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The Eleventh Circuit Court of Appeals Cuts a Clear Passage in the Otherwise Murky Waters of the Medicare Secondary Payer Act

In a recent decision, the Eleventh Circuit Court of Appeals issued a potentially far-reaching opinion that could change—and clarify—the authority by which the Secretary of the Department of Health and Human Services (the Secretary) may recover monies under the federal Medicare Secondary Payer statute (MSP).  In the case, Bradley v. Sebelius, case no. 09-13765, 2010 WL 3769132 (11th Cir. Sept. 29, 2010), the Eleventh Circuit considered the rules under which the Secretary could assert a right to recovery, pursuant to the MSP, in a settlement between a  nursing home and a deceased resident’s (the decedent) estate and surviving children.  The court rejected the Secretary’s reliance on the “Medicare Secondary Payer Manual” (the Medicare Manual), which permitted her to refuse to recognize a Florida probate court’s allocation of the settlement amount.  The court found that the directives contained in the Medicare Manual were not entitled to the deference courts give to an agency’s regulations.  Therefore, the court held that the Secretary could recover only the amount the probate court allocated to the decedent’s estate. 

In the underlying case, the estate and the decedent’s ten surviving children sent a pre-suit demand letter to the nursing home claiming abuse and neglect and seeking damages under Florida’s Wrongful Death Act.  Bradley at *1.  Without filing suit, the parties settled the demand for the limits of the nursing home’s liability coverage: $ 52, 500.  The amount of the settlement was not allocated between the estate’s claim for medical expenses and the children’s tort claims.  Id.  Significantly, during the course of the decedent’s nursing home and subsequent hospital stay, Medicare had paid $ 38,875.08 for his medical care.  Id.  Therefore, the estate notified the Secretary of the settlement.  Id.  The Eleventh Circuit Court stated, “The Secretary refused to recognize that the medical expense claim had been settled for less than 100%.”  Id.  Instead, she “gave the estate sixty (60) days to pay Medicare” the full amount due less the procurement costs:  $ 22,480.89.  Id

Under Florida’s Wrongful Death Act, sections 768.16-768.26 (Florida Statutes), a decedent’s estate and his survivors have the right to recover separate and distinct damages.  § 768.20.  The estate is entitled to recover medical or funeral expenses that had been paid on behalf of the decedent or otherwise would be charged against the estate.  § 768.21(6)(b).  The survivors have individual property rights to recover, among other things, “lost parental companionship, instruction, and guidance and for mental pain and suffering.”  § 768.21(3).  The survivors may recover only those medical expenses that a survivor actually paid on behalf of the decedent.  §768.21(5).  Because an estate is entitled to different damages than those available to the survivors, the estate and the children petitioned a Florida probate court to determine each of their rights to the settlement amount.  Bradley at 1.  The Secretary was noticed and invited to participate in the probate proceeding on Medicare’s behalf, but she refused.  Id.  Essentially, the Secretary took the position that regardless of the outcome, the children would have to use their portions of the settlement funds to “chip in” in order to provide 100% recovery to Medicare, despite the fact that Medicare had made no payments to any of the children and none of the children had contributed—or had any obligation to contribute—to their father’s medical care.  Id. at n.5.

The probate court considered the evidence and determined that the potential value of the case, had it gone to trial, was worth over $2.5 million.  Bradley at *2.  Apportioning the actual settlement amount with its findings, the court allocated $ 51,712.50 to the children’s survivor claims and $ 787.50 to the estate for medical expenses.  Id.  The Secretary, however, refused to accept the amount apportioned to medical expenses, relying on the “Medicare Secondary Payer Manual,” which instructed that Medicare recognized “’allocations of liability payments to non-medical losses’” only where the payment amount is based “’on a court order on the merits of the case,’” not on a settlement.  Id. (quoting the Medicare Manual).  After exhausting its administrative remedies, the estate brought an appeal in the District Court for the Middle District of Florida, which upheld the Secretary’s interpretation of the MSP.  Id. 

On appeal from the district court, the Eleventh Circuit acknowledged that the MSP permits Medicare to recover conditional payments from another entity found later to be a primary payer or to be responsible for paying medical expenses.  Bradley at *3; see also 42.U.S.C. § 1395y(b)(2)(A)-(B)(iv).  However, by the MSP’s definition, “surviving children with tort property beneficiary rights” are not primary payers.  Bradley at *3.  Thus, the court determined that only the $ 787.50 allocated to the estate was “subject to the province of the Secretary” because under the Wrongful Death Act, the children were seeking separate damages as survivors, not as heirs to the estate.  Id. at *4. 

The Eleventh Circuit was “troubled” that the Secretary, despite having an adverse position to the surviving children and having been noticed, refused to participate in the probate proceedings and refused to “respect the decision of the probate court”—even though no statute, regulation or case law gave her a right to refuse the court’s decision.  Bradley at *4.  The Eleventh Circuit rejected the Secretary’s argument that the Medicare Manual policy should control and was entitled to the same deference as agency regulations, noting that the United States Supreme Court has stated that agency “’policy statements, manuals, and enforcement guidelines are not entitled to the force of law.’”  Id. (citing a quote from Christensen v. Harris County, 529 U.S. 576, 587 (2000)).  The court reasoned that the Medicare Manual is not entitled to the force and effect of the law because the contents of the manual do not go through the same public notice and comment process under which an agency’s regulations are scrutinized before promulgation.  Id.
 
Secondarily, the Eleventh Circuit court found that the Secretary’s insistence on recognizing only court-determined allocations only when they resulted from adjudication on the merits “would have a chilling effect on settlement.”  Bradley at * 5.  The policy contained in the Medicare Manual would force plaintiffs to take their claims to trial, which ultimately would reduce the funds available for recovery, especially where the only amount available is an insured’s policy limits.  Id. at *4-5.

Being the only case addressing these issues, the Bradley opinion will be persuasive authority throughout the country in similar cases, until other circuit courts of appeals issue their own opinions.  Moreover, it would not be surprising to see the Secretary petition the Supreme Court to review the Eleventh Circuit’s decision.  Judge Martin’s dissent, noting that the Medicare Manual was entitled to some deference and citing an Eleventh Circuit Court opinion in which the court deferred to another agency’s handbook, may provide the fuel for a Supreme Court battle.  Bradley at *6 n.1.

At first glance, this case may appear to be of limited effect based on the narrow interaction of Florida’s Wrongful Death Act with the MSP.  The Eleventh Circuit’s opinion, however, could have a much broader impact.  As the court noted, “At present, there is no vehicle or mechanism in the MSP statute or its regulations that specifically prescribes how a lump sum settlement will be prorated between multiple parties.”  Bradley at *5 n.21.  Any case in which allocation of settlement amounts between parties with distinct rights to the proceeds—and in which Medicare is expecting reimbursement—will be impacted by the Eleventh Circuit’s stamp of approval on the Bradley parties’ actions in reaching a fair allocation.  Additionally, any recovery by Medicare that is premised primarily on the directives of the Medicare Manual can be overturned by the courts if those directives have no clear basis in the controlling statutes or regulations.  In Bradley, the Eleventh Circuit took the first affirmative steps toward clearing the confusion and creating an environment in which settling parties will better understand their rights and obligations under the MSP.

For more information on this topic, please contact Amy Miles at amiles@mccumberdaniels.com.

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