The issue of whether Medicare Advantage [MA] plans enjoy an enforceable right of subrogation (like Medicare Part A and B plans) was raised yet again in an August 2011 class action suit brought in New York state court. Rebecca Meek-Horton, an MA Health plan beneficiary, settled a personal injury suit involving medical bills paid by the plan. The plan, which thereafter sought to recover $149,307.69 in injury related medical and hospital expenses. Ms. Meek-Horton took umbrage and brought suit against the plan, Healthfirst, Inc., its agent, Trover Solutions, and 40 other defendants as well as other unnamed Medicare Advantage Health Insurance Companies, claiming that such subrogation efforts violate New York State Genl. Obl. Law §5-335 which in essence prohibits subrogation. Meek-Horton v. Trover, et al, State of New York, Supreme Court, Case NO. 11108804-2011. This suit follows on the heels of a New York trial court decision which held, without extensive discussion, that the Medicare Act does not create a statutory right of reimbursement for Medicare Advantage plans but merely permits them to include subrogation rights in its contracts with beneficiaries. Trezza v. Trezza, 21 Misc. 3d 1209(A), 2011 WL 2640794 (N.Y.Sup.), 2011 N.Y. Slip Op. 51237(U) (June 23, 2011).

This issue is far from decided and we urge defense practitioners to exercise caution in settling claims involving MA payments. 

It is true that recent federal district court decisions have opined that the Medicare scheme fails to create a federal private cause of action. In re Avandia, MDL No. 1871, 2011 WL 2413488 (E.D.Pa., June 13, 2011);  Para v. PacificaCare, No10-1008, 2011 WL 1119736 (D.Ariz., March 28, 2011) and Humana v. Reale, No. 10-21493, 2011 WL 335341 (S.D.Fla., Jan. 31,2011). While recognizing the right of an MA to make itself a secondary payor these decisions have carefully avoided addressing the question of whether state anti-subrogation statutes are preempted by 42 CFR 422.108(f). This regulation provides that “the rules established under this section supersede any State Laws that would otherwise apply to MA plans. A State cannot take away an MA organizations’ right under Federal law and the MSP regulations to bill …for services for which Medicare is not the primary payer.” The Courts in the In Re Avandia and Pacifica decisions expressly stated that a state cause of action exists and the latter further noted that states are as capable as the federal courts to address preemption questions such as that presented by the regulation. Earlier decisions reaching a similar conclusion on the lack of a federal private cause of action, Care Choices v. Engstrom, 330 F.3d. 786 (6th Cir. 2003) and Nott v. Aetna US Healthcare, 303 F. Supp. 2d 565 (E.D.Pa.2004), were decided before the implementation of 42 CFR 411.108(f) in 2005.  

Until the preemption issue has been resolved we urge practitioners to utilize the same defensive strategies applied in settling regular Medicare cases, i.e.  hold harmless agreements and escrow provisions, to name a few. We also take this opportunity to remind the practitioner that these should be agreed upon as part of, not after, the settlement discussion.

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Several very recent cases confirm the government’s resistance to have the conditional payment responsibility resolved through any means other than those it selects. All of the decisions involved the successful application of the failure to exhaust administrative remedies defense to the court’s jurisdiction.

In Braucher v. Swagat Group, 2011 WL 832512 (C.D.Ill.) the plaintiff filed a post settlement Motion to Adjudicate Medicare Lien and CMS moved to intervene. The court held that it had no subject matter jurisdiction to decide the Motion to Adjudicate Medicare Lien because the plaintiff had not exhausted the administrative process. In Alcorn v. Pepples, 2011 WL 773418 (W.D.Ky.) the plaintiff, pre-settlement, moved to join CMS as an indispensable party. The government objected because the plaintiff had not exhausted the administrative remedies set forth in the Medicare Act and the court agreed. In Portman v. Goodson, 2011 WL 773427 (W.D.Ky.) the plaintiff’s pre-settlement declaratory judgment action against CMS which sought to determine the repayment liability was dismissed for failure to exhaust administrative remedies. All three decisions, each decided between February 28, 2011 and March 3, 2011, relied upon the need for a plaintiff to comply with the post Demand Letter administrative process as being essential to jurisdiction over CMS in an MSP context.

Keep in mind, however, that all three decisions involved a plaintiff’s right to obtain subject matter jurisdiction before exhausting the administrative remedies set forth in 42 CFR §405.900. Similarly unsuccessful, attempts by the court to compel the attendance of Medicare representatives at settlement conferencei or to compel Medicare to intervene to assert a subrogation interestii  have all been rejected on principles of sovereign immunity.

We suggest that under circumstances in which the need to resolve the repayment obligation outweighs the costs an insurer/defendant may consider bringing an interpleader in which CMS is named as a defendant via the Secretary of the US Department of Health and Human Services, Kathleen Sebelius. At least two such actions have been successful.iii  Alternatively a declaratory judgment action might be appropriate. These may succeed because there appears to be no mechanism by which a settling defendant/insurer might be able to use, let alone exhaust, the administrative process and that such is not contemplated by the regulatory framework.iv   Accordingly, such actions may be analyzed and resolved differently by the court.


i Hoste v. Shanty Creek Management, Inc., 246 F. Supp.2d 784 ((W.D. Michigan, 2002)
ii Gray v. Doe,---F.Supp.2d---, 2010 WL 3199347 (E.D.Ky.)
iii See e.g. Farmers Ins. Exchange v. Forkey, 2010 WL 5477726 (D.Nev.) and Integon National Insurance Co. v. Berry, 2009 WL 424466 (W.D. North Carolina)
iv See 42 CFR §405.926(k) and Medicare Secondary Payer (MSP) Manual, Ch. 29, 200.C(11), stating that a determination that Medicare has a recovery against an entity such as  insurer or self-insurer that was or is responsible to make payment for services or items that were already reimbursed by Medicare  is not considered an “Initial Determination” subject to appeal. 42 CFR §405.906 specifically states that payment by a third party payer does not entitle that entity to party status with respect to the “Initial Determination” subject to appeal. Neither may the appeal right be assigned to the insurer. 42 CFR §405.912.


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Categories: General Litigation | Medicare

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