5th Cir. Court of Appeals Confirms State Law is not Pre-empted in certain MSP Situations
Roy Franco
May 17, 2013

Caldera v. The Insurance Company of the State of Pennsylvania, 2013 U.S. App. LEXIS 9706

U.S. Court of Appeals – Fifth Circuit.  Appeal from Southern District of Texas

Issue:  Does MSP preempt state law that requires a workers’ compensation claimant to obtain preauthorization from the relevant carrier before incurring certain medical expenses?

Holding:  It does not, and lower court’s ruling is affirmed.

Guadalupe Caldera (Caldera) was injured while at work in 1995 and his Employer’s insurance company (Employer) initially paid the required workers’ compensation benefits that were authorized by the Texas Labor Code.  When his injury resolved, Employer terminated Caldera’s lifetime medical benefits and declared that any future medical issues would be unrelated to the claim.  Caldera did not appeal Employer’s determination, but did apply for and obtain Medicare benefits in 1998.  In 2005 and 2006, Medicare paid $42,637.41 for two back surgeries which Caldera believed to be related to his workers’ compensation claim.   He requested payment from Employer, and the parties engaged in an “extent of injury” dispute that ran the course of the Texas workers’ compensation administrative process.   Losing at every level and with his administrative remedies exhausted, Caldera sought relief in state court.  The parties settled and an Agreed Judgment was entered in Caldera’s favor, but did not provide for any payments by Employer.

Caldera next pursued Employer in state court under the Medicare Secondary Payer Act (MSP) private cause of action (42 USC §1395y(3)(A)) for double damages.  Employer defended his latest claim on the basis that no recovery is allowed under the MSP because, regardless of the extent-of-injury issue, there was no obligation to pay for surgeries that were not pre-authorized in accordance with Texas workers’ compensation law.   Caldera filed this declaratory judgment action in U.S. District Court to determine whether MSP preempts the Employer’s carrier state-law defense.  After losing in U.S. District Court based on jurisdiction, he appealed to the Fifth Circuit.

Fifth Circuit Court’s Decision

The Firth Circuit rejected the lower court’s decision to dismiss Caldera’s claim based on lack of subject matter jurisdiction.  It noted recent reminders by the U.S. Supreme Court that lower courts use precision in their use of the term jurisdiction.  Here, the lower court determined that Caldera must exhaust his state administrative remedies before he would be able to present his claim.  MSP, according to the Fifth Circuit, had no such requirement, and unless specifically mandated by Congress the dismissal was inappropriate.  Notwithstanding, the Fifth Circuit affirmed the lower court’s ruling as it determined that Caldera failed to state a claim upon which relief could be granted.  Caldera’s argument that MSP preempted workers’ compensation state mandated rules is inconsistent with the design of that law and related regulations.


Caldera’s Arguments

Caldera presented two preemption arguments for the Court to address.  First, MSP broadly preempts any state laws that “impede the intent of recouping monies from primary payers,” like the Employer in this case.   Second, he makes a narrower argument that Medicare’s conditional payments for his surgeries equates to a determination that such surgeries were medically necessary and preempts any independent consideration by Employer or appeal by Texas Division of Workers’ Compensation.

In deciding against Caldera on the first issue, the Court noted Caldera’s sole basis for his position was 42 CFR §411.32(a)(1) which provides that “Medicare benefits are secondary to benefits payable by a primary plan even if State law or the primary payer states that its benefits are secondary to Medicare benefits or otherwise limits its payments to Medicare beneficiaries.” (emphasis added).   The Court agreed with Caldera that the MSP law requires subordination, but that this regulation does not supplant workers’ compensation laws or rules.  The entire subchapter of the regulations related to workers’ compensation 42 CFR §411.40 – 47 presuppose the application of state workers’ compensation laws and requires the Medicare beneficiary to take responsibility to preserve the claim.   Thus, under the Fifth Circuit Court of appeals decision in Waters v. Farmers Tx. Cnty. Mut. Ins. Co., 9 F.3d 397, 398-401 (5th Cir. 1993), Medicare’s statutory right of recovery or subrogation is limited to the available insurance funds and must stand in the same shoes as the injured worker.  Medicare’s rights are not enlarged under MSP, the law was designed to reverse the order of payment in cases where the Medicare beneficiary has an alternate source of payment for health care.  Consequently, Caldera’s claim fails to state a claim under his first theory.

Caldera’s attack on the Texas Labor Code’s requirement that he seek pre-authorization is unnecessary because Medicare’s approval of his surgery would serve as a medically necessary determination.  This argument fails because each entity (Medicare and Texas Workers’ Compensation Law) has its own statutory, regulatory and policy process to follow to arrive at medical necessity, and to impose one on the other could upset the competing public policies which drive each entity’s process.   Caldera’s position of a hypothetical conflict that would invite chaos and lead to divergent application of MSP is  non-justicable as pre-authorization under the Texas Workers’ Compensation Law was never sought.  The Court therefore refused to create new preemption law based on a hypothetical.

Franco Signor Commentary

This case arrives at the right result.  It is clear Medicare’s right to reimbursement or subrogation cannot be subordinated.  In order of payment responsibility, other available insurance pays first, and Medicare is then the payer of last resort.  In this situation, the Medicare beneficiary failed to perfect his claim, and as such, the provider was not authorized to receive payment under the Texas Workers’ Compensation Law.  This is consistent with Medicare’s regulation 42 CFR §411.40 wherein it states Medicare is primary if a source is not authorized under State Workers’ Compensation Law or Plan.

In order to control costs, many State workers’ compensation programs require pre-authorization to make certain treatment is appropriate and related to the claim.  Pre-authorization is not a denial of benefits, but an effective method to manage medical costs in an era of over utilization and spiraling increases.  It is a reasonable requirement of a state program to remain competitive with other state programs and lower costs for Employers.  Our experience in MSP compliance has always taken into consideration the interplay between what is allowed under state law and what Medicare seeks in MSP conditional payment recovery and Medicare Set Aside allocations.  Please contact us so we may discuss your program and how we may assist to lower your compliance cost, and to pay only what is legally obligated under the MSP law.