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In a recent decision, In re Diet Drugs (Phentermine, Fenfluramine, Dexfenfluramine) Products Liability Litigation, No. 99-20593, 2001 WL 283163 (E.D. Pa. March 21, 2001), a federal district court dealt another setback to the Justice Department’s expanding efforts to recoup Medicare costs in mass torts cases. The federal government sought to suspend or share in American Home Product’s $2.5 billion settlement of tort claims arising from the diet drug cocktail known as fen-phen. The government claimed that it had a right to recovery for the large costs it was forced to bear providing health care to the many Fen-Phen victims who were beneficiaries of Medicare and various other federal programs. Judge Bechtle, a highly-regarded mass torts expert in the Eastern District of Pennsylvania, held that the government’s claims for reimbursement of these costs were unlikely to succeed and he allowed the settlement payments to go forward, despite the government’s objection. As it had done in the tobacco and breast-implant mass torts cases, the government rested its recovery claims on the Medical Care Recovery Act (“MCRA”) and the Medicare statute’s Medicare Secondary Payer provisions (“MSP”). Under MCRA, which authorizes government suits for health costs it “furnished” or “paid for” in treating tort victims, the government asserted a right to recover health costs expended by Medicare, the Departments of Defense and Veterans Affairs, the Indian Health Service and pursuant to the Federal Employees Health Benefits Act (“FEHBA”). Judge Bechtle, however, concluded that MCRA did not apply to costs expended under the Medicare and FEHBA programs. The court’s opinion relied heavily on another court’s decision in the federal government’s suit against the tobacco industry, United States v. Philip Morris, 116 F. Supp. 2d 131 (D.D.C. 2000), where Judge Kessler held that the government’s consistent interpretation over the years that MCRA did not apply to Medicare or FEHBA and its failure to bring a single MCRA suit to recover costs spent under those programs for almost 35 years proved that the statute did not encompass those programs. Id. at 138-44. Judge Bechtle agreed, “adopt[ing] the reasoning of the court in Philip Morris with regard to the scope of the Government’s rights under the MCRA.” 2001 WL 283163, at *7. As for the government’s MCRA claim for costs spent under the other programs, the court held that the government’s mass-aggregated claim on behalf of vast numbers of tort victims was “necessarily speculative” and that to assert a proper MCRA claim the government would have to identify specific conduct that was tortious under relevant state law and that caused injury to a specific beneficiary who required particular medical care. Id. at *7-*8 & n.12. Absent this specificity, the court questioned the existence of any government claim for reimbursement and likewise refused to suspend settlement payments. The government’s attempt to recover Medicare costs under the MSP was also rebuffed. Courts have consistently interpreted the MSP as providing the government with a right to sue insurance entities for Medicare costs spent providing health care when the care should properly have been paid for under a “primary plan,” a term that the statute defines to mean an insurance plan, including a “self-insured plan.” The government, as it did in the tobacco and breast implant cases, tried to argue that an alleged tortfeasor would nonetheless be liable under the MSP. The government contended that the statutory reference to “self-insured plan” authorized an MSP claim against an alleged tortfeasor, like American Home Products, that funded a tort settlement containing an agreed upon claims procedure. Judge Bechtle rejected the government’s argument. Relying again on Judge Kessler’s opinion in the tobacco litigation, the court held that “self-insured plan” “does not include tortfeasors.” Id.at *10. “The statute’s requirement of the existence of a primary ‘plan’ connotes some type of formal arrangement by which an entity consciously undertakes to set aside funds to cover potential liabilities under a formal procedure for processing claims made against that fund pursuant to the terms of a ‘plan.’” Id. at *11. A tortfeasor’s decision to fund a settlement did not qualify as a “formal plan of self-insurance,” according to the court, because the MSP cause of action only arises when there is an obligation “to pay for the primary care at issue under a contract of insurance, not when the payment obligation arises out of tort litigation.” Id.Without a formal plan or contract, Judge Bechtle ruled, the government does not have an MSP claim against an alleged tortfeasor. In sum, the Diet Drugsdecision adds to the growing body of adverse case law that will make it difficult for the government to continue claiming a right to sue defendants in mass torts cases for reimbursement of Medicare costs.

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