Third Circuit Court of Appeals Expands MSP Private Cause of Action to Medicare Advantage & Part D (Prescription) Private Insurance Plans
Roy Franco
July 2, 2012


Humana, a Medicare Advantage Plan, used the Medicare Secondary Payer Private Cause of Action (42 U.S.C. Section 1395y(b)(3)(A) to bring suit against a self insured primary plan.  The lawsuit was brought in Federal Court to recover damages for the failure of the primary plan to reimburse or otherwise provide for primary payment of medical items and services related to the resolution of a product liability claim. The Third Circuit Court of Appeals held that the Medicare Secondary Payer Act provides Humana with a private cause of action against the self insured primary plan in Federal Court.

The Court of Appeals decision, if unchallenged will forever change the relationship of the parties in how to approach the resolution of a liability or workers’ compensation claim.  The insurance carrier or self insured plan that has demonstrated its responsibility as a primary plan because of a settlement, judgment or award, is now subject to litigation by the Medicare Advantage or Part D Prescription Plan.  No longer would the resolution of liens be the primary responsibility of the claimant or claimant’s attorney.  The insurance carrier or self insured plan will also require a release from the Medicare Advantage and Part D Prescription Plan.

Notwithstanding the above, would such a release be binding on subsequent Medicare Advantage and Prescription Plans?  The answer is unclear.  Since a Medicare beneficiary can change his or her Medicare Advantage and Prescription plans; and because there appears to be no limit as to time or scope in relationship to when a claim was resolved, it is conceivable, that litigation could be filed by the new insurance carrier that is not a party to any release that may be had.  Furthermore, what about non-Medicare beneficiary claim resolutions – could a Medicare Advantage Plan or Prescription Plan request reimbursement for payments that should have been covered by a settlement, judgment or award?  Perhaps not for minor trauma cases, but for significant losses involving future medical care, it may be necessary to take additional steps to mitigate the possible exposure.

Medicare Advantage Background

Medicare has four coverage types:  Part A (Hospital); Part B (Medical); Part C (Medicare Advantage) and Part D (Prescriptions).  Part A and Part B is traditional Medicare coverage, administered by the United States through its Agency, the Centers for Medicare & Medicaid Services (CMS).  Part C and Part D is private insurance.  Congress authorized private insurance companies to help stem the spiraling cost of Medicare.  If a Medicare beneficiary enrolls into a Part C (Medicare Advantage Plan), he or she gives up traditional Medicare coverage under Part A and Part B for the period of enrollment.  The Medicare beneficiary can return to traditional Medicare coverage or change to another Medicare Advantage Plan during the next enrollment period.  Whether a Medicare beneficiary is on traditional Medicare or Part C, he or she can elect to enroll in a Part D Prescription Plan.  The cost of private insurance is paid for by Medicare on a per capita basis.  Medicare’s costs for Part C and Part D fluctuate based on the number of enrollees and the overall cost of Medicare.  Thus, if the costs of private insurance are less, so eventually is the cost to Medicare which is most likely the reason for the Court’s ruling expanding the private cause of action.

Today, about 13.3 Million People are enrolled in Medicare Advantage Plans.    There are close to 50 million Medicare beneficiaries, so more than 1 in 4 is on a Medicare Advantage Plan compared to traditional Medicare. Furthermore, Medicare Advantage Plans are gaining members – almost 10% more enrollees over the last year.  The chart below identifies the largest plans and their gains in enrollment:

February 2012 Top MA Organizations with Greater than 250,00 Members
Market Share
Kaiser Foundation
BCBS of Michigan
Subtotal >250,000
All Others
Source: Mark Farrah Associates (MFA) analysis of CMS enrollment data;
data is available in Medicare Business Online™

In terms of Part D Prescription Plans, the number of enrollees for 2012 is estimated it to be around 10.6 million.  There are approximately 1,041 plans available from both traditional and Medicare Advantage Plans to choose from.

The Decision of the Third Circuit Court of Appeals

In Avandia Marketing, Sales Practices and Products Liability  Litigation GlaxoSmithKline, LLC & GlaxoSmithKline, PLC Humana Medical Plan, Inc. and Humana Insurance Company,  individually and on behalf of all others similarly situated, Appellant, 2012 U.S. LEXIS 13230, U.S. Court of Appeals, Third Circuit, 42 U.S. C. Section 1395y(b)(3)(A) was expanded to include Part C and Part D Plans as Plaintiffs.  Prior to this legal decision, the private cause of action was believed to be reserved for the Medicare beneficiary.   However, the Third Circuit Court of Appeals pointed out that the language of the provision was not restrictive, and since Congress took no action to limit this provision when it amended Medicare to include Part C and Part D, that it was their intention to allow such Plans the right to sue.

In previous decisions attempting to create a cause of action for MA Plans, the focus was on whether the rights of the United States to seek reimbursement or subrogation under the Medicare Secondary Payer Act were the same for the MA Plan.  These cases cited to 42 C.F.R. Section 422.108 which affords the MA Plan the same rights as the Secretary to recover from a primary plan or individual under the MSP regulations.  The MA Plan believed its right was clear, but Courts pointed out consistently that there is a clear distinction between the rights of the Secretary and those of the United States.  As such, 42 U.S.C. Section 1395y(b)(2)(B)(iii) (Reimbursement Claim) and 42 U.S.C. Section 1395y(b)(2)(B)(iii) (Subrogation Claim) was not intended for MA Plans.  Medicare has limited jurisdiction to pursue claims and therefore, the Secretary had no right to file lawsuit for reimbursement or subrogation.  See 28 U.S.C. Section 1331.

Avandia takes a different path from prior cases.  Essentially, the MA Plan  concedes that  it is not entitled to the rights of the United States; and instead  looks to the  MSP private cause of action – 42 U.S.C. Section 1395y(3)(A) for relief.  In ruling for the MA, the Court of Appeals determined first that the private cause of action provision was unambiguous in that it was not limited to any particular plaintiff (except qui tam plaintiffs)  and provided a clear cause of action for the MA Plan to recover damages.  Alternatively, the Court determined that even if the provision were unambiguous, under the Chevron deference, the Medicare regulations and subsequent memoranda made clear that MA plans (and Part D Plans) have recovery rights.

In reaching a decision that the MSP private cause of action was clear and unambiguous with regard to its applicability to MA Plans, the court reviewed briefly the purpose of the Medicare Secondary Payer Act, the Medicare Act as well as the role MA Plans were to serve to reduce Medicare costs.  Of important note is the Court’s recognition that the private cause of action provision was part of the original MSP Act when it was adopted on December 5, 1980 and was never amended.   The turning point for the Court was the meaning of the term “subchapter” as used in describing payments under the Medicare Secondary Payer Act.  The primary plan argued that the term applied only to the Medicare Secondary Payer Act, in particular payments made by traditional Medicare, and therefore could not possibly cover payments made by the MA.  The MA argued that it applied to the entire Act which would include payments by Part C, and the Court agreed after its analysis of how the Medicare Act used the term.  After reaching that conclusion and finding that Congress did not alter the MSP private cause of action when Part C was added, the Court found reason enough to believe that the private cause of action would be applicable to the MA.

The Court pushed its decision over the finish line based on two important policies.  First, to effectuate the purpose of the Medicare Secondary Payer Act which is to curb skyrocketing Medicare costs; and second, to improve upon Part C, which was also put in place to curb Medicare costs by creating competition for Medicare beneficiaries by private insurance.   If the MA were not allowed to recoup benefits that should have been paid by other responsible parties, its costs go up, and so does Medicare.

In supporting its decision further, the Court took the added step of assuming the MSP private cause of action was ambiguous.  Applying the Chevron deference, the Court attempted to close any loopholes.  Finding that Congress granted Medicare the authority to promulgate regulations,  the Court then identified 42 C.F.R. Section 422.108 which provides MA with the same MSP recovery powers.  Although 42 C.F.R Section 422.108 is permissive in how it is written, the Court found it an appropriate clarification supporting MA private cause of action rights.  Further CMS Memorandum issued last December further clarifies CMS position that MA plans and Prescription Plans be allowed to recover.  In this instance, the memo is on par with a regulation for Chevron purposes and which may not be viewed in the same way by other circuits.  See for instance, Humana Medical Plan v. Reale, 2011 U.S. Dist. LEXIS 8909 (S.D. Fla. Jan. 31, 2011)

Practical Application

Implementation of this ruling will be difficult.  For the moment, it is law in the Third Circuit.  Whether it will be adopted by other Circuits remains to be seen.  Unless challenged by the other Circuits, the decision will add another layer of litigation that has been traditionally left to the States.  The insurance carrier and self insurance plan will have to be very proactive in dealing with Medicare beneficiary cases.  Some of the unanswered questions that this decision will require us to consider when resolving a Medicare beneficiary case are as follows:

  • Is Claimant a Medicare Advantage or Plan D Participant?;
  • If so, is the MA and Plan D aware of the liability claim?;
  • Is there an agreement to pay the MA and Plan D plan directly by the primary plan?;
  • How is the primary plan protected against future medical payments by the MA and Part D plans?; and
  • Is the MA and Part D plan entitled to 100 percent recovery?

In considering these issues, it would be prudent for the primary plan to consider the one important difference between traditional Medicare and MA, including Part D plans: MA and Part D plans are subject to state court general jurisdiction.  If these plans have a private cause of action, then it is probably best to include them as a necessary party in any pending litigation.  If there is no pending litigation, the next prudent thing to do would be to identify the lien, and pay it directly.  Where a claimant is represented, this issue will need to be discussed at the beginning of the case, as the primary plan, including self insurance, holds the ultimate exposure.  Where there is a disagreement, court involvement may be necessary to protect the primary plan.

From a practical standpoint, the Avandia decision creates several challenges.  First, as a Medicare beneficiary can move between traditional Medicare (Part A & B) and Medicare Advantage (Part C), the parties will need to clear both Medicare and Medicare Advantage, including Part D, for every case. Second, how are Medicare’s interests protected in a Medicare Advantage case?  Is the primary plan now exposed to repeated double damage claims any time the Part C or Part D plan makes payment that was part of a settlement?  It would appear that an approved Liability Medicare Set Aside Arrangement (LMSA) would help, but rules are still yet to be developed by Medicare.  Finally, will the Medicare Advantage Plan negotiate or hold at 100% recovery rate?  Now more than ever, we have an important reason to support Hadden v. U.S.  Finally, how will Medicare contractor enhancements, such as the $300 exemption, Fixed Payment Option, or Self Calculate Option work in this arena?  It is unknown, as MA Plans do not use Medicare contractors to pursue its recovery.

Franco Signor LLC will be closely monitoring the issues addressed in this blog.  Several of our recent blogs have summarized state and federal decisions wherein the Medicare Advantage Plan continually fails the attempt to be declared traditional Medicare.  The Avandia decision has breathed life into the Medicare Advantage plan.   Over time, we will get a better understanding of how this decision will work its way through the claim process.  On CNN GPS on Sunday, July 1, 2012, a statement was made by Peter Orszag, former Director of Office Management & Budget with regard to an approach to resolving Health care.  Mr. Orszag essentially states: “There is a need to erode the barriers that exist between Payer and Provider.  Remove the barriers, and costs are saved.” Taking the Medicare beneficiary out of the process to negotiate MA liens is one way to remove those barriers, and the Avandia decision is taking the first step toward that direction. To the extent Medicare shares Section 111 data with MA and Part D Plans, it will make it easier for such plans to perfect their recoveries.