State Appellate Court Reinstates Plaintiff’s MSP Private Cause of Action Against No-Fault Insurer – “Demonstrated Responsibility” can be Established Without a Settlement, Judgment, or Award based on Insurance Contract
Heather Sanderson
May 22, 2015

We recently posted a blog regarding CMS’ May 5th webinar wherein CMS expressed their intent to recover conditional payments in Ongoing Responsibility for Medical (ORM) cases. This statement during CMS’ webinar was somewhat of a surprise, as CMS’ recovery contractor only issues a final demand for reimbursement for conditional payment where a settlement, judgment, or award is presented.   For no-fault claims, interim demands are typically not possible unless policy limits have been exhausted or a treating doctor’s letter could be secured indicating no further medical treatment related to the claim.  So if CMS plans to implement this new process for open ORM cases in the near future, does the MSP law support CMS’ new intended policy where no settlement, judgment, or award has taken place?

The answer appears to be yes based on the “other means” language of the MSP law.  A recent decision  from the Michigan Court of Appeals  addressed this issue in Holmes v. Farm Bureau & Fleschig, 2015 Mich. App. LEXIS 1031 (May 19, 2015). The Holmes case is an unpublished opinion, and therefore not considered precedential based on the rules of stare decisis.  However, the opinion is informative of how a State Appeals Court analyzed the MSP law in a state where Personal Insurance Protection Benefits (PIP) provides lifetime medical benefits.   The case involved an auto accident where Plaintiff’s automobile was hit from behind. Martha Holmes (“Plaintiff”) was insured by defendant Farm Bureau, and her policy in addition to Personal Insurance Protection benefits included $500,000 in underinsured motorist coverage. Plaintiff was a Medicare beneficiary, and her accident related medical benefits were paid for by Medicare as well as her supplemental Medicare AARP Plan totaling over $70,000.  Her carrier refused to pay PIP benefits claiming no obligation to do so, once Medicare paid.

Plaintiff filed her cause of action and alleged two claims.  First, she was “entitled to the entire amount of underinsured motorist coverage available to her” under her automobile insurance policy.  This claim is not relevant to the MSP Private Cause of Action analyzed herein.  Her second claim however was for   breach of her insurance contract. The Plaintiff asserted that her medical expenses should have been paid by (PIP) benefits that defendant was obligated to provide under Michigan’s no-fault insurance act. Plaintiff alleged that these benefits were “uncoordinated” and therefore primary based on MSP law and requested double damages.

The defendant won the lower court proceeding after presenting its motion for partial summary disposition.  The trial court made two determinations.   First, that plaintiff’s medical coverage under her policy was “coordinated” and therefore not primary to her Medicare coverage.  Second, that even if her medical coverage were “uncoordinated”, only Medicare could bring a claim for recovery against her insurer, as she had no right to do so on behalf of Medicare.

The Michigan court of appeals disagreed on both accounts.   Defendant’s argument regarding coordination was summarily dismissed.  Under Michigan law, coordination is allowed when Plaintiff has existing health coverage in place and elects to coordinate benefits when purchasing her auto policy.  This results in a reduced premium for the auto policy, as the health care policy would typically pay primary.  The Court analyzed the insurance policy language and determined that the policy purchased was “uncoordinated” and the carrier was primary.  It concluded this based on a plain reading of the policy that stated the following:  “If you are on Medicare or Medicaid, your personal insurance protection benefits must be primary and cannot be coordinated.”  Thus, the carrier is primary and should have paid for the benefits.[i]

Secondly, the court of appeals found that Plaintiff could bring a private cause of action under the MSP and remanded the decision to allow her to add a claim for a private action under the MSP. It was not only Medicare that could bring this private cause of action right for double damages. The appellate court noted case law such as Manning v. Utilities Mut Ins. Co., Inc.  and O’Connor v. Mayor & City Council of Baltimore, which supported the fact that as an incentive to encourage private citizens to bring suits, a private citizen may collect double damages under the private cause of action under the MS (the private cause of action is located at 42 USC 1395y(b)(3)(A)). Therefore, a Plaintiff Medicare beneficiary has a right to bring a private cause of action under the MSP for double damages.

The critical point raised in this decision was in how the reimbursement responsibility to Medicare was triggered.  There was no settlement, judgment, or award.   The defendant Farm Bureau asserted that even if a private cause of action existed, the Plaintiff could not proceed because there had not been a judicial determination or settlement indicating that the defendant was “responsible” for paying the benefits at issue. Farm Bureau relied upon a prior case, Glover v Liggett Group and other cases which involved a private action against an alleged tortfeasor to recoup funds paid by Medicare. In these cases, a private cause of action could only be maintained if it was previously demonstrated that the primary payer had a responsibility to pay for the services or items in question.

The Plaintiff however countered that the facts of Glover were different in the case at hand, as in Glover involved an action against a tortfeasor, and later case law has distinguished that “the concept of demonstrated responsibility makes sense only in the context of tort.” In Bio-Med Applications of Tennessee, Inc. v. Cent States SE & SW Areas Health & Welfare Fund, the court found that responsibility in an insurance contract situation can be demonstrated by “other means,” which would mean a “contractual obligation,” meaning that when a contract is involved there does not need to be a prior court judgment or prior settlement to determine responsibility because the contract itself establishes responsibility. See Bio-Med and 42 CFR 411.22 (b)(3).

Based upon all of the above, the Plaintiff was allowed to remand her case to bring a private cause of action under the MSP and simply her contract of insurance with her no-fault insurer demonstrated responsibility to pay under the MSP.

Franco Signor Commentary: While this case is on remand and not final, the Michigan court of appeals decision certainly sends an indication as to the trend of courts to allow a private cause of action where responsibility is demonstrated by “other means.” This opinion as well as Bio-Medical demonstrate that legally, Medicare has a right to recover simply where other means of responsibility is demonstrated and a settlement, judgment, or award need not have taken place.

While the court here came to the right legal conclusion, unfortunately the decision is out of sync with how conditional payment recovery currently operates on a practical level. While CMS did indicate on its May 5, 2015 webinar that it intended to recover conditional payment in ORM cases, its current practice in place with the recovery contractors is only to recover after a settlement, judgment or award occurs.

It is unknown when CMS will begin to recover in these ORM situations, but clearly CMS has the intent and legal right to do so. Additionally, many questions remain. Currently, any conditional payment letters sent prior to a settlement, judgment or award by CMS are merely an estimate of the future amount owed. Additionally, initial conditional payment letters specifically direct debtors to not pay Medicare at this time. Therefore, the question remains: will CMS change its future procedures to require that interim demands be paid before a settlement, judgment or award occurs and how will these changes be implemented? We will be monitoring this and expect an update from CMS soon pertaining to this regard and advise payers to be on high alert. It will be interesting to see how this case turns out at the trial court level, when defendant presents the fact that reimbursement to Medicare was practically impossible since Medicare has not yet put a system into place for reimbursement where “other means” of responsibility is demonstrated and no settlement, judgment, or award has taken place.

This area of the law changes often due to legislative and judicial action.  MSP compliance requires the support of a team with a strong legal foundation to stay on top of these changes and rapidly implement what the law requires.  As your compliance authority, Franco Signor’s counsel continuously monitors MSP case law and legislation and provides this blog as a resource for the current status of the law.

[i][i] It is important to note that whether or not Plaintiff’s policy contained coordination language, that such limitation is not recognizable under the MSP law.  The law’s purpose was to impose a mandatory second position for Medicare to any coverage that is available, and providers of medical benefits could not by contract force Medicare into a primary position.  While it was convenient for this case that the policy language was clear that the policy would be primary to Medicare, the language exists more likely than not, because of the MSP law.

Heather Schwartz Sanderson, Esq., MSCC, CHPE, CLMP, CMSP

Chief Legal Officer

Franco Signor LLC