Legal Update on Medicare Advantage Plan Recovery Rights

August 23, 2015

The latter half of 2014 and, thus far, 2015 have been busy times for Medicare Advantage Plans (MAPs) seeking clarification of their rights under the Medicare Secondary Payer (MSP) Act. MAPs, or “Part C providers” argue that the MSP Act and federal regulations outlining the right of Medicare Advantage Organizations are broad enough to allow providers of Medicare benefits to enjoy the same federal preemptive rights that Medicare Parts A and B routinely resort to when seeking recovery against settling parties. They argue that they are entitled to maintain a private cause of action against insurers who fail to reimburse them for care provided to a Medicare beneficiary and to recover double damages from those entities.


The Centers for Medicare and Medicaid Services (CMS) began the debate with the  publication of a memorandum outlining its policy position on Part C (and Part D)  reimbursement rights on December 5, 2011. CMS determined that 42 CFR  §422.108(f) indicates that MAPs can exercise the same rights of recovery that  Health and Human Services (HHS) exercises under MSP regulations found at 42  CFR § 411.

Following the memorandum, MAPs took the offensive, seeking to recover from  beneficiaries or primary insurance plans (Workers’ Compensation, auto/no fault  etc.) under the MSP and the Code of Federal Regulations. Citing 42 CFR  §422.108(f) the MSP Act and the CMS memorandum, Medicare Advantage Plans  aggressively pursued litigants to secure reimbursement claiming that the federal  statute preempted any conflicting state subrogation provisions and that MAPs  were entitled to exercise the MSP Act’s private cause of action provision and  therefore, collect double damages as called for in the statute. In short, MAPs seek  to be reimbursed under the same law that traditional Medicare Part A and B  providers utilize.

Arguments against the application of the MSP to MAPs include the vague  language of the MSP Act with regard to parties that are empowered to exercise  the private cause of action and when double damages would apply. Detractors  claim that had Congress wished to allow MAPs similar rights as those enjoyed by  Medicare Parts A and B, the MSP Act would have stated so in clear language.


Since the publication of the CMS memorandum, several federal courts have  confronted the issues and three federal Circuits have addressed the problem with  somewhat disparate results.

In Potts v. The Rawlings Company (USDC SD New York, September 25, 2012), the  New York Federal District Court for the Southern District determined that NY’s  anti-subrogation statute was preempted by MSP Act pursuant to 42 U.S.C. §§  1395w-21–1395w-29 despite Section 5-335 of New York State General Obligation  Law as it applies to MAP reimbursement rights. The Court ruled that MAPs have  the same reimbursement rights as HHS under the MSP provisions.

In the case of In re Avandia Mktg., Sales Practices & Products Liab. Litig., 685  F.3d 353 (3rd Cir. 2012), GlaxoSmithKline (“Glaxo”) manufactured and sold the  diabetes drug Avandia. As a result of health problems later discovered, thousands  of Avandia patients, including enrollees in both traditional Medicare and MAPs,  filed personal injury actions against Glaxo under state tort law. In 2010, Glaxo  settled at least 10,000 claims and reserved additional funds to settle other claims  concerning Avandia and other drugs.

Glaxo acknowledged that it qualified as a primary plan under 42 U.S.C. §  1395y(b)(2)(A) of the MSP Act because it is a self-insured entity that (via the  settlements) had demonstrated its liability for the Avandia-related care of  Medicare beneficiaries. In its settlements with enrollees of Medicare Parts A and  B, Glaxo withheld amounts to provide reimbursement to Medicare for conditional  payments. However, in its settlements with enrollees in MAPs Glaxo denied that  the statute required it to provide reimbursement to MAPs for identical secondary  payer claims.

As a result, Humana filed suit against Glaxo under the private cause of action. The  district court ruled in defendant Glaxo’s favor finding that Humana did not have a  private cause of action under the MSP Act. A unanimous panel of the Third Circuit  reversed, finding that an MAO may sue a primary plan for reimbursement under  the plain terms of 42 U.S.C. § 1395y(b)(3)(A) of the MSP Act.

On the heels of the Avandia ruling, Humana filed similar cases in the four federal  courts, all against Farmers Insurance Company. Humana Insurance v. Farmers  Insurance Company, Inc., C.A. No. 2:13-02367 was filed in Kansas with cases also  being pursued in the Western District of Missouri, the Eastern District of  Tennessee and the Western District of Texas: Humana Insurance v. Farmers  Insurance Company, et. al., C.A. No. 1:13-00611. Surprisingly, the cases filed in  Kansas, Missouri and Tennessee were voluntarily dismissed leaving only the Texas  case to further shape the law of the MSP Act as it applies to MAPs. Arguments  regarding the application of the MSP Act to MAPs were made resulting in a  Magistrate Judge’s recommendation to grant Farmer’s Motion to Dismiss  Humana’s claims as impermissible under the MSP. However, on September 24,  2014, Judge Lee Yeakel for the Western District of Texas found Avandia to be a  persuasive authority and rejected the magistrate judge’s recommendation to  grant Farmers’ motion to dismiss Humana’s claims. Consequently, Humana’s  claims for reimbursement of Medicare Advantage Plan expenses remained viable. In the interim, and before Judge Yeakel’s ruling, other courts confronted similar  issues. In Michigan Spine and Brain Surgeons, PLLC, v. State Farm (USDC ED  Michigan February 11, 2013) the 6 th Circuit affirmed the holding in the US District  Court for the Eastern District of Michigan determining that physicians or medical  facilities have a private cause of action under the MSP Act against primary payer  for reimbursement of medical expenses paid by Medicare or Medicare Advantage  Organization or Plan while the 9th Circuit Court in Parra v. PacifiCare of Arizona (USCA 9th Circuit, April 19, 2013) found that MAPs did not have a Private Cause of  Action to Recover Conditional payments. The Parra court interpreted the  Medicare Advantage Organization statute that allows an MAP to charge a primary  plan for conditional payments made on behalf of a plan participant, but found no  private cause of action to recover payments resulted. It reasoned that the private  cause of action described in 42 U.S.C. § 1395y(b)(3)(A) is for Medicare  beneficiaries and healthcare providers to recover medical expenses from primary  plans, not for MAPs.

In R. Cupp v. Dane F. Johns and Humana Ins. Co., 2014 U.S. Dist. LEXIS 30537,(  U.S. District Court for the Western District of Arkansas, March 10, 2014), the  Federal District Court granted Humana a dismissal of the complaint against it after  plaintiff moved for a Declaratory Judgement under state subrogation law. Humana  was within its rights under the Medicare Secondary Payer Act to seek subrogation  of the conditional payments it made on behalf of Cupp after his accident. The  Medicare Act, Title XVIII of the Social Security Act, established a review and  appeals process that Medicare Advantage Plan enrollees must use, they found, to  dispute claims asserted by Medicare and Medicare Advantage Plans regarding the  services an enrollee receives. Plaintiff Cupp did not use this process to dispute any  claims asserted by Humana. While the case was dismissed, it seems to suggest  that federal preemption of state statutory law is the norm.

In Estate of Ethridge v. Recovery Management Systems, Inc., No. 1 CA-CV 12-0740 the Arizona Court of Appeals held that a Medicare Advantage Plan may seek  reimbursement for medical expenses it paid for one of its enrollees from the  settlement of claims under the Medicare Secondary Payer Act. A state cannot take  away an MAP organizations’ right under Federal law and the MSP regulations to  bill or to authorize providers and suppliers to bill for services for which Medicare is  not the primary payer, it opined. Consistent with the 3 rd Circuit, an MAP  organization will exercise the same rights to recovery from a primary plan, entity,  or individual that the Secretary exercises under the MSP regulations.

In a 5th Circuit case, Aimie Collins v. Wellcare Healthcare Plans, Inc., 2014 U.S.  Dist. LEXIS 174420, the Plaintiff’s state claim was dismissed for failure of  jurisdiction. Pursuant to the 405(g) bar, she could not assert a claim without first  exhausting her administrative rights. The court found that a MAP’s claim is not  limited to one of subrogation; but rather a claim under the MSP private cause of  action, 42 U.S.C. §1395y(3)(A). Significantly, the court ruled that the MAP  defendant in the case is not entitled to double damages. The Court, for the first  time in these lines of cases, attached a negligence standard to trigger the double  damages provision.

In MSP Claims 1, LLC v. Liberty Mutual Insurance, 2015 U.S. Dist. LEXIS 99188  (United States District Court for the Southern District of Florida, July 22, 2015), the  Southern District of Florida decided a case where a Plaintiff who was assigned the  MAP’s right to reimbursement filed suit against Liberty Mutual. The Plaintiff  sought a declaratory judgment as to Liberty Mutual’s obligation to reimburse  Medicare benefits; a private cause of action for double damages under 42 USC  §1395y(b)(3)(A);) accounting; breach of contract under Florida law; and equitable  subrogation. Liberty Mutual filed a motion to dismiss arguing that the complaint  should be dismissed for procedural reasons and also that 42 USC §1395y(b)(3)(A)  does not create a private cause of action for a MAP.

The holding was consistent with 42 C.F.R. § 411.22(b)(3) providing that a primary  payer’s responsibility for payment may be demonstrated by other means,  including a contractual obligation. The regulation requires that the responsibility  for a payment be demonstrated and merely alleging the existence of a contractual  or statutory obligation does not prove that a responsibility to pay has been  demonstrated. The Plaintiff’s Amended Complaint was dismissed without  prejudice with leave to re-file once she could establish the necessary prerequisite  by pursuing a subrogation or breach of contract claim in state court. Accordingly,  another court determined that federal regulation controls in lien recovery matters  an, with proper pleading, a private cause of action with double damages may  apply.

In Honey v. Bayhealth Medical Center, Inc., 2015 Del. Super. LEXIS 378 (Supreme  Court of Delaware, July 28, 2015) the Delaware Supreme Court found that MAPs  are within the larger Medicare system and therefore the Plaintiff was insured by  Medicare when covered by a Part C Plan. MAPs are closely regulated by Medicare  and have to bid for approval and licensing in each state it in which operates; MAPs  must abide by national coverage determinations provided by CMS; MAPs must  utilize the traditional Medicare appeals process for coverage disputes and  Medicare appeals decisions are binding on the MAP. MAPs are, in effect Medicare  and enjoy identical rights and privileges. Clearly, the ruling seems to further  expand the reach of the 3 rd Circuit’s reasoning in the Avandia case.

Humana’s right to reimbursement for conditional payments it made on behalf of  the beneficiary under a MAP is enforceable pursuant to 42 U.S.C. 1395y(b)(3)(A),  according to the U.S District Court for the Southern District of Florida in Humana  Medical Plan, Inc. v. Western Heritage Insurance Co., No-12-20123, 2015 U.S.  Dist LEXIS 31875. In that case, the Plaintiff in a personal injury action confirmed  that there was no Medicare lien and provided evidence from CMS to that effect.  Upon settlement, Humana MAP attempted to impress its reimbursement rights  under the MSP seeking double damages pursuant to 42 USC §1395y(b)(3)(A) and  to bring the private cause of action called for in the MSP Act while citing 42 CFR  §422.108(f) and the 2011 CMS memorandum allowing MAPs the same rights as  traditional Medicare.

Defendant Western heritage argued that the opinion in Parra, above, should  control and foreclose any attempt by a MAP to utilize the private cause of action  which the Parra court found was for Medicare beneficiaries and healthcare  providers to recover medical expenses from primary plans, not for MAPs.

The court found that, based upon the facts presented in Parra, as compared to the  instant case, the Parra ruling was inapplicable. The court ruled that Humana has a  right to recover from Western Heritage and may recover double damages.  Western Heritage filed a Notice of Appeal of the case with the United States Court  of Appeals for the Eleventh Circuit. This will be the Eleventh Circuit’s first  opportunity to consider the issue, and address the conflict between the Sixth and  Ninth Circuits in the Michigan Spine and Parra cases respectively, one which  endorsed MAPs rights under the MSP (Michigan Spine) and one which rejected  the private cause of action and double damages in MAP claims (Parra). As noted,  the Third Circuit supported the MAP’s right to bring a federal action for double  damages in the Avandia case.


ExamWorks Clinical Solutions continues to closely monitor the Western Heritage litigation and the Humana v. Farmers Insurance cases. Conceivably, rulings in either case could clear up much confusion surrounding the applicability of the MSP private cause of action and double damages provisions. Depending upon the findings of the Circuits, the cases may well formulate the basis of a compelling issue of federal conflict to be resolved by the Supreme Court of the United States. In the interim, litigants would be well served to familiarize themselves with the above cases and, at least in the 3rd Circuit, to adhere to the Avandia ruling as it applies to MAPs. In other federal circuits, success or failure of arguments regarding the respective rights of MAPs would seem to turn on specific facts and circumstances.