New York Anti Subrogation Law Trumps Medicare Advantage Plans Recovery “Right” Under Medicare Secondary Payer Law
Jeff Signor
December 5, 2011

Congress authorized Medicare to allow private health insurance to participate and provide coverage for Medicare beneficiaries starting in 1997.  Part C, also known as Medicare Advantage Plans, replaces traditional Medicare coverage provided under Part A (Hospital) and Part B (Health Care).  Each year, a Medicare beneficiary may elect to opt in or out of Medicare Advantage during an enrollment period in the late Fall.  Medicare pays a flat rate to private health insurance for each beneficiary enrolled.  Medicare fares better in this situation if the actual costs of medical treatment for the plan year exceed what is paid to the private insurance carrier.  The Medicare Advantage Plan hopes to pay less in treatment costs than what it receives from Medicare plus any premium it receives.  It can also increase its profit margin if allowed to recover medical payments made in connection with a liability claim settlement, judgment or award.

It is without doubt that Medicare can be reimbursed its payment for medical items and services from a primary plan (liability insurance), or an entity that receives payment from a primary plan (Medicare beneficiary or Medicare beneficiary’s attorney) in connection with a settlement, judgment or award of a liability or workers’ compensation claim.  See 42 U.S.C. §1395y(b)(2).  The question is whether that same reimbursement right also applies to private Medicare Advantage Plans.

At the center of this controversy are 42 U.S.C. §195 w-22(a)(4) and 42 C.F.R.§422.108. This statute and regulation purports to transfer the same rights of Medicare to Medicare Advantage.  However, recent U.S. District Court opinions from opposite sides of the Country have shot down the absolute right of reimbursement by Medicare (without regard to fault) to these Plans.  See Franco Signor LLC Medicare Advantage Plans Have No Private MSP Cause of Action for Reimbursement, Published 02/03/2011. Nonetheless, Medicare Advantage Plans still retain its right of subrogation in state courts.  That is until recently.

Personal injury practitioners in New York, on both sides  can now take the position that “lien letters” authored by Medicare Advantage plans are not what they purport to be.

In a recent case out of Kings County, the New York Supreme Court held that the Medicare Advantage plan was a private contract between the plan and the plaintiff which did not include the Medicare Secondary Payer rights of recovery.  See Ferlazzo v. 18th Avenue Hardware, 2011 NY Slip Op 21298 (Kings County, August 22, 2011).  The principles of law articulated by the court in Ferlazzo follow the same reasoning utilized in many state court decisions across the country on this issue.  We have written on several of these cases, but this is the first time a New York court has been heard on this issue.

Most of us in the industry have seen letters authored by Medicare Advantage plans wherein requests are made for reimbursement of the monies paid by such plans at the time a tort recovery is entered.  Such letters cite to the Medicare Secondary Payer Statute and conclude that tort-related expenses are due and owing if the claim settles or results in a verdict.

In Ferlazzo, plaintiff settled the claim and moved, by Order to Show Cause, requesting the Medicare Advantage lien be extinguished.  Plaintiff cited to General Obligations Law Section 5-33(a) which went into effect in November of 2009.  Essentially, this New York statute excludes compensation for the costs of health care services to the extent those expenses have been paid for by a benefit provider, except for those payments as to which there is a statutory right of reimbursement.  This section of the statute is highlighted by this writer because the Medicare Secondary Payer Statute fits this exception, and traditional Medicare is still entitled to seek its recovery for items or services it paid related to the tort.

Ms. Ferlazzo sustained a personal injury filed suit December 1, 2009.  In 2010, Oxford, the Medicare Advantage plan, issued a letter to plaintiff stating that it paid $39,680.89 for plaintiff’s medical expenses which Oxford believed were related to the accident.  Plaintiff settled with defendant on April 2, 2011 for $150,000 and moved for extinguishment of the Oxford lien.

The Ferlazzo court methodically sets forth the New York statute on point.  The court also analyzes the Medicare Advantage Program and why its statutory provisions (42 U.S.C. Section 1395w-22(a)(4)) “authorize, but do not require” the private insurer (Oxford) to include in its contract a provision for recoupment of medical expenses from a third party recovery.  Applying the Supreme Court decision of Cort v. Ash, 422 U.S. 66 (1975), Care Choices HMO v. Engstrom, 330 F 3d 786 (6th Cir 2003), and Nott v. Aetna U.S. Health Care, Inc., 303 F. Supp 2d 565 (E.D.Pa 2004), the court held that Oxford, having no statutory right of reimbursement, is therefore not entitled to recoup any part of plaintiff’s settlement proceeds as compensation for the cost of health care services.

The obvious takeaway from this decision is that purported lien letters from Medicare Advantage plans do not work in New York under its anti subrogation statute and may not work in other jurisdictions with a similar styled statute.    As a liability claim is processed in New York, it is definitely something to consider when evaluating damages now that this decision allows for no such reimbursement or subrogation right.  It is definitely something that can be leveraged by both sides in the settlement negotiations.

At Franco Signor LLC we track cases involving Medicare Advantage plans as they are being published in an increasing amount across the country.  The MSP compliance process still must be followed in all cases involving Medicare Advantage plans, but the recovery owed to traditional Medicare, in such situations, is much less because the Advantage plans are primary.  When Medicare Advantage plans are making payments in a case it introduces another layer of frustration to the claims handler and attorneys working the file.  Please call on us if the issues get curvy.  We can help!