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.

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