Private Cause of Action Provision Successful Against NGHPs, Even When Medicare's Conditional Payments Reimbursed Within Sixty Days of Formal Demand

As we reported last month, the Sixth Circuit Court of Appeals issued a decision which confirmed that a non-group health plan can be subject to the private cause of action provision of the Medicare Secondary Payer Act Michigan Spine & Brain Surgeons, PLLC v. State Farm, 2014 F. App’x 0154P (6th Cir. July 16, 2014).  The private cause of action provision provides double damages for a private party who files suit against an entity that has failed to fulfill its responsibility for primary payment of a beneficiary’s medical expenses.

The purpose of the provision is to provide financial incentive for the general public to assist the Government in recovering Medicare’s conditional payments. While the purpose of the provision is clear, its application to claims has been a source of dispute. 

In 2011, the Sixth Circuit held that health care providers could assert a private cause of action against a group health plan. Bio-Medical Applications of Tenn., Inc., v. Cent. States Southeast & Southwest Areas Health & Welfare Fund, 656 F.3d 227 (6th Cir. 2011). From the court’s analysis in Bio-Medical, the Sixth Circuit extrapolated that there could not be a private right of action against a non-group health plan.  However, the Sixth Circuit was presented that exact issue last month, in Michigan Spine, and determined that Congress must have intended the private cause of action to be read broadly, to include both group health plans and non-group health plans.

The United States District Court for the Western District of Kentucky recently applied the precedent set in Michigan Spine and awarded double damages to a beneficiary’s estate, whose suit prompted repayment of Medicare’s conditional payments. Estate of Clinton McDonald v. Indem. Ins. Co. of N. Am., 2014 U.S. Dist. LEXIS 121902 (W.D. Ky. Aug. 28, 2014).  In McDonald v. Indem. Ins. Co., Clinton McDonald was severely injured in a motor vehicle accident that occurred during the scope of his employment and died several months later. During that time, Medicare paid for medical treatment related to the accident. The employer disputed whether McDonald’s death was as a result of the accident; however, in December 2009, the Workers’ Compensation Board found that his death was caused by the work-related accident and ordered the Defendant employer or its workers’ compensation insurance carrier to pay for McDonald’s medical expenses.

Over two years after the Defendant was ordered to pay McDonald’s medical expenses, the Estate of Clinton McDonald (Estate) filed suit under the private cause of action provision of the Medicare Secondary Payer Act seeking double damages as the Defendant had not reimbursed Medicare for McDonald’s medical expenses. Shortly after suit was filed, the Defendant received a conditional payment letter from Medicare, followed by a formal demand asking for payment in the amount of $184,514.24. The Defendant reimbursed Medicare for the full amount, as instructed, and sought to have the suit brought by the Estate dismissed.

The Estate argued that their suit ultimately led to Medicare being reimbursed, which is exactly what the private cause of action provision was implemented to accomplish. The Court agreed, finding that the Estate’s suit prompted payment, and therefore entitled them to an award of $184,514.24 for their efforts. The Court noted that an outcome supporting the Defendant’s “no harm; no foul” argument would have been contrary to the language of the private cause of action provision. The Court reasoned  “Once a private cause of action claim has been lodged against a defendant, a defendant cannot escape the double damages provided for in that provision by paying single damages to Medicare.”

This string of cases emphasizes the importance of ensuring that Medicare is reimbursed for its conditional payments.  Responsibility for reimbursement of conditional payments should be addressed during settlement negotiations and clearly set out in settlement documents.  Parties should keep in mind that a court/board decision ordering payment of medical expenses could encompass conditional payments made by Medicare, like in McDonald.  If this scenario arises, parties should immediately take steps to determine if payment to Medicare is necessary in to avoid the potential of being subject to double damages.