Benson v. Sebelius: Judicial Justification for Allocating Proceeds Between Medicals and Non-Medicals

 | 

Share

Executive Summary: There has been ample discussion recently about how to identify and satisfy future medical reimbursement obligations associated with the resolution of a claim asserted by a Medicare beneficiary. Historically, parties may have taken a conservative approach by merely reviewing medical records and valuing those reimbursement obligations at whatever value was attached to the claimant’s future cost of care, which would otherwise be covered by Medicare. While this approach is compliant, it creates a situation where parties’ reimbursement results are likely more than what the reimbursement obligation appeared to be originally.

In recent months, the Centers for Medicare and Medicaid Services (“CMS”) provided multiple statements emphasizing the fact that parties can satisfy future medical reimbursement obligations by identifying what portion of an award is for medicals versus non-medicals. For those that need further evidence that such an approach is, in fact, a compliant one, let’s revisit some case law on point that tells us exactly that. In short, the case law instructs us to consider that where… if a settlement covers both medical and non-medical costs, CMS’s reimbursement may be apportioned so as to reach only the portion of the settlement allocated to cover medical costs.

 

In 2011, a decision by the United States District Court for the District of Columbia provided additional federal judicial insight on the part of an award from which CMS could recover pursuant to the Medicare Secondary Payer (“MSP”) statute. The court found the reimbursement amount collected by CMS was pursuant to the applicable laws regulating reimbursement rights owed to CMS from a wrongful death settlement and the claimant was not denied due process. While the decision itself directly addresses past medicals instead of future medicals, the court’s broad statement as to how much CMS may recover pursuant to the MSP statute based on allocation or apportionment theories resonates.

Synopsis of Benson v. Sebelius

Glen Benson (“Benson”), acting as the survivor and administrator of his deceased mother’s estate, received a $90,000 settlement in a wrongful death and survival action commenced in a Pennsylvania state court. As a Medicare beneficiary, Benson’s mother had received injury-related care paid for by CMS before passing away. CMS asserted a conditional payment reimbursement claim amount of $40,213.74, notifying Benson of this amount in December 2006. As part of the settlement, the parties allocated eighty percent (80%) of the gross recovery to the wrongful death claim and twenty percent (20%) to the survival claim, though they did not provide a specific amount of medical expenses allocated to each claim. The Pennsylvania court approved the settlement, specifying that the conditional payment amount asserted by CMS would be held in escrow pending disposition of CMS’s claim.

In November 2007, CMS alerted Benson that he was required to reimburse for the conditional payments made based on the fact that the wrongful death and survivor actions had been settled. The final amount asserted by CMS, after allowing for a procurement cost offset, was $25,868.58. Benson paid this amount in full (to avoid interest and penalties accruing) and pursued administrative relief in accordance with CMS policy. Ultimately, the Medicare Appeals Council held that CMS’s recovery rights are broad and, as set forth in the MSP Manual interpreting the MSP statute, settlement allocations that are not based on the merits of the case do not limit CMS’s reimbursement rights under federal law.

Benson argued that CMS was only entitled to recover from the settlement award received by the Medicare beneficiary’s estate. Benson relied on previous opinions rendered by the 11th Circuit in Bradley as well as an action titled Denekas v. Shalala. The Court distinguished these two cases. While the plaintiffs in Bradley and Denekas had not claimed medical expenses in pursuing their wrongful death actions, Benson had claimed those medical expenses as a measure of damages. Furthermore, based on the release of the deceased mother’s landlord for damages associated with her post-fall complications and death, the court viewed evidence suggesting that the settling parties had taken those claimed medical expenses into account when settling the claims. Benson provided no evidence suggesting that the wrongful death settlement did not include the medical expenses paid by CMS. As a result, the court concluded that CMS was entitled to full recovery of medical expenses paid on behalf of the deceased mother, regardless of how the parties allocated proceeds between the claims themselves.

In reaching its’ conclusion that CMS’ recovery was not so limited, the court provides another solution (in the dicta of the case) for parties seeking ways to minimize its reimbursement exposure under the MSP. The court noted that: “Moreover, if a settlement covers both medical and non-medical costs, CMS’s reimbursement may be apportioned so as to reach only the portion of the settlement allocated to cover medical costs.” Understanding that the MSP Act is all about medicals (pled, claimed and / or released) and ensuring that the federal government is reimbursed for medical expenses to the extent that a primary plan or payer accepts responsibility for medicals, the court’s reasoning clearly signals an alternate compliant approach for parties attempting to comply with medical reimbursement under the MSP Act. Benson’s mistake was not ensuring the allocation was on the merits within the meaning of the MSP Act, as interpreted by Medicare’s recovery manual.

Benson’s Impact

Benson provides the judicial justification for apportioning an award between medicals and non-medicals as a means to minimize reimbursement exposure under the MSP Act. When medicals (past or future) have been pled, claimed and/or released, parties cannot simply allocate proceeds between different claims in order to minimize their exposure. Instead, if such damages are pled, claimed and/or released, then parties would be wise to take the additional step of apportioning proceeds between medicals and non-medicals, AND noticing Medicare or its’ legal representatives (as the estate representative in Bradley did). Then, relying on Benson as well as CMS’ own regulations (specifically 42 C.F.R. § 411.47), any reimbursement exposure would only extend to that portion of the award apportioned for medicals.

Generally speaking, CMS’s priority right of recovery ripens under the MSP statute when a primary plan accepts responsibility for medical expenses. That responsibility may be demonstrated by settlement, judgment, award or other payment. But, that responsibility (especially in a liability settlement) likely does not cover 100 cents on the dollar for a plaintiff’s full measure of damages sustained. Apportioning proceeds between medicals and non-medicals represents a fully compliant way to address MSP reimbursement obligations while maximizing a plaintiff’s net proceeds and minimizing a defendant/insurer’s exposure simultaneously. The key, however, is to ensure that before you obtain that court order, that you ensure Medicare has been notified as a necessary party. That will, at least, give you the ability to argue in federal court (if later removed due to federal question jurisdiction), that Medicare had an ability to challenge the position in state court. You can expect Medicare’s attorneys to argue pre-emption, but as Bradley shows us, state law creates property rights. And, in the case of a decedent’s estate, those very same state probate laws that govern the orderly disposition of a Medicare beneficiary’s assets and debts may have equal, if not greater sway than that of Federal law.


 

The Garretson Resolution Group continues to closely monitor how decisions such as Benson affect tort settlements and MSP reimbursement claim resolution. Please see our website at www.garretsongroup.com for resources such as white papers, articles and other practice tips related to claim resolution.

Leave a Comment