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The Transportation Newsletter
(January 23, 2012)

According to a case recently issued by the 6th Circuit, Medicare’s right to recover conditional payments from settlement proceeds is not limited by the degree of legal liability of the tortfeasor making the settlement payment. In Hadden v. US, No. 09-6072, 2001 WL 5828931 (November 21, 2011), Plaintiff appealed Medicare’s assertion that Medicare was entitled to be compensated for the full amount of the conditional payments it made as a result of injuries Plaintiff suffered after being stuck by a vehicle owned by Pennyrile Rural Electric Cooperative Corporation. Plaintiff argued that since Pennyrile was only 10% responsible for Plaintiff’s injuries and an unidentified driver, who caused the Pennyrile truck to veer into him, was the primary tortfeasor. Therefore, Plaintiff argued that the settlement proceeds from Pennyrile need only be applied to reimburse 10% of the conditional payments made by Medicare.

The 6th Circuit explained that under 42 USC §1395y(b)(2)(B)(ii) Medicare’s right to recovery of the full amount of its conditional payments is determined by the "responsibility" of the tortfeasor/primary plan as "responsibility" is defined in the statute, which states:

A primary plan, and an entity that receives payment from a primary plan, shall reimburse the appropriate Trust Fund for any payment made by the Secretary under this subchapter with respect to an item or service if it is demonstrated that such primary plan has or had a responsibility to make payment with respect to such item or service. A primary plan’s responsibility for such payment may be demonstrated by a judgment, a payment conditioned upon the recipient’s compromise, waiver, or release (whether or not there is a determination or admission of liability) of payment for items or services included in a claim against the primary plan or the primary plan’s insured, or by other means.

Thus, as stated by the 6th Circuit, based on the language of the statute above, if a "claim" is made against a primary plan, and the Medicare beneficiary receives a "payment conditioned upon" a "release" of the claim, then the primary plan is deemed to have "responsibility for . . items or services included in the claim." Thus, the 6th Circuit held that the "responsibility" of the primary plan (tortfeasor) is not limited by the degree of its liability under the law, and that to the extent Plaintiff makes a claim against the primary plan for all damages, then, the primary plan is deemed to have full "responsibility" as that term is used in the statute. "Thus a beneficiary cannot tell a third party that it is responsible for all of his medical expenses, on the one hand, and later tell Medicare that the same party was responsible for only 10% of them, on the other." Under this rationale, the Court found that Plaintiff was obligated to reimburse all of the conditional payments (which were less than the full settlement amount). The Court put no precedential value in Medicaid statutes that provide that "the government is entitled to recover only its proportionate share of a discounted settlement."

Judge Helene White dissented from the majority on the grounds that under the majority’s definition of "responsibility," Medicare’s recovery of its conditional payments could exceed the settlement amount and the primary plan would be liable for the full amount of the conditional payments once any "responsibility" is established:

The majority concludes that if it is demonstrated that the primary plan had a responsibility to make payment with respect to an item or service paid for by Medicare, then the primary plan or an entity receiving payment from the primary plan is liable to the Secretary for the full amount the Secretary paid with respect to the item or service, without regard to the extent of the primary plan’s liability or the amount paid to the entity receiving payment from the primary plan. Having so found, the majority does not explain the statutory basis for limiting the Secretary’s recovery to the settlement amount paid to the recipient by the tortfeasor. If the provision means what the majority says it means, i.e., responsibility means full responsibility for the item or service, then a tortfeasor who settles for less than the amount paid by Medicare is liable to the Secretary for the difference, regardless of the extent of the torfeasor’s liability for the injuries with respect to which the medical expenses were incurred. Consequently, if Pennyrile had paid Hadden $22,000, it would still be liable to the Secretary for the remaining $60,000. And, if Medicare had paid $250,000 in medical costs, Pennyrile would be liable to the Secretary for the full amount. And, in this case, the Secretary could have sued Pennyrile for the balance of its conditional payments as well as Hadden.

Take Away Points

The dissent raises an alarming point, and the majority’s interpretation of "responsibility" could fairly be said to result in deeming the primary plan responsible for conditional payments above and beyond a potential settlement amount. Settling with Medicare beneficiaries with significant conditional payment obligations is fraught with uncertainty. Conditional payment obligations are often used in settlement negotiations as a starting point under the assertion that Plaintiffs must reimburse Medicare for the full amount of the conditional payments. Undisturbed, this case merely cements that assertion, and it will be more difficult to negotiate reasonable settlements in cases where the conditional payments are high (usually as a result of the initial acuity of the injuries), but the Plaintiff is fully recovered.

Click here to view the full Winter 2012 edition of the Transportation Industry Newsletter.

Lisa Kaminski Shortt
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