Long Overdue Hadden v. U.S. Decision Reached – More Questions than Answers
Roy Franco
November 28, 2011

In a split decision, the 6th Circuit Court of Appeals recently held that Medicare’s right to be completely repaid for medical items and services related to a personal injury claim could not be decreased based upon principles of fault.  See Hadden v. U.S., 2011 U.S. App. LEXIS 23289, (6th Cir. November 21, 2011).

The 6th Circuit’s decision should be appealed for three reasons:

  1. Principles of equity and fairness dictate that all parties to a settlement, including lienholders, should only be entitled to that amount of the settlement that is fair.  There is a fundamental reason the U.S. Supreme Court held that Arkansas Department of Health and Human Services should decrease its lien amount when baldy injured Heidi Ahlborn took a lesser settlement due to fault considerations.  See Arkansas Department of Health and Human Services v. Ahlborn, 547 U.S. 282 (2006). Based upon this fundamental principle alone, Hadden should be appealed;
  2. Judge Helen N. White’s dissent, and the reasoning she utilizes therein, very likely could be adopted by the U.S. Supreme Court.  The fact that the 6th Circuit’s decision was split really sets this case up nicely for the U.S. Supreme Court to grant certiorari on this important issue; and
  3. Left as it is, the Hadden decision will encourage the Medicare beneficiary to not include as part of its claim against the primary plan payment for items and services, to legally escape reimbursement to Medicare.  Mischief could result if plaintiff’s attorneys are allowed to circumvent the MSP Statute and commence suit without claiming past medical items and services in a claim for recovery.

On October 13, 2011 the Sixth Circuit delivered its opinion in Hadden v. U.S. and declared Medicare victorious in a reimbursement claim against its beneficiary for medical items and services related to a settled liability accident.   Intending to enforce Congressional intent to protect the Medicare Trust Fund, the Court unintentionally created a loophole and disables the Medicare Secondary Payer Act reimbursement claim provision.   Medicare would have no authority to collect its conditional payments, had Hadden not included medical expenses as part of his claim against the third party. This loophole could potentially create poor public policy used to drive reimbursement by a beneficiary from what is claimed, yet exposing the insurance carrier to Medicare liability because a payment was made.

The facts of Hadden’s accident are straightforward.  In August 2004, Hadden was standing near a traffic circle when he was struck by a vehicle owned by Pennyrile Rural Electric Cooperative Corporation (Pennyrile).  The Pennyrile truck, moments before, had taken defensive action to avoid collision with a passenger vehicle that had swerved into its traffic lane.  Hadden sustained severe injuries and presented a claim against Pennyrile.  No claim was presented against the owner/operator of the passenger car as that party fled the scene and was never identified.  Pennyrile was not the sole legal cause of the accident.

Hadden settled his claim with Pennyrile which included his claim for medical expenses.  Medicare determined Hadden owed $62,338.07 after deduction of attorney’s fees and costs.  The appeal resulted from Hadden’s failed attempt to negotiate with Medicare a reimbursement amount which is fair and proportionate to the legal responsibility of Pennyrile.

The U.S. Court of Appeals for the Sixth Circuit affirmed Medicare’s position that it be reimbursed its entire conditional payment without adjustment for fault or legal liability.  The majority decision was based on the Court’s analysis of the Medicare Secondary Payer statute, and more particularly the term responsibility as used in the Act.  Finding that Congress in 2003 amended 42 U.S.C. §1395y(b)(2)(B)(ii) to define the term responsibility, there was no room left for Hadden  to advance his arguments in this appeal.

The specific amendment was italicized by the Court in its opinion and is set forth below:

A primary plan’s responsibility for such payment may be demonstrated by a judgment, a payment conditioned upon the recipient’s compromise, waiver, or release (whether or not there is a determination or admission of liability) of payment for items or services included in a claim against the primary plan or the primary plan’s insured, or by other means. (Emphasis Added)

The Medicare beneficiary’s responsibility is not defined by Congress.  Rather, its responsibility to reimburse Medicare is shared with the primary plan and defined by the liability against the primary plan that is demonstrated. So long as the release includes payment for items or services included in a claim, Medicare must be reimbursed by both the Medicare beneficiary and primary plan.

The decision very well could encourage Medicare beneficiaries to not include as part of their claims against the primary plan payment for items and services, and to legally escape reimbursement to Medicare.  It would be an easy solution for all in the industry as the Medicare Secondary Payer Act would be rendered ineffective, except for one very important distinction.  The primary plan is not similarly situated as the Medicare beneficiary and would not be released from responsibility to Medicare by simply not making medicals part of the claim.  Whether the Medicare beneficiary includes in its claim medicals, the primary plan will still have to report certain settlements, judgments and awards electronically to Medicare.  The reporting provision is not based on responsibility but simply a payment.  See 42 U.S.C. §1395y(b)(8). Medicare has further defined this in its reporting guides to include payment situations that have the effect of releasing medical.   If disregarded, the primary plan is subject to a penalty provision of $1,000 per day for every claim not reported.  How Medicare will respond to this data remains to be seen, but it is clear from other recent court decisions, that Medicare can go after the primary plan even if it is not able to proceed against the Medicare beneficiary.  See Haro v. Sebelius, granting Plaintiff’s Motion for Summary Judgment 05//05/2011, U.S. Dist. Court of AZ, Dist. Of AZ, CV 09-134 TUC DCB.

Furthermore, the primary plan is not immune from action by the United States under 42 U.S.C. §1395y(b)(2)(B)(iii).  Medicare through the Government can still bring an action and recover double damages.  This provision is not limited to situations where responsibility for the claim is determined but is broader under that provision.

The Medicare Secondary Payer Act is based on payment to the extent that payment has been made, or can reasonably be expected to be made by [primary plan].  See 42 U.S.C. §1395y(b)(ii). This is the basis of the law and comes before the Medicare Secondary Payer provisions for reimbursement or subrogation that were analyzed by the Court.   This provision should also have been considered by the Court to create the context needed when it evaluated those sections and would have made clear that the amendment by Congress was to avoid parties attempting to assess no exposure, rather than prohibit them from assessing exposure in good faith. The term extent can only be defined as a determination of liability which can be made either by a trial on the merits or through settlement of the parties.  This is clear from the legislative history of the Medicare Secondary Payer Act.  If reimbursement may only occur based on the Medicare beneficiary’s determination of whether or not to include it in the claim, the law will be frustrated.  The better approach is to apply the dissenting opinion of Justice White.

It makes no sense Medicare can dictate two different results in a liability claim that is resolved by settlement compared to one that goes to trial.  Assuming the same value is reached for each situation, Medicare will seek reimbursement against the entire amount of a settlement, but in a trial situation, limit its recovery only from the portion of the judgment that is attributable to medicals as awarded by a trier of fact.  The two situations should be the same, not different.

It is important we encourage further appeal to the fullest extent by Hadden.  This case as presently situated further confuses, and does not clarify the rights of the parties in a settlement with regard to Medicare.  We would appreciate hearing from of you so we can take efforts to pass your thoughts onto Mr. Hadden and encourage further appeal of this issue.

Franco Signor LLC continues to monitor cases involving Medicare Secondary Payer compliance.  Do not hesitate to contact us should the need arise.