South Carolina District Court “Joins Sister Courts” in Allowing MAOs to Maintain an MSP Double Damages Private Cause of Action Against Primary Plans
Heather Sanderson
September 25, 2019

Recall last year in 2018 we blogged that Humana Medicare Advantage had filed an action against Bi-Lo, LLC, a grocery retailer, in the U.S. District Court for the District of South Carolina for declaratory relief and monetary damages to recover amounts allegedly due and owing to Humana Medicare Advantage Organization (MAO) for payments made on behalf of Enrollee (the Medicare beneficiary’s name has not disclosed for privacy and is herein referred to as Enrollee). Enrollee is a Medicare beneficiary who elected Medicare Advantage coverage from Humana Insurance Company.

Now, a preliminary decision has been issued on Defendant’s Motion to Dismiss finding that Defendant’s Motion is Denied, and Plaintiff Humana may continue its double damages MSP private cause of Action against Bi-Lo, the primary plan. This decision, as discussed in greater detail herein, now makes it the second time a District Court in the Fourth Circuit to find that a MAO may pursue recovery against a primary plan pursuant to the MSP private cause of action. A copy of the September 24th decision can be found here.

The background of this case involved Enrollee suffering a slip and fall accident at a Bi-Lo grocery store. Humana had made conditional payments in the amount of approximately $25,000 on behalf of Enrollee. Bi-Lo entered into a settlement with Enrollee for $80,000 in exchange for a release of all claims. Enrollee was obligated to reimburse Humana under the settlement agreement but did not pay Humana.

As Humana was not paid by Enrollee, Humana then sent a demand letter to Bi-Lo’s counsel for reimbursement of the conditional payments. However, Bi-Lo’s counsel did not respond to Humana’s demand letter, and to date, Humana alleges that it has not been reimbursed for the conditional payments made on behalf of Enrollee. Humana now specifically seeks a declaratory judgment as to Bi-Lo’s obligation to reimburse the conditional payments, and secondarily, double damages under the MSP private cause of action located at 42 USC § 1395y(b)(3)(A).

In dismissing Bi-Lo’s Motion to Dismiss, the Court noted that numerous courts have addressed the precise question in this case- whether a MAO can bring a cause of action under the private cause of action provision. The Court further noted that 1) at least one District Court in the Fourth Circuit has found that an MAO may bring such an action, and 2) the Court had reviewed the In Re Avandia decision out of the Third Circuit Court of Appeal and agrees with the reasoning and holding in full. Accordingly, the Third Circuit’s analysis from In Re Avandia will be incorporated and applied fully herein to this litigation as it continues.

Commentary: The Court had some suggestions on how Bi-Lo could have avoided being sued over this matter in the first place. Bi-Lo could have either 1) conditioned settlement on Enrollee providing the conditional payment amount during settlement negotiations or 2) refused to issue a check directly to Enrollee without ensuring the MAO conditional payments are satisfied.

Clearly, as the Court has indicated here, it is not advisable to rely upon a Medicare beneficiary to reimburse either traditional Medicare or MAOs. Pursuant to 42 CFR 411.24, Medicare/MAOs may seek recovery from any party to the settlement, regardless of who the settlement language designates as the party who will reimburse Medicare/MAO conditional payments. Further, a double damages MSP private cause of action pursuant to 42 USC § 1395y(b)(3)(A) is an obvious risk for primary plans that put the onus of the reimbursement obligation on the Medicare beneficiary. This decision clearly demonstrates that.

We will continue to monitor this Humana litigation and, in the meantime, recommend that settlement language with Medicare beneficiaries contain concise language in which the primary payer drives the conditional payment reimbursement process to avoid actions like these. We are available for questions and guidance for Medicare/MAO conditional payment Best Practices.