Medicare Advantage Update: Court Rules that a MAO Can Pursue Reimbursement Against its Enrollee

By Mark Popolizio January 13, 2015

In an important new Medicare Advantage case, the court in Collins v. Wellcare Healthcare Plans, Inc., No. 13-6759, 2014 WL 7239426 (E.D. La December 16, 2014) ruled that a Medicare Advantage Organization (MAO) had private cause of action rights under the Medicare Secondary Payer (MSP) statute thereby allowing it to pursue a reimbursement claim against its enrollee.

The court’s very detailed decision can be summarized as follows:

Facts

This case arose from a 2009 automobile accident in which the plaintiff, Aimee Collins, sustained personal injuries. She brought a claim against the other driver, and eventually reached a settlement for an undisclosed amount.

At the time of the accident, the plaintiff was a Medicare beneficiary who received her Medicare benefits through Wellcare, a MAO. Wellcare paid a portion of her accident related medical expenses. Wellcare then claimed reimbursement of these expenses in the amount of $181,261.97.

Dispute

A dispute developed between the parties as to whether Wellcare was entitled to reimbursement. The crux of the dispute involved whether or not the MSP’s private cause of action statute applied to MAOs, such as Wellcare.

By way of context, the MSP’s private cause of action provision states as follows:

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 payment (or appropriate reimbursement) in accordance with paragraphs (1) and (2)(A).1

The plaintiff argued that this provision did not apply to MAOs. In addition, she alleged that this section applied only to group health plans, that Wellcare failed to make a “conditional payment” under the MSP, and that Wellcare’s reimbursement claim was time barred. Wellcare countered that this provision applied to MAOs and that it had filed a timely claim.2

How did the Court rule?

The court ruled in favor of Wellcare, finding that the MSP’s private cause of action statute applies to MAOs. However, the court declined to determine the actual amount of Wellcare’s reimbursement and ruled that the MSP’s “double damages” provision was not applicable in this case.

The court’s ruling can be broken down as follows:

1. The MSP’s private cause of action statute applies to MAOs, such as Wellcare.

In reaching this conclusion, the examined the Third Circuit Court of Appeals’ analysis in the case In re Avandia, 685 F.3d 353 (3rd Cir. 2012).

In Avandia, the court found that the “plain text” of the MSP’s private cause of action statute was broad enough to apply to MAOs, and that this section did not contain any narrowing language excluding MAOs from its application. For a review of the Avandia decision, click here.

Finding the Third Circuit’s ruling “persuasive,” the court concluded that the MSP’s private cause of action provision applied to Wellcare, stating as follows:

The MSP’s statutory text does not include any narrowing language that would exclude MAOs from the private cause of action clause, while the statute includes such narrowing language in other parts of the MSP. The text therefore clearly indicates that MAOs are included within the purview of parties who can bring a private cause of action under the MSP. Even if the text was not clear to this end — and this Court believes it is — such ambiguity would trigger Chevron deference and lead to the same result (Emphasis Added).3

2. Wellcare presented a viable claim under the private cause of action statute based on the facts.

The court next had to determine whether the facts “corresponded” to the statutory language of the MSP’s private cause of action statute, thereby allowing Wellcare’s action to proceed.

In concluding that Wellcare presented a viable claim, the court made a number of important findings as follows:

First, the court ruled that the plaintiff’s settlement constituted a “primary plan” under the MSP, finding “no real distinction between a claim against a tortfeasor or his insurer to obtain reimbursement and a claim against a beneficiary to obtain reimbursement from a settlement funded by a tortfeasor or his insurer.”

Second, the court rejected the plaintiff’s argument that the MSP’s private cause of action was limited group health plans.4 While a full examination into this complex argument is beyond the scope of this analysis, the court refused to adopt the plaintiff’s position finding that this interpretation “would render much of the ‘primary plan’ definition and references within Paragraph 2(A) completely futile, a complete waste of statutory text.”

Third, the court rejected the plaintiff’s contention that Wellcare did not issue a “conditional payment” as defined under the MSP since it had failed to determine whether another payer was (or could be) responsible for her medical expenses. On this point, the court found nothing in the MSP requiring that a MAO “engage in a thorough investigation to unequivocally ascertain whether payment from another source can be expected.” Further, it was noted that the plaintiff failed to respond to Wellcare’s multiple inquiries requesting information regarding other possible payment sources.

3. Wellcare was not entitled to “double damages” in this case.

While the court ruled that Wellcare enjoyed private cause of action rights, it declined to assess “double damages” against the plaintiff.

On this question, the court found that having private cause of action rights does not automatically afford a right to double damages. According to the court, in order for the double damages remedy to apply, the primary plan must fail to provide reimbursement – which it viewed as “connotat[ing] an active dereliction of a duty,” since the award of double damages “is intended to have a punitive effect on plans who intentionally withhold payment.”

Applying this standard to the facts, the court concluded that double damages were not appropriate. Specifically, the court noted that the plaintiff had placed the disputed settlement sums into a trust while the parties litigated the matter.

4. The court declined to determine the amount of Wellcare’s reimbursement.

The plaintiff alleged that her settlement did not compensate her for any medical expenses and, as such, Wellcare was not entitled to reimbursement from the settlement proceeds.

This argument raised various issues regarding the extent and amount of Medicare’s actual reimbursement under the MSP. On this point, the court noted several recent decisions from other jurisdictions where the court held that Medicare was entitled to full reimbursement in certain situations where a settlement releases the tortfeasor from all further claims, even when the settlement does not specifically provide for medical expenses.5

However, the court declined to rule on the amount of reimbursement owed to Wellcare, noting that it was “largely in the dark about the nature of the settlement at issue.” As such, the court found that this remained a disputed fact to be addressed through a separate motion.

5. Wellcare’s claim was not barred by the statute of limitations.

The plaintiff also argued that Wellcare’s claim was time barred since it failed to bring its action within the three year claims filing provision of the MSP.6 Wellcare countered that the six year statute of limitations contained in the Federal Claims Collection Act (FCA) applied.7

The court rejected both of these positions – finding instead that the SMART Act’s newly enacted three year statute of limitations provision governed.8 While acknowledging that this new provision related specifically to actions brought by the United States, the court interpreted this provision as “applying to all causes of action brought under the Medicare Secondary Act.”

From there, the court interpreted this new provision to mean that a cause of action “must be brought within three years of the time that a party is notified of a settlement.” Turning to the facts, it was undisputed that Wellcare only learned of the settlement through the filing of this lawsuit. Accordingly, the court found that Wellcare’s action fell within applicable three year statute of limitations.

In the Bigger Picture

The Collins decision is significant in that it is the latest case to address the growing question of whether MAOs have private cause of action rights (including the potential right to recover “double damages”) under the MSP.

Following the Third Circuit’s ruling in Avandia, many have witnessed MAOs taking a more aggressive stand in pursuing reimbursement. As part of this, MAOs are starting to assert private cause of action claims outside of the Third Circuit (such as in the Collins case), in an effort to basically expand the Third Circuit’s favorable ruling to other jurisdictions.

In finding that Wellcare had private cause of action rights under the MSP, the court in Collins essentially aligned itself with the Third Circuit. Just a few months prior to the Collins decision, a similar ruling was issued in the Texas case Humana v. Farmers.9 In Humana, the district court for the Western District of Texas overruled a Magistrate’s recommendation that the court reject the Third Circuit’s interpretation, finding instead the court’s analysis in Avandia to be persuasive. As such, the court in that case allowed the MAO’s private cause of action claim to proceed.

It is interesting to note that the MAOs in the Avandia and Humana cases brought their private cause of action claims against the actual claims payers, while in Collins Wellcare pursued its actual enrollee (insured). However, as noted above, this distinction was immaterial to the court in Collins.

Going forward, it will be important to keep an eye out for future cases involving this issue. In the interim, claims payers should consider developing best practice approaches to deal with MAO lien claims, which should include a full understanding of the growing body of case law in this area and how it may, or may not, apply to a particular MAO reimbursement action.

To learn more on how ISO Claims Partners can help with you with Medicare Advantage lien claims and issues, please feel free to contact the author.

1. The MSP’s private cause of action statute is codified at 42 U.S.C. § 1395y(b)(3)(A).

2. On a procedural note, the plaintiff sought a declaratory judgment that Wellcare was not entitled to subrogation or reimbursement. Wellcare moved to dismiss this filing on grounds that the she failed to first exhaust administrative remedies. The court agreed with Wellcare and dismissed the plaintiff’s action for failing to exhaust administrative remedies based on 42 U.S.C. 405(h) and applicable case law. Wellcare also filed a counterclaim and motion for summary judgment in response to the plaintiff’s filing and in support of its reimbursement claim. The court entertained these filings, which ultimately served as the basis for the court’s discussion and ruling in this matter as discussed herein. The court noted that it had jurisdiction per 28 U.S.C. §§ 1331 and 1332. In addition, the court stated that Wellcare’s counterclaim was not subject to the exhaustion requirement since “42 U.S.C. § 405(h) does not require [MAOs] to exhaust administrative remedies.”

3. Collins v. Wellcare Healthcare Plans, Inc., No. 13-6759, 2014 WL 7239426, (E.D. La December 16, 2014), at *11. In determining whether Wellcare had private cause of action rights, the court also raised the separate issue of whether Wellcare would have such rights under the MAO statute. However, the court ultimately declined to render an opinion on this issue since it found that Wellcare had private cause of action rights under the MSP.

4. In general, the issue raised here related to applicability of the phrase “in accordance with paragraphs (1) and (2)(A)” in MSP’s private cause of action statute. Specifically, the plaintiff argued that the word “and” in this phrase limited applicability of the private cause of action provision to group health plans, citing Bio–Med. Applications of Tennessee Inc. v. Central States Southeast & Southwest Areas Health & Welfare Fund, 656 F.3d 277. In rejecting the plaintiff’s argument, the court noted that the Sixth Circuit had recently clarified its holding in Bio-Med and that another recent Sixth Circuit case, Michigan Spine and Brain Surgeons, PLLC v. State Farm Mutual Auto Ins. Co. 758 F.3d 787 (6th Cir. 2014), found that the MSP’s private cause of action applies to primary plans other than just group health plans. Finding the Sixth Circuit’s reasoning “compelling,” the court in Collins refused to “eviscerate the private cause of action for non-group health plans under the MSP as advanced by Collins.”

5. Two main cases cited by the court were Hadden v. United States, 661 F.3d 298 (6th Cir. 2011) and Taransky v. Sebelius, 760 F.3d 307 (3rd Cir. 2014). The court also referenced the MSP Manual, Chapter 7, Section 50.4.4.

6. 42 U.S.C. § 1395y(b)(2)(B)(vi).

7. The FCA is codified at 28 U.S.C. § 2415(a).

8. Section 205 of the SMART Act, now codified at 42 U.S.C. § 1395y(b)(2)(B)(iii), sets a three (3) year statute of limitations. This section, in pertinent part, states:

An action may not be brought by the United States under this clause with respect to payment owed unless the complaint is filed not later than 3 years after the date of the receipt of notice of a settlement, judgment, award, or other payment made pursuant to paragraph (8) relating to such payment owed.

By way of note, to the author’s knowledge this is the first case to address the SMART Act’s new statute of limitations provision. While outside the scope of this analysis, whether the court applied this provision correctly in this case, and how this section should be interpreted in general, is an interesting question that will likely engender discussion and debate going forward.

For example, one item for consideration is the phrase “pursuant to paragraph (8).” A literal interpretation of this phrase would seem to suggest that the limitations period is to be measured from the reporting of a settlement through the Section 111 reporting process. However, the court in Collins did not address this aspect of this statute. Rather, the court measured the limitations period from the point when Wellcare became of aware of the settlement through plaintiff’s lawsuit. In Collins, the reported facts do not contain enough information to determine whether the difference between these points would have made a difference. However, from a more global perspective, there could be a significant difference between these points (or other possible measuring points) that could directly impact whether or not a particular action was filed timely.

9. Humana v. Farmers ,13-cv-00611-LV, Rec. Doc. 44 (W.D. Tex. Sept. 24, 2014)


Mark Popolizio

Mark Popolizio is the Vice President of MSP Compliance and Policy for ISO Claims Partners. Mark’s area of specialty is Medicare secondary payer compliance. He authors regular articles and provides educational presentations across the country on MSP issues. Mark's e-mail address is mpopolizio@iso.com.