On December 29, 2010, the United States District Court for the District of Nevada, in Farmers Ins. Exch. v. Forkey, 2010 WL 5477726 (Dec. 29, 2010, D.Nev.), granted a motion for summary judgment filed by the Department of Health and Human Services (the Department). The court found that Medicare had a direct and priority right to be reimbursed $10,070.22 of a $35,000 underinsured motorist policy for conditional payments it made for the medical care of David Forkey after Mr. Forkey was struck by a vehicle while crossing a street in March 2007. Mr. Forkey died from his injuries and his surviving spouse made a claim against the underinsured motorist coverage provision of her husband's automobile policy, pursuant to Nevada's wrongful death statute. Medicare also made a claim against the policy, claiming that it was entitled to the full amount of its conditional payments pursuant to the Medicare as Secondary Payer statute (MSP). The insurer interpleaded the policy proceeds and was discharged from the case subject to a final order from the district court, which was asked to determine whether Medicare had, as the Department argued, asserted a direct and priority claim to the policy proceeds and was thus entitled to full reimbursement, or whether -- as Mrs. Forkey contended -- Medicare was only entitled to an equitable apportionment of the proceeds.
Mrs. Forkey contended that, because her claims were for her own losses under Nevada's wrongful death statute (e.g., loss of support, companionship, society, comfort and consortium), and not for reimbursement of her husband's medical costs, Medicare was only entitled to a pro rata share of the $35,000 policy limit in accordance with the equitable apportionment rule applicable in Medicare subrogation actions. Mrs. Forkey estimated that her wrongful death claim was worth $500,000 and that the department's claim for $10,070.22 amounted to only 2 percent of the policy proceeds. The court disagreed. The court found that Medicare's claim was based on its direct right to reimbursement and not on any subrogation rights granted under the MSP. In reaching this conclusion, the court relied on Zinman v. Shalala, 67 F.2d 841, 843 (9th Cir.1995), in which the Court of Appeals for the Ninth Circuit held that the MSP grants Medicare an independent right of recovery against any entity that is responsible for primary payment of, or that has received payment from a primary plan for, Medicare-related items or services. The Court also relied on the Zinman court's statement that Medicare's independent right of recovery is separate and distinct from its right of subrogation, thus it is not limited by the equitable principle of apportionment. Because Medicare was seeking direct reimbursement for expenses it incurred in connection with Mr. Forkey's injuries, and was seeking this reimbursement from the insurer -- which was the responsible primary plan -- the Court concluded that Medicare's right was direct and the apportionment rule was inapplicable.
Mrs. Forkey further argued that, even if Medicare's right to reimbursement was a direct right (which the Court concluded it was), it did not have priority over other claimants and its claim was still subject to apportionment, as would be the case for other parties claiming a portion of the funds. Again, the Court disagreed, finding that Medicare had a priority right to reimbursement from the insurer based on Medicare's own interpretation of its rights under the MSP, which the Court determined was rational and consistent with the legislative intent of the statute. Relying on the principle of Chevron deference, articulated by the United States Supreme Court in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), the Court cited Section 40.1 of Medicare's MSP Manual, which declares that Medicare's statutory direct right of reimbursement from any entity that has received payment directly or indirectly from the proceeds of a liability insurance payment takes precedence over the claims of any other party. The Court concluded that this interpretation of the MSP helps ensure that the department is fully reimbursed for payments made by Medicare, which the Court found is fully consistent with the purpose, and a plain language reading, of the statute.
While consistent with the Ninth Circuit's decision in Zinman, this decision is contrary to a recent decision by the Eleventh Circuit in Bradley v. Sebelius 621 F.3d 1330 (11th Cir. 2010). Unless and until the conflict can resolved by the U.S. Supreme Court, primary payers may face some uncertainty in addressing compliance issues under the MSP.
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