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Medicare Advantage Plan’s Statutory Recovery Rights – Private Cause of Action?

By Synergy Director of Lien Resolution

Medicare Advantage plans, otherwise known as Medicare Part C, have proven to be a hot and confusing topic for plaintiff’s attorneys over the past few years.  Recent rulings by the U.S. Supreme Court and 9th Circuit have done little to eliminate this confusion.  Instead, the latest case law has increased the complexity.  The Medicare Secondary Payer Act has been appropriately described as one of “the most completely impenetrable texts within human experience.” (See Cooper Univ. Hosp. v. Sebelius, 636 F.3d 44, 45 (3 Cir. 2010)) and the line of reasoning in the area of repayment to Medicare Advantage plans for benefits they have provided is a shining example of this sad truth.  The question boils down to the ability of the Medicare Advantage Organization (“MAO”) to utilize the Medicare Secondary Payer Act as the basis for enforcement of the MAO’s reimbursement rights.  It appears that due to the cross referencing between 42 U.S.C. §1395w-22(a)(4) and 42 U.S.C. § 1395y(b)(2)(A) the MAO plan is allowed to seek a repayment under 42 U.S.C. § 1395y(b)(3)(A).

Approximately twenty five percent (25%) of all Medicare beneficiaries, twelve million (12,000,000) people, are enrolled in MAO plans.  Medicare Advantage plans allow Medicare entitled individuals to receive healthcare services through a non-governmental organization, commercial insurance companies, who contract with the Centers for Medicare and Medicaid Services (“CMS”) to administer Medicare benefits. CMS pays a capitated monthly fee for the traditional Part A & B coverage and a separate amount for Part D, prescription drug benefits.  The MAO plan then is entitled to charge a premium to their enrollee.  These MAO plans must handle all aspects of benefit administration, including the recoupment of benefits paid that should have been paid by a “primary payer.”  It is this responsibility, and the mechanism for performing it, that has sparked much litigation and created significant uncertainty.

Over the past few years a consensus had been growing that MAO plans had no private right of action under the Medicare statutes, rather, they have state court contract claims. (See, Care Choices HMO v. Engstrom, 330 F.3d 786 (6th Cir. 2003); Nott v. Aetna U.S. Healthcare, 303 F.Supp.2d (E.D. Pa. 2004); Parra v. Pacificare, 2011 WL 1119736 (D. Ariz. 2011), Humana v. Reale, 2011 WL 335341 (S.D. Fla. 2011)).  However, this trend was derailed when the U.S. Supreme Court denied the petition for writ of certiorari in In re Avandia Marketing, Sales Practices and Product Liability Litigation, 685 F.3d 353 (3d Cir. 2012), called Avandia II.

In Avandia II the Third Circuit reasoned that the MSP should be read broadly and that the language of the Medicare Advantage Organization statute (42 U.S.C. §1395w-22(a)(4)) cross references the Medicare Secondary Payer Act’s (“MSP”) language (42 U.S.C. § 1395y(b)(2)(A)) which allows these plans to utilize the enforcement provision of the MSP (42 U.S.C. 1395y(b)(3)(A)).  The Third Circuit added to their opinion that the MAO plans are able to use the MSP since to deny them this ability would put them at a competitive disadvantage and moreover that the federal agency had enacted reasonable regulations in 42 C.F.R. § 422.108.  This regulation is relied on by the MAO plans in their recovery actions as it states that the MAO plans have the same recovery rights as traditional Parts A & B.  This decision was considered by most to be outside the trend in this area of law, but when the U.S. Supreme Court denied certiorari it became clear that MAO plans now had equal and parallel rights for a private cause of action as did traditional Medicare.

Immediately following this decision by the U.S. Supreme Court the Ninth Circuit weighed into the fray and issued its ruling in Parra v. Pacificare of Arizona, 2013 U.S. App. LEXIS 7861.  In Parra the MAO enrollee was struck by a car and later died from his injuries. Para’s wife and children (“Survivors”) made a demand for wrongful death damages, which under the Arizona Wrongful Death Statute did not include the debts or liabilities of the deceased.   PacifiCare, the MAO, argued that it had a private right of action under two provisions of the Medicare Act: (1) §1395w-22(a)(4) (the “MAO Statute); and (2) §1395y(b)(3)(A) (the Medicare Secondary Payer Act “Private Cause of Action”). The Ninth Circuit Court of Appeals rejected both arguments.

Unlike the Third Circuit the Ninth Circuit was not persuaded that the cross referencing of the MAO Statute (42 U.S.C. §1395w-22(a)(4) ) and the MSP (42 U.S.C. §1395y(b)(2)) created a federal cause of action.  The Ninth reasoned that this cross-reference simply explains when MAO coverage is secondary to a primary plan, but does not create a federal cause of action in favor of a MAO.

PacifiCare then attempted to invoke 42 C.F.R. §422.108(f) as support for its position to the creation of a private cause of action. This regulation confers on the MAO “the same rights to recover from a primary plan, entity, or individual that the Secretary exercises under the MSP regulations.” Here the Court found that “[l]anguage in a regulation may invoke private right of action that Congress through statutory text created, but it may not create a right that Congress has not”.  They elaborated by stating in clear terms that “[i]t is relevant laws passed by Congress, and not rules or regulations passed by an administrative agency, that determine whether an implied cause of action exists”.

Attempting to rely on Avandia II and the U.S. Supreme Court’s de facto endorsement of the Third Circuit’s holding, PacifiCare turned to the private cause of action created under 42 U.S.C.  §1395y(b)(3)(A). Here the Ninth Circuit chose not to take on the rationale of the Third Circuit and rather made a fact specific determination that the language of the statute applies only “in the case of a primary plan which fails to provide for primary payment”.   That was not the circumstance in the Parra litigation.  Here the primary plan had “long ago tendered the sum claimed by PacifiCare … [and] Pacificare’s claim for relief is not against the insurer, or even against the Parra’s estate for sums received from a primary plan for medical expenses, but rather against the Survivors.”

The holding of the Ninth in Parra is not of much assistance to the practitioner as it is tailored narrowly to the facts of the specific case.  Though not cited, the reasoning is the same as found in Bradley v. Sebelius, 621 F.3d 1330 (11th Cir. 2010) which found that a “primary payer” under 42 U.S.C.  §1395y(b)(2)(A) is not defined as “surviving children with tort property beneficiary rights.”  This ruling, while helpful, has limited applicability as currently the only opportunity to avoid repayment to the MAO plan under MSP is in situations involving a wrongful death claim where the proceeds of any settlement or award are not held by the estate of the MAO enrollee.

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