Medicare Part C plans, also known as Medicare Advantage plans (hereinafter “MA plans”), are those in which private healthcare insurers administer Medicare benefits on behalf of the federal government. While the recovery right of MA plans has been the subject of confusion and conflicting opinion for a number of years, more and more courts are treating this right as federal in nature and preventing the application of state law. Two recent decisions following the Third Circuit Court of Appeals Decision in In re Avandia illustrate this current trend which treats MA plans like traditional Medicare in terms of preempting state law and exhausting administrative remedies.
Background on Medicare Advantage
In 1997, the Balanced Budget Act of 1997 was enacted, giving Medicare beneficiaries the option to receive Medicare Part A and B benefits through contracts with private insurance companies.1 Originally referred to as the “Medicare+Choice” program, additional legislation in 2003 broadened the scope of these new private Medicare plans and brought into existence the modern terminology of “Medicare Advantage.”2 Originally Medicare paid MA plans a capitated amount to provide traditional Part A and B coverage. However, in 2006, the program payment method switched to a bidding structure in which MA plans would submit bids for Medicare contracts based on their estimated average cost per enrollee in a given area.3 Many of these bids come in lower than Medicare’s maximum payment amount in a given area and result in a rebate to the MA plan, which must be used for supplemental Medicare coverage in favor of its enrollees.4
The Kaiser Family Foundation reported in 2014 that 30 percent of Medicare Beneficiaries (roughly 15.7 million participants) are currently enrolled in an MA plan.5 With that in mind, it is not surprising that questions surrounding the secondary payer status of these plans have increased from both plaintiff and defense counsel in the past several years.
Medicare Secondary Payer Rights
In the 1980s, Congress amended the Social Security Act to enact the Medicare Secondary Payer statute6 and implementing regulations,7 collectively referred to as the MSP Act. The MSP Act is a compilation of laws and regulations that establish Medicare’s right to reimbursement and defines Medicare’s obligation to pay as always being secondary. To ensure full compliance, the law includes a provision allowing Medicare to seek double recovery plus interest for failure to provide primary payment or reimbursement of a conditional payment. Additionally, the MSP Act allows Medicare to recover its conditional payments by offsetting the amount owed against a beneficiary’s social security benefits, railroad retirement pension, future Medicare benefits and tax refunds owed by the Treasury Department to the beneficiary.8
Medicare’s Memorandum, Initial Case Law and In re Avandia
In response to the growing number of inquiries to CMS regarding MA recovery rights, CMS published a memorandum on December 5, 2011.9 This memorandum supported the position that MA plans had the same rights to recover as traditional Medicare under the MSP Act.10 At this point, and with a lack of case law suggesting differently, it was difficult to overcome any argument put forth by MA plans claiming recovery rights under the MSP Act.
Perhaps not surprisingly, many plaintiffs began to meet more resistance to their claims against MA reimbursement rights in light of CMS’s 2011 memorandum. Early lower federal court decisions tended to shy away from CMS’s stance and held that MA plans should be treated the same as a private insurance plan and thus governed under state law.11 This was seen as a huge win for plaintiffs because many state laws were much more favorable in eliminating or minimizing health plan recovery rights. Despite these decisions, however, MA plans continued to proactively assert their rights to recovery outside of these jurisdictions and turned their efforts to focus more heavily on the MSP Act with the support of CMS’s memorandum.
In 2012, the Third Circuit Court of Appeals became the first appellate court to hold that the MSP Act provided MA plans with a private cause of action to seek recovery against a primary payer in federal court based on 42 U.S.C. § 1395y(b)(3)(A).12 Relying primarily on the Third Circuit’s reasoning, MA plans once again are claiming a federal right to reimbursement against a primary payer which preempts any state law limitations on such a right. Subsequent decisions in 2012, particularly from New York, also adopted this approach, further strengthening the argument favoring MA plans’ claims to recovery under the MSP Act.13 In the past several months, consistent with this new trend, two additional cases lead to opinions that further expound on the parallelism between traditional Medicare and MA plan recovery rights and administrative remedies.
Recent Case Law
This past March in Cupp v. Johns the United States District Court for the Western District of Arkansas held that a Part C plan’s claim for reimbursement must be challenged through the Medicare review and appeals process and that no state law could limit the scope of this reimbursement.14
This case originated from an automobile accident that resulted in injuries to the plaintiff, Darrell Richard Cupp. Cupp was insured under an MA Plan (insured through Humana), which provided benefits for Cupp’s injury-related care. Cupp filed a negligence action against the liable third party but a settlement was reached before the case went to trial. After learning of the settlement, Humana asserted a claim for reimbursement in the amount of the benefits it paid as a result of the accident. Cupp responded by including Humana as an additional defendant and filed a declaratory action against Humana stating that Arkansas state law applied and therefore barred Humana from recovery.15 The court found that Humana’s actions in demanding repayment under the MSP Act were in accordance with the provisions of the Medicare Act.16 The court further commented that Cupp’s remedy should have been administrative in nature and only after going through the review and appeals process could a court adjudicate the matter.17
The proper remedy for an appeal of a MA final demand is administrative in nature and consists of five levels a beneficiary must satisfy to have the requisite standing to file suit in federal court. The process is similar to that of the traditional Medicare appeal process. Each level has time limits that if missed bar the beneficiary from moving to the next level. The chance of a favorable appeal response at each level is increased if documentation is provided that support the claims in dispute. The five levels of appeal for a beneficiary to navigate through according to Medicare guidelines are: (1) Redetermination, (2) Reconsideration, (3) Administrative Law Judge, (4) Medicare Appeal Council, and finally (5) Federal Court.18 The court in Cupp concluded that even after such administrative remedies were exhausted, any state law prohibiting Humana’s claim would not limit its right to reimbursement as a conditional payer under the MSP Act.
This past May, in In Re Estate of Ethridge the Court of Appeals of Arizona reversed a lower court decision and held that a MA Plan and its associated regulations preempt Arizona’s anti-subrogation doctrine.19 In that case, Deborah Ethridge died as a result of negligent nursing home care. Ethridge was insured by Mercy Care Advantage (an MA plan). Upon Ethridge’s death, her estate and beneficiaries sued the nursing home and the case ultimately settled for $1.2 million.
Following the settlement, Mercy Care Advantage sought reimbursement for the medical expenses paid on behalf of Ethridge. The estate and beneficiaries sought declaratory judgment, claiming Mercy Care Advantage was not entitled to reimbursement under Arizona’s anti-subrogation statute.20 On judgment of the pleadings, the Superior Court agreed with the estate and beneficiaries, holding that Medicare Part C plans did not preempt state law and therefore were not entitled to reimbursement. Mercy Care Advantage appealed.
The Court of Appeals reversed, holding that it was Congress’s intent that Part C was to preempt state law evidenced by the plain wording of the Part C preemption provision and the subsequent clarification amendment.21 Furthermore, the regulations promulgated pursuant to Congressional direction also lent support to the notion that Part C preempts state law.22 The Court held that Medicare Part C plans such as Mercy Care Advantage do preempt state law and thus are entitled to reimbursement regardless of any applicable anti-subrogation statute.
Although this area of law is continually evolving, treating MA plans as possessing a federally based right rooted in the MSP Act is the growing trend. However, there continue to be many gray areas concerning what defenses a plaintiff may have against a MA plan’s claim to reimbursement, including whether traditional resolution paths that are applicable to traditional Medicare are to be followed by MA Plans.23Additionally, by policy dated October 11, 2011, CMS does not claim reimbursement rights in exposure cases under certain conditions where all exposure pre-dates December 5, 1980, the effective date of the MSP statute as applied to liability cases.24 Therefore, it is arguable that Medicare and any entity claiming the same rights as Medicare will be prohibited from seeking recovery in any cases where an injury occurred prior to December 5, 1980. For example, to benefit from the protections of the MSP Act, should MA Plans also accept the same burdens as does Medicare with respect to procurement cost offsets under 42 C.F.R. §411.37, and limits on recovery under effective date standards in exposure cases under 42 C.F.R. §411.50(a)?. Finally, like Medicare25 is there a proactive requirement on the plaintiff, plaintiff counsel and defense to notify an MA plan of a potential third party recovery?
Although the some of the puzzle pieces are falling into place in terms of defining whether MA Plans have these rights, the industry will undoubtedly continue to see more litigation surrounding MA plans’ interaction with the MSP Act as the manner in which these rights are enforced continues to be a key area of interpretation.