Second Circuit dismisses Medicare Advantage “double damages” lawsuit

April 25, 2023 / 17 min read

In an interesting new Medicare Advantage recovery decision, the United States Second Circuit Court of Appeals^[1] in MSP Recovery Claims, Series LLC v. Hereford Insurance Co., 2023 WL 2993857 (2^nd Cir. April 19, 2023) affirmed a judgment of dismissal finding that the plaintiff, an assignee of a Medicare Advantage Plan, lacked standing to bring its suit against a no-fault carrier for “double damages” under the Medicare Secondary Payer’s private cause of action statute.

As part of its ruling, the Second Circuit rejected the plaintiff’s argument that the insurer’s Section 111 reporting was sufficient to establish liability for its claim. Very generally, the court found, in part, that an insurer’s Section 111 report does not admit the insurer’s liability for the claim reported. As part of this conclusion, the court interpreted the Section 111 reporting statute (42 U.S.C. § 1395y(b)(8), et. seq.) as requiring reporting even in situations where there has not been an admission or determination of liability. Further, the court rejected the plaintiff’s argument that the insurer’s report of on-going responsibility for medicals, as defined by the Centers for Medicare and Medicaid Services (CMS) in its Section 111 User Guide, established liability. See below for a more detailed overview of the court’s analysis and discussion.

second-circuit

In the bigger picture, this decision could make it more difficult for plaintiffs in the Second Circuit to establish standing to assert private cause of action claims based on Section 111 reporting. From another angle, it will be interesting to see if parties attempt to use the court’s ruling and analysis to defend conditional payment claims when either CMS or a Medicare Advantage Plan argue that an insurer’s Section 111 reporting establishes liability for reimbursement.

For those interested in a deeper review of the Second Circuit’s decision, the following is presented:

Facts

The plaintiff in this case was an assignee of EmblemHealth a Medicare Advantage Plan (MAP), or as referenced by the court, a Medicare Advantage Organization (MAO). The plaintiff sued the defendant no-fault insurer, as part of a putative class action, for “double damages” under the MSP statute for the insurer’s alleged failure to reimburse the MAP for care it provided to one of its enrollees, as well as in connection with 63 other claims.^[2]

The plaintiff, as outlined more fully below, argued, in main part, that the insurer’s Section 111 reporting established the plaintiff’s standing to sue and the insurer’s liability under the MSP. Specifically, the plaintiff alleged that: “(1) EmblemHealth, an MAO and MSP’s assignor, paid for certain medical expenses incurred by N.G.; (2) when those expenses were incurred, N.G. was insured by a no-fault policy issued by Hereford; (3) Hereford reported to CMS that N.G. received these medical services, and, by doing so, admitted that Hereford was primarily responsible for those costs; and (4) Hereford did not reimburse EmblemHealth.”^[3] The insurer filed a motion to dismiss for lack of subject matter jurisdiction and for failure to state a claim.

The District Court dismisses the plaintiff’s claim on standing grounds

The United States District Court for the Southern District of New York granted the insurer’s motion to dismiss finding, in part, that the plaintiff lacked standing to sue. See, MSP Recovery Claims Series LLC v. Hereford Ins. Co., 2022 WL 118387 (S.D.N.Y. Jan. 11, 2022). Regarding standing, the district court ruled the plaintiff failed to adequately plead injury finding that while the plaintiff alleged that the insurer had not reimbursed the MAP payments, it failed to allege these payments were reimbursable.^[4]The district court further rejected the plaintiff’s argument that the “when [the insurer] reported these expenses to CMS under Section 111, [it] in effect admitted that it, not [the MAP] bore primarily responsibility for paying for N.G.’s medical expenses.”^[5] As for causation, the district court found that even if the MAP suffered a financial injury of some kind when it paid its enrollee’s expense, the “plaintiff failed to adequately allege that any such injury was fairly traceable to [the insurer].”^[6]The district court also declined to grant the plaintiff leave to file an amended complaint.^[7]

Plaintiff Appeals to the Second Circuit Court of Appeals

The plaintiff appealed the district court’s ruling to the United State Second Circuit Court of Appeal. On appeal, the plaintiff argued, in main part, that it had standing to bring its claim since the no-fault insurer’s Section 111 reporting established liability. On this point, the Second Circuit stated that “[i]n MSP’s view, whenever a primary plan reports a claim to CMS under Section 111, it admits liability for the claim because Section 111 imposes ‘a clear and unambiguous’ duty on primary plans to report medical services received by Medicare beneficiaries.”^[8] The court noted that “MSP thus advances the theory that, by reporting N.G.’s claim to CMS, Hereford demonstrated its knowledge that N.G. was a Medicare beneficiary; therefore, Hereford must also have known that it was the primary payer with respect to coverage for the specific medical services reportedly provided to N.G.”^[9]

Further, the plaintiff argued that its position was supported by certain information contained in CMS’s Section 111 User Guide. The Second Circuit noted that “[a]s understood by MSP, the User Guide ‘requires no-fault and liability insurers to report their ‘ongoing responsibility for medicals,’ a reporting responsibility that ‘arises after the primary payer ‘exercise[s] due diligence’ and determines its responsibility to pay for a Medicare beneficiary’s medical expenses.”^[10] The plaintiff also argued that requiring a primary plan to report simply because a Medicare beneficiary has submitted a claim to that plan “’would cause Medicare to waste taxpayer money prematurely, chasing unreimbursed conditional payments that never become secondary, because a liability insurer was not responsible as a primary payer.’”^[11]

The Second Circuit affirms the district court’s dismissal – finds that the insurer’s Section 111 reporting did not establish liability

The Second Circuit, in affirming the district court’s ruling, found that the plaintiff did not have standing to bring its lawsuit since it failed to establish either injury-in-fact or causation.^[12] As part of its ruling, the court rejected the plaintiff’s argument that the insurer’s Section 111 reporting established the plaintiff’s standing to sue and the insurer’s liability stating in part, that “the text of Section 111 is not ambiguous and that a report filed under its provisions does not amount to an admission of liability.”^[13]

In support of its conclusion, the Second Circuit embarked on an exacting review and interpretation of certain parts of the Section 111 reporting statute as codified at 42 U.S.C. § 1395y(b)(8), et seq. The court’s analysis is outlined, in general, and in part, as follows:

Statutory Analysis

The Second Circuit started its analysis by noting that under 42 U.S.C. § 1395y(b)(8)(A)(i), (C), if a no-fault insurer determines that “’a claimant (including an individual whose claim is unresolved) is entitled to benefits under [the MSP Act] on any basis,’ it must ‘submit[ ]’ certain information specified by the statute to CMS ‘within a time specified by the Secretary after the claim is resolved through settlement, judgment, award, or other payment (regardless of whether or not there is a determination or admission of liability).’” (court’s emphasis added).^[14]

In reviewing this section, the court agreed with the plaintiff that “when a primary plan correctly reports a claim under Section 111, the report evidences the plan’s determination that the claimant is entitled to benefits under the MSP Act.”^[15] However, from the court’s view, “the triggering determination is that the claimant is entitled to benefits ‘on any basis.’”^[16] Regarding reference to the phrase “on any basis” the court noted that this could “mean benefits to be paid by a primary plan, by Medicare itself, by an [Medicare Advantage Organization], or by another source: all such payments may be obligations owed ‘under’ the MSP Act.”^[17]

Further, the court referenced that the statutory language “requires the MAO to submit the specified information ‘regardless of whether or not there is a determination or admission of liability.’” (court’s emphasis).^[18] The court noted that a “contemporary dictionary” defines the word “regardless” as “’[w]ithout taking account of’ or ‘irrespective of.’”^[19] From this, the court concluded that “[w]hen used in subsection (C) of section 1395y(b)(8) to modify ‘submit,’ the word ‘regardless’ signals unmistakably that a primary plan must report claims covered by the MSP Act without considering its liability for those claims: claims for which it is liable and claims for which it is not liable, alike, must be reported. MSP’s proposed construction would render the words ‘regardless of whether or not there is a determination or admission of liability’ superfluous because there would be no circumstance when a primary plan is not liable for a claim it reports. In sum, we reject MSP’s reading and conclude that an insurer’s report under Section 111 does not admit the insurer’s liability for the claim reported.”^[20]

From another angle, the Second Circuit noted that the Section 111 reporting “statutory scheme reinforces the correctness of this interpretation.”^[21] The court interpreted Section 111 as requiring “primary plans to report more than the claims they are responsible for and fewer than all the claims they receive. For example, they need not report claims made by individuals covered under a no-fault policy but who, because of their youth (for instance), are ineligible for Medicare. But, as noted above, they must report claims made by individuals who may be eligible for coverage under the MSP Act ‘on any basis,’ even if the plan is ultimately not responsible for paying for those claims. 42 U.S.C. § 1395y(b)(8)(A)(i).”^[22] Further, on this point, the court noted that Section 111’s steep penalty provision “align[s] with the notion that Section 111 incentivizes over-reporting and early reporting, to further the purposes of the reporting requirement more generally: ‘to enable the Secretary to make an appropriate determination concerning coordination of benefits, including any applicable recovery claim.’ Id. §1395y(b)(8)(B)(ii) (emphasis added); see also id. § 1395y (b)(8)(G) (noting that the collected information may be shared ‘as necessary’ for ‘the proper coordination of benefits’).”^[23]

CMS User Guide

In addition, the court cited certain sections of CMS’s Section 111 User Guide as further support for its position. In this regard, the court noted that:

“[t]he User Guide explains that primary plans must report any claims made by a Medicare beneficiary ‘for both Medicare claims processing and for MSP [Act] recovery actions, where applicable.’ User Guide: Chapter I, at 6-1 (emphasis added); see also User Guide: Chapter III, at 4-1 (explaining that the data from reporting is used to process ‘claims billed to Medicare for reimbursement’ and ‘for MSP [Act] recovery efforts, as appropriate” (emphasis added)), 5-1 (explaining that the data from reporting is used “to enable an appropriate determination concerning coordination of benefits, including any applicable recovery claim” (emphasis added)), 6-22 (explaining that primary plans “must report settlements, judgments, awards, or other payments regardless of whether or not there is an admission or determination of liability” and “with either partial or full resolution of a claim” (emphasis in original)).”^[24]

In reviewing the italicized language above, the court interpreted these phrases to “reflect an acknowledgment that data collected from Section 111 reporting is not intended to establish the liability of any prospective payer. In other words, a primary plan like Hereford is responsible for reporting any claim received by it that to its knowledge involves a Medicare beneficiary—not just the claims it should have paid as a primary payer or for which it may have to reimburse another payer.”^[25] The court continued stating: “CMS acknowledges that the breadth of the reporting responsibility imposed by Section 111 is informed by its purpose not only to ‘help[ ] CMS determine primary versus secondary payer responsibility,’ but also ‘to enable CMS to pay appropriately for Medicare covered items and services furnished to Medicare beneficiaries.’ User Guide: Chapter I, at 6-1; see also 42U.S.C. § 1395y(b)(8)(G) (explaining that reporting is necessary for ‘the proper coordination of benefits’).”^[26] Thus, the court concluded that to “allow Medicare to coordinate benefits correctly, then, it is essential for Medicare to be advised not only that it is entitled to seek reimbursement from a primary plan but also that it may have to pay a claim in whole or in part without contribution from the primary plan.”^[27]

As part of this analysis, the court also rejected the plaintiff’s argument the User Guide resolves any interpretive ambiguity in favor of finding that an insurer’s reporting of on-going responsibility for medicals (ORM) establishes liability. On this point, the court noted the plaintiff argued that as defined in the Section 111 User Guide the ORM report “’demonstrates the primary payer’s ‘responsibility to pay, on an ongoing basis, for the injured party’s (Medicare beneficiary’s) medicals associated with the claim.’”^[28] In rejecting this position, the court stated that the “language relied on by MSP, however, does no more than define the phrase ‘ongoing responsibility for medicals’ … When read in context, the User Guide makes clear that ‘ongoing responsibility for medicals’ is merely one of several types of claim liabilities that primary plans must report. This strengthens our conclusion that Section 111 reporting does not admit liability.”^[29]

Court’s conclusion

Based on its analysis, the court stated as follows:

In sum, the plain language of Section 111 tells us that when a no-fault insurance provider such as Hereford reports a claim pursuant to Section 111, it does not thereby admit that it is liable for the claim. The statutory context of the section’s reporting obligation and the purpose of the reporting obligation confirm the correctness of this interpretation. Because MSP’s argument that the payments made by EmblemHealth are reimbursable by Hereford rests entirely on its proposed interpretation of Section 111, MSP has not adequately alleged a “concrete” or “actual” injury or that the injury it alleges is fairly traceable to Hereford. It therefore lacks standing to bring the N.G. exemplar claim … [and] it also lacks standing to bring its Exhibit A and class claims, which rely on the same theories of injury and causation.^[30]

Accordingly, the Second Circuit affirmed the district court’s judgment of dismissal regarding standing.^[31] In addition, while not the focus of this article, the Second Circuit also affirmed the district court’s ruling denying the plaintiff’s request to file an amended complaint. In this regard, the court noted that the courts in other jurisdictions had dismissed similar complaints filed by the plaintiff for lack of standing. On this point, the Second Circuit stated that “[t]he complaints in each of these dismissed cases are substantially similar and yet MSP has made no meaningful efforts of which we are aware to amend its standing allegations either in the complaint or the amended complaint filed in this case.”^[32] Thus, the Second Circuit found that the district court did not abuse its discretion in denying the plaintiff’s request to file an amended complaint.^[33]

Questions?

Please do not hesitate to contact the author if you have any questions or would like to learn how Verisk can help you address CMS conditional payment, Treasury, or Medicare Advantage/Part D claims.

[1] The Second Circuit has jurisdiction over the U.S. District courts for Connecticut, New York, and Vermont.

[2] The MSP’s private cause of action statute is codified at 42 U.S.C. 1395y(b)(3)(A) which states, in full, 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 for primary payment (or appropriate reimbursement) in accordance with paragraphs (1) and (2)(A).”

[3] MSP Recovery Claims, Series LLC v. Hereford Insurance Co., 2023 WL 2993857, *4 (2^nd Cir. April 19, 2023), citing MSP Recovery Claims Series LLC v. Hereford Ins. Co., 2022 WL 118387, *6-7, 9 (S.D.N.Y. Jan. 11, 2022)

[4] MSP Recovery Claims, Series LLC v. Hereford Insurance Co., 2023 WL 2993857, *4 (2^nd Cir. April 19, 2023), citing MSP Recovery Claims Series LLC v. Hereford Ins. Co., 2022 WL 118387, *6-7, 9 (S.D.N.Y. Jan. 11, 2022).

[5] MSP Recovery Claims, Series LLC v. Hereford Insurance Co., 2023 WL 2993857, *4 (2^nd Cir. April 19, 2023), citing MSP Recovery Claims Series LLC v. Hereford Ins. Co., 2022 WL 118387, *7, (S.D.N.Y. Jan. 11, 2022)

[6] MSP Recovery Claims, Series LLC v. Hereford Insurance Co., 2023 WL 2993857, *4 (2^nd Cir., April 19, 2023), citing MSP Recovery Claims Series LLC v. Hereford Ins. Co., 2022 WL 118387, *11, (S.D.N.Y. Jan. 11, 2022)

[7] MSP Recovery Claims, Series LLC v. Hereford Insurance Co., 2023 WL 2993857, *5 (2^nd Cir, April 19, 2023), citing MSP Recovery Claims Series LLC v. Hereford Ins. Co., 2022 WL 118387, *11, (S.D.N.Y. Jan. 11, 2022)

[8] MSP Recovery Claims, Series LLC v. Hereford Insurance Co., 2023 WL 2993857, *6 (2^nd Cir. April 19, 2023).

[9] Id.

[10] MSP Recovery Claims, Series LLC v. Hereford Insurance Co., 2023 WL 2993857, *6 (2^nd Cir. April 19, 2023), citing the Appellant’s Brief at 33-34.

[11] Id.

[12] MSP Recovery Claims, Series LLC v. Hereford Insurance Co., 2023 WL 2993857, *1 (2^nd Cir. April 19, 2023). Regarding standing, the court explained, in part, that “[c]onstitutional standing has three elements: (1) injury-in-fact, i.e., ‘an invasion of a legally protected interest [that] is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical,’ (2) causation, i.e., ‘a causal connection between the injury and the conduct complained of,’ and (3) redressability, i.e., ‘it must be likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.’” (court’s emphasis) MSP Recovery Claims, Series LLC v. Hereford Insurance Co., 2023 WL 2993857, *5 (2^nd Cir. April 19, 2023), citing Lujan v. Defs. Of Wildfire, 504 U.S. 555, 560-561 (1992). The court noted further that the “party invoking federal jurisdiction – here MSP – bears the burden of establishing all three elements.” MSP Recovery Claims, Series LLC v. Hereford Insurance Co., 2023 WL 2993857, *5 (2^nd Cir. April 19, 2023), citing Lujan v. Defs. Of Wildfire, 504 U.S. 555, 561 (1992). Continuing, the court stated that “[i]n some cases, a plaintiff may adequately allege injury-in-fact but not the requisite causal link. In other cases, the opposite may be true. Here, however, MSP’s theories of injury-in-fact and causation are closely related: both rest on the premise that when a primary plan reports a claim to CMS under Section 111, it admits its own liability for the claim.” MSP Recovery Claims, Series LLC v. Hereford Insurance Co., 2023 WL 2993857, *5 (2^nd Cir. April 19, 2023).

[13] MSP Recovery Claims, Series LLC v. Hereford Insurance Co., 2023 WL 2993857, *6 (2^nd Cir. April 19, 2023)

[14] Id. at *7

[15] Id.

[16] Id.

[17] Id.

[18] Id. Author’s note: While the court references “the MAO” in this statement, it is possible that this is in error, and since under Section 111 the MAO would not be required to report in this context, with the insurer being the party required to report.

[19] MSP Recovery Claims, Series LLC v. Hereford Insurance Co., 2023 WL 2993857, *7 (2^nd Cir. April 19, 2023), referencing Oxford Eng. Dictionary, https://www.oed.com/view/Entry/161197.

[20] MSP Recovery Claims, Series LLC v. Hereford Insurance Co., 2023 WL 2993857, *7 (2^nd Cir. April 19, 2023).

[21] Id. at *8.

[22] Id.

[23] Id.

[24] Id.

[25] Id.

[26] Id.

[27] Id.

[28] MSP Recovery Claims, Series LLC v. Hereford Insurance Co., 2023 WL 2993857, *9 (2^nd Cir. April 19, 2023)., referencing the plaintiff’s Appellant Brief at 33, which the court noted “quot[ed] User Guide: Chapter III, at 6-10.” Id.

[29] MSP Recovery Claims, Series LLC v. Hereford Insurance Co., 2023 WL 2993857, *9 (2^nd Cir. April 19, 2023).

[30] Id.

[31] Id.

[32] Id at *10.

[33] Id. at *10.