A Wrinkle in Medicare Reimbursement Requirements for 2015

Insurers and claims organizations may need to revise Medicare compliance programs that address Medicare Advantage Plan reimbursement demands.

January 12, 2015 Photo

In a surprising reversal, the U.S. District Court for the Western District of Texas in Humana v. Farmers Texas County Mutual Insurance Company, et al., kept alive a lawsuit for double damages filed by Humana, a Medicare Advantage Plan, against Farmers Insurance Company for Farmers’ alleged failure to reimburse Humana for medical expenses it paid to Farmers’ no-fault policy insureds.

This result was surprising given a previous report and recommendation filed by Magistrate Judge Mark Lane on Feb. 26, 2014, to dismiss the same suit, which also included a thorough dissection of the history of the Medicare Act, calling it “one of the most completely impenetrable texts within human experience.”

An exploration of the interplay of the Medicare Secondary Payer Act and the Medicare Advantage Plan statutes, which is necessary for an understanding of the Humana v. Farmers litigation, helps to illuminate the truth behind this colorful characterization of the Medicare Act.

The Medicare Advantage Program and the MSP

The Medicare Advantage program was created by Congress in 1997. Medicare Advantage enrollees may elect to receive Medicare benefits by enrolling with a Medicare Advantage organization in lieu of receiving traditional Medicare benefits. Medicare Advantage Plans are required to provide equivalent benefits to those provided under Medicare Parts A and B, 42 U.S.C. Section 1395w-22(a).

In 1980, Congress enacted the Medicare Secondary Payer Act (MSP), 42 U.S.C. Section 1395y(b). The MSP grants the federal government a private cause of action right to bring a lawsuit against a primary payer (defined by MSP as a liability, no-fault, workers’ compensation, or self-insured plan of insurance) that fails to reimburse Medicare’s conditional payments (payments Medicare makes on the condition that the payments ultimately are reimbursed by the primary payer). The private cause of action authorizes the government to bring a suit for twice the amount of the unreimbursed Medicare lien, 42 U.S.C. Section 1395y(b)(2)(B)(iii). The MSP also contains a second separate private cause of action for double damages that does not specify a particular plaintiff, 42 U.S.C. Section 1395y(b)(3)(A).

The Medicare Advantage Plan statute allows the Medicare Advantage Plan to charge a primary plan for conditional payments made on behalf of a plan participant. The statute describes when Medicare Advantage Plan coverage is secondary to other plans of insurance and permits—but does not require—a Medicare Advantage Plan to include provisions allowing recovery against a primary plan (see Parra v. Pacificare of Arizona Inc.).

The Medicare Advantage Plan statute arguably does not create a private cause of action for Medicare Advantage Plans. However, a federal regulation, 42 C.F.R. Section 422.108(f), provides that Medicare Advantage Plans exercise “the same rights to recover from a primary plan, entity, or individual that the Secretary exercises under the MSP regulations,” thus adding another layer of complexity to the matter.

Impenetrable, indeed. It is within this statutory and regulatory framework that Humana v. Farmers and other Medicare Advantage lawsuits arise.

Farmers, Avandia, and Parra

The Humana v. Farmers litigation began with four Medicare Advantage recovery lawsuits filed by Humana in 2013 in the district courts of Kansas, Missouri, Texas, and Tennessee. Humana alleged in the 2013 suits that it was entitled to reimbursement for medical expenses it paid to Farmers’ no-fault policy insureds. Humana’s theory of recovery was that Farmers’ no-fault policies are defined as primary plans under MSP. Consequently, Humana was entitled to reimbursement from the primary plans for any accident-related medical expenses it paid on behalf of Farmers’ insureds.

Humana also included a count for “charges” pursuant to the Medicare Advantage program permitting a Medicare Advantage Plan to bill a primary payer for Medicare Advantage Plan charges. Humana voluntarily dismissed its actions without prejudice in Kansas, Missouri, and Tennessee but left open the suit pending in the U.S. District Court for the Western District of Texas, which is the subject of this article.

The key issue explored by the court in this suit is whether or not a Medicare Advantage Plan, such as Humana, may bring a private cause of action for double damages against a primary plan of insurance under the Medicare Secondary Payer Act. This issue is one of first impression for the Fifth U.S. Circuit Court of Appeals.

The Third U.S. Circuit Court of Appeals, however, in another claim brought by Humana, has addressed this issue in In re Avandia Mktg. Humana relies heavily on the court’s decision in its claims against Farmers. Avandia involved a class action for alleged injuries caused by the diabetes drug Avandia, which is manufactured by the pharmaceutical company GlaxoSmithKline. Some of the medical expenses borne by Avandia plaintiffs were paid by Humana, the Medicare Advantage Plan. Humana filed suit against GlaxoSmithKline demanding reimbursement of its payments, but GlaxoSmithKline filed a motion to dismiss Humana’s lawsuit, contending that Humana, as a Medicare Advantage Plan, did not have the right to bring a private cause of action claim under the MSP. The court disagreed with GlaxoSmithKline and held that the text of Section 1395y(b)(3)(A) of the MSP “unambiguously provide[s] Humana with a private cause of action.” Consequently, Humana’s payments were subject to reimbursement.

In contrast, the Ninth U.S. Circuit Court of Appeals in Parra v. Pacificare of Arizona Inc. held that a Medicare Advantage Plan failed to state a claim when it brought a private cause of action for reimbursement of medical expenses out of the proceeds of an automobile insurance policy against the survivors of the Medicare Advantage Plan enrollee. In Parra, therefore, the Medicare Advantage Plan was not successful in its attempt to recoup its expenses, in seeming contrast to the Avandia decision. An important distinction between the two cases, however, is that Parra was a suit brought against the survivors of the Medicare Advantage Plan enrollee, not the primary plan of insurance.

Based on this deepening split in the circuit courts, GlaxoSmithKline petitioned the U.S. Supreme Court for review of the Avandia decision. On April 15, 2013, the Supreme Court denied GlaxoSmithKline’s petition for review, thereby cementing the prevailing authority of Avandia in the Third Circuit Court (New Jersey, Delaware, Pennsylvania, and the U.S. Virgin Islands).

Humana v. Farmers – Sept. 24, 2014

In his Order on Report and Recommendation filed last September, Judge Lee Yeakel for the Western District of Texas found Avandia to be a persuasive authority and rejected the magistrate judge’s recommendation to grant Farmers’ motion to dismiss Humana’s claims. Consequently, Humana’s claims for reimbursement of Medicare Advantage Plan expenses remain “alive” to proceed through the court system. It is yet to be seen at the time of this writing if Farmers will appeal to the Fifth U.S. Circuit Court of Appeals.

New Year, New Compliance Requirement?

Medicare compliance historically has centered around three focal points: Medicare set-asides, conditional payments, and Section 111 reporting. As we begin 2015, it seems clear that an additional point needs to be added to this list: Medicare Advantage Plan reimbursement requirements.

Unfortunately, at this time a primary plan’s obligation to reimburse a Medicare Advantage Plan is not clear and turns on a jurisdictional determination. For example, in the Third U.S. Circuit Court of Appeals, Medicare Advantage Plan demands are treated with a higher scrutiny than demands issued by plans in jurisdictions where the issue has not been decided by the courts or the courts have ruled Medicare Advantage Plans do not have private cause of action rights. In the Fifth U.S. Circuit Court of Appeals, given the district court’s approval of the decision reached by the Third Circuit in Avandia, it may be prudent to afford more weight and attention than before to reimbursement demands made by Medicare Advantage Plans unless or until otherwise appealed to the Fifth U.S. Circuit Court of Appeals.

However the dominos may fall in future circuit court decisions, insurers and other claims organizations would be wise to add specific protocols now to their Medicare compliance programs that address Medicare Advantage Plan reimbursement demands.

About The Authors
Jessica Smythe

Jessica Smythe is assistant vice president of customer relationship management at ISO Claims Partners, a member of the Verisk Insurance Solutions Group at Verisk Analytics. She has been a CLM Fellow since 2011 and can be reached at jsmythe@iso.com.  

Sponsored Content
Daily Claims News
  Powered by Claims Pages
Community Events
  Workers' Compensation
No community events