(Sullivan v. Farm Bureau Mutual) Two Conditions Precedent In Bringing MSP Suits

Medicare Set-Aside Blog on April 6, 2011
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I can’t emphasize enough that the MSP obligations in a liability claim arise by the operation of law upon a settlement, judgment or award. Until that event, Medicare has no recovery rights from which federal jurisdiction confers. Until triggered, those payments were merely Medicare benefits paid on behalf of an entitled beneficiary. So basically until you establish MSP liability (and not actual liability because CMS has made us painfully aware that those are not one and the same), Medicare has no recovery right.

This concept was recently articulated in an April 1, 2011 opinion out of the US District Court for the Western District of Michigan in the case of Sullivan v. Farm Bureau Mutual Insurance Company of Michigan. Plaintiff was a bicyclist struck by an automobile insured by defendant. Plaintiff’s medical care was paid by Medicare rather than under either his or defendant’s Michigan no-fault automobile insurance and he filed suit in the District Court for Ingram County. The complaint contained two counts, one under the state no-fault law and one under the MSP for double damages. Defendants removed the case to federal court and plaintiff objected, alleging that the removal was improper and alternatively offering to withdraw the MSP count so that there was no federal question. The federal court did remand but not necessarily for the reasons set forth by plaintiff.

There is no doubt that the federal court had jurisdiction. The MSP is a federal law, making count two a federal question for which Congress vested federal courts with jurisdiction. Therefore removal of the action pursuant to 28 USC 1441(a) was proper. And given the outcome of many recent MSP cases in state courts, I would think people would recognize the benefit of adjudicating this issue in the appropriate court. However in the case at hand, plaintiff clearly wanted this case to remain in state court for some reason, to the extent that he was willing to give up his right to double damages under the MSP private cause of action which he is actually vested with standing to bring and drop count two from his complaint completely.

The court granted plaintiff’s motion to amend and remand, but not necessarily because plaintiff asked as much as because the federal question was not ripe. In order to bring an MSP cause of action, two conditions precedent must be met. First Medicare must have made payments on plaintiff’s behalf. Second, the defendant must be responsible for making the payments. That responsibility is demonstrated by a judgment or payment conditioned upon the compromise, waiver or release or responsibility for payment whether a determination or admission of liability was made or not. In this case, liability had not been established and therefore any MSP claims were not ripe for judgment. Accordingly, the proper place for a determination of liability of the insurer under state law was state court.

Now from a practical standpoint, it would certainly be more efficient to adjudicate both matters simultaneously as they are essentially one and the same. If plaintiff is ultimately able to prevail in state court, Medicare will be entitled to reimbursement from that recovery. Medicare will be entitled to full reimbursement regardless of any compromise made on the part of plaintiff, If any, therefore after attorneys’ fees, there may be nothing left for the plaintiff. The reason Congress provided regulations under 42 CFR 411.37 permitting a reduction for procurement costs was so Medicare beneficiaries would not bear the burden of the cost to recover payments on Medicare’s behalf. The reason Congress provided the private cause of action under 42 USC 1395y(b)(3) was so its beneficiaries could claim double damages and keep the difference from what Medicare had paid to incentivize them to bring those suits on behalf of Medicare. It seems at odds with the Congressional intent to force the plaintiff to bring the same suit twice. If a state court judgment represents compensation for the face value of the past medical payments, how does one then file suit again in federal court to seek reimbursement under the MSP for reimbursement of the same expenses? One would think that insurer satisfying the state court judgment with payment from which Medicare was entitled to statutory recovery would render any further federal action moot. While not technically an improper decision, I am still left questioning the judicial efficiency of it.

OTHELLO SULLIVAN, Plaintiff/Counter-Defendant, v. FARM BUREAU MUTUAL INSURANCE COMPANY OF MICHIGAN, a Michigan insurance Company, Defendant/Counter-Plaintiff.
CASE NO. 1:10-cv-909
2011 U.S. Dist. LEXIS 35817
April 1, 2011, Decided