Federal versus State Law: Which one wins? Patrick Czuprynski, JD, MSCC

In the United States there are two types of laws: state laws and federal laws. A state court generally interprets and applies state law to the facts of a claim and a federal court generally interprets and applies federal law. However, there are circumstances where a state court must use federal law in determining the outcome of the claim and a federal court must use state law in determining the outcome of the claim. If there is a conflict between a state’s law and federal law, federal law wins or “preempts” state law. This is because the Supremacy Clause of United States Constitution establishes that federal law is the supreme law of the United States over a state law or constitution.

If a federal law does not expressly state it preempts state law, preemption may still occur where the federal law provides a regulatory scheme that overtakes a state’s regulation over the same issue. Another circumstance where a federal law does not express preemption, but preemption occurs is where the state law as applied conflicts with the federal law.

The MSP Act provides that Medicare may not make payment where payment has been made or can reasonably be expected to be made under a Non Group Health Plan (NGHP) or workers’ compensation law. If payment is made by Medicare, reimbursement is required if there is a demonstration of responsibility for a primary payer (NGHP or recipient of settlement funds) to pay for the particular item service. A demonstration of liability may be determined by a settlement, judgment, award or other payment.

If there is a settlement, judgment, award or other payment made related to a NGHP claim, the analysis requiring reimbursement to Medicare does not end. What must also be determined is whether a state law precludes payment of the medical item or service and establishes that the payment by the primary plan is not reasonably expected. In other words, federal law does not define what is compensable under a state’s liability or workers’ compensation law.

Examples of state laws that the courts have wrestled with federal preemption are: the Illinois Health Care Services Lien Act requiring 40% reduction for medical services (MSP Act preempts and Medicare is entitled to full reimbursement in accordance with federal law and rules), Pennsylvania’s statute regarding requiring settlement proceeds paid within 20 days (MSP Act does not preempt state law requiring payment of proceeds), and Texas law requiring pre-authorization of surgical procedures (MSP Act does not preempt state law requirement for payment of services).

Other state statutes in workers’ compensation may preclude CMS from denying payment or seeking reimbursement. Georgia’s catastrophic injury cases workers’ compensation statute precludes the requirement of payment of medical items and services after 400 weeks where the injury meets the definition of non-catastrophic injury. Hence, if the facts of the claim demonstrate that the injury is not a catastrophic injury, there is no reasonable expectation of payment by the workers’ compensation carrier after 400 weeks. Further, in North Carolina, a workers’ compensation statute terminates medical compensation two years after the employer’s last payment of medical or indemnity benefits unless the employee or the commission files a motion and an order is obtained for additional medical benefits. Similarly, California’s Independent Medical Review (IMR) decisions that are final, are binding on the parties in terms of treatment that should be authorized.

The courts have yet to determine whether the Georgia or North Carolina statute is preempted by the MSP Act. However, if litigated, we anticipate CMS to argue there is a direct conflict as the state statute shifts the cost of medical services related to the NGHP claim. We are hopeful that at that time the court will see the light and CMS will lose this argument as reimbursement to Medicare is limited to payments that are reasonably expected under state law. Parties should also continue to raise state law defenses in connection with CMS review of Medicare Set-Asides and in conditional payment recovery actions.