Third Circuit Rules on Medicare Repayment in New Jersey

Posted on: July 31st, 2014 by Mark R. Friedman

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.

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