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Benoit v. Neustrom: Equitable Apportionment is a Practical Necessity

As I have been saying for many years, I believe that equitable apportionment calculations are a “practical necessity” for implementing Liability Medicare Set-Asides (LMSAs).   LMSAs just don’t work without it.  The court in Benoit v. Neustrom agreed.

Facts:

In July 2009, Mr. Benoit was found face down and unresponsive, in his jail cell, after being convicted on his third drunk driving charge.   He was treated at a hospital where he was diagnosed with a host of problems including: hypoxic brain damage, cardiac arrest, hypoxic encephalopathy, anoxic brain injury, consequential bladder incontinence, anosmia, short term memory deficit, tremors and behavioral issues.  While hospitalized he was temporarily ventilator-dependant and needed gastrostomy tube feedings.  After a lengthy hospital stay and time in a nursing home, he continued with outpatient treatment.

One year later, Mr. Benoit filed suit against the sheriff of Lafayette Parish, LA and the warden of the Lafayette Parish Correctional Center claiming that their employees failed to properly evaluate his condition when he was obviously suffering from the effects of alcohol detoxification.

In October 2012, the parties reached a settlement of $100,000, conditioned upon the plaintiff’s release of all claims against the defendants and the plaintiff’s assumption of sole responsibility for protecting the interests of Medicare and Medicaid.  A Liability Medicare Set-Aside (LMSA) report was prepared, which projected future Medicare allowable, injury related medical costs at a range of $277,758.62 to $333,267.02, with a midpoint of $305,512.50.  In addition, $2,777.88 was established as the amount needed to reimburse Medicare for conditional payments.

On October 29, 2012, the plaintiff filed a Motion for Declaratory Judgment, asking the court to approve the settlement, to approve a reduced LMSA proportionate to the plaintiff’s recovery, and to allow Mr. Benoit’s wife to administer the LMSA funds.

The settlement amount of $100,000 resulted in a net amount of $55,707.08 to the plaintiff after fees, expenses and the Medicare conditional payment.

Findings of Fact:

After analyzing the handout from the CMS MSP Region VI Regional Coordinator (affectionately know in the MSP industry as the “Stalcup Handout”) and the Bradley v. Sebelius case, the court determined the following findings of fact (paraphrased, in part):

  1. Medicare does not currently require or approve LMSAs when personal injury lawsuits are settled.
  2. Both liability and economic damages were contested and that “the specter of a verdict adverse to the plaintiff on liability was quite real”.
  3. Past medical expenses in excess of $80,000 were paid by Medicare and Medicaid, and estimated future LMSA medical expense projections range from $$278,000 to $333,000.
  4. The parties agreement in this case to settle for $100,000 “represents a reasonable compromise to avoid the uncertainty and expense” of a trial.
  5. Mr. Benoit currently receives Social Security Disability Income. The LMSA projections are reasonable and reliable
  6. Mr. Benoit believes that 10% of the gross settlement would be an equitable amount to set aside into an LMSA account since the recovery obtained is approximately 10% of the possible recovery if he had prevailed on all the liability issues.  (Apparently, Mr. Benoit was proposing an LMSA amount of $10,000).  The court rejected Mr. Benoit’s calculation methodology and reasoned that since the net settlement of $55,707 was 18.2% of the midpoint of the LMSA projection ($55,707/$305,512 = 18.2%), then the LMSA should be 18.2% of the net settlement, or $10,138 (18.2% x $55,507 = $10,138).
  7. Since Mr. Benoit’s cognitive impairments preclude him from self-administering his own LMSA, his wife will administer the LMSA and the Special Needs Trust (SNT).
  8. Mrs. Benoit is aware of her obligation to reimburse Medicare for the conditional payments.
  9. There is no evidence that anyone is attempting to maximize other parts of the settlement to Medicare’s detriment.

 

Conclusions of Law and Court Order:

The court concluded by drawing several conclusions of law and then ordering the plaintiff to:

  1. Reimburse Medicare $2,777.88 for conditional payments
  2. Set aside $10,138 into an LMSA to protect Medicare’s interest
  3. Deposit the $10,138 into an interest bearing account to be administered by Mrs. Benoit.

Concluding Thoughts:

This is a very important case for many reasons.  First it points out why equitable apportionment is a “practical necessity” for doing LMSAs in liability settlements.  This case was disputed.  The defendants did not agree with the claims of fault made by the plaintiff.  The claimant agreed to a compromise settlement of 10% of full value, in his estimate, to avoid the uncertainties of going to trial.  As in most liability settlements, there was no allocation of the reduced settlement proceeds to the possible parts of the settlement like pain and suffering, lost wages, loss of consortium, future medicals, etc.    The parties just evaluated there opposing interests and agreed to a settlement of $100,000.  This case settled for less that the projected future medical cost, so it is impossible for the plaintiff to set aside $305,512 of the $55,707 settlement proceeds.  The LMSA had to be reduced to at least the $55,707 settlement amount.  A further reduction is fair, because all of the plaintiff’s net settlement should not have to go into a LMSA in a case that is compromised.   It’s really just common sense that liability settlements must use an equitable reduction formula to arrive at a LMSA amount.  That being said, I must point out that I think it would make more sense to reduce the LMSA by the same percentage that the total case value was reduced, which would have resulted in a LMSA amount of $30,551  ($100,000 settlement / $1,000,000 full value, or 10% x 305,512 = $30,551).

Second, Medicare now only allows a reduction of an MSA if  “a court of competent jurisdiction” orders it “after their review on the merits of the case”. To only allow a court to make this calculation clogs up the court system, curtails settlements and cost Medicare money by reducing LMSAs.

Third, an evaluation of competence should take place by the settling parties before Medicare Set-Aside monies are given to a claimant to self-administer.  The court in this case made that determination. However, unfortunately, everyday, in cases all over America, large amounts of money are turned over to injury victims to self-administer their own MSAs with no evaluation of competence whatsoever.  Why?  Because it is not required. And what happens if a seriously injured person does not manage this money properly and fails to follow all the complex rules?  They are at risk to lose their Medicare insurance benefits and the Medicare Trust funds lose money.  Allowing incompetent, injured claimants to self-administer their own MSAs is truly a lose-lose situation for the claimant and for the Medicare Trust Funds.

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