Hinsinger v. Showboat Atlantic City, L-3460-07; Law Division, Ocean County; opinion by Gizinski, J.S.C.; decided January 21, 2011; approved for publication May 19, 2011. DDS No. 36-3-2203 [5 pp.]

Plaintiff Thomas Hinsinger filed this liability action after sustaining injuries that resulted in his being declared totally disabled. He prevailed at trial and successfully sought an additur. The parties settled the matter for $600,000.

As a result of his disability, plaintiff became a Medicare recipient. After his attorney, Kenneth Iulo, ascertained that Medicare had not made any conditional payments for treatment of his injuries, the parties agreed to allocate $180,600 to a Medicare set-aside trust to provide for his future medical expenses.

Iulo now seeks permission to withdraw a portion of his fees from the money allocated to the trust.

Held: The statutes and regulations that apply to Medicare recipients’ receipt of workers’ compensation awards apply to the receipt of awards in third-party liability actions. Therefore, attorneys’ fees may be deducted from a Medicare set-aside trust pursuant to 42 C.F.R. § 411.37.

The court says that Medicare’s interests in settlements, judgments or awards that provide funds for future medical services must be taken into account. Medicare set-asides are used to protect its interest in such funds. Medicare will not cover any medical expenses until a set-aside account is exhausted.

Although the directives issued by the Center for Medicare Management apply only to workers’ compensation claims, the court finds no reason to apply a different standard to set-asides created with money obtained from third-party liability claims. The statutory and policy reasons for creating both are the same: to protect the Medicare system from paying medical bills for which the beneficiary has already received money from another source. Also, the court notes that the Center for Medicare and Medicaid Services has stated that the statutes that apply to Medicare set-asides in workers’ compensation cases apply to third-party liability situations.

The court looks to 42 C.F.R. § 411.37, titled “Amount of Medicare recovery when a primary payment is made as a result of a judgment or settlement,” which says that where recovery is sought from the party who received payment, Medicare reduces its recovery by the costs expended in procuring the payment if those costs are incurred because the claim is disputed and are borne by the party against which CMS seeks to recover. When Medicare payments are less than the judgment or settlement, its recovery is reduced by the ratio of procurement costs to the total received. When Medicare’s recovery amount is equal to or exceeds the award, Medicare’s recovery is the entire settlement or judgment less procurement costs.

The court says it is unclear whether the reduction for procurement costs applies only to funds obtained for future medical expenses. The court says the regulation is under Part 411, titled “EXCLUSIONS FROM MEDICARE AND LIMITATIONS ON MEDICARE PAYMENT,” and Subpart B, which is titled “INSURANCE COVERAGE THAT LIMITS MEDICARE PAYMENT: GENERAL PROVISIONS.” From the language of the regulation and the headings, 42 C.F.R. § 411.37 could apply to funds for future medical expenses in the same way it applies to recovery of funds already expended by Medicare in conditional payments. Should Medicare cover future medical expenses for an individual who received primary payment for such expenses in a settlement or judgment, Medicare would be entitled to recover such funds pursuant to 42 C.F.R. § 411.37.

This court says its decision to apply 42 C.F.R. § 411.37 to funds obtained in a civil action and placed in a Medicare set-aside is in line with general principles of equity because the recipient’s attorney also is working on behalf of Medicare when securing funds to pay future medical expenses that Medicare would otherwise pay. To allow Medicare to avoid paying an equitable share of the procurement fees for a judgment or settlement amount, forcing the plaintiff to cover all the fees, would be unfair to plaintiffs.

The court applies these principles and determines that Iulo is entitled to $59,196.67 from the set-aside.

— By Judith Nallin

For plaintiff — Kenneth Iulo.