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From Health Law Daily, August 29, 2016

Court vacates order counting Medicare liens in cap calculation

By Anthony H. Nguyen, J.D.

In vacating a state trial court’s judgment adjudicating liens and distributing settlement proceeds relating to medical bills following treatment at a hospital, a state appellate court found the lower court’s orders contrary to the Illinois Health Care Services Lien Act (Lien Act) (770 ILCS 23) and in conflict with Medicare's secondary payer provision and the Illinois Public Aid Code. The appellate court noted the difficulty in construction proper liens in circumstances when recovery was compromised by inadequate insurance, but found that the hospital and ambulance services providers were entitled to pro rata shares of one-third of the settlement (McKim v. Southern Illinois Hospital Services, August 26, 2016, Chapman, M.).

Background. The Lien Act limits the total amount of medical liens to 40 percent of the settlement or verdict. The hospital contended that trial court erred when it included Medicare, Medicare Part D, and Medicaid "liens" in the total amount of liens subject to the state law. Because the court allowed 100 percent reimbursement of the Medicare and Medicaid bills, the hospital realized a substantial decrease in its reimbursement.

The individual was involved in a motor vehicle accident and suffered injuries that were treated at the hospital. The individual eventually reached a $16,000 settlement with the at-fault driver and subsequently requested that the trial court limit all of the medical liens, including Medicare and Medicaid "liens," to $6400 – no more than 40 percent of the $16,000 settlement under the Lien Act. As part of his request, the individual argued that the Medicare and Medicaid liens took priority and that the court should divide the balance of the 40 percent cap minus a $3500 pro rata share of litigation costs.

In response to the complaint, the hospital argued that the 40 percent cap mandated by the Lien Act can only be distributed between the hospital and the ambulance service and that the Medicare and Medicaid liens could not be added to the cap. The hospital argued that the Medicare and Medicaid liens should be adjudicated pursuant to the Medicare Secondary Payer Act (MSP) (42 U.S.C. §1395y(b)(2)(A)(ii)) and the Illinois Public Aid Code (305 ILCS 5/11-22).

The trial court held that all medical bills were subject to the 40 percent rule. The court order further directed full reimbursement of the Medicare and Medicaid bills, with the remaining balance to be shared pro rata between the hospital and ambulance service. Finally, court costs were assessed against the lienholders under a common fund doctrine, which authorized reimbursement of litigation expenses and attorney fees out of settlement funds.

On appeal the hospital argued that: (1) the trial court erred in adding the Medicare and Medicaid liens; (2) perfected lienholders are responsible for costs of a lawsuit; and (3) the trial court’s settlement proceeds distribution was incorrect.

Appeal. The state appellate court held that the trial court erred when it ignored the plain language of the Lien Act by including Medicare, Medicare Part D, and Medicaid in the 40 percent limit for health care professionals and providers. The appellate court disagreed with the trial court implicit finding that these entities were either health care professionals or health care providers. The appellate court stated that Medicare and Medicaid are public agencies and do not directly provide medical care to the patient. Instead, these agencies reimburse health care professionals and providers. The court found that the statutory definitions of a "health care professional" and a "health care provider" in the Lien Act were unambiguous.

Additionally, under the MSP, Medicare does not pay for medical services in cases where an injury or illness was caused by another party or in situations where payment can be made by liability insurance. Interpreting the Lien Act to include Medicare and Medicare Part D bills within the statutory 40 percent limit creates a conflict between the Lien Act and the Medicare Secondary Payer Act. Therefore, the federal statute preempts the state statute.

Although the Lien Act permits subrogation claims, even if the appellate court assumed that Medicare and Medicaid held subrogation interests, the appellate court held that the Lien Act was preempted by the MSP and conflicted with the Illinois Public Aid Code.

Costs. The state supreme court had previously held that the Lien Act did not permit any deduction of attorney fees and/or costs before calculating the percentage to be paid to any health care lienholder. As such, the trial court’s determination that the attorney's costs were to be apportioned between the two lienholders pro rata contradicted previous jurisprudence. The appellate court noted that the patient did not obtain the settlement to benefit the hospital and the hospital was not enriched by the attorneys’ services in order to contribute to the costs of litigation. As such the court order directing the hospital and ambulance service to pay attorney’s costs from their Lien Act amounts was improper.

The case is No. 5-14-0405.

Attorneys: Kara L. Jones (Feirich Mager Green & Ryan) for Edwin McKim. William A. Alexander (Sam C. Mitchell & Associates) for Southern Illinois Hospital Services d/b/a Herrin Hospital.

Companies: Southern Illinois Hospital Services d/b/a Herrin Hospital

MainStory: TopStory CaseDecisions IPPSNews CMSNews MedicaidNews PartDNews MSPNews IllinoisNews

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