Taking Medicare’s Interest into Account in Liability Cases – Federal District Court Decision Says Yes
Roy Franco
January 9, 2011

It was bound to happen.  When legal responsibility exists to comply with a law, but no policy or procedure is in effect as to how, parties to a liability case will fashion their own solution.  That’s exactly what took place in Big R Towing, Inc. v. David Wayne Benoit, et al,  2011 U.S. Dist. LEXIS 1392 where the court was asked by motion of the parties to determine future medical expense for purposes of allocating the settlement proceeds taking Medicare’s interest into account.  It is the best way to avoid contingent future liability as expressed in our book Medicare Secondary Payer Compliance – How to Mitigate Exposure in the Medicare Beneficiary Case, Chapter 4 at page 64.

42 U.S.C. §1395y(b)(2)(A)(ii), prohibits Medicare from making payment where “payment has been made, or can reasonably be expected to be made under a…liability insurance or plan (including a self-insured plan)…”  The law allows Medicare to make payment, but only on condition of being reimbursed.  See 42 U.S.C. §1395y(b)(2)(B).  Reimbursement is automatic when responsibility is demonstrated by way of a judgment or settlement; and if Medicare is not paid within 60 days of a demand, then Medicare may pursue a direct action and recovery double damages.  Repayment is required when a primary plan (i.e., liability insurance carrier or self-insured) “has or had a responsibility to make payment with respect to such [medical] item or service” instead of Medicare.  See 42 U.S.C. §1395y(b)(2)(B)(ii).

The parties in Big R Towing settled a Jones Act case for $150,000 and during the pendency of the matter, the need for future treatment was vigorously contested.  Plaintiff was not a Medicare beneficiary, but he was a recipient of social security disability benefits.  It was apparent he would become a Medicare beneficiary within 30 months and plaintiff agreed as part of the settlement he would agree to protect Medicare’s interests.  As the settlement conference was conducted by the Court, the parties made an oral motion for the court to determine the future medical expenses to set aside.  A hearing was held in open court at which evidence derived from the health care providers of the future medical costs for the recommended low back surgery and left hip replacement.  The projected costs for these surgeries were $52,500 which the court awarded as the future medical allocation.

In reaching its decision the court made the following key findings after motion:  1) The parties shall and have reasonably considered and protected Medicare’s interests in the settlement of the matter; 2) Medicare is a secondary payer to the extent that there are covered expenses incurred by plaintiff in the past or future, arising out of the accident and injuries alleged in the lawsuit; 3) Plaintiff is obligated to reimburse Medicare all conditional payments made prior to the time of settlement; and 4) That because plaintiff is reasonably expected to become a Medicare beneficiary in the future, the sum of $52,500 is to be set aside out of the settlement proceeds to pay for future medical treatment, that Medicare should not.

The Big R Towing case will no doubt send shock waves throughout the liability industry because the decision answers questions about whether parties settling a liability case need concern themselves with protecting Medicare’s interests.  Some of the take-a ways from this case are:

  1. The Medicare Secondary Payer Act not only requires parties to reimburse Medicare for conditional payments incurred before the settlement date, but also provide for how future medical expenses related to the case are to be covered, so Medicare is not responsible;
  2. Medicare’s interests are to be protected not only in the case where plaintiff is a Medicare beneficiary, but where the plaintiff is reasonably expected to become a Medicare beneficiary;
  3. Liability Medicare Set-aside Arrangement is not an exclusive method to manage future medical in a liability case, a court can order an allocation;
  4. The future allocation is not reduced by claim defenses;
  5. The future allocation is not in addition to the settlement amount, but is deducted from the settlement amount; and
  6. Medicare is a secondary payer in a liability case.

This is a significant decision and no doubt many will attempt to distinguish it in an attempt to limit its applicability.  Some of the issues that we see that could be raised are:

  1. The finding is limited to Jones Act cases which is similar to workers’ compensation which already has in place a method for future medical allocation;
  2. The case is not persuasive authority as it is not an appellate decision and therefore limited to the facts of the particular case at hand; and
  3. The Medicare Secondary Payer Manual, Chapter 7, Section 50.5 does not support a finding of liability for medical expenses beyond the settlement date.

Notwithstanding the approach on distinguishing this case, it is our position that it will have important precedential value in several ways.

  1. The case provides a road map for parties working together on a possible method to remove future contingent liability under the Medicare Secondary Payer Act;
  2. It identifies a procedural process to allow for an allocation process short of a trial using motion practice; and
  3. The recommended rules created by the Centers for Medicare & Medicaid Services for workers’ compensation cases are being given weight by courts, as those rules outline the process of protecting Medicare’s interests when dealing with a non-Medicare beneficiary that is about to become a Medicare beneficiary.

In light of this decision, it is important to understand that the tide continues to shift in the liability case.  It took several years for conditional payment reimbursement to become part of the process in the liability case involving a Medicare beneficiary. Now, how to handle the future medical issue is coming into focus.  It appears it will be easier in the litigated liability case to now resolve these contingent liabilities.  For the non-litigated liability case is the Liability Medicare Set-aside Arrangement the only solution?

It was clear that parties were required to reimburse Medicare for conditional payments.  These were past payments made by Medicare related to the alleged injuries in a case, but there was no guidance on how to handle future medical.  In fact, because of the U.S. v. Stricker pending case in Alabama there was a great deal of controversy amongst the industry whether it was even required.

Franco Signor LLC continues to monitor case law from across the country when the decision concerns compliance with the Medicare Secondary Payer Act.  We provide a suite of services to clients, including an on-staff nurse allocator, who specializes in reviewing medical recommendations to determine the future Medicare component of a given claim.  Call on us to handle and manage the Medicare Secondary Payer issues in your claims.