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.