3rd Circuit Affirms MSP Obligations are not Subject to NJ Collateral Source Statute

Commentary, Medicare Set-Aside Blog, MSP Litigation on July 31, 2014
Posted by Jennifer Jordan, JD, MSCC

On July 29, 2014, the US Court of Appeals for the Third Circuit affirmed that Cecelia Taransky was required to reimburse Medicare regardless of the New Jersey’s collateral source statute. Ms. Taransky contended that she was prohibited by state statute from recovering medical expenses, however all evidence demonstrated that the Medicare conditional payment information was in fact obtained and a major factor in establishing damages alleged and compensation received. Ms. Taransky exhausted her administrative remedies without raising apportionment or due process so once the case was before the US District Court for the District of New Jersey, the court dismisses the claims not raised before CMS and affirmed that the NJ statute did not apply to Medicare conditional payments.

On appeal, Ms. Taransky advanced three arguments. First she argued that a tortfeasor cannot be a “primary plan” from which the government can recover under the MSP. Despite references to case law that predated the MMA amendments in 2003 and some other early questionable opinions, she obviously hoped to overlook the express language of the MSP statute. Post-MMA, the statute reads that a primary plan is essentially anyone who is liable for medical expenses whether they purchase insurance or elect to self-insure, whether intentionally or by virtue of simply not to purchasing insurance. Defendant had liability insurance so the court found that they would be considered a primary plan for purposes of the MSP.

She then argued that the government failed to prove that the defendant “demonstrated responsibility.” Again ignoring the MSP statute itself, she must have hoped to ignore the fact that the statute says that responsibility can be demonstrated upon settlement, judgment, award or other insurance payment. Basically you can either be proven liable, voluntarily accept liability or voluntarily make a payment to be released from the potential of liability. In foregoing trial and settling, the parties agree to release liability in exchange for compensation and in doing that, responsibility for purposes of the MSP attaches. The court also cited Hadden, stating that a beneficiary cannot tell a third party that it is responsible for all of his medical expenses then tell Medicare that the same person was only responsible for a portion. If you received compensation for medical expenses, the idea is that you actually use the money to pay for those expenses. If it were meant to be a windfall, label it that.

Lastly Ms. Taransky argued that the NJ statute prohibited her from obtaining damages for medical expenses, therefore she has no obligation to make reimbursement to Medicare. If that were the case, why did her attorney contact the Medicare contractor so many times to determine the amount of the “program’s lien” if it was not significant to the value of the claim or the responsibility of the parties to satisfy? The record reflects statements of his intent to “negotiate the case using an estimate of Medicare’s benefits” so how disingenuous can you get? He then went so far as to get a court to approve his apportionment, not to any outstanding issues in her suit but “only to the extent necessary to obtain specified documentation relevant to anticipated administrative proceedings with the federal Centers for Medicare and Medicaid Services.” The state court rubber stamped the uncontested request, issued pursuant to a joint stipulation between the parties, prepared and submitted by Taransky for the judge’s signature. The court commented that “the order is the antithesis of one made on the merits.”

Taransky countered with four arguments, none of which the court found persuasive. She challenged CMS’ definition of “on the merits”, faulted the government for not participating in her suit and accused the MAC of acting inconsistently with previous determinations by QICs and ALJs, all of which fell flat with the court. Her strongest argument was based upon Bradley v. Sebelius in that the 11th Circuit actually indirectly ruled in favor of apportionment by supporting that the probate court had the authority to make the distribution determination. The court however distinguished Bradley in that the situation among the children and estate was contentious and that the probate court actually had to determine the distribution, whereas Taransky only had her own interests in play when she sought the court approval of her self-determined distribution.  For all the above reasons, the court found that the MAC did not err in disregarding the court order supporting her desire not to reimburse Medicare.

So while this opinion does support the idea that the NJ collateral source statute does not prevent Medicare from obtaining reimbursement from a settlement, the more important aspect of the dicta seems to be the court’s treatment of the “hearing on the merits”.  There are many reported opinions out there that included rubber stamped MSAs and this opinion essentially says that the courts would support CMS disregarding them, as well it should in many instances. I don’t think this is the final word on the matter, but this should have a chilling affect on the blatant practice of using the courts that do not truly understand the MSP issues to game the system.



CECELIA A. TARANSKY, Individually and on behalf of all persons similarly
No. 13-3483
2014 U.S. App. LEXIS 14408
April 8, 2014, Argued
July 29, 2014, Filed