The U.S. Court of Appeals for the Third Circuit ruled July 29 that a Medicare beneficiary who receives a personal injury settlement must reimburse the government for medical bills it paid in connection with the accident.

The beneficiary argued that she should not have to reimburse the government for conditional medical payments it made in connection with her accident because the New Jersey Collateral Source Statute [NJCSS] barred her from recovering from the tortfeasor for her medical expenses. But the appeals court found that the state act did not preclude her from recovering damages for medical expenses from the tortfeasor.

The court also rejected her claims that the government should abide by a state court order apportioning the settlement to exclude medical expenses and that the liability settlement is not a “primary plan” under the Medicare as a Secondary Payer Act [MSP].

The appeals court affirmed a ruling dismissing a suit against the U.S. Department of Health and Human Services by Medicare beneficiary Cecelia Taransky.

On Nov. 7, 2005, Taransky tripped in the parking lot at the Larchmont Commons Shopping Center in Mount Laurel, N.J., suffering a broken arm that required surgery, according to the opinion. Medicare paid $18,401 for her care. Under the MSP, the payment was conditioned on the government’s ability to recover those funds from other sources.

Taransky sued the shopping center owner in Burlington County Superior Court and received a settlement of $90,000, the opinion said. After reaching the settlement, she moved in Superior Court for an order apportioning the proceeds between various elements of damages, in anticipation of Medicare reimbursement proceedings. In November 2009, she obtained an order stating that no portion of the recovery was attributable to medical expenses or other benefits compensated by a collateral source.

After the settlement was reached, a Medicare contractor sought reimbursement of $10,212 of the funds paid on her behalf, reflecting the government’s outlay minus attorney fees and costs of obtaining the settlement, according to the opinion.

The government’s claim for reimbursement from Taransky was upheld through two levels of review with the government’s Medicare contractor, and then by an administrative law judge and the Medicare Appeals Council, the opinion said.

In July 2012, Taransky filed suit in Camden, N.J., federal court, reiterating her claim that she was not responsible for reimbursing Medicare.

U.S. District Judge Joseph Rodriguez dismissed the case.

Rodriguez held that he lacked jurisdiction over her claims that the government’s refusal to acknowledge the state court apportioning order violated her due process rights and that the government recovery should be limited to the proportion of her settlement that reflected medical expenses, because those claims were not raised in administrative proceedings. He also ruled that the NJCSS did not apply to conditional Medicare benefits.

On appeal, a panel led by Judge Thomas Hardiman and including Judges Dolores Sloviter and Maryann Trump Barry, noted that the New Jersey Supreme Court has not addressed whether the NJCSS operates to prevent a plaintiff from recovering Medicare payments in a tort suit. But several decisions by the state Superior Court, Appellate Division, support the notion that Medicare payments, because of their conditional nature, do not constitute a collateral source of benefits under the NJCSS, the panel said. As a result, Taransky may not rely on the NJCSS to avoid reimbursing the government for Medicare benefits it made on her behalf, the court said.

Taransky also claimed that the tortfeasor’s settlement is not a primary plan within the meaning of the MSP Act, and therefore the act does not apply, according to the opinion.

She cited Mason v. American Tobacco Co., decided in 2003 by the U.S. Court of Appeals for the Second Circuit. That ruling held that an entity was a primary plan under the MSP only if it had a preexisting obligation to provide health benefits.

But Mason was abrogated by 2003 amendments in the MSP act that explicitly broadened the definition of “primary plan” to include tortfeasors, Hardiman wrote for the court.

Taransky also claimed before the appeals court that she did not have to reimburse the government because it failed to demonstrate that the shopping center owner “had a responsibility to make payment” for her Medicare expenses. She cited a 2006 case from the U.S. Court of Appeals for the Eleventh Circuit, Glover v. Liggett Group, which held that an alleged tortfeasor’s responsibility for payment of a Medicare beneficiary’s medical costs must be demonstrated before an action for failure to reimburse Medicare can be brought.

The judges found that under the MSP act, a settlement with no admission of liability is a demonstration of a beneficiary’s reimbursement obligation.

The appeals court also held that Medicare properly disregarded the state court order allocating the settlement to types of damages other than medical expenses because it was not made “on the merits” of the case and, in fact, was an uncontested motion that was “rubber stamped” by the state court.

“Given the substantial evidence that Taransky was compensated for her medical costs, she cannot now hide behind the lump sum settlement to deprive the government of the reimbursement it is owed,” Hardiman wrote for the court.

Franklin Solomon, a solo practitioner in Cherry Hill, N.J., who represented Taransky on appeal, said he was considering seeking a rehearing of the case by the entire Third Circuit.

Solomon said the panel focused unduly on broad terms of the settlement agreement and release between Taransky and the shopping center owner. The release, which was, “perhaps, inartfully drafted,” included phrases releasing the defendant from claims for Medicare reimbursement. But the complaint in the case was broadly drafted, as is the custom in New Jersey, and defense lawyers draft releases broadly as a result, he said.

A spokeswoman for the U.S. Department of Justice declined to comment beyond what was in the government’s court papers.

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