The federal Medicare and Medicaid Acts have been called “among the most completely impenetrable texts within human experience.” Rehabilitation Ass’n of Virginia, Inc. v. Kozlowski (4th Cir. 1994) 42 F.3d 1444, 1450. This case considered whether the Medicare Secondary Payer Act (“MSP”) provisions for a private cause of action, with mandatory double damages, permits a Medicare Advantage Organization (“MAO”) to sue a primary payer that refuses to reimburse the MAO for a secondary payment. In a case of first impression in the 11th Circuit, the Court, with one dissenting Justice, agreed with a decision from the 3rd Circuit, and concluded that it did. The 11th Circuit has jurisdiction over federal cases in the states of Alabama, Florida and Georgia. The 3rd Circuit has jurisdiction over federal cases in Delaware, New Jersey, Pennsylvania and the Virgin Islands. While the decision is not binding on federal courts in California, which is in the 9th Circuit, it will be looked to by federal courts here in similar circumstances. The dissenting opinion is an indication that other Circuits may disagree with this conclusion, in which event the matter would be ripe for decision by the U.S. Supreme Court.
In January 2009, Mary Reale, a Humana Medicare Advantage plan enrollee, was injured at Hamptons West Condominiums. Ms. Reale sought medical treatment for her injury, and her medical providers billed Humana. Humana paid $19,155.41. In June 2009, Ms. Reale and her husband sued Hamptons West Condominium Association, Inc. (Hamptons West) in Florida state court for her injury. In March 2010, while the Reales’ suit was pending and in light of a pending settlement between Hamptons West and the Reales, Humana issued to Ms. Reale an Organization Determination in the amount of $19,155.41. The basis for Humana’s reimbursement request was the MSP, under which Medicare payments are secondary and reimbursable if any other insurer—even a tortfeasor’s liability insurer—is liable. See 42 U.S.C. § 1395y(b)(2); see also id. § 1395w-22(a)(4). Although an administrative appeal process was available, no party appealed Humana’s Organization Determination. On April 20, 2010, in return for $115,000 from Hamptons West and its liability insurer, Western, the Reales released Hamptons West and Western. The Reales represented in the settlement agreement there was no Medicare or other lien or right to subrogation. The Reales also agreed to indemnify Hamptons West and Western against any Medicare or other lien or right to subrogation.
Western and Hamptons West attempted to make Humana a payee on the settlement draft to the Reales. The Reales refused and on May 25, 2010 sought sanctions against Hamptons West for violating the settlement agreement. Thereafter, Hamptons West agreed to a stipulated order under which Humana would not be a payee on the check, but the Reales’ attorney would hold $19,155.41 in trust pending resolution of the Reales’ litigation. Hamptons West and Western tendered the $115,000.
On June 4, 2010, the Reales sued Humana in state court seeking a declaration on the amount they owed Humana. Applying Florida law regarding collateral indemnity and subrogation, the trial court held that Humana was entitled to $3,685.03. See Humana Med. Plan, Inc. v. Reale, 180 So.3d 195, 199 (Fla. 3d DCA 2015). Humana appealed, and in December 2015, Florida’s Third District Court of Appeal reversed for lack of jurisdiction. The state court held that the Medicare Act creates an exclusive federal administrative process under which a Medicare Advantage plan enrollee appeals through Centers for Medicare & Medicaid Services (“CMS”) an MAO’s denial of benefits or request for reimbursement. Upon exhaustion of the administrative process, the Medicare Act provides for federal judicial review and expressly preempts state law. Therefore, according to the state court, Florida state courts lacked jurisdiction to adjudicate the dispute between Humana and Ms. Reale regarding her Medicare Advantage plan benefits.
Having failed to secure reimbursement from Ms. Reale, Humana demanded that Western reimburse Humana’s secondary payment. On January 11, 2011, Humana sued Western in the action upon which this appeal proceeded. Humana pled three counts: Count One sought double damages under the MSP private cause of action, 42 U.S.C. § 1395y(b)(3)(A); Count Two sought declaratory relief under the Medicare statutory and regulatory scheme; and Count Three sought damages under several state law theories including unjust enrichment and a contract implied by law. Western moved to dismiss, arguing that the MSP permits no MAO to bring a private cause of action. The district court denied Western’s motion in part, dismissing the state law claims but finding that Humana had adequately pled a question regarding whether the MSP private cause of action is available to an MAO.
On December 29, 2014, Humana moved for summary judgment. On March 16, 2015, the district court granted summary judgment for Humana, finding that the MSP private cause of action was available to an MAO and that Humana was entitled to double damages, $38,310.82. Humana Med. Plan, Inc. v. W. Heritage Ins. Co., 94 F.Supp.3d 1285 (S.D. Fla. 2015). The district court entered judgment for Humana, and Western appealed.
The Appellate Court began its analysis with consideration of the statutory and regulatory background of the MSP. The Court noted that traditional Medicare consists of Parts A and B of the Medicare Act. These are the fee-for-service provisions entitling eligible persons to have CMS directly pay medical providers for their hospital and outpatient care. Part C is the Medicare Advantage program under which Medicare-eligible persons may elect to have an MAO (rather than CMS) provide Medicare benefits. Part D provides for prescription drug coverage, and Part E contains applicable definitions and exclusions. One such exclusion is the MSP.
Frequently, more than one insurer is liable for an individual’s medical costs. For example, a car accident victim may may recover medical expenses from both her health insurer and a tortfeasor’s liability insurer. To address such situations, the MSP allocates liability between Medicare and other insurers, known as “primary plans.” Before 1980, Medicare paid for all medical treatment within its scope and left private insurers merely to pick up whatever expenses remained. In effect, when Medicare and a private insurer were both liable for the same expenses, Medicare satisfied or partially satisfied the private insurer’s obligation. In 1980, to curb the rising costs of Medicare, Congress enacted the MSP, which inverted that system. It made private insurers covering the same treatment the ‘primary’ payers and Medicare the ‘secondary’ payer.” Medicare benefits became an entitlement of last resort, available only if no private insurer was liable.
The MSP, 42 U.S.C. § 1395y(b), is in Part E of the Medicare Act. Under paragraph (2)(B), when the primary plan does not fulfill its duties, the Secretary of Health & Human Services may make a payment conditioned on reimbursement. If the Secretary makes a conditional payment, the primary plan must reimburse the Secretary. Paragraph (2)(B) also establishes and defines a Government cause of action to recover from a primary plan. The remaining portions of paragraph (2)(B) establish the United States’ subrogation rights if a secondary payment occurs, permit the Secretary to waive the conditional payment rules under some circumstances, establish a limitations period, and create a disclosure mechanism to help primary plans determine whether they owe a reimbursement. Paragraph (2)(B) does not mention MAOs and refers almost exclusively to the Secretary, the United States, and the Medicare trust fund.
Paragraph (3)(A) creates a private cause of action. The MSP private cause of action is available to a Medicare beneficiary whose primary plan has not paid Medicare or the beneficiary’s healthcare provider. The Court noted that the Sixth Circuit has held that the MSP private cause of action is also available to a healthcare provider not paid by a primary plan. Mich. Spine & Brain Surgeons, PLLC v. State Farm Mut. Auto. Ins. Co., 758 F.3d 787, 790 (6th Cir. 2014). Although the 11th Circuit had not explicitly addressed the issue, the Court stated that its case law implicitly supported the same holding.
The Court next turned to consideration of the Medicare Advantage program. Part C, also known as the Medicare Advantage program, was enacted in 1997, 17 years after the MSP and 11 years after the MSP private cause of action. “Congress’s goal in creating the Medicare Advantage program was to harness the power of private sector competition to stimulate experimentation and innovation that would ultimately create a more efficient and less expensive Medicare system.” Under the Medicare Advantage program, a private insurance company, operating as an MAO, administers the provision of Medicare benefits under a contract with CMS. CMS pays the MAO a fixed fee per enrollee, and the MAO provides at least the same benefits as an enrollee would receive under traditional Medicare. In 2015, 31% of Medicare-eligible individuals were enrolled in a Medicare Advantage program.
In several cases, an MAO has contended that the MAO “right-to-charge” provision creates an implied federal cause of action for an MAO to recover secondary payments, but courts have rejected this argument. See, e.g., Parra v. PacifiCare of Ariz., Inc., 715 F.3d 1146, 1153, 1154 (9th Cir. 2013) (explaining that the MAO right-to-charge provision “describes when MAO coverage is secondary to other insurance, and permits (but does not require) a[n] MAO to include in its plan provisions allowing recovery against a primary plan…. [It] does not create a federal cause of action in favor of a[n] MAO”).
The Court then considered Humana’s claim in the context of CMS regulations. In this case, Humana contended that an MAO can sue a primary plan under the MSP private cause of action, which is available “in the case of a primary plan which fails to provide for primary payment (or appropriate reimbursement) in accordance with paragraphs (1) and (2)(A).” The Court noted that Humana’s contention appeared to comport with CMS regulations, which provide that an MAO “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.” Under subpart B of part 411 of chapter 42, CMS regulations identify two causes of action available to the Secretary: one against a primary payer and one against any entity (including a beneficiary) that receives a primary payment. According to CMS, an MAO may sue a primary plan or an MAO beneficiary (among others) under the MSP.
The Court observed that although the Secretary believes MAOs may sue in federal court to recover reimbursement from a primary plan, MAOs have no cause of action absent a statutory basis. Humana did not contend that the MAO right-to-charge provision created an implied cause of action. Nor did Humana contend that an MAO may avail itself of the Government’s cause of action. Rather, Humana argued that the MSP private cause of action is unambiguous and broadly permits any private party with standing (including an MAO) to sue a primary plan. The district court concurred with the Third Circuit’s analysis of the MSP private cause of action and held that “[t]he statutory text of the MSP Act clearly indicates that MAOs are included within the purview of parties who may bring a private cause of action.” The Court of Appeal agreed.
The Court noted Supreme Court authority that mandated courts to consider statutory language in the context of the overall statutory scheme. The Court, therefore, considered the MSP private cause of action in the broader Medicare Act. The MSP private cause of action is available “in the case of a primary plan which fails to provide for primary payment (or appropriate reimbursement) in accordance with paragraphs (1) and (2)(A).” Paragraph (2)(A) defines “primary plan” and bars any Medicare payment—including an MAO payment—when there is a primary plan. The sole exception to the prohibition in paragraph (2)(A) is the conditional payment scheme in paragraph (2)(B).
Although paragraph (2)(A) does not expressly obligate primary plans to make payments, the defined term “primary plan” presupposes an existing obligation (whether by statute or contract) to pay for covered items or services. Therefore, a primary plan “fails to provide for primary payment (or appropriate reimbursement) in accordance with paragraph[ ] … (2)(A),” when it fails to honor the underlying statutory or contractual obligation.
The Court found that the three paragraphs work together to establish a comprehensive MSP scheme. Paragraph (2)(A) alters the priority among already-obligated entities and contemplates primary plans fulfilling their payment obligation. Paragraph (2)(B) addresses the Secretary’s options when a primary plan fails to fulfill its payment obligation. Paragraph (3)(A), the MSP private cause of action, grants private actors a federal remedy when a primary plan fails to fulfill its payment obligation, thereby undermining the secondary-payer scheme created by paragraph (2)(A).
The Court next considered how an MAO fits within the MSP scheme and whether an MAO may avail itself of the MSP private cause of action in paragraph (3)(A). Western suggested that the MSP does not govern MAOs and that the MAO right-to-charge provision instead governs when and whether an MAO is a secondary payer. According to Western, because an MAO derives secondary payer status from the MAO right-to-charge provision rather than the MSP, an MAO may not sue under the MSP private cause of action.
The Court rejected Western’s reading as contrary to the plain language of the pertinent provisions. First, paragraph (2)(A) unambiguously refers to all Medicare payments, which include both traditional Medicare and Medicare Advantage plans. Second, the MAO right-to-charge provision parenthetically refers to circumstances under which MAO payments are “made secondary pursuant to section 1395y(b)(2).” A plain reading of paragraph (2)(A) and the MAO right-to-charge provision therefore reveals that MAO payments are made secondary to primary payments under the MSP, not the MAO right-to-charge provision. This alone suggested that the MSP does not limit the cause of action in paragraph (3)(A) to cases in which traditional Medicare is the secondary payer.
The Court observed that Tthe fact that paragraph (2)(B) refers to the Secretary did does not alter the Court’s its analysis. Even if paragraph (2)(B) does not apply to MAOs, neither paragraph (2)(A) nor paragraph (3)(A) contain the limiting language found in paragraph (2)(B). Paragraph (2)(A) establishes secondary payer status for all Medicare and defines “primary plan” with reference to pre-existing obligations. A primary plan that fails to make primary payment has failed to do so “in accordance with paragraphs (1) and (2)(A),” whether the secondary payer is the Secretary or an MAO.
The parties did not argue and the Court did not consider whether the Government cause of action described in paragraph (2)(B) was available to MAOs. Western Heritage did not dispute that an MAO may make a secondary payment. The MAO right-to-charge provision confirms this right. Fulfilling its duty to “read the words in their context and with a view to their place in the overall statutory scheme” and to “construe statutes, not isolated provisions,” the Court noted that other aspects of the Medicare Act indicate an MAO must make a secondary payment any time the Secretary would do so. An MAO’s payment obligation under Part C is coextensive with that of the Secretary under Parts A and B. In other words, if the Secretary would pay “X” amount for covered service “Y,” then an MAO must also pay “X” amount for covered service “Y.” Part C of the Medicare Act prohibits an MAO’s avoiding paying benefits whenever the Secretary would pay under traditional Medicare. Collectively, these provisions clarify that Congress empowered (and perhaps obligated) MAOs to make secondary payments under the same circumstances as the Secretary.
An MAO both has secondary payer status and can make reimbursable secondary payments. The Court concluded that paragraph (3)(A), the MSP private cause of action, permits an MAO to sue a primary plan that fails to reimburse an MAO’s secondary payment. Paragraph (3)(A) is broadly available “in the case of a primary plan which fails to provide for primary payment (or appropriate reimbursement) in accordance with paragraphs (1) and (2)(A).” Paragraph (3)(A) is available only when the plaintiff has suffered an injury . Neither the MSP nor case law places any other restriction on the class of plaintiffs to whom the MSP private cause of action is available.
The Court could see no basis to exclude MAOs from a broadly worded provision that enables a plaintiff to vindicate harm caused by a primary plan’s failure to meet its MSP primary payment or reimbursement obligations. The MSP applies to MAOs. An MAO has a statutory right to charge a primary plan when an MAO payment is made secondary under the MSP. Therefore, an MAO may avail itself of the MSP private cause of action when a primary plan fails to make primary payment or to reimburse the MAO’s secondary payment.
Having found that Humana may bring its claim under the MSP private cause of action, the Court then turned to whether Humana was entitled to summary judgment in its favor on the claim. The MSP private cause of action permits an award of double damages when a primary plan fails to provide for primary payment or reimbursement. A plaintiff is entitled to summary judgment when there is no genuine issue of material fact regarding (1) the defendant’s status as a primary plan; (2) the defendant’s failure to provide for primary payment or reimbursement; and (3) the damages amount. The Court agreed with the district court that Western is a primary plan because it is a liability insurer that, under a settlement agreement, paid Ms. Reale, a Medicare Advantage plan enrollee, for covered medical expenses. The Court then considered the second and third elements for summary judgment liability.
Western argued that it did not fail to provide for payment or reimbursement because Western (1) lacked constructive knowledge that Medicare made a payment; and (2) attempted to make Humana a payee on the settlement check but was ordered instead to pay $19,155.41 into trust pending resolution of a dispute regarding Humana’s entitlement. The Court concluded that Western’s second argument foreclosed its first. Western’s attempt to list Humana as a payee on the settlement check indicated that Western knew of Humana’s lien. Western sought to evade that conclusion by asserting its ignorance of Humana’s status as an MAO. The Court saw no value in that distinction. Western knew Humana’s claim, and as a settling party in tort litigation, Western could discern the precise nature of Ms. Reale’s health insurance coverage. Western therefore had constructive knowledge of Humana’s Medicare payment.
The Court rejected Western’s contention it provided for reimbursement by placing $19,155.41 into trust pending resolution of the dispute between Ms. Reale and Humana. The MSP private cause of action does not describe what constitutes “appropriate reimbursement.” The Court therefore sought guidance from the CMS regulations. If a beneficiary or other party fails to reimburse Medicare within 60 days of receiving a primary payment, the primary plan “must reimburse Medicare even though it has already reimbursed the beneficiary or other party.” 42 C.F.R. § 411.24(i)(1). This regulation applies equally to an MAO. Western’s payment to Ms. Reale or any other party cannot extinguish its prospective reimbursement obligation to Humana. Sixty days after Western tendered the settlement to the Reales and their attorney, because no party reimbursed Humana, Western became obligated to directly reimburse Humana. Even after receiving Humana’s demand for reimbursement, Western declined to do so. Therefore, Western failed to provide for “appropriate reimbursement” as defined by the CMS regulations.
Western also disputed the damages amount, contesting both Humana’s reimbursement entitlement and the appropriateness of double damages. Before Western settled with the Reales, Humana issued to Ms. Reale an Organization Determination for $19,155.41. Ms. Reale was entitled to administratively appeal that amount but did not. The amount that Humana may recover was is therefore fixed, at least as to Ms. Reale. Even if Western retained the right to dispute the amount, its argument regarding Ms. Reale’s procurement costs lacks merit. A beneficiary’s procurement costs do not offset an MAO’s recovery if the MAO must litigate to secure repayment. This is the third lawsuit in which Humana has attempted to recover its $19,155.41 secondary payment. Therefore, Humana may recover the full amount.
Finally, the Court agreed with the district court that double damages are required by statute. Unlike the Government’s cause of action, the private cause of action uses the mandatory language “shall” to describe the damages amount. Therefore, the district court correctly ordered Western to reimburse Humana $38,310.82, double the amount to which Humana was otherwise entitled. On this basis, the majority upheld the decision of the District Court.
Justice William Pryor wrote a dissenting opinion in which he concluded that the statutes permits no MAO to sue a primary payer that refuses to reimburse the MAO for a secondary payment. His reasoning tracked the literal language of the statue. Because Humana is not the Secretary and its coffers are not the Trust Funds, it cannot seek payment or reimbursement “in accordance with paragraphs (1) and (2)(A).” Section 1395y(b)(3)(A) creates no private cause of action for an MAO. Section 1395y(b)(3)(A) is limited by its references to paragraphs (1) and (2)(A). Paragraph (1) prohibits group health plans and large group health plans from denying benefits on the ground that an individual is eligible for Medicare Part A. Paragraph (2)(A) forbids the Secretary from making payments when an insurance policy has paid, or can reasonably be expected to pay, with one exception. The one exception—“except as provided in subparagraph (B)”—applies to a payment by the Secretary conditioned on reimbursement of the Trust Funds. An MAO receives no authority from paragraphs (1) and (2)(A). Paragraph (1) addresses the case of a group health plan or a large group health plan that denies benefits because an individual is eligible for Medicare Part A. Paragraph (2)(A) refers to subparagraph (B), which repeatedly and exclusively refers to the Secretary and the Trust Funds. An MAO is not the Secretary, and it does not make payments out of the Trust Funds. It cannot seek payment or reimbursement under paragraph (2)(A).
A separate provision, section 1395w–22(a)(4), gives MAOs the power to charge an insurer “under circumstances in which payment under this subchapter is made secondary pursuant to section 1395y(b)(2)”. Section 1395w-22(a)(4) mentions section 1395y(b)(2), but the cross-reference simply explains when MAO coverage is secondary to a primary plan …—that is, under the same circumstances when insurance through traditional Medicare would be secondary. It does not subject Medicare Advantage Organizations to all parts of section 1395y(b)(2). Instead, it establishes a different regulatory regime—one that does not require MAOs to be secondary payers, impose time limits on reimbursement, require demonstrated responsibility, establish an extensive administrative process, give the Secretary a cause of action, or subrogate the United States to any right to payment by a primary plan. An MAO charges primary plans under section 1395w-22(a)(4), not section 1395y(b)(2)(A).
The dissent noted that the majority and the Third Circuit failed to consider the phrase “in accordance with paragraphs (1) and (2)(A).” Nothing in section 1395y(b) addresses the coordination of benefits with an MAO. An MAO instead is paid “in accordance with” section 1395w-22(a)(4). The dissent also noted that the majority observed that Humana’s position “appears to comport with CMS regulations, which provide that an MAO ‘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,’ but the majority failed to explain how it does so. Humana sued under section 1395y(b)(3)(A), which creates “a private cause of action.” The Secretary cannot avail herself of a private cause of action in her official capacity. She instead must sue under the official cause of action in section 1395y(b)(2)(B)(iii). But section 1395y(b)(2)(B)(iii) does not allow Humana, a private party, to sue. The regulation cited by the majority does not interpret section 1395y(b)(3)(A), and it cannot rewrite the clear text of that section in the opinion of the dissent.
Finally, the dissent concluded that the majority was incorrect that “an MAO must make a secondary payment any time the Secretary would do so.” With certain exceptions, section 1395w-22 requires an MAO to provide the same benefits to enrollees that the Secretary would provide under Parts A and B. But an MAO remains free to be the primary payer under section 1395w-22. And even if the majority were correct that section 1395w-22 required a MAO to be a secondary payer, those payments would still be under section 1395w-22, not sections 1395y(b)(1) and 1395y(b)(2)(A).
For each reason, the dissent concluded that the text of the statute is clear and that Humana failed to state a claim.
As noted above, the holding of this case is not necessarily binding on the Ninth Circuit.
However, in the event that its reasoning is adopted in the Ninth Circuit, insurers wishing to protect against the outcome of this case should do the following: (1) determine in discovery from the plaintiff whether a MAO has paid Medicare benefits and, if so, the amount of same; (2) ascertain whether an Organization Determination has issued and its amount and, if the amount is disputed, file a timely appeal; and (3) make specific provision in any settlement agreement that payment to a MAO will reduce the settlement otherwise payable to the plaintiff.
For a copy of the complete decision, see: Humana Medical Plan, Inc. v. Western Heritage Ins. Company