• The Third Circuit Requires Plaintiff in Liability Settlement to Reimburse the Government For Conditional Medical Payments
  • August 19, 2014
  • Law Firm: Fineman Krekstein Harris P.C. - Philadelphia Office
  • In Taransky v. Sebelius, the Court of Appeals for the Third Circuit held that Taransky, the plaintiff in the underlying personal injury lawsuit, was required to reimburse Medicare for the conditional medical expenses it advanced on her behalf. No. 13-3483, 2014 U.S. App. LEXIS 14408 (3d Cir. July 29, 2014).

    In the underlying suit, Taransky settled a personal injury lawsuit for a lump-sum payment of $90,000.00. Following the settlement, Taransky filed a Motion to Adjudicate Allocation of Settlement Proceeds. The proposed order included a provision that “no portion of this recovery... is attributable to medical expenses or other benefits compensated by way of a collateral source.” In support of Taransky’s proposed order, her counsel also filed a certification stating New Jersey law prevents a plaintiff’s tort recovery of losses that have been compensated by way of a collateral source of benefits, and that such losses were not considered in the settlement negotiations or compensated through the settlement agreement. Under the New Jersey Collateral Source Statute (NJCSS), N.J. Stat. Ann. § 2A:15-97, a tort plaintiff cannot recover damages from a defendant when she has already received funding from a different source. The purpose of NJCSS is: (1) to prevent a tort plaintiff from recovering damages from both a collateral source of benefits (i.e., a health insurer) and a tortfeasor; and (2) to shift the burden of medical costs related to tort injuries, whenever possible, from liability insurers to health insurers, and thereby keep liability insurance premiums down. The court entered the unopposed order pursuant to a stipulation by the parties.

    After Taransky settled, Medicare demanded reimbursement of approximately $10,000 for medical expenses it had conditionally paid on her behalf. The reimbursement amount was a reduced amount as Medicare had deducted a proportionate share of Taransky’s attorneys’ fees and the incidental costs of procuring the settlement. Taransky refused to pay Medicare, citing the NJCSS and the allocation order she had received from the state court. She also contended that Medicare could not demand reimbursement from a tortfeasor’s liability settlement under the MSP Act because a tortfeasor was not a “primary plan” under the meaning of the statute, and that reimbursement would be inequitable because she had not recovered any of her medical expenses.

    Medicare subsequently challenged the settlement and sought reimbursement under the MSP Act. Taransky proceeded through the administrative process challenging her obligation to reimburse Medicare. The Medicare Appeals Council (MAC) determined that Taransky was liable for repayment of Medicare’s conditional payments because the state court’s order was not “on the merits” and, therefore, did not require any deference.

    Taransky filed suit in the United States District Court for the District of New Jersey claiming
    that she was not responsible for reimbursing Medicare from her settlement proceeds because reimbursement was not authorized by the MSP Act and was barred by the NJCSS. Taransky also argued that Medicare was required to defer to the state court’s apportionment order, which provided that no portion of the settlement was attributable to her medical expenses.

    The District Court determined that the NJCSS did not apply to conditional Medicare benefits and that the MSP Act authorized reimbursement from the settlement because Taransky had received payment from the defendants’ liability insurance. The District Court also found that the MAC correctly disregarded the underlying settlement order because the order was issued pursuant to a stipulation by both parties and was not on the merits. Plaintiff appealed the District Court’s decision.

    The Court of Appeals affirmed the District Court’s decision finding that Taransky was required to reimburse Medicare. Interestingly, the Court of Appeals held that if a settlement agreement releases a tortfeasor from claims for medical expenses, it is sufficient to demonstrate the beneficiary’s obligation to reimburse Medicare. As a result, the Court of Appeals found that Taransky’s settlement agreement, which anticipated Medicare’s lien and provided that reimbursement to Medicare would be “satisfied and discharged from the settlement proceeds”, rendered Taransky liable to Medicare.

    On appeal, Taransky also argued that her settlement could not have included her medical costs as a matter of law because Medicare payments are a “collateral source” of benefits that may not be obtained from a tortfeasor under the NJCSS. Relying on several decisions by the New Jersey Appellate Division, the Court of Appeals predicted that the New Jersey Supreme Court would hold that Medicare payments, because of their conditional nature, do not constitute a collateral source of benefits under the NJCSS. As a result, the Court of Appeals held that Taransky may not rely on the NJCSS to avoid reimbursing Medicare for payments it made on her behalf.

    Finally, the Court of Appeals held that Taransky was responsible for reimbursing Medicare in spite of the state court’s allocation order because the order, which was entered upon a stipulation of the parties, did not constitute a court order on the merits of the case. The Court of Appeals also noted that there was substantial evidence supporting the finding that Taransky’s settlement included medical expenses.

    The Third Circuit’s decision emphasizes the fact that Medicare will not defer to a court order that allocates a settlement to non-medical expenses, especially where (1) the order was entered without a finding on the merits; and (2) there is evidence that the settlement included the plaintiff’s medical expenses. Additionally, this case highlights the significance of the language in settlement agreements involving Medicare beneficiaries because any agreement that releases the tortfeasor from all claims, including those for medical expenses, effectively renders the beneficiary liable to Medicare for any conditional medical payments.