Third Circuit Finds Medicare Advantage Plans have a Private Cause of Action Right under the MSP

In a surprising decision, the Third Circuit of the United States Court of Appeals overturned a District Court’s opinion which found that MAPs 1 could not recover against a primary payer through a PCOA under the MSP. 2 For PMSI’s June 30, 2011 Legal Bulletin on the District Court opinion, please click here.

This case involved GlaxoSmithKline (GSK), a pharmaceutical corporation that was sued by thousands of individuals alleging that they suffered personal injury from the use of GSK’s diabetes medication, Avandia. Humana, which has several MAP plans, filed a complaint to enforce its claimed rights as a secondary payer under the MSP, specifically seeking a PCOA right for double damages pursuant to 42 U.S.C. § 1395y(b)(3)(A), for reimbursement of costs that Humana incurred to cover treatment for Avandia-related illnesses and injuries on behalf of settling MAP enrollees.

The Third Circuit took a completely different view than the District Court, finding that the plain text of the PCOA provided under the MSP sweeps broadly enough to include MAPs and even if the court found the MSP to be ambiguous on this particular point, that deference to CMS regulations would require the Court to find that MAPs have the same right to recover as the Medicare Trust Fund. The Third Circuit even went so far as to find that the PCOA was not limited to MAPs, and could be used by any private party: “[t]he 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.” (emphasis added)

GSK argued points to the contrary in defense of the District Court’s opinion, asserting that no rights to reimbursement are granted to an MAP directly under the MSP. Essentially, although an MAP may be considered a primary payer under the MSP and have the right to reimbursement of conditional payments, it must recover these payments through any contractual rights it had with the beneficiary in state court. GSK cited case law to support its position, but the Third Circuit found none of the case law to be on point and persuasive in this matter.

As further backing to their opinion, the Third Circuit dove into a discussion regarding legislative history and policy surrounding MAPs (even though it concluded the MSP to be unambiguous on this point), finding that MAPs were created by Congress to create a more efficient and less expensive system, and that by essentially allowing MAPs to “faithfully pursue and recover from liable third parties” they will have lower medical expenses and as a result will be able to provide additional benefits to their enrollees. The Court additionally noted that it would put MAPs at a competitive disadvantage if Medicare could threaten primary payers with a right to double damages but MAPs could not, and that it did not believe it was the intent of Congress to “hamstring” MAPs in this manner.

The Court also gave Chevron deference3  to CMS regulations, specifically 42 C.F.R. § 422.108, which provides that MAPs “. . . will exercise the same rights to recover from a primary plan, entity, or individual that the Secretary exercise under the MSP regulations…” A recent memorandum from CMS dated December 5, 2011 also clarified that CMS understood § 422.108 to assign MAPs the right to collect from primary payers using the same procedures available to traditional Medicare and that the same applies to Part D prescription drug plan sponsors via 42 C.F.R. § 423.462. To view this memorandum, please click here.

This decision by the Third Circuit should be carefully considered by primary payers when settling a case with a Medicare eligible individual. MAP demands should be given priority for reimbursement just as traditional Medicare conditional payment demands are given, or the primary payer may be subject to a PCOA for double damages from the MAP as happened in this case.

Additionally, primary payers may not be aware that during a March 22, 2012 teleconference call, CMS  stated that they are sharing MMSEA Sec 111 data with MAPs. Therefore, MAPs are now being armed with settlement information concerning Medicare beneficiaries in the same manner as traditional Medicare.

MAP demands are issued from the MAP directly; i.e., if the MAP is Humana, the demand will be issued on Humana letterhead. This is unlike traditional Medicare conditional payment demands which will be issued directly from CMS and are currently on letterhead from the MSPRC. Primary payers should become familiar with some of the major MAP plans on the market so they will recognize these MAP demands when they are received.

Because MAP demands are issued from the MAP plan, primary payers should be proactive in determining whether an MAP demand exists. The primary payer may want to seek MAP enrollment/benefit history from claimants/plaintiffs prior to settling cases. Once the primary payer is availed of this information, it should consider contacting the MAP for conditional payment information prior to settlement.

Beyond the affect this decision may have on MAPs, the court’s statement that any private party may pursue a PCOA under the MSP for double damages is dubious and sure to confuse primary payers even further as to which parties may pursue a PCOA under the MSP (double damages apply) if they fail to protect Medicare’s interests.

If it is any consolation to the industry, within the text of Third Circuit’s opinion, the Court refers to the MSP as “the most completely impenetrable texts within human experience.” Due to the opaque nature of the MSP, we can be certain that the courts will be called to the task of interpreting the bounds of the MSP into the infinite future until Congress reforms and clarifies this federal law.

 


1. [MAPs, also sometimes known as Medicare Part C, allows Medicare enrollees to obtain Medicare benefits through private insurers instead of receiving benefits from the government under Parts A and B. Many MAPs also offer Part D prescription benefits to Medicare enrollees.]

2. [In Re Avandia Marketing, 2012 U.S. App. LEXIS 13230 (June 28, 2012).]

3. [Chevron Deference is a well-known two-part test established by the Supreme Court for determining when a federal court ought to defer to the interpretation of a statute by the federal agency charged with implementing that statute.]


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