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Third Circuit Rules on Medicare Repayment in New Jersey

In Taransky v. U.S., the Third Circuit ruled that Medicare can recover conditional payments despite New Jersey’s collateral source rule.

Medicare has a right to repayment when it pays for healthcare for a Medicare beneficiary, who then recovers those healthcare costs from a tortfeasor.  For example, if Jane, a senior who receives Medicare, is hit by a drunk driver, Medicare will pay her medical costs arising from the incident.  But if Jane later recovers for those medical costs in a lawsuit against the drunk driver, then she has to reimburse Medicare for the expenses it paid for which the drunk driver is responsible.  These are called Medicare conditional payments.

However, under New Jersey’s Collateral Source Rule (N.J.S.A. 2A:15-97), a plaintiff cannot recover medical costs from a tortfeasor when those costs have been paid by another source (i.e., a collateral source).  So if Jane’s medical care from the car accident were paid by her health insurance, then her damages against the drunk driver would be reduced by the amount her health insurance paid, to prevent a windfall double recovery to Jane.

The Third Circuit found that the Collateral Source Rule doesn’t apply to Medicare conditional payments since they have to be repaid.  To illustrate the principle, if Jane has to repay the money she received from another source anyway, then she is not getting a double recovery, and she can recover full damages against the drunk driver.

Since federal law (the Medicare Secondary Payer Act) gives Medicare a right to repayment, Medicare conditional payments are not a collateral source and Medicare must be reimbursed from a plaintiff’s recovery despite New Jersey’s collateral source rule.

The opinion also sheds light on how courts will examine settlement arrangements to determine liability to Medicare.  Plaintiff’s claim in this case sought medical damages, and when the claim settled, plaintiff released defendant from liability for all claims, including medical damages.  Plaintiff then persuaded the New Jersey Superior Court to issue an allocation order finding that no portion of the settlement was for medical damages, and claimed she had no obligation to repay Medicare.

The Third Circuit held that because the settlement releases the defendant from liability for medical damages, plaintiff is liable to repay Medicare.  The Third Circuit gave little weight to the allocation order, finding that because the order was unopposed and the “product of a pre-arranged agreement” between the plaintiff and defendant, the order was not on the merits and not binding.

In sum, Taransky provides significant guidance on how Medicare conditional payments should be handled in New Jersey.

For more info on Medicare in the context of a lawsuit, please see our Practice Areas and Q&A pages, and this article from Larry Friedman on conditional payments and Medicare set-asides.

Protecting Medicare Eligibility When Settling Personal Injury or Worker Comp Claim

Will settling your personal injury or worker compensation claim cost you your Medicare? It shouldn’t, but it easily could if you and your personal injury lawyer don’t protect Medicare’s rights.

Generally, Medicare coverage is secondary to others who may have responsibility for your health care costs. Therefore, when settling nearly all personal injury and worker compensation claims, Medicare expects Medicare participants to repay Medicare’s pre-settlement expenditures for accident related care and spend damages that compensate for post-accident care costs incurred after settlement (“Future Medicals) on Future Medicals rather than submit claims for Future Medicals to Medicare. You must protect Medicare’s secondary payer interests if you are on Medicare when your claim settles or reasonably should expect to get Medicare within the 30 months following settlement for reasons such as having reached age 62.5, applied for Social Security Disability benefits (even if denied by an appeal is anticipated), or contracted end stage renal disease

Why should you care? Failing to protect Medicare’s rights can forfeit your own Medicare! What if you need costly surgery due to your accident, Medicare says you must pay for Future Medicals, but you’ve already spent your entire settlement? To make matters worse, Medicare may require you to spend more on Future Medicals going forward than they would if you’d made a good faith effort to protect Medicare’s secondary payer rights when settling your case.

What should you do? Medicare prefers you set aside Future Medicals damages in a Medicare Set-aside Arrangement (“MSA”). An MSA is a share of your damages that is calculated to cover Future Medicals for the rest of your life expectancy and is set aside solely to pay for Future Medicals. The appropriate amount to place in an MSA is based on Medicare guidelines and your post-accident medical records. However, an MSA satisfies your obligations to Medicare only if limited to paying for Future Medicals at rates acceptable to Medicare. Professional administrators can help meet these requirements. If the MSA is funded and administered in accordance with Medicare requirements, Medicare will pay for any Future Medicals that arise after the MSA is exhausted. If your actual Future Medicals turn out to be less than anticipated, the excess can pass to your beneficiaries.

FriedmanLaw can work with you and your personal injury or worker compensation lawyers to design a cost effective MSA that avoids interruption of your Medicare coverage. Contact us today at 908-704-1900.

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Medicare Announces Set Asides Unnecessary in Some Personal Injury Settlements

An individual who currently receives Medicare or reasonably expects to become eligible for Medicare in the next 30 months must protect Medicare’s interests when resolving a worker compensation (WC) or personal injury (PI)claim. In other words WC and PI recoveries rather than Medicare must fund care necessitated by a work accident or other injury.

Medicare recipients must repay Medicare payments occasioned by a work accident or personal injury when the WC or PI award is paid. Otherwise, Medicare can recover from the Medicare recipient personally and/or from others involved in the case such as Medicare recipient’s attorney. A few years ago, Congress clarified the Medicare Secondary Payer Act to make this repayment obligation crystal clear.

In addition to reimbursing Medicare for prior expenditures, an individual who recovers at least $25,000 (current Medicare participant) or $250,000 (reasonably expected to be eligible for Medicare in next 30 months) must pay for future care occasioned by the work or other injury to the extent of damages for medicals. Unless the individual includes reasonable arrangements to protect Medicare’s future interests in resolution of his/her claim, Medicare may treat an entire redovery as damages for medicals. Therefore, it is foolish to ignore Medicare’s future interests when settling WC and PI claims.

Because it can be tricky to anticipate whether an arrangement reasonably protects Medicare’s future interests, Medicare has developed a complex rubric to determine an appropriate amount to set aside from WC recoveries for future care. While there is no similar procedure for PI recoveries, the WC guidance can serve as a starting point in both kinds of cases. In addition, on Sept. 30, 2011, Medicare issued a memorandum stating that Medicare will not require any set aside or other arrangement where the Medicare participant’s treating physician certifies in writing that treatment for the injury giving rise to the PI recovery has been completed as of the recovery date and no future care will be required. Medicare’s memorandum is available at http://www.cms.gov/COBGeneralInformation/Downloads/FutureMedicals.pdf. To subscribe to this blog, click on one of the RSS buttons to the left and then click on the subscribe button.

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