It was a warm August day in 2004 when Mr. Vernon Hadden paused at the traffic circle, smack dab in the center of the small town of Elkton, Kentucky. He watched as a car ran the stop sign. Then, to his dismay and detriment, a work truck, owned by the well known and member-owned, Pennyrile Rural Electric Cooperative (“Pennyrile”) veered leftward to avoid a collision with the car and plowed right into him. Mr. Hadden was rushed to the hospital where his treatment began for serious injuries. Medicare paid his medical bills of $82,036.17, in full, because Mr. Hadden, was a Medicare recipient due to being over 65 years of age.
Unfortunately for Mr. Hadden, the driver of the car, which was clearly the cause of the accident, never stopped and was never identified. Therefore, Mr. Hadden had no recourse to legally collect for his damages, except to file suit against Pennyrile. Pennyrile, in what most observers think was a very generous move, agreed to make a settlement payment of $125,000 to Mr. Hadden.
What happened next was that Medicare circled back and wanted Mr. Hadden to reimburse them $62,338.07 ($82,036.17 less a reduction for Mr. Hadden’s attorneys fees). Why? Because according to the Medicare Secondary Payer Act, Medicare is a “secondary payer” of medical expenses and if Medicare pays out expenses, they have a right to be reimbursed from any settlement proceeds.
Mr. Hadden paid the $62,338.07 (plus some interest) under protest then requested that CMS waive entirely or reduce its subrogation claim to 10% of the settlement. Mr. Hadden argued that Medicare should only be entitled to 10% of his $125,000 damage award, or $12,500 (before any statutorily allowed reduction for attorneys fees). He reasoned that Pennyrile was responsible for only 10% of his damages; thus he only received 10% of his total damages and therefore Medicare is only entitled to 10% of their claim.
CMS denied Mr. Hadden’s request to waive or reduce its subrogation claim. Mr. Hadden requested reconsideration from CMS and CMS upheld it’s previous decision to deny. He then requested a waiver of recovery from CMS which was denied. Then he appealed and a Medicare Qualified Independent Contractor returned a decision in favor of CMS. Then he appealed to an Administrative Law Judge (ALJ) who issued an opinion in favor of CMS. He appealed to the Medicare Appeals Council and lost. He filed a claim in federal court; the case was remanded back to the Secretary of the Department of Health and Human Services (HHS) and HHS ruled in favor of CMS. He then filed suit in U.S. District Court and on August 6, 2009, the district court upheld the decision by HHS.
On October 10, 2010, the U.S. Court of Appeals for the Sixth Circuit heard the case. Finally, over a year later on November 21, 2011, the Sixth Circuit Court of Appeals published its opinion, affirming the District Court’s decision that Mr. Hadden must reimburse Medicare in full even though he received a partial settlement himself.
The Sixth Circuit focused primarily on the meaning of the word “responsible” in the MSP statute at 42 U.S.C 1395y(b)(2)(B)(ii) as applied to the specific fact pattern in this case. The statute says that “an entity that receives payment from a primary plan”…”shall reimburse”…the “Trust Fund”…”if it is demonstrated that such primary plan has or had responsibility (emphasis added) to make payment with respect to such item or service”. The Sixth Circuit said that Mr. Hadden received full compensation for his medical expenses because he “demanded that Pennyrile pay for all of them”. They further said, “His obligation to reimburse Medicare – is ultimately defined by the scope of his own claim against the third party…And thus a beneficiary cannot tell a third party that it is responsible for all of his medical expenses, on the one hand, and later tell Medicare that the same party was responsible for only 10% of them, on the other.”
Judge Helene White dissented. She wrote that although the MSP statute clearly states that while Mr. Hadden was responsible to reimburse Medicare from his settlement proceeds, it was silent with regards to the amount to reimburse when there was a reduced settlement. She said that if the MSP Statute means what the majority says it means i.e., responsibility means full responsibility, then Pennyrile and Mr. Hadden would be responsible for the full $82,000 reimbursement to Medicare, even if Pennyrile had paid Mr. Hadden only $22,000. Using another example, she stated that if Medicare had paid $250,000 in medical costs, Pennyrile would be liable to the secretary for the full amount, and Medicare could have sued both Pennyrile and Hadden for the balance of its conditional payments. She stated that the statute should not be interpreted in a way that leads to an absurd result like this.
This case, which has drawn national attention, has been fascinating to follow. Mr. Hadden, was simply standing beside the street, next to the historic Todd County Courthouse, when a truck smashed into him. The car that caused the truck to strike him fled the scene. Mr. Hadden suffered serious injuries and received a much-reduced settlement which Medicare wanted the majority of. He and his lawyers were persistent in appealing the Medicare reimbursement demand. The wheels of justice turned slowly. The legal issues are complex and unsettled. But eventually the case made its way to the U.S. Appeals court, which took over a year to publish an opinion.
Although the appeals court decision was not in Mr. Hadden’s favor, there is a ray of hope for Mr. Hadden and others in the same situation. Interestingly, the U.S. Supreme Court could eventually hear this case because of the well-articulated dissenting opinion and because an opposite opinion was reached by the 11th Circuit in Bradley v. Sebelius.