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Legal Network News:
How To Keep the Client's Recovery in Litigation for the Client
Instead of Giving It to the Government by Mistake

By Peter G. Lomhoff, Esq.

In litigation against long term care providers, SNF's andRCFE's, we face an unusual problem in protecting our client's recovery from Medi-Cal and Medicare liens and claims.

The Problem

Most of our clients are beneficiaries of Medicare or Medi-Cal or both. Those programs often have a right to a pieceof the action when a beneficiary recovers money in a lawsuitagainst a third party, but we can easily mistakenly pay themmore than their share.

If we ignore the problem, a large chunk of the recovery will go to the government, and the client may be left with very little. The solution is to develop an ethical and legal plan to place the client's funds where they belong, and away from the reach of Medicare and Medi-Cal.

The Background

The first step is to understand the government programs' rights to a share of the recovery. There are three important government reimbursement programs:

1. Medi-Cal has a lien on a Medi-Cal beneficiary's recovery in a personal injury action against a third party for the benefits paid for the injury which is the subject ofthe action. Welf. & Inst. C. §14124.71 et seq.

For example a nursing home resident on Medi-Cal may fall and break a hip due to the SNF's failure to monitor the resident and to update the care plan to prevent falls. Typically Medi-Cal and Medicare will each pay some of the bills. The resident sues the SNF and collects. Medi-Cal has a lien on the resident's recovery for what Medi-Cal paid out for care for that injury. The amount is usually relatively small and subject to reduction, so it is manageable.

Plaintiff's counsel (that is the attorney, not the just the plaintiff) must report a third party injury action on behalfof a Medi-Cal beneficiary to Medi-Cal, W.&I.C. §14124.79, so the real danger here is not paying the lien when you report properly, but what happens if you fail to report.

2. Medicare also has a right, like Medi-Cal, to recover what it paid for care for an injury to a beneficiary, when the beneficiary recovers from the third party who caused the injury. 42 U.S.C. §1395y(b)(1) and (2).

Unlike with Medi-Cal, this is a subrogation right, not a lien.There is no statutory duty for the attorney to report the third party case to Medicare. If it is not reported, however, Medicare can still recover, from the attorney as well as from the beneficiary, and if recovery is by suit instead of by cooperation,there is no reduction of the amount owed. It is probably better practice to report the case to Medicare.

3. After the Medi-Cal beneficiary's death, the state can make a claim against the estate of an individual who was 55 years of age or older at the time he or she received Medi-Cal benefits or who (at any age) received benefits in a nursing home, unless there is a surviving spouseor a minor, blind or disabled child. Thus, if there are any assets left in the estate of the deceased beneficiary, Medi-Cal will seek to be reimbursed for benefits paid.W.&I.C. §14009.5, 22 C.C.R. §50961. This claim can really ruin an elder abuse (EADACPA) case. Three years of nursing care at $3,000 per month is $108,000, a very big bite out of many settlements.

The death of a Medi-Cal beneficiary must be reported too, though not always by the attorney. Probate C. §§215, 9202;22 C.C.R. §50962. That is usually done at the nursinghome or hospital where the person died, at a time when the estate is assumed to have no assets, because no one has thought of filing a lawsuit on behalf of the decedent. If Medi-Cal does not assert a claim within four months of the notice, the claim is barred. P.C. §9202.

There appears to be no clear law on subsequent or updated reporting, but it is very clear that intentionally falsely denying a possible Medi-Cal claim is extremely dangerous. See Starkweather v. U.S. Fidelity (1998) 64C.A. 4th 580.

Planning Strategies

These government reimbursements are made only from funds recovered by or for the resident or decedent, or from the decedent's assets other than the lawsuit. In order to protect the recovery the attorney must not thoughtlessly assume that everything recovered is recoveredfor the living or deceased resident. A wrongful death cause of action belongs to the decedent's wrongful death heirs, not to the decedent. C.C.P. §377.60. A bystander negligent infliction of emotional distress ("NIED") cause of action belongs to the family members who saw the abuse of the resident, not to the resident. Thing v. LaChusa (1989) 48 C.3d 644.

A special verdict will specify the amount of money in each category of damages, but a settlement agreement usually will not.

It is important to handle the settlement so that it is clear what money belongs to whom, and not just put it all in the resident or decedent's pocket. Initially wrongful death and NIED must be pled in the complaint. The recoveries for those causes of action must then go to the plaintiffson those claims, that is the heirs, not to the decedent's estate. That can be done in a settlement agreement, or,better, in a stipulated order by the court which is provided for in the settlement agreement. It can also be done by a motion to approve the settlement agreement, which would normally be unopposed.

Often in fact little or none of the money paid in settlement in a death case is subject to Medi-Cal's lifetime recovery claim. It is instead payment for wrongful death or NIED.The reason is that an insurance carrier cannot indemnify willful conduct. Ins.C. §533. In a death case the decedent typically recovers a small amount of special damages,and claims punitive damages plus EADACPA damages. EADACPA damages are paid only for malice, oppression, fraud or recklessness, i.e. for conduct which substantially overlaps the uninsurable conduct referred toin Ins.C. §533.

Since the settlement is usually paid entirely by an insurance carrier, and the carrier is prohibited from paying for willful wrongful conduct, the money paid by the carrier must be paid only for damages other than the decedent's pain and suffering and the decedent's (or anyone else's) punitive damages. Those other categories of damages are mostly wrongful death and NIED damages. A court order confirming those facts should prevent Medi-Cal from claiming funds it has no right to recover, because they do not belong to the beneficiary or the beneficiary's estate.

Medi-Cal and Medicare liens and claims can be very complex. The planning strategies mentioned here are only a small part of a much larger subject, and they work best when coordinated with the advice of an elder

From the June 1999 Legal Network News

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