Hinsinger v. Showboat Atlantic City – New Jersey Court Decides Attorney’s Fees may be Deducted from MSAs

Medicare Set-Aside Blog on May 23, 2011
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In an opinion from January 2011, finally released for publication last week, the New Jersey Superior Court ruled that attorney’s fees could be taken from a Medicare Set-Aside. Although acknowledging that there is no statutory or regulatory requirements for creating MSAs, the Court noted that CMS recommends them and that they have become standard practice in workers’ compensation. In response to Plaintiff attorney’s argument that CMS’ policy prohibiting deduction of attorney’s fees from MSAs only applies to workers’ compensation cases, the Court found no reason to apply a different standard for different types of insurance and instead found itself considering whether the regulations and CMS directives in general allowed an attorney to recover fees for a judgment or settlement obtained on behalf of a client in a civil suit from the set aside itself.

With regard to the regulations, 42 C.F.R. 411.37 permits the costs borne by the party against which CMS seeks to recover be deducted from Medicare’s recovery amount. Medicare permits reduction for procurement costs even in situations where the Medicare recovery amount exceeds the total settlement, judgment or award. The reduction is determined by the ratio of total procurement costs to the total settlement or judgment amount and is silent with regard to application to medicals in general, whether past or future. These funds for future medical expenses are still payment made by a primary payer even though the funds have yet to actually be used for medical expenses. And furthermore, because Medicare would be entitled to pursue those same procurement costs from the attorney directly as an individual in receipt of funds from the settlement, judgement or award, it is not like Medicare loses access to recovery from those funds. To permit Medicare to hold plaintiffs liable for the full amount of the set-aside before benefits would resume and to pay all attorney’s fees on that part of the settlement from the non-MSA portion, especially with Medicare possessing a right to recover those fees directly from the attorney, would be both inequitable and unfair to plaintiffs.

With regard to the CMS directives, the Court threw the poorly worded early memos governing the voluntary WCMSA review program, which have never been superseded and therefore still considered to be in force, back in CMS’ face. For those not familiar, the early memos are riddled with terms such as “must” and “required”, inferring mandatory obligations not governed by statute or regulation. This directive in question from the May 7, 2004 memo was held to apply only to attorney fees “specifically associated with establishing”  the trust [words taken directly from the memo], interpreted by this court as fees which would be incurred in the act of setting up the trust, not to attorneys’ fees incurred in procuring the settlement, judgment or award.

In the wake of Bradley and Haro, this is yet another significant blow to the CMS directives and the Chevron deference granted them quite liberally without much question. This also provides at least one answer originally sought in the Protocols lawsuit that was dropped upon the company’s acquisition by Brown & Brown. With this much attention being drawn to MSP issues, we are bound to get some resolution soon. The question that remains is will it come from CMS, the courts, or Congress…

DOCKET NO: L-3460-07
2011 N.J. Super. LEXIS 96
January 21, 2011, Decided
[Approved for Publication May 19, 2011]