Medicare Advantage Plan Wins Double Damages Against Liability Insurance Company
Roy Franco
March 23, 2015

Case:     Humana Medical Plan, Inc. v. Western Heritage Insurance Company, 2015 U.S. Dist. LEXIS 31875

Issue:    Is a Medicare Advantage Plan entitled to double damages when it is not repaid through a settlement?

Held:     As a matter of law, Humana is entitled to maintain a private cause of action for double damages pursuant to 42 U.S.C. § 1395y(b)(3)(A).

The lesson to be learned from this decision is NOT to ignore any correspondence involving Medicare.  Western Heritage Insurance Company (WHIC) was aware of Humana’s lien before it distributed funds to the Plaintiff, and subsequently received a demand letter that was not responded to.  It was only after the lawsuit did it begin to take action to protect itself.  By then, as this decision demonstrates, it was too late.

A danger exists for Primary Plans because of the Third Circuit Court of Appeals decision in In Re Avandia, 685 F.3d at 359.  It is not law of the land, but it is persuasive authority for other Circuits that are sorting through the issue of whether Medicare Advantage Plans have a private cause of action to recover conditional payments, including double damages.  Primary Plans that face this litigation should carefully consider the facts involved in the underlying case before allowing litigation to take root.  In our opinion, it is too late to look at these issues after the lawsuit is filed.  Good risk management dictates evaluating these claims as they occur to pick the best course of action.  Relying on the plaintiff attorney and plaintiff to resolve Medicare Advantage liens is not a good strategy, unless that process is managed.

The underlying facts of this case are straightforward.  Plaintiff, slipped and fell injuring herself and brought a lawsuit to recover damages.  WHIC insured the premises owner, and resolved the claim with Plaintiff for $115,000.  As part of the settlement terms, Plaintiff represented there was no Medicare lien.  However, before the settlement proceeds were distributed, WHIC learned that Plaintiff had a Medicare Advantage Plan lien (Humana).  To protect itself from potential liability, WHIC unilaterally added Humana as a co-payee to the settlement draft.  Plaintiff, of course, objected to this course of action which led to a hearing in State Court.  The State Court Judge ordered WHIC to pay the proceeds over to Plaintiff and her attorney.  The judge also ordered the Plaintiff attorney to place into his lawyer’s trust account the Humana lien amount until it was resolved by him and his client.

Regrettably, the Plaintiff and Plaintiff attorney could not reach an agreement with Humana on the amount of the lien.  Humana filed a lawsuit against both the Plaintiff and WHIC on May 7, 2010 to recover payment.  That lawsuit was voluntarily dismissed against the Plaintiff on November 9, 2011, but WHIC was not dismissed.  It is important to note that prior to this lawsuit WHIC received a demand letter from Humana, which was not responded to, and no action was taken with regard to the lawsuit until much later.

Humana voluntarily dismissed its action against the Plaintiff, because Plaintiff had filed a state claim against it.  In the state court action, Plaintiff won a reduction at the trial court level against Humana’s lien based on an assessment of fault against the WHIC’s insured.  Humana filed an appeal, and that matter was still pending, when Humana recommenced its Federal action against WHIC.

WHICH, under the SMART act, has a right of appeal.  Although the law required CMS regulation, the fact that no regulation existed at the time, did not mean that right was not available.  WHIC should have requested an administrative appeal immediately when it received a determination letter instead of relying on the Plaintiff to move forward the issue.  By not taking any action, it waived arguments that may resulted in a different outcome.

The Court in this case decided to follow the In re Avandia decision.  It determined that Humana had the right to present a claim for double damages under the Medicare Secondary Payer Act.  It elected not to distinguish In re Avandia but adopt it entirely, which is well within the authority of the court.   After overcoming that hurdle, the only decision was to determine if the lawsuit was appropriate based on the facts in the case.  The court held it was, as Plaintiff did not exercise her administrative rights to dispute the lien amount, and as such the Court felt that it did not need to do so either.  It is important to note that WHIC did not exercise any appeal rights either which left it defenseless on the lien amount that was claimed.

Franco Signor Commentary:  This opinion will be the topic of great debate by the Industry.  It is possible, that the finding by State Court as to the allocation could be upheld by the state appellate court.  If that occurs, then does WHIC get a refund from Humana?  To not allow a refund would offend the notions of fair justice, in that the level of fault by WHIC’s insured was the basis to arrive at the adjusted amount of Humana’s lien.  The reason we are left with this possible outcome is because WHIC did not take any action procedurally or administratively to stay the Federal court action.  At a minimum, it should have intervened as a necessary party in the state court action to protect itself, but chose to do nothing – simply relying on the Plaintiff and her attorney to carry the load.

We have always taken the position with our clients to be proactive on Medicare related issues.  If not, then the results could be disastrous.   The money could have been interpleaded into the State Court or Federal Court because of the competing interests when the state court indicated to submit the draft directly to Plaintiff and his attorney.  This option would have made this case closer in outcome to the Parra v. Pacificare, 715 F.3d 1146, rather than In re Avandia.  There is no doubt the decision here is an awful one.  There is no doubt that WHIC wanted to resolve the Humana lien, but was powerless to take any direct action because the law does not authorize direct payment from the settlement, judgment, award or other payment.  That missing element is the problem, and primary plan’s such as WHIC are now in a quandary as to how to resolve these claims going forward.  Clearly, leaving it up to the Plaintiff and his or her attorney is no longer a viable action.