11th Circuit Allows MAP Assignees to File MSP Private Cause of Action for Double Damages and Prove Responsibility Through Contractual Obligation

Posted by Rafael Gonzalez on Sep 9, 2016 9:30:00 AM

11th Circuit Allows MAP Assignees to File MSP Private Cause of Action for Double DamagesOn August 30, 2016, the United States Court of Appeals for the 11th Circuit published its opinion in MSP Recovery, LLC v. Allstate Insurance Company, concluding that a contractual obligation, without a judgment, settlement, award, or other payment, can satisfy the “demonstrated responsibility” requirement of the private cause of action provided for by the Medicare Secondary Payer Act (MSP Act) at 42 U.S.C. §§ 1395y(b)(2)(B)(ii), (b)(3)(A). The court therefore allows assignee entities to seek double damages against no-fault, med-pay, PIP primary payers because of their refusal to reimburse Medicare advantage plan payments made related to the underlying covered claim.

Factual and Procedural History

The seven consolidated cases in this appeal all involve attempts by assignees of a Medicare Advantage Plan  (MAP) to recover conditional payments via the Medicare Secondary Payer Act’s (MSP) private cause of action. The facts relevant to the issues raised on appeal are similar in each case. Plaintiffs MSP Recovery LLC (MSP Recovery) and MSPA Claims 1, LLC (MSPA Claims 1) are firms that obtain claims for reimbursement under the MSP Act from Medicare Advantage Plans. Defendants are all insurance companies that provide personal injury protection (PIP) no-fault insurance to automobile owners and operators in Florida. In each case, a person covered by a defendant’s PIP no-fault insurance policy was injured in an automobile accident.

Each such insured was also enrolled in a Medicare Advantage Plan provided by Florida Healthcare Plus (FHCP). FHCP made conditional payments on behalf of the injured persons to cover medical expenses in each accident. FHCP assigned its claims under the MSP Act, and Plaintiffs MSP Recovery and MSPA Claims 1 are the current assignees.

Plaintiffs allege that, “under the MSP Act, FHCP was a secondary payer, and Defendants were primary plans with obligations to pay their insureds’ medical costs related to the claims.” Plaintiffs asserted in their complaints that “Defendant’s responsibility to pay is demonstrated by the insurance contracts the injured persons entered into with Defendants.”

Plaintiffs filed suit in the Southern District of Florida seeking double damages under 42 U.S.C. § 1395y(b)(3)(A). All of the consolidated cases were dismissed. In each case, the district court relied on Glover v. Liggett Group, Inc., which held that a primary plan’s responsibility to pay must be demonstrated before the plaintiff files a claim under the MSP Act. “When the primary plan’s responsibility to pay arises from tort liability, liability might be demonstrated by a judgment or settlement, but the tortfeasor’s liability cannot be “demonstrated” through the MSP Act claim itself. In other words, a federal lawsuit under the MSP Act cannot serve as a substitute for determining liability via a standard tort claim; the tortfeasor’s responsibility to pay must be independently established.”

The district courts, which dismissed the cases below, held that “the requirement established in Glover—that a primary plan’s responsibility to pay be demonstrated through a judgment or agreement separate from the MSP claim—applies even when the primary plan’s alleged responsibility to pay is contractual.” Therefore, because Plaintiffs did not settle the claims or obtain a judgment on the insurance contracts prior to bringing their MSP Act claims, “the district courts dismissed Plaintiffs’ suits for failure to state a claim.” On appeal here, Plaintiffs urge the court to hold that “Glover applies only when the responsibility to pay arises from tort, and that alleging the existence of a contractual obligation to pay suffices to demonstrate a primary payer’s responsibility under the MSP Act private cause of action.”

Plaintiffs Have Standing to Bring MSP Private Cause of Action

Defendant IDS Property Casualty Insurance Company (IDS) argues that “Plaintiff MSPA Claims 1 lacks standing to bring suit because it has suffered no legally cognizable injury.” IDS points out that any cause of action in the seven consolidated cases originally belonged to FHCP. Although MSPA Claims 1 is the assignee of FHCP’s claims against IDS, IDS argues that “the assignments were invalid and that MSPA Claims 1 therefore suffered no legally cognizable injury.”

MSPA Claims 1’s complaint alleges that the causes of action it asserts initially belonged to FHCP, and that MSPA Claims 1 obtained the claims through a series of assignments. IDS argues that these assignments were barred by the federal anti-assignment statute, which indicates that “the party to whom the Federal Government gives a contract or order may not transfer the contract or order, or any interest in the contract or order, to another party. A purported transfer in violation of this subsection annuls the contract or order so far as the Federal Government is concerned, except that all rights of action for breach of contract are reserved to the Federal Government.” 41 U.S.C. § 6305(a).

The court indicates that the assumption underlying IDS’s argument appears to be that “a Medicare Advantage Organization’s standing to bring a claim under the MSP Act is derivative of its contractual relationship with Medicare.” The court however indicates that “the MSP Act’s private cause of action does not require any sort of relationship (contractual or otherwise) with the government (or anyone else) as a prerequisite to suit. Rather, FHCP assigned to Plaintiffs here a claim created by statute, one that is entirely separate from its contract with Medicare.” Because FHCP did not assign its contract with the government, or any interest therein, the court rules that “assignment is not prohibited by § 6305, and IDS’s standing argument fails.”

MSP Act Private Cause of Action Extends to Medicare Advantage Plans

Defendants also argue that the private cause of action provided by the MSP Act does not extend to Medicare Advantage Organizations such as FHCP. The court rules that “Defendants’ argument is foreclosed by the court’s recent decision in Humana Medical Plan, Inc. v. Western Heritage Insurance Co., __ F.3d __, No. 15-11436, 2016 WL 4169120, at *6 (11th Cir. Aug. 8, 2016), in which it held that Medicare Advantage Plans may sue primary payers under the Medicare Secondary Payer Act private cause of action, and thereby seek double damages when such primary payers have failed to reimburse MAPs for payments made related to the claimed accident and injuries.”

Demonstrated Responsibility

The primary issue in these consolidated cases is the operation of the demonstrated responsibility provision of the MSP Act. The private cause of action indicates that “there is established a private cause of action for damages (which shall be in an amount double the amount otherwise provided) in the case of a primary plan which fails to provide for primary payment (or appropriate reimbursement) in accordance with paragraphs (1) and (2)(A). 42 U.S.C. § 1395y(b)(3)(A).

The ambiguity arises because the demonstrated responsibility requirement at the heart of this case is contained in neither of the paragraphs referenced in the private cause of action provision. That is, the demonstrated responsibility requirement is not contained in either paragraph (1) or in paragraph (2)(A). Rather, the demonstrated responsibility requirement is contained in paragraph (2)(B).

The Glover decision has already held that “the demonstrated responsibility requirement is incorporated as a prerequisite to pursuit of the private cause of action.” The Glover court explained that “the demonstrated responsibility requirement was incorporated as a prerequisite because the private cause of action language references paragraph (2)(A), which in turn references paragraph (2)(B).” Therefore, a primary plan “fails to provide for primary payment (or appropriate reimbursement) in accordance with paragraph (2)(A), when it fails to honor the underlying statutory or contractual obligation.”

Application of the Demonstrated Responsibility Provision

The question for the court is whether Plaintiffs have adequately demonstrated Defendants’ responsibility for payment by alleging an obligation pursuant to the insurance contracts, or whether Plaintiffs must first obtain a judgment against Defendants by suing for enforcement of those contracts prior to bringing suit under the MSP Act?

The court reiterates that “the MSP Act permits demonstration of a primary plan’s responsibility to pay by a judgment, a payment conditioned upon the recipient’s compromise, waiver, or release (whether or not there is a determination or admission of liability) of payment for items or services included in a claim against the primary plan or the primary plan’s insured, or by other means.” 42 U.S.C. § 1395y(b)(2)(B)(ii).

The question before the court therefore is whether the phrase “by other means” permits demonstration of responsibility by a contractual obligation. Defendants argue that it does not; they urge the court to hold that Glover’s demand for a “separate adjudication or agreement” applies when the defendant’s responsibility derives from contract as well as from tort. Plaintiffs argue that a contractual obligation is among the “other means” by which the statute permits demonstration of responsibility, and that no separate adjudication or agreement is necessary.

The court reminds us all that this issue has been addressed in regulations issued by the Centers for Medicare and Medicaid Services (CMS) interpreting the MSP Act. The implementing regulations specify that a primary payer must reimburse Medicare “for any payment if it is demonstrated that the primary payer has or had a responsibility to make payment.” 42 C.F.R. § 411.22(a). The regulations explicitly list the means by which responsibility for payment may be demonstrated, including a judgment, or “other means, including but not limited to a settlement, award, or contractual obligation.” 42 C.F.R. § 411.22(b).

The court finds that “the regulations thus specifically permit demonstration of responsibility by means of a contractual obligation.” The court recognizes that the statutory phrase “other means” is ambiguous, as “it is not apparent from the text of the statute alone which “other means” Congress intended to allow.” The court concludes however that “a contractual obligation seems to be an eminently reasonable method of demonstrating responsibility.”

Defendants argue that “the existence of a contract does not necessarily demonstrate responsibility, that PIP insurance contracts do not promise payment or reimbursement for all medical expenses, because it is possible that Plaintiffs seek to recover for injuries not covered under their policies.” In other words, Defendants argue that a contract can demonstrate responsibility, but only once it is reduced to a judgment or settlement.

The court here disagrees, based on the important difference between tort liability and contractual obligations. “It is a fundamental principle of contract law that a contract imposes enforceable rights and obligations. A contract imposes obligations on the parties immediately, without any involvement of the courts. While a lawsuit may be necessary to enforce a contract in the event of a breach, the obligations created by the contract exist as soon as it is executed. By contrast, an alleged tortfeasor has no obligations until he is adjudged liable.”

“Adopting Defendants’ interpretation would render meaningless the statutory phrase “by other means,” as well as the specific reference to contractual obligations in the regulation. Defendants’ reading of the law is thus at odds with one of the most basic interpretive canons, that a statute should be construed so that effect is given to all its provisions, so that no part will be inoperative or superfluous, void or insignificant.”

“In Glover, the court concluded that responsibility must be demonstrated by “a separate adjudication or agreement.” An insurance contract is, of course, a separate agreement, and permitting demonstration of responsibility via a contractual obligation is therefore consistent with Glover.”

The court therefore holds that “a contractual obligation may serve as sufficient demonstration of responsibility for payment to satisfy the condition precedent to suit under the MSP Act. This does not relieve Plaintiffs of their burden to allege in their complaints, and then subsequently prove with evidence, that Defendants’ valid insurance contracts actually render Defendants responsible for primary payment of the expenses Plaintiffs seek to recover. And Defendants may still assert any valid contract defense in arguing against their liability. In other words, the court holds only that a contractual obligation may satisfy the demonstrated responsibility requirement, not that the existence of a contractual obligation conclusively demonstrates liability under the MSP Act’s private cause of action.”

Policy Maximums

Defendants IDS and Infinity Auto Insurance Company (Infinity) argue in the alternative that, “even if Plaintiffs’ insurance contracts are sufficient to demonstrate Defendants’ responsibility to pay, Plaintiffs’ claims still fail because their complaints show that Defendants no longer have a responsibility to pay.”

Defendants’ argument is grounded in the fact that Plaintiffs’ insurance policies provided for a maximum of $10,000 in benefits. Defendants claim that “any responsibility they had to pay was exhausted once the policy maximums were reached, which may have occurred in some of these cases.” Plaintiffs respond that “the statute requires repayment whenever a primary plan has or had a responsibility to make payment,” 42 U.S.C. § 1395y(b)(2)(B)(ii), and that “Defendants are therefore liable if they ever had a responsibility to make a payment, even if they subsequently paid out the maximum benefits available under the policies.”

The district courts to which these arguments were presented did not reach them, instead dismissing the cases solely on the grounds that Glover barred liability. The appellate court remands these cases to the district courts to decide this issue.

Remand of State Law Claims

In one of the consolidated cases, MSP Recovery, LLC v. Allstate Insurance Company, No. 15-14790, the district court remanded Plaintiff MSP Recovery’s supplemental state law claims after dismissing the MSP Act claim, which was the only federal claim in the case. MSP Recovery asks that, if the court here vacates the dismissal of its MSP Act claim, it reinstate its state law claims. Defendant Allstate Insurance Company agrees that that is the proper course of action. Therefore the court here vacates the district court’s remand order as well as the order of dismissal.

For the same reasons, the court vacates the implicit discretionary dismissals of the state law claims in three of the other consolidated cases: MSP Recovery v. Allstate Insurance Company, No. 15-14353; MSPA Claims 1, LLC v. IDS Property Casualty Insurance, No. 15-14355; and MSPA Claims 1, LLC v. Infinity Auto Insurance Company, No. 15-14356.

Conclusion

The 11th Circuit Court of Appeals confirms that entities assigned the MSP private cause of action from a MAP do in fact have standing to bring such claims for double damages pursuant to the MSP Act. This is huge! As I have previously written about, in my humble opinion, this will open up a new cottage industry of private entities and law firms which will purchase a MAP’s MSP reimbursement rights and then turn around and seek double damages from the primary payer self insured or insurer.

As I have also been warning about for years based on these cases, if you haven’t already, it is time for your organization to create a process in which your claims system can identify a Medicare beneficiary, can learn about conditional payments made by Medicare, a Medicare Advantage Plan, or a Prescription Drug Plan, analyze such payments, make a determination as to which payments are reimbursable, and reimburse them as quickly as possible, so as to negate Medicare, MAPs, PDPs, and their assignees’ opportunity to file a private cause of action for double damages.

The 11th Circuit Court also provides clarity by holding that a plaintiff suing a primary plan under the private cause of action in the MSP Act may satisfy the demonstrated responsibility prerequisite by alleging the existence of a contractual obligation to pay. As a result, work comp, no-fault, med-pay, and PIP insurers that have accepted a claim or have made payments on same are now presumptive targets for such private cause of actions. As I have been speaking about for several years, now more than ever, your internal conditional payment resolution process will be tested. Are you ready? Is your insurer prepared?

The Court leaves us with a very scary question still left unanswered, one that could be a game changer for all insurers and self-insureds. What if the no-fault, med pay, PIP, or for that matter, liability policy in place was exhausted because policy maximums or limits were reached before Medicare asked for reimbursement, are defendants still liable if they ever had a responsibility to make a payment, even if they subsequently paid out the maximum benefits available under the policies? The Court here remanded the question back to the district court, so stay tuned for what may very well be the most significant conditional payment decision ever for all primary payers, insurers and self-insureds alike.

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Topics: Medicare Law