Plaintiff Must Pay Back Medicare from Arbitration Award According to New Jersey State Appellate Court Decision
Roy Franco
May 31, 2010

Is the collateral source rule a defense to reimbursement to Medicare?  No.  At least that is the answer by a New Jersey Appellate Court in its decision that makes settlements, awards and judgments subject to reimbursement to Medicare under the Medicare Secondary Payer Act (MSP), despite state collateral source rule defenses.

The decision, which came down on May 24, 2010, can be found at Jackson v. Hudson Court, LLC., et. al., 2010 N.J. Super. Unpub. LEXIS 1111.  It is presently unpublished, pending approval of the Appellate Division; nonetheless, it gives remarkable insight into a State Court’s deference requiring Medicare reimbursement.  Despite the legal analysis, discussed below, I believe a couple of key facts swayed the Court’s opinion.  First, plaintiff demanded reimbursement for the Medicare lien in her Complaint.  Second, she included the expenses as an element of her damages in discovery responses.  Finally, the $85,000 arbitration award she received specifically earmarked $30,000 for satisfaction of the Medicare lien.  Notwithstanding these facts, plaintiff’s post-settlement motion sought a court ordered allocation of the settlement proceeds in order to avoid payment of the Medicare lien based on New Jersey’s collateral source statute.

This is not the first time the New Jersey statute has been used as a shield against reimbursement to Medicare.  Two years previously, the Federal District Court was asked to decide the same issue.  That was was dismissed on jurisdictional grounds requiring plaintiffs to first exhaust their administrative remedies.  See Merrifield v. U.S. 2008 U.S. Dist. LEXIS 2587.  It would appear the decision in Jackson, if published, will adversely impact any administrative decisions pending in Merrifield because of the interpretation by a state appellate court of its state collateral source rule statute to allow recovery by plaintiff of medical expense in certain situations.

The plaintiffs’ position in both Merrifield and Jackson is that N.J.S.A. 2A:15-97, the collateral source rule, bars any plaintiff from recovering any medical benefits paid by another source.  Therefore, since the collateral source rule flatly prohibits recovery of these expenses, no plaintiff should be obligated to reimburse Medicare-covered expenses from money recovered as a result of a personal injury claim.  Otherwise Medicare beneficiaries would have to satisfy Medicare liens using funds awarded for pain and suffering, or for lost wages.  It makes a great deal of sense when it is put that way.

However, the Jackson Court saw it differently.  While it is true the New Jersey Collateral Source Statute prohibits recovery by a plaintiff of any benefits paid by a source other than a joint tortfeasor, the legislative intent was to prevent plaintiffs from obtaining double recovery and also to shift the burden, at least to some extent, from liability and casualty insurance industry to health and disability third-party payers.  There was no desire by the legislature to shift the burden on governmentally funded secondary programs like Medicaid and Medicare.  Furthermore, if plaintiff were allowed to prevail on its allocation motion, it would keep money it was not entitled to (double recovery) which is exactly what the legislature intended to not occur.  Therefore, the Court felt compelled to allow recovery of medical expenses in certain limited situations under the statute in furtherance of the legislative intent.

Although this case was in New Jersey State Court, the reasoning used appears to be a win for primary plans subject to the Medicare Secondary Payer Act.  It is clear the court was sympathetic, noting the primary payer must reimburse Medicare even though it has already reimbursed the beneficiary, if the beneficiary has not paid…further noting that “the settling defendants in this case could be compelled to pay twice, once to plaintiff, and a second time to Medicare, in satisfaction of the lien.”  Thus, it is easy to see how the Court was drawn to its conclusion, especially given the underlying facts where plaintiff sought recovery of Medicare benefits in her Complaint.

One additional matter to point out about this case is the willingness of the New Jersey Courts to entertain post settlement motions to allocate liability payments to non-medical losses.  “Medicare does, however, recognize ‘allocations of liability payments to non-medical losses…when payment is based on a court order on the merits of the case.”  See Medicare Secondary Payer Manual ch. 7, P 50.4.4.  This is encouraging, as Franco Signor LLC has advocated this as a best practice when dealing with a settlement value that is less than the amount Medicare may wants for reimbursement.  Rather than seek a waiver, appeal or compromise through Medicare, a court order on the merits allocating a certain portion to non-medical damages may be less costly and predictable and help with the settlement of a case.  However, for this to work, cooperation of all parties is required, not unilateral motions.  Of course a settlement value must  make economic sense to do so.

by Roy A. Franco, Prinicipal Franco Signor LLC