Sixth Circuit Decision Bolsters Power Of Medicare Secondary Payer Law

It is long past obvious that the Medicare Secondary Payer Statute is here to stay. But how well is the MSP faring in the courts? Judging by the decision in Hadden v. United States of America, CMS would say that it is faring quite well, thank you.

The Hadden case was decided on November 21, 2011. The facts are simple and the issue is an important one. Vernon Hadden was injured in a car accident which was largely caused by an unidentified driver. His vehicle was struck by a vehicle owned by Pennyrile Rural Electric Cooperative Corporation but the main reason the accident happened was that another unidentified vehicle caused the Pennyrile vehicle to swerve into Hadden’s vehicle.

Medicare paid bills totaling $82,036.17 for Hadden’s care. Hadden later sued Pennyrile, demanding compensation for all of his medical expenses, and Pennyrile eventually settled with Hadden for $125,000. Medicare then sought reimbursement of its conditional payments from Hadden. It subtracted a portion for the attorneys’ fees that Hadden himself had paid for the settlement and determined that Hadden owed Medicare the sum of $62,338.07.

Hadden escrowed approximately $62,000 to repay CMS but argued that he should only have to repay 10% of the expenses of $82,036 because the unidentified motorist was 90% responsible for the accident and Pennyrile was only 10% responsible. This argument stemmed from Kentucky’s comparative fault allocation principles. Another way of saying this is that Hadden believed he only recovered about 10% of his total damages from this accident. He contended that virtually all of his damages were pain and suffering and CMS should have no part of those damages. He argued that CMS should get back about $8,000, or 10% of the total medicals incurred. An administrative law judge rejected Hadden’s argument and the Medicare Appeals Council affirmed. The United States District Court also agreed with CMS.

The decision focused on language in 42 U.S.C. 1395(b)(2)(B)(ii):

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. . .

In this case, Pennyrile was the “primary plan” and Hadden was the “entity that received payment from a primary plan.” The court argued “. . . a beneficiary (Hadden) cannot tell a third party (Pennyrile) 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.” The court reasoned, “Consequently, the scope of the plan’s ‘responsibility’ for the beneficiary’s medical expenses – and thus of his own obligation to reimburse Medicare – is ultimately defined by the scope of his own claim against the third party.”

Hadden directed the court’s attention to the Medicaid statute and argued that “the government is entitled to recover only its proportionate share of a discounted settlement” under that law. But the court said that the Medicaid law is not relevant because it is a different statute and has different language. Further, the court countered that the word “responsibility” appears in the MSP statute and its meaning is unambiguous.

There is a well written dissent in this case which other courts may look to but for now it is clear that CMS has won the day and will obtain the full amount of its conditional payments regardless of the comparative fault of the parties in the accident.

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