Barclay Damon
Barclay Damon

Legal Alert

Second Department Holds That Medicare Act Preempts General Obligations Law
§ 5-335

As we reported recently (Spring 2012), litigants must exercise caution with respect to settlements involving Medicare issues. A related concern is the impact of New York General Obligations Law § 5-335 (“GOL § 5-335”), which provides that except where there is a statutory right of reimbursement, no settling party will be subject to a subrogation or reimbursement claim by a benefit provider for expenses the benefit provider is obligated to pay. The statute protects plaintiffs who settle claims from actions for reimbursement by benefit providers who do not have a statutory right for reimbursement, such as benefit payments made under Medicaid or the Employee Retirement Income Security Act (ERISA).

Title XVIII of the Social Security Act, commonly known as the Medicare Act, authorizes private managed healthcare organizations to provide individuals with Medicare benefits under Medicare Advantage plans. Part C of the Medicare Act permits, but does not require, private Medicare Advantage insurers to create a right of reimbursement for themselves in their agreements with insureds covered under Medicare. Thus, there is no statutory right to reimbursement in favor of Medicare Advantage insurers, but the statute permits a contractual right of reimbursement.

In a case of first impression, the Appellate Division, Second Department, held that GOL § 5-335, in relation to Medicare Advantage organizations under Part C, is preempted by federal law because it would impermissibly constrain contractual reimbursement rights authorized under Part C of the Medicare Act. See Trezza v. Trezza, 957 N.Y.S.2d 380 (2d Dep’t 2012).

The underlying personal injury action stemmed from a two-car motor vehicle accident, wherein the plaintiff, Janine Trezza, was a passenger in a vehicle operated by her husband. The plaintiff’s private Medicare Advantage provider paid $37,787.64 in medical expenses for treatment of her accident-related injuries.

Following a settlement of the action for $75,000, consisting of the limits of the policies covering the two subject drivers, the plaintiff moved to extinguish any right of reimbursement of the Medicare Advantage provider for payments made for the accident-related medical care. The insurer opposed the plaintiff’s motion, relying upon a provision in its insurance agreement, which provided a right of reimbursement in the event of a settlement or judgment in favor of its insured, as well as the Medicare Act, which, as noted above, permits such a contractual right of reimbursement.

The trial court granted the plaintiff’s motion, but the Appellate Division, Second Department, reversed, concluding that although there is no statutory right for reimbursement by Medicare Advantage insurers for benefits provided to an enrollee who settles a personal injury action, GOL § 5-335, insofar as applied to Medicare Advantage organizations, is preempted by the provisions of the Medicare Act.

Clients, carriers, and defense counsel must continue to be vigilant of the many applicable statutes and court decisions similar to Trezza during settlement negotiations, including Medicare lien verification, that will ultimately affect the outcome of the settlement. Notably, however, Trezza does not provide any basis for a plaintiff’s insurer to seek reimbursement directly against a defendant or a defendant’s insurance carrier.

If you require further information regarding the information presented in this Legal Alert and its impact on your organization, please contact Matthew J. Larkin, Chair of the Torts & Products Liability Defense Practice Area at (315) 425-2805 or mlarkin@hblaw.com.