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The federal government has no right to hold up payments to claimants in the $100 million settlement of the massive orthopedic bone screws case by asserting subrogation rights related to Medicare payments because the Medicare Secondary Payer statute does not impose any such obligations on settling tortfeasors, a federal judge has ruled. “Under the government’s construction of the statute, every tortfeasor that used its general assets to fund a tort settlement with persons who had received federal health care benefits would be potentially liable under the MSP. There is absolutely no legal support for this extremely broad construction of the statute,” senior federal Judge Louis C. Bechtle of the U.S. District Court for the Eastern District of Pennsylvania wrote. Bechtle’s ruling came on his last day as a federal judge. Today, he will join the firm of Conrad O’Brien Gellman & Rohn. The 46-page opinion in In Re: Orthopedic Bone Screw Products Liability Litigation resolves a major dispute that has held up payments to class members for nearly two years. Bechtle has been presiding over all federal bone screw cases since August 1994 when he was assigned the task by the Judicial Panel on Multidistrict Litigation. In October 1997, Bechtle approved a $100 million settlement by the lead defendant, AcroMed Corp. But before the settlement was finalized, the federal government asserted its right to recover costs expended by its constituent agencies under the MSP. In Friday’s opinion, Bechtle made it clear that he was annoyed by the delays caused by the government’s claims. “In what turned out to be a disappointing extension of cooperation by the settled parties and the claims administrator, the government was given a complete list of class members from which to identify and quantify its claims. On numerous occasions between the summer of 1999 and the present, the government was provided with computer databases with information concerning registered class members,” Bechtle wrote. “Not until December 2000, however, did the government make its first specific demand for payment to settle all of its Medicare related claims. This delay resulted from the government having taken eight months to extract data concerning beneficiaries from its National Database, four months to filter out non-bone screw and otherwise irrelevant expenditures, and additional time to more accurately estimate its claims.” In response to the government’s delays, the affected plaintiffs joined forces to file a class action suit asserting that the government had no right on account of the AcroMed settlement to recover payments previously made by any government agency to class members and seeking to enjoin the government from attempting such recovery from class members. The government responded by directly contacting the affected claimants with a strong warning letter. In May 2001, the Health Care Financing Administration sent letters to about 1,800 Medicare beneficiaries in the class demanding repayment for amounts that Medicare allegedly furnished in relation to injuries that were the subject of the tort claims against AcroMed. The letters said: “Medicare has determined that you are required to reimburse the Medicare program … for amounts it paid for items or services relating to your orthopedic bone screw settlement with AcroMed Corporation. Federal law requires Medicare beneficiaries who obtain a liability recovery to repay the United States the amount the Medicare program paid for conditions related to that recovery.” The letters included specific dollar amounts and told the claimants they had to pay within 60 days of receiving the letter or face interest charges. Now Bechtle has enjoined the government from taking any further action to collect such monies and ordered that it pay back to the court any money it has already received. In the opinion, Bechtle first addressed whether the class action by the affected claimants could proceed and whether they were likely to suffer “irreparable harm.” Since all of the affected claimants have the same legal issue, and since there are so many of them, Bechtle found they easily met the requirements of Rule 23 of the Federal Rules of Civil Procedure. And on the question of irreparable harm, Bechtle found that the claimants’ status as Medicare beneficiaries put them in a unique position. “Although the loss of income alone may not necessarily constitute irreparable harm, in this case, class members would suffer far more than mere economic loss. The statutory scheme at issue in this case was enacted to benefit the aged and the disabled,” Bechtle wrote. The affected claimants, he said, generally receive Medicare and Social Security benefits and cannot work because they have been disabled by spinal disorders unsuccessfully treated with spinal fixation devices. As a result, he said, they are dependant on Medicare and Social Security to provide ongoing medical care in addition to basic necessities. In its demand letters, Bechtle noted that the government said Medicare may recover the amount demanded from Social Security or Railroad Retirement benefits to which the class member would otherwise be entitled and may recoup the amount from payments that Medicare would otherwise make. Such a threat, Bechtle said, created the possibility of irreparable harm. “No compensatory or other corrective relief at a later date will adequately redress such potential harm. Accordingly, the court finds that the government’s demands threaten to inflict far more than mere economic loss and that the class members have established the likelihood of irreparable harm,” Bechtle wrote. Bechtle also rejected the government’s argument that it would suffer irreparable harm if enjoined from collecting the money. “The government makes no attempt to support its vague, generalized allegation of irreparable harm,” Bechtle wrote. “Certainly, it has an interest in maintaining the integrity of the Medicare program, and it is not contested that the MSP was designed to further the public interest by facilitating the recoupment of certain Medicare expenditures for items or services that Congress has decided are more appropriately paid for by certain other persons or entities. Nonetheless, the court fails to see how enjoining the government from demanding amounts that class members received under the AcroMed Settlement Agreement would interfere with the operation of the Medicare program.” And the “public interest” also weighed in favor of an injunction, Bechtle said, because “the public has a significant interest in the efficient resolution of this mass tort litigation.” Significant public funds were spent in the court’s administration of the case, Bechtle said, and “further delay in the distribution of settlement proceeds will not only cast doubt on the viability of the judicial system for efficiently resolving mass tort litigation, but also cause immediate and irreparable injury to the class.” Turning to the merits of the government’s claims, Bechtle found that the theory was seriously flawed. The MSP, he said, consists of a series of amendments to Medicare that grant the government a statutory right to recover certain Medicare expenditures through lawsuits. But Bechtle found that the MSP is limited and gives the government the right to sue only “primary payers” or those who have received payments from primary payers. Government lawyers said they were entitled to recover payments made to Medicare beneficiaries who are also members of the AcroMed settlement class because AcroMed is a “self-insurer.” They argued that an entity such as AcroMed that enters a liability settlement for alleged tortious conduct and funds that settlement with its own assets or borrowings is a “self-insured plan” that qualifies as a “primary plan.” Bechtle disagreed, saying “the term ‘self-insurer’ as used in the MSP was not meant to encompass alleged tortfeasors who merely fund liability settlements with their own assets or corporate borrowings.” The MSP, he said, “makes a government payment conditional, and thus subject to reimbursement, only where the insurance entity has made prompt payment or can reasonably be expected to make prompt payment for costs related to the federal beneficiary’s medical treatment.” Government lawyers argued that their interpretation of the MSP was entitled to deference under Chevron U.S.A. Inc. v. Natural Resources Defense Council Inc. Bechtle disagreed, saying “agency opinions that are not arrived at after a formal adjudication, notice-and-comment rulemaking, or otherwise in the exercise of congressionally delegated rulemaking authority — such as interpretations in the instant demand letters, as well as interpretations in legal briefs, opinion letters, policy statements, agency manuals, and enforcement guidelines, all of which lack the force of law — do not warrant deference under Chevron.” Deciding the issue himself, Bechtle found that “there is simply no basis to conclude that Congress intended the MSP to create in the government a right to recover from alleged tortfeasors for injuries resulting in Medicare payments.” The MSP, he said, “does not mention a right by the government to recover from a tortfeasor. Rather, the express wording of the statute creates a cause of action only against insurers and their payees.” Bechtle concluded that AcroMed’s settlement fund cannot be deemed a “self-insured plan” because the term “does not include tortfeasors that merely have the ability to, and do in fact, fund a settlement of a tort suit with general assets of the company or corporate borrowings.” And since the statute defines a “plan” as a payer that is required to make payment “promptly,” Bechtle found that a tortfeasor in protracted litigation couldn’t possibly meet the definition. “Given the time delay inherent in strongly prosecuted and defended tort litigation, the government cannot legitimately assert that a settlement arrived at in the heat of a hard fought adversarial engagement for alleged tort liability from a defective product is the type of insurance ‘plan’ that the government can reasonably expect to make prompt payment for medical care,” Bechtle wrote. And since the AcroMed settlement wasn’t even in existence at the time that the government made the initial payments, Bechtle said, “it is clearly not a ‘plan’ that was required to make ‘prompt’ payment … for the relevant medical expenses.”

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