Protocols, LLC v. Leavitt

• Decision Date: 11 December 2008
• Docket Number: No. 07-1175.,07-1175.
• Citation: 549 F.3d 1294
• Parties: PROTOCOLS, LLC, also known as Medical Settlement Protocols, LLC; Sagrillo Hammond Dineen & Kastetter, LLC, Plaintiffs-Appellants, v. Michael O. LEAVITT, in his capacity as the Secretary of the Department of Health and Human Services; Kerry N. Weems,<SMALL><SUP>*</SUP></SMALL> in his capacity as Acting Administrator of the Centers for Medicare and Medicaid Services, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

549 F.3d 1294

PROTOCOLS, LLC, also known as Medical Settlement Protocols, LLC; Sagrillo Hammond Dineen & Kastetter, LLC, Plaintiffs-Appellants, v. Michael O. LEAVITT, in his capacity as the Secretary of the Department of Health and Human Services; Kerry N. Weems,^* in his capacity as Acting Administrator of the Centers for Medicare and Medicaid Services, Defendants-Appellees.

No. 07-1175.

United States Court of Appeals, Tenth Circuit.

December 11, 2008.

Jason B. Wesoky (Benjamin A. Kahn, with him on the briefs), Brownstein Hyatt Farber Schreck, P.C., Denver, CO, for Plaintiffs-Appellants.

Michael C. Johnson, Assistant United States Attorney (Troy A. Eid, United States Attorney, with him on the brief), Denver, CO, for Defendants-Appellees.

Before TACHA, HARTZ, Circuit Judges, and DEGIUSTI,^** District Judge.

HARTZ, Circuit Judge.

Plaintiff Protocols, LLC and the law firm Sagrillo Hammond Dineen and Kastetter, LLC (collectively, Protocols) provide consulting services for the settlement of workers' compensation claims. Protocols' claimed expertise is structuring settlements that comply with Medicare regulations—in particular, regulations designed to assure that Medicare is treated fairly in settlements of workers' compensation claims by persons eligible for Medicare benefits. Protocols brought this declaratory-judgment action against Defendants Michael O. Leavitt, the Secretary of the United States Department of Health and Human Services (HHS), and Dr. Mark B. McClellan, then the Administrator of the Centers for Medicare and Medicaid Services (CMS), which is an agency within HHS. The suit claims that a CMS memorandum issued in 2005 misinterprets the Medicare statute and regulations and exposes Protocols to unexpected liabilities arising out of settlements it has structured.

Defendants moved for summary judgment on several grounds. The district court granted the motion but on a ground not raised by Defendants—namely, that Protocols lacked constitutional standing because it had not suffered the requisite injury. Protocols appeals. We reverse because Protocols' potential liability presents a sufficient injury to confer standing under Article III of the United States Constitution. We remand to the district court for further proceedings, including consideration of Defendants' other arguments for summary judgment.

I. BACKGROUND

A. The Regulatory Scheme

To explain how Protocols may be exposed to liability arising out of its consulting services in workers' compensation cases, we begin by outlining some of the law governing the relationship between Medicare and workers' compensation medical benefits. The Medicare Secondary Payer statute, 42 U.S.C. § 1395y(b), provides that Medicare will ordinarily not pay medical expenses if workers' compensation insurance has paid "or can reasonably be expected to" pay for the expenses. Id. § 1395y(b)(2)(A)(ii). Medicare may, however, pay for an expense when the availability of workers' compensation insurance is unknown or prompt payment under such coverage is not expected. See id. § 1395y(b)(2)(B)(i) (permitting conditional Medicare payment when prompt insurance payment is not expected); 42 C.F.R. § 411.21 (defining conditional payment to include a Medicare payment made because of lack of knowledge of other coverage). If such a Medicare payment is made, CMS may seek reimbursement from the insurer or from one who receives payment from the insurer, if the insurer was responsible for the expense. See 42 U.S.C. § 1395y(b)(2)(B)(ii); 42 C.F.R. § 411.22. If reimbursement is not made, CMS may sue the insurer or the recipient of a workers' compensation payment, see 42 U.S.C. § 1395y(b)(2)(B)(iii); 42 C.F.R. § 411.24, although CMS may waive its rights in the best interests of Medicare, see 42 U.S.C. § 1395y(b)(2)(B)(v); 42 C.F.R. § 411.28.

Of course, when a worker makes a workers' compensation claim, there may be doubt concerning whether the worker's medical expenses are compensable. The insurer may question whether the worker was injured, whether the injury arose in the course of employment, or whether the medical expense relates to the injury. Such questions may be litigated, but they are often settled. The settlement is likely to affect Medicare's responsibility to pay for the worker's medical expenses. So long as workers' compensation medical benefits are available, Medicare is relieved of responsibility. But if the settlement limits or eliminates the duty of the workers' compensation insurer to pay medical benefits, Medicare would be responsible for the payment.

As a result, the settling parties have an incentive to structure their settlement in a way that transfers liability from the insurer to Medicare, because such an arrangement can make both of them better off. This incentive can result in a settlement that is "unfair" to Medicare. For example, assume that a "fair" allocation of the settlement payment would be $X to the worker for lost wages and $Y set aside to pay for medical benefits. Further assume that the $Y would pay for medical services that would otherwise be payable by Medicare, so the worker gets no benefit from the $Y. The worker and the insurer would be better off if the settlement is restructured so that no part of the settlement is allocated to medical benefits and the lost-wages allocation is correspondingly increased (even if not increased by the full $Y, but by, say, $Y-Z). The worker is better off by $Y-Z (the increase in lost-wages benefits) and loses nothing by having Medicare, rather than the insurer, pay medical benefits. The insurer for its part saves $Z (because it is replacing a payment of $Y in medical benefits by an increase of $Y-Z in its payment of lost-wages benefits). But Medicare now must incur $Y of expenses that would have been paid by the insurer under a "fair" allocation of settlement proceeds.

To avoid this subsidization by Medicare, the regulations under the Medicare Secondary Payer statute permit CMS to refuse to recognize a workers' compensation settlement. See 42 C.F.R. § 411.46(b)(2). Medicare then would not pay for treatment that should have been covered by workers' compensation. And if Medicare had paid for such treatment before realizing that workers' compensation should have paid for it, CMS could seek reimbursement from the workers' compensation insurer or from someone who had received part of a workers' compensation settlement. Protocols, which typically receives a fee from the settlement proceeds, might therefore have to relinquish its fee to CMS.

On the other hand, if CMS recognizes (approves) a workers' compensation settlement, the workers' compensation insurer—and the recipients of the settlement payment—bear no liability for medical expenses beyond what is provided in the settlement. One regulation, 42 C.F.R. § 411.47, describes an acceptable method for apportioning a settlement payment between lost-wage benefits and medical benefits. For purposes of this appeal, we need not describe the specifics of § 411.47. Suffice it to say that Protocols asserts that it has structured settlements involving future medical benefits (that is, payments for medical expenses that have not been incurred by the time of the settlement) by following § 411.47.

This suit arose after CMS clearly rejected such use of § 411.47, declaring that it applies only to medical expenses incurred before the workers' compensation settlement. In a memorandum issued on July 11, 2005 (the 2005 Memo), it said.

Q11. Compromising of Future Medical Expenses—Does CMS compromise or reduce future medical expenses related to a [workers' compensation] injury?

A11. No. Some submitters have argued that 42 C.F.R. § 411.47 justifies reduction to the amount [set aside for Medicare in a workers' compensation settlement]. The compromise language in this regulation only addresses conditional (past) Medicare payments. The CMS does not allow the compromise of future medical expenses related to a [workers' compensation] injury.

App. at 32 (Medicare Secondary Payer (MSP)—Workers' Compensation (WC) Additional Frequently Asked Questions memorandum) available at http://www.cms.hhs. gov/ WorkersCompAgencyServices/Downloads/71105Memo.pdf (bold type omitted). The 2005 Memo also stated that there is no appeal from the CMS determination of the proper amount to be set aside for future medical expenses. See id. at 32-33.

B. Proceedings Below

On August 5, 2005, a month after the issuance of the 2005 Memo, Protocols filed suit against Defendants in the United States District Court for the District of Colorado. The Complaint alleged that the 2005 Memo was contrary to the prior practice of CMS and sought a declaratory judgment that, among other things, the 2005 Memo is invalid because (1) it conflicts with the Medicare Secondary Payer statute and 42 C.F.R. § 411.47; (2) 42 C.F.R. § 411.47 provides a valid method for structuring settlements to account for future medical expenses; (3) the government bears the burden to prove noncompliance with 42 C.F.R. § 411.46 and, contrary to the 2005 Memo, there is a constitutional right to an appeal of an adverse decision; and (4) the 2005 Memo was promulgated without compliance with the rulemaking procedures established by the Administrative Procedure Act (APA). Protocols' complaint also seeks relief because CMS no longer reduces the amount to be recovered by Medicare out of a settlement by taking into account the costs (including legal fees) of procuring the settlement.

Defendants moved for summary judgment. With respect to Protocols' challenges to the 2005 Memo, they primarily argued that (1) Protocols lacked standing, but on prudential, rather than constitutional, grounds; (2) the district court lacked jurisdiction because the 2005 Memo was not a "final agency action" under the APA, see 5 U.S.C. § 704; (3) the court also lacked jurisdiction because 42 U.S.C. § 405(g) is the exclusive waiver of sovereign immunity for claims under the Medicare...