A Medical Device Daily

The Social Security Administration (SSA) has agreed to repay more than $500 million in benefits that were "unlawfully" withheld from 80,000 people since January 2007. The agreement is part of a class action settlement preliminarily approved by U.S. District Court Judge Claudia Wilken. In addition, people whose benefits were suspended or denied between 2000 and 2006 will be notified of the new policy and invited to re-establish eligibility. All told, more than 200,000 people may have benefits reinstated and/or receive back payments through the settlement. All beneficiaries must continue to be eligible to receive payments.

The settlement resolves a lawsuit, Martinez v. Astrue, challenging SSA's method of implementing a provision of the Social Security Act. The law seeks to prevent people from using government benefits to flee from arrest. Rather than trying to determine which Social Security recipients were actually fleeing prosecution, SSA used an automated system that matched names in warrant databases to those at SSA. Many of the automatic benefit suspensions involved false or unproven allegations, minor infractions or long-dormant arrest warrants. Although regulations provide for an appeal process, individuals losing benefits were routinely informed by SSA staff that they could not appeal.

Under the agreement, SSA has stopped, as of April 1, suspending or denying benefits due to the mere existence of a warrant - unless the warrant is issued in a criminal proceeding on a charge such as flight or escape.

"The vast majority of class members were not fleeing at all; many never knew that criminal charges were pending against them, let alone that a warrant had been issued," Gerald McIntyre, attorney with the National Senior Citizens Law Center, said.

In addition to granting preliminary approval of the settlement agreement, the judge ordered a final fairness hearing to be held on Sept. 24. At that hearing, she will hear any objections from class members and determine whether to approve the agreement, which will not take full effect until the appeal time has run.

The plaintiffs in the case are represented by the National Senior Citizens Law Center, pro bono counsel from the law firm of Munger, Tolles & Olson, the Mental Health Project of the Urban Justice Center, Disability Rights California, and the Legal Aid Society of San Mateo County.

In other disputes, AdvanSource Biomaterials (Wilmington, Massachusetts), a developer of advanced polymer materials for a range of medical devices, said it has settled a dispute with Medos Medizintechnik (Stolberg, Germany).

In July 2007, Medos acquired Gish Biomedical, AdvanSource's former subsidiary, for about $7.5 million. The company realized about $6.1 million in proceeds from the transaction and $1 million was placed in escrow for one year from the sale date as a reserve for any indemnity claims. On June 30, 2008, Medos notified AdvanSource of the assertion of certain claims aggregating $4.3 million, which the company disputed. On July 25, 2008, the company initiated arbitration procedures which sought a declaration that the amounts claimed by Medos were without merit and unsupportable.

On Aug. 6, AdvanSource entered into a settlement agreement and mutual release with Medos whereby Medos agreed to repay to the company about $580,000 of the escrow funds previously released to Medos in full and final settlement of its indemnity claims. In addition, the company's obligation with respect to a previously acknowledged $149,000 post-closing adjustment will be eliminated. The parties have also agreed to dismiss the previously filed demand for arbitration.

Medos agreed to make a cash payment of about $87,000 upon the execution of the settlement and issue a promissory note to AdvanSource in the approximate amount of $493,000, maturing on Feb. 1, 2010 with equal monthly principal payments of about $70,000 plus accrued interest at the rate of 3.25% per annum.