Ninth Circuit Disagrees with Bradley v. Sebelius
Roy Franco
January 5, 2011

Recently, the Nevada Federal District Court in Farmers Insurance Exchange v. Leona Forkey 2010 U.S. Dist. LEXIS 137716 upheld the Ninth Circuit’s position in Zinman v. Shalala, 67 F.3d 841 (9th Cir. 1995) that Medicare’s reimbursement claim for conditional payments takes precedence over the claims of any other party.  Citing the Medicare Secondary Payer Manual as authority for its position, the decision is contrary to Bradley v. Sebelius (add cite) and creates a conflict within the Circuits.  Unless an opportunity presents itself before the U.S. Supreme Court to resolve the issue, primary plans will face challenges to MSP compliance.  Interpleader by the primary plan is more likely the best solution in those Circuits where the issue has not been addressed.  When competing claims are made by Medicare and a non-Medicare beneficiary to a common fund, who has priority? It’s Medicare in the eighth and ninth circuits, Non-Medicare beneficiaries in the eleventh.  See Mathis v. Leavit, 2009 WL 211944 (8th Cir., January 30, 2009).

On March 17, 2007, David H. Forkey (“the Decedent” ) was struck by a vehicle while crossing the street in a crosswalk.  As a result of his injuries, Mr. Forkey passed away the following day.  Medicare paid $10,070.22 for medical items and services related to the accident.  His wife, Leona Forkey (“Forkey”) who is not, and was not a Medicare beneficiary, made a claim against the insurance proceeds ($35,000) of the Underinsured Motorist (“UM”) provision of Decedent’s automobile insurance policy issued by Farmers.  Medicare also made a claim to those benefits and a lawsuit was filed to determine priority to the proceeds.  Farmer’s interpleaded the remaining value of its coverage into the Court.

Defendant Forkey seeks recovery in her capacity as “additional insured” under Nevada’s wrongful death statute for her grief, or sorrow, loss of probable support, companionship, society, comfort and consortium, rather than on behalf of Decedent’s estate.  She makes clear she is seeking recovery for her own losses, and not for Decedent’s medical expenses.   Her position is that Medicare and her claim is pro-rated based upon their respective values.  As her claim has a value of $500,000 (her estimate), Medicare is only entitled to about 2% of the policy limits, since the value of its claim is only $10,070.22.  She did not win her position.

The Nevada District Court found for Medicare.  The Medicare Secondary Payer Act establishes entitlement to reimbursement for medical expenses from an insurance plan, such as the UM policy at issue here.  See 42 U.S.C. §1395y(b)(2)(B)(ii).    In that regard, the Court ruled that it did as Medicare Secondary Payer Manuals are given authority under the Chevron deference.  See Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).  Where the statute is silent, an agency’s interpretation of the statute is accepted so long as it is based on a permissible construction of the statute.  Id at  843.

The Agency’s interpretation of the relevant sections of the MSP legislation is found in the Medicare Secondary Payer Manual at Section 40.1.  Medicare takes the position that its reimbursement rights are superior because its direct right of recovery is explicitly prescribed in Federal law and other entities; rights are based on either State law or subrogation rights.  The court analyzed this position against Congress’ purpose in enacting MSP and determined that because it was designed to promote fiscal savings in the Medicare program through a practical and economical way that avoids the commitment of federal resources to the task of ascertaining the dollar amount, finding it a permissible construction of the statute.

The Bradley Court did not give any weight to Medicare Secondary Payer Manuals.  It referred to these manuals as nothing more than “field manuals” and accordingly dismissed the Agency’s position that it was entitled to be reimbursed for the conditional payment amount in its entirety.  In ruling for the non-Medicare beneficiary, the decision is contrary to the position reached in Farmers case and results in a conflict amongst circuits.

How other Circuits will rule on this issue remains to be seen.  The Ninth Circuit opinions are well reasoned and Bradley decision contains certain outrageous facts that perhaps forced the Court’s hand in its decision to get at the right result.  Bradley involved a small insurance policy, whose limits were reduced by the cost of defense.  Medicare’s position that the non-Medicare beneficiary was required to litigate the case in order to be entitled to a share of the policy made no sense.  The cost of defense would have left nothing to recover for either Medicare or the non-Medicare beneficiary.  An alternative decision was necessary to avoid a nonsensical position.   Unless another set of sensational facts are presented in other Circuits, more than likely the Ninth will hold.  Until decided however, primary plans that face competing claims should consider Interpleader for its own protection.