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.