If You Allege, Receive Compensation, and Release Liability for Medical Damages, Don’t Expect Medicare Not to Count Them When Calculating Conditional Payment Recoveries

Medicare Set-Aside Blog on March 26, 2013
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In a judicial review of a Medicare appeal, the US District Court for the Eastern District of Pennsylvania upheld an ALJ’s decision to not reduce a conditional payment demand for Edith Weinstein. Mrs. Weinstein sued several parties following the death of her husband for medical malpractice, wrongful death and survival actions, alleging that failing to administer TPA after her husband’s first stroke is ultimately what killed him. Mr. Weinstein suffered a second stroke six days later, then suffered prolonged hospital and rehab stays until his death about five months later. Her complaint sought all damages “allowed,” “recognized and recoverable” under the law in excess of $50,000, yet after reaching a settlement agreement for $425,000, she felt Medicare deserved only $2,922.34 in reimbursement of the $92,230.51 ($58,393.57 after procurement costs) that Medicare paid treating her husband following his stroke until his death. 

Although Mrs. Weinstein made a demand for all medical expenses through her husband’s death, when it came to Medicare, she felt it deserved to be reimbursed only for the period of time from the first until the second stroke – six days. Records indicate that Medicare paid $10.436.93 for the initial 25 day hospitalization; therefore, by prorating only the first seven days (generously accounting for the day of the second stroke, I assume) over the entire stay (7/25ths), plaintiff arrived at the $2,922.34 amount, less procurement costs of course. Although plaintiff conditioned her release upon the court entering an order “limiting Medicare’s right of recovery to $2,922.34, [less procurement costs], representing Medicare’s payments for Irwin Weinstein’s stroke related care for the time frame of April 10, 2005 through April 16, 2005,” the trial court refused to make this determination and turned the issue over to the Orphans’ Court. When wrongful death and survival actions are settled for a single amount, the court having jurisdiction over survival action must approve the settlement. Medicare’s allotment was so approved. 

Now we all know that Medicare will only accept a court’s allocation of liability payments where a court has issued an order “on the merits of the case” that “specifically designate[s]” nonmedical losses [see MSP Manual, Ch. 7 at 50.4.4]. Here, although the Orphans’ Court’s order summarily designated nonmedical expenses, there is little in the record to support how it made such a determination. The only alteration to the proposed settlement was to strike postage/delivery and copying fees. Because the release was conditioned upon limiting Medicare’s reimbursement to a fraction of the $425,000 settlement, the district court found it compelling that both parties and the state court had an incentive to agree to the amount or risk relisting the matter for trial. So even if Ms. Weinstein could establish that the Orphans’ Court had adjudicated the matter after a hearing and that Medicare was properly noticed (which is also disputed), such adjudication was not “on the merits” because the facts presented to the court regarding the amount Medicare was seeking were not fully developed. Therefore, the district court held that the ALJ did not err by holding that the state court order was not on the merits and thus was appropriately disregarded. 

So with the state court ruling was behind them, the district court turned to Hadden‘s reasoning that under the plain language of the MSP, a Medicare beneficiary’s “responsibility” to reimburse Medicare “is ultimately defined by the scope of his own claim against the third party,” even if there is some compromise as to the amount owed and “even if the third party never admits liability.” The court then looked at Salveson where the plaintiff tried to parse out only one of two surgeries as negligent and yet agreed to settle “all claims.” The beneficiary claimed the evidence showed that the doctors had been negligent only in performing the second surgery and, thus, the settlement could not have covered medical expenses relating to the first “non-negligent” surgery. The court disagreed and found that the beneficiary’s complaint against the doctors, not the evidence produced in the case, defined the scope of Medicare’s right to reimbursement because the beneficiary expressly released those claims in the parties’ settlement.

Lastly, plaintiff argued that Medicare’s recovery should be reduced due to the nature of the “compromise.” Medicare, on the other hand, argued that the settlement amount of $425,000 is high for a six-day period of alleged negligence. Because Ms. Weinstein’s complaint sought all damages, including medical expenses, from the date of the alleged malpractice on April 10 through the date of her husband’s death on September 4, and because Ms. Weinstein agreed to settle all claims and demands as part of her release, the court found that Medicare was entitled to reimbursement for the full amount of the medical expenses paid for the entire time period and that the ALJ’s decision was not arbitrary, capricious, an abuse of discretion, or otherwise legally wrong.

So the moral of the story is that if you ask for something that belongs to someone else and get it, be prepared to have to give it to its rightful owner. 

EDITH WEINSTEIN, Executrix of the Estate of Irwin Weinstein, deceased, Plaintiff, v. KATHLEEN SEBELIUS, Secretary of the United States, Department of Health and Human Services, Defendant.



2013 U.S. Dist. LEXIS 41594

February 13, 2013, Filed