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A review of the decision reveals that even though the appeals court rebuked the Health and Human Services Department for its role -- or lack thereof -- in the proceedings, it did not necessarily herald a change in Medicare's methodology to determine its interests in settlements. Workers' comp payers that think otherwise do so at their peril.

That said, one wonders whether the court is sending a message to Medicare indicating the agency should take into account the circumstances of a settlement and adjust its conditional payment demand accordingly.

• First, based on the language of the decision, it appears that money obtained in a loss of companionship claim can be excluded from any Medicare recovery attempt. Usually, there are no medical damages awarded in a loss of companionship claim.As long as there are no medical damages, this ruling may allow those amounts to be excluded from Medicare's reach.
• A second option is that this case would be used as precedent only in narrow circumstances and facts enunciated in the case.
• Third, it is possible that the HHS will look at this case and become more reasonable in its collection efforts; perhaps, issuing new instructions for workers' comp settlements.

The case. In Bradley v. Sebelius, the 11th U.S. Circuit Court of Appeals ruled on the interplay between a Florida wrongful death act and the Medicare Secondary Payer statute. In this discussion, under special circumstances, the court ruled that Medicare's collection power is limited.

The case involved a suit against a Florida nursing home for wrongful death.During the decedent's three-month hospital stay, Medicare paid $38,875.08 for medical care. A suit was filed by the estate. Additionally, 10 surviving children filed a wrongful death claim. The total amount of insurance available from the nursing home's liability insurance policy was $52,500.

A settlement was made without filing suit. It involved the medical expenses and costs recovered by the estate -- and subject to the MSP statute -- along with the nonmedical, tort property claims of the children for lost parental companionship -- and not subject to the MSP statute.

The plaintiffs' attorney executed a release of all claims of the estate and the surviving children against the nursing home and its liability insurance carrier and notified Medicare of the settlement proceeds and associated legal fees. The plaintiffs' attorney asked for a pro rata reduction of the Medicare payment, which amounted to $787.50.

While Medicare acknowledged some reduction for attorney's fees and procurement costs, the agency refused to accept the plaintiffs' argument that the Medicare conditional payment should be reduced. Medicare demanded $22,480.89.

At this point, attorneys for the children and the estate filed a case asking a probate court to adjudicate the rights of the estate and the rights of the children in regard to the compromised sum received in settlement of their claims.

In Florida, the children's wrongful death claim is independent of any claim made by the estate. No medical damages can be awarded, only damages for loss of companionship.

The probate court found that each survivor's claim had a value of at least $250,000. The court also noted that Medicare had a claim for $38,875.08. Based upon the principles of equity, the court determined that the medical expense recovery for Medicare was $787.50 based on the component's contribution to the total full value of the case, if such value were collectible. The court refused to prioritize the recovery of medical expenses over the recovery of the respective survivors' claims.

Medicare refused to accept the probate court's determination. Instead, relying on the Medicare Secondary Payer Manual, Medicare indicated that the agency would not recognize the probate court's allocation of liability payments to nonmedical losses until payment was based on a court order issued on the merits of the controversy. Medicare contended that the court's decision was advisory in nature or superceded by federal law.

The plaintiffs then paid Medicare under protest but perfected an administrative appeal and exhausted its administrative remedies. At that point, the case moved to a federal court which ruled in favor of the agency. The matter was appealed to the 11th Circuit.

The appeals court noted that Medicare relied strictly on its field manual and that Medicare failed to take part in any litigation even though its position was adverse to the interests of the surviving children. The court said that Medicare cited no statutory, regulatory, or case law authority for its position.

The appeals court also said that any deference given to the language in the field manual was misplaced. The court ruled in favor of the estate and children.

Only time will tell how much of an effect this case will have on Medicare Secondary Payer action. However, it does give litigants some enlightenment concerning possible limits on Medicare's aggressive collection efforts.

By Jim Pocius, Special to the Workers' Comp Forum

Jim Pocius is a shareholder in the Philadelphia office of Marshall, Dennehey, Warner, Coleman & Goggin, and chairman of the firm's Medicare Set-Aside Practice Group.

Read more at the WorkersComp Forum homepage.

December 9, 2010

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