6th Circuit District Court Reverses Itself and Follows Michigan Spine and Allows MSP Private Cause of Action Against Non-Group Health Plans
Jesse Hamby
September 3, 2014

Last year we blogged about the District Court’s opinion in McDonald v. Indemnity Insurance, 2013 U.S. LEXIS 138068 (W.D. KY).  At that time, the Court held the Plaintiff could not establish an MSP private cause of action against the defendant, but declined to enter judgment until the Parties provided additional briefing on the MSP statute in light of the Bio-Medical Applications of Tennessee, Inc. v. Central States Southeast and Southwest Areas Health and Welfare Fund, 656 F.3d 277 (6th Cir. 2011).   The Parties briefed these issues, but shortly thereafter, the Sixth Circuit Court of Appeals decided Michigan Spine and Brain Surgeons, PLLC v. State Farm Mutual Insurance Company, No.  13-2430, 2014 WL 3440644 (6th Cir. July 16, 2014).  Although the District Court was strongly considering disallowing Plaintiff the private cause of action, it has changed its position.  In a stunning opinion, the District Court granted Plaintiff not only a private cause of action right, but a summary award of $184,514.24.  This amount represents the double damages for conditional payments previously paid by the Defendant to Medicare.  It is the first decision we are aware of, in a Non-Group Health Plan setting, awarding double damages.

This new decision is a game changer.  As the court ordered Indemnity Insurance to “pay again” even though it had already paid to Medicare based upon the reasoning that Indemnity Insurance paid Medicare only after the lawsuit was brought against it.  As the court states:

The private cause of action provision allows for damages ‘in an amount double the amount otherwise provided’ – the purpose being to encourage beneficiaries to bring claims even if Medicare has already paid the beneficiaries’ expenses. Once a private cause of action claim has been lodged against a defendant, a defendant cannot escape the double damages provided for in that provision by paying single damages to Medicare.

Insurance companies and self-insureds should take immediate notice of this decision.  The defendant, Indemnity Insurance, denied workers’ compensation benefits to Plaintiff as it had believed the accident occurred outside the course and scope of employment.  The Kentucky Workers’ Compensation Board found in favor of the Plaintiff and awarded medical benefits.  The Defendant took no action with regard to Medicare after that ruling to identify conditional payments that were owed, until Plaintiff filed this recovery action.  Defendant took the position that after the filing of the lawsuit (more than 2 years later), it secured a demand letter from Medicare and paid it.  The court was not persuaded.  The rationale for the MSP private cause of action would be frustrated if such “no harm, no foul” argument would allow to stand.  The purpose of the MSP private cause of action is to encourage beneficiaries to bring claims even if Medicare has already paid the beneficiary’s expenses after an action claim has been lodged. 

Franco Signor Commentary:  This decision is a game changer.  Identifying Medicare’s conditional payments and prompt payment is now required in the Sixth Circuit to avoid an MSP private cause of action.  Closing a claims file, but leaving conditional payments open, can expose the Defendant/Employer to double damages.   The application of the MSP private cause of action certainly points to the need to ensure Medicare is repaid prior to such lawsuits being commenced.  Otherwise, defendants are exposed to the “pay again” provision.  It is unclear if this ruling will be appealed.  The Sixth Circuit Court of Appeals has already established that is favors such private cause of actions.  The decision, if left alone, will serve as strong precedent for other jurisdictions.  To avoid this exposure, contact us and let us put together a conditional payment management program custom tailored to fit your program’s needs!