Nevada District Court Supports Medicare’s Priority Right of Full Recovery Despite Bradley (Farmers Ins. Exch v. Forkey)

Medicare Set-Aside Blog on January 6, 2011
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On December 29, 2010, the United Stated District Court for the District of Nevada granted the government’s motion for summary judgment in Farmers Ins. Exch. v. Forkey [2010 U.S. Dist. LEXIS 137716], awarding Medicare $10,070.22 of a $35,000 underinsured motorist policy issued by Farmers. Defendant Forkey, the spouse of the decedent policy holder, argued that because her claims against the policy were made for her own losses pursuant to the Nevada wrongful death statute and were not for reimbursement of her husband’s medical expenses, that Medicare should be forced to accept a pro rata share of the policy limits. Valuing her own claims at $500,000, she argued that Medicare’s claim for $10,070.22 represented about 2% of the policy, or about $200. The Court determined that the government’s claim was a direct and priority right to reimbursement as granted by federal statute and not a subrogation action. Because the MSP is silent as to priority, it determined that CMS’ construction, which states:

Medicare has a statutory direct right of reimbursement from the liability insurance as well as any entity that has received payment directly or indirectly from the proceeds of a liability insurance payment. Medicare’s recovery rights take precedence over the claims of any other party, including Medicaid. Medicare’s recovery right is superior to other entities including Medicaid because Medicare’s direct right of recovery is explicitly prescribed in Federal law and other entities’ rights are based on either State law or subrogation rights.

was fully consistent with the legislative purpose and with the plain language reading of the statute, and granted Medicare full reimbursement from the UM policy.

The unique aspect of this decision was the considerable analysis provided of the Chevron deference granted CMS in its claims for “priority” right of recovery not seen in prior MSP decisions. As you may recall, the 11th Circuit Court of Appeals (Bradley v. Sebelius)  challenged the Chevron deference as it pertained to the same CMS policies in September 2010 and determined apportionment reasonable. Before accepting an agency’s construction of a statute, a court must examine whether Congress has spoken to the precise question at issue, and if not, then determine if the agency’s interpretation is rational and consistent with the statute. CMS’ interpretation, found in Section 40.1 of the Medicare Secondary Payer Manual, essentially argues that the supremacy clause prevails and that the MSP will trump any claims relying upon state law. Kind of a chicken and egg situation since Medicare would have no right to recovery but for liability being established under state law, but I guess the irony of that continues to be lost on the courts.

Although consistent with considerably older 9th Circuit MSP decisions rejecting apportionment [see State Farm Auto. Ins. Co. v. State of California, No. CV 96-6960, 1997 U.S. Dist. LEXIS 13564, 1997 WL 226229, at *2 (C.D. Cal. Feb. 26, 1997)], the current prevailing case law on the issue is the only existing federal appellate decision, that being Bradley v. Sebelius in the 11th Circuit, which favored apportionment. While we continue to wait on a similar appellate decision out of the the 6th Circuit in the Hadden case, it is clear that this issue desperately needs to garner the attention of the Supreme Court. No additional time should be wasted by other courts interpreting legislative intent when the Congressional Record is completely devoid of any such thing. The Bradley Court made some very real and valid public policy arguments that can only be resolved by Congress or the Supreme Court, and I think we stand a much better chance of the latter understanding the need for such resolution.

FARMERS INSURANCE EXCHANGE, Plaintiff, vs. LEONA FORKEY, et al., Defendants
Case No.: 2:09-cv-00462-GMN-GWF
December 29, 2010, Decided
2010 U.S. Dist. LEXIS 137716