Congress Slips In A Stealth Medicare/Medicaid Lawsuit Tax

Otto von Bismarck is credited with the saying, “Law and sausage are two things you do not want to see being made.” This might be unfair to current artisanal dry-cured meat producers, but it is still quite the case with Congress. Last month, without a word of debate, Congress tucked into the Bipartisan Budget Act of 2013 a change in Medicaid subrogation law that will deny millions of injured victims their fair compensation and will make it harder for defendants and insurers to settle cases. It’s a de facto tax on any Medicare/Medicaid recipient who brings a tort lawsuit, which is quite a surprise given that, at the time, it was said the Act “includes no new taxes, and does not make any changes to entitlement programs.”

Some background is in order. For years, the companies that profit most from needlessly endangering consumers have tried to create the impression of a “jackpot justice” system,   in which trial lawyers file claims regardless of the defendant’s responsibility or the plaintiff’s damages, and are awarded large sums of money at random, which they pocket.

It’s a lurid image, one that lines up with the interests of the U.S. Chamber of Commerce’s membership, but it’s never been remotely true. The vast majority of injury litigation is routine and not genuinely open to much criticism: a defendant did something we all agree is unreasonable and unsafe (like running a stoplight) and hurt a plaintiff, the plaintiff received medical treatment and spent some time off from work, and now the plaintiff is bringing the claim to deal with those expenses and the lost wages.

Most injury lawsuits shouldn’t be that much work, but because of insurance companies’ “three D” strategy — delay, deny, defend — the cases end up being a lot of work. It can easily take more than 100 hours of attorney time to prove a simple red light car accident case with typical economic damages, like medical expenses.

And that’s where Medicaid and the recent changes come in. Whether the plaintiff is privately insured, part of an ERISA plan, a Medicare/Medicaid beneficiary, or was uninsured, someone is going to come looking for reimbursement from the plaintiff’s lawsuit for the medical care the plaintiff received. These “liens” have long been a challenge to plaintiffs and their lawyers, and the situation has become much, much worse in the past few years. 

In terms of resolving a case, it’s usually better for the plaintiff if they were uninsured: doctors and hospitals are far more likely to recognize the reality of these cases — e.g., the limits of the defendants’ insurance policy, the compromised size of settlements as compared to actual damages, and the presence of some degree of waste or padding in the medical bills — and thus they’re more likely to accept an amount that’s fair to them and to the plaintiff. E.g., if there’s a $50,000 medical lien, and the defendant has $100,000 in coverage, the hospital or doctor knows that the plaintiff is unlikely to accept a $100,000 settlement just to pay four-fifths of it or more to the hospital, their lawyer, and the costs of the case, so the hospital or doctor reduces their demand.

Insurers and ERISA plans, however, are highly experienced at wearing people down with unreasonable demands — a situation made worse in April when the Supreme Court gave ERISA plans carte blanche to take every penny they can from injured victims. But the biggest problem lately has been Medicare/Medicaid, because Congress already gave them a potent weapon in the Medicare, Medicaid and SCHIP Extension Act of 2007 (“MMSEA”): the ability to sue and punish plaintiffs, their lawyers, as well as defendants and their insurers for not satisfying the Medicare/Medicaid lien in the course of the settlement.

Since then, there have been a variety of skirmishes between tort plaintiffs with Medicare/Medicaid, some of which I profiled on this blog. Medicare/Medicaid lost most of these, including, most importantly, the Supreme Court cases of Arkansas Department of Health and Human Services et al. v. Ahlborn (2006) and Wos v. E.M.A. (2013), which together limited Medicare/Medicaid to that part of the settlement related to “health care items or services.” The result of those two cases — particularly Wos — was a more rational approach to Medicare/Medicare reimbursement, in which the government would, after enough back and forth, generally take an appropriate cut.

Then, last month, Congress through all of that out the window. Section 202(b) of Bipartisan Budget Act amends 42 U.S.C. § 1396a(a)(25), effectively overruling Ahlborn and Wos, so that Medicare/Medicare’s lien isn’t limited to tort settlements or judgments related to “health care items or services,” but instead now goes to “any payment.” King & Spalding has a little bit more on the change here, including a link to the Congressional Budget Office’s estimate (page 9) that claims the provision will bring in an addition $1.4 billion to the government over 10 years, a number given without any explanation whatsoever, and a number that bizarrely grows four-fold between 2015 and 2023. It seems the number was pulled out of thin air.

As King & Spalding notes (and they are, of course, not a plaintiff’s injury firm; they represent tort defendants), the provision is bad for plaintiffs, defendants, and Medicare/Medicaid:

It is often the case that Medicaid beneficiaries may be partially responsible for an injury, and it is on the basis of those comparative fault principles that beneficiaries settle their claims. The legislation, however, bars settlement of the Medicaid component of any claim, in that Medicaid can now recover 100% of its payment “off the top” of any settlement proceeds, which unfairly reduces the beneficiaries’ recoveries for non-medical expenses and creates barriers to settling cases in the first instance. Ironically, the provision may be self-defeating in that the legislation may lead to fewer Medicaid beneficiary settlements, leaving less funds available from which Medicaid programs can recover.

So why would anyone want this change? That’s an easy question to answer: while it might be a short-term nuisance to defendants, in the long run it provides yet another disincentive to injured plaintiffs and trial lawyers to bring meritorious claims. Why would anyone want to go through years of litigation just to be a volunteer bill collector for Medicare/Medicaid with a trivial award that doesn’t even cover their wage losses? The provision is thus, like most of Congress and the Supreme Court’s work these past few years, a boon to large corporate defendants and insurance companies.

To paraphrase von Bismarck, we don’t need to see how this sausage is made, because we already know what’s in it. The incredible part is that we keep eating it.

  • Mary E

    What I find to be most troubling with the Budget Act of 2013 amendments and
    section 202(b) is the resulting loss of any allocation at all.

    With one stroke of the pen the plaintiff’s pain and suffering, wage/economic
    losses, economic pains are gone relegated to an after thought in favor of
    revenue. Even if unintended it amounts to an unlawful taking (far worse than a
    lien) and an unjust violation of plaintiff’s rights to property/compensation
    without due process. I think its smells of indifference to tort law and smacks
    of constitutional infringement.

    Whether one speaks of the Secondary Payor Act or Third Party Liability Act
    or budget language to amend either or reverse Ahlborn, the fact is plaintiffs
    are not the secondary payors, third party liable defendants or insurers. They
    are victims, injured persons which without such injury there would be no
    recovery. They must be compensated first, before creditors, regardless of the
    creditor’s status and irrespective of compulsory assignment.

    Tort plaintiffs do not seek redress under tort law to pay bills, square up
    with creditors or healthcare providers, they file suit to be made whole. Not

    This congressional action (amendment) should be enjoined.

    • It’s outrageous, and you typically can’t even opt-out from the process by waiving any claim to medical bills. If an injured plaintiff wanted to file suit solely for lost wages, the defendant would still refuse to settle and CMS would still come around demanding its cut, despite having done nothing to assist the case.
      If Medicaid wants to partner with me on my cases and pay towards the costs, I’m happy to discuss with my client. Until then, this is just a tax.

  • Steven W.

    Perhaps this action, by a Democratic Party controlled government, will cause you to question your otherwise strong faith in the beneficence of big government. Without government intrusion in the medical care and health insurance industries, there would be no justification for this sort of blatant money grab. But if you allow the government to provide the benefits and pay the bills, then it’s going to take your money. This is not about the evil Chamber of Commerce. It’s about an ever growing and ever grasping state. If that’s what you want, then that’s what you get.

    • You have a funny understanding of “government intrusion.” The Republican Party, at the urging and funding of the Chamber of Commerce, has for years been using the federal government to preclude states from standing up for their citizen’s rights. You cannot sue a generic drug manufacturer at all — even if your state’s laws allow it — because five Republican Justices of the Supreme Court would prefer you don’t. You cannot file a class action against a dishonest merchant or service provider — even if your state’s laws allow it — because five Republican Justices of the Supreme Court would prefer you don’t. One of the biggest problems for civil justice today is the Republican Party’s persistent efforts to use the federal government to trample state law.
      This particular dubious policy did not arise from the Democratic Party. It came from the Republican Party, which never misses an opportunity to stick it to the working class for the benefit of a tiny minority of wealthy interests.

      • Steve W.

        The point is that you see this problem in partisan terms, when the direction of government never changes regardless of who is in charge. Yet in many other contexts you support the growth of Leviathan – apparently without recognizing that you can’t separate the “good” you want from the bad that we get every time.

        • A fair point!

        • Steve W.

          Of course, just so there is no misunderstanding, I completely agree with you about how pernicious this legislation is. I find your blog consistently informative and thought provoking. Keep up the good work!