Zinman v. Shalala

The Department of Health and Human Services (HHS) (defendant) administered the Medicare program. Initially, Medicare was a primary insurer, covering a beneficiary’s medical expenses regardless of whether the beneficiary had other coverage. However, in 1980, a federal statute converted Medicare into a secondary insurer. As a secondary insurer, Medicare provided coverage only if no other source covered a medical expense. To help beneficiaries, Medicare would advance payments for medical expenses and later seek reimbursement from any primary-coverage sources. For example, if a beneficiary was harmed in a car accident by a third party, the third party had primary responsibility for paying for the beneficiary’s injuries. However, Medicare paid for the beneficiary’s upfront medical expenses while reserving the right to seek reimbursement from that third party. If the third party (or its insurer) paid the beneficiary a lump sum to settle all the beneficiary’s claims, medical and otherwise, Medicare could seek reimbursement of its expenses from that settlement. However, frequently, a lump-sum settlement provided only a partial or discounted payment of the medical-expense claim. For instance, a beneficiary might settle a $200,000 claim for the third party’s insurance-coverage limits of $50,000. In this type of discounted-settlement situation, HHS had a policy of seeking reimbursement of Medicare expenses from the beneficiary up to the full amount of the settlement. Thus, if Medicare had paid $50,000 for the beneficiary’s medical expenses, Medicare would take the entire $50,000 settlement, leaving the beneficiary no money for property damage, lost wages, or other types of harm. Several Medicare beneficiaries (plaintiffs) filed a class-action lawsuit, arguing that Medicare was entitled to seek reimbursement of only the portion of a discounted settlement that was attributable to its medical-expenses claim. For example, if Medicare’s expenses were one-quarter of the beneficiary’s total claim, Medicare could seek only one-quarter of the total settlement amount. The district court ruled that Medicare could seek full reimbursement from a discounted settlement and granted summary judgment. The beneficiaries appealed.