Louisiana District Court Approves Apportioned Liability Medicare Set-Aside

A liability case out of a District Court in Louisiana, Benoit v. Neustrom, 2013 U.S. Dist. Lexis 55971 (April 17, 2013), issued an order wherein an LMSA was apportioned and reduced. A Motion for Declaratory Judgment was filed by Michael Benoit (“Plaintiff”), in which he sought a judgment to declare the interests of Medicare satisfied with a reduced LMSA proportionate to the Plaintiff’s recovery.

The facts preceding the settlement involved the Plaintiff filing suit against Michael Nuestrom, individually and as Sheriff of Lafayette Parish, and Rob Reardon, individually and as Warden of the Lafayette Parish Correctional Center (collectively, “Defendants”). The Plaintiff alleged that the Defendants and their employees failed to properly evaluate his condition upon his transfer to Lafayette Parish Correctional Center. Specifically, he claimed he was not given a pre-medical evaluation when he was suffering in his cell from the effects of alcohol detoxification. The Plaintiff was later found face-down and unresponsive in his cell; he was diagnosed at the hospital with hypoxic brain injury, secondary to seizure, followed by cardiac arrest, secondary to alcohol withdrawal and hypoxic encephalopathy. He was admitted to the hospital and received treatment including physical, occupational and speech therapies. Upon discharge from the hospital, Benoit was placed in a nursing home and then moved to outpatient care.

In October of 2012, the parties reached a settlement agreement, conditioned upon the Plaintiff’s release of all claims against all Defendants and the Plaintiff’s assumption of sole responsibility for protecting and satisfying the interests of Medicare and Medicaid. At that point in time, an LMSA projection was prepared by an independent MSA vendor which estimated that the cost of future medical expenses would range from $277,758.62 to $333,267.02. Additionally, the parties established an amount to reimburse Medicare for past conditional payments and establish a special needs trust in exchange for a lien waiver by Medicaid.

The remaining issue for the court’s consideration was the Plaintiff’s future medical care as a result of the alleged accident and the extent to which the LMSA can or should be reduced to account for the financial hardship to the Plaintiff. The court noted and received the following into evidence: 1) the settlement amount was $100,000; however, the amount due to the Plaintiff would be reduced to $55,707.98, after payment of fees, expenses and Medicare conditional payments; 2) the LMSA prepared by an MSA vendor which demonstrates that the future medical cost estimates are considerably larger than the net settlement figure; and 3) a Social Security financial statement offered to demonstrate financial hardship on the Plaintiff.

Before diving into the court’s decision and its logic, it should be noted that CMS was noticed on the hearing for the Motion for Declaratory Judgment. The United States Attorney / CMS declined to participate in the hearing; however, they did issue a letter to all parties of the litigation declaring an amount due of $2,777.88 to CMS for past conditional payments. Therefore, CMS did not provide its input on a major issue that the parties were seeking to resolve—the future medical aspect of Medicare Secondary Payer (MSP) compliance in the settlement. The settlement parties had already addressed the conditional payment aspect of the case.

Since the court did not have CMS to opine on the future medical aspect of this case, when considering the Plaintiff’s Motion for Declaratory Judgment, the court looked to two main items for guidance on possible apportionment to the LMSA: a handout from the MSP Regional Coordinator for CMS in Region VI (aka “Stalcup memo”) and the well known MSP case, Bradley v. Sebelius, 621 F.3d 1330 (11th Cir. 2010).

In the Bradley case, the probate court reduced Medicare’s lien based on the proportion of Medicare’s contribution to the total settlement’s potential worth, had adequate funds been available. The DHHS disagreed with the probate court’s decision citing that the MSP Manual provided them with a full right of recovery. The district court agreed with the probate court and upheld its decision, finding that the MSP field manual did not hold the weight of the law and that there is a strong public interest in encouraging settlement in the interests of judicial economy. Additionally, the court noted that within the Stalcup memo the only situation in which Medicare recognizes allocation of liability payments to non-medical losses is when payment is based on a court of competent jurisdiction’s order after their review of the merits of the case.

Between the Stalcup memo and the Bradley case, as well as recognizing the fact that Medicare does not have a formal policy in place for LMSAs, the court resorted to making its own finding of fact as to the appropriate amount of the LMSA. A court-ordered equitable allocation could be considered reasonable based upon guidance in the Bradley case and the Stalcup memo.

The Plaintiff argued that 10% of the gross settlement proceeds would be an equitable amount since the recovery obtained was 10% of the possible recovery if he had prevailed on all the liability issues. The court disagreed with that methodology, but still found that an equitable allocation was in order for the Plaintiff’s family due to his financial hardship. Noting that the mid-point of MSA projections was $305,512.50, and that the settlement is 18.2% of that figure, the court found that the LMSA amount should be $10,138.00. (The percentage of 18.2% was determined by the court by dividing the net proceeds to the Plaintiff by the mid-point amount of the LMSA. More specifically, the $10,138.00 amount was determined by multiplying the 18.2% to the net proceeds to the Plaintiff of $55,707.98.)

This decision is interesting as it is the first of its kind seen by the industry. Since CMS has not yet provided any formal guidance around LMSAs, this methodology could be used by liability settlement parties in order to achieve appropriate consideration of Medicare’s interests while still allowing settlement.

Parties settling with Medicare beneficiaries should consider their risk tolerance and the circumstances of each case before deciding the best methodology to achieve consideration of Medicare’s interests with regard to any allocation of future medical treatment. While CMS has not formally approved the LMSA calculation used in this case, the fact that the court issued an order on the appropriate/equitable amount of the LMSA after reviewing the merits of the case, it would seemingly prevent CMS from challenging the court’s order pursuant to their own guidelines.

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