In Nawas v. State Farm Mut. Auto. Ins. Co., 2014 U.S. LEXIS 128365, a District Court within the 6th Circuit decided whether there existed a “condition precedent” requiring plaintiff to establish “demonstrated responsibility” of the defendant before plaintiff could proceed with a Medicare Secondary Payer private cause of action. Under 42 U.S.C Section 1395y(b)(3)(A), a primary plan is subject to a private cause of action for double damages if it fails to provide for primary payment. Initially, the 6th Circuit held that such claim was not available against non-group health plans under Michigan Spine & Brain Surgeons, PLLC v. State Farm Mut. Auto. Ins. co., 12-11329, 2013 WL 5435284 (E.D. Mich. Sept. 27, 2013). However, that ruling was overturned by the 6th Cir. Court of Appeals in Michigan Spine & Brain Surgeons, PLLC v. State Farm Mut. Auto. Ins. Co., 758 F.3d 787 (6th Cir. 2014). As this claim is now deemed valid, the issue becomes how is it triggered?
The Nawas case involved no-fault benefits. State Farm refused to pay plaintiff’s medical bills in the wake of an accident. As a result, Medicare stepped in and conditionally paid Plaintiff’s medical bills. Plaintiff filed an MSP private cause of action, seeking double damages, based upon State Farm’s failure to pay medical benefits. State Farm immediately moved to dismiss the claim or in the alternative seek partial summary judgment on two grounds: 1) that plaintiff had no private cause of action against it under the MSP law as written and 2) that Plaintiff’s claim is premature, because under the MSP such claim cannot be pursued until State Farm’s obligation is established by a judicial determination or settlement.
State Farm withdrew its first argument in light of the 6th Circuit’s ruling noted above establishing the right of plaintiff to bring a claim. However, it pursued its second position aggressively. State Farm cited two cases in support of its position – Geer v. Amex Assurance Co. , 09-11917, 2010 WL 2681160 (E.D. Mich. July 6, 2010) and Glover v. Liggett Group, Inc., 459 F.3d 1304 (11th Cir. 2006). The Glover decision, while on point, was disavowed by the 6th Cir. in the Bio-Medical Applications v. Central States, 656 F. 3d 277(6th Cir. 2011) decision. As Geer adopted Glover, the Nawas Court felt compelled to accept it as binding on its decision. The Nawas Court reasoned that when the MSP law was amended in 2003 by the Medicare Modernization Act, it was done so in the context of shoring up legal responsibility for tortfeasors. At that time, the “demonstrated responsibility” provision was added, and the Nawas Court concluded that it was Congress’ intent for that provision to only be applicable to tort liability situations. “Demonstrated responsibility” only makes sense in the context of tort (where no evidence of responsibility exists until it is adjudicated ex post), rather than in the context of an insurance contract (where insurers assume the responsibility for paying for enumerated contingencies ex ante).
Consequently, the District Court in Nawas upheld Plaintiff’s MSP private cause of action at the present stage. However, it is important to note that this decision is not the final word on this lawsuit. State Farm would have preferred to have this matter dismissed based on procedure law and negate the need to fight it on the merits. However, this ruling now allows the Parties to proceed, at which time, the Plaintiff will more than likely need to establish his right to benefits under the insuring agreement. This would no doubt require the underlying claim to be litigated as set forth in the insuring agreement. If State Farm should lose such claim, it may very well trigger an automatic liability for double damages. This is a tenable position as we recently blogged on a decision in Estate of Clinton McDonald v. Indemnity Insurance, 2014 U.S. Dist. LEXIS 121902, where Plaintiff, in a private cause of action, was summarily awarded over $180,000 as a penalty for defendant’s failure to promptly reimburse Medicare.
Franco Signor Commentary: This decision appears to chill any denial of no-fault claim for benefits involving a Medicare beneficiary or potential Medicare beneficiary. A denial, if not sustained, could result in additional (double) damages. We would expect to see this decision appealed, as it does not appear to allow the Parties any good faith attempt to resolve differences as contemplated by the insurance contract. If double damages can be summarily awarded based simply upon a carrier’s denial of payment, and that carrier later loses as the case is determined by mediation or arbitration, then it is unfair and will ultimately lead to a change in the offering of such benefits. We do not believe the “demonstrated responsibility” provision is limited to tortfeasor situations. A primary plan’s responsibility to make payment under the law is not only limited to “a judgment, a payment conditioned upon the recipient’s compromise, waiver or release”, but also includes “by other means”. We believe “by other means” includes situations where responsibility is determined based on the insuring agreement, and once that is established, only then are payments by Medicare considered “conditional” and subject to immediate reimbursement. Until then, Medicare is primary.
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