New MSP False Claims Act Litigation: Did Progressive Ignore the Forest for the Trees?
Heather Sanderson
March 7, 2016

The False Claims Act’s (FCA) purpose is to deter fraud upon the U.S. government, and whistle-blowers are incentivized to bring such actions due to the potential to recover triple damages against the fraudulent entity. With regard to Medicare Secondary Payer (MSP) FCA litigation, we have really only seen two whistleblowers try to bring MSP FCA actions up until now, United States of America ex. rel. Dr. Kent Takemoto v. ACE et al. and United States, ex. rel. J. Michael Hayes v. Allstate Insurance Company, et al. As of just last month, January 2016, both Takemoto and Hayes’ actions were dismissed in the Western District of New York for failure to plead specificity in their claims. Only the United States is able to re-assert these actions, which it is unlikely to do, since it didn’t intervene in the suit initially.

For a short time, we were able to breathe a sigh of relief with no known MSP FCA litigation in sight. But now, we have new MSP False Claims Act litigation that we need to keep an eye on, as the result of this litigation can have meaningful impact and precedent on future whistleblower MSP FCA claims against auto/no-fault insurers and even workers’ compensation. The new litigation is Negron v. Progressive, 2016 U.S. Dist. LEXIS 24494 (March 1, 2016), and it arises out of the United States District Court for the District of New Jersey.

In Negron, the whistleblower/relator is Elizabeth Negron (“Relator”) and she alleges that Defendants Progressive Casualty Insurance Company and Progressive Garden State Insurance Company (“Defendants”) violated both the Federal FCA as well as New Jersey’s FCA by allowing Medicare and Medicaid beneficiaries to elect a “health first” automobile insurance policy through an online application, which caused health care providers to submit claims to Medicare and Medicaid in violation of secondary payer laws. Defendants filed a Motion to Dismiss Relator’s claims and the NJ District Court denied the Motion to Dismiss.

The NJ District Court’s looked at several factors when deciding to deny the Motion to Dismiss. Under New Jersey’s law relating to automobile insurance, policyholders have the option of utilizing their personal health insurance as the primary payer of medical bills resulting from a car accident. However, the regulation specifically excludes recipients of Medicare and Medicaid from this option; therefore, NJ’s law is consistent with both Medicare and Medicaid secondary payer laws.

When Relator purchased a policy online with back in 2009, at the time she had the option to select either a “health first” policy or a Personal Injury Protection (PIP) plan. When utilizing Progressive’s online application, the website did not direct Relator to choose a PIP plan so that her auto insurance would be primary to Medicare, but rather it allowed her to choose a health first policy despite her Medicare coverage (it did not question Relator as to her type of personal health insurance). To ensure that Medicare would not become a primary payer, the website should have directed her to choose a PIP plan through Progressive, but it did not. Additionally, when Relator’s healthcare providers submitted medical bills to Progressive, it sent denial letters to the providers instructing them to instead submit her health care bills to her primary health insurer, which for the Relator was Medicare. Medicare denied one of her bills as untimely but conditionally paid for some of her bills which was later reimbursed by Progressive.

To state a claim under the FCA, a plaintiff must demonstrate that: 1) the defendant presented or caused to be presented to an agent of the United States a claim for payment, 2) the claim was false or fraudulent; and 3) the defendant knew the claim was false or fraudulent.

The Defendants here asserted that Relator had not proved two of the three prongs of the FCA claim: that the claims submitted were false or fraudulent and were submitted knowingly. The NJ District Court disagreed and found that by Progressive remaining ignorant of the fact that Relator did not have qualifying health insurance (i.e. a non-Medicare/Medicaid health insurance policy) for a health first policy, Progressive in fact caused Realtor’s health providers to treat Medicare as the primary payer of Relator’s auto-related medical costs. Furthermore, Medicare never was, nor by law could it ever be, a primary payer given the existence of Relator’s no-fault policy. Stated differently, Defendants caused Realtor’s health providers to submit bills to Medicare that Medicare could never be responsible for on a permanent basis.

Furthermore, Progressive had sufficient time and ability to prevent Relator from purchasing a health first policy in the first place and could have questioned the type of personal health insurance she had so as to have avoided providing a health first policy to a Medicare recipient. Additionally, while the NJ District Court agreed that Relator had not pointed to explicit language in MSP which states, “auto insurers must prevent persons insured by Medicare from enrolling in health first policies which cause Medicare to act as the primary payer,” the fact that such events apparently occurred, and apparently so easily, would have the effect if proven of subverting the entire Medicare Secondary Payer statutory scheme envisioned by Congress.

Further discussion was had by the NJ District Court as to Medicare’s ability to pay conditionally. While all parties were in agreement that under the MSP Medicare may pay conditionally subject to reimbursement by the primary payer, the NJ District Court held tight to the fact that the intent behind the MSP is to prevent Medicare from paying where a primary payer exists, such as an automobile insurance policy. Specifically, the NJ District Court noted: “It makes no sense, adds unnecessary costs, and increases the risk of administrative failure, for the claims process to figure that out at the end rather than the beginning. Simply put, the Defendants are asking the Court to ignore the forest for the trees.”

Commentary: This litigation has significant implications for auto/no-fault insurance carriers and even workers’ compensation. If this action is successful, it will create precedent that insurers have the responsibility under the MSP 1) To ensure that Medicare beneficiaries do not enroll in plans where Medicare can be designated as the primary payer, and 2) To proactively identify Medicare beneficiaries so as to ensure that Medicare does not pay conditionally- in other words, Medicare should not have to “pay and chase.” We will continue to monitor this litigation and in the meantime strongly recommend carriers have a proactive strategy in place to avoid Medicare paying as a primary payer, despite the ability to reimburse Medicare for these conditional payments, so as to not be subject to future MSP FCA claims.

Heather Schwartz Sanderson, Esq., MSCC, CHPE, CLMP, CMSP
Chief Legal Officer
Franco Signor LLC