Federal Circuit Court Finds Part C Medicare Advantage Plans Have Same Rights as CMS When Seeking Recovery from Primary Payer
On June 28, 2012, the United States Court of Appeals for the Third Circuit published its decision on Humana Medical Plan and Humana Insurance Company v. GlaxoSmithKline, LLC, concluding that any private party may bring an action under §1395y(b)(3)(A), as it establishes a private cause of action for damages. As a result, the court found that private parties like Humana can bring suit for double damages when a primary plan fails to appropriately reimburse any secondary payer. In addition, since 42 C.F.R. §422.108 stated that a Medicare Advantage organization can exercise the same rights to recover from a primary plan, entity, or individual that the Secretary of HHS exercises under the MSP regulations, the Medicare Act treats MAOs the same way it treats the Medicare Trust Fund for purposes of recovery from any primary payer.
Humana, an authorized Part C Medicare Advantage (MA) plan allows Medicare enrollees to obtain their Medicare benefits through private insurers (MAOs) instead of receiving direct benefits from the government under Parts A and B. § 1395w-21(a). CMS pays an MAO a fixed amount for each enrollee, per capita (a “capitation”). The MAO then administers Medicare benefits for those enrollees and assumes the risk associated with insuring them. MAOs like Humana are thus responsible for paying covered medical expenses for their enrollees.
Glaxo manufactured and distributed Avandia, a Type 2 diabetes drug that has been linked to substantially increased risk of heart attack and stroke. Thousands of Avandia patients alleged various injuries resulting from their use of the drug and Glaxo began entering into agreements to settle these claims. By August 2011, when Appellants filed their brief, Glaxo had paid more than $460 million to settle these claims. As part of the settlement process, where a claimant was insured by Medicare, Glaxo had set aside reserves to reimburse the Medicare Trust Fund for payments it made to cover the costs of treatment for the claimants’ Avandia-related injuries.
Glaxo had not, however, included reimbursement of MA plans in the settlement agreements that it had reached with Avandia claimants enrolled in MA plans, even though MAOs had paid the costs of treatment of Avandia-related injuries for these claimants. Humana filed suit seeking reimbursement from Glaxo for the cost of treating its enrollees’ Avandia-related injuries. Humana sought, on behalf of itself and a class of similarly-situated MAOs: (1) damages under the Medicare Secondary Payer Act (“MSP Act”), which provides a private cause of action, 42 U.S.C. § 1395y(b)(3)(A), allowing double damages for failure to reimburse a secondary payer; and (2) equitable relief in the form of an order compelling Glaxo to identify settling Avandia claimants to the MAOs that cover them.
Glaxo filed a motion to dismiss. The District Court heard oral argument on the motion and, granted it. In dismissing the action, the District Court found there was no clear legislative intent to create a remedy for Humana. The District Court therefore found that no implied private right of action existed. Accordingly, the Court did not defer to the CMS regulation that granted MAOs parity with Medicare recovery from primary payers.
On appeal, the court found that the text of the provision sweeps broadly enough to include MAOs and that, even if it determined the statute to be ambiguous on this point, deference to CMS regulations would require it find that MAOs have the same right to recover as the Medicare Trust Fund does.
The Medicare Statute creates two separate causes of action allowing for recovery of double damages where a primary payer fails to cover the costs of medical treatment. When the Medicare Trust Fund makes a conditional payment and the primary payer does not reimburse it, the United States may bring suit pursuant to §1395y(b)(2)(B)(iii). Additionally, a private cause of action with no particular plaintiff specified exists pursuant to §1395y(b)(3)(A) anytime a primary payer fails to make required payments.
The court found that the plain text of the MSP private cause of action lends itself to Humana’s position that any private party may bring an action under that provision. It establishes “a private cause of action for damages” and places no additional limitations on which private parties may bring suit. § 1395y(b)(3)(A). Accordingly, the court held that the provision is broad and unambiguous, placing no limitations upon which private (i.e., non-governmental) actors can bring suit for double damages when a primary plan fails to appropriately reimburse any secondary payer.
The court indicated that, although the MSP Act was enacted before Part C, which created MAOs, private Medicare risk plans were authorized under 42 U.S.C. § 1395mm in 1972, before the passage of the MSP Act. Act of Oct. 30, 1972, sec. 226(a), Pub. L. 92-603, 86 Stat. 1396. Thus, at the time it enacted the MSP Act, Congress was aware that private Medicare providers existed. Had it intended to prevent them from suing under the private cause of action provision, Congress could have done so explicitly. In short, the court found that there is nothing in the text or legislative history of the MA secondary payer provision that demonstrates a congressional intent to deny MAOs access to the MSP private cause of action.
The court also recognized that Congress’s goal in creating the Medicare Advantage program was to harness the power of private sector competition to stimulate experimentation and innovation that would ultimately create a more efficient and less expensive Medicare system. See, e.g., H.R. Rep. No. 105-217, at 585 (1997) (Conf. Rep.) (stating that MA program was intended to “enable the Medicare program to utilize innovations that have helped the private market contain costs and expand health care delivery options”). It was the belief of Congress that the MA program would “continue to grow and eventually eclipse original fee-for-service Medicare as the predominant form of enrollment under the Medicare program.” Id. at 638. The MA program was thus, like the MSP statute, “designed to curb skyrocketing health costs and preserve the fiscal integrity of the Medicare system.” Fanning v. United States, 346 F.3d 386, 388 (3d Cir. 2003).
The court reasoned that it would be impossible for MAOs to stimulate innovation through competition if they began at a competitive disadvantage, and, as CMS has noted, MAOs compete best when they recover consistently from primary payers. Policy and Technical Changes to the Medicare Advantage and the Medicare Prescription Drug Benefit Programs, 75 Fed. Reg. 19678, 19797 (Apr. 15, 2010). When they “faithfully pursue and recover from liable third parties,” MAOs will have lower medical expenses and will therefore be at a disadvantage, unable to exert the same pressure and thus forced to expend more resources collecting from such payers. The court therefore concluded that it was not the intent of Congress to hamstring MAOs in this manner.
The court pointed out that although the legislative history is nowhere explicit that MAOs may bring suit for double damages under the MSP private cause of action or using any other provision, it does make clear that MAOs were intended to enjoy a status parallel to that of traditional Medicare. Under original fee-for-service, the Federal government alone set legislative requirements regarding reimbursement, covered providers, covered benefits and services, and mechanisms for resolving coverage disputes. Therefore, the Conferees intend that the legislation provide a clear statement extending the same treatment to private MA plans providing Medicare benefits to Medicare beneficiaries. H.R. Rep. No. 105-217, at 638. This court saw nothing in the text or legislative history of the statute to imply that Congress did not intend to facilitate recovery for MAOs in the same fashion.
The Supreme Court in Chevron established a two-part test for determining when a federal court ought to defer to the interpretation of a statute embodied in a regulation formally enacted by the federal agency charged with implementing that statute. 467 U.S. at 842-43. First, the court must determine whether Congress’s intent on the issue is clear — if so, it must abide by that intention, regardless of any regulations. If the statute is unclear, that is, “silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute.” Id. at 843.
CMS “has the congressional authority to promulgate rules and regulations interpreting and implementing Medicare-related statutes.” Torretti v. Main Line Hosps., Inc., 580 F.3d 168, 174 (3d Cir. 2009); see also 42 U.S.C. §1395hh(a)(1) (“The Secretary shall prescribe such regulations as may be necessary to carry out the administration of the insurance programs under this subchapter.”); 42 U.S.C. § 1395w-26(b)(1) (“The Secretary shall establish by regulation standards for MA organizations and plans consistent with, and to carry out, this part.”). Thus, the court concluded that it must accord Chevron deference to regulations promulgated by CMS.
CMS regulations state that an “MA organization will exercise the same rights to recover from a primary plan, entity, or individual that the Secretary exercises under the MSP regulations in subparts B through D of part 411 of this chapter.” 42 C.F.R. § 422.108. The plain language of this regulation suggests that the Medicare Act treats MAOs the same way it treats the Medicare Trust Fund for purposes of recovery from any primary payer. In this circumstance, the court concludes it is bound to defer to the duly-promulgated regulation of CMS.
A recent memorandum from CMS specifically responded to decisions of the federal courts holding that MAOs were not “able to take private action to collection for MSP services under Federal law because they have been limited to seeking remedy in State court.” Ctrs. for Medicare & Medicaid Svcs., Dep’t of Health and Human Svcs. Memorandum: Medicare Secondary Payment Subrogation Rights (Dec. 5, 2011). This memorandum clarified that CMS itself understood § 422.108 to assign MAOs “the right (and responsibility) to collect” from primary payers using the same procedures available to traditional Medicare.
The court therefore reversed the District Court’s dismissal of the complaint, and remanded it for further proceedings consistent with its opinion.
The decision is the latest in what seems to be an ongoing debate within the industry and amongst litigants regarding the rights of Part C plans when compared to those of traditional Medicare. The case distinguishes recent District Court decisions such as Parra v. PaciCare of Arizona, Inc., Civ. No. 10-008, 2011 WL 1119736 (D. Ariz. Mar. 28, 2011) which sought to define the priority rights of MAOs despite CMS regulation. In the Third Circuit there is now no question that MAOs enjoy the right of reimbursement and the ability to pursue that right through the private cause of action.
Some larger questions are presented by the ruling. With traditional Medicare, information regarding a potential recovery is reported through the Mandatory Insurer reporting mechanism. The Medicare, Medicaid and SCHIP Extension Act of 2007 have mandated electronic reporting be completed by RREs or those responsible for payment. The acceptance of ongoing responsibility for medical benefits and the settlement itself are required to be provided. From that information, Medicare begins its recovery efforts against those who failed to protect its interests. However, without an mandate requiring reporting information to extend to Part C plans, it would appear that MAOs must rely on the beneficiary or their representative to advise that a settlement has occurred. Will CMS now expand the recipients of Mandatory Insurer Reporting to include Part C plans?
Assuming that MAOs now have the same rights as traditional Medicare and that their recovery rights ripen on the fact of settlement, judgment or award, is it permissible to satisfy the lien before settlement? If so, can this be done by the primary payer or by the beneficiary pursuant to the policy of insurance? Clearly, logistical questions abound. For the time being, the law applies only in the Third Circuit. But, if adopted by the other Circuits it appears that CMS will have yet another technical challenge on its hands. Clearly, mindful MAO organizations will now step up their recovery efforts based upon the case.
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About the Author: Russell S. Whittle, Esq., is the Vice President of MSP Compliance for Gould & Lamb, LLC. In his twenty plus years of practice prior to joining Gould & Lamb, LLC, Mr. Whittle practiced primarily in the area of insurance defense, representing the interests of large insurers and employers in both workers’ compensation and general automobile liability matters.
Gould & Lamb is a global leader of MSA/MSP Compliance Services in the country, serving domestic and international insurance companies, third-party administrators and self-insured entities.