Despite Settlement, Which Included Resolution of Conditional Payments, Florida Federal District Court Finds Insurer to be Primary Payer and Awards Double Damages to MAP

RafealOn March 16, 2015, the United States District Court for the Southern District of Florida published its opinion on Humana Medical Plan v. Western Heritage Insurance Company, finding that as a matter of law, Humana is entitled to maintain a private cause of action for double damages pursuant to 42 U.S.C. § 1395y(b)(3)(A) against Western Heritage, the primary payer in this matter. Since the MSP Act private cause of action makes it clear that double damages attach, the Court awards Humana $38,310.82, double the $19,155.41 it had paid in medical benefits related to the slip and fall claim from which such payments were born.

Mrs. Reale (Reale) was enrolled in a Humana Gold Plus Medicare Advantage Plan (Humana) when she sustained injuries in a slip-and-fall accident at Hamptons West Condominiums (Hamptons West) on or about January 21, 2009. Mrs. Reale received medical treatment for her injuries. Her healthcare providers billed charges totaling $74,636.17. Humana payed $19,155.41 for such medical charges.

Mrs. Reale then filed a personal injury action against Hamptons West on June 1, 2009. As Hamptons West’s liability insurer, Western Heritage Insurance Company (Western Heritage) entered into a settlement agreement with Mrs. Reale to resolve all issues regarding liability for a sum of $115,000.00. In that settlement agreement, Mrs. Reale attested that she had no outstanding Medicare liens that could represent a lien or claim against the proceeds she received from Western Heritage. Additionally, a letter from CMS dated December 3, 2009 confirmed that CMS had no record of processing Medicare claims on behalf of Mrs. Reale.

Western Heritage eventually learned of Humana’s lien rights and attempted to include Humana as a payee on its draft settlement agreement with Mrs. Reale. However, Mrs. Reale opposed Western Heritage’s attempts to include Humana as a payee on the settlement check because she disputed the amount of Humana’s lien. The state court judge ordered Hamptons West to tender full payment to Mrs. Reale without including any lien holder on the settlement check. The judge simultaneously ordered Mrs. Reale’s counsel to hold sufficient funds in a trust account to be used to resolve all medical liens. As a result of the state court order, Western Heritage tendered the full settlement amount to Mrs. Reale, with the understanding that Mrs. Reale and her attorney would reimburse Humana.

Humana and Mrs. Reale failed to agree on the amount Humana was to be reimbursed so Humana brought suit against Mrs. Reale and her attorney in the United States District Court for the Southern District of Florida on May 7, 2010. After the Court ruled that Humana did not have the same rights and authority as the US government did to file a private cause of action under the Medicare Secondary Payer Act to recoup conditional payments, Humana filed a Notice of Voluntary Dismissal of its action against Mrs. Reale and her attorney on November 9, 2011.

Mrs. Reale then brought suit against Humana in Miami-Dade County, Florida seeking a declaration of the exact amount she owed Humana. The state court found that Mrs. Reale had recovered 33.75% of the full value of her claims in her settlement with Western Heritage and therefore had recovered 33.75% of the total benefits paid by Humana, or $6,464.95. The state court then further reduced that number by 43%, taking into account the pro-rata share of fees and costs incurred in securing the settlement agreement, thus holding that Humana was entitled to reimbursement in the amount of $3,685.03. Humana has appealed the determination of the state trial court to the Third District Court of Appeals, but that court has not yet rendered a decision.

Humana then filed the instant action against Western Heritage on May 7, 2010. Right away, Humana filed a Motion for Summary Judgment seeking (1) a declaration that Western Heritage remains liable to Humana under the Medicare Secondary Payer Act even though it already settled all claims directly with Mrs. Reale and (2) double damages from Western Heritage under the Medicare Secondary Payer Act’s private cause of action provision.

The MSP provisions provide that Medicare cannot pay medical expenses when “payment has been made or can reasonably be expected to be made under a workman’s compensation law or plan of the United States or a State or under an automobile or liability insurance policy or plan (including a self-insured plan) or no fault insurance.” 42 U.S.C. § 1395y(b)(2)(A)(ii). If a primary plan “has not made or cannot reasonably be expected to make payment,” the Secretary is authorized to make a conditional payment. 42 U.S.C. § 1395y(b)(2)(B)(i). However, since Medicare remains the secondary payer, the primary plan must then reimburse Medicare for all conditional payments. 42 U.S.C. § 1395y(b)(2)(B)(ii).

The Medicare Secondary Payer Act (MSP Act) affords secondary plans a remedy against primary payers who fail to satisfy their obligations to make primary payments or to reimburse conditional Medicare payments. It does so by establishing two causes of action against noncompliant primary plans. The first cause of action belongs exclusively 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 cause of action is a private cause of action with no particular plaintiff specified indicates “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).

Regulations issued by CMS make clear that the provision extends the private cause of action to MAOs. Those regulations state that “MAOs will exercise the same rights to recover from a primary plan, entity, or individual that the Secretary exercises under the MSP regulations in subparts B through D of part 411 of this chapter.” 42 C.F.R. § 422.108. Moreover, CMS directors sent out a memorandum on December 5, 2011 reasserting that “notwithstanding recent court decisions, CMS maintains that the existing MSP regulations are legally valid and an integral part of Medicare Part C and D programs.” Ctrs. for Medicare and Medicaid Svcs., Dep’t of Health and Human Svcs. Memorandum: Medicare Secondary Payment Subrogation Rights (Dec. 5, 2011).

While the Eleventh Circuit has not yet addressed the issue of 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, the Third Circuit has addressed the issue and held that it can. See In re Avandia, 685 F.3d at 359.

The Ninth Circuit has also addressed whether an MAO has a private right of action to pursue reimbursement under the MSP Act. See Parra, 715 F.3d at 1154-55. It found that the MSP Act does not create a private right of action, but instead, affords MAOs the right to establish such rights within their contracts.

Western Heritage argues that this Court should follow Parra and “interpret the Medicare Act as not providing a private right of action in favor of MAOs such as Humana.” The Court here however finds the facts of Parra distinguishable from the facts of the case at hand, and its holding, inapplicable. The Court finds the Third’s Circuit’s analysis regarding the ability of an MAO to bring a private cause of action under the MSP Act to be persuasive. The statutory text of the MSP Act clearly indicates that MAOs are included within the purview of parties who may bring a private cause of action.

Having determined that MAOs, such as Humana, may maintain a private cause of action under the MSP Act, the Court turns to whether Humana may bring this particular cause of action against Western Heritage, given that Western Heritage has already directly settled all claims with Mrs. Reale, the Medicare beneficiary.

Humana argues that Western Heritage, as a primary payer under the MSP Act, is responsible for reimbursing the Medicare benefits Humana advanced on behalf of Mrs. Reale. In this case, Western Heritage, as Hamptons West’s liability insurer, entered into a settlement agreement with Mrs. Reale to resolve all personal injury claims she had against Hamptons West. That settlement agreement, wherein Western Heritage reimbursed Mrs. Reale for medical expenses she incurred as a result of injuries she sustained at Hamptons West, demonstrates Western Heritage’s responsibility under the MSP Act to reimburse Humana for the Medicare benefits it paid on behalf of Mrs. Reale. Thus, Western Heritage is a primary payer under the provisions of the MSP Act and is responsible for reimbursing the Medicare benefits Humana advanced, even in light of its agreement with Mrs. Reale settling all claims.

Pursuant to the MSP Act’s private cause of action, the Court finds Humana has a right to recover from Western Heritage the benefits it paid on behalf of Mrs. Reale and is statutorily entitled to recover an amount double what it paid on behalf of Mrs. Reale. Additionally, “if Medicare is not reimbursed as required by paragraph (h), the primary payer must reimburse Medicare even though it has already reimbursed the beneficiary or other party.” 42 C.F.R. § 411.24(i)(1). Therefore, the Court concludes that after Western Heritage became aware of payments Humana advanced on behalf of Mrs. Reale, it had an obligation to independently reimburse Humana. Because it didn’t, the Court rules that as a matter of law, Humana is entitled to maintain a private cause of action for double damages pursuant to 42 U.S.C. § 1395y(b)(3)(A) and is therefore entitled to $38,310.82 in damages.

As this case clearly shows, it is no longer advisable for payers to resolve Medicare conditional payments in state courts, or count on opposing counsel to hold funds in trust to reimburse such liens. As we recommend to all of our clients, there is no substitute for identifying the existence of Medicare Part A, B, C, or D conditional payments early on and following the administrative process set by CMS or by the Advantage Plan or Prescription Drug Plan to make certain compliance is reached. Whether a work comp or liability case, at Helios, we can assist with early identification and resolution of such liens.

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