As a background:
- Prior to 2011, several cases, including the 11th Circuit in Glover v. Liggett Group, 459 F.3d 1304 (11th Cir. 2006) as well as two decided by the Federal court in the Western District of Michigan, had held that an insurer may not be sued under the PCA provision until the insurer's responsibility to pay had been established. This was often referred to as the "demonstrated responsibility" standard. The rationale was that an insurer should not be subjected to this extraordinary penalty unless it can be shown to have evaded a clear responsibility to pay the charge. A liability insurer does not have a clear responsibility to pay until its insured has been found negligent and a judgment has been entered against its insured.
- Bio-Medical Applications involved a group health insurer (a union's health and welfare fund) which had terminated a beneficiary's coverage after and as a result of the fact that the beneficiary had become eligible for Medicare. That is an action clearly prohibited under the Medicare Secondary Payer statute.
- In its decision, the Sixth Circuit ruled that the demonstrated responsibility requirement would not be recognized in the case of a group health insurer.
- In making this ruling, unfortunately, the Court used language that was unnecessarily expansive. The demonstrated responsibility requirement, it stated, applies only to tortfeasors, and does not apply when the claim is made against a defendant whose responsibility arises under "an insurance contract" rather than under a tort claim.
- As a further ruling, the court in Bio-Medical Applications also held that the "demonstrated responsibility" limitation applies only to lawsuits brought by CMS against a payer, not to claims by individual plaintiffs under the PCA provision.
We noted at the time that the court's language "will no doubt lead plaintiffs to try to resurrect these arguments in cases involving alleged delays in payments under no-fault insurance, since no-fault insurance is a contractual obligation rather than an obligation based on tort."
Sure enough, in Michigan Spine and Brain Surgeons, PLLC, v. State Farm Mutual Automobile Insurance Company, coming out of the Eastern District of Michigan, the Bio-Medical Applications case was cited as controlling, but with a twist that we had not expected.
The district court initially ruled in February 2013, denying State Farm's summary judgment motion, that the decision in Bio-Medical Applications controlled in a claim brought against a no-fault insurer.
"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."After the initial decision was rendered in February 2013, State Farm requested reconsideration, arguing that the court had failed to address an alternative argument it had raised: that the claim brought by the provider cannot be permitted because the plaintiff did not allege that the no-fault insurer had denied his claim because he was Medicare-eligible. The court agreed, in a decision issued in November 2013, that its failure to consider that argument was a "palpable defect," granted reconsideration, and granted the motion based on the alternative argument. We discussed the decision on reconsideration in our previous posting at this site.
The rationale adopted by Judge Cox on reconsideration purported to follow the rationale of the Sixth Circuit in the Bio-medical Applications case: since the PCA provision says that a non-paying insurer may be sued if it fails to "provide for primary payment (or appropriate reimbursement) in accordance with paragraphs (1) and (2)(A)," the plaintiff must establish that the defendant's denial was improper under both paragraph (1) and paragraph (2)(A). A group health plan can violate paragraph (1) if it denies a claim because the claimant is Medicare-eligible. The plaintiff provider in the case before him had not alleged that the defendant had done so, and of course State Farm is not a group health carrier at any rate. Relying on the rationale of the Bio-Medical Applications court that both (1) and (2)(A) must be violated, Judge Cox dismissed the case.
We noted in our discussion of the ruling on reconsideration, and the Sixth Circuit has now agreed, that this rationale adopted by Judge Cox would eviscerate the PCA provision altogether, since paragraphs (1) and (2)(A) address entirely different fields of insurance coverage.
The defendant on appeal did make that very point: If the defendant must be shown to have violated paragraph (1), and it is not a group health plan, it can never be sued under the PCA provision.
Paragraph (1) deals with group health insurance, and paragraph (2)(A) covers various other forms of insurance such as liability and automobile coverage. Paragraph (1) prohibits a group health insurer from "taking into account" a beneficiary's Medicare eligibility, while paragraph (2)(A) prohibits CMS from paying for a service that is payable by a primary payer. The result of the ruling that both paragraphs must be implicated if the PCA claim was to survive, the Sixth Circuit noted, "does violence to the rest of the statutory scheme and runs afoul of congressional intent."
The court ruled that the reference to an insurer's denial of coverage under "paragraphs (1) and (2)(A)" in Bio-Medical Applications was "dicta" (legally, a passing statement and not a ruling) and therefore not controlling as a matter of precedent. It quoted from Rinard v. Luoma, 440 F.3d 361, 363 (6th Cir. 2006): "questions which merely lurk in the record, neither brought to the attention of the court nor ruled upon, are not to be considered as having been so decided as to constitute precedents."
Because the insurer in Bio-Medical Applications was a group health plan, the court in that case did not have any reason to make a ruling that would apply to other primary plans. Further, given the intent of the MSP law to control medical costs, the Court found that Judge Cox's interpretation would gut the provision and make it meaningless.
Setting aside the Bio-Medical Applications dicta, the Court then focused on the text of the statute itself, and commented (understating the point) that the statutory text is "somewhat contradictory." (In fact, it is just badly drafted.) Paragraph (2)(A) imposes its prohibition on CMS; that paragraph itself does not require coverage by or reimbursement by a primary payer. That being the case, the Court used the Chevron rule: "When statutory text is unclear, courts afford deference to and seek guidance from agency regulations." One regulation, 42 CFR 411.108, lists several scenarios that CMS considers "taking into account entitlement to Medicare" on the part of a group health plan, and the very first one, section 411.108(a)(1), lists "failure to pay primary benefits" as required under the regulations.
But all of the examples provided under section 411.108, as the court itself noted, apply by their terms to group health plans and not to other primary providers. This follows the statute itself, which applies the "taking Medicare into account" prohibition only to group health plans. That is a reason to conclude that the regulation does not offer any assistance to the statutory analysis. Perplexingly, though, the court commented:
"We believe the regulations lead to the conclusion that paragraph (1)’s requirement of taking Medicare eligibility into account concerns only group health plans and not non-group health plans, which means that Michigan Spine’s claim against State Farm may proceed irrespective of the fact that State Farm denied coverage on a basis other than Medicare eligibility."This is a classic non-sequitur. The first clause, from "the conclusion" up to the comma, is true. But it simply does not follow that a claim against a non-group health plan may proceed. It may be that that conclusion is proper, but we are not told how the court got there. Its logic is missing at least a step.
The court ruled that the "taking into account entitlement to Medicare" requirement can be met by a showing that a primary payer failed to make payment as required. The court thus suggested that the regulation patched over the deficient language of the statute. But the court chose not to further consider the fact that this phrase applies, under the statutory language and under the regulation, to group health plans only. Ultimately, the CMS regulation did nothing to patch that glaring hole.
Thus, the new ruling from the Sixth Circuit has done little to clear up the confusion caused by the sloppy legislative drafting and its own too-broad language used in Bio-Medical Applications.
Unfortunately, further, the Sixth Circuit still did not address the point that we have made on these pages: it is not proper to apply a rule fashioned for group health carriers, which do have an obligation to provide plenary health coverage, to a no-fault carrier, whose obligation arises only under a specific set of factual conditions.
Importantly, the Court did not rule that MSBS was entitled to a ruling in its favor. Its more limited ruling was to reverse Judge Cox's ruling on the issue presented, and return the case to the District Court for further proceedings "consistent with this opinion". The District Court still has an opportunity to make a clear distinction between group health plans and other forms of insurance coverage in determining whether the primary payer's obligation to pay must be clearly established before the PCA may be invoked, and to correct the misunderstandings engendered by the broad language used by the Sixth Circuit in the Bio-Medical Applications case. As the Sixth Circuit has emphasized, a statement by a court on an issue that was not presented, argued, and decided is not deserving of precedential effect.