On May 24, 2010 the Superior Court of New Jersey, Appellate Division, decided the case of Ilse Theresa Jackson v. Hudson Court, LLC.  At issue was a request by the plaintiff for a court ordered allocation of settlement funds in order to avoid payment of a Medicare lien.

After settlement of the underlying case, the plaintiff sought to obtain a court order designating that the settlement proceeds were for pain and suffering or for other amounts not related to medical services, notwithstanding the fact that conditional payments had been made by Medicare. Ms. Jackson’s contention was based upon state collateral source doctrine which forecloses recovery of expenses received (or to which she was entitled) in duplication of her recovery.

In short, she argued that no plaintiff should have to reimburse Medicare in a personal injury claim because Medicare’s lien would be satisfied from funds not recovered for medical expenses. Basically, she sought the court’s cooperation in categorizing her settlement proceeds to avoid Medicare lien repayment.

Collateral Source Statute

The court, interestingly, reviewed a prior ruling in which it was found that collateral source statute does not apply to reimbursable benefits paid by Medicaid by likening the reimbursement principles to Medicare liens. Stating that Medicare “has a nearly unqualified right to reimbursement” the court found that the collateral source rule allows a personal injury settlements to include recovery of medical expenses paid for by Medicare.

The court also took the opportunity to point to prior federal case law which established where state collateral source rules “frustrate” MSP reimbursement rights, they are pre empted.

For purposes of MSP compliance, it would appear that, at least in New Jersey, Medicare liens cannot be avoided by hiding behind the collateral source rule or by a creative allocation of settlement funds. The court there recognized not only the pre eminence of the MSP statute as compared to state law but also advised the tort industry that they would not be complicit in rulings that avoid Medicare’s recovery interests.

Accordingly, Gould and Lamb recommends conditional payment research early in the tort process in order to identify Medicare’s recoupment potential and the best strategy for maximizing third party recovery, limiting contingent liability and ensuring MSP compliance.

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