Last month, the U.S. District Court for the Eastern District of Pennsylvania joined a growing number of federal courts in rejecting a Medicare Advantage (MA) plan’s assertion of a federal private right of action against casualty insurers under the Medicare Secondary Payer (MSP) laws. [Humana v. GlaxoSmithKline, No. 10-6733, 2011 WL 2413488 (E.D. Pa. June 13, 2011.)]
The opinion in this case is significant for casualty insurers in several respects. First, the Court’s ruling may be the tipping point that compels the Centers for Medicare & Medicaid Services (CMS) to seek Congressional amendment of a collection of complex, disjointed MSP provisions that require “non-group health plans” (NGHPs)—including liability, no-fault, and workers’ compensation insurers—to pay primary to Medicare when compensating Medicare beneficiaries for bodily injuries and related medical expenses.
Second, the decision raises the question whether CMS may require NGHPs to report to CMS their claims payments to MA plan beneficiaries or risk a penalty of $1,000 a day under Section 111 of the Medicare, Medicaid and SCHIP Extension Act of 2007 (Section 111).
As evidenced in a June 22 Congressional hearing before the House Subcommittee on Oversight and Investigations, insurers already are frustrated by their inability to resolve Medicare beneficiary claims and settle a growing backlog of litigations while waiting for CMS to remedy serious deficiencies in the MSP program.
In her decision, Judge Cynthia Rufe dismissed Humana’s suit seeking reimbursement from GlaxoSmithKline of payments Humana had made conditionally on behalf of Medicare beneficiaries enrolled in Humana’s MA plan, a managed care alternative to the traditional, fee-for-service Medicare plan offered by the federal government.
The Court ruled that an MA plan has no private right of action under federal law to assert a direct action against a private insurer, notwithstanding Medicare regulation. Under the 1980 MSP statute, GlaxoSmithKline, as a self-insured entity, has the status and obligations of a liability insurer (or NGHP) and thus must pay claims primary to Medicare.
In filing suit, Humana had relied on the statutory provisions that created the Medicare Advantage program under Part C of Medicare, 42 U.S.C. § 1395w-22(a)(4), and the MSP statute at 42 U.S.C. § 1395y(b)(3).
The MSP statute, enacted in 1980, expressly created a private cause of action to enforce Medicare’s right to recover conditional payments from NGHPs. In contrast, the Medicare Part C provisions state that an MA plan “may” seek reimbursement from the primary payer. Humana also relied upon a Part C regulation that vests an MA plan with the same rights of recovery held by the Secretary of the Department of Health and Human Services (HHS), including the right to bring “a direct right of action to recover [conditional payments] from any primary payer.” 42 C.F.R. § 411.24(e).
Thus, Humana argued, an MA plan stands in the shoes of the Secretary and may assert a federal cause of action to recover from a primary payer.
The court rejected this argument for three reasons. First, it noted that the Part C statutory provision is permissive rather than mandatory and does not incorporate the full remedies of the MSP statute.
Second, the court reasoned that while MA plans have neither an explicit nor implied federal right of action against a primary payer, they do have a remedy under state contract law, at least with respect to recovery of payments from the beneficiary and possibly from the primary payer through subrogation.
Third, and most significantly, the court also ruled that the Part C regulation at 42 C.F.R. § 422.108(f) is an impermissible construction of the Part C statute to the extent the agency attempted to grant a private right of action to MA plans.
In determining that Congress had not created a private right of action for MA plans, the court reasoned that because the Part C statutory provisions contain an express right to demand payment from primary payers, but are silent as to enforcement mechanisms, Congress’s silence “indicates its intent not to create a private right of action for [MA plans], instead leaving [MA plan’s] to enforce their rights as secondary payers under the common law of contract,” which may or may not give an MA plan direct access to a primary payer.
Moreover, the Court reasoned, even if Congress’s intent was ambiguous, “the Secretary cannot create a right Congress has not created.”
Although the Humana case is consistent with earlier federal decisions in Nott v. Aetna U.S. Healthcare, Inc., 303 F. Supp. 2d 565 (E.D. Pa. 2004), and Care Choices HMO v. Engstrom, 330 F.3d 786 (6th Cir. 2003), both of which rejected implied private rights of action for MA plans, it is the first case to declare 42 C.F.R. § 422.108(f) an improper exercise of the Secretary’s rulemaking authority to the extent it authorizes a private right of action.
Two recent district court opinions rejecting implied private rights of action for MA plans did not find it necessary to invalidate the Part C regulation. See Humana Medical Plan, Inc. v. Mary Reale, No. 10-21493 2011 WL 335341 (S.D. Fla. Jan. 31, 2011); Parra v. Pacificare of Arizona, No. 10-008 2011 WL 1119736 (D. Ariz. Mar. 28, 2011).
Because of these judicial rulings either narrowing or outright rejecting CMS’s interpretation of the Part C regulation, CMS will face new pressures from MA plans to provide them the same rights under Part C as are afforded traditional Medicare, if they are to continue to underwrite Medicare managed care benefits.
The Humana decision also raises the important question whether CMS has authority under Section 111 to require NGHPs to report to the Agency their payments to MA plan enrollees, in addition to reporting their payments to enrollees in traditional Medicare. After the decision, NGHPs may be emboldened to decline to reimburse MA plans if claims payments have been disbursed. Where such funds have not been paid, MA plans may still bill NGHPs for reimbursement of conditional payments but would lack a federal enforcement mechanism if other courts follow in Humana’s footsteps.
During Section 111 town hall calls, CMS has instructed NGHPs to report payments made to all Medicare beneficiaries, regardless of the type of Medicare plan in which they are enrolled. Without addressing whether Congress intended Section 111 to sweep this broadly, CMS has explained that it is not uncommon for Medicare beneficiaries to switch enrollment between Medicare plans.
Accordingly, CMS believes an individual enrolled in an MA plan at settlement may have been enrolled previously in traditional Medicare and thus some settlement funds compensate for medical expenses incurred during that earlier time and thus are reportable under Section 111. This scenario could arise, for example, during extended class-action periods. CMS has avoided the question whether an NGHP must report a settlement to a claimant who has demonstrated he only received Medicare benefits under an MA plan.
This issue may be headed for judicial review. An argument could be advanced that, if Congress did not intend to give MA plans a right of judicial recovery against NGHPs, then Congress did not intend NGHPs to bear the high costs and administrative burdens of reporting payments to MA plan enrollees under Section 111. Rather, MA plans must pursue any rights of recovery against their enrollees as permitted under their plan documents. They would be well served to better educate their enrollees as to their obligations to reimburse MA plans for conditional payments.
As this discussion shows, the Humana decision has important implications for casualty insurers. Over the coming months, this and many other issues that intersect both MSP situations and Section 111 reporting will continue to evolve and demand the attention of casualty insurers.
This is a publication of Wiley Rein LLP providing general news about recent legal developments and should not be construed as providing legal advice or legal opinions. You should consult an attorney for any specific legal questions.