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 Divi-
sion, 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, Wash-
ington, D.C., for Appellee.

_________________________________________________________________

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 second-
ary 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 Medi-
care beneficiary.1 On behalf of Medicare, Blue Cross and Blue Shield
_________________________________________________________________
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 cer-
tain established level. See 42 U.S.C.§ 1395d(p)(1).

                    2
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 rep-
resentative brought an action in North Carolina state court seeking
damages, including Jack Cox's medical expenses, against the individ-
ual who allegedly caused the motorcycle accident. The appellants set-
tled 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 Jac-
queline 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 judg-
ment 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 counter-
claim.

Four months later, the district court determined that prejudgment
interest should run on the amount owed by the appellants from Febru-
ary 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. Fol-
lowing 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 Tri-
State 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 situa-
tions. First, Congress can expressly preempt state law by directly stat-
ing its intention to do so. See Jones v. Rath Packing Co., 430 U.S.
519, 525 (1977). Second, absent explicit preemptive language, Con-
gress 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 Medi-
care'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 neces-
saries to require wife of deceased to be personally responsible to pay for
medical expenses husband incurred while alive).

                    4
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 & Avo-
cado 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 pre-
empted 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 "con-
flict 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 ser-
vices 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 gov-
ernment has a direct right of recovery for the entire amount condition-
ally 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

                     5
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 con-
ditionally 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 work-
er'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, how-
ever, 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 hun-
          dred 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 hospitaliza-
          tion incident to the injury resulting in death . . ..3
_________________________________________________________________
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-

                     6
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 man-
dates 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 set-
tlement is in direct conflict with Medicare's secondary payer provi-
sions 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 sum-
mary judgment to Secretary Shalala on her counter-claim.

III.

Next, the appellants claim that the district court abused its discre-
tion when it calculated prejudgment interest beginning on February
_________________________________________________________________
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 dam-
ages 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).

                    7
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 coin-
cided 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 Regula-
tions 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 sup-
port 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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