On August 6, 2018, in the United States District Court for the District of South Carolina, Florence Division, Humana Insurance Company (Humana) brought an action against Bi-Lo, LLC (Defendant), a Delaware limited liability company that sells groceries in the southeastern region of the United States. Humana’s action is for declaratory judgment to recover double damages pursuant the Medicare Secondary Payer Act (MSP) in the amount of $32,754.02 due and owing to Humana, as a Medicare Advantage Organization (MAO), by virtue of payments made on behalf of one of its enrollees, a Medicare beneficiary who elected Medicare Advantage coverage from Humana. This occurred despite the existence of a settlement agreement in which the enrollee and her counsel agreed to be responsible for such reimbursement. However, because the enrollee/counsel did not reimburse the Medicare payments advanced by Humana, Humana again seeks reimbursement from the Corporate Defendant.
The facts of the case
On or about August 29, 2013, the enrollee slipped and fell at a Bi-Lo grocery store. At the time of the accident, the enrollee was eligible for Medicare and had elected Medicare Part C coverage through Humana. The enrollee received Medicare benefits for injuries sustained from the slip and fall. Specifically, Humana expended $25,449.88 in conditional payments on Medicare claims submitted on behalf of the enrollee for medical services rendered.
Around May 2016, Defendant entered into a settlement with the enrollee. As a result, around August 2016, Bi-Lo paid the enrollee $80,000 to extinguish all claims, including her claims for personal injury and associated medical expenses. At that time, the enrollee procurement costs (attorney’s fees and costs associated with the claim for purposes of calculating Bi-Lo’s reimbursement obligation under 42 C.F.R. § 411.37) were $28,519.97, or 35.65% of the settlement amount.
In its complaint, Humana indicates that “personal injury settlements frequently involve disputed insurance obligations and occur well after medical expenses have been incurred, meaning that the status of carriers as primary payers is often not known until after MAOs have issued payments to providers that treated Medicare beneficiaries. MAOs must then seek reimbursement from the enrollee, and, when the enrollee refuses to make reimbursement, from the primary payer.”
Humana further suggests, “this is a substantial and widespread problem and contributes to the ongoing annual deficits in the Medicare Trust Funds, which in turn increases the costs borne by elderly and disabled beneficiaries who enroll in Medicare Advantage plans.” Humana alleges in its complaint that “the Medicare Trust Funds expend more than $100 billion annually to provide Medicare benefits through the Medicare Advantage program.”
Based on federal case law, Humana argues in its complaint that “an MAO that has advanced Medicare benefits has standing to bring a Medicare Secondary Payer (MSP) private cause of action.” In other words, Humana argues it “has standing under 42 U.S.C. § 1395y(b)(3)(A) to bring a private cause of action to recover double damages from Defendant because (1) Humana made payments of Medicare benefits on behalf of its enrollee, for which Humana was not primarily liable and (2) Defendant was primarily liable but failed to reimburse Humana.”
The essence of Humana’s argument
Humana’s argument can be boiled down to one simple theorem, that by virtue of the settlement, Defendant acknowledged that it was the primary payer, and its policy became the primary plan under 42 U.S.C. § 1395y(b)(2). As such, pursuant to the MSP Act, Defendant is required to make appropriate reimbursement for the conditional Medicare benefits advanced by Humana on behalf of the enrollee, despite Defendant providing the enrollee and her counsel settlement funds with which to reimburse Humana.
The rest of the story
Defendant disbursed the settlement payment to the enrollee sometime between May and August of 2016. Although the enrollee was primarily responsible for reimbursing these funds within 60 days of Defendant’s payment, as we have all become significantly aware of “pursuant to 42 C.F.R. § 411.24, the Defendant remained responsible to reimburse Humana under applicable federal regulations, based on 42 C.F.R. § 411.24(i)(1). By failing to make advance arrangements to see that this occurred, Humana argues Bi-Lo assumed the risk of being responsible to ensure that Humana was paid in the event the enrollee breached her obligations.”
Sure enough, neither the enrollee, nor her counsel, complied with their repayment obligations. As a result, “on October 27, 2017, Humana’s counsel sent Defendant’s counsel a letter providing written notice of Humana’s right of recovery under the MSP Law and demanding reimbursement under the MSP law. Neither Defendant nor its counsel responded to that letter. Through the date of their complaint, Humana had not received any reimbursement for the conditional payments it made on behalf of the enrollee.”
Humana demands $32,754.02
Because the enrollee did not reimburse the Medicare payments advanced by Humana, Humana argues, “the Defendant must reimburse the MAO, even though it has already paid the enrollee. See C.F.R. § 411.24(i)(1).” In addition, Humana points out that “Congress established a private cause of action under 42 U.S.C. § 1395y(b)(3)(A), permitting the recovery of double damages for failure to make appropriate reimbursement in accordance with the MSP law.”
Under the private cause of action established by 42 U.S.C. § 1395y(b)(3)(A), Humana argues it is entitled to recover “an amount double the amount otherwise provided.” Here, the MAO’s share of the conditional payment owed is reduced to account for the ratio of the procurement costs to the total settlement amount. In other words, the $25,449.88 Humana paid is reduced by the same ratio of procurement costs of 35.65% ($28,519.97 procurement costs divided by the $80,000 settlement), or a reduction of $9,072.88. Therefore, under 42 C.F.R. § 411.37(c), the amount of recovery “otherwise provided” by the MSP law is $16.377.01 ($25,449.88, the total payments made by Humana minus $9,072.87, 35.65% of the $25,449.88). Consequently, Humana’s demand for double damages amount specified by 42 U.S.C. § 1395y(b)(3)(A) is $32,754.02 ($16,377.01 times 2).
This is not the first case of its type. In fact, these types of cases are increasing. The scenario is the same, where a clear settlement agreement indicates Medicare conditional payments are to be paid from the settlement and payment is not made. In turn, Medicare, or in this case a Medicare Advantage plan, seeks reimbursement from the corporate defendant, or its insurer, who already paid such sum as part of the settlement.
The only consistent and reliable solution to this problem is to have a process in place where the corporate defendant (or its insurer or third party administrator) identifies the existence of conditional payments, engages with CMS or the MAO, disputes and negotiates reimbursable payments, and resolves its responsibilities. This is precisely the process Optum Settlement Solutions manages to ensure obligations are met and do not return or reappear post-settlement.