Bradley v. Sebelius – 11th Circuit Approves Equitable Distribution of a Settlement to Reduce Medicare Conditional Payment

Posted date in Jason D. Lazarus, J.D., LL.M. Liens, Medicare, Medicare Secondary Payer Act, MSP Compliance

In this very important decision, Bradley v. Sebelius, the 11th Circuit Court of Appeals approved a probate court’s equitable distribution findings to reduce a Medicare conditional payment obligation.  Bradley, one of Charles Burke’s children and the P.R., brought suit against a nursing home for wrongful death as a result of nursing home abuse on behalf of the estate and ten surviving children. 

Prior to Mr. Burke’s death, Medicare paid approximately $38k for his medical care in the hospital.  The nursing home abuse case was settled for the entire amount of available insurance proceeds, $52, 500.  A release was executed on behalf of the estate and the surviving children.  Bradley notified Medicare of the settlement along with the procurement costs.  Medicare refused to acknowledge that the claim had been settled for less than 100% of value.  Medicare took the position it was entitled to the full amount of the medical expenses less procurement costs for a net amount of $22,480.  Counsel for Bradley filed an application for the probate court to adjudicate the rights of the estate and rights of the surviving children in regard to the compromised sum received in settlement of the claims.  Medicare was put on notice of the probate court proceedings and invited their participation in the proceedings.  Medicare did not participate. 

The state probate court ordered:

(c) . . . The Court after having heard sworn testimony on the potential value of each child/survivors’ independent claim, and after calling on its own experience in the range of values each child’s claim potentially carried, finds that the values asserted by the Personal Representative’s counsel in this motion are reasonable, and the Court adopts and specifically finds that each of the respective ten (10) survivors’ claims holds a value of at least $250,000.00. The Court notes that Medicare has asserted a claim of lien based upon payments of $38,875.08. Therefore, the Court finds that the total, full value of this case had the total, full value been collectible, was/is $2,538,875.08.

(d) Based upon principles of equity, the Court determines the medical expense recovery in the instant cause is $787.50. The Courthas calculated such figure based on such component’s contribution tothe total full value, if such value were collectible. The Court has notprioritized the recovery of medical expenses over the recovery oneach of the respective survivors’ claims. Further, the Court determines the independent survivors’ claims recovery in the instant cause is $51,712.50. The Court has likewise calculated such figure based on all survivors’ claims contributions to the total, full value. The Court has likewise not prioritized the recovery on each of the respective survivors’ claims over the recovery of medical expenses.

Medicare refused to accept the probate court’s order that they would only recover $787.50.  Based upon the Medicare Secondary Payer Manual, MEDICARE argued it didn’t have to recognize the probate court’s order since the order was not a decision on the merits of the controversy.  Instead, the decision was an allocation of a settlement, not a judgment on the merits.  See MSP Manual (CMS Pub. 100-05) Chapter 7, §50.4.4 (where “[t]he only situation in which Medicare recognizes allocations of liability payments to non-medical losses is when payment is based on a court order on the merits of the case”).  Medicare argued that the probate court’s order was advisory in nature or superseded by federal law.  Medicare was paid by Bradley under protest and an administrative appeal was pursued.  All of Medicare’s administrative remedies were exhausted and Bradley lost at all levels.  The case was appealed to federal district court for review of the Medicare administrative decisions.  The district court held that Medicare’s interpretation of the MSP, 42 U.S.C. §1395y(b)(2)(B)(ii)(2006), and its attending regulations, 42 C.F.R. §§ 411.37(c)(1),(c)(2), (c)(3)(2004), was reasonable.  In making its decision, the district court relied heavily upon the Medicare Secondary Payer Manual, which does not recognize allocations of liability payments to non-medical losses unless it is an order on the merits of the case.  The district court held Medicare was entitled to the entire conditional payment amount, less procurement costs, of $22,480.  An appeal of that decision was taken to the 11th Circuit Court of Appeals.

The 11th Circuit examined the interplay between the Florida Wrongful Death Act (“FWDA”) and the MSP federal provisions.  Bradley argued that the FWDA controlled.  Under the FWDA, in a wrongful death action, survivors of the decedent may recover for lost parental companionship, instruction and guidance and for mental pain and suffering.  Damages allowed to an estate are considered separate and distinct from damages recoverable by the decedent’s survivors according to Florida law.  It is well accepted under Florida law that proceeds from a wrongful death action aren’t for the benefit of the estate, instead they are property of the survivors and compensation for their loss. 

The court found that it was faced with an issue of first impression in this particular case and that was “[w]hose property is the settlement?”  The court pointed out that the settlement involved medical expenses and costs recovered by the estate, subject to the MSP statute, along with non-medical, tort property claims of the surviving children for lost parental companionship under state law, not subject to the MSP statute.  The Bradley court pointed out that all damages besides the decedent’s medical expenses where a property right belonging to the surviving children.  Only the estate’s allocated share of the proceeds was subjected to Medicare’s claims. 

The 11th Circuit was troubled by Medicare’s failure to participate in the probate court proceedings.  Medicare declined to take part in the proceedings even though its position was adverse to the survivors in the proceedings.  The court stated that “[c]ounsel properly turned to the Florida probate court for a proration, filing an application with the probate court to adjudicate the rights of the estate and rights of the children vis-à-vis the rights of the Secretary to the compromised sum received in settlement of the claims.”  Yet even after the probate court made the allocation, Medicare asserted it was still entitled to the full amount less procurement costs based upon the MSP manual and refused to respect the decision of the probate court. 

The court indicated that the essence of Medicare’s position was that the MSP manual was entitled to deference under Chevron, USA Inc. v. Natural Resource Defense Council, Inc.  Under the Chevron Supreme Court decision, agency interpretation of a statute which it administers is entitled to deference.  However, the Bradley court pointed out that the Supreme Court has held that “agency interpretations contained in policy statements, manuals, and enforcement guidelines are not entitled to the force of law.”  The 11th Circuit concluded that Medicare’s reliance upon the MSP manual and the district court’s approval of such was misplaced. 

The Bradley court correctly and aptly pointed out that that counsel for Bradley acted “sensibly” in settling the claim for the full value of all available insurance.  If the MSP field manual was followed, it would lead to a “Catch-22” situation.  It would force counsel to file a lawsuit inurring additional costs further diminishing the “paltry sum” available for settlement.  According to the court, this would fly “in the face of judicial and public policy.”  Therefore, the court held that Medicare’s position wasn’t supported by the statutory language of the MSP and its implementing regulations; the MSP manual does not control the law and it was error for the district court to rely “upon the advisory language contained in a field manual as the rationale for its opinion.”

Equally important, the 11th Circuit pointed out a second reason that Medicare’s position, as approved by the district court, was in error.  The court reviewed the strong public policy favoring “expeditious resolution of lawsuits through settlement.”  According to the Bradley court, Medicare’s position would have a “chilling effect on settlement.”  This is so because Medicare’s position compels plaintiffs to force their tort claims to trial, burdening the court system.   “It is a financial disincentive to accept otherwise reasonable settlement offers.”

For all of the foregoing reasons, the court held that Medicare was entitled to recover $787.50, as determined by the allocations of the state probate court.  The Bradley opinion is a huge victory in the fight against Medicare conditional payment recovery in situations such as this.  It is also is tremendously important because in the past the MSP manual has been treated deferentially, but not this time.  Finally, it is important because it recognizes equitable distribution in the context of Medicare conditional payments and approves a state court’s allocation of damages in the context of a settlement.  It should be a very useful case in fighting Medicare in the conditional payment realm.

However, it should be interesting to see what happens in the Hadden v. US case before the 6th Circuit.  The district court below in Hadden refused to recognize equitable distribution concepts in the Medicare conditional payment context.  If the 6th Circuit, which is about to hear oral arguments on the appeal from the district court, upholds the district court’s opinion we will have a split of the Circuits which may lead to the US Supreme Court weighing in on this subject.