Estate of Deborah A. Ethridge v. Recovery Management Systems, Inc. (5/13/2014)

February 18, 2014

Arizona Court of Appeals Division One Holds That Medicare Plan May Recover Medical Expenses From Enrollee’s Personal Injury Settlement.

Deborah Ethridge died in 2007 as a result of her caregiver nursing home’s neglect.  Mercy Care Advantage was the private health insurer that, pursuant to a Medicare Advantage plan, was paying for Ethridge’s care that was a consequence of the nursing home’s negligence.  Ethridge’s estate and beneficiaries sued the nursing home for abuse, neglect and wrongful death, and sought damages including compensation for medical expenses.  After the estate and beneficiaries settled their claims against the nursing home, the estate brought an action against Mercy Care seeking a declaratory judgment that Mercy Care was not entitled to reimbursement of medical expenses it paid for Ethridge’s treatment.  The trial court determined that the federal Medicare law did not preempt Arizona’s anti-subrogation doctrine – a common law doctrine that bars the assignment of personal injury claims.  Accordingly, it held that the anti-subrogation doctrine prevented Mercy Care’s reimbursement for medical expenses from the personal injury claim settlement.

Mercy Care appealed to the Arizona Court of Appeals.  The parties agreed that, absent federal preemption, Arizona’s anti-subrogation doctrine would bar Mercy Care’s reimbursement claim.  As a matter of first impression, the court of appeals held that Part C of the Medicare Act, 42 U.S.C.A. § 1395, and its associated regulations preempted the anti-subrogation doctrine, thereby allowing a Medicare Advantage plan (such as Mercy Care here) to recover the medical expenses it paid for an enrollee from the settlement funds of a personal injury claim.  The court of appeals noted that 42 C.F.R. § 422.108(d) expressly permits the Medicare Advantage plan to bill and collect from an enrollee for covered medical expenses when those expenses are also covered under other compensation plans, such as a liability insurance policy.  And the court of appeals applied Part C’s express preemption provision over “any State law,” 42 U.S.C.A. § 1395w-26(b)(3) to the pertinent regulation, concluding that common law doctrine is included in a state law for purposes of Part C. 

Because the preemption issue was a matter of first impression, the court of appeals denied Mercy Care’s request for attorneys’ fees on appeal.

Judge Norris authored the opinion, Presiding Judge Swann and Judge Thumma concurred.