Medicare Advantage Plan Class Action Certification Denied by Third Circuit Court of Appeals

As Medicare Advantage Plans (MAPs) continue to aggressively pursue recovery rights under the Private Cause of Action provisions of the Medicare Secondary Payer Act (MSP), 42 USC § 1395y(b)(3)(A), courts are being presented with more and more novel arguments by MAPs to establish these rights.  Such is the case in Ocean Harbor Cas. Ins. v. Claims, 2018 Fla. App. LEXIS 13569 (September 26, 2018), when the Florida Third Circuit Court of Appeals was asked to determine whether the mere existence of a no-fault insurance contract was enough for MAPs to establish primary plan liability under the MSP.

MSPA Claims 1, LLC (MSPA), as an assignee of a defunct Medicare Advantage Organization (MAO) seeking to represent 37 other MAOs, sought to bring a class action suit to recoup double damages under the MSP against no-fault automobile insurer Ocean Harbor Casualty Insurance Company.  MSPA asserted that Ocean Harbor’s liability as a primary payer under the MSP was established not through a settlement or judgement, but by showing that the MAOs made payment for a Medicare beneficiaries’ medical expenses; the beneficiaries had no-fault insurance coverage through Ocean Harbor; and Ocean Harbor failed to reimburse the payment.  Citing to Humana Med. Plan, Inc. v W. Heritage Ins. Co., 832 F3.D 1229 (11th Cir. 2016) and In re Avandia Mktg., Sales Practices & Prod. Liab. Litig., 685 F.3d 353 (3d Cir. 2012), MSPA argued that its reimbursement rights and the rights of similarly situated MAOs was essentially automatic.

Although the trial court agreed with MSPA’s arguments and granted the class certification, the Florida Third Circuit Court reversed on appeal finding that class certification was not appropriate and each MAP recovery right would need to be assessed on a case-by-case basis.  The Court determined that the MSP was never intended, nor did it supersede, state insurance law.  The Court noted that for MSPA to assert a recovery action, it must not only demonstrate that it made a proper conditional payment, but that Ocean Harbor was also required to make a payment under Florida no-fault law.

The Court also rejected MSPA’s argument that Ocean Harbor was required to, and failed to, exhaust its administrative remedies to appeal the MSPA’s organizational determination regarding the conditional lien pursuant to 42 C.F.R. § 422.566, et seq., Significantly, the Court determined that there was nothing in this regulation or subsequent legislation that required a primary plan to appeal an organizational  determination and administrative appeals were only applicable to traditional Medicare liens.

This case illustrates not only the due process requirements for MAP recovery rights, but also the application of these recovery rights in the context of state law and the MSP.  It also illustrates the difficulty primary payers may have in challenging these rights when a formal appeal process is not applicable to these plan as is required under traditional Medicare lien recovery.  As more and more recovery actions are brought by MAPs, it is important for primary payers to not only properly identify MAP liens, but to understand how and when to satisfy these liens to prevent future liability.

Construction Claims and Medicare Secondary Payer Compliance – Construction Claims Fall Edition 2018

Construction claims present unique and complicated Medicare Secondary Payer statute (“MSP”) issues. Often such claims involve multiple defendants – each of whom may have different levels of involvement and responsibility for underlying claims. Each claim may follow a different timeline, with some claims settling early and others lingering for years. Not to mention that each claim may be resolved for vastly different amounts depending on liability, causation, policy limits and statutory damage caps. Most importantly for purposes of how MSP issues are addressed, construction claims may involve both workers’ compensation and liability claims. This article is intended to highlight where MSP issues may arise in construction claims and provide best practices for addressing.

In many construction claims, there may be both workers’ compensation and liability considerations depending on the nature of the relationship between the claimant and the defendant – employer/carrier or liability carrier. In a wrap-up policy, both exposures may exist for the same carrier. To add more complexity, it is not uncommon for questions to arise as to whose employee is involved (general contractors or subcontractors) or whether the status of an injured party is that of an employee or an independent contractor. There are a number of scenarios that can complicate the aspects of MSP compliance, whether it be mandatory insurer report, lien resolution or addressing future medical exposure.

The seemingly simplest scenario is where an employee is injured and there is no third party involved. If the employer or carrier is identified and acknowledges the employment relationship, the case is straight forward and the employer, and its carrier, depending on the employee’s Medicare status,  are responsible for mandatory insurer reporting, lien resolution and addressing the future exposure. Nevertheless, some possible problem areas may still exist or arise. For example, the workers’ compensation coverage may have lapsed, usually due to non-payment. This scenario may now involve another party, e.g. the general contractor, or it may allow the employee to assert a liability claim against the employer.

It is not uncommon for a party to represent themselves as an independent contractor for whatever reason, e.g. to avoid having to secure workers’ coverage. Further that independent contractor on the jobsite may involve other workers, which further compounds the issue. Despite safeguards as to notification to parties when a policy is lapsed or about to, it does not always work as intended. The end result is that another party may be forced to assume a risk they were not aware existed.

The next common situation is when an employee is injured where a potential third party exists that may be responsible. A key principle here is that if the workers’ compensation matter remains open, i.e. no settlement of the medical aspect occurs, the primary responsibility as to Medicare remains with the employer/carrier; thus, the third party (e.g. another contractor, product manufacturer, etc. ) should have no responsibility to Medicare for liens or future exposures. They may, however, still have an obligation to report under mandatory insurer reporting requirements if payments are made to a Medicare beneficiary.

Employers/carriers have decisions to make when a viable third party exists. Most workers’ compensation jurisdictions have regulations that address the employers’ rights when a third party is involved. They have rights both as to payments made as well as payments that may be made. For example, as to payments made, a “Holiday” (a respite from ongoing payments until the lien amount is satisfied) may be available; or in many jurisdictions, a partial Holiday in which the claimant must fund their medical care in order to gain the recovery.

The decision to enforce the lien and the Holiday instead of settling the matter is one that should be given considerable thought as each approach has potential benefits and downsides. Negotiating a settlement in conjunction with the third party settlement is often the choice made. Depending on the strength of the liability claim and the coverage limits available, a compromise of the lien and future credit is usually the result. This approach allows certainty for the employer. Claimants do not usually want to reimburse cash but are usually more willing to agree to larger amounts on the Holiday.

For employers that insist on lien reimbursement (total or partial depending on the regulations) and then enforcing the Holiday, there is the danger the claimant will use up the Holiday prematurely and the employer will be back in the claim. The employer does not generally have any cost containment control in those circumstances. There are other circumstances where the recovery amount is also applied to the ongoing payments where the employee is responsible for 66 2/3% of the bills and the employer 33 1/3 %. In that situation, the employer may wish to control the payments and apply fee schedules and/or cost containment to extend the Holiday as long as possible.

In addition to Holiday issues, construction cases often involve multiple parties, both on the employment issue but more often as to the defendants in a liability claim. It is common for the injured party to involve all contractors on the job to ensure they do not leave a responsible party out. Multiple parties complicate the matter as some are let out early, others contribute smaller amounts and still others litigate. Figuring out lien recovery for these parties is complex. Further, in the course of these claims assessing who is responsible to Medicare for how much and how that amount is determined, responsibilities may vary depending on who the party is, i.e. employer, carrier, third party, etc.

It is generally accepted that upon settlement, the MSP requires the parties to a workers’ compensation or liability settlement to reimburse the Centers for Medicare & Medicaid Services (“CMS”) for any conditional payments made by Medicare. In addition, the primary plan must report any ongoing responsibility for medical (“ORM”) and any total payment obligations to claimant (“TPOC”) to CMS. The MSP prohibits the parties to a settlement from unreasonably shifting the burden of future medical care to Medicare. That means the portion of the settlement that is reasonably allocated to future medical care must be used first for that injury-related care before Medicare pays. In this regard, it is well settled in workers’ compensation claims that a Medicare set-aside or other allocation of settlement proceeds is necessary to protect Medicare’s interests and the claimant’s Medicare benefits. On the other hand, it is rather unsettled how and when it is necessary to establish a Medicare set-aside or other allocation of settlement proceeds., frequently touching on all of the foregoing.

The best interpretation of the MSP is that all parties to a settlement have a duty to reasonably consider Medicare’s interests. This means that the funds representing the settlement of the future medical care related to the claimed injury (and otherwise covered by Medicare) must be considered a primary payment to Medicare. Since these funds are a primary payment, Medicare is secondary to the funds allocated for future medical. This interpretation complies with all aspects for the MSP law and fits within the purpose of the MSP.

The MSP is designed to prevent parties from unreasonably shifting the burden of the future health costs to Medicare. This can be done by the allocation of the settlement into medical, economic or other damages categories and in some cases, an MSA is also the appropriate consideration of Medicare’s interests. Currently, best practices suggest that a third party prepare or audit the MSA (or medical cost projection for an allocation) as this third party adds credibility, expertise and objectiveness to the MSA or the settlement allocation.

The following is an outline of the various steps that should be taken in reviewing a claim for Medicare’s potential interest.

  1. Determine whether the claim involves a Medicare beneficiary (or a potential Medicare beneficiary).

This information may be obtained in several ways. A claimant may be asked upfront about his Medicare beneficiary status, or an inquiry can be made to the Social Security Administration Agency. An adjuster may also look for “red flags” that indicate that Medicare may be involved.  If the claimant is not on Medicare at the time of the initial investigation, the information should be periodically updated.

  1. If the claimant is currently a Medicare beneficiary, investigate/negotiate the conditional payments in the claim.

In a liability claim, a payment by Medicare does not become “conditional” until the liability claim settles, or an award is entered. These events turn the insurance carrier into a primary payer and Medicare into a secondary payer. Although a final conditional payment demand will not always be available prior to settlement, the parties may estimate the amount of Medicare’s payments during the life of the claim. This estimate may be based on information found in the medical records, billing statements, or in a settlement demand. The claimant may also access conditional payment information by registering with www.mymedicare.gov. MSA vendors are also able to aid with the conditional payment search, as well as with reviewing and analyzing the payments made.

  1. Address the conditional payment reimbursement issue in the terms of the settlement agreement.

Identify the party responsible for the conditional payment reimbursement to Medicare. Although a claimant may assume responsibility for the conditional payments, Medicare will still have a cause of action against the primary payer if reimbursement is not made by the claimant. Double damages may be sought if the U.S. Government brings suit to collect the conditional payments. The suit may be filed against “any entity, beneficiary, provider, supplier, physician, attorney, State agency or private insurer that has received a primary payment” prior to Medicare’s reimbursement.

  1. Determine whether the nature of the injury claimed is likely to involve future Medicare‐covered care.

The MSP prohibits the parties to a settlement from unreasonably shifting the burden of future medical care to Medicare. In light of this, the claims handler should review the nature of the injury being alleged and the likelihood that future medical care will be involved. Catastrophic injuries, as well as more significant orthopedic or neurological injuries, are more likely to result in future care than the more minor soft tissue types of injuries. The likelihood of future medical care may be based on a review of the treating physician’s opinions, the standard of care guidelines for the type of injury sustained, as well as the type of prior treatment provided in the claim.

If future medical care is likely to occur, a WCMSA, LMSA or other allocation provides a method for avoiding a shift of future injury‐related medical care to Medicare. The parties may elect to fund a commutation WCMSA or LMSA that fully funds all of the future injury-related Medicare-covered treatment or a compromise allocation that apportions funds from the net settlement for future injury-related Medicare-covered treatment.

As demonstrated, construction claims are very complex and may implicate MSP issues in a variety of ways. It is important for all parties to carefully analyze the claim to ensure MSP compliance. More importantly, parties should continually reevaluate through the life of each claim as MSP issues are sure to evolve.

A Look at the Privatization of Medicare Part A and B Coverage and the MSP Act

Medicare has been in the news lately with the Speaker of the House, Paul Ryan, renewing a push to change the nature of the traditional, fee-for-service Medicare system. To understand the potential impact of a change a review of the background of Medicare is appropriate.

Medicare is a Federal health insurance program that was enacted by the United States in 1965. Generally, an individual may become entitled to Medicare benefits if they have appropriately paid into the program and are age 65 or older, entitled to Social Security Disability benefits for 30 months or longer, or those with End Stage Renal Disease. There are four parts to Medicare: Part A (hospital insurance), Part B (medical insurance), Part C (Medicare Advantage Plans) and Part D (prescription drug coverage). Coverage under Parts A and B is considered “original Medicare.”

Concern about Medicare’s solvency has been longstanding. This concern drove the enactment of the Medicare Secondary Payer Act (MSP) in 1980. The Act specifically states that Medicare may not make a payment with respect to any item or service to the extent that “payment has been made or can reasonably be expected to be made under a workers compensation law or plan of the United States or a State or under an automobile or liability insurance policy or plan (including a self-insured plan) or under no fault insurance.” The exception to this is when a non-group health plan (NGHP) has not made or cannot reasonably be expected to make payment with respect to an item or service. The MSP provisions also make Medicare a secondary payer in certain situations involving group health plans.

To prevent the depletion of the Medicare trust fund, any payment made by Medicare is conditioned upon the reimbursement of the payment to the Medicare trust fund. CMS’ Coordination of Benefits and Recovery Contractor (COBC), oversees the conditional payment recovery efforts of the Benefits Coordination and Recovery Center (BCRC) and the Commercial Repayment Center (CRC). According to CMS’ December 5, 2011 Memo, Medicare Part C and D plans have the same right to recover as Medicare Part A and B plans. Emerging case law in various circuits also provides Part C plans with a private cause of action under the MSP in order to enforce their reimbursement right. Although Part D prescription plans are also secondary payers, their reimbursement efforts to date have been negligible. This may however be impacted by legislation that was recently introduced to the House of Representatives in September of 2016. The Secondary Payer Advancement, Rationalization and Clarification Act (SPARC Act) seeks to improve and simplify the coordination of benefits between Medicare’s Part D drug plans and primary payers under the MSP statute.

Parties settling a workers’ compensation or liability claim may include a future medical allocation or Medicare Set-Aside (MSA) in their settlement in order to prevent a cost shift of these future injury related medical expenses to Medicare. This allocation reduces the probability of Medicare making future conditional payments in the claim. The MSA includes projections for treatment that is covered by Medicare Parts A and B and prescriptions covered by Part D. Injury related treatment that may be covered by Part C may be allocated in a separate non Medicare covered treatment fund associated with the settlement.

Parties to a settlement have the option of seeking review of the MSA proposal from CMS if CMS’ internal workload review threshold is met. The review process is a voluntary process. To date, Medicare Advantage Plans have not actively pursued reimbursement for post settlement injury related payments made in a claim. CMS’ ongoing commitment to the voluntary review of the MSA proposals is reflected in their most recent November 23, 2016 Draft Request for Proposal for the Workers Compensation Review Contractor. The contract will cover a 12-month base period with four one-year options. CMS expects the award date to occur during the Third Quarter of FY2017. The current Statement of Work also seeks a contractor that shall be ready to implement a process similar to what currently exists in the WCMSA process to evaluate MSAs for “other applicable NGHP insurances.”

Enforcement of the MSP provisions has resulted in significant savings to Medicare. According to CMS, approximately $8.5 billion dollars were saved in Fiscal Year 2015. These savings were facilitated by the various databases that collect MSP beneficiary information for the BCRC.

Despite these savings, the Social Security and Medicare Boards of Trustees 2016 Report Summary indicates that the Medicare Hospital Insurance Trust Fund (HI) that covers Medicare Part A is projected to be depleted in 2028. The Supplementary Medical Insurance Trust Fund (SMI) that consists of Medicare Part B and Part D, however, is expected to remain adequately financed into the indefinite future due to its financing from general revenues and beneficiary premiums. The projected costs for the SMI are expected to grow due to the aging population and increasing health care costs. The Trustees continue to urge for action to remedy this expected deficit.

Speaker of the House, Ryan, proposed a new approach to Medicare, known as “premium support,” in 2011 when it was included in a budget blueprint. It will be considered again in 2017. As envisioned, a beneficiary would be allocated a fixed contribution by the government that may be used to buy health insurance from either a private insurer or from the traditional fee-for-service Medicare program. The introduction of competition is expected to result in savings for Medicare. Current increased beneficiary enrollment in Medicare’s Part C Medicare Advantage Plans is also cited as evidence of the popularity of these plans. Opponents, however, are concerned that the premium support program would privatize Medicare and essentially result in regular fee-for-service Medicare, with an open ended commitment to pay for medical services, only being available to the more affluent beneficiary. The proposed privatization is controversial and likely to result in prolonged political discussion. Whether this occurs during the administration’s move to reform the Affordable Care Act or afterwards remains to be seen.

In the event that a portion of Medicare Part A and B coverage will come from private insurers, private insurers would be expected to take a more proactive approach in asserting their secondary payer status. The MSP provisions, CMS’ December 5, 2011 Memo, case law and existing CMS’ Workers Compensation Review Contractor arrangement all provide the framework for the MAP insurers to expand their role in both recovering payments made in connection with settlements and in denying future payments for injury related care. Failure to do so would be the equivalent of “not looking a gift horse in the mouth.” As with any reform, our industry should remain flexible and open to new opportunities that will present themselves.

Phillips v. Kaiser Health Plan, Inc., et.al.

Phillips v. Kaiser Health Plan, Inc., et. al.
No. C 11 – 02326 CRB
2011 WL 3047475 (N.D.Cal.July 25, 2011)

This case involved a putative class action filed against Kaiser Health Plan, Inc. (Kaiser), a Medicare Advantage (MA) Plan, and other related MA entities. 

The plaintiff alleged that (a) Kaiser was improperly and “illegally” demanding reimbursement of its accident related medical expenditures in an amount greater than that which would have been recoverable under traditional Medicare, and (b) that certain marketing and business practices employed by Kaiser violated California’s Unfair Competition Law and Consumer Legal Remedies Act.

The plaintiff filed this case in California state court, which Kaiser removed to the United States District Court for the Northern District of California (hereinafter referred to as the “court”).   This case then came before the court on (a) the plaintiff’s motion to remand and (b) Kaiser’s motion to dismiss.  Continue reading “Phillips v. Kaiser Health Plan, Inc., et.al.”

Trezza v. Trezza

Trezza v. Trezza
No. 39553, 2011 WL 2640794
(N.Y. Sup. June 23, 2011)

In this case, the Supreme Court of New York, Kings County (the Supreme Court is actually the lower court in New York) ruled that the subject Medicare Advantage (MA) Plan in this action was not entitled to reimbursement for accident related medical expenses it provided. Continue reading “Trezza v. Trezza”