11th Circuit Court of Appeals Gives CMS Something to Think About (Bradley v. Sebelius)

Medicare Set-Aside Blog on October 6, 2010
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After six months passed since oral arguments were made before the court, the opinion in Bradley v. Sebelius was finally published on September 29, 2010, reversing the decision of the district court consistent with years of status quo decisions upholding Medicare’s rights to 100% reimbursement from dollar one of any settlement regardless of the underlying legal liability. This decision represents incredible progress in MSP enforcement and has rendered the P&C market hopeful.

The decision stems from a Florida wrongful death claim in which the defendant nursing home turned over policy limits of $52,500.00 in settlement of the various claims. The Florida statute provided the estate the right to recover all damages caused by the injury resulting in death, as well as claims of the children for loss of parental companionship and mental pain and suffering. Medicare identified $38,875.08 in care provided plaintiff’s father, of which it made a demand for $22,480.89 after accounting for procurement costs. In addition, each of the ten surviving children made a claim for $250,000.00, making the total value of the claim $2,538,875.08 in the eyes of the probate court that eventually was consulted to determine the distribution of the settlement funds.

Using a similar formula as provided in the Code of Federal Regulations for conditional payment recoveries, the probate court determined that the total settlement represented approximately 2% of the overall value of the claim and awarded Medicare a right to reimbursement in the amount of $787.50. Medicare refused to accept the authority of the probate court, so the estate paid Medicare the $22,480.89 and proceeded to properly exhaust its administrative remedies challenging the issue, finally landing in district court. The district court granted CMS’ interpretation of the MSP, as found in its various manuals, Chevron deference, and ruled in favor of Medicare for the full amount of its demand. The appellate court disagreed.

In its decision to overturn the district court ruling, the appellate court made three very important determinations with regard to MSP enforcement. First, agency interpretations contained in CMS policy statements, manuals and enforcement guidelines are not entitled to the force of law and the unquestioned deference given by the district court was misplaced. Second, Medicare was not entitled to any share of the settlement representing the surviving children’s claims to loss of parental companionship, hence supporting apportionment in cases that settle for less than full value of the claim and/or contain compensation for non-medical claims. Finally, CMS’ priority entitlement position runs afoul of the public interest of settling claims rather than forcing them all through to trial, a burden our judicial system could not bear. All in all, a substantial victory for the P&C industry. If Hadden, currently pending in the 6th Circuit Court of Appeals, comes down the same way, we achieve some degree of prevailing case law to follow. If it sides with CMS, then we’re likely headed to the Supreme Court. Either way, it is progress.