Sunday, December 1, 2013

Pushback against the Interim Final Rule

MEDVAL reports that two organizations, RIMS and UWC, have asked CMS to rescind its recent Interim Final Rule because it does not follow the normal rulemaking procedures, which involves issuing a proposed rule and requesting comments before issuing the final version of the rule, and because CMS has repeatedly disregarded the requirements of the SMART Act since it went into effect in January 2013.

The points that are listed in its post:
  • Rules were to be published in the Federal Register within 60 days of enactment and subject to public comment and instead, we have only a portion of the statutory mandated regs long after the deadline set by Congress with no public comment period. 
  • November 15th has passed and we do not know what the 2014 MSP exclusion amount will be. 
  • Rules haven’t even been proposed for reporting penalties and the rules we did get for express conditional payment determinations contradicts the statute. 
  • Where Congress provided a 120-day window to resolve claims, within which CMS was given a 65-day opportunity to clean up its records before it was forced to live with only known billing, CMS added both periods together and made it a 185-day window with several exceptions. 
  • In general, simply more of what we have come to expect from CMS with regard to its MSP efforts.
MEDVAL unfortunately characterizes itself as the "The Official Medicare Set Aside Blog And Information Resource," which erroneously suggests that it is an arm of or is sponsored by CMS.

Sunday, October 6, 2013

Court decision: Michigan Spine and Brain Surgeons

Michigan Spine and Brain Surgeons v. State Farm Insurance Company
decided September 27, 2013 (on reconsideration)
U.S. District Court - Eastern District of Michigan 

For the second time in as many days, a Federal court has considered the implications of the 6th Circuit's decision in Bio-Medical Applications. This time, Judge Sean Cox of the Eastern District of Michigan has issued an opinion reversing a ruling that he had previously made, though not addressing the causation issue head-on.

Recall that the defendant in Bio-Medical, a group health plan, had defended against a claim based on the "private cause of action" section of the Medicare Secondary Payer statute by arguing that such a claim could not be asserted until it had been established that the defendant had a responsibility to pay the expenses. That "demonstrated responsibility" standard had been applied by District Courts in several previous cases, including two in the Western District of Michigan. Those earlier cases, however, had been filed against liability insurers. The courts had properly held that a defendant in a liability case has no demonstrated responsibility to pay unless and until there is a verdict against the defendant and a resulting judgment, or until the case has been settled. The court in Bio-Medical held that that principle has no application to a group health plan, whose responsibility to pay is demonstrated by the terms of the group health policy itself. Unfortunately, the court in Bio-Medical overstated its conclusion, stating that the "demonstrated responsibility" requirement applied only to liability insurance and not to claims based on contract.
After engaging in a close reading of the Act's tortuous text and studying its amendment history, we believe that the Act's "demonstrated responsibility" provision serves as a limitation only in a very specific situation: when Medicare seeks reimbursement for medical expenses caused by tortfeasors. Thus, we hold that a healthcare provider need not previously "demonstrate" a private insurer's responsibility to pay before bringing a lawsuit under the Act's private cause of action.
As we noted in our January 2012 writeup on the case, this language will predictably create problems for claims against no-fault insurers, since those claims are based on contract principles. Unlike a group health plan, which is responsible for all of an insured's medical expenses, subject to deductibles, copays, and exclusions, a no-fault carrier is responsible only for medical expenses causally related to an insured motor vehicle accident.

In February 2013, Judge Cox issued an opinion and order in the case of Michigan Spine and Brain Surgeons v. State Farm, denying State Farm's motion in a case involving a single insured, Jean Ellen Warner. State Farm had denied payment for her treatment, taking the position that the surgery in question had been needed to treat a preexisting condition unrelated to injuries sustained in a motor vehicle accident. As summarized in the opinion, State Farm's motion was based on the following positions:
(1) Michigan Spine has no standing to bring its claim under the Medicare Secondary Payer Act because the Michigan Spine's right to sue has not yet "materialized" because State Farm's liability for the medical services has not been determined by a court, and
(2) no justiciable controversy exists because State Farm's liability under the Medicare Secondary Payer Act has not been determined by a court.
The judge rejected State Farm's position, making the following interpretation of the ruling in Bio-Medical:
In sum, the Sixth Circuit held that the "demonstrated responsibility" provision only applies to a lawsuit brought by Medicare for reimbursement and only limits the class of alleged tortfeasors whom Medicare can sue for reimbursement to those insurers who have been liable or have entered into a settlement for causing the harm that led to Medicare expenses.
On September 27, Judge Cox issued a new Opinion and Order, on reconsideration, and changed his ruling, but not (we believe) for the right reason. In its Motion for Reconsideration, State Farm noted that the court had not addressed or ruled on its alternative argument: that the Bio-Medical case applies only to a defendant which had denied payment under its policy "based on [the insured's] eligibility for Medicare."

The group health plan in Bio-Medical had adopted language that ended insured status for any otherwise eligible person once he or she became eligible for Medicare. That was directly prohibited under the Medicare statute. State Farm argued that the ruling in the Bio-Medical case could apply only when an insurer has denied coverage to its insured for that reason - because the insured is a Medicare beneficiary.

Judge Cox agreed, on reconsideration, and dismissed the private cause of action count against State Farm. Since that was the only Federal question involved in the lawsuit, he also dismissed Count I of the complaint, since it asserted a breach of contract claim that arose under state and not Federal law.

Unfortunately, this route to dismissal leaves open the uncertainty and doubt that arises from the 6th Circuit's incomplete consideration of the issue. The Bio-Medical case and its "tort vs. contract" analysis will still create problems for no-fault insurers until the issue is faced directly by that court or other courts.

Saturday, October 5, 2013

Court decision: McDonald v. Indemnity Insurance

McDonald v. Indemnity Insurance Company of North America
decided September 26, 2013
U.S. District Court for the Western District of Kentucky

In this case, the court made a ruling which will potentially have a wide-ranging effect on efforts by Medicare beneficiaries to pursue claims against primary payers for double damages under the "private cause of action" provision of the Medicare Secondary Payer statute.

The plaintiff in McDonald was the Estate of Clinton McDonald, who had been severely injured in a motor vehicle accident while in the course of employment in May 2007. He died in November 2007. His employer's workers' compensation carrier contested a claim for benefits, including the question of whether his death was related to the accident. Ultimately, in March 2010, the administrative agency in Kentucky entered an order requiring the carrier to pay his medical expenses.

It appears that McDonald had been a Medicare beneficiary before the accident. In light of the denial of benefits by the workers' compensation carrier, Medicare paid over $180,000 for his medical care and sought reimbursement. This suggests that, if the expenses had been paid by private insurance rather than by Medicare, they might have amounted to $400,000 or more.

Apparently these expenses were not paid by the carrier, despite the ruling. The decision does not explain why. It appears most likely that the carrier was awaiting notification from the MSP Recovery Contractor on the amount to be reimbursed. 

In September 2012, more than two years after the final order was issued by the workers compensation agency, the Estate filed this Federal lawsuit under the private cause of action provision of the MSP statute. Five days after the filing, the MSP Recovery Contractor sent the carrier its conditional payments letter. The final reimbursement demand letter was sent on October 25, 2012, directing payment in the amount of $184,51.24. The carrier paid that amount within 60 days as required.

On a motion filed by the defendant, the court held, first, that the payment within 60 days by the carrier did not render the private cause of action claim moot. On that issue, the court noted:
"As to Indemnity's argument that its payment to Medicare rendered this case moot, such a holding would be contrary to the language of the private cause of action provision. The private cause of action provision allows for damages 'in an amount double the amount otherwise provided' - the purpose being to encourage beneficiaries to bring claims even if Medicare has already paid the beneficiaries' expenses. Once a private cause of action claim has been lodged against a defendant, a defendant cannot escape the double damages provided for in that provision by paying single damages to Medicare."
But the court ultimately held that the language of the statute did not permit a plaintiff to assert a private cause of action against a defendant which is not a group health plan.

The relevant statutory language is found in the first three subsections under 42 USC 1395y(b), entitled "Medicare as secondary payer."

The first two subsections are (b)(1) and (b)(2). Subsection (1) is entitled "Requirements of group health plans," and it imposes a number of requirements on such plans - almost always employer-provided health insurance. Subsection (2) is entitled "Medicare Secondary Payer," and it bars payment of Medicare benefits if the medical expenses are payable under "a workmen’s compensation law or plan, [ ] an automobile or liability insurance policy or plan (including a self-insured plan) or under no fault insurance."

Then subsection (b)(3) provides
(3) Enforcement
  (A) Private cause of action

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).
The court cited the case of Bio-Medical Applications of Tennessee, Inc. v. Central States Southeast and Southwest Areas Health and Welfare Fund, 656 F.3d 277 (6th Cir. 2011), which had involved a claim against a group health plan. (See our previous writeup on the Bio-Medical case.) In Bio-Medical, it noted, the Sixth Circuit had focused on the fact that (3)(A) was phrased in the conjunctive: "in accordance with paragraphs (1) and (2)(A)."

Applying the same principle, the court found that the Estate could not maintain its private cause of action claim under (3)(A). Since the language allows the claim "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)," it found that the use of the word "and" required that the plaintiff establish non-compliance with both (1) and (2)(A). And since a worker's compensation carrier is not a group health plan, it cannot be found to have violated (1).

Interestingly, the court did not enter summary judgment in favor of either party. It seemed to have invited the parties to file such motions and thereby give the court another chance to reconsider its ruling.

If accepted by other courts, this ruling would mean that a private cause of action, including a claim for double damages, could never be maintained against a workers' compensation insurer, a no-fault insurer, a liability insurer, or a self-insured entity.

Saturday, September 21, 2013

CMS releases Portal regulation

On September 20, 2013, the Centers for Medicare and Medicaid Services (CMS) released its Interim Final Rule relating to the MSP Portal. This IFR was published in the September 20 Federal Register. It adds a new rule as 42 CFR 411.39.

This is only one small step toward making the Portal a fully useful resource for participants in litigated cases. It represents, in our estimation, no more than partial compliance with the requirements imposed by Congress in its January 2013 SMART Act.

The provisions, in a nutshell, are:
  • CMS will continue to provide information on payments made by Medicare to beneficiaries using the portal
  • The beneficiary will be able to dispute particular items based on "relatedness" (whether a medical service was related to the injury for which compensation is sought or paid)
  • CMS will add a function to permit downloading of a date and time-stamped summary of the payment summary forms by the beneficiary (and not by any other user)
  • Others, such as the beneficary's attorney and the "applicable plan" (the primary payer) will continue to be able to register and obtain some information
  • Their access [and the information provided] will be limited until CMS develops and implements a security procedure (a multifactor authentication procedure)
  • CMS will develop this procedure within 90 days
  • CMS will implement it by January 1, 2016
After that point, CMS says, full information will be available to the beneficiary, his attorney, and the primary payer.

Note that, as we predicted, the Portal's challenge procedures will address only the question of whether a particular medical service is related to the subject injury. For now, and for at least the next 27 months, even that challenge can only be made by the beneficiary. This falls short of the requirement imposed under the SMART Act. That Act required that CMS, within nine months of its effective date, develop regulations for the filing of such disputes by primary payers as well. It appears that compliance with this requirement is not expected for a long time.

Although this is a Final Rule, CMS will receive comments for a period of 60 days, in light of the fact that it skipped the issuance of a Proposed Rule. This suggests that CMS is finding it difficult to accomplish even this partially compliant functionality.

Paragraph (d) of the new rule states:
(d) Obligations with respect to future medical items and services.

Final conditional payment amounts obtained via the Web portal represent Medicare covered and otherwise reimbursable items and services that are related to the beneficiary's settlement, judgment, award, or other payment furnished before the time and date stamped on the final conditional payment summary form.
Since we are expecting a proposed rule on future medical expenses in short order, the absence of any specific directive here is unsurprising. 

Obtaining final reimbursement information 

The steps that are specified in the new rule are
  • Any party may notify the MSPRC of a planned settlement at least 185 days in advance.
  • The MSPRC will compile and post on the portal the reimbursement figure and the listing of related payments (the "payment summary") within 65 days.
  • After it does so, any party may notify the MSPRC that a settlement is expected within 120 days.
  • The beneficiary or his attorney may challenge one or more items on the listing as unrelated to the subject accident. This may be done "once and only once," at least 120 days before the date of settlement. (Note that, reading the rule strictly, the time frames are mutually contradictory.)
  • The regulation says, "The dispute process is not an appeals process, nor does it establish a right of appeal regarding that dispute. There will be no administrative or judicial review related to this dispute process."
  • The MSPRC may ask for documentation, in a manner yet to be determined.
  • The MSPRC will resolve the challenge within eleven days.
  • The beneficiary or his attorney must ask that the reimbursement amount be updated. This may be done "once and only once," and it should be done only after the payment summary has been reviewed to ensure that it does not include any unrelated items.
  • CMS will do the update within five days.
For defendants and insurers, cooperation with the plaintiff and his attorney is the preferred approach. The plaintiff's attorney should be requested to provide the reimbursement figure and the payment summary as soon as it is received. This is the only way that the defense will have access to the payment summary. It should then be carefully reviewed to ensure that items unrelated to the subject accident are not included. (This can often be done by reviewing the diagnosis codes to distinguish between trauma-related treatments and others.) If one or more of the items are unrelated, the attorney for the plaintiff should be encouraged to file the needed challenge under the rule.

In some cases, though not in all, the plaintiff and his attorney can be expected to cooperate with these efforts, since it is also in their interest to make sure that the settlement funds are not used to reimburse unrelated items.

Saturday, September 7, 2013

Update on Humana MA lawsuits

See our previous post on this series of filings.The New York law firm of Weil, Gotshal & Manges is now acting as lead counsel for defendant Mid-Century Insurance in the Tennessee case, and for Farmers in the other three cases.

In each of the cases pending in the other jurisdictions (Federal courts in Texas, Kansas, and Missouri), the defendant filed (on August 30) a notice of a motion to have the other three cases consolidated with Cariten Health in the U.S. District Court for the Eastern District of Tennessee, under the Multidistrict Litigation rules, for further proceedings. By order of the District Court in those cases, activity is stayed pending a ruling on the consolidation motion. It is likely that it will take at least a couple of months for the Judicial Panel to make its decision. This page is where the panel reports its decisions. 

On the same date, a Motion to Dismiss was filed on behalf of Mid-Century in Cariten Health. No hearing date has yet been set.

This is an outline of the points argued in the memorandum filed in support of the motion:

ARGUMENT
I. PLAINTIFF’S CLAIMS FOR CHARGES UNDER THE MAO STATUTE MUST BE DISMISSED
A. The MAO Statute Does Not Create A Private Cause of Action
B. By Plaintiff’s Own Admission, Plaintiff Has Not Properly Made a Conditional Payment

II. PLAINTIFF’S CLAIM FOR DOUBLE DAMAGES UNDER THE MEDICARE SECONDARY PAYER ACT MUST BE DISMISSED
A. The Secondary Payer Act Does Not Provide Plaintiff with a Private Cause of Action
1. The Secondary Payer Act Provides a Cause of Action to Recover Benefits Paid by the Secretary, not an MA Organization, From the Medicare Trust Fund
2. Extending the Private Right of Action to MA Organizations Goes Beyond the Statutory Framework Congress Established
3. Regulations Issued By CMS Do Not Create a Private Cause of Action For MA Organizations
B. Even if the Secondary Payer Act Provides MA Organizations with a Private Cause of Action, Plaintiff’s Claim Must Still Be Dismissed
1. Plaintiff Has Failed to Allege that Defendant Violated 42 U.S.C. § 1395y(b)(1)
2. Based on the Statute’s Plain Language, a Private Cause of Action May Only be Brought Against Primary Payers Who Fail to Comply with Paragraph (2)(A)

III. PLAINTIFF’S CLAIM FOR UNJUST ENRICHMENT SHOULD BE DISMISSED
A. Plaintiff Did Not Confer a Benefit Upon Defendant Because Defendant is not Required to Reimburse Plaintiff
B. The Court Should Decline to Exercise Supplemental Jurisdiction

Friday, September 6, 2013

MSP Portal is live

The Medicare Secondary Payer Portal has been set up by CMS to comply with Congress' directive in the January 2013 SMART Act to establish an online presence using which the parties to a lawsuit may obtain a final and binding reimbursement amount just before settling a case, and to provide a mechanism for contesting items that the Recovery Contractor has improperly included in the listing.

Before the SMART Act, CMS would not provide a final reimbursement demand figure until after the case had been settled and the plaintiff's attorney had the settlement proceeds in hand.

CMS is expected to release proposed regulations relating to the Portal by October 2013. In the meantime, there is a User Manual which provides detailed information about its use.

The front page for the Portal, which is to be used for all reimbursement issues relating to liability and no-fault auto insurance claims, is https://www.cob.cms.hhs.gov/MSPRP/. Direct links to key items are
There are two ways to access the Portal. CMS requires the Medicare beneficiary to sign a “Proof of Representation” form to allow his attorney, his guardian, his agent under a Power of Attorney, etc. to obtain information on his behalf. To use the portal, he or she sets up a “representative account.”

For a defense attorney or an insurance claims representative, a “Consent to Release” form must be signed, and a “corporate account” is used. For those defending a litigated claim, it is best to have this release form signed early on in the course of litigation.

The Consent to Release form will be reviewed by CMS to ensure that each of the requirements is met. CMS says that it will take 45 days to review and verify the consent form. Once it has been reviewed the Consent is regarded as “verified”.

The portal can be used to:
  • Obtain updated conditional payment figures
  • Submit a dispute on a particular item if it is unrelated to the accident at issue in the lawsuit
  • Submit settlement information
  • Obtain a final conditional payment amount from CMS
Some of these items, however, can be done only by the attorney representing the plaintiff.

Once the Consent to Release form has been verified, the authorized person will be included on any of the mailings that are sent and will be permitted to review the conditional payment letter and other documentation on the portal. The total conditional payment amount will be released, but CMS will not provide the conditional payments listing (providing the details of each medical service). That information will only be provided to the plaintiff’s attorney or other representative.

The portal is also used by the plaintiff’s attorney to submit information regarding the settlement and to thereafter obtain a final conditional payment figure and generate the official reimbursement demand letter. The instructions advise the plaintiff’s attorney to submit this information as soon as a settlement agreement is finalized, even though the money has not yet been paid. The attorney is expected to provide the total amount to be paid in the settlement, the expenses to be charged, and the calculated attorney fee. For those cases for which the fixed percentage option is available, the request is also submitted at that time. (Recall that the fixed percentage option is available only for certain cases that are settled for less than $5,000. Under that program, the plaintiff can request that the reimbursement amount be limited to 25% of the settlement proceeds.)

CMS says that it will review the settlement information within 20 days and then submit its  final reimbursement demand. (If the fixed payment option is requested, the period is 30 days.)

Since the Portal is designed for the settlement information to be sent by the plaintiff's attorney, the defense attorney or claims professional should have an agreement that the information will be shared as soon as it is obtained. If there are disputes as to certain listed items, a means of addressing those disputes should be worked out between the parties.

We can expect that the proposed regulations, when issued, will recognize a challenge based on the position that a particular listed item is not related to the subject motor vehicle accident, but will not address the separate issue of whether the reimbursement claim is timely.

It should be noted that the system is set up so that the reimbursement figure is lower than the total amount of Medicare benefits that have been paid. The reduction is intended to account for the costs of recovery, including both out-of-pocket expenses and the plaintiff attorney's fee. Most plaintiffs' attorneys will probably expect full payment of the amounts that have been paid by Medicare, as reflected in the Payment Summary, before the reduction. Some may resist sharing the final reimbursement figure with the defense. Of course, all of those issues are subject to negotiation.

Wednesday, August 7, 2013

Humana - "We are not a government actor"

TRANSATLANTIC, LLC v. HUMANA, INC., Dist. Court, MD Florida 2013
Case No. 8:13-CV-1925-T-17
United States District Court, M.D. Florida, Tampa Division.
August 1, 2013.

In this case, Humana's Medicare Advantage plans were sued by a managed service organization whose contract was terminated after it was discovered that the MSO had violated Medicare regulations. One of the claims in this lawsuit was that Humana's termination had violated the MSO's First Amendment rights. In order to assert such a constitutional claim, though, the plaintiff must establish that the defendant is a governmental agency or a governmental actor.

The court summarizes Humana's position on this issue:
"Defendant responds that Defendant is not a government actor, and constitutional claims cannot be maintained against a private actor.

"Under limited circumstances, conduct by nominally private actors can be characterized as governmental action for constitutional purposes. However, the limited exceptions are not present in this case. Neither government regulation nor government funding, standing alone, convert a private entity into an arm of the state. See Gonzalez-Maldonado v. MMM Healthcare, Inc., 693 F.3d 244, 250 (1st Cir. 2012)"
The court found it unnecessary to make a determination on this issue, given the nature of the claims presented.

Thus, in the Transatlantic case, Humana asserts that it is not a govermental actor. We agree with that position. That acknowledgement severely undercuts its position in the four reimbursement cases Humana companies have recently filed against companies affiliated with Farmers Insurance.

District Court ruling

Wednesday, July 24, 2013

MA: New offensive move by Humana

Franco Signor reports that Humana, which operates Medicare Advantage plans in numerous states, has filed separate lawsuits in Federal courts in four states, seeking a declaratory judgment from the courts regarding their MA plans' rights of reimbursement and the extent to which their rights coincide with those of CMS under ordinary Medicare. One of the cases is Cariten Health Plan, Inc. v. Mid-Century Insurance Company, filed in the Eastern District of Tennessee, Knoxville Division. (Cariten is affiliated with Humana Group.) Since Tennessee is within the Sixth Circuit, this portends a challenge to the Care Choices case which is controlling authority in this Circuit.

For those with PACER access, the docket number in that court is 3:13-cv-00417. The Complaint was filed on July 17. 

Wednesday, July 17, 2013

Portal regulations expected in October

CMS has announced that an interim final rule on the Medicare Secondary Payer Recovery Portal is expected to be issued in October 2013. This advance notice of its plan to issue an interim final rule (not to be confused with an Advance Notice of Proposed Rulemaking) may be found here.
(Acknowledgements: MARC and Franco Signor)

Tuesday, June 18, 2013

CMS's MSP web site overhaul

CMS has rolled out its newly redesigned web pages. The new addresses are:

The What's new page, after three months, is nearly worthless. Many things have happened since June 2013, and almost none of them are listed on that page. 

Saturday, June 15, 2013

Congressional intent and Medicare Advantage

One additional item of evidence that undercuts the claims of Medicare Advantage plans that they stand in the same position as CMS under ordinary Medicare: The new section 1128J(d) of the Social Security Act, as added by section 6402 of the Affordable Care Act, is entitled “Reporting and Returning of Overpayments.” (42 USC 1320a-7k(d)) It lists Medicare Advantage plans as one of the "persons" to whom the new overpayment reporting requirements apply.

When Medicare has paid an item that it should not have paid, this is regarded as an "overpayment." If a "person" learns of an overpayment, that new provision requires that that person report the overpayment and return the funds to CMS, and to notify CMS of the reason for the overpayment. Failure to refund the money after 60 days is regarded as a violation of the False Claims Act.

This new rule includes as "persons" who are required to comply providers, suppliers, and Medicare Advantage plans. There would be no reason for Congress to include MA plans in this list if they were regarded as "standing in the shoes of the Medicare program." The fact that they are listed in this new section underscores the Congressional intent that MA plans be treated differently from CMS.

Sunday, May 12, 2013

Newest user guide for MMSEA reporting

Just a few weeks after releasing version 3.5, CMS has now issued version 3.6 of the NGHP (non-group health plan) User Guide (dated May 6, 2013) for MMSEA reporting by liability and no-fault insurers. Reportedly there were some technical errors in version 3.5.

Sunday, May 5, 2013

Insurance Claims and the Affordable Care Act

What will the ACA mean for secondary payer status and for reimbursement claims against no-fault carriers and liability insurers?

Somewhat surprisingly, the answer is that there will not be much change, either in the relationships between primary and secondary payers or in the manner that repayments and reimbursements are to be made. The new laws will extend or modify current structures, rather than putting new ones in place.

The ACA attempts to accomplish its goal of extending insurance coverage to most Americans by two distinct mechanisms:
  • a significant extension of eligibility under Medicaid, to bring more low-income people into the program, and
  • mandating the purchase of health insurance coverage by those who can afford to do so.
There will still be a large group "in the middle" who will not be eligible for Medicaid, who will not be covered by employer-provided coverage, who will not be financially able to purchase health insurance on their own, and who will either (1) be exempted from the new penalties for failure to buy their own coverage, or (2) determine that it is more cost-effective to pay the penalty and continue without health care coverage.

Medicaid - Without getting into the details, it is sufficient to note that the original provisions of the statute mandating that states expand Medicaid coverage were declared unconstitutional by the Supreme Court's June 2012 decision in National Federation of Independent Business v. Sebelius. Thus, each state is free to accept or decline the expansion. Michigan is considering the governor's recommendation to opt in to the expansion.

How far that expansion will go, how many more individuals and families will be covered by Medicaid, will remain to be seen. But for those citizens, the interplay between Medicaid and other coverage, including no-fault insurance, will continue as it has in the past:

1. The payments will be made and managed by the state, with Federal funds assisting.
2. The reimbursement system will be as provided under state law, not under Federal law.
3. The state will likely continue to use contractors to manage its reimbursement claims.
4. There will be reasonable options for compromise with the state agency or its outside contractor. 
5. There will be a requirement, imposed by the courts, that reimbursement claims be limited based on equitable considerations. (See our very recent discussion of the Ahlborn and Wos cases.)

Medicare - For those who are covered under Medicare, the current Medicare Secondary Payer system, with all of its blemishes and wrinkles, will continue. The ACA did not do much to modify the Medicare laws. It did add a new provision codified at 42 USC 1320a-7k(d) that requires that providers (and others as defined) self-report any "overpayment" that they learn about, including any situation in which CMS has made a payment that should have been made by a primary payer. This imposes a new obligation on providers and other defined "persons," not on primary payers.

Private coverage - For those who will be covered under private insurance, either from current commercial carriers or from newly-created insurers under the exchanges, the system that is in place now will likewise continue:

1. Michigan law allows and in fact encourages health insurers to adopt language to provide for secondary status and for reimbursement from other available coverage.
2. Those provisions are and will continue to be included in just about all policies.
3. For insurance that is provided by employers, the special rules under ERISA governing reimbursement claims will continue to apply.
4. For insurance that is purchased by individuals, reimbursement claims will be governed under state law.

The ACA did not adopt any new provisions governing primary vs. secondary status, or reimbursement by primary payers. Those issues are and will likely remain a matter of contract between the insurer and the insured.

It is certainly possible that Congress could act, at some time in the future, to import something similar to the Medicare Secondary Payer program into the ACA. For political reasons, however, to avoid charges that the Federal government is "taking over the health care system," the ACA is designed to keep the states involved in the system. From a political perspective, it is very unlikely that anything similar to the MSP program will be adopted by Congress for the health care system as a whole any time soon.

Friday, April 26, 2013

U.S. Supreme Court reaffirms Ahlborn

In the case of Arkansas Department of Health and Human Services v Ahlborn, 547 US 268 (2006), the U.S. Supreme Court held that the Federal Medicaid statute required that a Medicaid beneficiary who settles a personal injury claim, and who has agreed to compromise his claim in so doing, must also be given an opportunity to limit the amount by which he is to reimburse the Medicaid agency by a similar compromise figure. It was improper, the court held, for the Medicaid agency to assert a claim for reimbursement as to the entirety of the proceeds, in light of the provision of the Federal Medicaid statute that prohibits the assertion of a lien on other property of the beneficiary.

On March 20, 2013, the United States Supreme Court issued its decision in the case of Wos v EMA. Wos was the Secretary of the North Carolina Department of Health and Human Services, and EMA was the designation used for a minor who had sustained severe injuries as a result of a birth injury, requiring round-the-clock care on a permanent basis.

The Medicaid agency had paid over $1.9 million in medical benefits by the time the parties settled the personal injury case. The amount of the settlement was $2.8 million. Under a North Carolina statute, one-third of a settlement of a personal injury claim is irrebuttably presumed to be for medical expenses, and is used to repay Medicaid benefits that have been paid on behalf of the injured person.

The Supreme Court reiterated that the principle established in Ahlborn is that the Federal Medicaid statute prohibits a state Medicaid agency from imposing a lien on any “property” belonging to the Medicaid beneficiary. There is an exception for the reimbursement of medical expenses, but any reimbursement that goes beyond a fair reimbursement of the Medicaid agency for medical expenses is regarded as violating that key obligation.

The North Carolina law, it held, directly conflicts with the Federal Medicaid statute and is therefore preempted. Its irrebuttable presumption, which provides no procedure by which the Medicaid beneficiary may establish the amount of his or her loss, the amount by which he is compromising his claim by agreeing to a settlement, etc., is directly in conflict with the Medicaid statute as interpreted under the Ahlborn decision. Points that it made in support of its decision included:
  • The statute lacked any “limiting principle”. If a state can determine that 1/3 of any recovery is reasonable as an automatic reimbursement amount, it could do the same for any other percentage.
  • The state made no showing that the allocation is reasonable in the majority of cases.
  • The statute does not permit a party or a judge to make a determination as to the reasonableness of the 1/3 allocation under the facts of a given case.

The Supreme Court invalidated the North Carolina statute and returned the case to the district court for a hearing on the amount that is reasonably reimbursable to the Medicaid program for the benefits that it had on behalf of EMA.

Tuesday, April 23, 2013

Two lines of authority in Medicare Advantage reimbursement cases

In our first posting on this site, we noted that there are two distinct lines of authority dealing with the reimbursement rights of Medicare Advantage (MA) plans. Sometimes you will see the acronym MAO, for Medicare Advantage Organizations.

MA plans differ from "ordinary Medicare" in several key respects. Medicare is funded directly by the Federal government, through the Centers for Medicare and Medicaid Services (CMS) and uses payment contractors to handle claims for payment. It pays medical providers (doctors, hospitals, and others) on a fee-for-service basis, after a very hefty discount. By contrast, an MA plan is almost always a state-created health care organization, either a for-profit corporation or (particularly in the case of Blue Cross affiliates) special entities authorized and created under state law. Very often, they are entities that have already been licensed and in operation as HMOs in the state where they operate. They are, it has to be emphasized, creatures of state law and state actors.

CMS typically pays an MA plan a capitated amount - a single payment, per beneficiary per year. Making a capitated payment shifts the risk of unanticipated or unexpected medical cost from the U.S. government to the MA plan. If the total of all costs and expenses is less than the total of all capitated payments, the MA plan makes money. If it is greater, it loses money. The MA plans compete with each other to sign up subscribers, sometimes offering additional services beyond those mandated under the contracts with CMS.

A key point to understand is this: When CMS obtains reimbursement from a primary payer, that payment helps the financial viability of the Medicare program. When an MA plan obtains reimbursement, it helps the MA plan's bottom line. None of the contracts that CMS has signed with MA plans obligates the plans to refund all or part of the money they receive in reimbursement to the Federal government. They are allowed to keep all of it.

The issues that have arisen in numerous cases are
  • whether and how an MA plan has a right of reimbursement from an auto insurer or a liability insurer when it has made a payment 
  • whether the Medicare Secondary Payer statutes and regulations apply to them 
  • whether the MA plan is regarded as a "secondary payer" for purposes of responding to the claims for payment submitted by providers
We identified the two lines of authority as follows:

1. Medicare Advantage plans are state actors and are subject to state laws, unlike ordinary Medicare. They do not have an automatic right of reimbursement. They have secondary statuts and reimbursement rights only if their contracts specifically so provide, as is the case with private insurers. (6th Circuit, followed by district courts in numerous circuits, and 9th Circuit as of last week.)
2. Medicare Advantage plans have the same reimbursement and secondary payer rights as ordinary Medicare. (2nd and 3rd Circuits)

First Line - Care Choices 

The decision of the 6th Circuit in Care Choices HMO v. Engstrom, 330 F.3d 786 (6th Cir. 2003) is the leading authority for the propositions that:
  • MA plans do not have automatic reimbursement rights under the MSP statutes. 
  • MA plans may, but are not required to, provide for secondary status and for rights of reimbursement. If they do so, they must include language so providing in their contracts or summary plan descriptions. 
  • In the absence of language so providing, the MA plan does not have those rights. 
  • Federal preemption does not apply to the rights of coordination and reimbursement. 
And, implicit rather than overtly stated: 
  • The reimbursement rights found in the contracts that the MA plans have with their subscribers are interpreted and applied under state law. 
A corollary to these principles is that limitations that exist under state law will apply to an MA plan, even though they do not apply to CMS. In Michigan, that includes the one-year back rule as well as, arguably, the exclusion for governmental benefits under section 3109 of the No-fault Act.

Care Choices has been cited and followed by a number of courts in other circuits, including:

Konig v. Yeshiva Imrei Chaim Viznitz of Boro Park, Inc., ____ F.Supp.2d ____ (E.D.N.Y. 2012)
Ferlazzo v. 18th Street Hardware, 33 Misc. 3d 421, 929 NYS 2d 690 (2011)
Parra v. Pacificare, United States District Court, D. Arizona - Docket No. CV 10-008-TUC-DCB, March 25, 2011
Trezza v. Trezza, 2011 NY Slip Op 51237 (2011)
Great Lakes Consortium v. Michigan, 480 F.Supp.2d 977 (WD Michigan 2007)
Wisniewski v. Rodale, Inc., 406 F.Supp.2d 550 (ED Penn 2005)
Wentz v. Kindred Hospitals East, LLC, 333 F.Supp.2d 1298 (SD Fla 2004)
Nott v. Aetna US Healthcare, Inc., 303 F.Supp.2d 565 (ED Penn 2004)


On April 19, 2013, the 9th Circuit issued its decision upholding the District Court decision in Parra, as we reported on April 22.

The court in Nott observed:
"An analysis of the language of the two statutory provisions cited by the defendant, sections 1395w-22(a)(4) and 1395mm(e)(4), reveals that Congress did not create a federal scheme under the Medicare Act for the civil enforcement of a Medicare-substitute HMO's subrogation rights arising out of its own contract. Rather, the Act merely permits HMOs to include a right of subrogation in their own contracts with Medicare beneficiaries. . ."

Second Line - In Re Avandia

This line of authority has accepted the MA plans' arguments, supported by CMS, that they have the same rights of primary status and the same rights of automatic reimbursement under the MSP statute as ordinary Medicare.

The cases that have accepted this argument are:

In re Avandia Marketing, 685 F. 3d 353 (2012)
Potts v Rawlings Company, ___ F.Supp.2d ___ (SDNY 2010)

Two other cases that provide some additional support to this line of authority are

Phillips v. Kaiser Foundation Health Plan, Inc., 2011 WL 3047475 (N.D. Cal. July 25, 2011)
Uhm v. Humana, 620 F.3d 1134 (9th Cir. 2010)

It has to be recognized that the second line of authority seems to have had more momentum in the last couple of years. The very recent decision by the 9th Circuit in Parra may well change that momentum in the months to come.

In December 2011, CMS issued a memorandum in which it asserted its position that MA plans should be given the same reimbursement rights that it has. That memorandum is routinely cited by MA plans and routinely dismissed by those who oppose them.

For those keeping score by circuit, we recapitulate the current standings:
  • No automatic reimbursement rights - 6th and 9th Circuits 
  • Automatic reimbursement rights - 2nd and 3rd Circuits 

Monday, April 22, 2013

9th Circuit rejects MA reimbursement claims

The Medicare Advantage (MA) cases are coming quickly these days. On April 19, the 9th Circuit Court of Appeals issued a decision in Parra v. PacifiCare of Arizona, upholding the decision of the District Court which had ruled that PacifiCare, an MA plan, could not assert a claim for reimbursement against a plaintiff's recovery in a tort lawsuit arising out of an automobile accident.

The decision starts out with a quote from an earlier case which deserves widespread citation:
"This case involves the Medicare Act, one of “the most completely impenetrable texts within human experience.” Cooper Univ. Hosp. v. Sebelius, 636 F.3d 44, 45 (3d Cir. 2010) (internal quotation marks and citation omitted)."
The family of Manuel Parra entered into a settlement with Geico Insurance based on the injuries which caused his death. The policy in question had a $500,000 policy limit. The amount of the settlement was not disclosed, but PacifiCare asserted a reimbursement claim against the recovery in the amount of $136,630.90, the amount that it had expended on Parra's medical treatment.

Under Arizona law, as in Michigan, the proceeds of a wrongful death action are not responsible for any of the debts of the decedent. PacifiCare asserted that (1) its contract provided for reimbursement, and (2) it was entitled to reimbursement under the Medicare Act.

It appears that the contract did provide for reimbursement, and this was a right that would be enforceable in state court, under state law. The District Court granted summary judgment to the family on the second issue, finding that a MA plan does not have any automatic rights of reimbursement under the Medicare law and thus had no claim that could properly be asserted in Federal court.

One of the issues that the court addressed was whether the Federal court have jurisdiction to determine whether the claim was viable. Quite properly, it held "Subject matter jurisdiction exists to determine whether a federal statute provides a private right of action."

The Court noted that, under Part C, an MA plan is authorized but is not required "to charge a primary plan for medical expenses paid on behalf of a participant." Note that the court was willing to consider an auto liability carrier as a "primary plan" without any analysis of whether the language of the MA plan so provided.

PacifiCare argued that it had reimbursement rights under:

(1) § 1395w-22-a-4 (the “MAO Statute”) and
(2) § 1395y-b-3-A (the “Private Cause of Action” language under the MSP Act)

On the first point, the court rejected PacifiCare's argument that the fact that the statute authorized a charge against a primary plan meant that it had an implied private right of action to enforce that recovery. Citing the Sixth Circuit's Care Choices case, the court noted that, in considering the language of the MA section of the Medicare Act, 42 USC 1395mm-e-4, the courts have "consistently concluded" that Congress, in using that language, did not intend to create a Federal cause of action in favor of MA plans.

It also rejected its reliance on 42 CFR § 422.108-f, the regulation that we noted yesterday in connection with the 3rd Circuit Court's ruling in In Re Avandia. It found that that regulation "adds nothing" to the claim. Citing cases from the U.S. Supreme Court and from the 9th Circuit itself, it held that an administrative agency cannot create a right that Congress has not granted in the statutory language. That right must derive from statutory authority, not from the language of an agency's regulations.

On the second, the court rejected PacifiCare's argument that it enjoyed the same right to assert a reimbursement claim in Federal court that CMS has in the case of ordinary Medicare, under 42 USC § 1395y-b-3-A. It did so by noting that Geico was the primary payer, but that PacifiCare had not asserted any reimbursement claim against Geico.

The "private cause of action" language under the MSP Act was not intended to apply to a primary plan which had, in essence, interpleaded two competing claimants to the proceeds and asked the court to rule on which one was entitled to the money.

Additionally, the court rejected PacifiCare's rather inventive claim that it should be accorded a Federal right of reimbursement under Federal common law. It also found that complete preemption of state causes of action does not exist, Congress not having created a civil enforcement scheme, and not having expressly provided for removal of such claims to the Federal courts.

Lastly, the court declined the invitation to consider the reimbursement claim under state law, under the rule of supplemental jurisdiction. That is a discretionary matter for the district court, it noted, and its refusal was well within the scope of that discretion.

Saturday, April 20, 2013

U.S. Supreme Court will not hear Avandia

In a couple of days, we will post a listing of the several cases that have addressed the status of Medicare Advantage (MA) plans. These cases fall into two separate lines of authority:

1. Medicare Advantage plans are state actors and are subject to state laws, unlike ordinary Medicare. They do not have an automatic right of reimbursement. They have reimbursement rights only if their contracts specifically so provide, as is the case with private insurers. (Sixth Circuit, followed by district courts in numerous circuits.)
2. Medicare Advantage plans have the same reimbursement and secondary payer rights as ordinary Medicare. (Second and Third Circuits)

One of the cases in the second line of authority is the decision of the Third Circuit Court of Appeals, issued in June 2012, in In Re Avandia Marketing, 685 F.3d 353 (3d Cir. 2012) The primary issue was not reimbursement, but rather whether the private cause of action provisions of the Medicare Secondary Payer statute would apply to MA plans. What was important procedurally was the Third Circuit's determination to give Chevron deference to a regulation adopted by CMS, found at 42 CFR 422.108(f), which purports to grant preemptive effect to CMS's rules and regulations. The District Court in In re Avandia had stated, rightly in our opinion:
"The Court finds that the silence of Congress regarding private remedies does not create ambiguity, but rather indicates its intent not to create a private right of action for MAOs, instead leaving MAOs to enforce their rights as secondary payers under the common law of contract. However, even if the Court found that Congress's intent was ambiguous, the regulation is not a permissible construction of the statute, as the Secretary cannot create a right that Congress has not created. Accordingly, the Court will not defer to the regulation in deciding this matter."
In other words, the District Court would not permit CMS to grant preemptive effect to its own regulations. Congress must provide for such preemptive effect. The Circuit Court, however, thought otherwise.

On April 15, 2013, the U.S. Supreme Court declined to grant certiorari on the case. The Third Circuit's decision thus stands as the definitive law in the Third Circuit.

In the Sixth Circuit, however, the contrary ruling in Care Choices HMO v. Engstrom, 330 F.3d 786 (6th Cir. 2003) remains good and effective law. It will remain as the definitive pronouncement in the Sixth Circuit until either that court or the U.S. Supreme Court says otherwise.