CINCINNATI—A federal appeals court decision that allows Medicare to claim nearly half of a man's liability settlement could hinder insurers' ability to settle such claims and may be an issue that reaches the U.S. Supreme Court.
In a 2-1 ruling last month, a panel of the 6th U.S. Circuit Court of Appeals in Cincinnati said Medicare should recoup $62,300 of Vernon Hadden's $125,000 liability settlement from a 2004 auto accident.
The claim was based on $82,000 in medical bills that Medicare paid as a result of Mr. Hadden being hit by a truck owned by the Hopkinsville, Ky.-based Pennyrile Rural Electric Cooperative Corp. The recovery amount excludes Mr. Hadden's legal fees.
Attorneys for the man argued that Pennyrile's settlement represented only 10% of his total damages, while an unidentified driver who caused the Pennyrile vehicle to swerve and hit the pedestrian was 90% responsible for the accident. Consequently, the victim's attorneys argued that only 10% of the Pennyrile settlement should be dedicated to Medicare reimbursement.
The appeals court disagreed in a split decision, saying that Mr. Hadden was obligated by the Medicare Secondary Payer Act “to reimburse Medicare the full amount that it demanded of him.”
Medicare Secondary Payer compliance experts say the ruling in Vernon Hadden vs. USA could have a chilling effect on settlements, awards and judgments in the liability and workers compensation arenas.
“It can adversely impact the ability of the parties to settle,” said Roy Franco, co-chair of the Washington-based Medicare Advocacy Recovery Coalition. “Because if Medicare gets the entire pie, what's left for everyone else?”
Michael Merlino, vp of Medicare compliance for Sedgwick Claims Management Services Inc. in Atlanta, said the ruling in Hadden was expected and unwelcome. Sedgwick is a member of the MARC coalition, which contributed to Mr. Hadden's legal expenses.
Mr. Merlino contends that it is impractical for Medicare to seek full reimbursement in cases where plaintiffs can't make a full recovery for their damages. He also said the ruling could result in fewer settlements and, ultimately, less money for Medicare to recoup.
“The parties are not interested in settling if the recovery's going to be zero,” Mr. Merlino said.
While Medicare has a legal right to recover funds from primary payers, the key is finding a way for beneficiaries to retain an equitable portion of their settlements, said Mark Popolizio, Miami-based Section 111 senior legal counsel for Crowe Paradis Services Corp., a Medicare secondary payer compliance company.
“Everyone recognizes Medicare's interest to be protected,” he said. “The question is, how best can we do that practically in light of some of the judicial decisions that have been made and are pending?”
Medicare does allow beneficiaries to file for a reduction of their liens, said Russell Whittle, senior staff counsel and vp of Medicare secondary payer compliance for consultant Gould & Lamb Inc. in Bradenton, Fla. However, he said the process can take months, and carriers often are left waiting to close claims or paying extended workers comp benefits in the meantime.
“They're waiting to settle their file because they want the certainty of what an outstanding lien might be, or they've accepted some benefits and are paying for longer periods than they should be because they don't have that lien information from Medicare,” he said.
Mr. Whittle said Mr. Hadden filed for a Medicare lien reduction, but Medicare Secondary Payer law doesn't seem to allow apportionment based on comparative fault.
“If Mr. Hadden would have been able to prevail, that would have opened an entirely new line of negotiation and analysis in any given lien,” Mr. Whittle said.
Some Medicare watchers had hoped the apportionment decision in Hadden would align with a September 2010 ruling by the 11th U.S. Circuit Court of Appeals, said MARC's Mr. Franco. In Carvondella Bradley et al. vs. Secretary, U.S. Department of Health and Human Services, Medicare was allowed to recover only $788 of a $52,500 wrongful death settlement. The government sought to collect nearly $22,500 in that case, but the 11th Circuit found that the deceased's family held a majority interest in the award.
The diverging Hadden and Bradley decisions ultimately could put the issue before the Supreme Court, said Jennifer Jordan, general counsel with MEDVAL L.L.C. in Columbia, Md.
“The significance is in the hope that perhaps we can get some Supreme Court clarification on the (Medicare Secondary Payer issue) in general,” said Ms. Jordan, whose firm specializes in Medicare set-aside provisions for workers comp and liability claims. “Apportionment is going to be a huge issue.”
However, Mr. Merlino disagreed that the apportionment issue would reach the Supreme Court, for now. He said Bradley is different, in part because a probate court ruled on the settlement's apportionment before the case was appealed.
Another case dealing with the Medicare Secondary Payer system could answer more questions about the statute of limitations for Medicare subrogation, as well as Medicare set-asides.
The government has motioned to file appellate briefs by Dec. 22 in the case of USA vs. James J. Stricker et al., which is to be heard by the 11th Circuit U.S. Court of Appeals. It is seeking reimbursement from more than 900 Medicare beneficiaries, as well as insurers and plaintiff attorneys, who were part of a $300 million pollution liability settlement reached in 2003.
The settlement was based on injuries sustained by Alabama residents from exposure to polychlorinated biphenyls manufactured in the state. Mr. Popolizio of Crowe Paradis said the case shows Medicare is casting a “wide net” in secondary payer cases.
“They have the ability like an octopus to really reach out and seek recovery from multiple parties,” he said.
An Alabama federal judge dismissed Stricker in September 2010. U.S. District Court Judge Karon Owen Bowdre said the suit, filed by the government in December 2009, fell outside a six-year statute of limitations under contract law as well as a three-year limitation for tort cases.
The government argues, in part, that the district court miscalculated the time limit. It is seeking to have Stricker remanded to district court for trial.
Some experts say they expect the appeals court to reject the government's time limit argument. But if the appeals court sided with the government, Mr. Popolizio said the ruling would be significant because the statute of limitations isn't clearly defined for Medicare cases.
Mr. Franco said the government's argument could make it difficult for insurers to close claims, because it's unclear when their responsibility to Medicare would end.
“Now that the insurance carrier and the self-insured may be responsible to pay again...they have to be involved in the process to make sure that their liability is covered and done with at the time of the settlement,” said Mr. Franco, who also is chief legal and compliance officer for Franco Signor L.L.C. in Kenmore, N.Y.
If Stricker were returned to district court, Mr. Franco also said that also could affect Medicare set-asides. That is due to the government's effort to collect reimbursement from any future payments made to the pollution settlement beneficiaries, who are to receive installments through 2013, he said.
The Hadden and Stricker cases are just the beginning of Medicare litigation that could play out in the next several years, Mr. Franco said.
“Medicare Secondary Payer is (like) Whac-A-Mole,” he said. “As soon as...you feel like you've nailed down one issue, up comes another issue.”