U. S. Court of Appeals for the 11th Circuit affirms District Court’s decision in Humana Medical Plan v. Western Heritage Insurance Company case

The Humana Medical Plan (Humana) scored another victory when the Eleventh Circuit U.S Court of Appeals affirmed the district court’s decision in the Humana Medical Plan v Western Heritage Insurance Company case, No: 15-11436, on August 8, 2016.  The district court’s decision was the subject of our March 27, 2015 blog.  In this appeal, Western sought a reversal of the lower court’s summary judgment in favor of Humana’s claim for double damages under the Medicare Secondary Payer Act’s (MSP) private cause of action provision. 42 U.S.C. Section 1395y(b)(3)(A).

By way of background, Humana’s claim stemmed from Western’s $115,000.00 settlement with Humana’s enrollee, Mrs. Reale from a slip and fall suit. Although Medicare had not made any conditional payments under Parts A or B, Ms. Reales’ injury related medical treatment had been paid by Humana’s Medicare Advantage Plan under Part C.

Western became aware of Humana’s lien rights after the settlement agreement was reached but before payment was made, Although Western Heritage attempted to add Humana as a payee on the settlement draft, the state court judge ordered Western to tender full payment without the lien holder on the check. The judge also ordered Mrs. Reale’s counsel to withhold sufficient funds in a trust account to resolve all of the medical liens. Humana’s conditional payments amounted to $19,155.41. Western issued full payment of the settlement under the terms of the state court’s order with the understanding that Mrs. Reale and her attorney would reimburse Humana. Ms. Reale disputed the amount of the reimbursement claim and filed suit against Humana in Circuit Court, bypassing Humana’s administrative appeal process. While this litigation was pending, Humana filed suit against Western to recover its conditional payments.

The district court in Humana’s action against Western, granted Humana’s motion for summary judgment, finding that Western’s settlement with Ms. Reale supported a finding that Western was a “primary plan” under the MSP Act. It also noted that a “primary payer must reimburse Medicare even though it has already reimbursed the beneficiary or other party” (42 C.F.R Sections 411.24 (i)(1). Double damages were determined to amount to $38,310.82.

In the instant case, the Court of Appeals noted that the issue of whether the MSP private cause of action allows a Medicare Advantage Organization (MAO) to sue a primary payer for its refusal to reimburse the MAO for its secondary payment was one of first impression in the circuit. It  adopted the Third Circuit’s approach as outlined in In re Avandia Mkg., Sales Practices & Prods.Liab.Litig., 685 F.3d 353 (3d Cir.2012) and ordered Western to reimburse Humana the sum of $38,310.82, double the amount to which Humana was otherwise entitled.

In rejecting Western’s argument that it lacked constructive knowledge that Medicare had made a payment , the Court noted that this was  contradicted by Western’s attempt to include Humana as a payee on the settlement check to Ms. Reale. Furthermore, the Court noted that Western had the ability to discover the nature of Ms. Reale’s health insurance coverage during the tort litigation. Similarly, Western’s subsequent argument that it provided for appropriate reimbursement to Humana by placing $19,155.41 into trust while Ms. Reale’s and Humana’s dispute was pending, ignored  Medicare’s regulation that requires reimbursement of the secondary payment within 60 days of receiving, or in Western’s case of tendering,  the settlement. 42 C.F.R. Section 411.24 (i)(1). Western’s final argument that Humana was only entitled to $19,155.41  as noted in Humana’s Organization Determination letter to Ms. Reale, also failed to persuade the Court in light of the plain language of the private cause of action statute. This language states that damages “shall” be in an amount double the amount otherwise provided. 42 U.S.C. Section 1395y(b)(3)(A).

In light of this decision and prior Humana decisions, best practices would include the settling parties’ investigation of coverage and injury related payments under Medicare Advantage Part C and D Plans during the litigation process. Once the secondary payers are identified, it would be prudent to negotiate the conditional payment reimbursement with the secondary payers prior to settlement funds being paid out. Given this recent Humana decision, the insurance carrier should also consider withholding funds from the settlement to ensure prompt reimbursement/ resolution of conditional payments as opposed to leaving the obligation to the plaintiff.

We will continue to keep you advised of relevant MSP compliance decisions.

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