PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

MARGIE O. COX, Individually and as

Administratrix of the Estate of Jack

Cox; JACQUELINE DIANE COX

FLOWERS,

Plaintiffs-Appellants,

v.

DONNA E. SHALALA, SECRETARY OF

HEALTH AND HUMAN SERVICES,

Defendant-Appellee,

No. 95-2915

and

NORTH CAROLINA BAPTIST HOSPITAL,

INCORPORATED; WAKE FOREST

UNIVERSITY PHYSICIANS; BLUE CROSS

AND BLUE SHIELD OF NORTH

CAROLINA, INC., a Federal Medicare

Intermediary; CONNECTICUT GENERAL

LIFE INSURANCE COMPANY,

Defendants.

Appeal from the United States District Court

for the Middle District of North Carolina, at Winston-Salem.

N. Carlton Tilley, Jr., District Judge.

(CA-93-436-6)

Argued: March 5, 1997

Decided: April 22, 1997

Before WILKINS, NIEMEYER, and HAMILTON, Circuit Judges.

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Affirmed by published opinion. Judge Hamilton wrote the opinion, in

which Judge Wilkins and Judge Niemeyer joined.

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COUNSEL

ARGUED: Timothy D. Welborn, North Wilkesboro, North Carolina,

for Appellants. Matthew Miles Collette, Appellate Staff, Civil Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington,

D.C., for Appellee. ON BRIEF: Franklin D. Smith, LAW OFFICES

OF FRANKLIN SMITH, Elkin, North Carolina, for Appellant. Frank

W. Hunger, Assistant Attorney General, Walter Clinton Holton, Jr.,

United States Attorney, Barbara C. Biddle, Appellate Staff, Civil

Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.

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OPINION

HAMILTON, Circuit Judge:

North Carolina's Wrongful Death Act (NC Wrongful Death Act)

places a $1,500 limitation on a health care provider's right to recover

a decedent's medical expenses. See N.C. Gen. Stat. § 28A-18-2(a)

(1981). The central question presented in this appeal is whether this

provision of North Carolina law is preempted by Medicare's secondary payer provisions. See 42 U.S.C. § 1395y(b) (1990). The district

court held that Medicare's secondary payer provisions preempted the

NC Wrongful Death Act's $1,500 limitation. We agree and affirm.

I.

The facts of this case are undisputed. On July 18, 1991, Jack Cox

suffered severe injuries as a result of a motorcycle accident. He was

hospitalized at North Carolina Baptist Hospital (NCBH) and died on

November 1, 1991. At the time of his accident, Jack Cox was a Medicare beneficiary.1 On behalf of Medicare, Blue Cross and Blue Shield

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1 A "Medicare beneficiary" is an individual who is entitled to receive

hospital benefits paid by Medicare because his/her supplemental security

income, when combined with other available resources, falls below a certain established level. See 42 U.S.C.§ 1395d(p)(1).

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of North Carolina and Connecticut General Life Insurance Company

(the insurance companies) paid $181,187.75 in conditional benefits

for Jack Cox's medical care and treatment.

Pursuant to the NC Wrongful Death Act, Jack Cox's personal representative brought an action in North Carolina state court seeking

damages, including Jack Cox's medical expenses, against the individual who allegedly caused the motorcycle accident. The appellants settled their suit for $800,000 which satisfied all claims under the NC

Wrongful Death Act.

Appellants, Margie O. Cox, Jack Cox's surviving spouse, and Jacqueline Diane Cox Flowers, the other intestate heir of Jack Cox, filed

a declaratory judgment action against the insurance companies on

July 23, 1993, in the Middle District of North Carolina. The action

sought a declaration that neither the insurance companies, nor the

government in its own right, could claim any portion of the $800,000

settlement above the NC Wrongful Death Act's $1,500 cap on a

health care provider's right to recover damages. The Secretary of

Health and Human Services, Donna Shalala (Secretary Shalala), was

substituted for the insurance companies. Secretary Shalala filed a

counter-claim on September 23, 1993, seeking recovery of the

amount the government paid in Medicare benefits from the settlement

proceeds received by the appellants.

On February 28, 1994, Secretary Shalala moved for summary judgment on her counter-claim, contending that Medicare's secondary

payer provisions preempted the NC Wrongful Death Act's $1,500 cap

on a health care provider's right to recover damages and that the

$181,187.75 conditionally paid by Medicare on Jack Cox's behalf

must be paid to Medicare from the settlement proceeds received by

the appellants. Agreeing with Secretary Shalala's position, the district

court granted summary judgment on Secretary Shalala's counterclaim.

Four months later, the district court determined that prejudgment

interest should run on the amount owed by the appellants from February 28, 1994, the date Secretary Shalala filed her memorandum in

support of the government's motion for summary judgment. In that

memorandum, the government argued that the appellants would be

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liable for interest on the money due the government if the district

court decided the preemption issue in the government's favor. Following the district court's entry of judgment in favor of Secretary

Shalala, the appellants noted a timely appeal.2

II.

The district court granted summary judgment to Secretary Shalala

on her counter-claim because it concluded that Medicare preempted

the NC Wrongful Death Act. Whether Medicare preempts the NC

Wrongful Death Act is a question of law we review de novo. See TriState Machine, Inc. v. Nationwide Life Ins. Co., 33 F.3d 309, 311 (4th

Cir. 1994), cert. denied, 115 S. Ct. 1175 (1995).

Under the Supremacy Clause of the Constitution, U.S. CONST. art.

VI, cl. 2, a state law which conflicts with federal law is preempted.

See Wisconsin Pub. Intervenor v. Mortier, 501 U.S. 597, 604 (1991)

(Supremacy Clause invalidates "state laws that`interfere with, or are

contrary to the laws of [C]ongress, made in pursuance of the

[C]onstitution.'") (quoting Gibbons v. Ogden, 22 U.S. (9 Wheat) 1,

211 (1824)). Federal law preempts state law in three different situations. First, Congress can expressly preempt state law by directly stating its intention to do so. See Jones v. Rath Packing Co., 430 U.S.

519, 525 (1977). Second, absent explicit preemptive language, Congress can "occupy the field" by regulating so pervasively that there is

no room left for the states to supplement federal law. See Fidelity

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2 Balances of $10,676 and $2,731.45 are still owed to NCBH and the

Wake Forest University Physicians (WFUP), respectively. Both NCBH

and WFUP were parties to this action at the district court level. However,

both NCBH and WFUP were dismissed from this appeal because: (1) the

preemption question argued by Secretary Shalala is determinative of

NCBH's and WFUP's right to recover from the appellants under Medicare's secondary payer provisions; and (2) Margie O. Cox does not

appeal the district court's ruling that she is personally responsible for the

amounts owed NCBH and WFUP even if Medicare did not preempt the

NC Wrongful Death Act. See North Carolina Baptist Hosp., Inc. v.

Harris, 354 S.E.2d 471, 474-75 (N.C. 1987) (extended doctrine of necessaries to require wife of deceased to be personally responsible to pay for

medical expenses husband incurred while alive).

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Fed. Sav. & Loan Ass'n v. De la Cuesta, 458 U.S. 141, 153 (1982).

Third, even when Congress has neither expressly preempted state law

nor "occupied the field," a state law is per se preempted to the extent

that it actually conflicts with federal law. See Pacific Gas & Elec. Co.

v. State Energy Resources Conservation & Dev. Comm'n , 461 U.S.

190, 204 (1983).

This third type of preemption, commonly referred to as "conflict

preemption," can arise in two situations. First, a conflict between state

and federal law can arise when "compliance with both federal and

state regulations is a physical impossibility." Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-43 (1963); see also

Pacific Gas, 461 U.S. at 204. Put another way, if the federal statute

dictates one result and the state statute another, the state statute is preempted to the extent that it directly conflicts with federal law. See id.

Further, even though the NC Wrongful Death Act is a probate statute,

and thus of particular state concern, when a state probate statute

"sharply" interferes with, or is directly contrary to a federal law, the

state statute must yield. See English v. General Elec. Co., 496 U.S.

72, 79 (1990). In this case, however, we are faced with a clear "conflict preemption" situation because compliance with the NC Wrongful

Death Act's $1,500 limitation on a health care provider's right to

recover a decedent's medical expenses and Medicare's secondary

payer provisions is a "physical impossibility" and because the NC

Wrongful Death Act is directly contrary to Medicare's secondary

payer provisions.

Medicare pays for certain costs associated with the health care of

qualified individuals, but does not pay for the costs of health care services for which, "payment has been made or can reasonably be . . .

made . . . under an automobile or liability insurance policy or plan."

42 U.S.C. § 1395y(b)(2)(A)(ii). Further, when the government has

information that medical care is needed because of an injury or illness

that was caused by another party, a "conditional payment" can be

made. See 42 U.S.C. § 1395(b)(2)(B)(i); 42 C.F.R. § 411.52 (1993).

When such a conditional payment is made for medical care, the government has a direct right of recovery for the entire amount conditionally paid from any entity responsible for making primary payment.

See 42 U.S.C. § 1395y(b)(2)(B)(ii); 42 C.F.R. § 411.24(e). In the

alternative, the government's right of recovery is subrogated to the

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rights of an individual or entity which has received a payment from

the responsible party. See 42 U.S.C. § 1395y(b)(2)(B)(iii).

In this case, Medicare is entitled to reimbursement for Jack Cox's

medical expenses out of the $800,000 settlement. First, Medicare conditionally paid Jack Cox's medical expenses pursuant to 42 U.S.C.

§ 1395(b)(2)(B)(i). Second, the $800,000 settlement was paid by a

responsible party--the insurance company of the individual who was

responsible for Jack Cox's motorcycle accident--pursuant to a worker's compensation law or plan, an automobile or liability insurance

policy or plan (including a self insured plan), or a no-fault insurance

law. See 42 U.S.C. § 1395y(b)(2)(A)(ii). Third, the NC Wrongful

Death Act settlement received by the appellants included the recovery

for Jack Cox's medical expenses which Medicare had conditionally

paid. See N.C. Gen. Stat. § 28A-18-2(b)(1).

The NC Wrongful Death Act, N.C. Gen. Stat. § 28A-18-2, however, precludes the reimbursement of Jack Cox's medical expenses

provided for under Medicare's secondary payer provisions. The NC

Wrongful Death Act provides in pertinent part:

(a) When the death of a person is caused by a wrongful act

. . . [the tortfeasor] shall be liable . . . for damages. . . . The

amount recovered in such action is not liable to be applied

as assets . . . of the deceased [except for] reasonable hospital

and medical expenses not exceeding one thousand five hundred dollars ($1500) incident to the injury resulting in death

. . . [instead, those funds] shall be disposed of as provided

in the Intestate Succession Act.

(b) Damages recoverable for death by wrongful act

include:

(1) Expenses for care, treatment and hospitalization incident to the injury resulting in death . . ..3

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3 We have recently held that it is obvious from the damages recoverable

under the NC Wrongful Death Act, that the Act is both a survivorship

action and a traditional "wrongful death" action. See McInnis v. Provi-

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Under this provision, the appellants, as Jack Cox's intestate heirs, are

allowed to recover for Jack Cox's medical expenses, and Medicare's

subrogated right to recover those medical expenses is limited to

$1,500 of the $181,187.75 which Medicare conditionally paid on Jack

Cox's behalf. See Forsyth County v. Barneycastle , 197 S.E.2d 576,

579 (N.C. Ct. App.) ($1,500 limit on creditor's right to recover

strictly construed), cert. denied, 198 S.E.2d 722 (N.C. 1973). Thus,

compliance with Medicare's secondary payer provisions, which mandates full payment for Jack Cox's medical expenses from the

$800,000 settlement, is impossible because of the NC Wrongful

Death Act's $1,500 limitation on the recovery of medical expenses.

As stated above, federal law preempts the NC Wrongful Death Act

to the extent that the NC Wrongful Death Act is in direct conflict with

Medicare's secondary payer provisions, 42 U.S.C.§ 1395y(b). In this

case, the NC Wrongful Death Act's $1,500 limit on Medicare's right

to receive payment for services from a NC Wrongful Death Act settlement is in direct conflict with Medicare's secondary payer provisions which mandates full reimbursement. Consequently, to the extent

the NC Wrongful Death Act limits Medicare's right of recovery under

the circumstances of this case to $1,500, the NC Wrongful Death Act

is preempted. Accordingly, the district court correctly granted summary judgment to Secretary Shalala on her counter-claim.

III.

Next, the appellants claim that the district court abused its discretion when it calculated prejudgment interest beginning on February

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dent Life & Accident Ins. Co., 21 F.3d 586, 589-90 (4th Cir. 1994); see

also Barneycastle, 197 S.E.2d at 578 ("Under . . . [§ 28A-18-2] . . . all

. . . damage[s] which might conceivably have been set out in a claim for

personal injuries prior to death are now includable in an action for damages for death by wrongful act."). Traditionally, claims such as medical

expenses, have been considered "survivorship" actions and thus, are the

property of the estate, because they are claims the decedent possessed

when he died. See McInnis, 21 F.3d at 589-90. However, by statute,

North Carolina has incorporated that sort of traditional "survivorship"

action into its action for wrongful death--an action for the benefit of the

decedent's intestate heirs, not the decedent's estate. See N.C. Gen. Stat.

§ 29A-18-2; Hoke v. Atlantic Greyhound Corp., 38 S.E.2d 105, 109-110

(N.C. 1946).

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28, 1994. The decision to award prejudgment interest is a matter

within the district court's discretion. See United States v. Gregory,

818 F.2d 1114, 1118 (4th Cir.), cert. denied, 484 U.S. 847 (1987).

The district court chose February 28, 1994, because that date coincided with the filing of Secretary Shalala's memorandum in support

of her motion for summary judgment on her counter-claim. That

memorandum unequivocally notified the appellants that a debt was

due and that interest could run on the debt from the date the notice

was received. See 45 C.F.R. § 30.12. The Code of Federal Regulations sets forth the general principles governing the assessment of

interest against a debt owed to the government. The"notices to

debtor" regulation requires that the government inform the debtor of:

(1) the amount and nature of debt; (2) the date payment is due; and

(3) the assessment of interest from the date notice was mailed. See id.

Because Secretary Shalala's February 28, 1994 memorandum in support of her motion for summary judgment on her counter-claim

directly stated that interest would begin accruing sixty days from the

date the appellants received the settlement proceeds, the district court

did not abuse its discretion when it concluded that interest on the debt

owed to Medicare began running on February 28, 1994.

IV.

For the reasons stated herein, the judgment of the district court is

affirmed.

AFFIRMED

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