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WHAT'S UP WITH STATE AND FEDERAL SUBROGATION CLAIMS

By Michael A. Bryant

INTRODUCTION

While a typical personal injury case may involve dangers of dealing with tough defendants, these charades dim when compared to dealing with a State or Federal government interest. The legislators and courts have been quite helpful in providing Naig, Westendorf, and Minn. Stat. 62A.095 options to protect plaintiff’s recoveries. However, until Martin ex rel. Hoff v. City of Rochester , 642 N.W.2d 1 ( Minn. 2002) no such option has been applied to the government. Despite this help, the State of Minnesota and the United States Government still have a direct pipeline into our clients' settlements that, if not satisfied, could lead directly into your pockets.

MARTIN

In March of 2002, the Minnesota Supreme Court, in Martin , defined the federal mandate of “no liens” to mean the State could not put a lien on the property of a living plaintiff.

In a very basic reading of a long opinion, the Court found:

1. Federal law preempted the state’s use of a lien.

2. While the state statute allowed for assignments upon any and all claims, the wording “medical bills paid” was a modifier and consequently limited the assignment to funds received for the payment of those bills.

3. Subrogation was possible up until the point the assignment was gained and was only upon the amounts received for medical bills.

4. The State has all “... right[s] to medical support and third party payments” that the injured victim, who has received state financed medical assistance, may have.

a. Thus, the formula is no longer valid, and the State can take all the money up to the amount they paid. While a defendant is unlikely to settle with a plaintiff without taking care of the State claim, the defendant, most likely, will not settle with the State without dealing with the plaintiff’s claim as well.

b. The best solution may be an allocation hearing when no agreement can be made between the State and the plaintiff. In an allocation hearing, like Henning v. Wineman , 306 N.W.2d 550 ( Minn. 1981), the court would be asked to adjudicate who gets what in regards to the claim.

c. Naig and reverse Naigs may take place in an appropriate case with a defendant that has enough coverage.

5. In regards to trial, the State must represent themselves or work out a deal with the plaintiff. The following items should be considered concerning any deal with the State.

a. Get approval from the plaintiff about this representation.

b. Agree to represent the State by presenting the medical claim but require that they be involved in any settlement negotiations before and during the trial.

c. Clarify who gets future medicals.

d. Get an agreement from them to share the costs and attorney’s fees not withstanding the trial’s outcome.

e. Include a consent to allow you to withdraw from representing the State if a conflict of interest arises in the future and that they will not object to continuing representation of the client

f. Confirm in writing any agreement that you make with the State and give a copy to your client.

An implication of trying a Medical Assistance lien case involving motor vehicle accidents where Medical Assistance paid after no-fault benefits were exhausted and/or cut off will be interesting in light of Martin. If the State has payment priority, does the first dollar from the medical bills go to the State before any deductions of no-fault benefits paid? In certain cases, this result could have significant implications.

ADDITIONAL ITEMS THAT HAVE NOW BEEN RAISED

1. Future medicals. In Guzman ex rel. Losoya v. U.S. West Inc., 667 N.W.2d 489 (Minn. App. 2003), the Minnesota Court of Appeals read Martin to allow the State to settle for the past and future medicals. In essence, the Defendant took the option of future medicals off the table. A request for cert. to the Minnesota Supreme Court was denied.

a. The Guzman decision raises the questions of whether or not the plaintiff is guaranteed medical assistance for the rest of his/her life? What happens if the plaintiff is no longer qualified for medical assistance? Or, what if the person moves out of state?

b. Under 42 U.S.C. _ 1396K(b), the State is obligated to collect funds to reimburse what has been paid only to the extent that what they collect exceeds what is “necessary to reimburse it for medical expense payments made on behalf of any individual with respect to whom such assignment are executed...the remainder of such amounts collected shall be paid to such individual.” Based upon this language, it seems likely that:

1.) The money allocated as future damages as paid to the claimant will operate as a future credit and must be spent down on medical care before the State can be asked for more MA health benefit.

2.) If there is excess money as a result of the payments to the State, there should be a reimbursement to the plaintiff when it is identified under 42 U.S.C. _ 1396K(b).

3.) Under 42 U.S.C. _ 1396A/K, the State Government owes a fiduciary duty to the plaintiff to collect the maximum amount of money in order to help pay the plaintiff’s claim. Cases where the State settled for far less than the overall lien and the defendant is claiming that future medicals have been settled will be interesting. Does the plaintiff have a claim if the State does not protect his/her interest?

2. No Fed Money? The State has tried to make a distinction between those that are on federal funded medical assistance and those that are on GMAC (state) funded medical assistance. All of these claims should be scrutinized.

3. Does the State have any right to the UIM money? Maybe and maybe not. This depends upon the weighing of the “all recoveries” language against an analysis more appropriate to the worker’s compensation systems rights of the worker’s compensation subrogation carrier.

I'VE GOT MY RECOVERY - WHAT DOES MEDICAL ASSISTANCE GET?

The State, under the law, gets what it has paid for the medical benefits. This could be determined by hearing or by settlement. The State receives its money: "Upon any judgment, award, or settlement of a cause of action, or any part of it ..." (Minn. Stat. 256B.042, Subd. 5). The old formula allowed for the deduction of reasonable attorney's fees and reasonable costs, and mandated that the plaintiff must receive at least one-third of any net recovery after the cost of attorney's fees (Subd.5). The statute allows Medical Assistance to receive everything up to the payment of the full lien, concluding that "The rest must be paid to the medical assistance recipient or other plaintiff.” In some cases the State will still attempt to offer this deal in order to settle a case.

The benefit of this formula is that the plaintiff is guaranteed one-third of the amount after the payment of fees and costs. However in return, Medical Assistance shares neither in the payment of attorney's fees and expenses, nor in percentages of liability.

As an example:

Settlement: $90,000

Attorney's Fees: ($30,000)

SUBTOTAL: $60,000

Expenses: ($10,000)

SUBTOTAL: $50,000

1/3 to Client: ($16,666.66)

TOTAL TO MA: $33,333.33

Using this example, Medical Assistance receives everything it paid, up to $33,333.33. Any difference between what Medical Assistance paid and the total is returned to the plaintiff.

The final step for the plaintiff's attorney is to obtain a release from Medical Assistance in exchange for the money that Medical Assistance receives. Often the defendant will include the State on the settlement check and release; thereby the defendant is free of the burden created by the statute.

A fertile area for negotiation may occur if there is pre-existing condition. While the State will maintain that they have very little negotiation room because of Federal mandates, they will listen to arguments concerning anything that is reasonable concerning problems with proof on the actual injury. They will maintain that they cannot negotiate on issues of liability. Thus, when available, look at causation.

THE HMO as M.A.

Due to the changes in Minnesota Statute 256B.042, state purchased private HMO’s are treated in a similar manner as the State. At times the insurer will argue that they get the old formula but, at best, that’s just talk. A review of these claims should go further because State and Federal recovery involves the State getting its money back. With HMO’s, the State is only paying a premium. Consequently, it could be argued that the State’s interest is only for the amount paid by the State (i.e. the premium). This may be a fertile area for appeal with the right factual record.

MEDICARE

Medicare subrogation rights come from 42 U.S.C. 1395y(b), codified at 42 C.F.R., part 411. The plaintiff benefits again through Medicare because Medicare pays as little as one-third of the amounts billed by the medical provider. Dealing with Medicare means dealing with the United States Government and the Medicare secondary payor investigator. Similar to the State Government, the Federal Government can recover from the plaintiff, the plaintiff's attorneys, and the tortfeasor. The regulations require payment within 60 days of the receipt of settlement or insurance proceeds. The Federal Claims Collection Act in 45 C.F.R. 40.13, goes further to provide for the assessment of interest on amounts not paid within 30 days of the due date. Unlike Medical Assistance liens, Medicare will negotiate the amount of its recovery and does provide for pro rata payments of attorney's fees and costs.

I'VE RECOVERED - NOW WHAT DO I DO WITH MEDICARE?

Unlike Medical Assistance, Medicare does not require that the plaintiff receive a minimum percentage of the recovery. Under 42 C.F.R. 411.37(d) Medicare has the right, after paying its pro rata share of attorney's fees and expenses, to take the rest of the recovery. The key in dealing with Medicare is protecting your client's rights through negotiation.

42 C.F.R. 411.37 sets forth the Medicare formula. As an example, when Medicare has paid $30,000:

Recovered Amount: $90,000

1/3 Attorney's Fees: ($30,000)

SUB-TOTAL: $60,000

Litigation Expenses: ($10,000)

SUB-TOTAL: $50,000

Ratio of Costs to Settlement is then determined.

$40,000 / $90,000 = .44

(Attorney's Fees plus costs divided by recovered amount.)

Medicare's pro rata share

$30,000 x .44 = $13,200

(Medicare's subrogation interest x ratio = pro rata share)

$30,000 - $13,200 = $16,800

(Medicare's payment minus pro rata share = payment to Medicare)

Payment to Medicare = $16,800

AMOUNT TO PLAINTIFF: $33,200

The final step is to receive a release for the moneys paid by Medicare.

If Medicare's pro rata share exceeds the sub-total after deductions for attorney's fees and costs, the client statutorily receives nothing. However, an attorney can negotiate a deal resulting in the client receiving a recovery, even though the statutory formula might have resulted in the client receiving nothing. A request for a waiver of the Medicare interest is also a option if it can be shown that the client will be so hurt by the result or that the payments were for preexisting conditions.

CONCLUSION

The long arm of the State and Federal Governments, which allows for them to reach beyond settlement and back to you, requires your attention to each detail of the Medical Assistance, Medicare, and State or Federal program payments. Quick notice, scrutinization of all bills, and obtaining release are the goals. Ignoring or attempting to circumvent these goals can have dire consequences. Confronting the goals head-on and negotiating, when appropriate, provides for the payment of necessary medical benefits for your client and the maximization of your client’s recovery.









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