Last month, the U.S. District Court for the Eastern District ofPennsylvania joined a growing number of federal courts in rejectinga Medicare Advantage (MA) plan's assertion of a federal privateright of action against casualty insurers under the MedicareSecondary 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 inseveral respects. First, the Court's ruling may be the tippingpoint 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' compensationinsurers—to pay primary to Medicare when compensating Medicarebeneficiaries for bodily injuries and related medical expenses.

Second, the decision raises the question whether CMS may requireNGHPs to report to CMS their claims payments to MA planbeneficiaries or risk a penalty of $1,000 a day under Section 111of the Medicare, Medicaid and SCHIP Extension Act of 2007 (Section111).

As evidenced in a June 22 Congressional hearing before the HouseSubcommittee on Oversight and Investigations, insurers already arefrustrated by their inability to resolve Medicare beneficiaryclaims and settle a growing backlog of litigations while waitingfor CMS to remedy serious deficiencies in the MSP program.

In her decision, Judge Cynthia Rufe dismissed Humana's suitseeking reimbursement from GlaxoSmithKline of payments Humana hadmade conditionally on behalf of Medicare beneficiaries enrolled inHumana's MA plan, a managed care alternative to the traditional,fee-for-service Medicare plan offered by the federalgovernment.

The Court ruled that an MA plan has no private right of actionunder federal law to assert a direct action against a privateinsurer, notwithstanding Medicare regulation. Under the 1980 MSPstatute, GlaxoSmithKline, as a self-insured entity, has the statusand obligations of a liability insurer (or NGHP) and thus must payclaims primary to Medicare.

In filing suit, Humana had relied on the statutory provisionsthat created the Medicare Advantage program under Part C ofMedicare,  42 U.S.C. § 1395w-22(a)(4), and the MSP statuteat 42 U.S.C. § 1395y(b)(3).

The MSP statute, enacted in 1980, expressly created a privatecause of action to enforce Medicare's right to recover conditionalpayments from NGHPs. In contrast, the Medicare Part C provisionsstate that an MA plan "may" seek reimbursement from the primarypayer. Humana also relied upon a Part C regulation that vests an MAplan with the same rights of recovery held by the Secretary of theDepartment of Health and Human Services (HHS), including the rightto bring "a direct right of action to recover [conditionalpayments] from any primary payer."  42 C.F.R.§ 411.24(e).

Thus, Humana argued, an MA plan stands in the shoes of theSecretary and may assert a federal cause of action to recover froma primary payer.

The court rejected this argument for three reasons. First, itnoted that the Part C statutory provision is permissive rather thanmandatory and does not incorporate the full remedies of the MSPstatute.

Second, the court reasoned that while MA plans have neither anexplicit nor implied federal right of action against a primarypayer, they do have a remedy under state contract law, at leastwith respect to recovery of payments from the beneficiary andpossibly from the primary payer through subrogation.

Third, and most significantly, the court also ruled that thePart C regulation at 42 C.F.R. § 422.108(f) is animpermissible construction of the Part C statute to the extent theagency attempted to grant a private right of action to MAplans.

In determining that Congress had not created a private right ofaction for MA plans, the court reasoned that because the Part Cstatutory provisions contain an express right to demandpayment from primary payers, but are silent as to enforcementmechanisms, Congress's silence "indicates its intent not to createa private right of action for [MA plans], instead leaving [MAplan's] to enforce their rights as secondary payers under thecommon law of contract," which may or may not give an MA plandirect access to a primary payer.

Moreover, the Court reasoned, even if Congress's intent wasambiguous, "the Secretary cannot create a right Congress has notcreated."

Although the Humana case is consistent with earlierfederal 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 rejectedimplied private rights of action for MA plans, it is the first caseto declare 42 C.F.R. § 422.108(f) an improper exercise of theSecretary's rulemaking authority to the extent it authorizes aprivate right of action.

Two recent district court opinions rejecting implied privaterights of action for MA plans did not find it necessary toinvalidate the Part C regulation. See Humana MedicalPlan, 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 outrightrejecting CMS's interpretation of the Part C regulation, CMS willface new pressures from MA plans to provide them the same rightsunder Part C as are afforded traditional Medicare, if they are tocontinue to underwrite Medicare managed care benefits.

The Humana decision also raises the important questionwhether CMS has authority under Section 111 to require NGHPs toreport to the Agency their payments to MA plan enrollees, inaddition to reporting their payments to enrollees in traditionalMedicare. After the decision, NGHPs may be emboldened to decline toreimburse MA plans if claims payments have been disbursed. Wheresuch funds have not been paid, MA plans may still billNGHPs for reimbursement of conditional payments but would lack afederal enforcement mechanism if other courts follow inHumana's footsteps.

During Section 111 town hall calls, CMS has instructed NGHPs toreport payments made to all Medicare beneficiaries, regardless ofthe type of Medicare plan in which they are enrolled. Withoutaddressing whether Congress intended Section 111 to sweep thisbroadly, CMS has explained that it is not uncommon for Medicarebeneficiaries to switch enrollment between Medicare plans.

Accordingly, CMS believes an individual enrolled in an MA planat settlement may have been enrolled previously in traditionalMedicare and thus some settlement funds compensate for medicalexpenses incurred during that earlier time and thus are reportableunder Section 111. This scenario could arise, for example, duringextended class-action periods. CMS has avoided the question whetheran NGHP must report a settlement to a claimant who has demonstratedhe only received Medicare benefits under an MA plan.

This issue may be headed for judicial review. An argument couldbe advanced that, if Congress did not intend to give MA plans aright of judicial recovery against NGHPs, then Congress did notintend NGHPs to bear the high costs and administrative burdens ofreporting payments to MA plan enrollees under Section 111. Rather,MA plans must pursue any rights of recovery against their enrolleesas permitted under their plan documents. They would be well servedto better educate their enrollees as to their obligations toreimburse MA plans for conditional payments.

As this discussion shows, the Humana decision hasimportant implications for casualty insurers. Over the comingmonths, this and many other issues that intersect both MSPsituations and Section 111 reporting will continue to evolve anddemand the attention of casualty insurers.

This is a publication of Wiley Rein LLP providing generalnews about recent legal developments and should not be construed asproviding legal advice or legal opinions. You should consult anattorney for any specific legal questions.