The United States Court of Appeals for the Eleventh Circuit has ruled that Medicare is not entitled to rely on its field manual and argue that a subrogation interest be reduced under a "made whole" type of analysis only if a judgment is entered in the case.
In Bradley v. Selbelius, plaintiff settled a wrongful death case for policy limits, $52,500, and put Medicare on notice of the settlement. Medicare asserted a $38,000+ lien, less procurement costs. Plaintiff filed suit in the probate court and asked the court to determine the value of the case and the amount that needed to be re-paid to Medicare. Medicare refused to participate.
The trial judge ruled that the value of the case exceeded $2,500,000 and that Medicare's reimbursement should be cut to $787.50. Medicare refused to recognize the probate court's decision, saying that its field manual provided that it need not rely on a court order allocating proceedings unless the court order was based on the merits of the controversy. The estate paid Medicare under protest, exhausted its administrative remedies, and then filed suit in federal court.
The 11th circuit upheld the reduced subrogation amount. Here are some key quotes from the opinion:
Counsel for the survivors and the estate acted sensibly, in a cost-effective manner. The nursing home neglect claim was settled for the full value of the available insurance. Clearly, if the language of the field manual applied, in practice, it would lead to an absurd Catch-22 result. Forcing counsel to file a lawsuit would incur additional costs, further diminishing the already paltry sum available for settlement. This flies in the face of judicial and public policy.
The Secretary's position is unsupported by the statutory language of the MSP and its attending regulations. The Secretary's ipse dixit contained in the field manual does not control the law. The district court also erred in relying upon the advisory language contained in a field manual as the rationale for its opinion upholding the actions of the Secretary.
The Secretary's position would have a chilling effect on settlement. The Secretary's position compels plaintiffs to force their tort claims to trial, burdening the court system. It is a financial disincentive to accept otherwise reasonable settlement offers. It would allow tortfeasors to escape responsibility.
You can read this wonderful opinion at 2010 WL 3769132 (11th Cir. Sept. 29, 2010). Be sure to read the dissent.
One last point. There is some great lawyering by the plaintiffs in this case. Note the (a) plaintiff received and documented receipt of policy limits; (b) plaintiff proved the value of the case in probate court; (c) plaintiff gave Medicare the opportunity to participate in the probate court hearing, thus removing the right of Medicare to complain about the potential for its rights being affecting at a hearing it did not have notice of; (d) plaintiff exhausted administrative remedies before filing suit in federal court, thus removing a technical arrow from Medicare's quiver; and (e) plaintiff did not keep the money pending litigation but instead paid Medicare under protest. Good job.
Thanks to my friend John Wood for alerting me about it.