Medicare payment ruling may hinder workers comp settlements

By December 13, 2011

A federal appeals court decision that allows Medicare to claim nearly half of a man’s liability settlement could hinder parties to settle. It may be an issue that reaches the U.S. Supreme Court.
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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.
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