There’s now word that the Centers for Medicare & Medicaid Services (CMS) will issue a Notice of Proposed Rulemaking as soon as September 2013 on addressing future medical costs in liability cases. The U.S. Department of Health & Human Services (HHS) has issued an agenda item indicating that is the earliest that CMS could proceed with issuing parameters for funding Medicare beneficiaries’ future medical expenses in liability claims.

The Notice of Proposed Rulemaking is expected to outline how Medicare’s interest should be protected (per the Medicare Secondary Payer Act [42 U.S.C. §1395y(b)(2)]) in cases where future medical care is claimed or effectively released in the settlement, judgment, award, or other payment of damages. While CMS has guidelines in place for the handling of future medical expenses in workers’ compensation cases, until final rules are released in the liability context, there are no similar standards for claims involving self-insureds and automobile, liability, and no fault coverage.
 
CMS began the process of issuing those regulations last year, when it released an Advanced Notice of Proposed Rulemaking (ANPRM) for these claims in June 2012. This agenda item now reveals that CMS intends to take the next step.
 
The upcoming guidelines are expected to pinpoint the circumstances in which a special account needs to be established – or dollars set aside – for Medicare’s funding of future medical treatment stemming from an injury for which a Medicare beneficiary received a settlement or damage award. These accounts are known as Medicare Set Asides (MSAs).
 
The DRI Medicare Secondary Payer Task Force will continue to follow these developments and update the DRI community as the situation unfolds. For more information, please see http://www.dri.org/News/MSP

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Effective today, Medicare has three years to claim reimbursement for its subscribers  medical costs. This statute of limitations is mandated by The Strengthening Medicare and Repaying Taxpayers (or SMART) Act1 which became law early this year. Until now, there had been uncertainty on the timeframe in which Medicare could seek to recoup costs for which another party accepted responsibility (through settlement, judgment, award, or other payment). The United States now has a three year window to file suit in an action to seek repayment, measured from the date of reporting to the Centers for Medicare & Medicaid Services (CMS) as part of the Mandatory Insurer Reporting rules following Section 111 of the Medicare Medicaid SCHIP Extension Act of 2007.2
 
Overall, the SMART Act aims to shorten the Medicare reimbursement timeline and create further clarity concerning the process. But, the law's full impact won't be known until its provisions are implemented over the course of the next 18 months.
 
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We’re halfway through 2013, and while we await government regulations on the parameters for funding future medical treatment in cases involving Medicare beneficiaries, there have been several key court decisions this year on the issue. The upcoming guidelines are expected to pinpoint the circumstances in which a special account needs to be established – or dollars set aside – for Medicare’s funding of future medical treatment stemming from an injury for which a Medicare beneficiary received a settlement or damage award. These accounts are known as Medicare Set Asides (MSAs).

One recent federal court ruling shows the ramifications of settling parties’ failure to agree on the allocation of future medical expenses in liability cases, while another opinion clarifies when Medicare’s recovery right (including the cost of future medical care) ripens. Finally, a third decision highlights the circumstances when an MSA is not warranted.

Early v. Carnival
In February, a federal court in Florida held that the issue of whether an MSA is needed is an essential term of the settlement, to which the parties must agree.[i] The case – Early v. Carnival Corporation – involved injuries a cruise ship passenger allegedly suffered. At mediation, the parties agreed that the defendant would pay an undisclosed sum to the plaintiff, but notably, the parties could not agree on whether a MSA was needed, and asked the Court to determine that issue. The Court declined to do so – holding that settlements must be “mutually agreeable on every essential term,” and that the parties had failed to reach an agreement on the essential term of whether an MSA was needed. Accordingly, the Court found that because the MSA issue was undecided, the parties had failed to reach a settlement.  

In its ruling the Court distinguished this case from others where the parties had asked the Court to enforce a settlement agreement. Here, the parties asked the Court to assist with a critical term of a potential settlement agreement. The Court noted that it could not draft an essential term of the agreement, nor issue an advisory opinion on the matter.

Bottom Line: This case demonstrates how the MSA issue can derail a settlement. Until the Centers for Medicare and Medicaid Services issue protocols for MSAs in liability cases, the best approach is for counsel to discuss this issue and ensure everyone involved is on the same page.

Weinstein v. Sebelius 
In the second case, Weinstein v. Sebelius,[ii] the U.S. District Court for the Eastern District of Pennsylvania found that the plaintiff owed CMS nearly 20 times the amount a court-approved settlement allocated for Medicare’s reimbursement. Medicare had incurred $58,393.57 in healthcare costs for the treatment of plaintiff’s husband, and plaintiff subsequently obtained a medical malpractice settlement in state court linked to her husband’s care. Plaintiff sought to reimburse Medicare $2,922.34, and a state court approved specific language to that effect in the settlement agreement. After CMS issued a demand for the higher amount, a federal court ultimately reviewed Medicare’s claimed lien, and found that the plaintiff did owe Medicare the full amount ($58,393.57) as reimbursement for its funding of her husband’s medical care.

In its ruling, the Court noted that the lower court’s approval of the settlement agreement was not based on the merits of the case. The opinion stated that if a Medicare beneficiary seeks medical expenses as damages in a lawsuit, and the case ultimately settles, the settlement itself establishes the third party’s responsibility for those medical expenses, regardless of whether that party admitted liability.

Bottom Line: When a plaintiff seeks damages which include past and future medical expenses, the initial pleading can trigger Medicare’s broad and general right of recovery for those payments.

Sterrett v. Klebart
The third case, Sterrett v. Klebart,[iii] stems from a state court in Connecticut and establishes that if parties can determine that no settlement proceeds are payable or available for a claimant’s Medicare-covered future medical expenses, then an MSA is not needed. The parties settled a slip-and-fall claim, and in reaching that agreement, determined that the the settlement proceeds did not address future medical expenses otherwise covered by Medicare. The parties then asked the Court to determine that they had – per the Medicare Secondary Payer Act – reasonably considered Medicare’s future interest, although they’d concluded an MSA was not warranted.  

The Court determined that the parties had adequately considered Medicare’s interests as they had properly evaluated the terms of the settlement. The Court held that the settlement proceeds did not represent compensation for Medicare’s future medical costs, but for the plaintiff’s noneconomic damages as well as some “modest allocation for future medical expenses arising out of the possible need for home health aides” which Medicare does not typically cover.

In its opinion, the Court stated that while the plaintiff would incur future medical expenses payable by Medicare post-settlement, the settlement funds did not contain sufficient proceeds to pay for such future medical expenses.

Bottom Line: This case strikes at the heart of MSA analysis: how many dollars out of one undifferentiated sum are really being paid for future medical expenses as compared to all other damage components pled and released, past medical expenses, and expected out-of-pocket medical costs?

Conclusion:
At the Garretson Resolution Group, we urge attorneys to determine a claimant’s Medicare enrollment status as soon as claims are filed. Then as the case progresses, if the claimant is a Medicare beneficiary or likely to become one within 30 months of the settlement date, counsel can evaluate whether Medicare has funded or will need to fund any medical care at issue. This process enables the parties to establish how much, if any, money is needed to reimburse Medicare for past care, and whether any funds exist to fund future care. Overall, attorneys should implement a consistent procedure for handling liability cases involving Medicare beneficiaries, in order to ensure they’re satisfying Medicare’s reimbursement rights. If you have any questions, please contact John Cattie (jcattie@garretsongroup.com) at (704) 559-4300.

__ 

[i]Early v. Carnival Corporation, 2013 WL 462580 (S.D. Fla. February 7, 2013).
[ii] Weinstein v. Sebelius, 2013 WL 1187052 (E.D. Pa. February 13, 2013). See also 42 Pa. C.S. §§8301, 8302.
[iii] Sterrett v. Klebart, 2013 Conn.Super. LEXIS 245 (filed February 5, 2013)(unreported).

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Recently, the U.S. District Court for the Western District of Louisiana issued the Benoit v. Neustrom opinion. 2013 U.S. Dist. LEXIS 55971 (decided April 17, 2013). Here, the parties sought approval that CMS' future interest could be fully satisfied by funding an MSA for less than full value of the Claimant's future medicals. The parties agreed to resolve a liability claim for a gross amount of $100,000. Defendant had an MSA allocation prepared, which concluded that the Claimant would be expected to incur between $277,758.62 to $333,267.02 in future injury-related care otherwise covered by Medicare. Additionally, Medicare had made conditional payments on the Claimant’s behalf totaling $2,777.88. 

The Court, having previous experience addressing MSA related questions, looked to the 11th Circuit decision in Bradley v. Sebelius for guidance. 621 F.3d 1330 (11th Cir. 2010).  Bradley was an allocation case under the MSP with respect to conditional payments, holding that CMS must respect a judicial allocation based on the merits of the case. Applying the logic that CMS’ recovery can be fully satisfied by identifying that portion of an award which is intended to compensate a Claimant for medical expenses (past and future), the Court agreed with the parties in that an MSA did not need to be fully funded to satisfy Medicare’s interest.  It did, however, disagree with respect to the dollar amount of the MSA. 

Instead of following a strict pro rata approach advocated by the Claimant, the Court instead calculated a ratio of the net settlement proceeds (after costs of procurement and conditional payments by CMS had been subtracted from the gross award of $100,000) against the mean MSA figure. That ratio of 18.2% was then applied to the net proceeds, leading the Court to conclude that an MSA totaling $10,138 would be an appropriate amount with which to satisfy Medicare’s future interest.

This case is yet another example in 2013 (building on recent cases such as Early and Sterrett) depicting that MSA issues cannot be ignored simply because the claim being resolved is a liability claim instead of a workers’ compensation claim.  While the issue must be addressed, the opinions also display that a more sophisticated methodology must be applied which takes into account the inherent differences between liability and workers’ compensation claims.  As such, MSAs in the liability context should rarely be funded for the full value of a claimant’s overall future costs of care otherwise covered by Medicare (as the claimant did not recovery 100 cents on the dollar for such damages).  In applying the allocation logic previously utilized in Bradley for conditional payments, the Court has provided a reasonable and logical path for parties to follow in the short term, with CMS anticipated to provide guidance in 2013 in the form of a Notice of Proposed Rulemaking.  

The DRI MSP Task Force will continue to follow these developments and provide you with practical means for incorporating this guidance into your practice.
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On March 20 the U.S. Supreme Court held that the anti-lien provision of the federal Medicaid Act preempts a state’s right to take any portion of a Medicaid beneficiary’s tort judgment or settlement not designated as payment for medical care.  The Court’s ruling in Wos v. E.M.A., effectively blocks North Carolina’s efforts to recover up to one-third of any damages a Medicaid beneficiary recovers from a third party, as reimbursement for the state’s Medicaid coverage of the beneficiary’s medical treatment. Wos v. E.M.A., U.S. Supreme Court No. 12-98, issued March 20, 2013 (Slip Opinion).

The case involves a child — E.M.A. — who was born with serious birth defects which will prevent her from being able to work or live independently.  North Carolina’s Medicaid program funds part of E.M.A.’s medical care. E.M.A.’s parents settled a medical malpractice lawsuit related to her birth for $2.8 million dollars, even though expert witnesses estimated that total damages in the case exceeded $42 million dollars.  The amount of the final settlement was determined in part by the treating physician and hospital’s insurance policy limits.

Notably, the settlement agreement itself did not specify whether portions of the $2.8 million proceeds were allocated for medical or non-medical damages. The trial court approved the settlement, but placed one-third of the recovery into escrow pending a determination of how much E.M.A.’s parents were required to reimburse North Carolina’s Medicaid program for the cost of her treatment, under state law. The state had informed E.M.A.’s parents that it had spent $1.9 million on E.M.A.’s medical care, and that it would seek to recover that amount, up to one-third of the total recovery of any settlement or judgment of the malpractice claim, in accordance with state law.

E.M.A. and her parents then brought suit in federal court, claiming that the state’s law pertaining to its reimbursement rights violated the federal Medicaid statute.
In today’s decision, the Supreme Court ruled that North Carolina’s law is preempted to the extent that it permits the state to “take a portion of a Medicaid beneficiary’s tort judgment or settlement not designated for medical care.”  Wos at 2. The Court held that North Carolina’s law directly conflicts with the federal statute and “must give way.” Id.

The Court’s opinion states that North Carolina’s law was preempted because the state law lacks any limiting principle, and provides no mechanism for determining whether its allocation of up to one-third of the total recovery is reasonable. Id.

Justice Kennedy delivered the Court’s opinion.

Stay tuned for more detailed updates on how this decision affects the interplay between the federal Medicaid statute and state Medicaid programs.

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A recent state court opinion from Connecticut highlights the critical importance of future medical allocation under the MSP Act. If settling parties are able to determine that no settlement proceeds are payable for a claimant’s Medicare-covered future medical expenses, then the parties do not need to fund an MSA in order to comply with the MSP Act.  The resulting opinion underscores the importance of addressing the future medical expense issue proactively, before mediation, while focusing on whether any dollars could be said to be payable or “allocated” to future medical expenses.  


On February 5, 2013, the Connecticut Superior Court, Judicial District of Litchfield, granted the settling parties’ motion to determine that the parties have reasonably considered Medicare’s interests as required by the Medicare Secondary Payer (“MSP”) Act1.   In Sterrett v. Klebart2,   the settling parties had concluded that they had reasonably considered Medicare’s future interest and that a liability Medicare Set-aside Arrangement (“LMSA”) was not needed as part of settling the liability claim. The Court, after reviewing the evidence presented, agreed that the parties had reasonably considered Medicare’s future interest in concluded that no settlement proceeds had been “allocated” for future medical expenses otherwise covered by Medicare within the gross award.

Facts.
Plaintiff Clifford Sterrett (the “Plaintiff”) was allegedly injured when he fell down the stairs at the home of the defendants.  Defendants denied responsibility, citing certain special defenses as well as asserting the Plaintiff was contributorily negligent as a result of alcohol consumption.  The parties settled the claim at mediation, and the mediator signed off on a letter containing the elements of the settlement agreement, including a review of the factors that led to the gross award of $550,000, on December 3, 2012.  The parties submitted a joint motion, filed on January 29, 2013, seeking the Court’s approval that the parties had reasonably considered Medicare’s interests as required by the MSP Act.

Analysis.
The Court begins by providing a succinct recitation of the statutory language of the MSP Act. Then, the Court describes how the parties determined that the settlement proceeds did not address future medical expenses otherwise covered by Medicare.  The Court noted that the gross award of $550,000 represented a significant compromise over any potential verdict range, if this matter had proceeding to trial.  
In reaching its conclusion, the Court specifically states that it (as well as the parties themselves) understands that the Plaintiff would incur future medical expenses payable by Medicare post-settlement.  However, the funds payable to the Plaintiff did not contain sufficient proceeds to pay for such future medical expenses.  Instead, the proceeds represented noneconomic damages sustained by the Plaintiff as well as some “modest allocation for future medical expenses arising out of the possible need for home health aides” though such costs are not typically covered by Medicare.  The Court concluded that an LMSA was not required under these case specific facts and that the parties had reasonably considered Medicare’s future interest.  

Takeaway.
This case strikes at the heart of MSA analysis: how many dollars out of one undifferentiated sum is really being paid for future medical expenses as compared to all other damage components pled and released?  Historically, this issue creates great difficulty for parties3  and has been a source of much discussion over the past 12 months or so.  This should become much less opaque after CMS issues guidance about liability settlements and future medical expenses under the MSP Act.  That guidance is expected to be released later this year.  Until then, the best approach is to proactively address the issue, and evidence exactly how you have arrived at your conclusion on the future medicals issue.  That approach, coupled with the Court’s conclusion in Guidry v. Chevron4, highlights the importance of utilizing a formalized approach to MSP compliance.  When addressing future medicals issues under the MSP Act, a formalized approach will yield complaint results every time.    

Having a formalized settlement process that integrates these core concepts will achieve efficiencies and enhance the effectiveness of settlement programs.  Such a formalized settlement process should take into account the timing and coordination issues which may hinder successful LMSA analysis.  Thus, screening a case up front to verify entitlement and identifying a claimant as an MSA candidate early on is the proper launching point for any LMSA analysis.  As parties move towards resolution and identify the prospective gross award, they can then determine (consistent with CMS’s basic rules issued in the workers’ compensation settling) if a future medical allocation exists within the gross award, either in the form of a specific carve out or implicitly contained within the one undifferentiated lump sum.  

The DRI MSP Task Force continues to track relevant judicial opinions and guidance from CMS in order to ensure compliance for you and your clients.  Members of the MSP Task Force have experience in addressing these nuanced issues, and would be happy to guide you through them should you need assistance.  For more information, please see our website at http://www.dri.org/News/MSP. 

We continue to stress the importance of utilizing a formalized approach in addressing the LMSA issue on every single claim, as that process will, in and of itself, ensuring compliance on the LMSA issue.  

[1] 42 U.S.C. §1395y(b)(2).

[2] Sterrett v. Klebart, 2013 Conn.Super. LEXIS 245 (filed February 5, 2013).

[3] Zinman v. Shalala, 67 F.3d 841, 846 (9th Cir. 1995) (where the Court foresaw this inherent problem in liability settlements under the MSP Act).

[4] Guidry, et al. v. Chevron USA, Inc., Civ. No. 6:10-cv-00868, 2011 U.S. Dist. LEXIS 148942 (W.D. La. December 28, 2011).  

 

 

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Plaintiff Susan Early was allegedly injured while a passenger on one of Carnival Corporation’s ships.  A claim was initiated, then (apparently) resolved.  The mediator in the matter filed his report on November 21, 2012.  That report stated that the parties had settled subject to the condition that the Court retain jurisdiction to enforce the terms of the settlement and determine the issue of a possible LMSA if one were needed.  Early motioned the Court for Determination of Whether a Medicare Set Aside is Required.  The terms of the settlement negotiations were:

1) Carnival will pay Early an undisclosed sum;
2) Each party will pay its own attorney’s fees and costs;
3) Early will execute a release for Carnival;
4) Carnival will be responsible for the mediator’s fees; and 
5) The parties DISAGREE on whether an LMSA was required, but agree to submit the issue to the Court and to abide by its determination.

Early’s motion argued that an LMSA was not required under the Medicare Secondary Payer (“MSP”) Act.   Carnival filed its response, urging the Court to conclude that an LMSA was required.

Analysis.
The Court begins by providing a succinct recitation of the MSP Act. Then, the Court describes how MSA analysis has emerged as means to address the future medicals issue.   After detailing what actually constitutes a settlement in Florida, the Court turns to the question of whether the parties have an agreement to settle the claim.  
The Court concludes that the parties agreed on four out of five essential terms.  The term the parties could not agree upon was the LMSA issue, and asked the Court to fill in the blank on their behalf.  The Court declined the opportunity to do so.  
The Court distinguished this fact pattern from two others which appear routinely in other opinions addressing LMSA issues: 1) cases where the parties have a settlement agreement and agree that an LMSA is required, but cannot obtain review and approval of the LMSA from the Centers for Medicare & Medicaid Services (“CMS”); and 2) cases where the parties have a settlement agreement but disagree as to whether those terms included the creation of an MSA.  Here, the parties did not ask the Court to enforce a settlement agreement; they asked the Court to assist with a critical term of a potential settlement agreement.  While the Court noted the “conscientious and diligent” efforts of counsel to uncover the issue, it was not within the Court’s dominion to gap fill with respect to this essential term of the potential settlement agreement.  

Takeaway.
This case is another example of the LMSA issue derailing what is (otherwise) a perfectly acceptable settlement agreement.  These issues should become much less obtrusive after CMS issues final guidance about liability settlements and future medical expenses under the MSP Act.  That guidance is expected to be released later this year.  Until then, the best approach is to proactively address the issue, and evidence exactly how you have arrived at your conclusion on the future medicals issue.  That approach, coupled with the Court’s conclusion in Guidry v. Chevron , highlights the importance of utilizing a formalized approach to MSP compliance.  When addressing future medicals issues under the MSP Act, a formalized approach will yield complaint results every time.    
Having a formalized settlement process that integrates these core concepts will achieve efficiencies and enhance the effectiveness of settlement programs while ensuring closure on the file.  Such a formalized settlement process should take into account the timing and coordination issues which may hinder successful LMSA analysis.  Thus, screening a case up front to verify entitlement and identifying a claimant as an MSA candidate early on is the proper launching point for any LMSA analysis.  As parties move towards resolution and identify the prospective gross award, they can then determine (consistent with CMS’s basic rules issued in the workers’ compensation settling) if a future medical allocation exists within the gross award, either in the form of a specific carve out or implicitly contained within the one undifferentiated lump sum.  

The DRI MSP Task Force continues to track relevant judicial opinions and guidance from CMS in order to ensure compliance for you and your clients.  We continue to stress the importance of utilizing a formalized approach in addressing the LMSA issue on every single claim, as that process will, in and of itself, ensuring compliance on the LMSA issue. 

[1] Early v. Carnival Corporation, No. 12-20478-CIV-Goodman (S.D. Fla. February 7, 2013).

[2] 42 U.S.C. §1395y(b)(2).

[3] The Court cites to a recent article published by the American Bar Association which was co-authored by John V. Cattie, Jr., DRI MSP Task Force Vice Chair.  See also Medicare Set-Aside Arrangements Under the Medicare Secondary Payer Act, 42 The Brief, n. 10, Fall 2012.

 

[4] Guidry, et al. v. Chevron USA, Inc., Civ. No. 6:10-cv-00868, 2011 U.S. Dist. LEXIS 148942 (W.D. La. December 28, 2011).  

 

 

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On June 28, 2012, the Third Circuit became the first Federal court of appeals to address the secondary payer rights of Medicare Advantage Organizations (also known as Medicare Part C plans).  In In re Avandia Marketing, Sales Practices and Products Liability Litigation, the court held that the Medicare Secondary Payer Act (“MSP”) provides Medicare Advantage Organizations (“MAOs”) with a private cause action to seek recovery against a primary payer (such as a liability insurer or self-insured defendant in a personal injury matter) in Federal court.  In coming to this conclusion the court relies on i) the broad language of the MSP Act as applied to private causes of action, ii) the policy and purpose behind the Federal Medicare Advantage (“MA”) program, and iii) the regulations promulgated by the Centers for Medicare and Medicaid Services (“CMS”). 

This case marks a departure from federal district court decisions[1] which have denied MAOs (and Medicare-substitute health maintenance organizations) a federal independent right to sue primary payers, and in some cases, indicated that MAOs should seek potential remedies in state court based on a contractual claim and/or conflict preemption principles.  While this case did not reach the issue of whether the defendant/primary payer was liable to the MAO nor did it address the level of disclosure (e.g., specificity of notice to defendants) required by the MAOs to identify a primary payer, the court’s decision will alter the framework by which parties settle cases involving Medicare-enrolled beneficiaries.  Specifically, as parties engage in settlement negotiations in nationwide litigations, the lien resolution process for participating claimants will likely evolve to include both conditional payments made by CMS as well as a private insurer acting as a provider of a MAO.   For those settling parties, however, who have in place for their settlements a proactive process to verify and resolve appropriate healthcare reimbursement claims, the court’s decision should not be disruptive. 

 
In re Avandia Marketing, Sales Practices and Products Liability Litigation, No. 11-2664, decided June 28, 2012, the Third Circuit Court of Appeals reversed a district court decision (Eastern District of Pennsylvania)[2], which dismissed the claim of Humana Insurance Company (“Humana”) and other similarly situated providers of MAOs against GlaxoSmithKline, LLC and GlaxoSmithKline plc (collectively, “GSK”) for reimbursement of medical expenses incurred as a result of ingestion of GSK’s drug, Avandia.  The Third Circuit also remanded the case for further proceedings consistent with its opinion.  This ruling is based on the reading of a statutory private cause of action for MAOs under 42 U.S.C. § 1395y(b)(3)(A), which is supported by both the analysis of the MA Program’s legislative purpose of and CMS’ interpretation evidenced in 42 C.F.R. § 422.108.  The court was able to distinguish Humana’s claim from prior, conflicting federal decisions and ultimately found that Congress did not intend to deny MAOs the same right as traditional, fee for service Medicare Parts A and B (“Medicare”) and therefore, the court concluded MAOs have a private cause of action under the MSP to assert claims against a primary payer.
 
The District Court Decision
Humana filed its complaint based on the claim that under the MSP it was granted secondary payer rights and thus it was entitled to reimbursement for covered expenses it paid related to Claimants in the Avandia MDL action.  Humana also sought equitable relief in the form of an order compelling GSK to identify settling Avandia claimants to MAOs who may have covered them.  In dismissing the complaint, the district court determined that:  (1) Medicare’s private right of action set forth in 42 U.S.C. § 1395y(b)(3)(A) does not apply to MA Plans; (2) the secondary payer provisions of the Medicare Advantage program, (found in 42 U.S.C. § 1395w-22(a)(4)), did not create a private cause of action (either express or implied); (3) the MA statute’s silence on the existence of a private cause of action for MAOs was not ambiguous, but rather indicative of Congressional intent to not create a private cause of action for MAOs; and (4) absent any such ambiguity there was no need to defer to a CMS regulation that granted MAOs parity with Medicare.  Finally, the district court denied Humana’s request for equitable relief to order GSK to disclose information about settlements that Humana’s enrollees entered into with GSK, holding that Humana, not GSK, had access to information about which Avandia claimants were enrolled in Humana plans and could act accordingly to remind its enrollees of their obligations to disclose any settlement they might reach with GSK.[3]
 
The Third Circuit’s Decision
The Third Circuit utilizes a three part analysis in reaching its conclusion that the plain text of the MSP is broad and unrestricted, and therefore, allows any private plaintiff with standing, including MAOs, to bring a cause of action against primary payers. 
 
The first and most pivotal part of this analysis focuses on the Medicare statute itself.  The court begins its discussion with the sections pertaining to MAOs[4] and gives particular emphasis to the secondary payer provision found at 42 U.S.C. § 1395w-22(a)(4).  Unlike the district court which declined to find any express or implied reference to Medicare’s rights, the Third Circuit states that § 1395w-22(a)(4) cross references § 1395y(b)(2)’s definition of primary payer and its positioning of Medicare as a secondary payer.  After making this connection the court turns its attention to Medicare’s rights under § 1395y(b)(3)(A)[5] and emphasizes that this section does not designate what entity may bring such an action, supporting Humana’s position that any private party may bring suit when that party is a secondary payer seeking recourse from a primary payer.  The court concludes that no viable arguments have been presented to sway its broad interpretation and it dismisses any narrow interpretations regarding reference to “subchapter”[6] or the permissive term “may”[7].  Before moving on to the second part of its analysis the court distinguishes this case from other recent federal cases[8] by stating that none of those cases had addressed the issue at hand - a claim brought under 42 U.S.C. § 1395y(b)(3)(A) (the MSP private cause of action).
 
The second part of the court’s analysis has a more practical thrust and examines the legislative history and policy goals of the MA program.  The court states that denying MA plans a private right of action is tantamount to putting MA plans at competitive disadvantage in their effort to provide an appealing alternative to traditional, fee for service Medicare (Parts A & B) for Medicare entitled individuals.  As such, the court posits this denial of a private cause of action would hinder MAOs from providing benefits to its enrollees and would run counter to Congress’ stated goal to utilize the private sector to create more efficient and less expensive healthcare options for Medicare entitled individuals.  The court closes this second part with an examination of the cost savings impact on the Medicare system as a whole and concludes that the Medicare Trust Fund will achieve cost savings if MAOs spend less on coverage as a result of their ability to recover from primary payers.  In a footnote that is sure to get some attention, the court notes that its decision will unquestionably result in cost savings for the Medicare Trust Fund because its holding on the meaning of the private cause of action under the MSP statute will apply equally to private entities that provide prescription drug benefits pursuant to Medicare Part D, citing Medicare Part D’s secondary payer provisions under 42 U.S.C. §1395w-115(e).
 
The final part of the court’s analysis addresses whether regulations that CMS has promulgated to interpret the MSP statute should be accorded deference if the private cause of action provisions are determined to be ambiguous when applied to MAOs.  The court frames this issue of deference owed to a federal administrative agency’s regulation by applying the Chevron standard.[9]  Chevron provides a two-step test in determining whether a federal agency’s statutory interpretation is granted a broad amount of deference.  Step one assesses whether Congress, in enacting legislation, has spoken unambiguously about an issue within the statute itself.  If Congress did not speak unambiguously, then step two asks whether the federal administrative agency’s statutory interpretation enacted in a regulation is reasonable.  The court cites to 42 C.F.R. § 422.108[10] and CMS’ memo of December 5, 2011,[11] in support of its conclusion that CMS’s interpretation of the MSP statute is reasonable, and thus finds deference is warranted should an ambiguity be found regarding the MSP’s private cause of action applying to MAOs.
 
In sum, the Third Circuit held that MAOs have an equal and parallel private right of action (as traditional fee for services Medicare) to sue primary payers where those payers fail to provide for payment or appropriate reimbursement to MAOs.  The Third Circuit was not asked to, and did not reach the question of whether GSK was liable to Humana, only that the private cause of action remedy applied to MAOs, including Humana.  Instead, the Third Circuit reversed the district court’s dismissal of Humana’s complaint and remanded the case back to the district court for further proceedings.  How the district court resolves the matter and whether any relief is afforded Humana is still an unknown.
 
The Take Aways
While the debate regarding the rights of MAOs may continue in other federal appellate jurisdictions (and perhaps even in the Third Circuit), the impact of this decision will likely be felt immediately and nationwide.  Over the past few years, the general issue of Medicare compliance has been a hotly debated topic.  Going forward, all parties who settle liability claims will likely implement procedures to identify which settling claimants are enrollees of Medicare Part C plans (MAOs) (and hence, the defendant is in those instances, in effect, would be a primary payer within the meaning of the MAO and MSP statutes).[12] 
 
The remaining issues focus on the mechanics of applying the In re Avandia decision.  CMS’ regulations (42 C.F.R. §422.108(b) mandate that MAOs, must for each MA plan, (a) identify payers that are primary to Medicare (b) identify the amounts payable by those payers and (c) coordinate benefits.  So the questions that remain include:

  1. Does “omnibus” notice given to the defendant (that lacks claimant level detail) “perfect” a MAO’s interest such that the primary payer (defendant) must then protect the MAO’s interests as part of the coordination of benefits paid by the MAO to its enrollees who settle claims with the defendant?
  2. What will come, if anything, of the Medicare Part D comment on remand?

The DRI MSP Task Force will continue to monitor this evolving situation, and provide updates to DRI members as warranted.  DRI members can always access our webpage at http://www.dri.org/News/MSP for additional information.

 


[1] Care Choices HMO v. Engstrom, 330 F.3d 786 (6th Cir. 2003); Nott v. Aetna U.S. Healthcare Inc., 303 F.Supp. 2d 565 (E.D. Pa. 2004); Parra v. PacfiCare of Arizona, Inc., 2011 WL 1119736, (D.Ariz. Mar 28, 2011).
[2] In Re Avandia Mktg., Sales Practices, and Prod. Liability Litig., 2011 WL 2413488 (E.D. Pa. June 13, 2011).

[3] Interestingly, the Third Circuit notes in its Footnote 5 that Humana did not appeal the District Court’s dismissal of its claim to obtain the claimant listings as part of its equitable relief. 

[4] 42 U.S.C. § 1395w-21 to -29.

[5] “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).”

[6] Some lawyers, including members of the DRI MSP Task Force, have maintained that this term as used in § 1395y(b)(2)(A) referred to payments made by Medicare and excluded payments made by MA plans.  The court rejects this narrow interpretation and states that the term refers to the Medicare Act as a whole.

[7] Some lawyers, including members of the DRI MSP Task Force, have  maintained that this term as used in § 1395w-22(a)(4) indicates that a MA plan’s right is permissive and based on a contractual theory of recovery (state based) rather than a federal right.  The court does not reject the contractual interpretation, but points out that Humana is proceeding under the MSP private cause of action, not a right based in § 1395w-22(a)(4).  The court does, however, reject the argument that the fact Congress uses permissive language to establish rules for private, market-driven entities and mandatory language when creating rules for the Secretary (of HHS), a federal official over which Congress exercises control, has any impact on the proper interpretation of the MSP private cause of action. 

[8] See footnote 1, supra

[9]Chevron U.S.A. Inc. v. National Resources Defense Council, Inc., 467 U.S. 837 (1984).

[10] “The MA organization will exercise the same rights to recover from a primary plan, entity, or individual that the Secretary exercises under the MSP regulations in subparts B through D of part 411 of this chapter.”

[11] Ctrs. For Medicare & Medicaid Svcs., Dep’t of Health and Human Svcs. Memorandum: Medicare Secondary Payment Subrogation Rights (Dec. 5, 2011).

[12] The “state of the art” for mass tort settlement programs includes the utilization of a Lien Resolution Administrator to identify, verify and resolve statutory liens and reimbursement claims of governmental health plans.  At the direction and agreement of the settling parties the role of Lien Resolution Administrator can be expanded to include the identification of participating claimants as MAO enrollees through a variety of proven procedures, including:  (1) participation in a voluntary MAO lien resolution program;(2) following the procedures and protocols established by a neutral third party (at the direction of the parties) as Lien Resolution Administrator; and/or (3) through the claimant on his or her own initiative.



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Medicare expands resolution options to include a new Medicare repayment program for small settlements or judgments. This program will be available starting in February 2012 and applies to cases settling for $25,000 or less.  Under this program, Medicare will provide final conditional payment amounts before settlement under certain circumstances.  This program has the potential to revolutionize the settlement process for many Medicare beneficiaries, their counsel, and settling parties.  The foundation of that process is to start the verification process early.  

Recently, the Centers for Medicare and Medicaid Services (“Medicare”) released guidance (the “Alert”) relevant to conditional payment reimbursement under the Medicare Secondary Payer (“MSP”) Act (42 U.S.C. §1395y(b)(2)).  This guidance permits certain Medicare beneficiaries to receive a final conditional payment amount from Medicare prior to date of settlement.  Historically, Medicare’s conditional payment reimbursement process has not allowed a Medicare beneficiary or settling parties from obtaining such information from Medicare or its recovery contractors.
 
Under this small settlement option, for a Medicare beneficiary to obtain a final conditional payment amount prior to settlement, the fact pattern must meet all of the following criteria:

  1. The liability insurance (including self-insurance) settlement will be for a physical trauma based injury (the settlement does not relate to ingestion, exposure, or medical implant);
  2. The total liability settlement, judgment, award, or other payment will be $25,000 or less;
  3. The Date of Incident occurred at least six months before the beneficiary or representative submits the proposed conditional payment amount to Medicare; and
  4. The beneficiary demonstrates that treatment has been completed and no further treatment is expected either through a written physician attestation or by certifying in writing that no medical treatment related to the case has occurred for at least 90 days prior to submitting the proposed conditional payment amount to Medicare.

If the case meets all of these qualifying criteria, then Medicare, through its recovery contractor, the Medicare Secondary Payer Recovery Contractor (“MSPRC”), will provide a final conditional payment amount prior to settlement.  This final conditional payment amount provided by the MSPRC will only be valid if the Medicare beneficiary settles a claim within sixty (60) days of the date of Medicare’s response.  According to MSPRC, this option will be available to Medicare beneficiaries starting in February 2012, and will effectively allow Medicare’s related claims to be identified pre-settlement.  While the process has not been fully defined, it is likely that once settlement is finalized, the process of requesting a final demand amount from Medicare (by providing gross settlement amount, fees, costs and expenses) will remain the same, regardless of whether this small settlement resolution program has been utilized.

Starting the Medicare repayment process early provides the best opportunity to comply with all Medicare Secondary Payer obligations while expediting the case.  Medicare’s 2012 small settlement resolution program reinforces the need to START EARLY!  To take advantage of this program in a $25,000 or less case means needing to know if an individual is Medicare enrolled, and if so, how much in medical expenses has Medicare paid conditionally.  Having a formalized settlement process that integrates these core concepts will achieve efficiencies and enhance the effectiveness in settlement proceedings.  Such a formalized settlement process should include an analysis of the applicability of this small settlement resolution program.  Thus, screening a case/claim up front to verify entitlement, establishing a tort recovery record with Medicare early in the process and obtaining the first conditional payment letter from Medicare (all as part of a formalized settlement process) and resolution path is the proper path to take advantage of this small settlement resolution program.  Although Medicare currently does not intend to include exposure, ingestion or implantation cases in this program, the Alert identifies that this will be a work in progress.  As a result, if this program creates the intended results that benefit the settling parties, taxpayers and the Medicare program, an extension of this program in 2013 may not be out of the question. 

Medicare intends to issue additional guidance on how to participate in this program in January 2012.  The DRI MSP Task Force will provide further program details once they have been released.  Until then, we continue to stress the importance of verifying Medicare enrollment as early in the settlement process as possible, as that information will better define the scope of the settlement continuum; from reimbursement to reporting to potential future cost of care issues.

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The Centers for Medicare and Medicaid Services (“CMS”) posted an alert (the “Alert”) that confirms that there has been an extension, in certain cases, of the reporting trigger date for Mandatory Insurer Reporting (“MIR”) under Section 111 of the MMSEA.  The Alert provides the new trigger dates based on gross settlement/judgment/other payment (“TPOC”)  values for claims as follows:

The implementation timeline for reporting will be based on the TPOC amount.  Below is a schedule of the new dates.

For TPOCs between $5,000 and $25,000 – the trigger date is Oct. 1, 2012 (with MIR starting the First Quarter, 2013);

For TPOCs between $25,001 and $50,000 – the trigger date is July 1, 2012 (with MIR starting the Fourth Quarter, 2012);

For TPOCs between $50,001 and $100,000 – the trigger date is April 1, 2012 (with MIR starting the Third Quarter, 2012); and

For TPOCs of $100,001 and above – the trigger date remains the same – Oct 1, 2011 (with MIR starting the First Quarter, 2012).

Below are examples of how these provisions will work: 

Example 1: If you settle a TPOC for $15,000 next week, you are not required to report that claim.  You may voluntarily report, but mandatory reporting (and the penalties associated therewith) would not apply until you settled that $15,000 claim on or after October 1, 2012.

Example 2: If you settle a $115,000 TPOC on or after October 1, 2011, mandatory reporting occurs no later than the submission window assigned during the first quarter of 2012.  The chart (in the Alert) is intended to let you know when a failure to report would trigger penalties. Penalties, therefore, could be levied if the RRE settles a TPOC of $100,000 or more, on or after October 1, 2011, and the RRE does not report under Section 111 during the reporting period in the first quarter of 2012.

The DRI Medicare Secondary Payer Task Force will continue to follow these issues and provide guidance to the DRI Community as new Alerts are posted.

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