State Law does not Bar MA and Part D Plans from Seeking Reimbursement
Roy Franco
October 1, 2012

Potts vs. Rawlings Company LLC- 2012- U.S. Dist. Court for Southern Dist. NY


This interesting case involves a putative class action against Medicare Advantage (MA) Plans, including Part D Drug Plans.   Plaintiffs sought protection from defendants’ reimbursement claims for conditional payments under New York State General Obligation Law §5-335.  Because this State Law prohibits Defendants, as benefit providers, from seeking recovery reimbursement, lien or subrogation against Plaintiffs’ personal injury settlement proceeds; a declaratory judgment was requested to stop defendants’ collection practices using the Medicare Secondary Payer Act.

The original action was filed in state court, but removed by Defendants to U.S. District Court pursuant to the Class Action Fairness Act (2 U.S.C. §1332(d), as well as on the ground that the claims arise under certain provisions of the Medicare Act and implicate the Federal Officer removal statute, 28 U.S.C. §1442(a)(1).  Defendants moved to dismiss for lack of subject matter jurisdiction and for failure to state a claim upon which relief can be granted.


Do MA Plans and Part D Drug Plans have a right to seek reimbursement from personal injury claimants for payments for medical items and services it has made related to the personal injury claim, even if State Law prohibits such action?


Yes.  The Medicare Secondary Payer Act preempts the New York General Obligations Law; and therefore the prohibition against recovery is not enforceable because of the Medicare Secondary Payer Act.   Furthermore, preemption aside, Plaintiffs claim is dismissed for lack of subject matter jurisdiction because administrative remedies were not first exhausted with the Secretary, before seeking review in Court.

MA and Part D Plans are private insurers that enter into contracts with the Center for Medicare and Medicaid Services (“CMS”).  CMS pays these insurers to provide the same benefits to the enrollee that he/she would receive under traditional Medicare.   The Medicare Advantage statutes incorporate many of the MSP provisions into the MA organization connect.    In short, MA and Part D Plans may bill the responsible insurance carrier for their services; or the individual beneficiary when responsibility is demonstrated by way of settlement, judgment or award.  See 47 U.S.C. §1395w-22(a)(4).  Claims arising under the Medicare Act, are available for judicial review only after the Secretary renders a ‘final decision’ on the claim in the same manner as provided in 42 U.S.C. §405(g).   Even though the law appears at first blush to apply this jurisdictional bar over actions against the U.S., the Secretary or any employee thereof, courts have consistently applied the exhaustion bar to MA and Part D Plans as well.  Plaintiffs do not dispute this fact, but instead argue their claims do not arise under the Medicare Act as it is not a “request for determination of benefits nor a challenge to the denial of benefits”, but rather a challenge to the MA and Part D Plans invocation of a contractual right barred under the NY General Obligations Law.   The Court disagreed, citing the position as inapposite to the question of whether an enrollee’s claims concerning MSP reimbursement rights under the Medicare Act require exhaustion of administrative remedies before judicial review.   Citing a long line of cases requiring exhaustion, the Court ruled against jurisdiction.

The Court, however, took it a step further and decided the issue of preemption as well.  Even if exhaustion was not required, the Court felt the very broad and express preemption clause of the Medicare Act was sufficient to dispose of whether the NY law applied.  Plaintiffs argued that whether preemption applied, depended on whether or not MA and Part D Plans had a private right of action to enforce its reimbursement right.  Again, the Court disagreed on two grounds.  First, the state of whether MA and Part D Plans have such a cause of action is not at all clear.  Second, it is immaterial, given the broad express preemption clause in the Medicare Act.  Prior cases deciding the private cause of action never reached the decision of preemption, they only reached the decision whether such MA and Part D Plans had Federal jurisdiction to present such claims.  Having made this distinction, the Court ruled, based on ordinary conflict preemption principles, that the NY General Obligations Law was preempted.

Franco Signor Commentary:

This is an interesting decision.  The Medicare Secondary Payer Act, as part of the Medicare Act which contains broad express powers of exemption preempts the NY General Obligations Law, and presumably any state law, that would interfere with Medicare, Medicare Advantage or Part D from seeking recovery of conditional payments.  What’s unclear is how to handle disagreements over reimbursement claims.  This court would dismiss for lack of subject matter jurisdiction any Federal action.  The presumption is that the Secretary has in place an administrative review process with regard to the appropriateness of MA and Plan D private insurance payments.  The present administrative appeal review structure of conditional payments deal with Part A and Part B – traditional Medicare coverage.  If no administrative review process exists, could jurisdiction be obtained using the Michigan Academy exception?  See Bowen v. Michigan Academy of Family Physicians, 476 U.S. 667 (1986).

This case is an example of the MSP noose that continues to tighten around the neck of the Medicare beneficiary and Primary Plan.  When it comes to Conditional Payments, Traditional Medicare and Private Medicare must be addressed as early as possible.    Left alone, these exposures can lead to surprises for all Parties.  Medicare appears to share data with private Medicare Plans.  As Mandatory Insurance Reporting moves into high gear starting 10/1/2012 for all settlements, judgments and awards over $5K, private Medicare will review their cases and seek recovery from both sides — from the claimant and the defendant primary plan.  Such claims could be made months after the case has been closed.  Dealing early with private Medicare mitigates this issue.  Contact us to help avoid this problem.