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Bradley V. Sebelius – A Victory In The Fight Against Medicare Conditional Payments

January 01, 2011 BY Dean Dellinger

     On September 29, 2010, The United States Court of Appeals, 11th Circuit, issued a potentially important decision in the ongoing struggle against Medicare conditional payment recovery.  This interesting case interprets the Medicare Secondary Payer Act (the “MSP”) in a Florida Wrongful Death settlement.  The Eleventh Circuit ruled that Medicare was only entitled to recover conditional payments from the estate’s allocated share of the proceeds, but not from the proceeds of the settlement paid directly to the surviving children.  The holding provides  language limiting the authoritative force of the "Medicare Secondary Payer Manual" and criticizing its position that "the only situation in which Medicare recognizes allocations of liability payments to non-medical losses is when payment is based on a court order on the merits of the case."  The Eleventh Circuit held that this policy is non-binding, unsupported by the Secondary Payer Act, has a chilling effect on settlements and "compels plaintiffs to force their tort claims to trial...[rather than]...accept otherwise reasonable settlement offers."

          In 2005, Charles Burke died while under the care of a nursing home in Florida.  His daughter, Carvondella Bradley, presented a wrongful death claim to the nursing home on behalf of her father’s estate and ten surviving children.  Before suit was filed, Bradley settled the wrongful death claims for a total of $52,500.00, which was the full amount of the nursing home’s liability insurance policy.  Bradley then notified Medicare of the settlement and associated procurement costs.

          After the wrongful death claim settled, Medicare asserted a conditional payments lien on seeking reimbursement in the amount of $22,480.89 from the settlement proceeds for medical expenses it had paid on behalf of Burke prior to his death.  In response, counsel for the estate filed an application with the probate court to adjudicate the rights of the estate and of the surviving children in regard to the settlement proceeds.  Of note, Medicare was placed on notice of the probate court proceedings, yet it chose not to participate.

          On principles of equity, the probate court found that Medicare was entitled to recover only $787.50; the rest of the settlement proceeds were allocated to Burke’s ten survivors, for their non-medical losses.  In so doing, the probate court did not prioritize the recovery of medical expenses over the recovery of the individual survivor’s claims.

          Of course, Medicare refused to accept the probate court’s order that they would recovery only $787.50. Basing its position on the Medicare Secondary Payer Manual, Medicare argued that it did not have to recognize the probate court order since it was not a decision based on the merits of the controversy.  According to the MSP Manual (CMS Pub. 100-05) Chapter 7, §50.4.4, Medicare will recognize an allocation of non-medical losses only “when payment is based on a court order on the merits of the case.”  Likewise, Medicare ignored the probate court and ordered Bradley to issue reimbursement to Medicare for the full amount of its lien.

          Bradley reimbursed Medicare under protest and pursued an appeal to the district court.  At the lower level, the district court upheld Medicare’s interpretation of the MSP Act, and its attending regulations, and found that Medicare was entitled to reimbursement for the full amount of its asserted lien ($22,480.89).  In so doing, the district court “relied heavily upon the language contained in the Medicare field manual.”  Bradley appealed to the Eleventh Circuit Court of Appeals.  In a striking decision, the Eleventh Circuit reversed the district court, and held that Medicare was entitled to a reimbursement of $787.50 as allocated by the probate court.

          In its decision, the Eleventh Circuit was not persuaded by Medicare’s reliance on the Medicare Secondary Payer Manual.  Although Medicare argued that its field manual was entitled to deference under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778 (1981), the Eleventh Circuit was quick to point out that “agency interpretations contained in policy statements, manuals, and enforcement guidelines are not entitled to the force of law.”  United States v. R & F Properties of Lake County, Inc., 433 F.3d 1349, 1357 (11th Cir.2005) citing Christensen v. Harris County, 529 U.S. 576, 587, 120 S.Ct. 1655, 146 L.Ed.2d 621 (2000) (ordinarily “policy statements, agency manuals, and enforcement guidelines, all of which lack the force of law-do not warrant Chevron-style deference”) [Emphasis added].  

          If the MSP Manual were followed (i.e., allowing Medicare to ignore non-medical allocations unless they were decided by a court on the merits of the case), the Eleventh Circuit noted that it would create “an absurdCatch-22 result” forcing parties to file lawsuit and incur additional expenses to bring the case to trial thereby diminishing whatever sum may be available for settlement.  This policy, according to the Eleventh Circuit, has a “chilling effect” on settlements and is contrary to the strong public interest in resolution of lawsuits via settlement.

          The Bradley v. Sebelius opinion represents a victory in the ongoing battle against Medicare conditional payment liens.  The decision is important because it recognized a state court’s allocation of non-medical damages in a wrongful death settlement whereas Medicare was trying to ignore it.  Moreover, it criticized Medicare for relying solely upon the language contained in one of its many field manuals.   

          The implications of this opinion may have a positive effect on other areas of Medicare Secondary Payer Act compliance.  For example, in the realm of workers’ compensation, the Centers for Medicare & Medicaid Services (CMS) has routinely ignored defenses based on state law when reviewing an employer/insurer’s request for waiver of a Medicare Set-Aside, which effectively creates a chilling effect on settlements involving very large Medicare Set-Asides.  Perhaps the Bradley case can help open the door for parties to challenge this harsh position taken by CMS. 

          Finally, one case to keep any eye on will be the Hadden v. United States, 2009 U.S. Dist. LEXIS 69383, currently on appeal to the United States Court of Appeals, 6th Circuit.  In upholding Medicare’s asserted conditional payment lien, the district court in Hadden, refused to recognize or allow comparative fault principles as well as a “made whole doctrine” to diminish Medicare’s conditional payment liens.  If this district court opinion is allowed to stand, it, too, would have a chilling effect on settlements, and it may cause a split in circuits between the Bradley (Eleventh Circuit) and Hadden (Sixth Circuit) opinions, which in turn could pave the way for the United States Supreme Court accepting certiorari. 

The Journal is a publication for the clients of Drew Eckl & Farnham, LLP. It is written in a general format and is not intended to be legal advice to any specific circumstance. Legal Opinions may vary when based upon subtle factual differences. All rights reserved. 

Editorial Board:

H. Michael Bagley