State Farm Thwarted in Efforts to Protect Itself from Extraneous Post-Settlement MSP Obligations by PA State Court (Zaleppa v. Seiwell)

Medicare Set-Aside Blog on November 19, 2010
Posted by

For anyone who has settled a case with State Farm recently, you know that it has adopted some rather strict rules with regard to its MSP obligations and is attempting to do a better job protecting Medicare’s interests than CMS does. Most notably, it is requiring both a conditional payment release letter and an MSA approval letter prior to issuing any settlement checks. Again for those who understand, this is odd considering that the MSPRC will not issue final demand before an insurance payment is made and CMS has no official review program for liability MSAs and what few approvals are granted are done so on a case by case basis totally at the discretion of the regional office in each territory based upon workload, with many adopting policies that they are currently not conducting reviews. In a recent case in Pennsylvania, State Farm went even further and attempted to have the court mandate that Medicare’s interests be protected following a jury verdict stemming from an auto accident where Plaintiff failed to exhaust her PIP benefits and asserted that Medicare had not paid for any of what little treatment was rendered.

In May 2009, the Court of Common Please in Luzerne County, PA entered a judgment  for $15,000 against Defendant Seiwell following a jury trial on the issue of damages only. The jury designated $5,000 for future medical and $10,000 for past, present and future pain and suffering, mental anguish, etc. No claim was made for past medical because the Plaintiff was precluded from making a claim because she had not exhausted her PIP. In post-trial motions, Plaintiff requested that the court permit Medicare to be a party to a three-party check, or alternatively for the court to escrow the settlement funds until it could be determined if Medicare had made any conditional payments related to the settlement. The court denied the motions, Seiwell appealed, and on November 17, 2010, the Superior Court of Pennsylvania affirmed. Because the United States was not a party to the suit, the state court could not interfere with the rights of Zaleppa as affirmed by the judgment by giving Medicare any claim to it, nor would it place Seiwell in an untenable position under state law because by adding Medicare to the check, she would not satisfy the judgment and therefore fail to discharge her obligations pursuant to the judgment.

The question I have to ask is why are we arguing federal questions in state court? The entire underlying premise behind CMS’ MSP policies and the idea that Medicare has a priority right to recover that supersedes the rights of all others is the Supremacy Clause of the United States Constitution. Because State Farm’s MSP exposure extends beyond the disposition of this claim, it was merely attempting to ensure that Medicare’s interests were taken care of so that it wouldn’t have to pay them again. How can one violate state law by complying with federal law, especially if state law is standing as an obstacle to attempting to ensure that Medicare’s interests are in fact protected in this insurance payment?

Besides questioning not removing the case to federal court to resolve the issue, I have a problem with the issue itself. Why couldn’t any of the parties to this claim seek out this information prior to jury verdict? Why are we even burdening a court’s time by arguing semantics at this point. Kudos to State Farm for whole-heartedly embracing its MSP obligations, but seriously, get your program under control. Report claims involving Medicare beneficiaries to the COBC at the inception and start a preliminary search with the MSPRC once it looks like you might be settling or going to trial so you have at least an idea of what you are working with, if anything. In the case at hand, it seems unlikely that Medicare made any payments but rather than just find out from the MSPRC, the parties tied the case up in appeals for a year and a half.

Another interesting point this case raises is that there was no claim made for past medical, as apparently Plaintiff was barred from bringing it under state law. Accordingly, the jury verdict did not award any damages for past medical. If Medicare did in fact have a claim for conditional payment recovery, would its claim survive this judgment since the issue was not in question and therefore leave Medicare in a position to seek recovery on its own through it MSP statutory subrogation rights?  Medicare does not generally buy into the idea of just not bringing a claim for past medical as a means to avoid reimbursement, however this case  does present a novel argument that Medicare had no interest in this judgment and therefore that was why it was appropriate that the court deny the post-trial motions.

[Zaleppa v. Seiwell, 2010 PA Super 208; 2010 Pa. Super. LEXIS 3821 (Nov. 17, 2010)].