Two cases recently decided by the Eleventh Circuit Court of Appeals – Humana Medical Plan, Inc. v. Western Heritage Insurance Company, 832 F.3d 1229 (11th Cir. 2016), and MSP Recovery, LLC v. Allstate Insurance Company et al., 835 F.3d 1351 (11th Cir. 2016) – expand private insurers' exposure for the reimbursement of Medicare payments under the Medicare Secondary Payer Act ("MSP").

In Western Heritage, the Court held that the MSP gives Medicare Advantage Organizations ("MAOs") a private cause of action to seek double damages against private insurers that fail to reimburse MAOs for Medicare payments when the private insurers have demonstrated a responsibility for those payments. Western Heritage merits special attention because an insurer's settlement of a claim brought by a Medicare enrollee could subject the insurer to double damages if the MAO is not reimbursed for Medicare payments – even if the claimant promises to satisfy any Medicare liens.

In Allstate, the Eleventh Circuit held that a contractual obligation alone – such as a policy offering personal injury protection no-fault insurance – can demonstrate a private insurer's responsibility for the reimbursement of Medicare payments. This holding may be limited to no-fault insurance.

Western Heritage: Medicare Advantage Organizations and the Medicare Secondary Payer Act

Background

Medicare has traditionally been delivered by the federal government pursuant to Parts A and B of the Medicare statutes. Congress established the Medicare Advantage Program, Part C of the Medicare statutes, as a cost saving measure. The program allows Medicare enrollees the option of obtaining Medicare benefits from private insurers – MAOs – instead of from the federal government directly. See 42 U.S.C. §1395w-21(a). MAOs contract with the federal government to provide the Medicare benefits and are obligated to provide the same benefits as the federal government. See 42 U.S.C. §1395w-22(a).

Although MAOs are required to deliver the same benefits, it has been unclear whether MAOs can invoke the private cause of action under the MSP to recover Medicare payments when there is another party responsible for the payments. By way of background, in 1980, Congress passed the MSP in an effort to curb the rising cost of Medicare. The MSP prohibits Medicare from making payments for medical treatment if payment has been made or can reasonably be expected to be made under a group health plan or under a worker's compensation, automobile, or liability insurance policy or no-fault insurance (the "primary plan"). 42 U.S.C. §1395y(b)(2)(A).

Despite this bar, the MSP allows Medicare to make "conditional payments" when the primary plan does not or cannot promptly pay, subject to reimbursement by the primary plan. See 42 U.S.C. §1395y(b)(2)(B). Further, the MSP establishes a private cause of action for double damages when a primary payer fails to reimburse Medicare. The MSP does not state that the private cause of action is available to MAOs or that MAOs have the same reimbursement rights as the federal government.

The Western Heritage Litigation

In Western Heritage, Mary Reale, a Medicare enrollee, was injured at a condominium. An MAO, Humana Medical Plan, Inc. ("Humana"), paid $19,155.41 to medical providers for Ms. Reale's treatment. Western Heritage, 832 F.3d at 1232. Subsequently, Mrs. Reale and her husband filed a tort action against the condominium. In connection with a pending settlement between the Reales and the condominium and its insurer, Western Heritage Insurance Company ("Western Heritage"), Humana issued a request for repayment of the amounts paid on behalf of Mrs. Reale. Pursuant to the settlement, the Reales agreed to release the condominium and Western Heritage in exchange for $115,000. Further, the Reales represented there was no Medicare lien or subrogation right, and the Reales agreed to indemnify the condominium and Western Heritage in the event there was one. Subsequently, Humana sued the Reales in federal court seeking reimbursement of $19,155.41. Id. at 1232.

The federal case prompted Western Heritage to make Humana a payee on the settlement check, but the Reales refused to agree to that. The Reales moved to enforce the settlement agreement, and the parties agreed to a stipulated order requiring the Reales' counsel to hold $19,155.41 in trust pending the resolution of Humana's lawsuit against the Reales. Id. at 1232. Then Humana dismissed the lawsuit against the Reales and demanded reimbursement from Western Heritage. Id. at 1232-33. Humana sued Western Heritage under the MSP private cause of action for double damages.

Western Heritage defended on the grounds that: (1) the MSP private cause of action does not apply to MAOs, and (2) it did not fail to reimburse Humana because it lacked constructive knowledge that Medicare made a conditional payment, it did not know Humana was an MAO, and because it attempted to make Humana a payee on the settlement check. The district court entered judgment in Humana's favor and awarded damages in the amount of $38,310.82. Id. at 1233.

The Eleventh Circuit held the MSP private cause of action was available to MAOs. Id. at 1238. In addition, the Court held that Western Heritage had actual knowledge of Humana's lien because it tried to make Humana a payee on the settlement check, and it had constructive knowledge that it was a Medicare lien because it had the ability to take discovery about the nature of Mrs. Reale's health insurance coverage in the tort lawsuit against the condominium. Id. at 1238- 39.

Allstate: An Insurance Policy May Establish Responsibility for Medicare Payments Even in the Absence of a Settlement or Judgment

Allstate involved seven consolidated cases in which MAOs sought reimbursement of Medicare payments from insurers that provided personal injury protection ("PIP") no-fault insurance to their insureds. Allstate, 835 F.3d at 1356. In each case, an insured, who was also enrolled in an MAO plan, was involved in an automobile accident. The MAO made conditional payments for the insureds' medical expenses and sought reimbursement from the primary plans even though there was no settlement or judgment. The district court dismissed the cases on the grounds that a primary plan's responsibility for payment must be demonstrated by a settlement or judgment before an MAO files a private cause of action under the MSP. Id. at 1356. The Eleventh Circuit disagreed.

The Court held that an insurance policy may be sufficient to demonstrate responsibility for reimbursement of the MAO's Medicare payments because, in the underlying cases, responsibility is determined based on a construction of the PIP policies and not by a judgment against, or settlement by, the alleged tortfeasor/insured. Id. at 1360-61. The Court cautioned that a plaintiff seeking reimbursement under the MSP must allege and prove that the defendant's insurance policies actually make the insurer responsible for the Medicare payments. Further, the defendant insurer can assert any valid contract-based defense. Id. at 1361.

Looking Ahead

After Western Heritage, insurers may wish to consult with counsel about taking additional precautions when settling tort claims. For example, claimants' representations about their health insurance coverage and the status of any Medicare liens may not be reliable. In addition, the Center for Medicare and Medicaid Services may not be a reliable source for identifying payments made by MAOs because the federal government does not coordinate benefits for MAOs. For pending cases, discovery may be a tool for obtaining this information.

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