PLAINTIFF CITES HADDEN TO AVOID MSP OBLIGATION – PRIMARY PLAN MAYBE LAST ONE STANDING
Jeff Signor
December 12, 2011

Hadden v. U.S., like it or not, is already having an impact on Medicare Secondary Payer litigation in New York.  In less than a week of our blog on this important case, both sides to a protracted battle over the breadth of 42 U.S.C. Section 1395y(b) have cited us to supplement their pending Motion before the U.S. District Court.  Long before Hadden was decided, a difference of opinion has existed between certain members of the bar and the U.S. Attorney’s Office for the Western District of New York (WDNY).  The issue is whether a liability plaintiff, who is also a Medicare beneficiary, is obligated under the Medicare Secondary Payer Law to pay Medicare if it purposefully chooses not to present a claim for past and present medical damages.  Initially, the argument favored the U.S., but as we pointed out last week, Hadden has created a possible loophole which now makes the outcome in this WDNY case less than clear.

On one side of this long standing issue going back before 2008 is plaintiff attorney, J. Michael Hayes, who publishes often on the topic.  The U.S. position is represented by assistant U.S. Attorney, Robert Trusiak, who is a long standing advocate for parties’ compliance with Medicare Secondary Payer.  The debate has since turned into litigation over two separate liability claims where Mr. Hayes has sought to join Medicare in his state civil actions and have it prosecute the claim for past and present medical damages. The U.S. may not be sued in state court without its permission, so the matter was removed to the U.S. District Court for WDNY and a motion to dismiss was filed.  Oral argument of the motion was heard on November 4, 2011, before the Honorable Richard J. Arcara.  The parties had been waiting for a written decision when Hadden came down.

Shortly thereafter, both parties seized on our blog to bolster their position.  On behalf of the plaintiff, Mr. Hayes asks the court to sever the medical portion of his claim leaving it for the U.S. to prosecute at a later date.  He further requests the matter be remanded to state court where to prosecute his client’s other damages related to the tort free of responsibility under the Medicare Secondary Payer Act.  (See Supplemental Affirmation of J. Michael Hayes, dated November 29, 2011).

Mr. Trusiak lays out three points to support dismissal:  1) Plaintiffs must exhaust administrative remedies prior to seeking a court determination on the issue; 2) Hadden did not hold that artful pleading could evade the MSP obligation; and 3) The U.S. under the MSP has both a subrogation right and a claim for reimbursement, the latter of which is triggered by a payment of a settlement, judgment or award and not anything else. (See United States’ response to Plaintiffs’ Supplemental Affirmations).

These positions are fueled by the unsettled nature of the MSP law and the need to achieve fairness for all parties involved.  Medicare should be paid when a liability claim is resolved.  The U.S. should be entitled to reduce its liability for payments made which support the claim.  Whether a plaintiff includes medicals as part of their loss, the value of the settlement will always have a base in that amount.  It’s not fair for Medicare to receive zero because of how a claim (as focused by Hadden) is defined.  However, the same chord is struck when Medicare takes without regard to the circumstances of the underlying case.  Issues of insurance coverage limits, claim defenses, including the plaintiff’s own negligence, all have a bearing on what is ultimately paid out.  Allowing one aspect of the plaintiff’s damage claim to be compensated at 100% of its value debases the other elements of the claim without any rational basis.  Plaintiff is already entitled to his or her Medicare benefits and the U.S. does not have an independent right to secure recovery against a defendant absent a claim by plaintiff.  Thus, plaintiff will only bring a claim if it makes sense that it will receive a fair part of the compensation and not simply turn it over to Medicare.  These tensions require a compromise.

In a Decision and Order dated December 7, 2011, Judge Arcara articulated the decision before him as follows: “…whether a failure by the Medicare Secondary Payer (“MSP”) system to issue a timely conditional payment letter creates federal jurisdiction over a negligence case that otherwise belongs in state court.”  (See Decision and Order, p. 2).  The court found on behalf of the US Government and dismissed plaintiffs Complaints.  While Judge Arcara’s holding is consistent with a long line of cases on this topic, the judge provides the following dicta:

In concluding that dismissal is necessary, the Court understands plaintiffs’ frustration that the MSP system may delay closure and final payment in their cases for months or years. Taking at face value his representations about the difficulties of navigating the MSP system, plaintiffs’ counsel has described a bureaucracy that not only delays justice for his injured clients but also has enough size and inertia not to care about those delays. Without taking any positions on these issues, counsel may yet have a federal remedy for his frustration through mandamus proceedings or the political process. See, e.g., Strengthening Medicare and Repaying Taxpayers Act of 2011, H.R. 1063, 112th Cong. Section 2 (Mar. 14, 2011) (proposing a new clause in 42 U.S.C. Section 1395y(b)(2)(B) that would waive Medicare subrogation rights automatically if Medicare took too long to furnish a conditional payment letter). This Decision and Order means only that a complaint filed and served because of a defective ramp cannot act as the vehicle for a tangential policy discussion about Medicare subrogation.  (See Decision and Order, p. 12).

It is regrettable the court does not reference Hadden.  It is an issue that will remain open until the Hadden loophole issue is clarified.  Nonetheless primary plans (insurance carriers, including self insurance) should be careful to protect against MSP exposure under the theories raised by Mr. Hayes.  Primary plans have broader responsibilities than the Medicare beneficiary or the Medicare beneficiary’s attorney as aptly pointed out in Haro v. Sebelius, CV 09-134 TUC DCB, (D. AZ) (May 5, 2011).  It is inconceivable that primary plans will provide a release for “pain and suffering only” and accept a severed claim by Plaintiff for the non-medical portions of its loss, and then be required to report the settlement to Medicare leaving it as the last one standing.  Primary plans are challenged everyday with claims where medicals exceed what the plans are willing to pay based on the situation of the case.  Absent compromise, these claims lay unresolved with no benefit to anyone including Medicare, and litigation will continue to flourish in this area for some time to come.

The fact that these tensions have arisen in litigation within the WDNY continues to underscore for these authors the need for the U.S. Supreme Court to review this situation soon.  Hadden may very well be the case as it is remarkably similar to the U.S. Supreme Court’s decision in Arksansas Department of Health & Human Services v. Ahlborn, 547 U.S. 268 (2006) involving reimbursement of Medicaid liens.  A conflict already exists in the circuits between Hadden and Bradley v. Sebelius, 2010 WL 3769132 (11th Cir. (Fla.)).  Additionally, there will be no shortage of litigation tying up precious Federal judicial and legal resources without clear direction as evidenced by what’s occurring in WDNY and no doubt playing out as well in numerous other District Courts in this Country.

It should not be lost on all of us that the Hadden appeal before the Sixth Circuit was to determine the issue of whether and Ahlborn-like reduction should be applied to Medicare claims.  The issue litigated in the WDNY underscores the way Hadden is being interpreted on the separate issue of whether claimants can exclude Medicare recovery by not suing for medical costs.  Ahlborn is the albatross of Medicare Secondary Payer.  It answers precisely what parties are struggling with in this “winner take all” environment that is developing today.  The stark difference in how reimbursements are made between these two very similar medical programs will continue to generate controversy as public policy favors settlement.  The present state of affairs runs against that current and settlements will stall unless clarity is brought soon on how to allow settlements to take place where little money is available because of liability issues or insurance coverage.  Medicare beneficiaries are not apt to prosecute actions that simply reinforce rights they already have without the headache of litigation, which is access to Medicare benefits.  Medicare is bound to receive less in recoveries unless the policy is corrected.

We applaud the Court’s reference to MARC.  It demonstrates that what is being done in Washington D.C. is having a favorable impact.  With Roy serving as Co-Chair for MARC, we are pleased that we are providing a needed voice for the liability industry that promotes thoughtful change to the Medicare Secondary Payer Statute.  As we have mentioned in our previous posts, please support MARC’s efforts to pass H.R. #1063 and S.B. #1718 to expedite the processing of Medicare’s conditional payments.

Those interested in reading further about the WDNY case can locate the following the pleadings by clicking on the hyperlinks, below:

Complaint;

Motion to Dismiss;

Memo in Support of Motion to Dismiss;

Memo in Opposition to Motion to Dismiss.

At Franco Signor LLC we remain vigilant on following MSP issues being decided in courtrooms across the country.  Do not hesitate to engage us to look into the MSP issues that are creating increased shelf-life and leading to additional and perhaps unnecessary litigation.