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About Medicare Liens Case

I was recently hired to represent the family of an elderly pedestrian killed by a motorist.  The driver had a $100,000 policy with State Farm.  Although the police report showed the decedent to be dead at the scene, she was taken to a nearby hospital.  The medical staff billed over $21,000 in an unsuccessful attempt to revive her.  The hospital did not submit the bill to Medicare, hoping instead to be paid a greater percentage of the bill by State Farm.  My job was to maximize my client’s recovery.  Although, like most PI lawyers, I have nothing but warm feelings for a hospital’s billing department, I decided to favor my client over the hospital.

My retainer agreement specified that I was only being hired to pursue a claim for the family’s losses under the Wrongful Death Act.  I filed suit only under the Wrongful Death Act.  I did not file an action under the Survival Act.  The complaint did not seek to recover any medical expenses.  I made it clear to State Farm that I was not seeking reimbursement for the medical expenses, and I did not send them a copy of the hospital bill.  The hospital sent its lien to State Farm.

The case settled for the policy limit.  I filed a motion to adjudicate the hospital lien, and gave notice to the hospital’s representatives.  The judge assigned found that the hospital had no lien against the Wrongful Death suit proceeds.  Unfortunately, State Farm was still worried about Medicare.

The adjuster told me that State Farm could still be held liable if the hospital now submits the bill to Medicare.  She told me that her concerns were based on Cox v. Shalala, 112 F. 3d 151.  In Cox, Medicare paid $181,187.75 in conditional benefits for the treatment of Jack Cox.  After Mr. Cox’s death, his family filed suit in North Carolina for his death.  According to the court’s opinion, the damages sought in the complaint included the medical expenses that had been paid by Medicaid.  See 112 F.3d at 153.  The case settled for $800,000.

The North Carolina Wrongful Death statute, unlike that in Illinois, provides that the family of the decedent can recover medical expenses incurred by the decedent. In a footnote, the court points out the unique nature of the North Carolina statute:

Traditionally, claims such as medical expenses have been considered ‘survivorship’ actions and thus are the property of the estate because they are claims the decedent possessed when he died.  However, by statute, North Carolina has incorporated that sort of traditional ‘survivorship’ action into its action for wrongful death—an action for the benefit of the decedent’s intestate heirs, not the decedent’s estate”.   See 112 F.3d at footnote 3.

Since the North Carolina statute lumps both types of damage into a single claim, the Cox lawsuit asked for both survival damages and wrongful death damages. The Cox settlement therefore included a recovery of the medical expenses paid by Medicare.  Further, the statute provides that a health care provider’s ability to recoup against the recovery for medical expenses is capped at $1,500.  The Cox case asked the federal court to find that the North Carolina statute’s lien cap was overruled by the federal Medicare laws.  The court held that it was, and that the $1,500 limit did not apply to Medicare.

I told the adjuster that the principal reason why Cox does not apply to our case is that the Cox family filed suit for and recovered for the medical expenses paid by Medicare.  My client’s family did not file suit for medical bills, and did not recover for medical bills.  The more relevant case is the 2006 U.S. Supreme Court decision of Arkansas Department of Health and Human Services v. Ahlborn.

In Ahlborn, the court faced the question of whether a Medicare lien may be recovered if the amount of money awarded for medical expenses is less than the amount paid by Medicare.  Medicare argued that it could collect its lien from the entire award, including amounts awarded for pain and suffering and lost wages.  The Court held that federal law does not allow Medicare to recover a lien in an amount in excess of the amount actually awarded for medical expenses.

In my case, the claim and subsequent suit had nothing to do with medical expenses.  The settlement recovered nothing for medical expenses.  There is nothing for a potential Medicare lien to attach to.  I set all of this out for the adjuster, sent her copies of the cases, and asked her to run it by one of her lawyers. I was confident that State Farm’s lawyers would see that there was no Medicare lien.  I was wrong.

After not having heard anything for several weeks, I followed up with the adjuster.  She told me that State Farm’s lawyers decided to file an interpleader case in Federal Court, asking the judge to tell them who to pay.

Apparently, State Farm’s lawyers had so little confidence in their own ability to read and understand case law that they decided to buy themselves some insurance.  For the cost of a filing fee, State Farm’s lawyers figured that they can avoid all responsibility.

Medicare’s lawyer quickly wrote to State Farm’s counsel asking them to dismiss their suit.  “Because the plaintiff did not seek the recovery of medical expenses in the Cook County lawsuit, Medicare cannot recover any payments that it may make to the hospital”.  As of this writing, I still await State Farm’s check.

So what is the moral of this story?  If the defendant has modest policy limits, you owe it to your client to reduce the potential for lien reductions.  If your client’s damages greatly exceed the available coverage, consider not submitting a medical bill to the jury.  If nothing is awarded for medical expenses, you should be able to avoid attachment of a lien.  And if you are dealing with State Farm’s lawyers, speak quietly and slowly so they won’t become frightened.


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