Zinman v. Shalala, No. 94-15198

• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)
• Writing for the Court: DAVID R. THOMPSON
• Citation: 67 F.3d 841
• Parties: , Medicare & Medicaid Guide P 43,653, 95 Cal. Daily Op. Serv. 7840, 95 Daily Journal D.A.R. 13,435 Florence ZINMAN; Virginia Kropf; Grace M. Lee; Marjorie Thompson; Mary Buffalo; Cecil A. Ridley and Ada G. Ellman, individually and on behalf of a class of persons similarly situated, Plaintiffs-Appellants, v. Donna E. SHALALA, Secretary, Health and Human Services, Defendant-Appellee.
• Docket Number: No. 94-15198
• Decision Date: 05 October 1995

Page 841

67 F.3d 841 49 Soc.Sec.Rep.Ser. 128, Medicare & Medicaid Guide
P 43,653,
95 Cal. Daily Op. Serv. 7840,
95 Daily Journal D.A.R. 13,435 Florence ZINMAN; Virginia Kropf; Grace M. Lee; Marjorie
Thompson; Mary Buffalo; Cecil A. Ridley and Ada G. Ellman,
individually and on behalf of a class of persons similarly
situated, Plaintiffs-Appellants,
v.
Donna E. SHALALA, Secretary, Health and Human Services,
Defendant-Appellee. No. 94-15198. United States Court of Appeals,
Ninth Circuit. Argued and Submitted Sept. 13, 1995.
Decided Oct. 5, 1995.

Page 842

Sally Hart Wilson, Center for Medical Advocacy, Tucson, Arizona, and Lenore E. Gerard, Legal Assistance to the Elderly, Inc., San Francisco, California, for plaintiffs-appellants.

Matthew M. Collette, United States Department of Justice, Washington, DC, for defendant-appellee.

Appeal from the United States District Court for the Northern District of California.

Before: H. CHOY, BEEZER and THOMPSON, Circuit Judges.

DAVID R. THOMPSON, Circuit Judge:

A nationwide class of Medicare beneficiaries who received or will receive lump-sum insurance settlement awards from third parties in connection with Medicare-covered injuries (beneficiaries) appeal the district court's grant of summary judgment in favor of the Secretary of Health and Human Services (HHS). The beneficiaries sued HHS, claiming that under Title XVIII of the Social Security Act, 42 U.S.C. Sec. 1395, et seq., HHS is required to reduce pro rata its recovery of conditional Medicare payments when the beneficiaries' liability settlements are less than their total damages. We have jurisdiction

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under 28 U.S.C. Secs. 1291 and 1294, and we affirm.

FACTS AND PROCEDURAL BACKGROUND

This is a class action challenging HHS's interpretation and implementation of the Medicare Secondary Payer provisions of the Social Security Act, 42 U.S.C. Sec. 1395, et seq. As first enacted, Medicare was the primary payer for medical services supplied to a beneficiary, even when such services were covered by other insurance such as an employer group health plan or liability insurance. Responding to skyrocketing Medicare costs, Congress in 1980 enacted the Medicare Secondary Payer legislation (MSP legislation), requiring Medicare to serve as the secondary payer when a beneficiary has overlapping insurance coverage. 42 U.S.C. Sec. 1395y(b).

Under the MSP legislation, when a Medicare beneficiary suffers an injury covered by a group health plan or liability, workers' compensation, automobile, or no-fault insurance, Medicare conditionally pays for the beneficiary's medical expenses. 42 U.S.C. Sec. 1395y(b)(2)(B)(i). If the beneficiary receives a settlement from the primary insurer, Medicare is entitled to reimbursement from the beneficiary for its conditional outlays. 42 U.S.C. Sec. 1395y(b)(2)(B)(ii). HHS has interpreted the MSP legislation to allow full recovery of conditional Medicare payments even when the beneficiary's settlement is for less than her total damages (i.e., a discounted settlement). This interpretation is set forth in 42 C.F.R. Sec. 411.24(c). This regulation provides in pertinent part that the Health Care Financing Administration "may recover an amount equal to the Medicare payment or the amount payable by the third party, whichever is less." Id.

In November 1990, several individual beneficiaries brought suit against HHS challenging the agency's interpretation of the MSP legislation. These plaintiffs were later certified as a class by the district court. They sought an injunction which would require HHS to reduce proportionately its recovery when a beneficiary received a discounted settlement from a third party.

The district court granted HHS's motion for summary judgment. This appeal followed, raising the issue whether HHS is entitled to recover up to the full amount of its conditional Medicare payments when a beneficiary receives a discounted settlement from a third party.

The following hypothetical case illustrates the issue. Assume an accident victim receives a $50,000 settlement. This is the limit of the third-party tortfeasor's liability policy. The victim alleged damages of $80,000 in medical expenses (of which Medicare paid $50,000); $20,000 in property damage; $40,000 in lost wages; and $60,000 in pain and suffering. The total claim for damages is $200,000.

In this hypothetical case, is HHS entitled to recover its entire $50,000 outlay (minus its portion of attorney fees and costs), or must it apportion its recovery, reducing it in proportion to the plaintiff's partial recovery of her total damages claim? The victim in the hypothetical example recovered only 25% of her claim. According to the beneficiaries' construction of the statute, HHS should recover no more than 25% of its $50,000 outlay ($12,500).

According to HHS's construction of the statute, HHS is entitled to recover its entire $50,000, less applicable attorney fees and costs under 42 C.F.R. Sec. 411.37, subject only to the possibility of a full or partial hardship waiver under 42 U.S.C. Sec. 1395gg(c). ¹

DISCUSSION

We review a grant of summary judgment de novo. Jesinger v. Nevada Fed. Credit Union, 24 F.3d 1127, 1130 (9th Cir.1994). Within this de novo framework, an agency's construction of a statute is reviewed

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in two steps under the standard established in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842, 104 S.Ct. 2778, 2781, 81 L.Ed.2d 694 (1984). See also Brandt-Erichsen v. United States Dep't of Interior, 999 F.2d 1376, 1379 (9th Cir.1993), cert. denied, --- U.S. ----, 115 S.Ct. 92, 130 L.Ed.2d 43 (1994).

First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress. If, however, the court...