MSP Recovery LLC Accesses Data Sources for Class Actions; Illinois District Court Dismisses Class Action Against State Farm
Roy Franco
January 17, 2018

We have blogged  about Medicare Advantage Plans (MAPs) and MSP Recovery LLC for quite some time now, but a recent industry blog (“Illinois Court Indicates MAPs Have “Double Damages” Rights”) requires us to also clarify the ruling of this new court decision to avoid  confusion for our Illinois clients about Illinois MAP recovery rights in that state.  To clarify that for our readership, here’s the information that’s critical to understand.

  1. Both actions against State Farm were dismissed without prejudice in Illinois;
  2. The Illinois court did not rule that MAPs have “double damages” rights; and
  3. The Judge’s comments are dicta and not a ruling so there is no reason to depart from best practices presently in place.

For those interested in more than the abbreviated version, please read on.

For about a year, the casualty industry has been under assault from numerous lawsuits and class actions to recover conditional payments made by Medicare Advantage Plans (MAPs).  The primary Plaintiff entity pursuing these actions, MSP Recovery LLC, is led by two attorneys from South Florida (Frank Quesada and John Ruiz). MSP Recovery has created more than 50 Florida based limited liability companies that allegedly hold assignments from these MAPs to recover conditional payments.

Recent Dismissal of MSP Recovery Class Actions Against State Farm in Illinois 

Two class actions instituted by MSP Recovery LLC against State Farm were recently dismissed for MSP Recovery’s failure to confer subject matter jurisdiction. MSP Recovery now has 21 days to amend their Complaints and re-file the litigation. The actions are titled: Recovery v. State Farm Mut. Auto. Ins. Co., 2018 U.S. Dist. LEXIS 3318 and Recovery v. State Farm Mut. Auto. Ins. Co., 2018 U.S. Dist. LEXIS 3320.

Recently, an industry blog indicated that this particular decision resulted in Illinois joining the growing list of states that permit Medicare Advantage Plan (MAPs) to bring an MSP private cause of action for double damages.  This erroneous assumption was based on the Judge’s dicta expressing that it would see no reason to depart from the national trend allowing a MAP to bring a private cause of action pursuant to the Medicare Secondary Payer Act (MSP).  However, that expression is inconsequential, as these actions were dismissed for want of subject matter jurisdiction.  Consequently, no case law/precedent establishing Illinois as one of the states providing MAPs with a private cause of action to double damages for a primary plan’s failure to reimburse conditional payments.

Of course, we can expect MSP Recovery LLC to file an amended complaint, and we can also suspect based on this dicta that amicus briefs will be filed, should a dismissal action be sought again by defendants.   But until amended complaints are filed and a full decision is rendered, Illinois should not be added to the list of states to be highly concerned about, or more precisely, a single District within Illinois.   We will monitor this closely.

How MSP Recovery Accesses Data to Bring MSP Private Cause of Action Claims

Frank Quesada and John Ruiz, have been working on their litigation project for MSP private cause of action claims since early 2014.  To garner success, a method was needed to assess the potential recovery.  Through assignments from the MAPs, medical payments data from Medicare beneficiaries was an easy lift.

The greater challenge was connecting that information with liability settlements and no-fault claims.  Plaintiffs thus built a “system” that took feeds from public databases, and private ones, like ISO, that would allow Plaintiffs to match that data against the Medicare Advantage medical payments data it possessed.  See MSPA Claims 1 LLC v. Ocean Harbor Casualty Insurance Order Granting Plaintiff’s, MSPA Claims 1, LLC, Motion for Class Certification, Pages 48, 49, 70, 71, 74, and 75.  Excerpts from the motion:

  • The System can also identify the amounts owed by using the Defendant’s electronic data, the MAO’s data, and data acquired from outside sources like the Department of Motor Vehicles, ISO and CMS.
  • The evidence presented demonstrated that the System captures and manages the following types of data:
    • ISO reports [J.A. 001776:6-12, Ruiz Testimony, Sept. 12, 2016].
  • Plaintiff’s Use of ISO Data
    • Insurance Services Office (“ISO”), is a database that stores information about property/casualty insurance risk.31 ISO provides advisory services and information to many insurance companies.”32 For example, “ISO develops and publishes policy language that many insurance companies use as the basis for their products.”33 Further, No-Fault insurance companies like Defendant use ISO as its agent for CMS Section 111 reporting.34
  • The witness testified that she “fully incorporate[d] said information into her records made in the regular course of [Progressive’s] business”). Specifically, Defendant indicated that it used ISO reports to submit information and report and investigate claims. [J.A. 002309:1-23, 002310:5-9, 002319:1-9, Celli Testimony Sept. 14, 2016]. Defendant entered information about car crashes and their enrollees into ISO.
  • Plaintiff’s system cross-referenced the information in its possession with common source documents, such as ISO reports, that no-fault insurers and Defendant utilize by common practice and custom to find “any other claim that had been made by the Medicare beneficiary, irrespective of whether it’s a slip and fall or a trip and fall, or a car accident so long as that insurance company subscribes to that service.” [J.A. 001492:18-19, 001493:8-20, Ruiz Testimony June 2, 2016].
  • Plaintiff has established by substantial competent evidence that Defendant’s common practice and course of conduct in processing no-fault claims pertaining to any and all of its claims within the Class Period is the same. Specifically, Defendant processes its no-fault claims by:
    • using ISO in order to satisfy its Medicare reporting responsibility [J.A. 002326:2-8, 14-25, 002327:1-2, Celli Testimony Sept. 14, 2016.];

This process has allowed Plaintiff attorneys, such as Frank Quesada and John Ruiz to allege that a “practice and course of conduct to not properly pay and/or fail to reimburse the secondary payer” by liability and no fault insurance.  To that point, they believe a strong inference exists sufficient to defeat procedural motions to dismiss, sufficient to raise a reasonable expectation that discovery will reveal evidence supporting their allegations to establish a class.

Commentary: Our clients have been shocked that their own data may now be used against them to establish a double damages liability for alleged failure to repay MAP conditional payments.  How MSP Recovery LLC gained access to these databases, particularly private subscription based information held by ISO, is a question that remains unanswered.

The casualty industry can defend these suits from both a legal and equitable standpoint: From a legal standpoint, a double damages private cause of action should not arise without proper notice to the primary plan. Unfortunately, primary plans are currently in an unfortunate situation of only being able to ascertain MAP enrollment information from the beneficiary, who is not always sure or forthright about their other coverages. Without notice of MAP enrollment/payments from either the MAP or the beneficiary, the primary plan has no method to determine if a MAP is owed reimbursement. As such, without notice by the MAP, no private cause of action should arise. Further, as Medicare and their MAPs have taken no action to provide a centralized system for primary plans to access this MAP lien data, the MAPs and entities such as MSP Recovery have put primary plans in an unfair situation of seeking double damages where the primary plan had no notice of these liens.

We will continue to monitor these class actions closely and keep our client apprised of updates.