Well drafted subrogation provisions will state that any allocation of tort settlement or judgments to reimburse non-medical losses – such as earnings lost – will not be binding on the plan. If that is stated, settlements or judgments won’t preclude the plan participant’s obligation to reimburse the plan. However, that’s not the necessarily the case when Medicare seeks to be reimbursed for the medical benefits that it paid. Indeed, contrary to the usual approach taken by privately sponsored health plans, the Medicare Secondary Payer (MSP) law on which Medicare’s right to reimbursement is based does not contain such a provision.

Medicare generally reduces its claim for reimbursement based on pro-rata share of the plan participant’s legal fees and costs. But what happens if a court allocates portions of a settlement or judgment to non-medical reimbursement, such as loss of earnings or for pain and suffering? A recent decision by a U.S. District Court if Florida clarified that Medicare is not bound by such an allocation. The case is Bradley v. Merritt, 2009 WL 2216580 (M.D. Fla., July 13, 2009).

Due to a beneficiary’s hospitalization, Medicare paid almost $39,000 in medical bills. He then died as a result of multi-organ failure secondary to a septic wound. His estate threatened a wrongful death claim to his nursing home’s liability insurer, which settled for $52,500. Medicare was notified of the settlement, and claimed only about $22,500 of the settlement proceeds after reducing its claim on account of attorney’s fees and costs related to the settlement even though no lawsuit had been filed.

The estate filed a motion with the state probate court to “equitably allocate the settlement proceeds” between the claims of the survivors of the Medicare beneficiary and the claims of the estate. The motion stated that each of the Medicare beneficiary’s survivors had a claim for mental pain and suffering worth $250,000 and that his estate had a claim for health expenses of almost $39,000. It proposed that 9.7 percent of the settlement proceeds (amounting to about $51,700) be allocated to the survivors and an allocation of 2.5 percent of the settlement proceeds (amounting to $787 and change) be allocated to the estate. Medicare received notice of a hearing on the motion, but did not appear as a party and did not participate in the hearing. Apparently because there was no objection to the motion before the court, it granted the motion.

Medicare advised the parties that it would not be limited by any action in a state court proceeding in which it was not a party, and it continued to assert its right to seek full reimbursement of the health expenses it paid.

The plaintiff’s then tendered the amount that had been demanded by Medicare (that is, about $22,500) and began the applicable Medicare administrative appeal process.

At all levels of the appeal process, up through the final decision by the U.S. District Court, Medicare’s position was upheld. The court noted that the MSP statue does not clearly address the issue of whether a state court allocation of settlement or judgment proceeds is binding on Medicare when it did not participate in that action. That led the court to consider whether Medicare’s interpretation of the statue was reasonable.

Medicare’s interpretation appears in its MSP Manual (CMS Pub. 100-05, Chapter 7, §50.4.4), which states:

 

In general, Medicare policy requires recovering payments from liability awards or settlements, whether the settlement arises from a personal injury action or a survivor action, without regard to how the settlement agreement stipulates disbursement should be made. That includes situations in which the settlements do not expressly include damages for health expenses. Since liability payments are usually based on the injured or deceased person’s health expenses, liability payments are considered to have been made “with respect to” medical services related to the injury even when the settlement does not expressly include an amount for health expenses. To the extent that Medicare has paid for such services, the law obligates Medicare to seek recovery of its payments. The only situation in which Medicare recognizes allocations of liability payments to nonmedical losses is when payment is based on a court order on the merits of the case. If the court or other adjudicator of the merits specifically designates amounts that are for payment of pain and suffering or other amounts not related to medical services, Medicare will accept the court’s designation. Medicare does not seek recovery from portions of court awards that are designated as payment for losses other than medical services

Further on in the MSP Manual, it states:

Medicare has a statutory direct right of reimbursement from the liability insurance as well as any entity that has received payment directly or indirectly from the proceeds of a liability insurance payment. Medicare’s recovery rights take precedence over the claims of any other party, including Medicaid. Medicare’s recovery right is superior to other entities including Medicaid because Medicare’s direct right to recover (sic) is explicitly prescribed in Federal law and other entities’ rights are based on either State law or subrogation rights.

Based on those provisions, the court (and all previous determinations in the Medicare appeal process) concluded that Medicare’s interpretation is that Congress intended that Medicare be secondary payer, and thus it should be repaid whenever a primary payer could pay for the service that Medicare had paid.

That would included provisions, the court (and all previous determinations in the Medicare appeal process) concluded that Medicare’s interpretation is that Congress intended that Medicare be a secondary payer, and thus it should be repaid whenever a primary payer could pay for the service that Medicare has paid.

That would include Medicare’s recovering conditional payments through either a subrogation action or a direct action. The court cited some recent federal cases reaching a similar result because any apportionment of Medicare’s recovery in tort cases would either require a fact-finding process to determine actual damages or would place Medicare at the mercy of a victim’s personal injury attorney’s estimate of damages. (Warren v. Secretary of Health and Human Services, 868 F.2d 1444 (5th Cir., 1989); Baker v. Sullivan 880 F.2s 322 (11th Cir., 1989); Zinman v. Shalala, 67 F.3d 841 (9th Cir., 1995); and Mathis ./ Leavitt, 554 F.3d 731 (8th Cir., 2009).)

The court also noted that the state court proceeding in this case was not reflective of a full trial on the merits because the proceedings before the probate court were not adversarial. Based on those findings, the court concluded that Medicare’s interpretation of the MSP law was reasonable.

It appears from the opinion that Medicare would consider itself bound by such a court determination allocating tort settlement proceeds if it were a party to those proceedings. However, as a practical matter, Medicare does not appear in such state court cases.

Instead, it insists on its own appeal procedures, and, ad this case indicates, Medicare’s interpretation of the MSP law was considered to be reasonable.

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This entry was posted by Adam V. Russo on Wednesday, November 18th, 2009 at 9:52 am and is filed under 11th, Medicare. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.