Court Determines No Set-aside for Future Medicare Covered Medical Expenses Necessary for Paraplegic in Liability Case

by Matt Dorius, Esq.

In Sterrett v. Klebart, No. LLICV126007442S, 2013 Conn. Super. LEXIS 245 (Conn. Sup. Ct. Feb. 5, 2013), the plaintiff fell down stairs at the defendants’ home and alleged a spinal cord injury resulting in paraplegia. The parties reached a settlement agreement for $550,000.00, including $183,333.33 for a loss of consortium claim brought by the plaintiff’s wife. The parties filed a motion seeking the court’s determination that the parties had reasonably considered Medicare’s interests without setting aside any funds for future medical treatment.

 

Given the plaintiff's significant total damages and the applicable defenses in the case, the court found that the settlement agreement reflected a substantial compromise of the potential value of the claim. Even though the plaintiff was expected to need future medical treatment that would be covered by Medicare, the court noted that “the facts of this case mandate the conclusion that the defendants and their carriers lack liability for any such expenses.” Id. at *3. As such, the court agreed with the parties’ position that the settlement did not include funds for the plaintiff’s future Medicare-covered medical expenses. Instead, the court found, the settlement only included “a modest allocation for future medical expenses arising out of the possible need for home health aides,’” which would not be covered by Medicare. Id. at *6 n.4. The court therefore concluded that the parties “are not required to set aside any of the settlement proceeds for future medical expenses which may be paid or payable by Medicare.” Id. at *4-5. The court further stated that the parties “should not be subject to any claim, demand, or penalty from Medicare as a result of the settlement payment.” Id. at *5. 

 

As the court recognized, determining an appropriate amount, if any, to set aside from personal injury settlements for future Medicare-covered treatment involves a case-specific analysis of the alleged damages, applicable defenses, anticipated future treatment, and the extent to which the settlement reflects a compromise of the potential value of the claim. Although the court concluded in this case that no funds should be set aside for future Medicare-covered treatment, it is important to keep in mind that a federal court could decide the issue differently. 

 

In general, state court judgments are given preclusive effect in federal courts under 28 U.S.C. § 1738. However, the U.S. Supreme Court has consistently held that state court decisions are not preclusive when the party against whom the state court decision is asserted did not have a full and fair opportunity to litigate the issue in the state court proceedings. Allen v. McCurry, 449 U.S. 90, 95 (1980). In the Sterrett case, the United States was not present to represent its interests and the court’s decision does not indicate that the United States was notified of the parties’ motion or invited to participate in any proceedings. It is also relevant that the court in Sterrett simply approved an agreement between the parties and the issue of whether funds should be set aside was not contested. Cf., e.g., Robinson v. Commissioner, 70 F.3d 34 (5th Cir. 1995) (holding that a state court’s allocation of settlement funds was not binding for purposes of assessing federal income tax when the allocation was not contested and the state court did not make an independent finding on the merits). Also, although the court could decide on an allocation of the settlement proceeds under state law, the court lacked subject matter jurisdiction to determine Medicare’s rights regarding any future claims asserted under the Medicare Secondary Payer Act. 

 

CMS has not yet announced a position on whether funds should have been set aside in the Sterrett case. If CMS decides to pay for treatment and seek reimbursement from the parties in the future, the parties would likely be better protected from a lawsuit in federal court if the United States had been invited to participate in a hearing on the MSA issue. The defendants may also be better protected if they had contested the plaintiff’s position that the settlement did not include funds for future Medicare-covered medical expenses. With no evidence that the issue was contested or that the United States was invited to participate in any state court proceedings, it is likely that a federal court would find that the court's decision in Sterrett is not binding.

 

As with all Medicare Secondary Payer issues, we will continue to monitor this case and similar decisions and keep you informed.