Medicare Secondary Payer Private Cause of Action – What’s the deal?
Roy Franco
July 11, 2010

The Medicare Secondary Payer Act (MSP) was passed in response to a dramatic increase in Medicare expenditures. See Baptist Mem’l Hosp. v. Pan Am. Life Ins. Co., 45 F.3d 992, 997 (6th Cir. 1995). “In the MSP statute Congress made Medicare coverage secondary to any coverage provided by private insurance [and self insureds] programs. It did so in order to lower Medicare costs.” See Perry v. United Food & Commercial Workers Dist. Unions 405 & 442, 64 F.3d 238, 243 (6th Cir. 1995)

MSP allows Medicare to pay conditionally health care providers “if a primary plan has not made or cannot reasonably be expected to make payment promptly.” 42 USC §1395y(b)(2)(B)(i). Repayment to Medicare occurs when “it is demonstrated such primary plan [insurance company or self insured] has or had a responsibility to make payment with respect to such item or service [related medical services]” Id. §1395y(b)(2)(B)(ii).

Congress empowered Medicare with a great deal of leverage to collect conditional payments owed if it was not promptly repaid. MSP allows Medicare the right of collection from the primary plan, Medicare beneficiary or any entity that received payment from the primary plan, e.g., plaintiff attorney. Id. 42 USC §1395y(b)(2)(B)(ii). There is also the threat of a lawsuit that allowed Medicare to collect double damages. Id. 42 USC §1395y(b)(2)(B)(iii). Medicare has a subrogation right and could intervene in any pending litigation. . Id. 42 USC §1395y(b)(2)(B)(iv). It can also suspend future Medicare benefits owed the beneficiary until it had recouped the conditional payments. Id. §1395y(b)(2)(A)(ii). Finally, Medicare has the power to use Treasury offsets against those that are responsible to pay. 42 USC §1395y(b)(2)(B)(ii).

In a MSP world where no mechanism existed to identify conditional payment situations, Congress also empowered the Medicare beneficiary to bring a lawsuit against the primary plan. Id. 42 USC §1395y(b)(3)(A). No doubt this made a great deal of sense before electronic reporting obligations, created by MMSEA Section 111, but in a post reporting environment, the utility of this provision is questionable at best.

There is limited legislative history explaining the purpose for the private cause of action. See Stalley v. Catholic Health Initiatives, 509 F.3d 517, (8th Cir. 2007). Courts, for the most part, have had to interpret the scant references contained in the legislative record. In general, courts have agreed that the purpose of statute is to help the government recover conditional payments from insurers or other primary payers. See, e.g., United Seniors Ass’n v. Phillip Morris USA, 500 F.3d 19, 21-22 (1st Cir. 2007). The thinking behind the statute seems to be twofold: (1) The beneficiary is better situated than the government to know whether other entities may be responsible to pay his expenses; and (2) Without the ability to obtain double damages, the beneficiary might not be motivated to take arms against a recalcitrant insurer. Medicare may have already paid the expenses and the beneficiary can pay back the government for its outlay and still have money left over to reward him for his efforts. Id. at 524 – 525.

Prior to Section 111, this rationale made sense. But it does ring true when Medicare will have equal awareness as the beneficiary in all cases where there is a settlement, award, judgment or other payment. It remains to be seen, but it is clear that whatever happens, there is a movement to take advantage of the private cause of action and the courts response thus far has been to shut it down.

Initially, the private cause of action feature contained in the MSP was thought to be a qui tam grant of authority to sue on behalf of the government. This private attorney general theory has not held. In fact, parties have been admonished for attempting to forum shop to pursue it. Most famous of these matters are those championed by one time legal assistant, Erin Brockovich.

The focus has shifted to using the private cause of action as a “sword” to encourage higher value settlements. In an article advocating this theory, The Medicare Secondary Payer Act – A Diamond in the Rough! – the authors lay out their strategy to trap the unwary primary plan into paying more. The premise goes something like this: If a defendant’s insurance company fails to promptly pay a liability claim, then it is automatically responsible for double the medical exposure under the MSP. Most insurance carriers, according to the authors, do not understand the exposure and therefore will not reserve for it. In a subsequent bad faith claim the lack of understanding MSP obligations could be used as prima facie evidence of bad faith and open up the policy.

As enticing as that theory sounds from the plaintiff’s perspective, it does not appear to have legal support. Courts thus far are not willing to allow the private cause of action to stand as an additional claim in an ongoing dispute between the Medicare beneficiary and defendant. The matter of Cheryl Geer v. AMEX Assurance Co., 2010 U.S. Dist. LEXIS 66834 is illustrative of this point. That case arose from injuries Plaintiff sustained in an automobile accident in a no-fault jurisdiction. Plaintiff filed three separate and successive actions in accordance with the terms of her no-fault policy. The first action was settled for benefits incurred between the accident date and February 28, 2003. In her second action, the matter was against resolved for benefits incurred between February 28, 2003 through July 20, 2005. Her third action filed in the U.S. District Court alleged the MSP private cause of action to obtain jurisdiction and double damages.

The U.S. District Court, reluctant to open the floodgate of traditionally state court matters, reviewed in detail the purpose of the private cause of action, including legislative history as well as other Court opinions regarding its applicability. See BioMedical Applications of Ga., Inc. v. City of Dalton, GA., 685 F. Supp. 2d 1321, 1331 (N.D. Ga. 2009). In the end, the Court concluded that two important conditions precedent must be met before the private cause of action can be invoked. First, Medicare must have actually made payments on the plaintiff’s behalf. See Perry, 64 F.3d at 244. Second, the primary plan must be “responsible” for paying the benefits at issue. See Glover v. Liggett Group, Inc., 459 F.3d 1304, 1309 (11th Cir. 2006).

The first pre-condition was easily met by the plaintiff because she was a Medicare beneficiary. However, the Geer Court rejected her action as premature because the second point was not met. In evaluating the MSP statute, the Court found that a primary insurer’s responsibility may be “demonstrated by judgment, a payment conditioned upon the recipient’s compromise, waiver, or release (whether or not there is a determination or admission of liability) of payment for items or services included in a claim against the primary plan or the primary plan’s insured, or by other means.” 42 USC §1395y(b)(2)(B)(ii); see also 42 CFR §411.22. Consequently, until “responsibility” to pay for a Medicare beneficiary’s expense has been demonstrated, for example by a judgment or settlement, there is no obligation exists for the defendant to reimburse Medicare.

Thus, the Geer Court dismissed the plaintiff’s complaint. Even though plaintiff’s case was based on contract (no-fault benefits) and not tort, the Court held there was no difference, walking the parties through an analysis of the MSP cases to demonstrate the point. In the end, the Court had two concerns. First, enlarging federal jurisdiction, pointing to the reasoning reached in Glover. But, more importantly, the unfairness of automatically holding the defendant responsible any time a good-faith challenge to claimed benefits were made as found in Nat’l Comm. Preserve Soc. Sec. & Medicare v. Philip Morris USA Inc., 601 F. Supp. 2d 505, 510 (E.D.N.Y. 2009).

The Geer decision, in my mind, puts to rest of using the private cause of action as a sword to leverage an increase, or a swift resolution, of a liability claim. However, the decision does provide a clear road map on how it can be used going forward. When a defendant resolves a claim with a Medicare beneficiary, particular care must be taken to have the private cause of action waived in the release. If not, should Medicare, subsequent to the settlement, seek additional reimbursement from the Medicare beneficiary, it could lead to additional and unnecessary re-litigation of the claim previously settled.

How is this possible when the primary plan’s responsibility is limited to the settlement amount as stated in the Medicare Secondary Payer Manual at Chapter 7 §50.4.4? It is possible because Medicare considers the entire settlement amount subject to the reimbursement claim. Should the Medicare beneficiary have settlement proceeds left over after deduction of conditional payments, attorney’s fees and other procurement costs, that balance is still subject to Medicare’s claim for reimbursement. For worker’s compensation cases that are settled, the injured worker is protected from these sort of actions because settlements are approved by Medicare and certain dollar amounts are set-aside to satisfy future medical issues. No similar rules exist for liability, but that does not mean there is no exposure.

A good example of this is the recent complaint filed by the U.S. to recover conditional payments from a settlement consummated in 2003. The case is well known to those in MSP circles: U.S. v. Stricker. What is unusual about the case is the government’s position that it can recover conditional payments both pre and post settlement date. Prior to this case, only conditional payments for services that took place before the settlement were thought to be included in a reimbursement claim by Medicare. However, this decision clearly establishes at least a theory of liability for conditional payments based on what is being released. If future medical is part of the release, Medicare, by filing this lawsuit, has sent a message that it will seek reimbursement.

While the primary plan can always be a target for these actions by Medicare, it does not need to have two lawsuits to fight. A waiver of the private cause of action would eliminate a counter suit by the plaintiff for double damages from being surprised by the Medicare collection action. If not waived at time of settlement, the pre-conditions would be met by plaintiff to purse that claim and based on legal analysis of this issue to date, that lawsuit will survive.

Franco Signor LLC can help you with your release to avoid the liability of a private action. If you want to learn more please contact us.