Abeyta v. Burwell et al

Filing 21

MEMORANDUM OPINION AND ORDER by District Judge Judith C. Herrera granting 8 Defendants' Motion to Dismiss and Memorandum in Support and dismissing this case for lack of subject matter jurisdiction. (baw)

UNITED STATES DISTRICT COURT
DISTRICT OF NEW MEXICO
FABIAN SILVA through THERESA
ABEYTA, his Legal Guardian and
Conservator,
Plaintiff,
v.

No. 16-cv-488 JCH/KK

SYLVIA MATHEWS BURWELL, in her
official capacity as SECRETARY OF THE
U.S. DEPARTMENT OF HEALTH AND
HUMAN SERVICES, CENTER FOR
MEDICARE & MEDICAID SERVICES,
and U.S. DEPARTMENT OF HEALTH
AND HUMAN SERVICES,
Defendants.
MEMORANDUM OPINION AND ORDER
On September 6, 2016, Defendants filed a Motion to Dismiss and Memorandum in
Support (ECF No. 8), arguing that the Court lacks subject matter jurisdiction and the case must
be dismissed under Federal Rule of Civil Procedure 12(b)(1). The Court, having considered the
motion, complaint, arguments, and relevant law, concludes the motion should be granted.
I.

FACTUAL AND PROCEDURAL BACKGROUND

In 2011, Plaintiff Fabian Silva was injured as a result of a medical malpractice incident,
leaving him with severe, permanent brain damage and debilitating physical problems. Am.
Compl. ¶ 8, ECF No. 3. Plaintiff filed suit in state court against the hospital and physicians who
provided him medical treatment, and the case was settled by agreement of the parties in
December 2015. Id. ¶ 9.
Because Medicare paid for some of Plaintiff’s medical expenses arising from the

incident, Medicare had a claim for payment with regard to the past medical care, according to the
Medicare Secondary Payer Act (“MSP”), 42 U.S.C. § 1395y(b). See Am. Compl. ¶ 10. Plaintiff
paid Medicare’s claim in full. Id. At the time this suit was filed, Secretary Sylvia Mathews
Burwell, the Secretary of the United States Department of Health and Human Services (“the
Secretary”), was responsible for implementing the Medicare program, and she administered the
Medicare program through the Center for Medicare and Medicaid Services (“CMS”), an agency
of the United States Department of Health and Human Services (“HHS”). Id. ¶ 2.1
The defendants in the malpractice case (“Hospital Defendants”) assert that Mr. Silva
must create a Medicare “set-aside” (“MSA”) from the settlement funds for future medical
expenses because of a concern that Medicare could come back after the Hospital Defendants for
future medical expenses. Id. ¶ 11. The concern arises because the CMS has promulgated
regulations for set-aside arrangements in workers’ compensation cases when “the settlement
agreement allocates certain amounts for specific future medical services.” 42 C.F.R.
§ 411.46(d)(2). See also Am. Compl. ¶¶ 16-17. CMS issued guidelines for the use and approval
of MSAs in workers’ compensation cases through a series of policy memoranda. Am. Compl. ¶
18.
Mr. Silva asserts that there is no legal support for Medicare to request a “set-aside” in his
case, because the guidelines relate to workers’ compensation settlements and do not extend to
liability or personal injury settlements. See id. ¶¶ 12, 18. Plaintiff asked CMS to state its position
as to whether funds must be “set-aside” from the settlement of a personal injury claim to cover

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According to the HHS website, Eric D. Hargan is the Acting Secretary and Deputy Secretary of HHS. U.S.
Department of Health & Human Services, https://www.hhs.gov/about/leadership/secretary/index.html (last visited
Nov. 20, 2017). Although no party has raised the issue, according to Federal Rule of Civil Procedure 25, when an
action against a public officer in an official capacity ceases to hold office while the action is pending, the officer’s
successor is automatically substituted as a party, and later proceedings should be in the substituted party’s name.
Fed. R. Civ. P. 25. To avoid confusion herein, the Court will refer to Defendant HHS Secretary as “the Secretary.”

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unknown, unspecific future medical expenses. Id. ¶ 12. CMS has not responded and has refused
to take a position regarding (1) the legal basis of their claim for repayment or future medical
care, and (2) whether a “set-aside” is required with respect to Mr. Silva’s future medical care. Id.
¶¶ 12-13.
To protect all parties, the Hospital Defendants have agreed that they would release the
money in trust to Mr. Silva’s Trustee for his health and welfare if Plaintiff obtains a federal court
order containing a finding that no federal law or CMS regulation requires the creation of a
Medicare “set-aside” from Mr. Silva’s personal injury settlement. Id. ¶ 14. During the state-court
approval of the settlement, it was determined that a certain amount of the settlement would be
kept in trust to meet any Medicare “set-aside,” while Plaintiffs pursued the instant federal court
action. Id. ¶ 15.
Consequently, Plaintiff filed suit under the Declaratory Judgment Act, 28 U.S.C.
§ 2201(a), the federal question statute, 28 U.S.C. § 1331, the Mandamus Act, 28 U.S.C. § 1361,
and the MSP, 42 U.S.C. § 1395y(b), against the Defendants in this case (“Federal Defendants”),
seeking a declaration that no “set-aside” is required in Plaintiff’s state court settlement to pay for
his future medical expenses, that Defendant CMS may not in the future decrease or refuse to pay
for medical bills Mr. Silva may incur or otherwise penalize Mr. Silva or his trust, and that MSAs
are not required under the law for personal injury or medical malpractice damages. See id. ¶¶ 34, 16-25. The Federal Defendants filed a motion to dismiss for lack of subject matter jurisdiction
arguing that (i) there is no justiciable case or controversy because the Secretary has no duty
under the law to take a position on the controversy; (ii) the United States is immune from suit;
and (iii) Plaintiff has failed to exhaust his administrative remedies under the Medicare Act.
II.

LAW REGARDING
AGREEMENTS

THE

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MSP

AND

MEDICAL

SET-ASIDE

In enacting the MSP, Congress sought to reduce skyrocketing Medicare costs by making
the government a secondary provider of medical insurance coverage when a beneficiary has
other sources of primary insurance coverage. Thompson v. Goetzmann, 337 F.3d 489, 495 (5th
Cir. 2003); Zinman v. Shalala, 67 F.3d 841, 843 (9th Cir. 1995). Under the MSP,
“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.” Zinman, 67 F.3d at 843 (citing 42 U.S.C. § 1395y(b)(2)(B)(i)).
The MSP also provides the government a cause of action in reimbursement to recover
conditional healthcare payments from primary plans. Id. (citing 42 U.S.C. § 1395y(b)(2)(B)(ii)).
A tortfeasor’s liability insurance company may constitute a primary plan under the MSP
triggering Medicare’s right to reimbursement when it pays out settlement proceeds to a Medicare
beneficiary arising from a personal injury claim that includes reimbursement for medical
expenses incurred from the incident and paid by Medicare. See Humana Medical Plan, Inc. v.
Western Heritage Ins. Co., 832 F.3d 1229, 1234, 1239 (11th Cir. 2016).
In workers compensation cases, the CMS promulgated regulations requiring the creation
of a Medicare “set aside” account. See 42 C.F.R. § 411.46(d)(2). The MSA allocates a portion of
a workers’ compensation award to pay potential future medical expenses resulting from the
work-related injury so that Medicare does not have to pay. Aranki v. Burwell, 151 F.Supp.3d
1038, 1040 (D. Ariz. 2015). On June 15, 2012, CMS published notice of proposed rulemaking on
options to clarify how beneficiaries can meet their obligations to protect Medicare’s interest
under the MSP for claims involving liability insurance when future medical care may occur or
the settlement or judgment releases claims for future medical care. Medicare Program; Medicare
Secondary Payer and “Future Medicals,” 77 Fed. Reg. 35917-02, 35918 (June 15, 2012). The

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notice stated that, unlike in certain workers’ compensation situations where Medicare has an
MSA review process to determine if a proposed set-aside amount is sufficient to meet obligations
related to future medical expenses, to date, Medicare has not established a similar process for
MSP obligations regarding future medicals in liability insurance situations. See id. at 35919. The
CMS did not create a process through any subsequent action following the Notice. See Aranki,
151 F.Supp.3d at 1040 n.1.
III.

STANDARD

When ruling on a motion to dismiss for lack of subject matter jurisdiction under Federal
Rule of Civil Procedure 12(b)(1), the court must accept the complaint’s factual allegations as
true. Wyoming v. United States, 279 F.3d 1214, 1222 (10th Cir. 2002).
IV.

ANALYSIS

Under Article III of the United States Constitution, a court has jurisdiction to decide
cases or controversies, and the “case-or-controversy requirement is satisfied only where a
plaintiff has standing.” Protocols, LLC v. Leavitt, 549 F.3d 1294, 1298 (10th Cir. 2008) (quoting
Sprint Communications Co. v. APCC Servs., Inc., 554 U.S. 269, 128 S.Ct. 2531, 2535 (2008)).
Likewise, the Declaratory Judgment Act applies only to “a case of actual controversy.” 28
U.S.C. § 2201(a). A “party seeking a declaratory judgment has the burden of establishing the
existence of an actual case or controversy.” Cardinal Chem. Co. v. Morton Intern., Inc., 508 U.S.
83, 95 (1993). To establish standing, a plaintiff must show (1) an injury in fact that is concrete
and particularized as well as actual or imminent, (2) a causal relationship between the injury and
the challenged conduct; and (3) likelihood that the injury would be redressed by a favorable
decision. Protocols, 549 F.3d at 1298. Contingent liability can constitute an injury-in-fact so
long as there is an actual or imminent present impact. See id. at 1300-01. Ripeness also bears on

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a court’s subject matter jurisdiction. New Mexicans for Bill Richardson v. Gonzales, 64 F.3d
1495, 1498-99 (10th Cir. 1995). Ripeness is a question of timing, requiring the party invoking
jurisdiction to show that the issue is fit for judicial resolution and that the parties will suffer
hardship from withholding judicial consideration. Id. at 1499.
The Protocols case is instructive in its differences. The plaintiff (“Protocols”) was a
company that provided consulting services for the settlement of workers’ compensation claims,
and it typically received a fee from the settlement proceeds. Protocols, 549 F.3d at 1295-96. In
2005, CMS issued a memorandum (“the 2005 Memo”) declaring that 42 C.F.R. § 411.47 only
applied to medical expenses incurred before a workers’ compensation settlement, an
interpretation at odds with how the plaintiff in the past had structured its settlements by
following § 411.47 for settlements involving future medical benefits as well. See id. at 1296-97.
The plaintiff sued the Secretary of HHS and the acting administrator of CMS for, among other
things, a declaratory judgment that the 2005 Memo was invalid because it conflicted with the
MSP and § 411.47 and that § 411.47 provided a valid method for structuring settlements to
account for future medical expenses. Id. at 1297. The district court granted summary judgment to
Defendants on the ground that the plaintiff lacked standing under Article III. Id. at 1298.
The Tenth Circuit disagreed, determining that the following facts created an injury-infact:
Liability of Protocols could therefore result as follows: When CMS refuses to
recognize a settlement, the settlement does not relieve the workers' compensation
insurer of the obligation to pay postsettlement medical expenses that would
otherwise be covered by workers' compensation. If Medicare pays for such an
expense, it would then be entitled to reimbursement (and could sue to collect)
from anyone who received part of the settlement paid by the insurer. Because
Protocols received consulting fees out of the settlement payment, it could be
liable to repay that sum. Protocols will not know whether it has a liability,
however, until Medicare pays a postsettlement medical expense and then decides
to seek reimbursement from Protocols. According to affidavits submitted by
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Protocols, this potential (contingent) liability hanging over it hampers its business
in several ways: (1) the company's value is decreased because of contingent
liabilities; (2) the uncertainty of the liability harms Protocols' ability to plan how
much revenue it may use for capital and operating costs; and (3) the company has
postponed discussions with potential investors while awaiting the outcome of this
lawsuit, because potential investors want to know about contingent liabilities.
Id. at 1299.
The Tenth Circuit concluded that Protocols suffered an actual injury because it arranged
settlements in the past contrary to what CMS declared to be required, and as a result, CMS may
in the future demand reimbursement from Protocols’ portion of settlement proceeds. Id. at 1301.
Protocols had shown through affidavits that the potential liability was adversely affecting its
financial health presently. See id. at 1299. The Tenth Circuit also determined Protocols satisfied
the other two elements of standing because “Protocols' contingent liability is caused by CMS's
interpretation of the Medicare Secondary Payer statute and the regulations under that law. And a
favorable decision by the court in this case would resolve that Protocols' past practice conforms
to Medicare law, so Protocols would no longer be facing possible (contingent) liability.” Id. at
1301.
Unlike in Protocols, Plaintiff here has not shown that CMS has taken a position contrary
to Plaintiff’s interpretation of the MSP. In Protocols, CMS issued the 2005 Memo that set forth a
contrary interpretation of the MSP and regulations from Protocols’ past practice and
interpretation. The Federal Defendants in this case, however, have not stated a position or
interpretation of the MSP that is imposing the contingent liability. Importantly, “no federal law
or CMS regulation [currently] requires the creation of a MSA in personal injury settlements to
cover potential future medical expenses.” Aranki, 151 F.Supp.3d at 1040. See also Sipler v.
Trans Am Trucking, Inc., 881 F.Supp.2d 635, 638 (D.N.J. 2012) (“no federal law requires setaside arrangements in personal injury settlements for future medical expenses”). The Hospital
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Defendants, leery of being subject to a later suit by CMS for failing to create a MSA, in an
abundance of caution, want confirmation of whether they need to create a MSA before
completing the settlement. The Federal Defendants, however, have not taken any act to indicate
that they are interpreting the MSP to require MSAs in non-workers compensation personal injury
cases. Nor has Plaintiff shown that CMS has sought to recover funds not placed in an MSA in
other similar personal injury settlements. Cf. Winsness v. Yocom, 433 F.3d 727, 732 (10th Cir.
2006) (holding that, where plaintiff violated statute but was not threatened with prosecution and
district attorney stated he did not intend to prosecute plaintiff, plaintiff’s mere fearfulness of
future prosecution was insufficient to support standing because there was no credible threat of
prosecution). Plaintiff has thus not shown that the Federal Defendants are likely to seek
reimbursement from either Plaintiff or the Hospital Defendants if they do not create an MSA. Cf.
Bronson v. Swensen, 500 F.3d 1099, 1107-10 (10th Cir. 2007) (stating that, to have standing to
challenge law due to threat of prosecution, plaintiff must show credible threat of prosecution and
substantial likelihood that the defendant’s conduct caused plaintiff’s injury in fact).
Moreover, Plaintiff has not convinced the Court that the Federal Defendants have a duty
or obligation in law to respond to Plaintiff’s request for a determination of whether a MSA must
be created in his case. Under 28 U.S.C. § 1361, district courts have jurisdiction of any mandamus
action “to compel an officer or employee of the United States or any agency thereof to perform a
duty owed to the plaintiff.” 28 U.S.C. § 1361. There is no law or regulation currently in place
that requires the CMS to decide whether Plaintiff is required to create a MSA for personal injury
settlements. Cf. Cribb v. Sulzer Metco (US) Inc., Civ. Action No. 4:09-CV-141-FL, 2012 WL
4787462, at *2 (E.D.N.C. Sept. 5, 2012) (“… CMS provides no other procedure by which to
determine the adequacy of protecting Medicare's interests for future medical needs and/or

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expenses in conjunction with the settlement of third-party claims …..”). The Federal Defendants’
inaction thus does not make the case ripe for consideration. Cf. Winsness, 433 F.3d at 733
(holding that plaintiff had not shown credible threat of prosecution to satisfy standing, even
though before filing lawsuit district attorney failed to respond to plaintiff’s requests for
assurances of non-prosecution; the inaction was “of no moment” because there “is no federal
right to obtain advisory opinions from local prosecutors”).
The Court shares the Sipler court’s concern that “to require personal injury settlements to
specifically apportion future medical expenses would prove burdensome to the settlement
process and, in turn, discourage personal injury settlements.” Sipler, 881 F.Supp.2d at 638. The
uncertainty created by CMS’s repeated failure to clarify its position on requiring MSAs in
personal injury settlements generally and in specific cases is also proving burdensome to the
settlement process. Nevertheless, standing is a jurisdictional requirement, and Plaintiff has not
met his burden to establish a justiciable controversy ripe for review. Cf. Aranki, 151 F.Supp.3d at
1042 (“This case is not ripe for review because no federal law mandates CMS to decide whether
Plaintiff is required to create a MSA. That CMS has not responded to Plaintiff's petitions on the
issue, is not reason enough for this Court to step in and determine the propriety of its actions.
There may be a day when CMS requires the creation of MSA's in personal injury cases, but that
day has not arrived.”).2
IT IS THEREFORE ORDERED that Defendants’ Motion to Dismiss and
Memorandum in Support (ECF No. 8) is GRANTED and this case is DISMISSED for lack of
subject matter jurisdiction.
____________________________________
UNITED STATES DISTRICT JUDGE
2

In light of the Court’s decision that it lacks subject matter jurisdiction based on lack of standing and ripeness, the
Court need not consider the Federal Defendants’ alternative arguments that it is immune from suit.

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