Articles Posted in Subrogation

The Centers for Medicare & Medicaid Services have issued proposed rules to address the issue of how Medicare beneficiaries will protect Medicare’s interest when future medical care is claimed or the settlement or judgment released (or has the effect of releasing) claims for future medical care.

Here are the proposed regulations issued by CMS.  The proposed regulations have 7 different options, the first four of which are available to current and future Medicare beneficiaries.  The final three options are available only to current beneficiaries.

A personal injury attorney may be sued in federal court for the failure to pay a subrogation interest subject to ERISA and required to put money back into his trust account pending the outcome of the subrogation fight.

So holds the United States District Court for the Northern District of Illinois.  In Central States v. Lewis, No. 11 CV 4645 (N.D. Il. May 15, 2012a personal injury attorney settled a case for a client and disbursed funds to himself and the client without paying the subrogation interest claimed by Central States.  Central States sought a preliminary injunction against the attorney and client to restore the money to the attorney’s trust account so that the plan could proceed with an action against the trust account.  The court agreed, and stated that even the attorney’s fee must be restored to the account, even if the attorney has already commingled the monies with other funds.

The Lewis court cited with approval the Longaberger opinion from the Sixth Circuit Court of Appeals, a case familar to all tort practioners.

The Court of Appeals for the Fifth Circuit has ruled that the assets held in a special needs trust created out of the proceeds of a personal injury settlement are not available to satisfy an ERISA subrogation interest.

The Court held that the injured plaintiff never had possession or control over the money.  The Court also determined that the trust and trustee could not be sued because the only asset in the trust was the right to future periodic payments in an annuity held by another.

The case is ACS Recovery Services, Inc. v. Griffin,  No. 11-20266 (5th Cir. April 2, 2012).   Footnote 4 of the opinion distinguishes a decision from the 8th Circuit involving a special needs trust.

The Court of Appeals for the Third Circuit has had that equitable principles such as unjust enrichment apply to the subrogation rights of an employer under an ERISA plan.

In U.S. Airways, Inc. v. McCrutchen,  No. 10-383 (3rd Cir. Nov. 16, 2011), McCrutchen was seriously injured in a car wreck.   He spent several months in physical therapy and ultimately underwent a complete hip replacement.  Since the accident, McCutchen, who had a history of back surgeries and associated chronic pain, has also become unable to effectively treat that pain with medication. The accident has rendered him functionally disabled.  McCutchen’s Health Benefit Plan (the “Plan”), administered and self-financed by US Airways, paid medical expenses in  the amount of $66,866 on his behalf.

Suit was filed on behalf of McCrutchen but a combination of multiple victims of the same wreck and limited liability insurance coverage meant that, after payment of fees and litigation-related expenses, McCrutchen’s net recovery was only $66,000.  His law firm  placed $41,500 in a trust account, reasoning that any lien found to be valid would have to be reduced by a proportional amount of legal costs.  

The Alabama Court of Civil Appeals has ruled that the common fund doctrine applies to the determination of the payment of attorneys’ fees when monies for payments made under  medical payments coverage are collected in a personal injury case. 

In Mitchell v. State Farm, No 2100184 (Ala. Civ. App.  10/7/11),  Mitchell’s attorney thought that State Farm, which paid monies for some of Mitchell’s medical bills, should have its subrogation interest reduced by the amount Mitchell paid the lawyer to recover the money for the benefit of State Farm. The attorney for the plaintiff relied on the common fund doctrine to assert the claim against State Farm.

The Court of Civil Appeals held that the common fund doctrine applied.  It then rejected State Farm’s argument that its policy voided any obligation to pay an attorney’s fee for the recovery of the med pay coverage for its benefit.  Finally, and perhaps most importantly, the Court rejected the argument that the common fund doctrine was voided by the "active participation" of its lawyer.  The Court noted that although State Farm said it didn’t need the plaintiff’s lawyer to collect its money for it, State Farm did nothing to collect the subrogation interest until after the plaintiff’s attorney negotiated the settlement.

The recent decision  of the Tennessee Court of Appeals in Joshua Cooper, et al. v. Logistics Insight Corp., et al., No.  CV (Tenn Ct. App. May 16, 2011) potentially upsets the apple cart for workers’ compensation liens on third-party tort recoveries. The prevailing view for a decade has been that the employer gets no lien or credit for future medical expenses. That isn’t entirely clear any more after this one.

Employee filed suit against Defendants, and Employer who paid Employee’s workers’ compensation benefits intervened. Employee settled with Defendants and filed a notice and order of voluntary dismissal. Employer moved to set the case for trial, contending Employer was not part of the settlement and was actively engaged in obtaining expert medical proof as to Employee’s future medical expenses. The trial court set the case for trial, but then granted Defendants’ motion to dismiss Employer’s suit for failure to state a claim upon which relief could be granted under Tenn. R. Civ. P. 12.02(6). Employer appealed.

On appeal, Defendants contended that Employer was not entitled to a credit on Employee’s recovery “for medical expenses that have not been incurred and are speculative.” The Court of Appeals looked to the workers’ compensation lien statute at Tenn. Code Ann. § 50-6-112(c)(1) and (2):

On a weekly, if not daily, basis, plaintiff’s personal injury lawyers have to deal with subrogation interests.  Many of those subrogation claims involve the law of ERISA.  

This opinion out of the Illinois Court of Appeals addresses the issue of disputes over the amount of money to be re-paid to the holder of the subrogation interest.

Defendant had a personal injury claim.  Plaintiff sought subrogation and claimed that it was due almost $63,000.  Defendant claimed that some of the expenses sought did not arise from medical treatment caused in the incident giving rise to the personal injury claim.  Plaintiff countered with answers to interrogatories in the personal injury claim, in which Plaintiff contended that back surgery (the subject of the disputed medical claim) was related to the accident).  Defendant argued that her physicians did not causally link the back problems to the accident, and therefore Plaintiff’s subrogation interest in any future personal injury settlement or judgment proceeds should be reduced accordingly.  Plaintiff countered that one physician said the link was possible, that it determined the subrogation amount, and that under ERISA the court should defer to its decision and order that the amount of the subrogation interest include amounts for the surgery.

AAJ Education’s Breaking News in Medicare Secondary Payer Requirements: Moratorium on Reporting Teleseminar, November 23, will give you the breaking news and latest on Medicare Secondary Payer reporting requirements, the Bradley v. Sebelius 11th Circuit decision, what the moratorium means, and what happens next. To view the agenda and faculty, and to register, go to www.justice.org/education/medicare or call 800-622-1791 or 202-965-3500, ext. 8612. 

Hot off the press this morning from AAJ:

As all of you are aware, the Centers for Medicare & Medicaid Services’ (CMS) implementation of the Section 111 reporting requirements of the Medicare Secondary Payer Act (MSP) for liability settlements and the penalties associated with improper lien resolution has created turmoil and delay for anyone trying to reach a settlement in any liability case.

After several months of working with the Department of Health and Human Services (HHS) and CMS, we are pleased to inform you that today CMS is announcing a one year delay in implementation on Section 111 reporting requirements for claims involving liability insurance, retroactive to October 1, 2010 through October 1, 2011. This delay should facilitate settlements and allow for faster resolution of certain cases. In addition, we believe that during this period, CMS will suspend the issuance of MSP guidance documents, which have often been contradictory and a source of confusion.

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.