Shortcomings in health care delivery at Veterans Health Administration (VA) clinics and hospitals have been much in the news for the past year. Hopefully, the widespread publicity about these problems, and the resulting Congressional attention to improving service at VA facilities throughout the country, will help to remedy these serious defects.

There is a little known area of the law, involving the VA’s claims for reimbursement from veterans after they have resolved third party accident claims, in which the VA’s practices could use some attention as well.

When a veteran is hurt in an accident (due to a car accident, a fall, or a defective product, for example), and he or she successfully pursues a claim against a responsible person or entity, the VA has a right to reimbursement from the veteran for the fair value of medical care that it provided to treat his injuries from the accident. The VA’s claim arises under the Federal Medical Care Recovery Act (42 U.S.C.A. § 2651). While that statute gives the United States an independent right to recover medical expenses from a third party who is liable in tort for injury to the veteran, the VA (and other federal agencies in like circumstances) generally seeks collection through a “notice of lien” letter to the injured veteran (or his or her counsel), rather than suing the tortfeasor independently. The injured veteran becomes responsible for resolving the VA’s lien claim at the time he is compensated for his tort claim.

There is nothing unique about the right of the VA to obtain reimbursement for health care services rendered under these circumstances: for example, Medicare has a similar legal right of reimbursement, and every year thousands of its beneficiaries and their attorneys negotiate payment to Medicare, through an orderly process, when their lawsuits are resolved.

But, unlike Medicare, the VA sometimes fails to follow the applicable law that permits injured veterans to pay reduced sums in full satisfaction of the VA’s reimbursement claim.

Here is how these situations come about. To obtain a settlement or a court judgment against the responsible third parties whose negligence injured them, a veteran usually retains a lawyer, who must be paid; and a veteran typically incurs costs of suit (e.g., court filing fees, investigation, court reporter charges) before his or her case resolves.

These charges, of course, mean that the veteran’s net settlement from the case is less than the gross settlement reached with the negligent party, or its insurer. For example, a veteran might settle an accident case for $300,000; pay her attorney a 33.3% contingent fee of $100,000; and she might have incurred costs in the amount of $6,000, for which she is obligated to reimburse her attorney’s earlier advanced payment. In that example, the veteran would be receiving a net settlement of $194,000, which is 65% of the gross settlement negotiated by her attorney on her behalf.

What if, in that situation, the VA has a lien (reimbursement) claim against this same veteran for $100,000, for health care services rendered in treating her for injuries from the accident? Shouldn’t the VA’s claim likewise be reduced by 35% (to $65,000), so that the VA pays its fair share of the veteran’s litigation costs? That is exactly the result that applicable law, as gleaned from published case authorities, provides. This result arises from application of a well-established legal principle known as the “common fund” doctrine.

For example, in the Ninth Circuit, which includes California, there is legal authority imposing just that result. Mosey v. U.S. (D. Nev. 1998) 3 F.Supp.2d 1133, 1137, held that the VA’s entitlement, in this set of facts, should be computed: “analogizing … to common fund recoveries…and a hypothetical hiring of outside counsel,” thus resulting in a pro rata reduction of the VA’s claim against the veteran equal to the percentage of the settlement (or verdict) that the veteran himself incurred for litigation fees and cost.

In the District of Columbia, the federal appellate court has held likewise. Commercial Union Ins. Co. v. U.S. (D.C. Cir. 1993) 999 F.2d 581 says the common fund rule (requiring the VA to reduce its claim proportionately) applies to the VA’s claim: “…since Federal Medical Care Recovery Act was silent as to priority of government’s right to recover medical expenses … and since ‘equity is equality,’ we find that the proper course here is to distribute the limited fund on a ratable basis, such that each claimant receives ‘a share of fund proportionate to its share of total judgment figure.’ [Citation omitted.]”

The rule is the same in the Sixth Circuit, which includes Michigan and Ohio. Cockerham v. Garvin (6th Cir. 1985) 768 F.2d 784, 787, requires a “common fund” deduction by the VA as well, noting: “In this hearing, the Court should consider the equities of the two parties. … [I]t is clear that the government should not be reimbursed for the full amount of its claim in this case because it passively has allowed the veteran to bear all the risks and costs of pursuing litigation. The government absorbed none of the trial preparation expenses; attorneys fees were deducted solely from the veteran’s portion of the settlement.”

When facing this issue, state authorities have followed the same rule. See, for example, Mann v. Brittany Place Associates Ltd. (La. Ct. App. 2000) 770 So.2d 25, 29: “Thus, equity demands that the United States bear its share of the cost. Therefore, we reverse the trial court’s judgment allowing disbursement of the funds in escrow, and remand for an equitable apportionment of the funds at the conclusion of the case.”

In the experience of this law firm, there have indeed been occasions when the VA has negotiated these lien claims fairly and responsibly, complying with the above-stated legal principles; but at times, that has not been the case. In some cases, the result has been inordinate delay in responding at all to queries from counsel; followed by an unwillingness to acknowledge applicable law that would entitle the veteran to a lien reduction.

For example, when our office made a request for pro rata reduction of the VA’s lien in November, 2013 in one case, a VA paralegal (not a lawyer) first responded months later, in July, 2014. The VA’s response to our request, which had allegedly been considered by unknown VA personnel in Washington, was to ignore our reference to the above-cited legal authority requiring a reduction of the VA’s lien to account for litigation costs; the VA paralegal merely restated a demand for the entire lien to be paid by the veteran, without acknowledging that he was entitled to any reduction.

Then, when our law firm, on the veteran’s behalf, requested that this VA decision be reviewed and reconsidered by an attorney of sufficient authority on their legal staff, we received this response, indicating that was not going to happen:

From: [name redacted] (OGC) [mailto:[name redacted]@va.gov]
Sent: Monday, August 04, 2014 4:41 PM
To: [GJEL attorney name redacted
Subject: VA claim # [redacted]

Hi [Name]:

There is no appeal process. The case has been reviewed & decided on.

[Name Redacted]
Paralegal
VA Office of Regional Counsel, [Location Redacted]

We reiterate that the VA has not taken this approach, one we deem both inappropriate and unlawful, in every case where they asserted a lien. But, checking with other attorneys who have represented veterans in like circumstances, we have discovered that our experience in this particular case is hardly unique.

What can be done to protect a veteran from this sort of overreaching by the VA, when it does happen? Absent resolution, an attorney can file a federal civil action on the veteran’s behalf in District Court: “A district court has jurisdiction over a declaratory judgment action brought by a former patient at a Veterans Affairs hospital to determine how much of the patient’s “special damages” awarded in her action against the social services agency that allegedly caused her injury, the government is entitled to recover under the Federal Medical Care Recovery Act.” 29 Fed. Proc., L. Ed. § 66:697, citing Mosey v. U.S. (D. Nev. 1998) 3 F.Supp.2d 1133, 1135.

In the recent case described above, we do not believe that the legal and equitable interests of our client, a severely disabled veteran, have been given fair consideration by the VA. So it may be necessary to proceed in District Court to remedy this wrong.

In summary, the VA has every right to seek to enforce its legal rights to recover sums due to it; and it should be encouraged to do so, in the interest of the agency’s financial solvency. Obtaining appropriate repayment permits the VA to use recovered funds to deliver needed services to veterans.

But the VA should not employ its statutory right to recovery so as to run roughshod over the legal rights of those veterans who are unfortunate enough to suffer seriously disabling accidents, through no fault of their own. An agency formed to serve and help veterans should not try to balance its budget on the backs of disabled veterans. The VA should follow applicable law, and reduce its claims for reimbursement proportionately in these cases.

We will do our best to see that justice is done for our injured veteran clients in such circumstances; we urge others to do likewise; and we urge the VA, and those with authority within it, to correct this abusive policy.