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On his last day on the federal bench before going into private practice in June 2001, former U.S. District Judge Louis C. Bechtle ruled that the federal government had 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. Now the 3rd U.S. Circuit Court of Appeals has ruled that Bechtle erred when he issued an injunction against the government because he never should have entertained jurisdiction over the dispute. Instead, the unanimous three-judge panel said, any class member who received a letter from the government demanding a portion of their settlements must first pursue an administrative appeal before the Health Care Financing Administration. As a result, the appellate court never reached the larger legal question of whether the government is entitled to a portion of the settlements paid to class members whose spinal fusion surgeries were paid for by Medicare. Lead lawyers who represented the class said Monday that they intend to seek reargument before the entire 3rd Circuit. For now, they said, the affected class members need not file immediate appeals before HCFA because Bechtle’s injunction remains in place until the 3rd Circuit issues it “mandate.” Attorney Michael Fishbein of Levin Fishbein Sedran & Berman said the legal issue might be resolved through another case if the U.S. Supreme Court takes up a similar dispute in the breast implant litigation. “There’s a split in the circuits here, and the Supreme Court is going to have to step in and resolve it eventually,” Fishbein said. Fishbein said the issue has arisen repeatedly over the past few years because the government has used several different tactics to claim a right to portions of settlements in medical products liability cases where some of the plaintiffs were covered by Medicare. In the bone screw litigation, he said, the government sent letters to about 1,800 claimants demanding that they pay specific amounts from their settlements. Lawyers for the class responded to the letters by asking Bechtle for an injunction barring the government from pursuing any portion of the settlements. Bechtle agreed and ruled that the Medicare Secondary Payer statute does not impose any obligations on settling tortfeasors to reimburse the government. “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,” Bechtle wrote. Bechtle, who joined the firm of Conrad O’Brien Gellman & Rohn just three days after handing down the ruling, had 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 had 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. By issuing an injunction against the government on his last day as a federal judge, Bechtle intended to clear the way for settlement funds to be distributed to the remaining class members. In its letters to the claimants, HCFA 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. But Bechtle had 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. On appeal, government lawyers argued that Bechtle erred because he had no jurisdiction to rule on whether the government’s claim was valid. Now the 3rd Circuit has sided with the government. Third Circuit Judge Theodore A. McKee found that, in asking for an injunction, the plaintiffs in the bone screw litigation were essentially arguing that “the government is not entitled to recover Medicare overpayments from a fund created as a result of a settlement with an alleged tortfeasor because Congress never intended to treat a settlement trust fund as payments from a primary insurer under the MSP.” McKee found that while the claimants may be right on the law, they chose the wrong forum. In an opinion joined by Judges Dolores K. Sloviter and Jane R. Roth, McKee said “there may be force to [the plaintiffs'] argument.” But McKee found that the “basis” for the plaintiffs’ claim was “rooted in, and derived from, the Medicare Act.” As a result, McKee said, the claim is one “arising under” the Medicare Act and federal law deprives the courts of jurisdiction until HCFA has ruled on the claim in an administrative appeal. “The AcroMed class settlement plaintiffs are thus required … to channel their claim through the agency,” McKee wrote. In a footnote, McKee noted that the larger legal question has already resulted in a split of authority among the federal circuits. At issue, McKee said, is whether a settlement fund like the one created in the bone screw litigation meets the definition of a “self-insured plan” for Medicare purposes. “The government’s argument that a ‘self-insured plan’ includes a fund created by a tortfeasor to settle litigation has engendered a circuit split,” McKee wrote. In its 2002 decision in Thompson v. Goetzmann, the 5th Circuit rejected the government’s argument, McKee noted, but the 11th Circuit sided with the government in its September 2003 decision in United States v. Baxter International. In the 5th Circuit case, plaintiff Bernice Loftin underwent surgery to replace her hip joint with a prosthesis manufactured by Zimmer Inc. — a procedure that was paid for by Medicare. Complications arose, requiring Loftin to undergo a second surgery and Medicare ultimately paid nearly $150,000 for Loftin’s two surgeries and subsequent medical treatment. Loftin’s lawyer, Stephen Goetzmann, filed suit against Zimmer for products liability, alleging defective design of the hip prosthesis. The suit included claims for the medical expenses paid for by Medicare. Without admitting liability, Zimmer paid $256,000 to Loftin who paid 40 percent to Goetzmann as his contingency fee. The entire settlement was paid by Zimmer; no part was paid from insurance. In October 2000, the government filed suit against Goetzmann, Loftin and Zimmer under the Medicare Secondary Provider statute, arguing that Zimmer was “self-insured for its liability to Loftin,” which, as a putative tortfeasor settling Loftin’s products liability action against it, had paid Loftin a substantial sum of money. A federal judge dismissed the suit and the government appealed to the 5th Circuit. The 5th Circuit flatly rejected the government’s argument. “Although the government has litigated similar cases in several district courts around the country, we are the first appellate court to address the issue of an alleged tortfeasor’s reimbursement liability under the MSP statute,” the 5th Circuit panel said. “Notably, the government’s prior efforts have proved uniformly feckless — every court that has heard its arguments on this issue, including the district court in the instant case, has rejected the government’s expansive interpretation of the MSP statute.” The 5th Circuit found that the government was asking for too broad a reading of the MSP in asking that Zimmer’s settlement be deemed a self-insurance plan. “Zimmer was simply an alleged tortfeasor — nothing more and nothing less. Loftin, through her attorney, Goetzmann, was simply a plaintiff in a products-liability lawsuit who, through Goetzmann, agreed to settle with the defendant rather than proceeding to trial,” the court said. “As alleged, the settlement reached between Zimmer and Loftin was a discrete agreement, the result of nothing more than the parties’ particular litigation tactics in this one case. In fact, the government does not allege anywhere in its complaint that Zimmer paid Goetzmann and Loftin according to a pre-existing primary plan of self-insurance. The conclusion is thus inescapable: These three parties are well outside the scope of the MSP statute.” But just last month, the government scored a major victory in the 11th Circuit when a unanimous three-judge panel ruled that HCFA has the right to seek reimbursement from plaintiffs who received settlement payments in the breast implant litigation. The decision reversed a lower court ruling that had thrown out the government’s attempt to add on to the $4.2 billion settlement hatched in 1994 between a class of plaintiffs and eight implant manufacturers. The government’s take would not come from the settlement fund, but as additional payments from the manufacturers, said Ralph I. Knowles Jr., an Atlanta plaintiffs’ lawyer who is on the plaintiffs’ steering committee. Exactly how much is at stake is unclear. Because of the intimate nature of the medical procedure, the settlement kept the plaintiffs’ names confidential. The government claimed in court briefs that this makes it impossible to determine which members of the class received the Medicare benefits it wants reimbursed. A federal judge in the Northern District of Alabama, where the class case was based, dismissed the government’s suit in 2001 because the government could not identify the women who received Medicare money. But the 11th Circuit panel disagreed, finding that the lower court “applied too exacting a standard when it found the government’s complaint fatally deficient for failing to identify each member of the plaintiff class on whose behalf Medicare made a conditional payment.” Reporter Jonathan Ringel of American Lawyer Media’s Atlanta-based Fulton County Daily Report contributed to this article.

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