Seventh Circuit bypasses Medicare Advantage “double damages” question

August 21, 2019 / 6 min read

The latest case addressing whether the Medicare Secondary Payer’s (MSP) private cause of action (PCA) statute[1] applies to Medicare Advantage Plans (MAP), thereby allowing MAPs to sue for double damages,” reached the United States Court of Appeals (Seventh Circuit)[2] in MAO-MSO Recovery II, LLC v. State Farm Mutual Automobile Insurance Company, 953 F.3d 573 (7^th Cir. August 15, 2019).

In this new decision, the Seventh Circuit affirmed (with modification) a ruling from the United States District Court for the Central District of Illinois dismissing a MAP assignee’s PCA claim on standing grounds. As such, the Seventh Circuit did not address the key substantive issue of whether MAPs have PCA rights under the MSP. While the court did not end up addressing the PCA issue, it noted the lower court took a favorable view of MAPs enjoying PCA rights, which insurers and other parties should keep in mind going forward when dealing with Illinois MAP lien issues.

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This decision and its larger claims considerations is broken down as follows:

Background

Plaintiff MAO, as a self-proclaimed assignee of several MAPs, filed a putative class action against the insurer for “double damages” for the insurer’s alleged failure to reimburse MAP payments. MAO filed several amended complaints to which the insurer moved to dismiss on standing grounds. The district court ultimately dismissed (with prejudice) MAO’s action for lack of standing based on various pleading and factual deficiencies. In addition, the district court imposed sanctions against one of the plaintiffs and its attorneys pursuant to questions concerning whether one of the plaintiff’s alleged assignors was even qualified as a MAP and related allegations of possible factual misrepresentations.

Dismissal order amended; sanctions levy reversed

The Seventh Circuit affirmed the district court’s dismissal but ruled that it erred in dismissing the case “with prejudice” based on certain points of federal procedural practice and law. While an analysis into the varying and complex rules of federal pleading practice is beyond the scope of this article, the bottom line is that the Seventh Circuit affirmed the district court’s dismissal without leave to amend but modified it to be a dismissal “without prejudice.” As to the lower court’s ruling on sanctions, the Seventh Circuit ultimately reversed, finding insufficient basis to support the court’s decision.

The MAP “double damages” question saved for another day

From the author’s view, the more interesting, and potentially significant, aspect of this action relates to MAO’s underlying PCA “double damages” claim.

Regarding this issue, the Seventh Circuit noted that while the district court dismissed MAO’s action on standing grounds, the lower court “agreed with [MAO] that the statute does support a private cause of action for Medicare organizations” based on rulings coming from the Third and Eleventh Circuits in In re Avandia Mktg., Sales Practices & Prods. Liab. Litig., 685 F.3d 353, 355 (3d Cir. 2012) and Humana Med. Plan, Inc. v. Western. Heritage Ins. Co., 832 F.3d 1229, 1238 (11th Cir. 2016). Further, it was noted by the court that the insurer did not challenge this point at the district level but “changed its tune” on appeal, filing a cross-appeal arguing that the MSP’s PCA statue does not extend to MAP and asserting that the MAP’s only recourse was in contractual law.

However, the Seventh Circuit declined to address the question of whether the PCA statute applied to MAPs since MAO lacked standing to bring suit in the first instance. In declining to address the MAP-PCA issue, the Seventh Circuit explained:

Plaintiffs’ efforts in the present case foundered, however, when the district court found that they did not have valid assignments from any Medicare Advantage Organization that made unreimbursed payments. Without the link to a proper Organization that possessed claims to reimbursement, the court concluded, plaintiffs had no injury for which they could seek redress on this or any other legal theory. Accordingly, it ruled, no matter the scope of the private right of action, these plaintiffs lacked standing to sue. We come to the same conclusion. We save for another day the question whether a Medicare Advantage Organization or a proper assignee of its rights may invoke the Medicare Secondary Payer private right of action for double damages against a primary insurer.

Thus, the Seventh Circuit (for now) passed on addressing the potential applicability of the PCA statute to MAPs as the issue was not properly before it from a procedural standpoint. As such, the court dismissed in the insurer’s cross-appeal on this issue

What’s Next?

It is unknown if MAO intends to somehow revive this action via a subsequent filing, assuming it can cure the factual and pleading deficiencies. Notwithstanding, while the Seventh Circuit passed on the MAP-PCA issue at this time, litigants in Illinois should remain cognizant of the fact that the district court for the Central District of Illinois, as noted by the Seventh Circuit, has taken a favorable view of MAPs enjoying PCA rights under the MSP. Thus, insurers should keep in this in mind when addressing MAP lien issues in Illinois.

From a wider lens, insurers need to keep a watchful eye on the continuing push by MAPs, and assignee entities, to establish PCA rights. For example, as noted above, the United States Third Circuit Court of Appeal in Avandia and Eleventh Circuit in Western Heritage have ruled that MAPs have “double damages” rights under the MSP. In addition, United States District Courts in Connecticut, Louisiana, Massachusetts, Tennessee, Texas, and Virginia have also ruled in favor of MAPs on this issue.[3] And, as mentioned above, the District Court for the Central District of Illinois gave a strong signal that it too viewed MAPs as possessing PCA rights.[4]

ISO Claims Partners has been the leader in helping claims payers build MAP protocols, and we would look forward to helping you address your MAP compliance needs. Please contact the author directly if you are interested in learning more! In the meantime, learn more about our MAP lien services here and/or review our state-by-state guide to Medicare Advantage in the courts.

[1] The Medicare Secondary Payer’s (MSP’s) private cause of action (PCA) statute is codified at 42 U.S.C. 1395y(b)(3)(A) and 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 for primary payment (or appropriate reimbursement) in accordance with paragraphs (1) and (2)(A) [of 42 U.S.C. § 1395 y(b)].

[2] The Seventh Circuit covers Illinois, Indiana, and Wisconsin.

[3] Collins v. Wellcare Healthcare Plans, Inc., 73 F.Supp.3d 653 (E.D. La. 2014), Humana Ins. Co. v. Farmers Tex. Cnty. Mut. Ins. Co., 95 F.Supp.3d 983 (W.D. Tex. 2014), Cariten Health Plan, Inc. v. Mid-Century Ins. Co., No.: 2015 WL 5449221(E.D. Tenn. 2015), Humana Ins. Co. v. Paris Blank LLP, 187 F.Supp.3d 676 (E.D. Va. 2016)., Aetna v. Guerrera, 300 F.Supp.3d 367 (D. Conn. March 13, 2018), and Humana v. Shrader, 584 B.R. 658 (S.D. Tex. March 16, 2018).

[4] MAO-MSO Recovery II, LLC v. State Farm, 2018 WL 340021 (C.D. Ill. January 9, 2018).