Author(s): Sean M. Fosmire

Volume XXII, No. 27 October 20, 2010 LAW FAX MICHIGAN LAW – BLUE | INDIANA LAW – RED www.garanlucow.com Garan Lucow Miller, P.C. 1111 West Long Lake Road, Suite 300 Troy, Michigan 48098 248.641.7600 From the Co-Editors James L. Borin & Simeon R. Orlowski FEDERAL GOVERNMENT GOES 0 FOR 2 IN SEPTEMBER IN MEDICARE REIMBURSEMENT RULINGS CONTRIBUTOR – M. SEAN FOSMIRE

Two important decisions in Medicare Secondary Payer cases were issued at the end of September 2010. The takeaway lesson from both cases is that the Federal courts can be expected to make reasoned and considered decisions and will not simply defer to the positions asserted by the Department of Health and Human Services when considering reimbursement claims under the MSP program.

GARAN LUCOW MILLER, P.C. ANN ARBOR • DETROIT • GRAND BLANC • GRAND RAPIDS • LANSING • MARQUETTE • PORT HURON • TRAVERSE CITY • TROY MERRILLVILLE, INDIANA

Bradley v Sebelius The 11th Circuit Court of Appeals released an opinion on September 29, 2010, in the case of Bradley v Sebelius, finding that Medicare’s claims for reimbursement under the Medicare Secondary Payor Plan are subject to allocation by the Court when the underlying case is settled for a compromise amount. In our May 8, 2006, issue, we reported on the case of Arkansas Department of Health and Human Services, et al v Ahlborn, a decision by the United States Supreme Court, making essentially the same ruling regarding the rights of a state to make a claim for reimbursement for benefits that it had paid under the Medicaid program. Bradley arose from a wrongful death claim brought against a Florida nursing home on behalf of the estate of an individual who had been transferred from the nursing home to an acute care hospital in November 2004, and his death on January 30, 2005. The Medicare program paid for medical expenses in the amount of $38,875.08 for this inpatient stay.

After a personal representative was appointed, the potential wrongful death claims were settled with the nursing home for the amount of $52,500, the total amount of policy limits available under its liability insurance policy, without filing suit.

Ms. Bradley, the personal representative, requested that the probate court make factual findings and legal rulings on the total value of the claim, the amount by which the claim was being compromised, and the effect that that compromise would have on Medicare’s right to reimbursement. Her attorney specifically notified the Department of Health and Human Services of the issue and invited it to appear at the hearing. The Department did not appear at the hearing. Instead, it simply asserted that it was entitled to repayment of the entire amount that it had paid in medical benefits, less the proportional costs of recovery. After a full evidentiary hearing, the probate court made a finding that the total full liability value of the claim was in excess of $2.5 million. The agreed settlement of $52,500 thus represented about 2% of the full value of the damages.

The probate court found that the Medicare reimbursement claim should be proportionally reduced, and held that Medicare’s right of reimbursement was limited to $787.50. It ordered that this amount be paid to CMS. The 11th Circuit found that the action of the state probate court was proper. It rejected the argument of HHS that the actions of the state court were not binding based on Federal preemption, and further rejected HHS’s arguments that the statements contained in its “field manual” regarding the handling of claims pending in state courts should supersede the provisions of state law.

In making its ruling, the Court noted that all courts, Federal and state, have recognized that there is a strong public interest in the expeditious resolution of lawsuits, and it noted that accepting the position advocated by HHS would have a “chilling effect” on future settlements.

The Court also found that HHS could not assert a claim for reimbursement against the proceeds received by a family member whose claim was based on loss of society and companionship, since that is not a claim which belongs to the estate under Florida law. (The same principle applies to wrongful death cases in Michigan.) The right to recovery is limited to the amount that is received for reimbursement of medical expenses, which would be limited to the amount received by the estate, not by the surviving family member. “Only the estate’s allocated share of the proceeds is subject to the [Medicare reimbursement claims],” it stated.

This case suggests that asking a court to make an independent determination of the value of a claim, the percentage by which the claim is being compromised, and the amount by which the Medicare lien should be reduced will be accepted as a reasonable procedure and will be followed by the Federal courts in handling reimbursement claims under Medicare.

It should be noted, though, that this case has binding effect only on Federal courts within the 11th Circuit – Alabama, Florida, and Georgia. For courts in other circuits, including Michigan, Indiana, and Illinois, it may be persuasive, but it is not binding.

U.S. v Stricker A ruling was issued on September 30 by the United States District Court for the Northern District of Alabama in the widely-followed case of United States v Stricker on the issue of the statute of limitations that applies to recovery claims by the Federal government under the Medicare Secondary Payer Act. U.S. v Stricker was filed by the Federal government after the resolution of a class action lawsuit against a number of chemical companies, pending under the name Abernathy v Monsanto, et al, which was ultimately settled for $300 million. The Stricker litigation was initiated after the plaintiffs’ attorneys in the Abernathy case had failed to make any provision for reimbursement to Medicare of the amounts that it had paid in medical benefits for members of the class. Several plaintiff firms and insurers were named in Stricker; no defense firms were named. The claims involved more than $67 million in reimbursement, not counting costs and penalties.

One issue that was presented was whether the three-year tort limitations period or the six-year contract limitations period should apply. An equally important question was what event would constitute “accrual of the claim” for purposes of starting the clock to apply the proper statute of limitations. The Court ruled that that a three-year period of limitations would apply to the insurers who were being sued for reimbursement, because they had not had any contractual relationship with CMS or with the Medicare beneficiaries. By contrast, for the lawyers and law firms who were also sued, the six-year limitations period would apply, based on the fact that their obligation arose from their contracts with their clients. The Court ruled that Medicare’s reimbursement claim accrued against the insurers on the date that the Abernathy court approved the final settlement and ordered that funds be paid to the plaintiff by the defendant – September 10, 2003. As to the attorneys, it accrued on October 29, 2003, the day that they received the funds from the defendants. The government had argued that its December 1, 2009, filing was timely because the group of plaintiff attorneys had not certified that the conditions of the settlement agreement had been met, permitting them to begin distributing funds, until December 2, 2003. In light of the amount of time that had passed before the Federal government initiated its lawsuit, this ruling resulted in the dismissal of all claims against all defendants. There will very likely be an appeal of this ruling.

Despite the ultimate outcome, the Stricker litigation stands as a sharp reminder of the fact that CMS is dead serious when it comes to enforcing its rights under the MSP program.

Upcoming Seminars WINDY CITY SEMINAR Thursday, November 4, 2010 at the DoubleTree Hotel in Arlington Heights, Illinois. Agenda as follows:

8:30 – 8:55 a.m. CONTINENTAL BREAKFAST / REGISTRATION

8:55 – 9:00 a.m. WELCOME AND INTRODUCTION

Speaker: DAVID A. COUCH

9:00 – 9:25 a.m. MICHIGAN THIRD PARTY AUTOMOBILE NEGLIGENCE UPDATES

Speaker: DAVID A. COUCH *The Michigan Supreme Court’s controversial opinion in McCormick v. Carrier and recent Court of Appeals opinions since the overruling of Kreiner v Fischer. What does it mean for auto insurers in Michigan?

9:25 – 9:45 a.m. USING SOCIAL NETWORKING SITES AS A DISCOVERY TOOL Speaker: DAVID A. COUCH

*Where to discover impeachment material and how to best use it to the advantage of your case.

9:45 – 10:30 a.m. MICHIGAN FIRST PARTY NO FAULT (PIP) – THE YEAR IN REVIEW Speaker: EDWARD M. FREELAND

*Recent cases involving the Statute of Limitations, Medical Causation, Attendant Care, Wage Loss and the Parked Vehicle Exclusion.

10:30 – 10:40 a.m. BREAK

10:40 – 11:25 a.m. HANDLING OF MI AUTO NO FAULT CATASTROPHIC CLAIMS

Speaker: DAVID N. CAMPOS

*Housing, Transportation and Attendant Care

11:25 – 12:10 p.m. INDIANA LAW AND ILLINOIS LAW UPDATES

Speaker: GREGORY M. BOKOTA

12:10 – 12:30 P.M. QUESTION AND ANSWER SESSION

RETURN EVALUATION FORMS

Comprehensive written materials will be distributed to all program attendees. To register please contact Eileen Carty at Ecarty@garanlucow.com.