Walters v. Leavitt

• Decision Date: 14 July 2005
• Docket Number: No. 05-CV-70888-DT.,05-CV-70888-DT.
• Parties: Terrance L. WALTERS and Norma J. Walters, Plaintiffs, v. Michael O. LEAVITT, Defendant.
• Court: U.S. District Court — Eastern District of Michigan

376 F.Supp.2d 746

Terrance L. WALTERS and Norma J. Walters, Plaintiffs, v. Michael O. LEAVITT, Defendant.

No. 05-CV-70888-DT.

United States District Court, E.D. Michigan, Southern Division.

July 14, 2005.

COPYRIGHT MATERIAL OMITTED

Richard L. Steinberg, Detroit, MI, for Plaintiffs.

Susan K. DeClercq, U.S. Attorney's Office, Detroit, MI, for Defendants.

ORDER GRANTING DEFENDANT'S "MOTION TO DISMISS"

CLELAND, District Judge.

Plaintiffs filed this civil action against Defendant Michael O. Leavitt, the acting Secretary of the Department of Health & Human Services, in his individual and his official capacity. Plaintiffs assert subject matter jurisdiction pursuant to 28 U.S.C. § 1331, averring that this case presents questions "aris[ing] under Title XVIII of the Social Security Act of 1935, Public Law No. 74-271 (49 Stat. 620), being 42 U.S.C. § 1395, et seq., as amended" and under certain Medicare regulations, specifically 42 C.F.R. § 411.37. (Pls.' Compl. at ¶ 2.)

Plaintiffs seek four forms of declaratory or equitable relief against Defendant: (1) a declaratory judgment determining the rights of the parties under certain provisions of the Medicare Act's Secondary Payer ("MSP") provisions, see 42 U.S.C. § 1395y(b); (2) a preliminary and permanent injunction compelling Defendant Secretary to produce information, including an itemized list of federal Medicare benefits paid to, or on behalf of, Plaintiffs, including the amount of reimbursement that Defendant will seek; (3) a preliminary and permanent injunction compelling Defendant to "declare upon what terms a Medicare Set Aside Trust Account for the Plaintiffs shall be deemed sufficient for Defendant's purposes," appointing a trustee for the set aside account, and setting forth a method and procedure for administering the set aside trust account (related to future claims of reimbursement); and (4) an order awarding Plaintiffs their costs and attorney fees. (Id. at 6.)

On May 11, 2005, Defendant filed its "Motion to Dismiss" for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1). Defendant argues that the court's jurisdiction to review Plaintiffs' claims is governed exclusively by 42 U.S.C. § 405(h), which provides that: "No action against the United States, the [Secretary] or any officer or employee thereof shall be brought under section 1331 or 1346 of Title 28 to recover on any claim arising under this subchapter." 42 U.S.C. § 405(h). Defendant maintains that because Plaintiffs have neglected to allege jurisdiction under § 405(h) and because they admittedly have failed to exhaust statutorily required administrative remedies required by § 405(h), the court lacks subject matter jurisdiction.

Plaintiffs filed their response on June 6, 2005, arguing that exhaustion or "administrative channeling" does not apply in this case and federal question subject matter jurisdiction is proper under 28 U.S.C. § 1331. Defendant filed a reply on June 16, 2005, and the court held oral argument on July 6, 2005. For the reasons set forth below, the court will grant Defendant's motion and dismiss Plaintiffs' claims without prejudice.

I. BACKGROUND

A. Factual Background

Plaintiff Terrance L. Walters was severely injured in November 1997 during an accident at a construction site in Monroe County, Michigan. According to Plaintiffs, a crane operator negligently operated an overhead traveling bridge crane, causing the crane's load line to part. When the load line parted, a several hundred pound block fell to the ground below, injuring Mr. Walters. (Pls.' Compl. at ¶¶ 6-7.) As a result of this accident, Walters sustained a severe head injury and was rendered a quadriplegic. (Id. at ¶ 7.)

After determining that Walters was permanently and totally disabled from gainful employment under Michigan's Workers' Disability Compensation Act of 1969, Mich. Comp. Laws § 418.101, et seq., Liberty Mutual Insurance Company began paying statutory benefits. (Id. at ¶ 8.) Plaintiff also received additional statutory benefits from Michigan's "Second Injury Fund." These benefits are paid and administered by the State of Michigan. See Mich. Comp. Laws § 418.501(1), et seq. (Id. at ¶ 9.)

Plaintiffs also allege that Mr. Walters was determined to be totally and permanently disabled, becoming eligible for additional benefits under the Social Security Administration and becoming a Medicare recipient, under Title XVIII of the Social Security Act. (Id. at ¶ 10.) Plaintiffs claim that Walters sought medical care that was conditionally paid for, in whole or at least in part, by Medicare. (See id. at ¶¶ 7, 10, 15.) The parties do not dispute that some federal benefits were paid by Medicare, and Defendant is named as the individual responsible for the administration and control of these federal benefits that have been, or will be, received in the future.

In December 1997, Plaintiffs, acting pursuant to Mich. Comp. Laws § 418.827(1), filed a civil tort action against certain identified third-party tortfeasors in Monroe County Circuit Court. See Walters v. Bascon Inc., et al., Case No. 97-7441-NO (Dec. 23, 1997). Plaintiffs allege that they have conducted discovery, litigated pretrial claims and defenses, prosecuted liability in preparation for trial, and are close to negotiating a settlement in the state court action.

The rub or impediment, however, comes with regard to certain liens asserted against any proceeds recovered by Plaintiffs in the state court lawsuit, specifically a subrogation lien against settlement proceeds that arises under 42 U.S.C. § 1395y(b)(2)(B)(iii) and 42 C.F.R. § 411.37.

Liberty Mutual Insurance Company and the State of Michigan Second Injury Fund have both asserted subrogation liens for monies paid pursuant to the Michigan Workers' Disability Compensation Act. In addition, the federal government is legally entitled to assert a subrogation lien for the monies paid, or that will be paid, as federal benefits under Medicare's MSP provisions. See id. Plaintiffs complain that they are unable to settle their state law tort action without knowing the amount that the federal government will require in reimbursement or the amount to be set aside for future payments. According to Plaintiffs, the Secretary will not provide the information that they seek in this federal civil action.

B. The Medicare Secondary Payer Statute

Congress created the Medicare program to pay for medical care of the aged, disabled, and those suffering from end stage renal failure. 42 U.S.C. § 1395, et seq.; Henry Ford Health Sys. v. Shalala, 233 F.3d 907, 908 (6th Cir.2000) ("Congress established the Medicare program in 1965 as Title XVIII of the Social Security Act in order to provide hospital and medical coverage to most persons over sixty-five years of age and to certain disabled persons.") (citing 42 U.S.C. § 1395c). The Secretary of Health and Human Services administers the program through the Center for Medicare Services ("CMS").

Prior to 1980, Medicare generally paid for medical services, even when a recipient was also covered by another health plan or insurer. Fanning v. United States, 346 F.3d 386, 388 (3d Cir.2003) (citing Social Security Amendments of 1965, Pub.L. No. 89-97, § 1862(b), 79 Stat. 286). In 1980, however, Congress began enacting a series of cost-cutting amendments to the Medicare program, collectively known as the Medicare Secondary Payer, MSP, provisions. Id.; United States v. Baxter Intern., Inc., 345 F.3d 866, 874 (11th Cir.2003) ("The MSP is actually a collection of statutory provisions codified during the 1980s with the intention of reducing federal health care costs.").

CMS's subrogation rights are defined by the Medicare Act and its interpreting regulations. Section 1395y(b)(2), part of the MSP statutory provisions, makes Medicare the secondary payer for services provided to beneficiaries whenever payment for these services is available from another primary payer. Cochran v. U.S. Health Care Financing Admin., 291 F.3d 775, 777 (3d Cir.2002). The MSP provisions provide that Medicare will not pay for medical items and services if "payment has been made or can reasonably be expected to be made under a workmen's compensation law or plan of the United States or under an automobile or liability policy or plan (including a self-insured plan) or under no fault insurance." 42 U.S.C. § 1395y(b)(2)(A)(ii); see Cochran, 291 F.3d at 777 ("[I]f payment for covered services has been or is reasonably expected to be made by someone else, Medicare does not have to pay.").

In order to accommodate Medicare beneficiaries, Congress provided for Medicare to make conditional payments for covered services, when another source may be obligated to pay but that source is not expected to pay promptly. 42 U.S.C. § 1395y(b)(2)(A)(ii); Cochran, 291 F.3d at 777. These payments, however, are expressly "conditioned on reimbursement to the appropriate Trust Fund [i.e. to Medicare] ...." 42 U.S.C. § 1395y(b)(2)(B)(i). 42 U.S.C. § 1395y(b)(2)(B)(ii) requires a primary plan and entity receiving payment from a primary plan to "reimburse the appropriate Trust Fund for any payment made by the Secretary under this subchapter with respect to an item or service if it is demonstrated that such primary plan has or had a responsibility to make payment with respect to such item or service."

The Cochran court provided the following summary of the MSP and its statutory subrogation rights:

The way the system is set up the beneficiary gets the health care she needs, but Medicare is entitled to reimbursement if and when the primary payer pays her. Among other avenues of reimbursement, Medicare is subrogated to the beneficiary's right to recover from the primary payer. 42 U.S.C. § 1395y(b)(2)(B)(iii). Medicare regulations extend that subrogation right to any judgments or settlements "related to" injuries for which Medicare paid medical costs, thereby casting the tortfeasor as the primary payer....