Can't Settle, Can't Sue: How Congress Stole Tort Remedies from Medicare Beneficiaries
50 Pages Posted: 26 Jul 2007
Date Written: June 2008
In 2003, with no debate, Congress amended the Medicare Secondary Payer Act (the MSP) to make it all but impossible for Medicare beneficiaries to participate in the settlement of individual or mass tort claims. Under this new Rule, the Secretary of Health and Human Services has the right to collect any money that Medicare expended on a beneficiary's healthcare needs from a settling tort defendant, even if the defendant denies liability; from a settling Medicare beneficiary, even if the settlement does not reflect medical payments; or from the settlement proceeds, even if those proceeds are distributed to a contingency fee attorney.
This article provides the first scholarly treatment of this startling barrier to civil settlements. Tracing the historical roots of Medicare and the Secondary Payer Act, I explore why Congress passed the 2003 amendment and, using an economic model of litigation, demonstrate the potentially disastrous impact the new Rule may have on the tort system. As I show, Medicare beneficiaries now have less incentive to bring and settle individual tort suits and contingency fee attorneys are unlikely to include Medicare beneficiaries as clients in individual or mass tort suits. Where Medicare beneficiaries make up a significant percentage of claimants in mass tort litigation, plaintiffs' attorneys may shy away from bringing mass tort claims altogether.
The new Medicare regime thus undermines the deterrence and corrective functions of the tort law, with little gained in return. Although Congress passed the amendment as a cost-recovery mechanism for Medicare, it may have the perverse effect of making it more difficult for the Secretary to recover Medicare's conditional outlays. If Medicare beneficiaries do not bring and settle tort claims, defendants will have no obligation to repay Medicare under the amendment and the Secretary will have no settlements to plunder. Further, without tort lawsuits, the Secretary may be deprived of valuable information about alleged tortfeasors, thus making it more difficult to bring subrogation claims.
Keywords: law and economics, Medicare, civil procedure, tort law, settlement, insurance
JEL Classification: K13, K4, K40, K41
Suggested Citation: Suggested Citation