Medicare Advantage Plans provide valuable insurance coverage for millions of Medicare beneficiaries and have grown in popularity. Notwithstanding the importance of this innovative option to enhance Medicare benefits, questions persist for attorneys representing clients in worker’s compensation and personal injury matters as to how to deal with claims that involve Medicare beneficiaries. The dilemma is compounded as courts struggle with decisions concerning the rights of recovery a Medicare Advantage Plan has when compared to the rights of Original Medicare (hereinafter Medicare).
Given the current landscape of the federal courts on this issue, it remains certain that failure to consider the rights of Medicare Advantage Plans in worker’s compensation and personal injury claims can result in litigation under the Medicare Secondary Payer Act (MSPA) against successful worker’s compensation and personal injury plaintiffs.
A Brief History of the Medicare Program
Practice Pointers: Dealing with Medicare Advantage Plans
The issue of Medicare Advantage Plans and their rights of recovery is undecided under Wisconsin and Seventh Circuit case law. Given the increasing number of Medicare beneficiaries covered under Medicare Advantage Plans, it is only a matter of time before relevant litigation occurs. Until this matter is clarified, attorneys and insurance professionals should follow these practice pointers when confronting cases involving a Medicare beneficiary covered under a Medicare Advantage Plan.
Determine immediately if a plan covers the injured party. Remember that conditional payment letters received from the coordination of benefits and recovery (COB&R) contractor only include payments made by Medicare Parts A and B (Original Medicare). Upon verifying a claimant’s status, be sure to investigate payments made by the applicable plan.
Obtain a copy of the plan’s policy language to determine its contractual rights of recovery. While some courts have limited a plan’s ability to recovery under the MSPA, there is complete judicial consensus they have secondary rights of recovery under state-based contract or insurance law.
Treat Medicare Advantage Plans as you treat Medicare. Until congressional action clarifies any perceived ambiguity in the MSPA, or the Seventh Circuit Court of Appeals issues a definitive holding, attorneys settling personal injury cases should exercise caution. Given current trends, it appears the Seventh Circuit could find persuasive arguments that allow for a priority right of recovery similar to that of Medicare, as found in the Third Circuit Court of Appeals.
Since its inception in 1965, the Medicare program has provided retirees and disabled persons with access to affordable and guaranteed health care coverage. In 1997, Congress passed the Balanced Budget Act of 1997,1 which created “Medicare+Choice,” or Medicare “Part C” coverage. Medicare options expanded again in 2003, under the Medicare Modernization Act of 2003. This Act added a prescription drug benefit under the Medicare Part D program.2 As a result of these expansions, beneficiaries can opt to receive Medicare coverage through a Medicare Advantage Plan. These plans are offered through private insurance carriers that, operating as Medicare Advantage Organizations (MAOs), assume the risk for services provided under Medicare and provide access to additional services.
As of 2014, roughly 15.7 million people or 30 percent of Medicare beneficiaries have taken advantage of these enhanced coverage options.3 This number will grow as plans become more attractive due to cost-saving mechanisms. Medicare Advantage Plans have financial stakes that affect not only the litigation of claims and lawsuits but also how they are settled nationwide.
Medicare Advantage Plans and Primary Rights of Recovery
Most attorneys who work in the areas of worker’s compensation and personal injury claims are aware of Medicare’s monetary interests and priority rights of recovery. Under the MSPA, Medicare is the “secondary payer” in all worker’s compensation, no-fault/automobile, and liability claims regardless of liability.4 The Centers for Medicare and Medicaid Services (CMS), which is charged with administering the Medicare program, has also asserted a statutory right of recovery against “any entity that has received payment from a primary plan or from the proceeds of a primary plan’s payment to any entity….”5 Failure to consider Medicare’s interest in a settlement could result in litigation against the claimant, attorneys, and parties benefiting from a primary plan.6 (For help in deciphering Medicare terminology, please see the accompanying “Medicare Glossary.“)
In interpreting this statute, the courts have unanimously held that Medicare, by virtue of its congressional authorization, has special legal protections when recovering its monetary interests before other parties. On the other hand, conflict has arisen as to what rights Medicare Advantage Plans have when it comes to recovering in similar situations.
The first glimpse of this battle focused on plan rights of recovery in Care Choice HMO v. Engstrom,where the question arose in the context of a declaratory action brought by a provider to recoup medical expenses paid to a Medicare-eligible insured individual in a personal injury lawsuit.7 After not receiving reimbursement of funds expended for medical care and treatment, Care Choice HMO brought an action under the authorizing statute, “which permits … CMS … to contract with private health maintenance organizations (HMOs) to provide replacement coverage for Medicare-eligible individuals.”8 The district court dismissed the action, and Care Choice HMO appealed.
Failure to consider Medicare’s interest in a settlement could result in litigation against the claimant, attorneys, and parties benefiting from a primary plan.
On appeal, the Engstrom court concentrated on the “hazardous enterprise” of whether Congress expressly or implicitly created such cause of action when amending the Medicare law to provide for new coverage options.9 The court noted that 42 U.S.C. § 1395mm(e)(4) does not contain a private right of action, and that this section merely created “preconditions for and regulating the behavior of HMOs that substitute for Medicare.”10 In reviewing these plans within the context of the MSPA, the court determined that although Medicare enjoys special rights of recovery, there was no legislative history to suggest Congress implied these same rights to Medicare-substitute HMOs.11
Notwithstanding this judicial rebuke, the court in Engstrom did caution future litigants regarding two important points. Regarding the ability of an HMO to recover, it noted that these plans can, as the Care Choice policy did, include contractual language granting them the right to collect based on insurance law principles, but not under federal statute.12 The court also noted that the fact “that Congress granted an express remedy to Medicare may, but does not necessarily, demonstrate that they considered and rejected such a remedy for HMOs.”13
A Change in Legal Tactics by MAO Plans
After the rejection of the notion that plans had primary rights of recovery under authorizing legislation, industry stakeholders shifted their legal theory. This new focus brought more questions for courts to answer in terms of Medicare Advantage Plan rights of recovery under the MSPA. In 2010, Humana initiated a lawsuit to recover against settlement proceeds from beneficiaries enrolled in Humana plans.14 The court rejected Humana’s arguments via a motion to dismiss brought by the Medicare beneficiary.15
The CMS took note of the issue and broke ranks with the prevailing judicial philosophy on private-plan rights of recovery. In a policy memorandum titled, “Medicare Secondary Payment Subrogation Rights,” the CMS argued that “§ 422.108(f) stipulates that MAOs will exercise the same rights of recovery that the Secretary exercises under the Original Medicare MSP regulations in subparts B through D of part 411 of 42 CFR and that the rules established in this section supersede any State laws.”16 The CMS also extended its interpretation to include Prescription Drug Plan (PDP) sponsors.17
In Re Avandia: Judicial Affirmation of Expanded Recovery Rights
Below are definitions for some of the most commonly used Medicare terms:
Medicare Part A: The component of Medicare that provides hospital
Medicare Part B: The second main component of Medicare; it provides beneficiaries with medical insurance.
Medicare Part C: Sometimes referred to as a “Medicare Advantage Plan”; it provides beneficiaries with Parts A, B, and D benefits through a private insurance company.
Medicare Part D: The prescription drug benefit for Medicare; available to anyone eligible for Part A or B.
CMS: The Centers for Medicare and Medicaid Services, a federal government agency within the U.S. Department of Health & Human Services. It is responsible for the Medicare program.
MAOs: Medicare Advantage Organizations, private insurance carriers that offer Medicare Advantage Plans.
MSPA: The Medicare Secondary Payer Act, which provides a priority right of recovery for the CMS when seeking reimbursement of payments made on behalf of a Medicare beneficiary. The use of this Act by MAOs has been the focus of litigation in the federal courts.
Humana continued to litigate matters regarding its rights under the MSPA. In In Re Avandia Marketing, Sales Practices & Products Liability Litigation, the court reversed the trend of adverse decisions against MAOs.18 In finding that the plans do have a right of recovery under the MSPA, the court held, “[T]he plain text of the MSP[A] 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.”19 The court went on to state that even though this matter did not concern the rights of Medicare, the Act was unambiguous and did not limit the plan or other similarly situated nongovernmental private parties from asserting their rights in this manner.20
Despite this decisive victory, Medicare Advantage Plans have been less successful in other legal disputes. In Parra v. Pacificare of Arizona, a plan paid $136,630.90 in medical expenses for injuries incurred in a motor vehicle accident.21 Upon settlement, Parra’s survivors sought injunctive relief under Arizona law, claiming “PacifiCare is not entitled to any reimbursement payments out of the wrongful death benefits paid by GEICO to the [survivors] because PacifiCare has no greater reimbursement rights than the Secretary [of Health and Human Services] and the Secretary determined Medicare will not seek reimbursement from wrongful death proceeds that do not include payment for the decedent’s medical expenses.”22 Parra brought a counterclaim seeking declaratory relief, and the court eventually dismissed the matter for lack of standing.
The Ninth Circuit Court of Appeals rejected PacifiCare’s arguments regarding the manner in which it sought to recover. In doing this, the court noted that this case was factually different from Avandia, and instead cited Engstrom as support for its holding.23 Central to this finding was the Ninth Circuit’s interpretation that Medicare Advantage Plans are different from Medicare and have a right of recovery only under contract law.24 This interpretation is troublesome for plan stakeholders because it limits their ability to recover before other interested parties receive their fair share of the settlement proceeds. (Please see the accompanying sidebar, “Practice Pointers: Dealing with Medicare Advantage Plans.”)
Plan Rights of Recovery under the MSPA: Drawing a Line in the Sand
After Parra, the conventional wisdom was again shifting to the conclusion that Medicare Advantage Plans did not have priority rights of recovery under the MSPA. Any rights they had were merely found in state and contract law.
Aaron P. Frederickson, William Mitchell 2002, is licensed to practice law in Wisconsin and Minnesota. He has practice experience in worker’s compensation, civil litigation, and Medicare-compliance related issues.
Not to be deterred, Humana continued to be the torchbearer for plan stakeholders by filing a series of lawsuits across the country and eventually drew a line in Texas sand.25 In Humana Insurance Co. v. Farmers Texas County Mutual Insurance Co., U.S. District Court Judge Lee Yeakel denied a motion to dismiss brought by Farmers.26 As a result, Humana has been allowed to assert its preferential right of recovery under the MSPA. Central to Judge Yeakel’s decision was the premise adopted by the Third Circuit Court of Appeals in In Re Avandia that 42 U.S.C. § 1395y(b)(3)(A) does not place limits on Medicare Advantage Plans in asserting rights on par with Medicare.27
A court in Louisiana recently extended this pro-plan trend, signaling a changing judicial philosophy. In Collins v. Wellcare Healthcare Plans Inc., a Medicare beneficiary sought to limit Wellcare’s ability to fully recover, from settlement proceeds, for payments it made for medical expenses.28 In rejecting this argument, the court expanded on In Re Avandia, noting “[t]he MSP’s statutory text does not include any narrowing language that would exclude MAOs from the private cause of action clause….”29 The court also took the position that even if the MSPA were ambiguous, Chevron deference would lead to the same conclusion.30
These plans can, as the Care Choice policy did, include contractual language granting them the right to collect based on insurance law principles, but not under federal statute.
The aging U.S. population continues to demand cost-effective health insurance under the Medicare umbrella. These demands have forced Congress to meet the needs of Americans through the expansion of the Medicare program to include a combination of the Original Medicare program and private sector innovation through Medicare Advantage Plans. This expansion has brought with it considerable confusion as to plans’ rights of recovery as compared to Medicare’s right of recovery.
In facing this challenge, it is important for attorneys to determine what coverage their clients have and understand an otherwise murky law. While clarification on Medicare Advantage Plans’ rights of recovery is being developed through piecemeal litigation, it is becoming clearer that they may in fact have the same priority rights of recovery as does Medicare. This clarity is coming primary with each successive court case, coupled with support from the CMS and growing concerns related to the solvency of the Medicare Trust Fund.
1 Pub. L. No. 105-33, 111 Stat. 251 (1997).
2 Pub. L. No. 108-173, 117 Stat. 2066 (2003).
3 Henry J. Kaiser Family Foundation, Medicare at a Glance (Sept. 2, 2014).
4 42 U.S.C. § 1395y(b)(2). The Medicare Secondary Payer Act is complex and has been described in the courts as “the most completely impenetrable texts within human experience.” Cooper Univ. Hosp. v. Sebelius, 636 F.3d 44, 45 (3d Cir. 2010).
5 42 U.S.C. § 1395y(b)(2)(B)(iii); 42 C.F.R. § 411.24 (c)(2), (d), (g). See generally CMS Policy Memorandum 5 (April 22, 2003).
7 330 F.3d 786 (6th Cir. 2003).
8 Id. at 787.
10 Id. at 790.
12 Id. Footnote 7 contains the coordination-of-benefits language found in the applicable policy. The court also noted that Care Choice HMO might have waived its ability to recover in state court by asking the court to create a federal right to reimbursement.
14 Humana v. Reale, No. 10-21493-Civ., 2011 WL 335341 (S.D. Fla. 2011).
16 This policy memorandum of Dec. 5, 2011, was authored by Danielle R. Moon, Director, Medicare Drug & Health Plan Contract Administration Group, and Cynthia Tudor, Director, Medicare Drug Benefit and C&D Data Group.
18 685 F.3d 353 (3d Cir. 2012).
19 Id. at 359.
20 Id. at 359, 365.
21 715 F.3d 1146 (9th Cir. 2013).
22 Id. at 1150.
23 Id. at 1153-54.
25 Cariten Health Plan v. Mid-Century Ins. Co., Case 3:13-cv-00417 E. Dist. of TN, Knoxville Division, Filed 7/17/13; Humana Health Plan v. Farmers Ins. Co., Case No. 4:13-cv-730, W. Dist. MO, Filed 7/22/13; Humana Health Plan v. Farmers Ins. Co., Case No. 13-2367-SAC-KGS Dist. of KS, Filed 7/22/13; Humana Ins. Co. v. Farmers Texas Cnty. Mut. Ins. Co., 1:13-cv-00611-LY, E. Dist. of TX, Austin Division, Filed 7/22/13.
26 1:13-cv-00611-LY, Rec. Doc. 44 (W.D. Tex. Sept. 24, 2014).
27 Id. at 2.
28 No. CIV. A. 13-6759, 2014 U.S. Dist. LEXIS 174420, at 26 (E. Dist. La. 2014).
29 Id. at 21.
30 Id. at 27.