The Private Cause of Action under the Medicare Secondary Payer Act

Tuesday, July 31, 2018 -

 

 

The Medicare Secondary Payer (MSP) Act provides that Medicare will make conditional payments for medical services when a primary plan has not made, or cannot reasonably be expected to make, payments for those services. 42 USC §1395(y)(b)(2)(B)(i). If it turns out that the “primary payer” had a responsibility to make those payments, Medicare is permitted to seek reimbursement from that payer. In the event that Medicare is not timely reimbursed, the private cause of action mechanism allows actions for double the amount initially paid by Medicare against the primary payer. 42 USC §1395(y)(b)(3)(A).

It is well established that Medicare is not the only party that may compel a reimbursement of conditional payments. The private cause of action mechanism of the MSP Act is an enforcement provision that allows Medicare Beneficiaries, and others, to bring an action against a party for double the amount owed to Medicare. In order to bring the private cause of action however, a party must have “standing.”

The legal concept of “standing” in an action based on federal law, is found in Article III of the U.S. Constitution. Article III standing has three requirements: (1) the plaintiff must have suffered an injury in fact; (2) the injury must be fairly traceable to the conduct of the defendant; and (3) the injury must be likely to be redressed by a favorable decision. Below is a discussion of caselaw relating to various groups that may have standing to bring an MSP private cause of action.

Physicians and Medical Groups

The Sixth Circuit in Bio-Medical Applications of Tennessee Inc. v. Central States Southeast & Southwest Areas Health & Welfare Fund limited the private cause of action’s applicability to only group health plans that differentiated coverage based on Medicare eligibility. 656 F.3d 277 (2011).

Subsequently, the Sixth Circuit in Michigan Spine & Brain Surgeons v. State Farm Mutual Automobile Insurance Co. held a health care provider can bring the private cause of action against a non-group health plan. 2014 U.S. App. LEXIS 13499 (2014). In Michigan Spine & Brain, State Farm Insurance Company was a no-fault carrier that denied coverage of an injured claimant’s medical treatment based on an alleged pre-existing condition. Instead, Michigan Spine & Brain Surgeons provided treatment to the injured claimant. Michigan Spine and Brain submitted its bills to Medicare and then sought reimbursement from State Farm based on the private cause of action of the MSP Act.

On appeal, the Sixth Circuit reversed the lower court’s decision and held that the health care provider may bring an action for double damages regardless of any demonstration that a non-group health plan denied coverage based on a claimant’s Medicare eligibility, thus expanding the ability of clinicians to bring such actions.

The holding in Michigan Spine & Brain appeared to expand the interpretation in Bio-Medical by allowing a private cause of action without a showing of denied coverage based on a claimant’s Medicare eligibility.

Medicare Advantage Organizations

 The right of Medicare Advantage Organizations to bring a private cause of action under the MSP Act has been extensively litigated due to ambiguousness within the Act. This was demonstrated in Parra v. PacifiCare of Arizona, Inc. wherein the U.S. District Court for the District of Arizona dismissed a private cause of action suit for lack of subject matter jurisdiction. 2011 WL 1119736 (2011). In Parra, the Court held the MSP Act gave no private cause of action to Medicare Advantage Organizations and further held that there was no congressional intent to do so. Instead, the Court held that reimbursement claims by Medicare Advantage Organizations should be brought under state law contract theories.

In affirming this notion, the U.S. District Court in the Eastern District of Pennsylvania in In re Avandia Marketing shut down Humana’s argument that the MSP Act unambiguously allowed Medicare Advantage Organizations to bring a private cause of action. 2011 U.S. Dist. LEXIS 63544 (2011). The Court focused on the lack of a congressional grant in the statute of such remedy. Then, in 2012, the Third Circuit in In re Avandia Marketing overturned that decision and held that Medicare Advantage Plans may bring a private right of action to recover conditional payments. No. 15-2145 (2016). The Third Circuit instead held that any private plaintiff with standing may bring an action for recovery under the MSP Act.

Later, the 11th circuit held in Humana Medical Plan Inc. v. Western Heritage Insurance Co. that Medicare Advantage Organizations have standing to bring actions against primary payers for reimbursement of conditional payments as well. 2016 WL 4169120 (11th Cir. Aug. 8, 2016). These cases demonstrate that if primary payers are not proactive in identifying and resolving conditional payments, they are open to potential surprises at, or even after, settlement.

More recently, a Southern Florida District Court in MSP Recovery Claims Series LLC v. Travelers Cas. & Sur. Co. addressed a Medicare Advantage Organization’s standing to bring a private cause of action. 1:17-cv-23628 (2018). In Travelers, MSP Recovery sought reimbursement from Travelers Insurance on behalf of Health First Administrative Plans, a Medicare Advantage Organization. Travelers argued MSP Recovery did not have adequate standing to bring the action because it did not suffer an injury in fact. The Court noted for MSP Recovery to have suffered an injury, it must show that it suffered some personal harm, pled facts showing that HFAP itself suffered an injury in fact, and that HFAP validly assigned its rights of recovery to MSP Recovery.

The Court determined that MSP Recovery had not established that HFAP was an MAO, as established in MSP Recover Claims v. Auto-Owners Ins. Co. 2018 U.S. Dist. LEXIS 69723. In Auto-Owners, The Court noted that HFAP was not listed on the CMS website list of Medicare Advantage Organizations and thus, the Court took judicial notice of same. The Court differentiated between any party and a specific party that may bring an action under the MSP for recovery. The Court explained that a party must have suffered an injury under the statute. Again, the Court relied on the reasoning in Auto-Owners and reasoned that because HFAP was not considered a valid Medicare Advantage Organization, it was not able to assign its rights to pursue a private cause of action to MSP Recovery Claims, and thus, MSP Recovery would not have suffered any injury. Next, the Court ruled not only that MSP Recovery failed to establish HFAP had standing and by extension, MSP Recovery did not possess standing.

Individuals/Beneficiaries

Beneficiaries and personal representatives of a beneficiary’s estate have also been determined to have standing under the MSP Act. The 8th Circuit in Stalley v. Catholic Health Initiatives outlined the policy goals of giving Beneficiaries this authority:

-First, the Beneficiary is more aware than the government to determine whether and what other entities may be responsible to pay for his or her expenses.

-Second, without the incentive of double damages, the Beneficiary would have no motivation to sue the insurer, because they have likely already been paid.

-Finally, a Beneficiary could potentially reimburse Medicare and have funds remaining to go towards the cost of litigation. 509 F.3d 517, 2007 U.S. App. LEXIS 27331.

The issue of a personal representative of an estate was very recently addressed in Netro v. Greater Baltimore Medical Center, 2018 WL 2472789 (4th Cir. June 4, 2018). In Netro, the Plaintiff, on behalf of her deceased mother, brought a civil action against the hospital for post-surgical complications leading to her mother’s death. At trial, the Defendant was found liable and the Plaintiff was awarded $451,956.00 in damages, which included around $157,000.00 in Medicare conditional payments. Shortly after, the Defendant asked the court to reduce the amount of damages to reflect medical expenses actually paid, which the court agreed to. A short three weeks later, the Plaintiff filed a Private Cause of Action under the Medicare Secondary Payer statute alleging the Defendant failed to reimburse Medicare for the conditional payments.

The court addressed two issues: (1) Standing and, (2) Whether the Defendant’s delay in payment warranted the double damage remedy under the PCA of the MSP.

First, the Court determined the Plaintiff had standing under the Medicare Secondary Payer statute. The Defendant argued the Plaintiff could not have standing to bring the PCA because the money was owed to Medicare, not her, and therefore, she could not have suffered an “injury” needed in order to establish standing under Federal law. The Court reasoned the damages owed to Plaintiff included the amount owed to Medicare, and that the MSP assigned reimbursement efforts to Beneficiaries within the statute, as outlined above.

In explaining the standing issue in context of the MSP, Judge Wilkinson noted, “Step back for a moment from the complex world of Medicare payments, and imagine more mundane litigation:  If Plaintiff Pam borrows something from Lender Lisa, and Defendant Dan steals it, Pam obviously has standing to recover from Dan. Her injury is not erased by the fact that the recovery will ultimately end up in Lisa’s hands. The same logic applies here”.

Second, the Court determined the Defendant’s delay in payment did not warrant double damages. Ultimately, the Plaintiff received the funds 37 days after the judgement. The Court reasoned this delay was not how the statute contemplated “failure to pay”, and that much of the delay was brought on due to the need to determine the amount of the judgement, rather than any bad faith avoidance.

This case demonstrates the one interpretation in a wide range of rulings on what constitutes standing and a “failure to pay” in the MSP context. Though the Defendant ultimately did not pay double damages, the litigation illustrates the importance of who has standing in these cases, and determining the amount of conditional payments as soon as practical and any disputes available.

The Medicare Secondary Payer’s private cause of action mechanism opens parties to post-settlement litigation, though preliminary hurdles of constitutional standing must be crossed prior to making a case for double damages. This potential exposure further underscores the need for parties to be pro-active in the identification, negotiation and resolution of conditional payments as a part of any settlement. Our team of experienced MSP compliance attorneys is here to assist you in all stages of this process. Additional information is available upon request.

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