11th Circuit Allows MAPs to Sue Primary Payers Under Medicare Secondary Payer for Double Damages

Posted by Rafael Gonzalez on Sep 9, 2016 9:22:00 AM

11th Circuit Allows MAPs to Sue Primary Payers Under MSP for Double DamagesOn August 8, 2016, the United States Court of Appeals for the Eleventh Circuit published its opinion on Humana Medical Plan Inc. v. Western Heritage Insurance Company, concluding that based on Avandia, 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.

Facts and Background

Humana Medical Plan (Humana) operates as a Medicare Advantage Organization (MAO), providing Medicare Part C coverage (also known as a Medicare Advantage Plan or MAP) to Medicare-eligible enrollees and receiving in return a per capita fee from the Centers for Medicare & Medicaid Services (CMS). In January 2009, Mary Reale, a Humana Medicare Advantage plan enrollee, was injured at Hamptons West Condominiums. Ms. Reale sought medical treatment for her injury, and her medical providers billed Humana. Humana paid $19,155.41. 

In June 2009, Ms. Reale and her husband sued Hamptons West Condominium Association, Inc. (Hamptons West) in Florida state court for her injury. In March 2010, while the Reales’ suit was pending and in light of a pending settlement between Hamptons West and the Reales, Humana issued to Ms. Reale an Organization Determination in the amount of $19,155.41. The basis for Humana’s reimbursement request was the Medicare Secondary Payer Act (MSP), under which Medicare payments are secondary and reimbursable if any other insurer—even a tortfeasor’s liability insurer—is liable. See 42 U.S.C. § 1395y(b)(2); see also § 1395w-22(a)(4).

On April 20, 2010, in return for $115,000 from Hamptons West and its liability insurer, Western, the Reales released Hamptons West and Western. The Reales represented in the settlement agreement that there was no Medicare or other lien or right to subrogation. The Reales also agreed to indemnify Hamptons West and Western against any Medicare or other lien or right to subrogation.

On May 7, 2010, Humana sued the Reales and their attorney in the Southern District of Florida seeking reimbursement of the $19,155.41. On the defendants’ motion, the district court dismissed Humana’s complaint for lack of subject matter jurisdiction, holding that “an MAO does not have a private cause of action to recover reimbursement from a beneficiary under the MSP.” The district court later vacated its order after Humana moved the district court to correct or amend the order. The district court scheduled a hearing to consider Humana’s motion. On the date of the hearing, Humana voluntarily dismissed its action against the Reales and their attorney.

Western and Hamptons West attempted to make Humana a payee on the settlement draft to the Reales. The Reales refused and on May 25, 2010 sought sanctions against Hamptons West for failing to comply with the settlement agreement. Thereafter, Hamptons West agreed to a stipulated order under which Humana would not be a payee on the check, but the Reales’ attorney would hold $19,155.41 in trust pending resolution of the Reales’ litigation. Hamptons West and Western tendered the $115,000.

On June 4, 2010, the Reales sued Humana in state court seeking a declaration as to the amount they owed Humana. Applying Florida law regarding collateral indemnity and subrogation, the trial court held that Humana was entitled to $3,685.03. See Humana Med. Plan, Inc. v. Reale, 180 So. 3d 195, 199 (Fla. 3d DCA 2015). Humana appealed, and in December 2015, Florida’s Third District Court of Appeal reversed for lack of jurisdiction. The court held that “the Medicare Act creates an exclusive federal administrative process under which a Medicare Advantage plan enrollee appeals through CMS an MAO’s denial of benefits or request for reimbursement. Upon exhaustion of the administrative process, the Medicare Act provides for federal judicial review and expressly preempts state law.” Therefore, according to the court, “Florida courts lack jurisdiction to adjudicate the dispute between Humana and Ms. Reale regarding her Medicare Advantage plan benefits.” 

Having failed to secure reimbursement from Ms. Reale, in December 2011, Humana demanded that Western reimburse Humana’s secondary payment. On January 11, 2012, Humana sued Western in the action upon which this appeal proceeds. Humana pled three counts: Count One sought double damages under the MSP private cause of action, 42 U.S.C. § 1395y(b)(3)(A); Count Two sought declaratory relief under the Medicare statutory and regulatory scheme; Count Three sought damages under several state law theories including unjust enrichment and a contract implied by law. Western moved to dismiss, arguing among other things that the MSP does not permit an MAO to bring a private cause of action. In an endorsed order, the district court “denied Western’s motion in part, dismissing the state law claims but finding that Humana had adequately pled a question regarding whether the MSP private cause of action is available to an MAO.”

On December 29, 2014, Humana moved for summary judgment. On March 16, 2015, the district court granted summary judgment in favor of Humana, finding that “the MSP private cause of action is available to an MAO and that Humana is entitled to double damages, $38,310.82.” Humana Med. Plan, Inc. v. W. Heritage Ins. Co., 94 F. Supp. 3d 1285 (S.D. Fla. 2015). Western appealed.

The Medicare Secondary Payer Act

The MSP, 42 U.S.C. § 1395y(b), is located in Part E of the Medicare Act. Paragraph (1) creates rules regarding group health plans. § 1395y(b)(1). Paragraph (2) establishes Medicare’s status as a secondary payer to a primary plan. Paragraph (2)(A) is a general prohibition against making Medicare payments for items or services for which a primary plan has paid or can reasonably be expected to pay. § 1395y(b)(2)(A). Paragraph (2)(B), entitled “Conditional payment” and cross-referenced as the sole exception to paragraph (2)(A), describes the circumstances and procedures under which Medicare can make a conditional payment notwithstanding its status as secondary payer. § 1395y(b)(2)(B).

Under paragraph (2)(B), when the primary plan does not fulfill its duties, the Secretary of Health & Human Services may make a payment conditioned on reimbursement. § 1395y(b)(2)(B)(i). If the Secretary makes a conditional payment, the primary plan must reimburse the Secretary. § 1395y(b)(2)(B)(ii). Paragraph (2)(B) also establishes and defines a Government cause of action to recover from a primary plan. § 1395y(b)(2)(B)(iii); see also 42 C.F.R. § 411.24 (describing a Government cause of action against a primary plan or any other person that received a primary payment). The remaining portions of paragraph (2)(B) establish the United States’ subrogation rights in the event of a secondary payment, § 1395y(b)(2)(B)(iv), permit the Secretary to waive the conditional payment rules under some circumstances, § 1395y(b)(2)(B)(v), establish a limitations period, § 1395y(b)(2)(B)(vi), and create a disclosure mechanism to help primary plans determine whether they owe a reimbursement, § 1395y(b)(2)(B)(vii). Paragraph (2)(B) does not mention MAOs and refers almost exclusively to the Secretary, the United States, and the Medicare trust fund.

Paragraph (3)(A), entitled “Private cause of action,” states as follows: “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 Medicare Advantage Program

Part C, also known as the Medicare Advantage, was enacted in 1997, 17 years after the MSP and 11 years after the MSP private cause of action. “Congress’s goal in creating the Medicare Advantage program was to harness the power of private sector competition to stimulate experimentation and innovation that would ultimately create a more efficient and less expensive Medicare system.” Under the Medicare Advantage program, a private insurance company, operating as an MAO, administers the provision of Medicare benefits pursuant to a contract with CMS. CMS pays the MAO a fixed fee per enrollee, and the MAO provides at least the same benefits as an enrollee would receive under traditional Medicare. See 42 U.S.C. §§ 1395w-22(a), 1395w-23. In 2015, 31% of Medicare-eligible individuals were enrolled in a Medicare Advantage program. Medicare Advantage Enrollees as a Percent of Total Medicare Population, Henry J. Kaiser Family Foundation, http://kff.org/medicare/state-indicator/enrollees-as-a-of-total-medicare-population (last visited August 8, 2016). This percentage has risen every year since 2004.

Part C includes a reference to the MSP, entitled “Organization as secondary payer,” which states as follows: “Notwithstanding any other provision of law, a Medicare+Choice organization may (in the case of the provision of items and services to an individual under a Medicare+Choice plan under circumstances in which payment under this subchapter is made secondary pursuant to section 1395y(b)(2) of this title) charge or authorize the provider of such services to charge, in accordance with the charges allowed under a law, plan, or policy described in such section-- (A) the insurance carrier, employer, or other entity which under such law, plan, or policy is to pay for the provision of such services, or (B) such individual to the extent that the individual has been paid under such law, plan, or policy for such services.” 42 U.S.C. § 1395w-22(a)(4).

An MAO’s Rights Under the MSP

In this case, Humana contends that an MAO can sue a primary plan under the MSP private cause of action, which is available “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). Humana therefore argues that the MSP private cause of action is unambiguous and broadly permits any private party with standing (including an MAO) to sue a primary plan.

The court here agrees. The MSP private cause of action is available “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). “Paragraph (3)(A), the MSP private cause of action, grants private actors a federal remedy when a primary plan fails to fulfill its payment obligation, thereby undermining the secondary-payer scheme created by paragraph (2)(A).”

Western suggests that the MSP does not govern MAOs at all and that the MAO right-to-charge provision instead governs when and whether an MAO is a secondary payer. According to Western, because an MAO derives secondary payer status from the MAO right-to-charge provision rather than the MSP, an MAO may not sue under the MSP private cause of action.

The court rejects Western’s reading as contrary to the plain language of the pertinent provisions. “First, paragraph (2)(A) unambiguously refers to all Medicare payments, which include both traditional Medicare and Medicare Advantage plans. Second, the MAO right-to-charge provision parenthetically refers to circumstances under which MAO payments are made secondary pursuant to section 1395y(b)(2).” 42 U.S.C. § 1395w-22(a)(4). “A plain reading of paragraph (2)(A) and the MAO right-to-charge provision therefore reveals that MAO payments are made secondary to primary payments pursuant to the MSP, not the MAO right-to-charge provision. This alone suggests that the MSP does not limit the cause of action in paragraph (3)(A) to cases in which traditional Medicare is the secondary payer.”

Therefore, the court concludes that paragraph (3)(A), the MSP private cause of action, permits an MAO to sue a primary plan that fails to reimburse an MAO’s secondary payment. Paragraph (3)(A) is broadly available “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 court reiterates that “paragraph (3)(A) is not a qui tam statute but is instead available only when the plaintiff has suffers an injury in fact. Neither the MSP nor case law places any other restriction on the class of plaintiffs to whom the MSP private cause of action is available.”

The court sees no basis to exclude MAOs from a broadly worded provision that enables a plaintiff to vindicate harm caused by a primary plan’s failure to meet its MSP primary payment or reimbursement obligations. As stated above, “the MSP applies to MAOs. An MAO has a statutory right to charge a primary plan when an MAO payment is made secondary pursuant to the MSP. 42 U.S.C. § 1395w-22(a)(4); see also 42 C.F.R. § 422.108 (elaborating upon an MAO’s right to charge a primary plan and means of recovering a secondary payment). In such a case, the primary plan’s failure to make primary payment or to reimburse the MAO causes the MAO an injury in fact. Therefore, an MAO may avail itself of the MSP private cause of action when a primary plan fails to make primary payment or to reimburse the MAO’s secondary payment.”

Humana’s Entitlement to Summary Judgment

Having found that Humana may bring its claim under the MSP private cause of action, the court next decides whether Humana was entitled to summary judgment. The MSP private cause of action permits an award of double damages when a primary plan fails to provide for primary payment or appropriate reimbursement. 42 U.S.C. § 1395y(b)(3)(A). “Thus, a plaintiff is entitled to summary judgment on a § 1395y(b)(3)(A) claim when there is no genuine issue of material fact regarding (1) the defendant’s status as a primary plan; (2) the defendant’s failure to provide for primary payment or appropriate reimbursement; and (3) the damages amount.”

The court agrees with the district court that Western is a primary plan under § 1395y(b)(2)(A) because it is a liability insurer that, under a settlement agreement, paid Ms. Reale, a Medicare Advantage plan enrollee, for covered medical expenses. However, Western argues that it did not fail to provide for payment or appropriate reimbursement because Western (1) lacked constructive knowledge that Medicare made a payment; and (2) attempted to make Humana a payee on the settlement check but was ordered instead to pay $19,155.41 into trust pending resolution of a dispute regarding the amount of Humana’s entitlement.

However, as the district court noted, “Western’s second argument forecloses its first. Western’s attempt to list Humana as a payee on the settlement check indicates that Western knew of Humana’s lien. Western seeks to evade this conclusion by asserting its ignorance of Humana’s status as an MAO. The court sees no value in this distinction. “Western had actual knowledge of Humana’s claim, and as a settling party in tort litigation, Western had the ability to discern the precise nature of Ms. Reale’s health insurance coverage. Western therefore had constructive knowledge of Humana’s Medicare payment.”

The court also rejects Western’s contention that it provided for appropriate reimbursement by placing $19,155.41 into trust pending resolution of the dispute between Ms. Reale and Humana. “If a beneficiary or other party fails to reimburse Medicare within 60 days of receiving a primary payment, the primary plan must reimburse Medicare even though it has already reimbursed the beneficiary or other party.” 42 C.F.R. § 411.24(i)(1). This regulation applies equally to an MAO. See § 422.108(f). “Thus, Western’s payment to Ms. Reale or any other party is insufficient to extinguish its prospective reimbursement obligation to Humana. Sixty days after Western tendered the settlement to the Reales and their attorney, because no party reimbursed Humana, Western became obligated to directly reimburse Humana.” See § 411.24(i)(1). “Even after receiving Humana’s demand for reimbursement, Western declined to do so. Therefore, Western failed to provide for “appropriate reimbursement” as defined by the CMS regulations.”

Western also disputes the damages amount, contesting both the amount of Humana’s reimbursement entitlement and the appropriateness of double damages. “Even if Western retains the right to dispute the amount, its argument regarding Ms. Reale’s procurement costs lacks merit. A beneficiary’s procurement costs do not offset an MAO’s recovery if the MAO must litigate to secure repayment. See 42 C.F.R. §§ 411.37(e), 422.108(f). This is the third lawsuit in which Humana has attempted to recover its $19,155.41 secondary payment. Therefore, Humana may recover the full amount.”

The court here agrees with the district court that double damages are required by statute. “Unlike the Government’s cause of action, the private cause of action uses the mandatory language “shall” to describe the damages amount. Compare 42 U.S.C. § 1395y(b)(2)(B)(iii) (“the United States may collect double damages”) with 42 U.S.C. § 1395y(b)(3)(A) (damages “shall be in an amount double the amount otherwise provided”). Therefore, the court finds the district court correctly ordered Western to reimburse Humana $38,310.82, double the amount to which Humana was otherwise entitled.

The Dissent

“Because Humana is not the Secretary of Health and Human Services and its coffers are not the Medicare Trust Funds, it cannot seek payment or reimbursement in accordance with paragraphs (1) and (2)(A). For that reason, section 1395y(b)(3)(A) creates no private cause of action for a Medicare Advantage Organization.”

The dissent indicates that “a Medicare Advantage Organization receives no authority from paragraphs (1) and (2)(A).” Paragraph (1) addresses the case of a group health plan or a large group health plan that denies benefits because an individual is eligible for Medicare Part A. Paragraph (2)(A) refers to subparagraph (B), which repeatedly and exclusively refers to the Secretary and the Trust Funds: “the Secretary may make payment,” “any such payment by the Secretary shall be conditioned on reimbursement to the appropriate Trust Fund,” “an entity that receives payment from a primary plan shall reimburse the appropriate Trust Fund for any payment made by the Secretary,” and “if reimbursement is not made to the appropriate Trust Fund the Secretary may charge interest.” § 1395y(b)(2)(B). “A Medicare Advantage Organization is not the Secretary, and it does not make payments out of the Trust Funds. As a result, it cannot seek payment or reimbursement in accordance with paragraph (2)(A).”

The dissent notes that “a separate provision, section 1395w-22(a)(4), gives Medicare Advantage Organizations the power to charge an insurer under circumstances in which payment under this subchapter is made secondary pursuant to section 1395y(b)(2): Notwithstanding any other provision of law, a Medicare Advantage organization may (in the case of the provision of items and services to an individual under a Medicare Advantage plan under circumstances in which payment under this subchapter is made secondary pursuant to section 1395y(b)(2) of this title) charge or authorize the provider of such services to charge, in accordance with the charges allowed under a law, plan, or policy described in such section— (A) the insurance carrier, employer, or other entity which under such law, plan, or policy is to pay for the provision of such services. § 1395w-22(a)(4).

A Medicare Advantage Organization charges primary plans in accordance with section 1395w-22(a)(4), not section 1395y(b)(2)(A).”

The dissent therefore concludes that “the text of the statute is clear; Humana failed to state a claim. The plain meaning of the statute moots the other issues in this appeal. A Medicare Advantage Organization is not the Secretary and its treasury is not the Trust Funds.”

Conclusion

The United States 11th Circuit Court of Appeals joins the 3rd Circuit and 6th Circuit Courts of Appeals in concluding 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. Based on the well reasoned and articulated written opinions published by each of these courts, it is hard to imagine that as this issue reaches other federal district and appellate courts, or other state trial and appellate courts, that the same conclusion will not be reached. As a result, as I have been recommending since 2012, your claims handling best practices must include steps to make sure that any conditional payments made not only by Medicare Parts A (hospital coverage) and B (physician coverage), but also by Medicare Parts C (Medicare Advantage Plans) and D (Prescription Drug Plans), are identified, analyzed, negotiated, and resolved.

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Topics: Medicare Law