Last week, two important Medicare Secondary Payer (MSP) decisions were issued. On September 30, 2010, the United States District Court for the Northern District of Alabama issued a long awaited memorandum opinion and order in United States v. Stricker, addressing the statute of limitations applicable to government recovery under the MSP laws.

On September 29, 2010, the United States Court of Appeals for the Eleventh Circuit, issued its opinion in Bradley v. Sebelius, addressing, inter alia, the proper weight and deference to be given to MSP manual provisions. Both decisions were decided unfavorably for the government. We provide a brief summary of these cases below.

I. United States v. Stricker, No. 09-BE-2423-E (N.D. Ala.)

On September 30, 2010, the United States District Court for the Northern District of Alabama issued an order in United States v. Stricker providing, inter alia, important guidance regarding the applicability of the statute of limitations in MSP matters. This case, which was filed against multiple chemical manufacturers, insurance companies and plaintiffs' counsel for the recovery of MSP conditional payments in connection with a 2003 class action tort settlement, has been closely watched, in part because (1) it appears to be the first time that the government has sued multiple plaintiffs' counsel for recovery under the MSP laws (as recipients of settlement funds), (2) the government appears to be seeking recovery for medical payments made after the date of settlement, and (3) the amounts at issue are substantial and reflect a more aggressive MSP enforcement orientation against insurers than previously demonstrated.

In granting certain defendants’ motion to dismiss and denying plaintiff’s motion for partial summary judgment, the court found the government's claim was time barred by the applicable statute of limitations. Importantly, with respect to the chemical manufacturers and their insurers joined as defendants (Corporate Defendants), the court held that a three year statute of limitations applied, but that even if the longer six year statute of limitations had applied, it would have expired prior to December 1, 2009, when the government filed its suit. The court granted plaintiff leave to re-file the motion for summary judgment at an appropriate time, if necessary, against any remaining (non-moving) defendants.

Decision

The parties agreed that because the MSP laws are silent as to the deadline for filing a recovery claim, the relevant statute of limitations is governed by the Federal Claims Collection Act (FCCA). The parties disagreed, however, regarding whether a six year or a three year statute of limitations applied in this context. Under the FCCA, the issue turned on whether the government's action was founded upon contract (six year limitation period) or tort (three year limitation period). The court analyzed the issue separately for the corporate and attorney defendants, because the nature and origin of the relationship between the government and the two categories of defendants differed.

  • Corporate Defendants. With respect to the Corporate Defendants, the court held that “logic and reason” compelled the application of the three year statute of limitations founded upon tort, because the government's MSP claims were founded upon allegations of the Corporate Defendants' tortious activity, which resulted in a tort settlement. The court noted, however, that even if the six year statute of limitations applied, the government would not prevail, because it filed its suit too late.
  • The court held that the statute of limitations began running against the Corporate Defendants no later than September 10, 2003, the date the executed Settlement Agreement was approved by the court.
  • Attorney Defendants. The attorney defendants implicitly conceded that the applicable statute of limitations with respect to the government's claims was six years, since they did not assert the more restrictive three year statute of limitations. The court agreed with this approach, noting that the claims against the attorney defendants sounded more reasonably in contract than tort. The court held that the government failed to file suit within the six year statute of limitations period, using a slightly different accrual period in this context. Specifically, the court held that the six year statute of limitations began running no later than October 29 2003, when the defense counsel received the $275 million payment from the underlying class action settlement.

Although this decision may be subject to appeal, it highlights a significant potential limitation on the government’s right to MSP recovery from liability insurers and self-insurers through application of a three year statute of limitations. Accordingly, this case puts increased pressure on the government to identify potential claims, and demand recovery, timely, especially given the amount of information that will be at the government’s disposal under the new Section 111 mandatory reporting process. Given that the case is not fully resolved, it bears continued watching to see if some of the many substantive issues (including whether the government has a right to recover medical costs paid after settlement) are addressed.

II. Bradley v. Sebelius, 2010 WL 3769132 (11th Cir.)

The Bradley case raised an issue of first impression in the 11th Circuit regarding the interplay between the Florida Wrongful Death Act (FWDA) and the MSP laws. In deciding this case, the court reiterated that the MSP manual does not, itself, have the force of law. Given the extent to which CMS relies on its MSP manual in its enforcement activities, this decision has significant potential ramifications.

The Facts. In November 2004, Charles Burke (Burke) was removed from a Gainesville nursing home to a Gainesville hospital. On January 30, 2005, he died in the hospital as a result of multi-organ failure, secondary to sepsis and wound infection.

One of Burke's surviving children, Carvondella Bradley (Bradley), was named as personal representative of Burke's estate. Bradley, on behalf of the estate and the ten surviving Burke children, presented a wrongful death claim in a demand letter to the nursing home. Bradley settled the wrongful death tort claims with the nursing home for $52,500. Settlement was made without filing suit. The Secretary of the U.S. Department of Health and Human Services (Secretary) asserted that under the MSP laws and regulations, the Secretary had the authority to claim the total amount of Medicare payments for services furnished to Burke during his three month hospital stay ($38,875.08), less procurement costs, for a net amount of $22,480.89.

Counsel for the children and the estate filed an application for the probate court to adjudicate the rights of the estate and the children with regard to the compromised sum received in settlement of their claims. Notice was given to the Secretary regarding these proceedings, but the Secretary declined to participate. The state probate court ordered that, based in part upon principles of equity, the Medicare medical expense recovery was $787.50 and the independent survivors' claims recovery was $51,712.50.

The Secretary refused to recognize the probate court's allocation of liability payments to non-medical losses, asserting that it was only bound to adhere to a court ordered allocation based on the merits of the controversy (which this was not). The Secretary cited a MSP manual provision in support of her position, which states that “the 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.” MSP Manual, Ch. 7, § 50.4.4. The Secretary asserted that the probate court's decision was merely advisory in nature or superceded by federal law.

The Proceedings/Decision

The estate paid Medicare under protest, perfected its administrative appeal, exhausted its administrative remedies, and proceeded on appeal to district court. In upholding the Secretary’s position, the district court relied heavily upon the language contained in the MSP manual.

The issue of first impression in the Bradley case was: “Whose property is the settlement?” The Eleventh Circuit determined that the settlement involved both the medical expenses and costs recovered by the estate (and subject to the MSP statute) and the non-medical, tort property claims of the surviving Burke children for lost parental companionship, etc. (not subject to the MSP statute).

In terms of allocation, the Eleventh Circuit noted that the counsel properly turned to the Florida probate court to adjudicate the rights of the estate and of the children vis-à-vis the Secretary regarding the compromised claims.

The Eleventh Circuit noted that the Secretary cited no statutory, regulatory or case law authority in support of its position as articulated in the MSP manual. The court rejected the Secretary’s assertion that its MSP manual was entitled to deference under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). Citing various authorities, the court recognized that “agency interpretations contained in policy statements, manuals, and enforcement guidelines are not entitled to the force of law.” It concluded that the deference given by the Secretary to the language in the MSP manual was misplaced.

The Court reasoned that forcing counsel to file a lawsuit would incur additional costs, further diminishing the already paltry sum available for settlement. The Court found that such practice “flies in the face of judicial and public policy.” The Court also noted that there is a strong public interest in the expeditious resolution of lawsuits through settlement, and that the Secretary's position in the Bradley case would have a chilling effect on settlement. Moreover, the court stated, the Secretary's position would compel plaintiffs to force their tort claims to trial, burdening the court system. The court reversed the district court decision finding that in the absence of clear statutory or regulatory support, the Secretary's position was unpersuasive, particularly given the contrary public policy concerns.

This decision has potentially far-reaching implications for parties in liability cases. The Eleventh Circuit’s acceptance of a model that allows for allocation of recovery to the Medicare trust fund by probate courts paves the way for future litigants’ willingness to compromise their respective positions. Under this approach, Medicare rights may be asserted, and protected, in the probate proceedings. Equally important, the limits to the deference afforded sub-regulatory guidance in the MSP manual may embolden challenges to other statements in the manual that arguably are of questionable origin, unsupported by statute or regulation.

Notably, another case with similar implications is Hadden v. U.S., 2009 U.S. Dist. LEXIS 69383 (Aug. 6, 2009). (Hadden is challenging CMS’s policy to not waive or compromise conditional payments based on the parties’ — as opposed to a court’s — application of comparative fault principles.) Oral argument before the Sixth Circuit is scheduled in that case for October 13, 2010. A fulsome discussion of that decision will be addressed in a future Client Alert once the Sixth Circuit issues its ruling.