Mason v. Sebelius – MSP not barred by State Collateral Source Law, MSP authorizes reimbursement from tort settlement; and MSP preempts State Collateral Source Law.
Roy Franco
May 29, 2012

Mason v. Sebelius, 2012 U.S. Dist. LEXIS 40592 (U.S. Dist. Court for the Dist. of New Jersey)

Facts:  Plaintiff was injured in a slip and fall accident at the Showboat Hotel and Casino.  Medicare paid for his injuries in the amount of $2,503.  Plaintiff and his wife filed suit seeking damages for Plaintiff’s pain and suffering, medical costs, and for his wife’s loss of consortium.  Plaintiff and his wife settled for a lump sum of $40,000.  The release did not specifically allocate the settlement funds between Plaintiff’s damage claims.  Plaintiff sought an order from the Superior Court apportioning the proceeds, and declaring that no portion of the settlement was attributable to medical expenses.  The Court denied Plaintiff’s motion on jurisdictional grounds (42 U.S.C. Section 405(g)) requiring such determination must be made first through the Medicare Administrative review process.

Thereafter, Medicare, through its contractor, demanded reimbursement of a portion of the Medicare funds provided for Plaintiff’s medical care.  Specifically, $1,423.43, which was discounted for attorney’s fees and procurement costs pursuant to 42 C.F.R.  Section 411.37.  Plaintiff paid the reimbursement under protest and then sought a waiver and refund through the Medicare administrative appeals process.   Plaintiff did not raise any constitutional due process claim throughout the administrative appeals process.  He lost at every step of his appeal (initial review, reconsideration, appeal to ALJ, and appeal to Medicare Appeals Council).  His position throughout was that Medicare was not entitled to reimbursement because Plaintiff’s settlement included no recovery attributable to his medical costs by operation of the state collateral source law.

Plaintiff then filed in District Court, but later Amended his Complaint to seek recovery on behalf of himself and a class of others similarly situated based on three claims:

1) Declaratory Judgment that Medicare is not entitled to seek reimbursement of medical expenses from lump sum tort settlements under state collateral source law;

2) Violation of due process because of Medicare’s violation of MSP law, regulation and policies; and

3) Recovery of fees reimbursed to Medicare.

Medicare, through the U.S. Attorney’s office, in lieu of an answer, filed a motion to dismiss for lack of subject matter jurisdiction Plaintiff’s due process claim and for failure to state a claim upon which relief can be granted, or in the alternative summary judgment.


1)  Whether the Court has subject matter jurisdiction to hear Plaintiff’s unexhausted due process claim;

2)  Whether the MSP provisions authorize reimbursement to Medicare form Plaintiff’s lump sum tort settlement;

3)  Whether such reimbursement is prohibited by State Collateral Source law; and

4)  If such reimbursement is prohibited by State Collateral Source law, whether the state statute is preempted by federal MSP statute and regulations?

Opinion:  Issue #1:  Federal courts are courts of limited jurisdiction.  They possess only that power authorized by Constitution and statute.  The burden of establishing jurisdiction rests upon the party asserting it, which in this is Plaintiff. The federal question jurisdiction statute, 28 U.S.C. Section 1331, does not provide the federal courts with jurisdiction to hear claims “arising under” the Medicare Act.”  The Medicare Act, by operation of 42 U.S.C. Section 1395ii, incorporates 42 U.S.C. Section 405(h) prohibiting such jurisdiction. To obtain jurisdiction, parties are required to comply with 42 U.S.C. Section 405(g) which requires administrative remedies be first exhausted.  An exception to this rule of jurisdiction is situations where there is no review at all by the Agency.  See Shalala v. Illinois Council on Long Term Care, Inc., 529 U.S. 1, 19 (2000). However, the administrative record is clear that Plaintiff was provided ample opportunities to channel his constitutional claim, and Plaintiff presented no supporting evidence or citation that the available agency review does not permit the beneficiary to raise constitutional issues.  Because due process claims could be raised in the context of waiver, the Court granted Medicare’s Motion to dismiss the due process putative class action claim for lack of subject matter jurisdiction.

Issue #2:  Yes.  Plaintiff relies on case law that existed prior to MSP amendments in 2003.  Pursuant to these amendments, Showboat or its liability insurer, could be held as a primary plan under the MSP, and the settlement it paid to Plaintiff can be a source of reimbursement under the MSP.  It does not matter if Plaintiff’s settlement is for an undifferentiated lump sum and not explicitly allocated to his medical expenses – a “primary plan’s” responsibility for the subject medical expenses can be demonstrated through settlement by release of liability.  See 42 C.F.R. Section 411.22(b)(2). The Court rejected Plaintiff’s argument using Bradley v. Sebelius, 621 F.3d 1330 (11th Cir. 2010). While the Bradley Court did not permit reimbursement by Medicare beyond the Court Ordered allocation of a settlement for the Estate; this Court ruled the case not comparable.  Plaintiff, including his wife, agreed to indemnify for medical expense as part of the settlement agreement, as well as included the medicals as part of their claim.  Consequently, the case is like Hadden v. U.S., 661 F.3d 298 (6th Cir. 2011) in which that court determined “the scope of the plan’s ‘responsibility’ for the beneficiary’s medical expense and thus of his own obligation to reimburse Medicare –is ultimately defined by the scope of his own claim against the third party that is later released in settlement.”  Plaintiff’s assertion that the language of a contrary interpretation is not supported.  There is no burden on Medicare to demonstrate an allocation.  Repayment is required once responsibility is demonstrated.

Issue #3:  There is no collateral source rule.  The Court finds the MSP law a reimbursement claim that arises after responsibility is demonstrated.  As a reimbursement law, Plaintiff is prevented from a double recovery which is the intention of the State Collateral Source law.  Once he receives a settlement, the law is triggered.  The New Jersey Appellate Court considered a similar issue involving Medicaid. See Lusby v. Hitchner, 273 H.J. Super. 581(App. Div. 1994). The  U.S. Dist. Court opined that if this issue was presented to the New Jersey Supreme Court, a similar ruling would be reached.

Issue #4:  Because the Court has concluded that State Collateral Source law does not conflict with MSP provisions, the issue was deemed moot.

Franco Signor LLC Commentary:  The administrative appeal process must be exhausted before jurisdiction can be obtained against Medicare.  This process takes time and therefore it is important that the party pursuing the appeal is careful to lay out the issues presented.  This decision underscores the importance of doing so, as Federal courts, being of limited jurisdiction, do not have the authority unless the party asserting jurisdiction can support jurisdiction.

This case makes it clear that a self insured as well as a tort liability settlement is subject to MSP.  The MSP Amendments of 2003 were designed to abrogate the rulings of Thompson v. Goetzman, 337 F.3d 489 (5th Cir. 2003) and Mason v. American Tobacco Co., 346 F.3d 36 (2d Cir. 2003). The number of entities subject to MSP were to include:  Medicare beneficiaries and their attorneys, as entities that receive payments from primary plans, in addition to self insurers (both voluntary and involuntary self insureds). Once liability is demonstrated, which is evidenced by a settlement (whether or not liability is admitted) the law is triggered, and reimbursement is required.

We also see the impact of Hadden v. U.S. 661 F3d. 298 (6th Cir. 2011). If the medicals (which includes the alleged injuries) are part of the scope of the claim against the potential primary plan (i.e., insurance company of self insured), the Medicare beneficiary will be limited in seeking waiver of those charges after the fact.  The standard faire of using medical to secure the best possible settlement value and then subsequent to that settlement using the facts of the case to reduce what is owed to Medicare does not work.  Medicare gets 100% of its claim, if the allegation is included in the underlying action.  If the medical item or service is truly unrelated, it needs to be documented prior to settlement, the release appropriately reflect that it is not included, subject to the documentation, and probably best to remove the incorrect charges before any settlement, judgment or award.

Finally, where state law is implicated.  While the issue of preemption was not reached, the Court found a way to support the rationale of both the State Collateral Source law and MSP.  The intention of both laws is to prevent double recovery.  Plaintiff cannot claim and then keep those funds that are recovered, except if he had the settlement allocated by a Court.  As this Court noted, it is unlikely a Court would allocate based on the record, the complaint and the settlement agreement.  Thus, the facts must support the allocation.