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As our readers know, the Medicare Secondary Payer Act was enacted to reduce federal health care costs.  Under this statute, Medicare is now the “secondary payer” whenever payment for covered services is reasonably expected from another primary payer; if Medicare pays in such instance, it is entitled to reimbursement.  Recently, The U.S. Court of Appeals for the 11th Circuit issued an opinion in Bradley v. Sebelius, 2010 WL 379132 (C.A. 11 Fla.) which provides insight into how federal courts may treat disputes regarding Medicare’s claim for reimbursement of conditional payments in certain cases.

Charles Burke resided in a Florida nursing home in 2004 before dying in a hospital in 2005.  Medicare paid $38,875.08 for Burke’s medical care while he was hospitalized.  Later, his estate and children filed a claim for wrongful death which settled for $52,500.  Upon being notified of the settlement, Medicare claimed the full amount of expenses paid, less procurement costs, and directed the executor to reimburse Medicare within 60 days.

Under Florida law, the estate was required to apply to the probate court for an apportionment of the proceeds between the estate and the survivors.  After evaluating each child’s claim and that of Medicare, the probate court awarded the survivors $51,712.50 and Medicare $787.50.  Despite having been notified of the proceedings and declining to participate, Medicare refused to accept the probate court’s determination, relying on the ‘Medicare Secondary Payer Manual’ which recognizes allocations of liability payments to non‑medical losses only when there is a court order based on the merits of the case.  The estate paid Medicare under protest and appealed.

Applying Florida law, the Court of Appeals found the claim of the estate separate and distinct from the survivors’ claims which do not include the decedent’s medical expenses.  Only the estate’s allocated share is subject to reimbursement.  Therefore, the probate court’s allocation of expenses was affirmed.  But the Court went further, commenting on what it termed a “troubling sub‑issue”: in reliance on its field manual, Medicare “would not recognize the probate court’s allocation of liability payments to non‑medical losses unless and until payment was based on a court order on the merits of the case.”

Noting that Medicare’s field manuals and internal policies do not have the force of law, the Court reiterated well‑established principles which recognize that parties to litigation often enter into disputed settlements for reasonable, prudent and cost‑effective reasons.  To insist on full reimbursement of conditional payments regardless of whether a settlement represents the full amount of liability would have a “chilling effect” on amicable resolution of claims: