Texas Federal Court Denies Motion to Dismiss, Allows MAP to Move Forward on MSP Private Cause of Action for Double Damages

Last year, we blogged about a series of four lawsuits that Humana had filed in four different jurisdictions seeking a declaratory judgment that it has a priority right to recover conditional payments. To read the prior blog, please click here. Since our last blog, three out of four of the lawsuits were dismissed and the only remaining case has been in Texas.

On September 24, 2014, the United States District Court for the Western District of Texas published its opinion on Humana Insurance Company v. Farmers Texas County Mutual Insurance Company and Mid-Century Insurance Company of Texas, indicating that based upon the Third Circuit’s Avandia opinion, which concluded Medicare Advantage Plans (MAPs) may bring a private cause of action under the MSP Act, the court rejected the magistrate judge’s recommendation to grant Farmers’ motion to dismiss Humana’s cause of action for double damages under Section 1395y(b)(3)(A) of the MSP Act, and concluded that Humana may bring a private cause of action against Defendants under the MSP Act.

This case stems from six Humana Medicare Advantage Plan enrollees injured in separate motor vehicle accidents, insured at the time of their accidents by Farmers, who received medical treatment related to such accidents, for which Humana paid as conditional payments. After Humana learned of the existence of a primary payer in each of these cases, it requested reimbursement from Farmers. Farmers refused to reimburse Humana, arguing MAPs were not entitled to reimbursement of such conditional payments.

As a result, Humana (Plaintiff) filed its lawsuit for reimbursement of conditional payments under the MSP Act, and later a First Amended Complaint. In response, Farmers (Defendant) filed its Motion to Dismiss Humana’s First Amended Complaint. Humana then filed Opposition to Defendants’ Motion to Dismiss the Amended Complaint. Farmers then filed Defendants’ Reply. The motion, response, and reply were referred to the United States Magistrate Judge for a Report and Recommendation as to the merits. The magistrate judge filed his Report and Recommendation, recommending that the court grant the motion and dismiss Humana’s federal claims.

Humana objected to several findings of the magistrate judge, including: (1) that Medicare Advantage Organizations may not pursue a private cause of action under the Medicare Secondary Payer Act, 42 U.S.C. § 1395y(b); (2) that Medicare Advantage Organizations have no federal common-law right to charge an insurance carrier for medical expenses paid; (3) that Humana is not entitled to declaratory judgment; and (4) that supplemental jurisdiction over Humana’s state-law claims should be declined. Farmers then filed a Response to Plaintiff’s Objections to the Magistrate Judge’ Report and Recommendation. Humana then filed a Notice of Supplemental Authority.

In light of Humana’s objections, the court here took a de novo review of the entire case file and found that the magistrate judge’s Report and Recommendation should be rejected by the court. The court noted that the MSP creates remedies against a primary plan that fails to satisfy its statutory obligation to make primary payments or reimburse conditional Medicare payments by establishing two separate causes of action against noncompliant primary plans. The first belongs to the United States, which “may bring an action against any or all entities that are or were required or responsible . . . to make payment . . .under a primary plan.” 42 U.S.C. § 1395y(b)(2)(B)(iii). The second is a private cause of action with no particular plaintiff specified: 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). 42 U.S.C. §1395y(b)(3)(A).

The court relied on In re Avandia Mktg., 685 F.3d 353 (3d Cir. 2012), in which the Third Circuit addressed the same issue raised in this case, whether a Medicare Advantage Organization, such as Humana, may bring a private cause of action against a primary plan under the secondary provision of the Act. Although the Fifth Circuit has not addressed the issue, the Third Circuit held that the text of Section 1395y(b)(3)(A) “unambiguously provides Humana with a private cause of action.” Id. At 365. The Third Circuit found “that the provision is broad and unambiguous, placing no limitations upon which private (i.e., non-governmental) actors can bring suit for double damages when a primary plan fails to appropriately reimburse any secondary payer.” Id. at 359. “Congress was certainly aware that private health plans might be interested private parties when it drafted the cause of action, and it did not exclude them from that provision’s ambit.” Id. at 367. Therefore, the Third Circuit concluded, “any private plaintiff with standing may bring an action.” Id. at 367.

The court here agreed and found the Third Circuit’s analysis persuasive. Therefore, the court rejected the magistrate judge’s recommendation to grant Farmers’ motion to dismiss Humana’s cause of action for double damages under Section 1395y(b)(3)(A). The court therefore ordered that Humana’s Objections to Magistrate Judge’s Report and Recommendation are sustained; that the Report and Recommendation of the United States Magistrate Judge is rejected; and that Farmers’ motion to dismiss contained in the Motion and Memorandum of Law in Support of Defendants Farmers Texas County Mutual Insurance Company and Mid-Century Insurance Company of Texas’ Motion to Dismiss Plaintiff’s First Amended Complaint was denied.

Although this case is clearly far from over, it is yet another piece of the larger puzzle coming together on MSP private cause of action, and very specifically on Medicare Advantage Plan’s rights to seek reimbursement and double damages from primary payers under the MSP. Considering this court’s conclusions, primarily based on analysis from the United States Third Circuit Court of Appeal’s decision on Humana v. GlaxoSmithKline, and the United States Sixth Circuit Court of Appeal’s decision on Michigan Spine v. State Farm, it is clear that employers, corporate defendants, self insureds, insurers and carriers must include MSP private cause of action, and very specifically MAP’s rights to such private cause of action, in their MSP review, analysis, and compliance program. Helios Settlement Solutions has a dedicated team that assists clients on a daily basis with such issues, concerns, and planning. We welcome your contacting us about such issues and concerns, so we can help to create a strategy, take steps, and plan accordingly.

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