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Tag Archive for: apportionment

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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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Fate of Apportioned Medicare Liens…TBD – Bradley v. Sebelius and Hadden v. US

There are two recent court cases that could have a significant effect on liability settlements.  Both Bradley v. Sebelius and Hadden v. US deal with the issue of how much of their lien Medicare is entitled to receive in a compromised settlement.

Bradley v. Sebelius
On September 29, 2010 the 11th Circuit Court of Appeals (CA) reversed a district court ruling and upheld a probate court finding that Medicare was only entitled to 2% ($787.50) of its full Medicare Lien ($22,480.89) because the entire case settled for 2% ($52,500.00) of its full value ($2,538,875.08).  This decision stems from a Gainesville, Florida wrongful death case where a nursing home settled for its liability policy limits of $52,500.00.

The CA ruled against Medicare’s long-standing practice of claiming that its lien was superior and took priority over other claims in a case entitling them to the full amount of their claim even in a compromised case, on several grounds.   First, the court rejected Medicare’s reliance on their internal MSP policy manual saying that it “do[es] not have the force and effect of law and [is] not accorded that weight in the adjudicatory process”.  Secondly the court reasoned that “the Secretary’s position would have a chilling effect on settlement(s)” and “throughout our history, our law has encouraged settlements” in order to prevent “burdening the court system”.

This is a very important case and a victory for the Property and Casualty industry because it will encourage settlements and be more equitable for injury victims.

Hadden v. US
In a closely related Kentucky case, a truck swerved to avoid a car that ran a red light and struck and injured Mr. Hadden who was innocently walking down the street.  The car left the scene and was never found so Mr. Haden’s only recourse for compensation for his injuries was from the truck driver’s liability carrier.  But, obviously the truck was not the primary cause of the accident.  The parties agreed to settle the case for 10% of its full value, or $125,000.00.   Medicare however demanded that 100% of its lien ($62,338.07 less fees) be paid from the settlement proceeds.  The District Court ruled in favor of Medicare, the case was appealed and the Sixth Circuit Court of Appeals (CA) just heard the case on October 13, 2010.

Interestingly, if the Sixth Circuit CA rules in favor of the U.S. it will be in conflict with the 11th Circuit CA in Bradley v. Sebelius and would likely be heard by the U.S. Supreme Court to resolve the conflicting decisions by the two Circuits. Of course the entire settlement community is hoping that the CA rules in favor of Hadden because of the positive effects it will have on settlements.

Conclusion
It has never seemed fair to me, and many others in the settlement community, that Medicare takes more than its proportionate share of settlement proceeds when a case is settled for less than value.  However, it looks like the courts are finally stepping in and requiring a more equitable distribution of the reduced settlement proceeds in these cases.

Keep in mind that these two cases involve “apportionment” of past Medicare liens in liability cases that settle for less than value.

The next step is to apply this “apportionment” method to the settlement of future medicals in liability cases, which frequently settle for less than value.  Strangely, Medicare has remained silent on this issue and related issues about how, specifically, to protect Medicare’s interests as a secondary payer in liability cases.   In our opinion this is odd because encouraging liability settlements to reasonably take Medicare’s interest into consideration would save perhaps billions of dollars for the Medicare Trust Fund, but that is another subject for another day.

To read Bradley v. Sebelius, please click here

To read Hadden v. US, please click here