Hadden v. US – Will the Supreme Court Take Cert?

Medicare Set-Aside Blog on November 23, 2011
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So at long last, the 6th Circuit Court of Appeals finally rendered a decision in the appeal of Hadden v. US on November 21, 2011, only 404 days after oral arguments were presented, and big surprise, followed the status quo and ruled in favor of Medicare.  The only real question is why did that take so long? In the five page opinion, the court says little more than strict interpretation of the MSP gives Medicare a fairly opened ended, unquestioned right to recovery without the burden of equity considerations, that this is the way that it has always been dating back to Zinman v. Shalala in 1995 (and since when is the 9th Circus so persuasive?) and that is not going to change today. The most fascinating fact is that there is not one reference to Bradley v. Sebelius found in the entire opinion. It is almost like it took the court a year to decide that they were not going to touch the idea of apportionment but only why it didn’t need to be considered, and the other 45 days to figure out how to write an opinion that avoided all of the land mines.

In all of its deliberate attempts to skirt the issue, I think the court erred in trying to create a basis for its decision on the distinction between liability and responsibility. The MSP states:

A primary plan, and an entity that receives payment from a primary
plan, shall reimburse the appropriate Trust Fund for any payment made by
the Secretary under this subchapter with respect to an item or service if it is
demonstrated that such primary plan has or had a responsibility to make
payment with respect to such item or service. . . .

One can assume responsibility or be made responsible by order of a court, however anything short of that does not equate to “responsibility” in the truest sense of the word. An insurance settlement represents a financial transaction in which the injured party essentially sells the right to bring legal claims against the accused tortfeasor. The injured party receives compensation in exchange for a release from liability in an amount commiserate with the likelihood of prevailing at trial, and each right released carries a monetary value. Given that Kentucky is a pure comparative negligence state and Pennyrile only minimally at fault given that all its driver did was swerve to avoid a more significant catastrophe, Mr. Hadden received a fair settlement. Medicare should be satisfied taking only the portion of that compensation representative of medical expenses, otherwise use its much underutilized subrogation right and seek the remaining outstanding balance from Pennyrile itself. That is the greatest inequity at play here – the government’s desire to have its cake and eat it too. Rather than assert its own claims against what it deems “responsible” primary payers, where it would actually have to prove its claims to reimbursement, the government elects to wait until others have exhausted time and resources obtaining compensation and then just swoop in like a vulture and take what it wants regardless of the underlying issues.

The court again tries to rely too heavily upon the wording of the MSP and cites the definition of responsibility that it is using as: “under § 1395y(b)(2)(B)(ii) as amended, if a beneficiary makes a ‘claim against [a] primary plan[,]’ and later receives a ‘payment’ from the plan in return for a ‘release’ as to that claim, then the plan is deemed ‘responsib[le]’ for payment of the ‘items or services included in’ the claim.” Fine, pursuant to the MSP Pennyrile is responsible for purposes of this statute, but the statute does not expressly say responsible for payment in full, evidenced by Medicare’s routine practice of being satisfied by less than full reimbursement. The court goes on to conclude that thought with “and thus a beneficiary cannot tell a third party that it is responsible for all of his medical expenses, on the one hand, and later tell Medicare that the same party was responsible for only 10% of them, on the other.” And here is the fatal flaw in that logic: Mr. Hadden did not make a claim for only $165K – if I had to guess, it was probably more like a claim for $2 million. Since when do the damages alleged in a complaint equate to the reality of the value of the liability? And why would a court, well aware of that practice, try to spin that concept to make a point? Regardless of what items or services were “included in the claim,” the fact of the matter is that Pennyrile only paid for 10% of them because that is all it felt under Kentucky tort law it might be “responsible” for. The court goes on to criticize Mr. Hadded for demanding that Pennyrile compensate him for all of his medical expenses, stating that “[t]hat choice has consequences.”  Seriously, pleading the kitchen sink is punishable under the MSP? I must have missed that day in law school.

Then finally when it gets around to public policy, the court discussed not the concept of driving all cases to judgment to definitively determine Medicare’s share of any insurance claim, but it instead looked at inequality of treating Medicare and Medicaid beneficiaries differently. They are comparing apples to oranges. Medicaid, much like Medicare Advantage, possesses only a subrogation right and not the priority right of recovery Medicare has in addition to its subrogation right. The point I assume was to show that the Medicaid statute provides that  a state can seek reimbursement to the extent the settlement payor has a legal liability, as opposed to the MSP’s alleged careful use of responsibility in lieu of liability. I’ve carefully scoured the Congressional Record, and such a deliberate choice of words is not evident in any MSP amendment. Ok, so the trigger for MSP responsibility is the insurance payment, but as I pointed out above, the statute does not say payment in full. Medicare routinely accepts less than its total overpayment, so why is Mr. Hadden being punished for receiving an amount sufficient to reimburse Medicare in full? Guess that is a question for the Supreme Court to sort out. Let us hope they see their way clear to providing us some much needed clarity.

VERNON HADDEN, Plaintiff-Appellant, v. UNITED STATES OF AMERICA, Defendant-Appellee.
No. 09-6072
11a0293p.06; 2011 U.S. App. LEXIS 23289; 2011 FED App. 0293P (6th Cir.)
October 13, 2010, Argued
November 21, 2011, Decided