Bankruptcy Trusts To Recover Medicare Payments

The Attorney General of Utah has sued four of the largest asbestos bankruptcy trusts to try and force them to comply with civil investigative demands more than a dozen states have sent to the trusts, seeking information on whether they are squandering money and failing to reimburse states for Medicare and Medicaid expenditures.

Attorneys general from 13 Republican-leaning states including Utah, Michigan, Wisconsin and Kansas sent demand letters to the Armstrong World Industries, Babcock & Wilcox, DII and Owens Corning/Fibreboard bankruptcy trusts on Dec. 12. So far none have responded, Utah says in the complaint filed March 7 in state court in Salt Lake City.

Utah said they believe “abuse of asbestos trusts is occurring” by plaintiff lawyers who largely oversee the court-approved funds set up to compensate people who claim injury from asbestos. More than 60 manufacturers of asbestos or asbestos-containing products have filed for bankruptcy under the weight of plaintiff lawsuits, paying out $17 billion since 2008, Utah said in its complaint.

The AGs cite the Medicare Secondary Payer law, a little used federal statute that carries stiff penalties for insurers and others who arrange for lawsuit settlements to be paid directly to claimants without making sure they first settle outstanding bills for Medicare coverage. Penalties can include double damages and even plaintiff attorneys can be liable, said Frank Qesada, an attorney with MSP Recovery, a Miami law firm that has filed numerous national class actions on behalf of private Medicare providers.

“The federal law is explicitly clear: When there’s a settlement, Medicare must be reimbursed,” said Quesada. “It’s a sledgehammer.”

The Trust Advisory Committees that govern the funds are dominated by plaintiff lawyers from a few prominent firms including New York’s Weitz & Luxenberg and Baron & Budd in Dallas. Because they represent claimants seeking money from the trusts while also collecting tens of millions and dollars in contingency fees from settlements paid by those trusts, Utah said, the governance structure creates “problematic incentives” that result in “lax requirements for claims.” A representative of Weitz & Luxenberg didn’t immediately respond to a request for comment.

The lawsuit represents an interesting gambit by conservative state AGs, who are borrowing a tactic most often used by more liberal states to recover money from pharmaceutical manufacturers they accuse of running up Medicare and Medicaid bills. In a typical example, Massachusetts last year announced it had settled with Wyeth for $68 million as part of multistate litigation over Medicaid rebates that generated $785 million in settlements nationwide.

No one from the Utah AG’s office would comment. In its case, Utah says lax claims requirements allow the trusts to pay out too much to current asbestos claimants, leaving the trusts depleted and unable to pay for future medical expenses, which then fall upon the states.

Courts have forced insurance companies to reimburse Medicare for medical expenses when they pay accident settlements directly to plaintiffs and can’t collect the money directly from the recipients, said Thomas Baker, a professor at the University of Pennsylvania Law School and expert on insurance law.

“Given this an area of law where courts have created equitable rules that protect first-party carriers, it’s perfect reasonable to try and expand the doctrine,” Baker said.

The states cite the case of Garlock Sealing Technologies, a North Carolina company that convinced a judge to probe into the practices of asbestos attorneys after uncovering evidence they engineered claims to recover money from trusts before filing lawsuits against solvent companies, often claiming work histories that conflicted with documents they filed with the trusts. The AGs cite the cases of several named individual claimants, suggesting they have been combing through the Garlock files.

The revelations in the Garlock case also inspired companies including General Motors, Ford and Honeywell to make their own demands for trust records on payouts to workers who might have already received benefits from employer insurance or workers’ comp. Humana also last year sued several prominent asbestos law firms, including Brent Coon & Assoc., Reaud Morgan & Quinn and the Bogdan Law Firm to recover $19.5 million they say asbestos trusts paid to their clients.

Quesada of MSP Recovery said most personal injury attorneys check the federal Centers for Medicare and Medicaid Services database for outstanding liens before cutting checks to their clients, but CMS only tracks patients with Medicare as their primary insurer. Employee, union and private plans don’t show up on the database, leaving billions of dollars in medical bills that could be recovered by lawsuits like the ones the states and private companies are now bringing.

The U.S. House of Representatives folded a law requiring broader disclosures of asbestos trust claims into its Furthering Class Action Fairness Litigation bill, which passed the House and is now before the Senate. That law would require the trusts to make public some claims information so companies could determine if plaintiffs had made conflicting claims about their exposures before suing them. President Trump has said he supports the bill.

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