Ninth Circuit Addresses Reimbursement Rights of Medicare Advantage Plans

by Matt Dorius, Esq.

The Ninth Circuit is now the most recent court to address the reimbursement rights of Medicare Advantage Plans under the Medicare Secondary Payer Act. In Parra v. PacifiCare, No. 11-16069, 2013 U.S. App. LEXIS 7861 (9th Cir. April 19, 2013), the survivors of a deceased Medicare Advantage enrollee settled a wrongful death claim for $500,000.00. PacifiCare, the Medicare Advantage plan, had paid $136,630.90 in medical expenses related to the accident. In settling the case, the insurer issued a check for $136,630.90 payable jointly to the survivors’ attorney and to PacifiCare’s affiliate, to be held in trust pending resolution of the parties’ claims, and the remainder of the settlement funds was paid to the survivors. The survivors then filed an action in federal district court seeking a determination that PacifiCare was not entitled to any reimbursement because the wrongful death settlement did not include any funds for medical expenses under state law. Rather than addressing the issue of whether the settlement included funds for medical expenses under state law, the district court granted the survivors’ motion for summary judgment on the basis that PacifiCare could not assert a private cause of action under federal law.

In its appeal to the Ninth Circuit, PacifiCare argued that it has a right of recovery under 42 U.S.C. § 1395w-22(a)(4), which allows a Medicare Advantage plan to charge an insurer or individual that has received payment from an insurer. The court, however, found that Congress did not intend to create a federal cause of action under this statute. Instead, the court held that this statute only allows for a right of subrogation based on the Medicare Advantage plan’s contract with the enrollee. PacifiCare pointed to 42 C.F.R. § 422.108(f), which provides that Medicare Advantage plans have "the same rights to recover from a primary plan, entity, or individual that the Secretary exercises under the MSP regulations." The court, however, explained that this regulation could not created a private right of action since none was created by Congress.

PacifiCare also argued that it could assert a private cause of action under 42 U.S.C. § 1395y(b)(3)(A), the portion of the Medicare Secondary Payer Act that allows Medicare to assert a private cause of action against a primary plan and recover double damages. PacifiCare relied on the Third Circuit’s decision in In re: Avandia Marketing, Sales Practices, and Products Liability Litigation, 685 F.3d (3rd Cir. 2012), which held that Medicare Advantage plans may assert a private cause of action against a primary plan under 42 U.S.C. § 1395y(b)(3)(A). As we reported, the U.S. Supreme Court recently denied certiorari in the Avandia case.

The Ninth Circuit held that it did not need to address the issue decided in the Avandia case, whether 42 U.S.C. § 1395y(b)(3)(A) provides Medicare Advantage plans with a cause of action against primary plans, because the private cause of action was inapplicable to PacifiCare’s claim against the survivors. As the court noted, the private cause of action applies "in the case of a primary plan which fails to provide for primary payment." 42 U.S.C. § 1395y(b)(3)(A). PacifiCare, the court explained, had not made any claims against the insurer. Further, the court noted, the insurer could not be subject to a private cause of action, as it had already paid the funds jointly to both parties. As such, the court held that the district court had properly dismissed PacifiCare’s claim.

Court Independently Determines MSA Amount in Liability Case

by Jennifer Smith, Esq.
 
In Benoit v. Neustrom, 2013 U.S. Dist. LEXIS 55971 (April 17, 2013), the Plaintiff petitioned the court to review the liability settlement and proposed Medicare Set-aside amount and issue a judgment declaring that Medicare’s interests were adequately protected. The following evidence was presented to the court: (1) a Medicare Set-aside allocation report, which projected the claimant’s future Medicare-covered medical costs to be in the range of $277,758.62 to $333,267.02, (2) a formal demand for reimbursement of conditional payment claims in the amount of $2,777.88, (3) the settlement amount of $100,000.00, (4) that $55,707.98 was the amount subject to be set aside (this represents the remaining settlement funds after payment of attorney’s fees, expenses, and the Medicare conditional payment claim), and (5) testimony from the Plaintiff’s wife, as well as a financial statement from the Social Security office, regarding the Plaintiff’s financial hardship.  The Plaintiff proposed that 10% of the gross settlement proceeds as an equitable amount to set aside since the settlement represented 10% of the possible recovery if he had prevailed on the liability issues at trial.  The court disagreed with the Plaintiff’s methodology, though it still allowed an equitable allocation so that the Plaintiff’s family could fund a special needs trust for the Plaintiff’s future non-Medicare covered items and services.  In calculating the set-aside amount, the court considered the net settlement amount, $55,707.98, and the mid-point range of the MSA allocation report, $305,512.50, and determined that the net settlement was 18.2% of $305,512.50.  The court applied that percentage to the net settlement proceeds and determined that $10,138.00 should be set aside for the claimant’s future medical expenses that would otherwise be covered by Medicare.

FDA will NOT Approve Generics to Original OxyContin

The original version of OxyContin became available in 1995.  Unfortunately, the original version carried with it a large potential for abuse when the product was crushed.  As a result, the original formula was withdrawn from sale.  Thereafter, in April of 2010, the FDA approved a reformulated version of OxyContin which was difficult to crush and abuse like the original formula.  On April 16, 2013, the FDA approved new labeling for the reformulated OxyContin which indicates that it is much more difficult to abuse.  The press release concerning this issue which appears on the FDA website states as follows:  

FDA approves abuse-deterrent labeling for reformulated OxyContin
Agency will not approve generics to original OxyContin

The U.S. Food and Drug Administration today approved updated labeling for Purdue Pharma L.P.’s reformulated OxyContin (oxycodone hydrochloride controlled-release) tablets. The new labeling indicates that the product has physical and chemical properties that are expected to make abuse via injection difficult and to reduce abuse via the intranasal route (snorting).

Additionally, because original OxyContin provides the same therapeutic benefits as reformulated OxyContin, but poses an increased potential for certain types of abuse, the FDA has determined that the benefits of original OxyContin no longer outweigh its risks and that original OxyContin was withdrawn from sale for reasons of safety or effectiveness. Accordingly, the agency will not accept or approve any abbreviated new drug applications (generics) that rely upon the approval of original OxyContin.

The FDA approved the original formulation of OxyContin in Dec. 1995. The product was abused, often following manipulation intended to defeat its extended-release properties. Such manipulation causes the drug to be released more rapidly, which increases the risk of serious adverse events, including overdose and death. In April 2010, the FDA approved a reformulated version of OxyContin, which was designed to be more difficult to manipulate for purposes of misuse or abuse. Purdue stopped shipping original OxyContin to pharmacies in August 2010.

“The development of abuse-deterrent opioid analgesics is a public health priority for the FDA,” said Douglas Throckmorton, M.D., deputy director for regulatory programs in the FDA’s Center for Drug Evaluation and Research. “While both original and reformulated OxyContin are subject to abuse and misuse, the FDA has determined that reformulated OxyContin can be expected to make abuse by injection difficult and expected to reduce abuse by snorting compared to original OxyContin.”

The FDA has determined that the reformulated product has abuse-deterrent properties. The tablet is more difficult to crush, break, or dissolve. It also forms a viscous hydrogel and cannot be easily prepared for injection. The agency has determined that the physical and chemical properties of the reformulated product are expected to make the product difficult to inject and to reduce abuse via snorting. However, abuse of OxyContin by these routes, as well as the oral route, is still possible. The reformulated product also may reduce incidents of therapeutic misuse, such as crushing the product to sprinkle it onto food or to administer it through a gastric tube. When FDA finds that a new formulation has abuse deterrent properties, the agency has the authority to require generics to have abuse-deterrent properties also.

This notice may be found on the FDA website at:  http://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm348252.htm

Ask the Pharmacist - An Opportunity to Have Your Medicare Set-aside Prescription Related Questions Answered

You are invited to participate in our Ask the Pharmacist webinar on Thursday May 16, 2013 at 11:00 Central Standard Time. During this webinar, Sarah Siefert, staff pharmacist at Carlisle Medical, will be answering your questions concerning prescription medications for injured employees and other individuals. On or before May 2, 2013, simply email any question that you would like to have answered during the webinar to mzwilling@carrallison.com. You will have an opportunity to ask follow-up questions during the webinar presentation. Topics may include anything from generic medications to dosage or frequency issues to alternative treatment options. Don't miss this chance to have your questions answered and listen to pharmacist recommendations that could dramatically reduce expenditures on prescription medications!

Space is limited!
Reserve your Webinar Seat Now at:
https://www4.gotomeeting.com/register/785803095

United States Supreme Court Denies Cert. in Medicare Advantage Plan Case

The United States Supreme Court has declined review of a case that we have been following closely (and discussed in several newsletters). The decision at issue, In Re: Avandia Marketing, Sales Practices, and Products Liability Litigation, 685 F.3d 353; 2012 U.S. App. LEXIS 13230 (3rd Cir. June 28, 2012), was issued by the Third Circuit and stands for the proposition that Medicare Advantage (i.e., Medicare Part C) plans have a private cause of action under the Medicare Secondary Payer Act to seek repayment for conditional payments in federal court.  Several district courts in other jurisdictions, in contrast, have found that the Medicare Secondary Payer Act does not provide a private cause of action for Medicare Advantage ("MA") plans. As with all declinations by the Supreme Court, no explanation of the certiorari denial was provided, but apparently the conflict (as it currently stands) was not ripe enough for the Supreme Court's guidance on the issue.

Regardless, MA plans can continue to pursue repayment of conditional payments via the Medicare Secondary Payer Act, at least in the Third Circuit.  Given this reality, parties who find themselves mediating a case within the third circuit's jurisdiction may want to actively research and negotiate Part C conditional payment claims as they currently do Medicare's.  CMS itself seems to support this approach, as on December 11, 2011, CMS issued a memorandum supporting and further legitimating the collection efforts of MA plans (and Prescription Drug Plans).  This memo can be found at www.cms.gov/Medicare/Health-Plans/HealthPlansGenInfo/downloads/21_MedicareSecondaryPayment.pdf. Ignoring any conditional payment claim issues - whether from Medicare, a Medicare Advantage plan, or even a Prescription Drug Plan - could expose parties to collection efforts, post-settlement, that the Medicare Secondary Payer Act affords.  

 

We do not consider this issue resolved but only tabled for the moment.  As such, we will continue to monitor and provide updates as it develops further.

Medicare Entitled to Reimbursement in Wrongful Death Case When Medical Expenses Recoverable Under State Law

In Weinstein v. Sebelius, 2013 U.S. Dist. LEXIS 41594 (E.D. Pa. Feb. 13, 2013), the plaintiff sought judicial review of the CMS formal demand of $58,393.57 after the plaintiff had reached a medical malpractice settlement for $425,000.00. The plaintiff alleged that the decision upholding the demand by the Administrative Law Judge (ALJ) erred by failing to impose the burden of proof on CMS and by failing to accept a court order limiting the amount of the formal demand. The district court ruled that the ALJ’s decision was supported by substantial evidence.

At the time of settlement, the plaintiff conditioned her release on a court order that limited CMS’s right to recovery to $2,922.34, which represented Medicare payments for her late husband’s stroke-related care from April 10, 2005, to April 16, 2005. April 10 was the date of the alleged malpractice and April 16, the date of his second stroke. The plaintiff’s husband died from stroke complications on September 4, 2005.

Upon receipt of the $58,393.57 demand letter, the plaintiff filed an administrative appeal arguing that CMS was bound by the court order and that CMS did not prove that all of the expenses included in the demand were related to the medical malpractice. The ALJ determined that the state court had no jurisdiction over a federal authority such as CMS. The ALJ also found that CMS had based its demand letter on the plaintiff’s own wrongful death and survival claims, which involved services up to the point of her husband’s death in September.

The district court noted that according to the 2003 amendments to the Medicare Secondary Payer statute, CMS can satisfy its burden of showing that a primary payer is responsible for medical expenses through the presence of a settlement of a claim that sought recovery of medical expenses. The court quoted Hadden v. United States, 661 F.3d 298 (6th Cir. 2011), as support, "‘[t]he scope of . . . responsibility for a beneficiary’s medical expenses–and thus of his own obligation to reimburse Medicare–is ultimately defined by the scope of his claim against [the medical malpractice defendants],’ even if the beneficiary settles for less than the original claim." Weinstein, at *14, quoting Hadden 661 F.3d at 302. Because the plaintiff sought damages related to her husband’s alleged wrongful death and for all damages recognized by law, which in Pennsylvania includes medical expenses associated with wrongful death claims, the district court concluded that CMS was therefore entitled to reimbursement for medical expenses paid for the period from the alleged malpractice until the date of death.

CMS Will Now Require Pricing for Some Benzodiazepines and Barbituates in WCMSAs

On April 8, 2013, CMS issued the following notice concerning Benzodiazepines and Barbituates:

On October 2, 2012, the Centers for Medicare & Medicaid Services (CMS) issued a memorandum to Part D Sponsors concerning the transition to Part D Coverage of Benzodiazepines and Barbiturates beginning in 2013.

Effective June 1, 2013, all  Workers’ Compensation Medicare Set-Aside (WCMSA) proposals submitted to CMS for a review of the adequacy of the proposal amount are to include the pricing of benzodiazepines and barbiturates, where appropriate. 

Please note that WCMSA cases submitted to CMS  before June 1, 2013, closed due to missing, incomplete and/or inadequate supporting documentation (or any  other reason), and subsequently re-opened after June 1, 2013, will also be subject to a review that includes the pricing of benzodiazepines and barbiturates.

The official notice from CMS can be found at:
www.cms.gov/Medicare/Coordination-of-Benefits/WorkersCompAgencyServices/index.html

Court Finds No Enforceable Settlement Agreement When CMS Rejected WCMSA Proposal and Requested Additional $200,000

In Mark Rainey v. Goodyear Tire & Rubber Company, et al, 2013 N.C. App. LEXIS 354 (decided April 2, 2013), an injured worker's attorney mediated a claim with his employer and its insurance carrier.  As a result of these discussions, the injured worker's attorney offered, succinctly, "If you can get $315K plus msa [sic], all new money, we have a deal" *3.  Thereafter, the defendants submitted a proposed Medicare Set-aside of $65,948.00 to CMS.  When CMS issued its decision, however, and demanded an MSA of $381,385.00.  After requests for reconsideration, CMS reduced the amount to $266,207.00.  The parties could not agree as to who would be responsible for funding the MSA and whether they actually had an enforceable settlement agreement.  The plaintiff took the position that the parties did have an enforceable agreement and that the MSA should be funded completely by the defendants.  The defendants, on the other hand, took the position that obtaining CMS approval of the $65,948.00 MSA was a condition precedent to the settlement agreement.  Once CMS demanded an MSA in a different amount, the condition failed (and there was no agreement).

The reviewing court agreed with defendants and with the earlier decision of the commission.  The court found sufficient evidence to support the finding that there was no meeting of the minds with respect to reaching a final settlement of the claim, and, as such, no enforceable agreement existed.  When CMS demanded an increased MSA amount, the tentative agreement failed and the parties were free to resume settlement negotiations. 

This case underscores the value of both an accurately-prepared Medicare Set-aside calculation (so the parties know their potential exposure) as well as extremely careful preparation of settlement documentation.  Had the defendants moved forward and settled the case as defendants sometimes do - with an open-ended promise to fund the MSA in whatever amount CMS approves - they would likely have had no recourse but to pay the additional $200,259.00 as CMS requested.

CMS Issues New Workers' Compensation Medicare Set-aside Reference Guide

On March 29, 2013, CMS issued a guide to explain the process for submission of Workers' Compensation Medicare Set-aside Arrangements (WCMSAs) to CMS and to describe how such submissions are reviewed. Essentially, the WCMSA Reference Guide is a compilation of prior memos and alerts published by CMS on topics related to the submission and approval process. The Guide does not replace the memos and CMS cautioned readers to refer to the memos for more comprehensive explanations.

The Reference Guide is 88 pages in length. Several times throughout the Guide, CMS mentioned that MSAs are not mandatory and that submission is a voluntary process. CMS noted, however, that "[a]ny claimant who receives a WC settlement, judgment, or award that includes an amount for future medical expenses must take Medicare's interest with respect to future medicals into account." (Reference Guide, page 3). CMS explained that, "[i]n many situations, the parties to a WC settlement choose to pursue a CMS-approved WCMSA amount in order to establish certainty with respect to the amount that must be appropriately exhausted before Medicare begins to pay for care related to the WC settlement, judgment, award, or other payment." (Reference Guide, page 3). CMS further noted as follows:
If the parties to a WC settlement stipulate to a WCMSA but do not receive CMS approval, then CMS is not bound by the set-aside amount stipulated by the parties, and it may refuse to pay for future medical expenses, even if they would ordinarily have been covered by Medicare. However, if CMS approves the WCMSA and the account is later appropriately exhausted, Medicare will pay related medical bills for services otherwise covered and reimbursable by Medicare regardless of the amount of care the beneficiary continues to require.(Reference Guide, page 6).

If parties choose to submit a WCMSA proposal to CMS for review, CMS expects the submission to comport with the guidelines established in its memos and alerts and discussed in the new WCMSA Reference Guide. Though there is nothing really "new" about the information presented, a few topics that are sometimes overlooked warrant mentioning.
One of the discussions in the Reference Guide concerns the provision of final settlement documents to CMS. The Guide notes:
If CMS does not subsequently provide approval of the funded WCMSA amount as specified in the settlement or proof is not provided to CMS that the CMS-approved amount has been fully funded, CMS may deny payment for services related to the WC claim up to the full amount of the settlement. Only the approval of the WCMSA by CMS and the submission of proof that the WCMSA was funded with the approved amount, would limit the denial of related claims to the amount in the WCMSA. This shall be demonstrated by submitting a copy of the final, signed settlement documents indicating the WCMSA is the same amount as that recommended by CMS.(Reference Guide, page 23, emphasis added). Immediate submission of final, approved settlement documents to CMS is not only a great way to potentially lessen the amount of conditional payment claims that may be asserted for past treatment for which Medicare paid, it is the best way to ensure that CMS will pay for the claimant's treatment once the MSA funds have been exhausted.

Additionally, with regard to how medical expenses are accounted for in settlement documents, the Guide summarizes CMS' rules as follows:
If the settlement does not specifically account for past versus future medical expenses, it will be considered to be entirely for future medical expenses once Medicare has recovered any conditional payments it made. This means that Medicare will not pay for medical expenses that are otherwise reimbursable under Medicare and are related to the WC case, until the entire settlement is exhausted.
Example: The parties to a settlement may attempt to maximize the amount of disability/lost wages paid under WC by releasing the WC carrier from liability for medical expenses. If the facts show that this particular condition is work-related and requires continued treatment, Medicare will not pay for medical services related to the WC injury/illness until the entire settlement has been used to pay for those services.(Reference Guide, page 23, emphasis added). Basically, if a settlement does not include a designation of what is for past or future medical expenses, Medicare can require that the claimant spend the entire settlement amount before Medicare will pay for related treatment. When settlement documentation does contain a breakdown of amounts being paid for various aspects of a claim, if Medicare does not believe that its interests were protected by that designation, the designation will be completely disregarded by CMS. CMS has the ability to do that even if a settlement was court, board or commission approved.

The entire WCMSA Reference Guide may be found online at: http://www.cms.gov/Medicare/Coordination-of-Benefits/WorkersCompAgencyServices/Downloads/March-29-2013-WCMSA-Reference-Guide-Version-13.pdf