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Medicare Not Limited to the Portion of a Settlement Designated for Medical Losses when Seeking Reimbursement under MSP

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Joseph E. Kozely, Jr.
Foster Swift No-Fault E-News
December 13, 2011

The U.S. Court of Appeals for the Sixth Circuit has ruled that Medicare is not limited to the portion of a settlement or verdict designated as for medical losses when seeking reimbursement under the Medicare Secondary Payer Act, 42 USC § 1395(b)(2). Hadden v United States (Lawyers Weekly No. 01-76843).

Hadden was injured in Kentucky in 2004 when a vehicle owned by Pennyrile Rural Electric Cooperative Corporation struck him.  Medicare paid $82,036.17 for his medical expenses.  Hadden sued Pennyrile and settled the suit for $125,000.  After deducting Hadden's attorney fees, Medicare demanded $62,338.07.  Hadden paid under protest, arguing that the unidentified vehicle that caused the Pennyrile truck to swerve into him was 90% at fault, Pennyrile was only 10% at fault, and thus the settlement with Pennyrile should entitle Medicare to reimbursement of only 10% of its lien, or about $8,000.

An administrative law judge ruled against Hadden.  The district court agreed with the ALJ.  The Sixth Circuit affirmed, holding that a 2003 amendment to § 1395y(b)(2)(B)(ii) did not leave room for Hadden's argument:

A primary plan, and an entity that receives payment from a primary plan, shall reimburse the appropriate Trust Fund for any payment made by the Secretary under this subchapter with respect to an item or service if it is demonstrated that such primary plan has or had a responsibility to make payment with respect to such item or service.  A primary plan's responsibility for such payment may be demonstrated by a judgment, a payment conditioned upon the recipient's compromise, waiver, or release (whether or not there is a determination or admission of liability) of payment for items or services included in a claim against the primary plan or the primary plan's insured, or by other means.

Slip Opinion at p. 16 (emphasis by Court of Appeals).

Judge Helene White dissented on the ground that the majority's interpretation was, among other things, inconsistent with the reasoning in the U.S. Supreme Court's opinion in Arkansas Dep't of Health & Human Servs. v Ahlborn, 547 U.S. 282 (2006):

Further, notwithstanding that a different statute is involved, the Court's discussion in Alhborn sheds light on the Court's view of the arguments . . .  The Court recognized the negative effect of Arkansas's policy of recovering Medicaid costs on settlements between beneficiaries and tortfeasors.  The policy at issue here similarly discourages settlements and may ultimately hinder CMS's efforts to recover conditional Medicare payments.

Slip Op at p. 16.

As the dissent noted, the result in Hadden, while consistent with § 1395y(b)(2)(B)(ii), has the potential to discourage settlements and to ultimately hinder CMS's efforts to recover conditional Medicare payments.  It is unlikely to be the final word.  For now, however, it is the law in Michigan.