Subrogation, Where Much Of The Hip Implant Settlement Money Will Go

We have a fair number of hip replacement lawsuits at the firm, so we follow all of the news related to them, including last week’s article in the New York Times about “The High Cost of Failing Artificial Hips“, which included a key point that hasn’t received much attention in the press:

In August, Mr. Dougherty underwent an operation to replace a failed artificial hip, but his pelvis fractured soon afterward. The replacement hip was abandoned and then a serious infection set in. Some of the bills: $400,776 in charges related to hospitalizations, and $28,081 in doctors’ bills.

I can guarantee you Mr. Dougherty’s insurer, hospital, and orthopedic surgeon don’t plan on taking payment in flowers and boxes of chocolate notes. As the article continues:

The incidents have set off a financial scramble. Recently, lawsuits and complaints against makers of all-metal replacement hips passed the 5,000 mark. Insurers are alerting patients that they plan to recover their expenses from any settlement money that patients receive. Medicare is also expected to try to recover its costs.

While his insurer has covered his bills so far, Mr. Dougherty said he was preparing to sue his surgeon, who may have implanted the device incorrectly, and Johnson & Johnson, which produced his artificial hip, to help recoup some of the insurer’s money.

“All these payers want to be paid back,” said Matt Garretson, the founding partner of the Garretson Resolution Group, a firm in Cincinnati that manages product liability cases.

Perhaps it’s best to explain the situation by explaining what the New York Times means when it says Garretson’s firm “manages” product liability cases. We’ve retained Garretson’s firm in the past: they don’t represent clients in litigation, but rather assist plaintiff’s lawyers with “lien resolution,” a multi-billion-dollar industry that deserves a lot more attention from legislators in this day and age.

Take Mr. Dougherty, the 55-year-old referenced by the New York Times’ article. He’s too young for Medicare, so I assume he has some degree of private insurance. (Really, it doesn’t matter, because Medicaid and Medicare follow similar practices.) The article describes just under a half-million-dollars in medical bills he’s racked up as a result of his defective hip implant, and I’m betting the actual costs of revision surgeries, hospital recovery, rehabilitation, prescription pain killers, follow-up treatment / monitoring, and all the rest are much higher, potentially more than a million dollars.

As the article notes, Mr. Dougherty intends to file a lawsuit against Johnson & Johnson, the parent company of manufacturer of his hip (presumably one of the ASR or Pinnacle hips), DePuy Orthopedics. So here’s the big question: how will his medical bills be paid out of the lawsuit?

Every private health insurance plan I know of, as well as Medicaid and Medicare, includes a “right of subrogation” that allows the insurer (or the Centers for Medicare & Medicaid Services, or “CMS”)) to recover any payments it made to cover the medical care of an insured or beneficiary if that person recovers money from someone else to compensate them for those same injuries. For complicated reasons outside the scope of this post (the “collateral source rule”), a personal injury plaintiff can generally show a jury the full price of the medical treatment they received or will need in the future as a result of the defendant’s negligence, even if the plaintiff isn’t going to pay all of that out-of-pocket because an insurer or CMS will pick it up. On the flip side, however, the insurer or CMS imposes a “lien” on the judgment so that, if the plaintiff recovers compensation through a verdict or settlement, they then have to pay back the insurer or CMS for the treatment they received.

If Mr. Dougherty pursues his case all the way through trial and appeal and wins a judgment that includes the full value of his medical care, then the subrogation issue is usually simple: Mr. Dougherty has to pay back to his insurer whatever medical bills the jury thought were caused by the defendant’s negligence, minus whatever Mr. Dougherty paid out of pocket.

But few cases are resolved that way, and the majority of DePuy recall cases will likely end in some sort of settlement or another. (Same goes for all the major mass torts, including  Actos cancerPradaxa bleeding, and the implanted vaginal mesh erosion.) At that point, things get really complicated, and the courts still haven’t figured out how to value subrogation claims in the context of a settlement. If someone with a defective hip receives $500,000 in medical care paid for by their insurer, files a suit against Johnson & Johnson asking for compensation for the medical care and $500,000 in lost wages and pain and suffering, and then settles their case for $750,000, how much should the insurer get?

I’ve explained some of these subrogration lien issues before while discussing how the federal court in Philadelphia resolved one case here by simply making its own estimate of how much the case was really worth and then discounting the subrogration lien appropriately. About a year ago, I warned other lawyers not to allow settling defendants send checks directly to insurers, to CMS, or to state Departments of Public Welfare, just to see the Third Circuit Court of Appeals throw that advice into question a few months later.

It’s all quite complicated, which is why firms like mine often call Garretson for the specific purpose of meeting all the regulatory requirements for satisfying these medical liens and negotiating with the insurers and CMS to get the liens down as a low as possible, including by challenging the claimed value and payment of the health care services provided. We deal with proving the case against the hip manufacturer, they figure out the size of the liens and start negotiating.

But there’s an even larger issue that needs to be addressed. As I’ve discussed several times on this blog, including most recently in reviewing the most notable prescription drug and medical device court opinions of the past year, Congress, state legislatures, and the courts have thrown up a lot of barriers to prevent drug and device companies from being held legally accountable for their negligence.

What those same elected officials and judges need to understand, though, is that these barriers to civil justice don’t just deny patients compensation — which is wrong enough — but also leave insurers, health benefit plans, unions, and taxpayers on the hook for a private company’s negligence. If courts dismiss our hip implant cases for absurd and reasons unrelated to the merits of the case like “implied preemption,” that hurts our clients and society as a whole.

We spend a lot of time talking about rising health care costs in America, but in that discussion we never talk about holding the negligent corporations that caused the injuries responsible for the damage they caused. Politicians routinely blame the medical malpractice lawyers for rising health care costs, even though the entire malpractice liability system costs less than $5 billion a year and the economic damage caused by malpractice itself is more than four times that. The hip recall situation is the same: hip implant lawyers didn’t do anything to make nearly 100,000 DePuy patients need new surgeries. Johnson & Johnson did that, and they should be held fully responsible for it.

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  • Guest

    Rarely do you ever hear about a plaintiff having to pay back CMS or DPW, showing us how taxpayers are paying for doctors’ negligence unless the plaintiff wins a med mal case and the government gets paid back. Thanks for highlighting yet another reason to oppose tort reform.

  • http://www.mydepuhiprecall.com/ Mydepuyhiprecall

    I am a patient who is 8 week post hip revision. I have not retained a lawyer so I deal with the Broadspire people directly for bill submission.

    In the case of hospital bills, they are sent to the insurance company and one of three things happen:

    (1) my insurance company sends me the statement for what has not been reimbursed and I send that staement to Broadspire and they always pay it.

    (2) my insurance company subrogates the claim entirely and immediately to Broadspire by refusing to make the payment on my behalf and then Broadspire pays the bill.

    (3) Some provider submits a bill to me directly, I submit the invoice to broadspire and they pay it in full.

    Now, I have been doing this for a year. I have never paid anything for my revision consults, tests, surgery, rehab or anything.

    So here is my question: Why is there a question about how the insurance company gets paid back if the just refuse payment to the provider when I tell them to do that and then send the claim to Broadspire directly and then they pay it?

    mydepuyhiprecall.com

    • Anonymous

      If the bills are being forwarded to Broadspire and Broadspire’s paying them, then you’re correct: the insurance company hasn’t paid anything, so there’s nothing for it to subrogate. The question arises when the insurer pays for care that isn’t submitted to or isn’t reimbursed by Broadspire.

      • http://www.mydepuhiprecall.com/ Mydepuyhiprecall

        thanks for the comment. So why are there other options for payment and why don’t the lawyers on behalf of the patient notify the insurance company that the payments should be sent to broadspire/depuy once a contract reimbursment rate is assessed on the payment? I guess I am missing the answer as to why wait and have to deal with claims resolution agents at the end? Why not deal with this upfront?

        Likely, I am not understanding something here.

        Also, is this firm a part of Beasley Allan… a philadelphia office perhaps ?

        Thank you!

        • Anonymous

          In terms of the direct expenses, all the plaintiffs’ lawyers I know attempt to deal with it upfront by sending the claims for out-of-pocket expenses to Broadspire whenever possible, but Broadspire doesn’t always pay for every claim, nor approve every physician or surgery, nor pay the full amount.
          In terms of damages outside of medical expenses (lost wages, pain & suffering, etc), Broadspire doesn’t pay any of that.
          As I wrote before , although in many circumstances the Broadspire method might work, I have serious reservations about the whole process, not least because it appears a primary object of the program is to lull patients into not filing lawsuits for until after the statute of limitations has run, thereby precluding their claims forever. Similarly, the program puts DePuy’s agents in direct touch with patients’ treatment providers, exposing them to manipulation and deception. It wouldn’t be the first time I saw a medical device company manipulate patient’s doctors into altering their opinions and records to protect the medical device company.