Federal Suit Over Tobacco’s Impact on Medicare Weighed

The White House, frustrated by the collapse of anti-smoking legislation, is giving increasingly serious consideration to a strategy aimed at extracting massive monetary damages from cigarette makers by filing a lawsuit on behalf of the government’s Medicare program.

Top White House officials are said to be eager to go forward with a Medicare lawsuit if they can overcome concerns among some administration attorneys, primarily within the Justice Department, about its chances for success, according to lawyers close to the discussions.

The suit would attempt to recover from the nation’s five major tobacco companies the accumulated costs borne by taxpayers to treat people with smoking-related diseases under Medicare, which covers the medical expenses of more than 35 million Americans age 65 and older.

Sources close to the discussions said the suit could seek damages of nearly $1 trillion.

The lawsuit would represent a major shift in strategy in the battle over tobacco industry liability. It would be designed to increase pressure on cigarette companies to come back to the bargaining table and work out a settlement with the administration and Congress.

The Medicare suit would dwarf lawsuits filed by 40 states to recover costs under Medicaid, the joint state-federal health insurance program for the poor and disabled.

“It’s the difference between a World War I shell and the atom bomb,” said Matthew Myers, general counsel for the Campaign for Tobacco-Free Kids, an anti-smoking group.

For the time being, administration officials are being circumspect about the discussions, noting that a final decision is not expected for several weeks. “Justice and Health and Human Services are still reviewing it,” said one White House official. “It requires full legal analysis. They haven’t reached closure yet.”

A tobacco industry spokesman said Saturday he had not been aware of the discussions within the administration, but predicted that “the government would have great difficulty in mounting such a case.” He cited, among other things, the large amount of excise taxes Washington has collected over the years from cigarette sales.

The spokesman, who requested anonymity, said the discussion of a Medicare lawsuit sounds like an effort by the administration “to find a way to cover their own failures of leadership in this matter by trying to come up with a political and public relations gesture.”

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The lawsuit is being promoted by, among others, Mississippi Atty. Gen. Mike Moore and plaintiffs’ attorney Richard Scruggs. Moore and Scruggs were the first lawyers to test the idea of suing cigarette makers to recover the huge costs to states of treating sick smokers.

Scruggs went on to represent a number of state attorneys general in similar suits, and it was the collective effect of those suits that brought the tobacco industry to the bargaining table last year.

Scruggs and Moore want to assemble a team of top attorneys to handle the Medicare case for the federal government. The Mississippi lawyers argue that the threat of having to defend potentially ruinous lawsuits is the only way to get cigarette makers to accept a comprehensive package of marketing restrictions and other measures to reduce underage smoking.

Their argument received a potential boost Friday, when a federal appeals court ruled that the Food and Drug Administration has no authority to regulate nicotine or restrict marketing targeted at youths.

Another supporter of such a lawsuit is constitutional law scholar Laurence H. Tribe, who has looked closely at the legal issues involved at the request of officials in Washington.

The idea of filing a Medicare recovery lawsuit was considered more than a year ago by the Justice Department. The idea eventually was rejected, in part because Justice attorneys were concerned that the government lacked the legal standing to bring such a suit.

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Ever since the collapse of congressional efforts to regulate tobacco, however, the White House has been searching for other ways to push its anti-tobacco agenda. About a month ago, White House officials asked several agencies to take another look at the viability of filing a lawsuit against the tobacco industry.

“They are looking for a way to do it,” one attorney said. “But they’ve got some nervous Nellies in the Justice Department that don’t think the Medical Recovery Act permits this kind of lawsuit.”

White House officials recently began passing along to the Justice Department legal arguments prepared by private attorneys who dispute the department’s analysis of the suit’s legal prospects.

“There’s infinitely more pressure on the Justice Department than there was in the past,” another lawyer close to the discussions said. “The ball has definitely moved.”

The private attorneys think the most promising approach is for the government to sue under the Federal Medical Care Recovery Act. The 1962 law grants the government an independent right to recover the costs of treating a sick person if the illness is attributable to a third party’s negligence. The outside lawyers say they believe Washington has standing to sue the tobacco industry on behalf of taxpayers who have financed the health care of elderly smokers.

“If you wanted only to bring suits that are guaranteed to succeed, you wouldn’t say this is a slam dunk,” Tribe said. “But . . . at a minimum, this would certainly be a serious and perfectly responsible suit for the federal government to bring.”

A Medicare recovery lawsuit could greatly affect the dynamics of current negotiations between the industry and state attorneys general over settling pending state suits. If the industry takes seriously the risk of a federal suit seeking even more damages than the state actions, it would be less inclined to settle with the states, observers of the talks say.

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Times staff writer Ronald J. Ostrow contributed to this story.