In almost every medical malpractice claim, there are related medical expenses that were paid by health insurance or by a government program, such as Medicare or Medicaid. What most people don’t realize is that, when there is a settlement of a malpractice claim, the health insurance company or the government program usually has a right to be repaid all or part of the amounts it paid for medical care caused by the malpractice.
In legal terms, those entities are “subrogated” to the malpractice claim, which means they stand in the shoes of the claimant to recover what they have paid. This can sometimes be an impediment to resolution of a claim because the amounts claimed are often so large that, after payment of fees, costs, and subrogation amounts, it does not leave enough for the injured person.
Government programs such as Medicare, Medicaid, and Labor & Industries, have statutes that provide that they share on a pro-rated basis in the fees and costs necessary to obtain a recovery. Some programs also provide for a method of reducing the subrogation claim to reflect difficulties of proof as to liability or damages or to reflect hardship if the full subrogation amount were to be paid. And some health insurance policies also include such language in their policy documents, or are willing to negotiate as to the amount of a subrogation claim that must be re-paid.
Washington State also has case law that requires a sharing in fees and costs in most subrogation situations (these do not include government programs like Medicaid or L & I). There is also a case that specifies that subrogation claims must be paid only if the injured person is “made whole” first. In other words, the first amounts from a settlement go to compensate the claimant for physical injuries and then what is left can be used to pay the subrogation claim. This situation typically comes into play where there is limited insurance coverage for a defendant so that a settlement is for less than full value of the claim, but it may also apply when other factors lead to a partial rather than a full-value settlement.
It is not uncommon to settle a claim without knowing what the final subrogation interest will be. This often occurs in cases where Medicare paid for the related medical care. Sometimes there can be a long delay, after a case is resolved, before negotiations with Medicare allow a final figure to be reached. When these delays occur, it is common that the settlement agreement requires that the full amount of the Medicare lien be held in the trust account of the claimant’s attorney until there is a final resolution.
There can also be issues determining what medical expenses were caused by the negligence, and what expenses would have been necessary even without negligence. An example is a case involving a delay in diagnosis of cancer. The settlement with the defendant may reflect only the additional care needed because of a different stage of the cancer or a reduced life expectancy. But the full treatment expenses, including chemotherapy, may have been required even without the negligent delay. In such cases, nurses or even physicians have to sign declarations as to whether a medical expense is related or not for purposes of determining whether it should properly be part of the subrogation interest.
A major difficulty in this area of law was highlighted in a recent U.S. Supreme Court case, decided on April 17, 2013, regarding ERISA policies: US Airways v. McCutchen. ERISA is the Employee Retirement Income Security Act of 1974, a federal law under which many employer-paid health insurance policies are issued. Because the policies are issued under federal law, state laws or cases, such as those mentioned above in Washington, do not apply.
The thrust of the Supreme Court’s decision is that an employer or employer-issued ERISA policy can demand full payment of its subrogation lien, without sharing in fees or costs and regardless of whether the injured person was made whole. In Mr. McCutchen’s case, that meant his net recovery of $66,000 would have to be paid in full to his employer who paid approximately that amount for related medical care. The result is that he would receive nothing from having pursued his liability claim and nothing for his other harms and losses.
Most law firms representing plaintiffs are now going to carefully investigate, before taking on a case, whether an ERISA policy would have a subrogation claim. For cases where there is disputed liability and a large potential lien, it may not be feasible to pursue the case at all. There is a need for Congress to revisit ERISA and fashion new legislation that will allow injured persons to pursue meritorious cases and have a reasonable means of negotiating a reduction in an ERISA lien.
