Arizona Federal Court Dismisses Case Asking Whether Liability MSA is Necessary

Rafael Gonzalez, Esq.
Vice President, Strategic Solutions

Stethoscope and GavelOn October 16, 2015, the United States District Court for the District of Arizona published its opinion on Aranki v. Burwell, concluding that this case is not ripe for review because no federal law mandates CMS to decide whether Plaintiff is required to create a MSA. That CMS has not responded to Plaintiff’s petitions on the issue, is not reason enough for this Court to step in and determine the propriety of its actions. The Court goes as far as to indicate that there may be a day when CMS requires the creation of MSAs in personal injury cases, but that day has not arrived. The Court indicates that even if a justiciable case or controversy existed, or the Court found other grounds to exercise jurisdiction, the United States in this case is immune from lawsuit as it has not waived its sovereign immunity. Therefore the Court concludes that although it is sympathetic to the uncertain predicament that CMS has placed upon Plaintiff, judgment in favor of the Defendants is proper.

In 2009, Plaintiff Rachel Aranki (Plaintiff), a Medicare beneficiary, was injured in a medical malpractice incident that left her partially paralyzed and in chronic pain. Plaintiff filed a medical malpractice action in Arizona state court against Scottsdale Healthcare Hospital, and several doctors who treated her (Defendants). A settlement agreement was reached in the case but finality of the settlement was stalled because the issue arose whether the Center for Medicare and Medicaid Services (CMS) would mandate the creation of a Medicare set aside (MSA). Plaintiff petitioned CMS, but it did not respond.

Without any indication from CMS, Defendants were fearful that going through with settlement without approval or recognition from CMS would not be in their best interest. As a result, Plaintiff filed a Motion to Enforce Settlement. After hearing from counsel from both plaintiff and defendants, the Superior Court of the State of Arizona in the County of Maricopa ordered the settlement of the parties enforced.

The order of the Superior Court indicated that Plaintiff’s counsel “shall maintain $153,558.28 in a separate interest-bearing account to be held in trust, so that monies for payment of medical expenses which are necessitated by the injuries claimed and covered by Medicare may be dispersed from the trust account.” In addition, “counsel for plaintiff will notify CMS of the settlement, including notification of the recommended MSA amount.”

In addition to these requirements, the Superior Court ordered the plaintiff to “file a Declaratory Judgment action in the United States District Court for the District of Arizona seeking a determination of the necessity of a Medicare set aside, and if a MSA is required, the amount required to be set aside.” The Superior Court indicated that the action should “name the United States of America as a defendant, together with such other parties or entities as may be necessary to adjudicate the issue of the necessity of and amount of a MSA.”

The Superior Court also indicated that “if the District Court declares that an MSA is not required, the funds held in trust will be released to the Plaintiff without restriction. If the District Court determines that an MSA is required, Plaintiff shall use the funds in trust account to establish a self-administered MSA in the amount determined by the District Court. If the District Court ultimately declines to rule on the necessity of an MSA, plaintiff will maintain the entirety of the funds held in trust account until some final determination is made by the Court or agreement of Plaintiff and US Government.”

As ordered, Plaintiff filed a Declaratory Judgment action in the appropriate District Court. However, before the court entertains a declaratory judgment, “the District Court must examine whether there is an actual case or controversy within its jurisdiction.” If there isn’t such a case or controversy, then “the case is not ripe for review and the court lacks subject matter jurisdiction.” Here, the District Court finds that “there is no justiciable case or controversy ripe for review. As such, the Court does not have subject matter jurisdiction to hear this case.”

The Court indicates that “this case is not ripe for review because no federal law mandates CMS to decide whether Plaintiff is required to create a MSA. That CMS has not responded to Plaintiff’s petitions on the issue, is not reason enough for this Court to step in and determine the propriety of its actions.” The Court goes as far as to indicate that “there may be a day when CMS requires the creation of MSAs in personal injury cases, but that day has not arrived.”

In addition, the Court indicates that “even if a justiciable case or controversy existed, or the Court found other grounds to exercise jurisdiction, the United States in this case is immune from lawsuit as it has not waived its sovereign immunity.” Therefore the Court concludes that although it is “sympathetic to the uncertain predicament that CMS has placed upon Plaintiff, judgment in favor of the Defendants is proper.”

This is not the first federal court to rule in this manner. On May 2, 2012, the United States District Court for the Southern District of Florida in Bruton v. Carnival Corporation, concluded that there is no legal requirement that the settlement in this personal injury lawsuit include a Medicare set-aside. On February 7, 2013, the United States District Court for the Southern District of Florida in Early v. Carnival Corporation, again found that because there is no legal requirement that the settlement in this personal injury lawsuit include a Medicare set-aside, it will not render an advisory opinion as to whether an MSA is necessary or not.

However, other federal courts have ruled differently on this same issue. On February 26, 2013, the United States District Court for the Southern District of Mississippi published in Welch v. American Home Assurance, finding that there is an actual controversy when the parties seek a declaration of their rights and obligations in order to comply with the MSP and its related regulations involving the settlement of liability claims, for which CMS provides no procedure for determining the adequacy of protecting Medicare’s interests for future medical needs and/or expenses. On April 17, 2013, the United States District Court for the Western District of Louisiana in Benoit v. Neustrom, not only opined on the necessity for an MSA in a liability case, but used a percentage applied formula to the net settlement proceeds to conclude a specific sum of money to be set aside in trust for future medical expenses.

As Helios Settlement Solutions has been indicating for a number of years, until there is legislation or regulations in place that spell out when and how to take Medicare’s future interests into consideration in liability claims, the only way to control this issue is to make it part of your settlement agreement or release. Be clear, be precise, and be specific as to the intent and format of the parties’ wishes and agreement on how to protect Medicare’s future interests. Perhaps no case has said it best than the February 11, 2015 opinion from the United States Court of Appeals for the Second Circuit in Hoover v. New York State Department of Corrections and Community Supervision, Albion Correctional Facility, Sue Wojcinski, Sandra Durfee, Angie Maume, and Donna Baker, finding that if the parties considered plaintiff’s Medicare status to be so critical in deciding whether to settle or not, they should have ascertained how to take Medicare’s future interests into consideration before agreeing to settle the case for $750,000.

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