Wrongful Death, Survival Actions & Medicare – Who Wins? – Allocation is Determining Factor

If decedent is a Medicare beneficiary, be thoughtful about preparing for the related wrongful death action claim. Medicare most likely will be entitled to reimbursement for the decedent’s related medical expense if there is a settlement, judgment or award. The wrongful death claimants are not protected from Medicare’s reach, but practitioners may seek refuge through proper planning.

Segregate the claims between those of the Estate and wrongful death claimants. Appoint a representative of the Estate to further delineate between the two groups. The recovery for medical expense should never be made part of the wrongful death claim. Only the Estate should claim medicals, release medicals and protect against liens, including Medicare reimbursement claims. Deal with Medicare early and dispute unrelated medical charges as soon as possible. Always obtain an allocation order from the Court that apportions between the two groups. It is very important to clearly identify the medical expenses and what settlement bucket they will be paid from.

These steps will help reduce exposure to Medicare and avoid unpleasant surprises. A recent district court case on point provides sufficient incentive, in our opinion, to carefully architect these claims. See Benson v. Sebelius, 2011 U.S. Dist. LEXIS 30438 (District of Columbia). Plaintiff lost to Medicare in District Court subjecting the entire settlement amount between the Estate and the heirs to Medicare’s reimbursement claim.

Background

Plaintiff’s mother slipped and fell in her rented residence in May 2003. She sustained a fracture of her right radius, a radial periorbital hematoma and a contusion for which she was hospitalized. Ten days after the accident, she died. In July 2005, plaintiff, in his capacity as survivor and administrator of his mother’s estate filed a lawsuit against his mother’s landlord in the Court of Common Pleas of Pennsylvania. In pursuing that action, the plaintiff expressly included his mother’s medical costs as part of his wrongful death claim.

Medicare’s Payments

Because the plaintiff’s mother was a Medicare beneficiary at the time of her injury, Medicare paid for her hospital stay. In December of 2006, the MSPRC (Medicare Secondary Payer Recovery Contractor) presented a conditional payment letter for $40,213.74. However, no dispute was filed with the MSPRC to remove any charges that were unrelated to the claim.

Settlement

Plaintiff settled the lawsuit for $90,000. In doing so he agreed with the defendant to apportion the settlement between the wrongful death claim and the Estate claim. Accordingly, the settlement agreement was drafted to allocate 80% of the proceeds to plaintiff as the survivor and 20% to the Estate. However, the agreement had plaintiff releasing the landlord from all liens against the proceeds of the entire settlement, including liens related to his mother’s medical expenses. The settlement agreement was approved by the Pennsylvania court, which also specified that the Medicare amount of $40,213.74 to be held in escrow pending disposition of the lien. This took place in May 2007.

In November 2007, the MSPRC issued Medicare’s Final Demand related to the claim for $25,868.58, which properly deducted Medicare’s share of the procurement costs. The MSPRC ignored the allocation under the agreement which only provided a fund of $18,000 from the Estate (20% of $90,000).

Plaintiff settled the lawsuit for $90,000 and then request a final demand letter from the MSPRC. The MSPRC issued the Final Demand in November 2007, which after deduction for Medicare’s share of procurement came to $25,868.58. Plaintiff paid the amount under protest to avoid interest and penalties. In appealing the issue with Medicare, he presented three arguments. 1) Medicare may only recover from a settlement award received by the Medicare beneficiary’s estate; 2) Medicare can only recover for medical items and services that were related to the tort; and 3) Medicare denied him due process.

Medicare May Only Recover from the Award for the Medicare Beneficiary’s Estate

This is true so long as the award is issued by a Court after a hearing on the merits. Medicare’s rights are broad and, as defined by the Medicare Secondary Payer Manual interpreting the statute, allocations of settlements that are not the result of an adjudicated process do not limit those rights. In Benson, plaintiff agreed with defendant privately as to the allocation between the wrongful death action and the Estate’s claim. The Pennsylvania court did not hear any evidence on the allocation; it simply approved the settlement agreement.

Moreover, the court ordered plaintiff to maintain the entire amount claimed by Medicare in escrow until the lien was resolved which could only mean that the court had no intent of limiting Medicare’s recovery rights by its order.

Plaintiff lost this argument because he did not take appropriate steps for an allocation hearing on the merits. He also fell short, because he made his mother’s medical part of his claim. It is precisely for these reasons that the two cases he cited to support his argument failed. In both Denekas v. Shalala, 943 F. Supp. 1073 (S.D. Iowa 1996) and Bradley v. Sebelius 621 F.3e 1330 (11th Cir. 2010), Medicare was not able to reach the settlement because the court made an allocation on the merits and the Medicare beneficiary’s expenses were not part of their claim. See Franco Signor’s previous blog, Does Medicare’s Reimbursement Claim Take Priority over Non-Medicare Beneficiaries Damages in a Common Fund Situation?, 10/20/2010.

Dispute Relating to Unrelated Medical Items & Services

It is always best to consider, as soon as possible, preparing a dispute for medical items and services that are unrelated to the tort. Plaintiff never disputed the unrelated charges until after he settled the case which guided the Benson court’s holding to not interfere with the decision by the Medicare appeals board of the amount of Medicare’s reimbursement claim. The MSPRC provided the Conditional Payment Letter to the plaintiff in December 2006. The plaintiff settled the case in May 2007 and only after he had received Medicare’s Final Demand in November 2007 (almost a year later) did he raise this issue on appeal. There is no prohibition to raising the issue at the later stage, however, the evidence must be persuasive. Plaintiff did not present any evidence to suggest that the medical charges as incurred by Medicare were not included in the settlement. Again, the court’s order to place in escrow the disputed amount runs contrary to any other conclusion. A proper record of early dispute would have possibly changed the court’s position on this point. However, without such a record, it is possible to conclude that plaintiff leveraged the amount owed Medicare to maximize the settlement amount. Unfortunately, history cannot be re-written and if the amount owed Medicare is used to support a claim for damages, then Medicare will want to be paid back in its entirety.

Violation of Due Process

Constitutional arguments are difficult to make in Medicare Secondary Payer case. “Medicare’s interest in maintaining a solvent medical care system for all senior Americans outweighs the temporary upset to individual beneficiaries.” See Blue Cross & Blue Shield Ass’n v. Sullivan, 794 F. Supp 1166, 1178-79 (D.D.C. 1992). The MSP process is straightforward and does not require a rigorous evaluation of facts to a specific case. Thus, a pre-deprivation hearing is not required. The nature of Medicare’s inquiry is whether there was a payment of a settlement, judgment or award. It is routine, standard and unbiased evidence that does not weigh in favor of creating a pre-deprivation hearing for the plaintiff. In short, the plaintiff was given three levels of review at the agency, and therefore had plenty of opportunity for due process. His claim for lost of property can be remedied with a payment of interest, if any money is returned.

Lessons Learned

It is not possible to use Medicare to support a claim for damages and then after a settlement, judgment or award ask Medicare to reduce its reimbursement claim. If the medicals are part of the allegations that supports the settlement, Medicare will not remove those charges as unrelated. That was one of plaintiff’s strategic errors in this case. He wanted to have it both ways, enhanced medical damages to increase the settlement value and then to take the position, after receiving the benefit of those damages, certain medical items and services removed as unrelated. This is not allowed and will be frowned upon by Medicare.

Another strategic error was comingling the claims. If plaintiff had kept them segregated he would have stood a better chance of arguing the decisions of Denekas and Bradley. It is not impossible to protect the non-Medicare beneficiary’s claims from Medicare, it just takes careful planning. From the presentation of the claim to the settlement documents, properly consider the interests of Medicare, but more importantly, make certain that those interests are not mixed in with claims by a non-Medicare beneficiary.

Franco Signor LLC is oftentimes called upon to assist practitioners in cases having facts very similar to the Benson case. In order to provide effective assistance on the Medicare component, we need to be provided with the issues well before trial. Franco Signor LCC is a full services company that expedites the information to and from Medicare, provides release language to tailor the facts of a given case, objects to and reduces unrelated charges from Payment Summary Forms, and drafts allocation reports for the nastier cases wherein future medical treatment is certain.


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