Caging the 800-pound Gorilla: Medicare’s Right of Reimbursement

gorillaOn September 29, 2010, the 11th Circuit Court of Appeals in Bradley v. Sebelius, 621 F.3d 1330, 2010 WL 3769132 (11th Cir. 2010),1 handed down a significant defeat to Medicare in the way it has been enforcing its reimbursement rights since the enactment of the Medicare Secondary Payer Act in 1980. Medicare can no longer act like an 800-pound gorilla by refusing to recognize a state probate court’s allocation of a wrongful death settlement between the claims of the survivors and the claims of the estate and to indiscriminately take survivors’ property without due process. The decision quashes Medicare’s old policy of collecting reimbursement from the property of survivors who have no obligation or other connection to Medicare. The decision will have broad impact on not only wrongful death settlements when Medicare has claimed a right of reimbursement, but in circumstances involving other lien holders as well. This article outlines the breadth of the procedural and administrative hurdles faced by the attorneys representing the survivors, the contours of the decision, and some practical and potential effects moving forward.

Procedure and the Administrative Hurdles
Burke resided in a nursing home until November 2004, when he was admitted to a Gainesville hospital where he died on January 30, 2005, as a result of multi-organ failure secondary to sepsis and wound infection.2 During his approximate three-month hospital stay, the secretary of the Department of Health and Human Services (secretary) paid $38,875.08 in medical care through the Medicare program.3

One of Burke’s surviving children, Carvondella Bradley, was appointed personal representative of Burke’s estate.4 Bradley, on behalf of both the estate and Burke’s 10 surviving children, presented a wrongful death claim against Burke’s nursing home and its liability insurer, which covered the nursing home under a $60,000 declining policy.5

Bradley’s wrongful death claim settled pre-suit for the available insurance policy limits, which had declined to $52,500. The settlement was not initially allocated between the claims of the survivors and the claims of the estate,6 and the secretary asserted a claim for reimbursement of the $38,875.08 in Medicare conditional payments that had been made as a result of the alleged negligence.7 Bradley properly notified the secretary of the settlement, provided information about the legal fees and costs incurred in securing the settlement, and requested that the issue of allocating the undifferentiated settlement be addressed before the standard procurement cost discount was calculated.8 The secretary refused to recognize that the medical claim had settled for far less than its true value and that a majority of the settlement was compensation to the 10 surviving children for their individual losses, expressly asserting that it did not allocate settlements.9 The secretary further asserted that under the Medicare Secondary Payer statute (MSP) (42 U.S.C. §1395y(b)(2)(B)(ii)) and its associated regulations (42 C.F.R. §411.37(c)), its interpretations thereunder contained within its field manual empowered it to claim the total amount of medical expenses provided by Medicare ($38,875.08), less a reduction for the cost of procurement, directly from the survivors.10 Consequently,the secretary demanded payment of $22,480.89, and that Bradley pay this amount within 60 days.11

In response to the secretary’s demand and refusal to allocate, Bradley filed a motion in the state probate court to allocate the settlement between the claims of the survivors and the claims of the estate. Bradley filed the motion in recognition that the Florida Wrongful Death Act (FWDA) provides that 1) a personal representative brings one consolidated claim for wrongful death on behalf of both the survivors and the estate; 2) the survivors may recover loss of parental companionship, instruction and guidance, and mental pain and suffering, if there is no surviving spouse; 3) the estate may only recover funeral and medical expenses related to the injury and death; 4) the personal representative may seek an allocation of a wrongful death settlement between the claims of the survivors and the claims of the estate at settlement; and, 5) the MSP does not grant the secretary the right to recover survivors’ portions of settlement which are constitutionally protected property of the survivors.12 In addition, Bradley gave adequate notice of the motion and the hearing to the secretary, but the secretary declined to participate.

The probate court’s analysis mirrored Bradley’s assertions on how to divide or allocate the gross settlement. If the full value of the claim was measured by each damage component’s relative contribution to the full value of all damages, then the estate claim subject to Medicare’s reimbursement rights could easily be calculated according to such component’s relative contribution to the full value of all damages. Consequently, the probate court adopted Bradley’s view after hearing proffers on the value of the collective survivor claims, as well as on the value of the total estate claim.13 The court ultimately held that the estate’s damage components contributed roughly 1.5 percent to the total full value of all damages, with the collective survivors’ damage components contributing roughly 98.5 percent, and that the allocation in the diminished, compromised settlement should be calculated using the same pro rata percentages. This analysis resulted in the probate court entering an order determining that $51,712.50, or 98.5 percent, of the $52,500 gross settlement should be allocated to the surviving children for their claims and $787.50, or 1.5 percent, should be allocated to the estate for its claims.14

The probate court’s order was provided to the secretary with the request that she recalculate the procurement cost discount out of the $787.50 amount allocated to the estate’s claim. The secretary refused to accept the probate court’s allocation, and she continued to demand payment of $22,480.89, plus interest. The secretary’s refusal was based on her parallel views that the probate court’s order was merely advisory in nature, or superseded by federal law, and that the secretary was not bound to allocate or honor an allocation unless it was procured after a “full trial, on the merits.”15 She relied on language contained in the Medicare Secondary Payer Manual, Chapter 7, §50.4.4, which states:

In general, Medicare policy requires recovering payments from liability awards or settlements, whether the settlement arises from a personal injury action or a survivor action, without regard to how the settlement agreement stipulates disbursement should be made. That includes situations in which the settlements do not expressly include damages for medical expenses. Since liability payments are usually based on the injured or deceased person’s medical expenses, liability payments are considered to have been made “with respect to” medical services related to the injury even when the settlement does not expressly include an amount for medical expenses. To the extent that Medicare has paid for such services, the law obligates Medicare to seek recovery of its payments. The only situation in which Medicare recognizes allocations of liability payments to nonmedical losses is when payment is based on a court order on the merits of the case. If the court or other adjudicator of the merits, specifically designate amounts that are for payment of pain and suffering or other amounts not related to medical services, Medicare will accept the Court’s designation. Medicare does not seek recovery from portions of court awards that are designated as payment for losses other than medical services. (Emphasis added.)

Faced with the adverse position of the secretary, Bradley paid Medicare under protest to avoid further collection action and proceeded to exhaust her administrative appeal remedies with the secretary.

The exhaustion of the administrative appeals involved Bradley 1) filing a request for redetermination from the Medicare Secondary Payer Recovery Contractor (MSPRC); 2) filing a request for reconsideration of MSPRC’s unfavorable determination to MAXIMUS Federal Services; 3) filing an appeal of MAXIMUS’s unfavorable reconsideration by requesting a hearing before an administrative law judge (ALJ) at the Office of Medicare Hearings and Appeals, Southern Field Office and participating in a hearing before the ALJ; and 4) appealing the unfavorable ALJ decision to the Medicare Appeals Council in Washington, D.C. Bradley, however, lost at every level of administrative appeal, ultimately receiving the Medicare Appeals Council’s final decision rejecting her appeal on September 26, 2007.

On October 23, 2007, Bradley as a survivor, along with her nine brothers and sisters, also as survivors (hereinafter collectively referred to as “Bradley”), filed a federal district court complaint seeking a declaratory judgment on 28 U.S.C. §1331 grounds. The complaint sought declarations that the secretary had no priority over the collective survivors’ property rights in the settlement, and further that she was bound by the probate court order allocating the settlement because she had refused to both allocate herself and participate in the allocation proceeding before the probate court. Bradley also perfected her right to directly appeal the secretary’s final decision under 42 U.S.C. §405(g) grounds, filing such appeal as part of her complaint before the district court.

On June 9, 2008, the District Court for the Middle District of Florida adopted the magistrate’s report and recommendations and dismissed the survivors’ declaratory judgment action brought under 28 U.S.C. §1331. The case proceeded as a review of the secretary’s final decision under 42 U.S.C. §405(g). Following a significant briefing period encompassing a multitude of issues including the magistrate’s report and recommendations affirming the secretary’s decision, the district court again adopted the magistrate’s report, directing that the clerk close the file on July 13, 2009. The district court held that the secretary need not recognize the probate court’s order, and that the secretary could take the property belonging to the survivors without due process. The basis of this ruling was essentially that the court would give deference to the secretary’s interpretations of the MSP, and because the survivors had not pursued their claims to judgment after a “full trial on the merits,” they could not challenge the secretary’s taking on due process grounds.

The district court’s determination was subsequently appealed to the U.S. Court of Appeals for the 11th Circuit.

Contours of the Decision
On appeal, the 11th Circuit reversed the district court’s determination. The issue before the court was the interplay between the MSP and the FWDA. The individual property rights of the survivors and the estate in the settlement were critical to the analysis. Could the secretary ignore the probate court’s allocations and seek to recover its Medicare claim from the property of the survivors, and more importantly, could the secretary take property belonging to survivors who had no connection to the payment of Medicare benefits without due process?

The FWDA provides that a personal representative of an estate brings a consolidated wrongful death action.16 Unquestionably, this means that all claims for damages, whether held by the estate, or held by the survivors, are consolidated into one wrongful death action brought by the personal representative against the responsible third party(ies). The FWDA provides the specific damages recoverable by the surviving children in these circumstances as the value of lost support and services, parental companionship, instruction and guidance, and mental anguish.17 The damages recoverable by the estate include medical and funeral expenses due to the decedent’s injury or death.18 The survivors are not allowed to recover damages for medical expenses unless they have actually paid the decedent’s medical expenses.19 The only other claim for medical expenses related to the injury or death is recoverable as damages by the estate.20

Florida has a well-established procedure for allocating a wrongful death settlement between the claims of the survivors and the claims of the estate. The personal representative who settles the claim is authorized to allocate the settlement proceeds between the estate and the survivors in a “reasonable and equitable” manner or seek court approval of an apportionment. The decedent’s creditors may only recover from the portion of the settlement allocated to the estate and cannot seek recovery from the portion of the settlement allocated to the survivors.21

Bradley, throughout the proceedings below, maintained that the secretary could not seek recovery from the portion of the settlement belonging to the survivors because such portion constituted the collective survivors’ individual property, protected by principles of due process. Bradley further argued that the secretary’s reliance on its interpretations contained in its field manual were unreasonable.22

The secretary maintained that its decision to ignore the probate court’s allocation was reasonable and in keeping with the MSP and the MSP Manual.23 The secretary concluded that its interpretation of the MSP and the district court’s deference given to it in upholding its decision was proper.24

The court acknowledged that under the FWDA, the claim of the estate is separate from the claims of the survivors.25 All loss of consortium or companionship recoveries are the property of the person who incurred the loss.26 A child’s loss of parental companionship claim is a property right belonging to the child. The surviving children’s loss of parental companionship claims do not include the decedent’s medical expenses, as a claim for medical expenses belongs only to the estate.27 The court concluded that the secretary cannot claim the property of the survivors and can only claim a right of reimbursement against the claim of the estate which would constitute the recovery for medical expenses.28

The court further pointed out that the MSP allows recovery of Medicare conditional payments from primary plans and that nowhere in the definition of primary plans is it listed that a primary plan is a surviving child with property rights in a tort settlement.29 The court went on to emphasize that the secretary’s reliance and the district court’s deference given to the MSP Manual was misplaced. The MSP Manual is merely a policy statement that was not adopted by rule and notice and does not carry the force of law.30

The court noted that counsel for the survivors and the estate acted sensibly and in a cost-effective manner. Once it was determined that the secretary was seeking more of the settlement than she was entitled to, counsel properly turned to the Florida probate court for a proration by filing an application for determination of the rights of the estate and the rights of the survivors to the wrongful death settlement.31 The secretary was served notice of the proceeding and could have participated, but chose not to participate.32 The secretary’s refusal to accept the probate court’s allocation, based on provisions of the MSP Manual, was unreasonable, because the MSP Manual does not control the law.33

Finally, the court was seemingly perplexed at the way the secretary responded to counsel’s efforts to address the constitutionally protected property rights belonging to the 10 survivors, describing Medicare’s posturing as “a particularly, troubling sub-issue.”34 The court then found Medicare’s position contrary to judicial and public policy,35 since it would force victims to litigate their claims, contrary to the historically strong public interest in the expeditious resolution of lawsuits through settlement.36

At the end of the day, the court reversed the district court’s affirmance of the secretary’s decision and limited the secretary to recover from only the $787.50 allocated to the estate by the probate court, remanding the case for consistent proceedings below.37

The Effect of the Decision on Your Practice
The Bradley decision will have far-reaching implications on wrongful death actions in Florida. In the abstract, the decision rejected the secretary’s wholesale reliance on the MSP Manual to justify collection from a settlement. This rejection of the secretary’s reliance is a fundamental change in the playing field. Historically, the secretary has exercised broad power to interpret the MSP and adopt policy statements and manuals concerning its application. The Bradley court’s refusal to give deference to the secretary’s interpretations contained in the MSP Manual will provide future argument that other provisions of the MSP Manual that are contrary to law should not be used to justify unreasonable recoveries from settlements.

The more practical application of the decision will lead to a corrected approach to Medicare’s collection from wrongful death settlements. Medicare will be forced to acknowledge the allocation of the settlement between the claims of the survivors and the claims of the estate, and the secretary will no longer be able to seek recovery from the entirety of a wrongful death settlement. It is too soon to determine if the secretary will begin to acknowledge allocations of the settlement prior to a court allocation, but it is definite now that they cannot ignore the allocation of a wrongful death settlement by a court. Since the Bradley court emphasized that the secretary could have participated in the probate court’s allocation but refused, it is likely that the secretary’s future position could be that she will continue to reject allocations of wrongful death settlements outside of the court. However, the recognition of the legal realities of the secretary’s recovery if the matter is submitted to the court for allocation should lead to the secretary adopting procedures to determine a recovery prior to a full-blown allocation hearing before the court.

Regardless of how the secretary proceeds administratively in accepting allocations of wrongful death settlements, it is certain that in the context of Florida wrongful death settlements, a probate court allocation of the settlement between the claims of the survivors and the claims of the estate must now be recognized. However, this recognition by the secretary could be tempered if the parties do not notice the secretary of the allocation proceeding and provide ample opportunity for the secretary to participate.

Moving forward after Bradley, a practical problem will arise as to how to challenge an unjustified legal action by Medicare if the secretary acts contrary to Bradley by not properly recognizing a court’s allocation and demanding payment from portions of the settlement allocated toward claims other than medical expenses. There are, and will be, divergent views on how such action by the secretary should be challenged. One approach would be business as usual, which would require exhausting all administrative appeals before the matter can be brought back before a court.

As outlined above, however, the administrative appeals process involves four distinct steps that must be taken. These steps are labor intensive and time consuming, and it can take years to exhaust these four levels of administrative appeals before reaching a disposition before a federal district court. Although this administrative headache is an aggravation, failure to exhaust administrative appeals could lead to the inability to bring the matter back to a court for determination. The good news for practitioners is that the Equal Access to Justice Act (EAJA), 28 U.S.C. §2412, provides for a discretionary award of attorneys’ fees under the federal common law for oppressive, vexatious, recalcitrant, or bad faith conduct,38 or provides for a mandatory award of attorneys’ fees when the government’s conduct is not “substantially justified.”39

On the other hand, there may be ways to side step the administrative appeals hurdles in some circumstances. For example, in a situation in which the secretary ignores an order allocating a settlement, persists in attempting to collect those portions deemed to be survivors’ property, and subsequently refers the debt, plus interest, to the Department of Treasury for collection, a viable action could likely be filed relative to an inappropriate encumbrance or taking of property. This action would be akin to condemnation of private property and could be coupled with claims under the state or federal fair debt collections act if applicable. In addition, it may be that perhaps a viable declaratory judgment action on 28 U.S.C. §1331 grounds now exists post-Bradley. The court would then determine the rights of all competing claims to the settlement. This article is not intended to limit the arguments of any practitioner faced with the dilemma, but only to observe that creative thinking can now achieve much in holding Medicare accountable for refusing to honor the binding precedential value of Bradley. Since Bradley opens so many new possibilities, only time will prove the viability of worthy efforts consistent with logic and reason.

Application of Bradley to Other Jurisdictions
The Bradley decision concerned the interplay between the MSP and the FWDA. However, the logic and thrust of the Bradley decision would be applicable to any state wrongful death action where the claims of the survivors and the claims of the estate are consolidated into one action, and state law determines that these claims are independent. In these other states, the arguments made in Bradley that the secretary cannot recover from the settlement those portions belonging to the survivors should be compelling. As is always the case, however, dissimilarities may affect the degree of success. For example, a survivor’s recovery may include components for medical expenses unlike the circumstance in Florida, necessitating further analysis. If a state’s wrongful death statute does not provide that the two claims are independent, or the statute requires payment of the decedent’s creditors before an allocation, all bets are off concerning the application of Bradley to reduce a Medicare claim.

The Impact of Bradley on Other Lienholders
The Bradley decision addresses the secretary’s claims to recover Medicare benefits under the MSP. Since the MSP explicitly states that the secretary makes conditional payments, these payments must be reimbursed to the appropriate trust fund, and the United States may pursue an action to recover unpaid conditional payments; the recovery rights under the MSP are reserved for the secretary. Accordingly, the Bradley decision directly affects only the secretary’s recovery rights under the MSP.

Some Medicare beneficiaries receive their Medicare benefits from Medicare Part-C or Medicare Advantage plans (Medicare HMO). In this circumstance, the secretary pays a premium to private health insurance companies to provide benefits similar to Medicare benefits. If a Medicare HMO provides benefits, the secretary does not make conditional payments, so the secretary’s reimbursement rights under the MSP would not be applicable. Medicare HMOs have the right to charge or bill enrollees for accident-related expenses, but this avenue to reimbursement is governed by 42 U.S.C. §§1395mm(e)(4) and 1395w-22(a)(4), and is much weaker than the reimbursement rights reserved for the secretary under the MSP. Medicare HMOs can include reimbursement rights in their contracts, but these contractual reimbursement rights cannot be stronger than the secretary’s rights under the MSP since the Medicare HMO is providing benefits in lieu of the secretary providing benefits.40 Accordingly, Medicare HMOs’ reimbursement from a wrongful death settlement should be limited to the recovery of medical expenses by the estate, and they should not be able to reach the survivor’s property.

Medicaid agencies can assert a statutory right to recover accident-related medical expenses from a wrongful death settlement pursuant to 42 U.S.C. §1396 et seq. and corresponding state laws. However, according to the U.S. Supreme Court in Ark. Dept. of Health & Human Services v. Ahlborn, 126 S. Ct. 1752 (U.S. 2006), this right of recovery by Medicaid agencies is limited to the portion of the Medicaid recipient’s settlement representing past medical expenses and cannot be extended to other portions of the settlement which represent a Medicaid recipient’s unassigned private property. The analysis in Ahlborn prohibiting Medicaid agencies from asserting a lien against, and seeking recovery from, the portions of a Medicaid recipient’s settlement not representing compensation for past medical expenses, coupled with the analysis in Bradley is instructive on the separate nature of the property rights of various persons and governmental entities in settlements. The Bradley court’s framing of the issue as a determination of “Whose property is the settlement?” speaks directly to the question that must be answered in regard to Medicaid liens. The Bradley case outlines the exact analysis necessary to limit Medicaid to recover from only the portion of the settlement belonging to the estate. Given the holding in Bradley and Ahlborn, Medicaid agencies should be limited to recover only from the estate’s portion of any wrongful death recovery.41

While the recovery rights of other possible lien holders is subject to their statutory or contractual rights of recovery, the Bradley analysis will be problematic for these lienholders in their attempts to collect from the portion of the settlement allocated to the survivors. As the decision outlines, under the FWDA, the claims of the estate are separate from the claims of the survivors. The recovery for the claims of the survivors is the property of the survivors. Lienholders are left to recover medical expenses from the estate’s compensation for its losses, not the recovery of the survivor’s property. Accordingly, the analysis in Bradley will prevent lienholders from reaching into the pockets of survivors to satisfy their lien for medical expenses.

Although the aftermath of Bradley may be far reaching and not easily calculated at this time, it does give immediate traction to victims in Florida’s tort system when a loved one’s death is caused by the negligence of others. No longer can Medicare and other lienholders exploit true victims who have a constitutionally protected property right in their recovery. The 11th Circuit made a correct and well-reasoned decision in restraining the overreaches of Medicare, which was born from its adopted status as an 800-pound gorilla. Hopefully moving forward, practitioners will find Bradley and its logic supportive in bringing disputed claims to a quick and timely resolution.

1 Co-author Eric H. Faddis initiated the challenge of the secretary of the Department of Health and Human Services’ conduct in Bradley, representing the survivors through exhaustion of the administrative appeal process, through the proceedings before the district court, and through the proceedings before the 11th Circuit Court of Appeals. He was joined in the 11th Circuit by Robert S. Peck, president of the Center for Constitutional Litigation (CCL) in Washington, D.C. Mr. Peck and CCL authored the briefs and participated in oral argument before the panel. Co-author Floyd Faglie provided technical support to Faddis during the judicial appeal in the district court.

2 Bradley, 621 F.3d at 1332.

3 Id.

4 Id.

5 Id.

6 Id. This was accomplished so as to avoid any subsequently made “collusion” argument that could potentially be raised by Medicare in defending its superiority position in seeking reimbursement from unallocated settlements.

7 Pursuant to the Medicare Secondary Payer statute (MSP)(42 U.S.C. §1395y(b)(2)(B)(ii)), Medicare is secondary when there is a primary plan responsible for paying for medical care. If the primary plan is not expected to make payment in a reasonable amount of time, Medicare will make payment conditioned on reimbursement when the primary plan is required to make payment through compromise, settlement, or judgment. These payments are often referred to as “Medicare conditional payments.”

8 Bradley, 621 F.3d at 1332.

9 The secretary asserted this position prior to Bradley seeking the probate court’s involvement on the allocation issue, thereby forcing Bradley to pursue the only mechanism left to address allocating an undifferentiated settlement: Florida’s probate court.

10 Pursuant to 42 C.F.R. §411.37, the secretary will reduce its Medicare conditional payment amount due by the same percentage of the settlement representing the attorneys’ fees and costs incurred in securing the settlement — a cost of procurement reduction. For example, if the attorneys’ fees and costs total 42 percent of the settlement, then the Medicare conditional payment amount will be reduced by 42 percent.

11 This reimbursement ultimatum by the secretary was made despite the pendency of the probate court hearing which had not yet occurred. Ultimately, after the secretary turned the “collection” matter over to the Department of the Treasury, Bradley paid the demanded amount plus an interest penalty “under protest.”

12 Again, this action was taken after the secretary rejected Bradley’s overtures on the need to allocate prior to the calculation of the procurement cost discount.

13 Bradley, 621 F.3d at 1333-34.

14 Id. at 1334. This calculation was similar to the calculation used by parties in Ark. Dept. of Health and Human Services v. Ahlborn, 126 S. Ct. 1752 (U.S. 2006), to determine the portion of the settlement representing compensation for past medical expenses. While pertaining strictly to Medicaid, Bradley cited to Ahlborn in her briefs and originally utilized the logic of Ahlborn in support of her calculations submitted to, and subsequently adopted by, the probate court.

15 Id.

16 Fla. Stat. §768.20 (2007).

17 Fla. Stat. §768.21(1) (2007).

18 Fla. Stat. §768.21(5) (2007).

19 Fla. Stat. §768.21(6)(b) (2007).

20 See id. at 1332, fn. 2 (citing Fla. Stat. §§768.20 and 768.21); id. at 1335, fn. 10.

21 See Thompson v. Hodson, 825 So. 2d 941, 950 (Fla. 1st D.C.A. 2002) (“[W]here the personal representative receives a nonspecific settlement offer in a wrongful death action, he or she is obligated to apportion the proceeds between the estate and the survivors in a reasonable and equitable manner or to seek court approval of an apportionment”); Continental National Bank v. Brill, 636 So. 2d 782 (Fla. 1994); University Medical Center v. Zeiler, 625 So. 2d 120 (Fla. 5th D.C.A. 1993); and Orlando Regional Medical Center v. Heron, 596 So. 2d 1078 (Fla. 5th D.C.A. 1992).

22 Consistent with this position was the belief by counsel throughout the proceedings below that Bradley and her siblings, as survivors, were not subject to the requirement that they exhaust Medicare’s administrative appeals remedies since the collective survivors had no obligation to, or other connection with, Medicare. However, since the secretary customarily raised the defense that the survivor(s) “failed to exhaust administrative remedies,” a matter sought by counsel to be judicially noticed herein, counsel elected to engage in the exhaustion of such administrative remedies so as to avoid dismissal of her paramount constitutional deprivation of property arguments.

23 Bradley, 621 F.3d at 1335-37.

24 Id.

25 Id.

26 Id.

27 Id.

28 Id.

29 Id.

30 Id. at 1338.

31 Id.

32 Id.

33 Id. at fn 25. The court pointed out that lawyers routinely resolve the interest of third parties in settlements by agreement or allocation litigation. In the instant case, Bradley, faced with the secretary’s position, had no other option but to seek an allocation of the settlement through the probate court because the MSP and its regulations do not prescribe how a lump sum settlement will be prorated between multiple parties, and until better methods are prescribed, the steps taken by Bradley were reasonable and the only method available. This sentiment was likewise echoed by the U.S. Supreme Court in Ahlborn. In Ahlborn, the U.S. Supreme Court indicated that in the absence of an agreement as to the allocation of a settlement, the court is the proper venue for the allocation. See Ahlborn, 126 S. Ct. at 1765.

34 Id. at 1337. As a result, counsel likened the secretary to the “800-pound gorilla,” who, as the late comedian Henny Youngman would say in follow-up to his one liner on where an 800-pound gorilla sleeps, “Wherever it wants!”

35 Id. at 1338-1339. Medicare’s rejection of any allocation in a settlement and its position that it would only honor an allocation if it resulted after a “full trial on the merits,” was deemed to “[fly] in the face of judicial and public policy.” Id. at 1339.

36 Settlements are the compromise of legal rights based on the party’s valuation of their legal rights and the likely outcome if the matter is brought before the court for decision. Like with any compromise, lienholders claiming a legal entitlement to a recovery must weigh their right based on the law and the possible outcome if the matter is submitted to a court for decision. Litigation over the entitlement to recover from a settlement will be tempered by the desire to mitigate risk of proceeding to hearing. In states where hearing procedures have been developed to allocate a settlement to determine the rights of lienholders, they are rarely used. Once all of the interested claimants understand the rules that govern the division of settlement proceeds, it is usually possible for them to agree to an allocation without the need for the time and expense of an allocation hearing. See Sharon L. Van Dyck & Wilbur W. Fluegel, Determining “Full Recovery” Under the Minnesota Anti-Subrogation Statute, Minn. Trial Lawyer Mag. 18 (Winter 1999). There is no reason compromise of Medicare conditional payments or other lien interest cannot occur outside the court now that it has been recognized that Medicare’s recovery from the survivor’s portion of the settlement is prohibited.

37 Bradley, 621 F.3d at 1340.

38 28 U.S.C. §2412(b).

39 28 U.S.C. §2412(d)(1)(A).

40 See Care Choice HMO v. Elizabeth Engstrom, 330 F.3d 786 (6th Cir. 2003); Arlene Nott v. Aetna U.S. Healthcare, Inc., 303 F. Supp. 2d 565 (E.D. Penn. 2004); and Primax Recoveries, Inc. v. Catherine Yarmosh, Case No. 3:03CV01931 (U.S. D. Ct. 2006) (Recommended Ruling on Parties’ Dispositive Motions by U.S. Magistrate Donna F. Martinez, dated September 7, 2006, with stipulated dismissal dated September 25, 2006).

41 In Florida, the Agency for Health Care Administration has been successful in asserting Medicaid lien rights against the entirety of wrongful death settlements regardless of whether the settlement is the property of the estate or the property of the survivors. See Strafford v. Agency for Health Care Admin., 915 So. 2d 643 (Fla.2d D.C.A. 2005); Englich v. Agency for Health Care Admin., 916 So. 2d 994 (Fla. 4th D.C.A. 2005); and Ross v. Agency for Health Care Admin., 947 So. 2d 457 (Fla. 3d D.C.A. 2006). Although Florida Medicaid’s entitlement to recover from the entirety of a wrongful death settlement pursuant to Fla. Stat. §409.910 has not been squarely before a Florida appellate court since the Ahlborn decision, the decision in Ahlborn limiting Medicaid to recover from only the portion of the settlement representing past medical expenses should restrict the use of these pre-Ahlborn wrongful death decisions. Furthering the logic and rationale of Ahlborn, the Bradley decision outlines the exact analysis necessary to limit Medicaid to only recover from the portion of the settlement belonging to the estate (past medical expenses). Bradley, coupled with Ahlborn, and if necessary, coupled with traditional attacks on the constitutionality of Fla. Stat. §409.910, as it relates to the taking of survivors’ constitutionally protected property rights, should prevent Medicaid in the future from asserting liens against, and seeking recovery from, the portion of a wrongful death settlement representing the survivor’s property.

Eric H. Faddis practices law with his wife Tiffany M. Faddis at the Orlando law firm of Faddis & Faddis, P.A., focusing exclusively on representing victims in the area of personal injury and wrongful death. He has been active on the boards of both the American Association for Justice and the Florida Justice Association. He is AV-rated and board certified in civil trial law by the National Board of Trial Advocacy since 2003.

Floyd Faglie is a partner at Staunton & Faglie, PL. His practice is focused on maximizing lawsuit recoveries through aggressive lien resolution, taking steps as appropriate to preserve public assistance post settlement through the proper use of special needs trusts, and ensuring MSP compliance through appropriate set-up and operation of Medicare set asides. He is a principal with both The Center for Lien Resolution, LLC, and The Center for Medicare Set Aside Administration, LLC.

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