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6th Circuit Rules in Medicare’s Favor in Hadden v. U.S.

  
  
  
  

On November 21, 2011, the U.S. Sixth Circuit Court of Appeals (Judge Kethledge) rendered its long-awaited decision in Hadden v. United States.  In a 2-1 ruling, the court held that Medicare was entitled to recover 100% of its conditional payment demand asserted in this case regardless of the fact that the plaintiff may have received a reduced settlement or that the settlement compensated the plaintiff for only a portion of his damages.  Oral argument on this case was heard last year on October 13, 2010 and CPSC attended the hearing.  After over a year’s wait, the court rejected Hadden’s core argument that Medicare’s conditional payment claim can be reduced based on comparative fault principles.

Background:

On August 24, 2004, Vernon Hadden was severely injured when he was struck by a utility truck owned by Pennyrile Rural Electric Cooperative Cooperation.  This accident occurred when an unidentified motorist ran a stop sign forcing the Pennyrile truck to veer to the left; in the course of doing so the truck struck Hadden, a pedestrian.

As a result of this accident, Hadden sued Pennyrile.  The parties eventually settled for $125,000 with Hadden agreeing to be responsible to for all outstanding medical expenses, including any asserted liens.  In relation to this action, Medicare asserted a conditional payment recovery demand in the amount of $62,338.07. 

However, Hadden objected to reimbursing Medicare this amount on several grounds arguing that Medicare’s claim should be reduced based on Kentucky comparative fault allocation principles.  Specifically, he argued that based on the facts Pennyrile was only 10% responsible for the accident with 90% of the fault attributable to the actions of the unidentified driver.  Accordingly, Hadden argued that Medicare should be permitted to recover no more than 10% of its conditional payment claim from the settlement.  Hadden also argued Medicare’ claim should be reduced based on equitable allocation principles or waived per the applicable “waiver” provisions under the MSP.

Hadden initially pursued his claim through Medicare’s administrative appeals process and lost at every turn.  After exhausting his administrative remedies, Hadden filed suit against Medicare in the U.S. District Court which also ruled in Medicare’s favor.  From there, Hadden appealed to the Sixth Circuit Court of Appeals.

Decision:

As noted above, the Sixth Circuit ruled against Hadden and in favor of Medicare thereby permitting Medicare to recover 100% of its claimed conditional payment demand ($62,338.07).  In reaching this decision, the court focused primarily on what it viewed as the “plain language” of the term “responsibility” under 42 U.S.C. 1395y(b)(2)(B)(ii) as that term was clarified under the 2003 amendment to the MSP.  

In this respect, the court essentially ruled that when there is a settlement the primary plan demonstrates “responsibility” as defined under the MSP statute thereby entitling Medicare to a full recovery of its claimed conditional payment amount – even if the settlement is for a compromised or reduced amount.    On this point, the Court stated that “[c]onsequently, 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.”    Using this reasoning, the Court found that since Hadden recouped the full amount of his medical expenses from Pennyrile, he was therefore responsible to reimburse Medicare for the full amount of the conditional payments claimed by Medicare without consideration of comparative fault allocation principles.

Likewise, the Court rejected Hadden’s equitable allocation argument and his attempt to analogize his case with the U.S. Supreme Court’s ruling in Arkansas Department of Health and Human Services v. Ahlborn which limited Medicaid’s recovery rights.  In this regard, the court ruled that there were key statutory differences between the MSP and the Medicaid statute at issue in Ahlborn.   The court also upheld the Medicare Appeals Council’s rejection of Hadden’s “waiver” argument on evidentiary grounds.

Judge White dissented from the majority opinion.  Judge White took issue with the majority’s equating of the term “responsibility” with the actual amount that must be reimbursed to Medicare.  On this point, Judge White referenced the court’s recent discussion of the “demonstrated responsibility” clause contained in the case of Bio-Medical Applications of Tennessee, Inc. v. Central States Southeast & Southwest Areas Health & Welfare Fund to note that inclusion of this phrase in the 2003 MSP amendments was meant to only clarify that tortfeasors are primary plans subject to the MSP’s reimbursement provisions, and did not relate to the amount of reimbursement due Medicare.  Judge White opined that the MSP is silent of this latter issue.

From her view, a literal application of the majority’s ruling would place multiple parties at risk to reimburse Medicare in full even in situations where they settled for less than the amount paid by Medicare.  Furthermore, Judge White expressed concern that majority’s ruling and general CMS policy regarding conditional payment recovery would “discourage settlements and may ultimately hinder CMS’ efforts to recover conditional Medicare payments.”

Conclusion

This decision underscores the difficulty in challenging CMS’ recovery practices and the hurdles that can present themselves to parties throughout the conditional payment investigation and payment process.  Had the dissent carried the day, this case could have ultimately forced Medicare to alter its methodology for determining conditional payment recoveries.  As it stands now, Hadden  joins a long list of cases supporting the government’s contention that it can take a dollar-for-dollar amount for pre-settlement conditional payments.  Ultimately, Hadden is an important case more for what it could have been than what it actually stands for at present.  We can hope, however, that the reasoning in the dissent gains traction and yields changes in this important area.

By Kate Riordan MSP Compliance Consultant

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