Medicare: Subrogation vs. Lien:  Medicare presents one of the most interesting aspects of the problem of subrogation versus liens.   The Medicare statute, in all its present forms, clearly states that the federal government, the Medicare provider, has an independent right of action and a right of subrogation: “The United States shall be subrogated…to any right…of an individual…to payment with respect to…service under a primary plan.” 42 USC 1395y(b)(2)(B)(iv).  Action by United States: The United States may bring an action against any and all entities that are or were required or responsible        … to make payment.” 42 USC §1395y(b)(2)(B)(iii)               $1,000 per day penality for non-compliance.  Medicare, Medicare Part “D” and the “Medicare, Medicaid, and SCHIP Extension Act of 2007” which does not go into effect until January, 2011, provide in pertinent part that insurers are responsible to report to the Secretary of Health and Human Services that a third party claim has been paid on behalf of a Medicare beneficiary.  The Secretary is empowered to issue a civil penalty in the amount of $1,000 per day for non-compliance. 42 USC 1395y(b)(8)(E)(1)

Certainly, if a global release is tendered, then future subrogation rights will have been extinguished and an “equitable lien” will have been created.  Global releases have always been the tradition in the personal injury field.  If the attorney in the personal injury suit provides a global release, then Medicare will clearly have an “equitible” lien and the amount due, as well as the amount that must be set aside for future medical expenses, will have to be negotiated.  The 6th Circuit just decided a Medicare case on this exact issue, Hadden v USA, 2011 U.S. A pp. Lexis 23289. (6th Cir. November 21, 2011)  In that case, the Plaintiff had demanded “full compensation for all his medical expenses” and the Defendants had “paid Hadden $125,000 in exchange for a full relaease of his claims against it.  The net was that Hadden was ordered to fully compensate Medicare before he recovered any money from the settlement.  He was not accorded the pro rata calculations that were permitted in Ahlborn.  All such payments and reservations come out of the plaintiff’s recovery.  If the plaintiff’s attorney is going to or has included claims for medical expenses, past or future, as among the claims he is making, then the intended effect of the statute will take place and the final settlement will necessarily include payment to the government of some or all of their expenditures or anticipated expenditures.  Anticipatory trusts will need to be set up for future medical expenses and approval will have to be obtained before anyone may be paid.  The defendant’s insurance company may hold part or all of the settlement in escrow to protect their personal exposure rather than simply dispursing the funds to the plaintiff’s attorney and filing their stipulation of discontinuance.  It could be that they also would be held personally responsible if they paid a settlement without insuring that the Medicare equitable “lien” is satisfied.

There may be an alternative.  The answer is restricted pleadings, notice and a “Limited Release”.   The medical reimbursement claim may be segregated from the personal injury claim.  In other words, no claim for reimbursement of medical expenses are made in the lawsuit.  As a further safeguard, advise in writing the government providers and any private agencies with whom they contract to recover from personal injury claims that you, the attorney, on behalf of your client, will not be recovering their monies for them.  Their subrogation rights are preserved. Make sure that every collection agency and entity who might assert jurisdiction over this Medicare recovery claim is on notice that you and your client are not making any claims for their medical expenditures.  Point out that they have an independent right of subrogation.  Do this repeatedly if necessary.  Copy them on all pleadings.  Inform them of pending settlements.  Offer them an opportunity to intervene, especially if their statute of limitations has expired.  Medicare’s statute is three years from the date of payment for the service. 42 USC 1395y(b)(2)(B)(vi)  Make sure that the defense counsel are aware of the existence of the federal subrogation/Medicare claim and that you do not represent Medicare.

There is one case that addresse this specific issue in the Medicare arena.  Merrifield v USDC, Dist of NJ, 2008 U.S.Dist. LEXIS 25877.  In that case, seven plaintiffs who had allegedly settled their personal injury cases for pain and suffering only were threatened with a reduction in monthly payments by Social Security if they did not pay back Medicare.  In two of the cases, there had been a formal determination that the recovery was for pain and suffering and CMS did not appeal that determination.  Plaintiff Frick in Merrifield submitted a court order indicating that “no portion of [her] recovery is attributable to medical expenses”  In the Burke matter in Merrifield , the Administrative Law Judge issued a favorable decision finding that CMS must refund to Plaintiff Burke the amount she had repaid because she had not recovered medical expenses. CMS did not appeal either of these decisions.  The important consideration is that CMS is being careful to avoid setting “bad law”.  It is better for them if this distinction is minimized and not publicised.

The Medicare enabling legislation does expand upon the traditional scope of subrogation to the extent that, where payment is made to other than the subrogee (USA), it authorizes the USA to initiate a direct action for recovery of its medical expenditures resulting from a Medicare recipient’s injuries, not only as against the unjustly enriched plaintiff as subrogation precedent allows, but also against the payor including, the tort feasor, his insurer, and his attorneys as well as the Plaintiff’s attorney. 42 USC §1395y(b)3(A).

  Even if the tort feasor or his insurer have obtained a global release and paid the plaintiff a settlement inclusive of medical expenses, the statute permits the USA to initiate an action against all of them and that action may be for “double damages”. 42 USC §1395y(b)(2)(B)(iii); 42 USC §1395 y(b)3(A)
.  The net result is that insurance carrier could end up paying the medical expenses three times.  Once to the Plaintiff, and double that amount to USA.

Especially instructive is USA v. Stricker, CV 09-BE-2423-E (ED Ala, 2010) in which there was a $300 Million Dollar class action settlement.  Of that amount, $23 Million Dollars was assigned as repayment of Medicare expenditures and remitted to the USA.  Over six years after the settlement and transference of the money, USA sued the original alleged tort feasors, their insurers and Plaintiff’s attorneys for an additional $67,000,000 for alleged underpayment. The claim by USA was that it had been underpaid and it demanded double damages in the amount of $134 Million Dollars.  This was six years after the Defendants had paid the $300 Million Dollars and Plaintiffs attorneys had disbursed the money.  The controlling statute of limitations in Stricker was stipulated by Plaintiff and Defendant to be governed by 28 USC §2415(b).  Presumably, the stipulated statute is considered to apply to the unjust enactment/retention of the subrogated funds.  That claim does not arise until Plaintiff takes custody or Defendant make payment.  Simple “pleadings” and even notification are not going to be sufficient.  CMS expects to recover from each and every personal injury resolution involving a Medicare receipient.  Medicare policy requires recovering payments from liability awards or settlements, whether the settlement arises from a personal injury action or a survivor action, without regard to how the settlement agreement stipulates disbursement should be made. That includes situations in which the settlements do not expressly include damage for medical expenses. Since liability payments are usually based on the injured or deceased person’s medical expenses, liability payments are considered to have been make “with respect to” medical services related to the injury even when the settlement does not expressly include an amount for medical expenses.  To the extent that Medicare has paid for such services, the law obligates Medicare to seek recovery of its payments.  MSPM Ch.7 §50.4.4, Designations in Settlements (October 1, 2003)  CMS simply is not programmed to consider that a recovery did not assert or make a claim for reimbursement of medical expenses.  It assumed that the claim for reimbursement was made and CMS processes the demand accordingly.  CMS has no cognitive process in place that permits it to acknowledge that, in a lawsuit such as the case at bar where no medical recover claims were asserted, no medical reimbursement is authorized.  CMS always presumes that if there is a personal injury recovery, medical expenses are a part thereof and Medicare is entitled to repayment.           To twart this scheme, and preserve the attorney’s ethical standard of representing only one client at a time arising out of a single incident [Professional Rules of Conduct 1.8(g), “A lawyer who represents two or more clients shall not make or participate in the making of an aggregate settlement of or against the clients.”], strict attention must be paid to the Administrative Procedures.  As demonstrated above, CMS must be notified of any resolution.  They will then review their records and determine how much money they paid relative to injuries sustained in the subject accident.  They will then simply demand that two thirds (2/3), the costs of litigation, be paid to them within 60 days.  There are provisions for hardship applications where the recovery may be insufficient to fully satisfy both the injured claimant and Medicare.  However, discretion rests solely with Medicare/CMS.

The application for such consideration or to contest that the recovery was for pain and suffering only, the appeal, must be “perfected” within 120 days of the “conditional demand”.  The appeal is reviewed by essentially the same administrative personal who made the initial decision that CMS was entitled to a portion of the recovery.  When this appeal is denied, the claimant has 180 days to file another administrative appeal.  Once again, the machinery of the bureaucracy will deny the distinction as it is inconsistent with their prime directive which is to take money from personal injury recoveries.  It is said that CMS will “respect” a verdict where no award was made for medical expense recovery.  In any event, upon that second denial of the application to recognize that the personal injury recovery was devoid of medical expense claims, a third appeal may be taken, this time to an Administrative Law Judge before whom the Appellant will converse via video conference.  This appeal must be taken within 60 days of the last decision. Finally, assuming another negative decision – actually other than Merrifield and Burke, there are no published decisions on this issue – an appeal may be taken to the local Federal District Court.  Eventually, there will be some hard law on this subject. Where future medicals and care can be projected into the millions and there is unlimited coverage, it may be appropriate for the attorney to seek those funds for a Medicare Set Aside Trust so as to better protect and insure appropriate care for the client.  Maybe in that situation the attorney can justify representing both interests and maintain that there was no conflict of interests.

What should the practitioner do to best protect his client and himself?  First, there is a clear and unequivocal mandate that requires that the government be notified of any pending claim.  This certainly is the recommended practice for plaintiffs.  Now, the defense is required also to notify the government. This is an evolving area of the law.  It is prudent in state court, in addition to purity of pleadings, that the settlement be placed on the record and that an order be obtained.  While these are not considered binding relative to this Federal Statute, those formalities give weight to the position of no medical expense recovery.  The statute is clearly one of subrogation.  The Professional Rules of Conduct prohibit representing multiple competing claimants arising out of the same incident.  CMS is a collection agency assigned the responsibility of taking money that is awarded to injured victims.  The attorney is up against the government bureaucracy and is placed in an ethical bind.  This is not an easy issue for practicing attorneys.  However, it is one that we are going to continue to confront on a regular basis on many of our cases.  It is something that we are going to have to analyze and determine how we can best represent our clients and maintain our ethical standards.  Eventually, the court will determine our obligations and responsibilities.  SUIT IN FEDERAL COURT   It may be that a viable alternative is to sue your primary action in Federal Court initially naming the United States as a primary Defendant.  This may be done under the Interpleader provisions of the FRCP Rules 19 & 20.  Grounds are multiple under these circumstances and for complete relief to be accorded, all the claims must be determined and resolved during the pendency of the lawsuit including the argument that the Government claims to have a lien which invokes 28 USC §2410 & 28 USC §1346.  The claim must be brought in Federal Court as state courts do not have jurisdiction over Federal statutory claims.  The alternative is to follow the government’s preferred process of resolving the case, then seeking and, in six to nine months, obtaining from CMS a conditional demand that permits you and your client to be paid after paying Medicare the unknown amount they demand.  A case under this theory was filed on March 28, 2011 in the Federal District Court for the Western District of New York in Buffalo.  As the government has 60 days within which to respond, no quick resolution is expected. Sample paragraphs from the pleadings are set forth below:   6.            This Court has jurisdiction over this lawsuit in that a claim within this suit arises out of a Federal Statue, 42 U.S.C. §1395y(b)(2) wherein THE UNITED STATES OF AMERICA may bring an action for reimbursement and is also governed by 28 U.S.C. §2410, 28 U.S.C. §1346, 28 U.S.C. §1331 and 42 C.F.R. §411, making this exclusively a case of Federal jurisdiction.   8.         As Plaintiff __________, is a Medicare recipient, the Defendant, UNITED STATES OF AMERICA, claims an absolute right of recovery, that it defines and treats as a “lien” (28 U.S.C. §2410 and 28 U.S.C. §1346), to be taken from any resolution of the above personal injury case by virtue of medical expenses it claims to have incurred and paid, 42 U.S.C. §1395y (b)(2).

16.       As the Defendant, UNITED STATES OF AMERICA, has only a subrogation claim [(42 U.S.C. §1395y(b)(2)(B)(iv)] for reimbursement of medical expenditures also from Defendants, _____________, the disposition of the personal injury action may constitute res judicata as to all claims against those Defendants on the common issues of negligence, proximate cause apportionment of responsibility and comparative negligence.

17.       The Defendant, UNITED STATES OF AMERICA, regardless whether it is represented in this action and/or regardless whether its specific claims of damage /medical expense recovery are presented or preserved, may be bound on both the

18.       The Defendant, UNITED STATES OF AMERICA, takes the unequivocal position that New York State Trial Courts have no authority or power to determine, allocate or differentiate causes of action and claims as between personal injuries, pain and suffering and medical expenses.

26.       Upon information and belief, Defendant, UNITED STATES OF AMERICA, has morphed its right of subrogation [42 U.S.C. §1395y(b)(2)(B)(iv)] and, occasional equitable lien, into a statutory lien that it asserts and enforces in every personal injury recovery.

29.       The Defendant, UNITED STATES OF AMERICA, asserts and enforces an absolute “lien” without formal Congressional authorization or approval when it literally has only a statutory right of “subrogation” and, depending upon the circumstances, perhaps a common law “a equitable lien.”

30.       The within personal injury action cannot be resolved or closed until and unless the Medicare recovery claim (See 42 U.S.C. §1395y(b)(2)(B)(iii) is addressed, resolved and satisfied or that claim is severed from the personal injury action.

The argument for jurisdiction in Federal Court is predicated upon a number of grounds including Article XIV of the Constitution which provides that citizens may not be deprived of their property without Due Process of Law. No State shall make or enforce any law which shall abridge the privileges of immunities of citizens of the Unites States; nor shall any State deprive any person of life, liberty or property, without due process of law; nor deny any person within its jurisdiction the equal protecting of the laws.    There a three prong test that must be considered when evaluating a claim of depravation of Due Process. Those include balancing:  “1. The private interests that will be affected by the official action; 2.       The risk of erroneous deprivation, and 3.  The governments interest, including the fiscal and administrative costs of additional process.” Matthews v. Eldridge, 424 U.S. 319, 335, 96 S.Ct. 893 (1976).

 Considering those Due Process criteria and assuming the factual allegations in Plaintiff’s Complaint as true, especially when supplemented by accompanying Affidavits, the Plaintiffs will absolutely be deprived of their property, their monetary personal injury recovery.  It is a given that any recovery will be frozen and/or withheld while they are forced to wait for an unreasonable period of time for USA/Medicare/CMS to make an administrative determination as to whether it even has a recovery a claim on the proceeds of the suit.  There are cases pending in Federal Court in the Western District of New York (Buffalo, NY) that are litigating this exact issue.  That case was just decided with Judge Arcara dismissing the suit on multiple grounds.  The net is that the primary personal injury actions are being reinstituted in State Court and the Medicare issue is being simultaneously appealed to the Second Circuit.  This is a good result in that the personal injury actions are not held up while the legal issues regarding Medicare’s presumptions are challenged.  The above should provide grounds for independent thought, and, perhaps, an alternative to the present, exceedingly inefficient method of delay and protraction accident victims now face.