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. 

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.  

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:

The Supreme Court of the United States is meeting today to decide which cert. petitions will be granted for the new term, which formally begins next Monday.  One of the petitions distributed for review at the conference will be that from Hadden v. United States, in which DRI – The Voice of the Defense Bar filed an amicus curiae brief in support of cert.  The issue in the case is whether, under the Medicare Secondary Payer Act, the government is entitled to full reimbursement of its Medicare payments when a beneficiary compromises a tort claim and recovers a reduced amount for medical expenses, or whether the government (like its beneficiary) is entitled to only a proportionate recovery from the settlement.  The petition is listed on the scotusblog.com (a blog devoted to coverage of the Supreme Court) as one of the “Petitions to Watch” at this conference.  Today, at about 9:30 a.m. eastern, the court is expected to release its list of the petitions granted in today’s conference.

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 (6^th 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.

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.

CMS Announcements on Fixed Percentage Option for Settlements of $5,000 or less, $300 Threshold Limit for Reimbursement, and Identification of Contractor for Medicare Secondary Payer Recovery

The long awaited revision to the Non-Group Health Plan User Guide is finally available.  CMS Issued Version 3.2 of the NGHP User Guide on August 17, 2011.  It can be found on the CMS website. To find it, scroll down to the Downloads section.

The recently-released opinion in Wilson v. State Farm Mutual Automobile Insurance Company (U.S. Dist. Ct. W. Kentucky, 3:10-CV-256-H) suggests the courts are finally starting to appreciate the frustrations of the MSP recovery process and the additional risks IT imposes on settling insurers and self-insureds.  Wilson v. State Farm involved a bad faith claim filed by an insured who had grown frustrated while waiting to receive the recovery Demand Letter from the MSPRC, and wanted to force the insurer to pay the full amount of the uninsured motorist settlement into an escrow account immediately.   Interestingly, two months after the plaintiff filed his bad faith suit, the recovery Demand Letter arrived from the MSPRC and the very next day State Farm issued separate checks payable to Medicare, with the remainder to the plaintiff.  However, by that time both the plaintiff and State Farm had filed Motions for Summary Judgment in the bad faith action, each asking the Court to rule in their favor as a matter of law. 

The federal district court judge ruled that State Farm did not act in bad faith by delaying payment of the uninsured motorist policy proceeds until the amount of Medicare’s final recovery demand was clear.  In considering whether State Farm’s actions in delaying payment were reasonable, the Court looked to the MSP statutes and recognized that insurers have additional exposure to Medicare if full reimbursement is not made.  The Court stated:

It appears that Plaintiff has the primary responsibility to repay Medicare. 42 C.F.R. §411.24(h). However, State Farm is absolutely liable to Medicare should Plaintiff not satisfy the Medicare lien from his settlement funds.42 C.F.R. § 411.24(i)(1) (stating “If Medicare is not reimbursed ..., the primary payer must reimburse Medicare even though it has already reimbursed the beneficiary or other party.”).  Moreover, State Farm may have an obligation to protect Medicare’s lien under the Medicare Secondary Payer Act and its corresponding regulations. See 42 U.S.C. §1395y (b)(2) and 42 CFR § 411.24(i)(1). For State Farm to consider these obligations seems responsible. 

Wilson v. State Farm at p.3-4.  The Court concluded the insurer had “sound reasons” to wait for Medicare to determine the amount of its recovery demand, and was taking “reasonable precautions to protect itself from overpayment.”  Id.   The plaintiff in Wilson had argued the insurer acted “in pure self interest and that such overriding self interest coupled with the delayed settlement payment could constitute bad faith.”  The Court, however, rejected this argument finding as follows: 

The Court concludes that to comply with federal law and to protect its own legitimate interest against overpayment is reasonable and certainly is not in bad faith.   Defendant did not delay payment in order to pay less or harass Plaintiff.   [Nor was there any evidence the insurer was delaying] to “extort a more favorable settlement or to deceive the insured with respect to the applicable coverage.”  (citation omitted). While it may serve Defendant’s self interest to comply with federal law, such action was not bad faith, especially when Plaintiff apparently refused to cooperate with Defendant’s attempts to pay the claim more quickly. These undisputed facts cannot constitute bad faith on State Farm’s part.

Wilson v. State Farm  at p. 4-5.  Wilson v. State Farm makes clear that although Medicare’s current recovery process may be slow and frustrating, it is not bad faith for an insurer to comply with federal MSP law and protect itself against the risk of excess exposure by waiting for the MSPRC recovery Demand Letter to arrive so that the proper amount can be repaid promptly to Medicare, and the remainder can be paid promptly to the claimant.

Many insurers and self-insureds are asking how to manage the repercussions of CMS’ decision to temporarily suspend issuing “Rights and Responsibilities” (RAR) letters and recovery Demand Letters.  Here are some suggestions while we all await further guidance from CMS and its contractors:
 
The suspension is temporary—presumably just long enough to allow CMS to re-write the standard letters to comply with the opinion released on May 5th in the Arizona case of Haro v. Sebelius (holding certain of CMS’ recovery practices exceed the authority granted by the MSP statutes, and enjoining CMS from: 1) demanding immediate payment from beneficiaries while the recovery amount is being challenged on appeal or a waiver request is pending; and 2) demanding that plaintiff attorneys withhold liability settlement proceeds from their clients pending payment of disputed MSP reimbursement claims).  Recall that even before the temporary suspension we didn’t really know when the MSPRC letters would arrive.  Delays have been the norm, and not knowing the length of the delay--while frustrating--is something we’ve all learned to manage in our claims handling.  We are aware, anecdotally, that some Demand Recovery Letters are being mailed out despite the suspension, so be watchful.  

The MSPRC is still working cases during the suspension, so although standard recovery letters will be delayed, concerns that the entire system will grind to a halt are exaggerated.

The requirement to protect Medicare’s interests, and the penalties for failing to do so, are in full force and effect despite delays in issuing demand letters, so standard MSP protocol should continue to be followed by claims staff. In other words, standard protocol for identifying Medicare beneficiaries should continue to be followed, as should standard protocol for:  

1. Notifying the COBC of new claims;
2. Obtaining Consent to Release forms (where possible);
3. Requesting (and updating) Conditional Payment Letters;
4. Settlements with Medicare beneficiaries should continue being negotiated, and the agreed-upon process for reimbursing Medicare and protecting Medicare’s interests should be memorialized in the written settlement agreement or release.  While we await further guidance on how the recovery process may be affected by the Haro v. Sebelius decision, consider negotiating a reimbursement procedure which gives the settling insurer/self-insured as much control as possible over payment of Medicare’s recovery demand;
5. When settlement is reached the MSPRC should be notified of the settlement and a Demand Letter should be requested (for separate discussion of §111 reporting under the MMSEA see comment below); and
6. Once the Demand Letter is received from the MSPRC, the insurer/self-insured should see to it the full amount identified is paid to Medicare within 60 days.    
 
Stay tuned, and watch for announcements on www.MSPRC.info advising of any changes to the MSP recovery process, including revisions to the standard recovery letters.  Be aware that changes in the MSP recovery process are possible, and MSP best practices may need to adapt quickly once changes are announced.

Be aware that the temporary suspension of standard recovery letters has no effect whatsoever on §111 Reporting under the MMSEA. If your company has completed testing and has started live reporting (as most have), then quarterly reporting  of settlements, payments and judgments (ORMs and TPOCs) should continue.