Sixth Circuit District Court Denies Insurer’s Motion to Dismiss MSP Private Cause of Action

Last week, in Nawas v. State Farm Mut. Auto. Ins. Co., 2014 U.S. Dist. LEXIS 12365, a U.S. District Court in Michigan, following precedent set by the Sixth Circuit, denied a defendant’s motion to dismiss a private right of action under the Medicare Secondary Payer Act (MSPA). The Plaintiff, Mr. Nawas, sued his insurance company, State Farm, after they declined to pay his medical bills, which caused Medicare to step in and conditionally pay for his treatment.

State Farm put forth two reasons that the complaint against them should be dismissed.  One argument was that the plaintiff has no private cause of action under MSPA because he did not allege that State Farm denied his coverage based on the fact that he was entitled to Medicare. That argument was subsequently withdrawn following the Sixth Circuit’s reversal of the district court’s ruling in Michigan Spine & Brain Surgeons, PLLC v. State Farm Mut. Auto. Ins. Co., 758 F.3d 787 (6th Cir. 2014).  State Farm then argued that the Plaintiff’s claim was premature, because such a claim under the MSPA cannot be pursued until State Farm’s obligation to pay Plaintiff has been established by a judicial determination or settlement.

State Farm relied heavily on the fact that the MSPA requires a judicial determination or settlement that establishes a defendant’s “responsibility to make payment.” They built their argument on two cases. Relying heavily on the decision in Bio-Medical Applications v. Central States, 656 F. 3d 277(6th Cir. 2011), the court determined that when Congress amended the MSPA in 2003, they did so in order to reinforce the legal responsibility of tortfeasors, not all potential defendants. The court reasoned that the “demonstrated responsibility” language included in the 2003 amendment of the MSPA was not meant to prohibit or delay direct actions against non-tortfeasor defendants, including private insurance companies like State Farm. They agreed with the Bio-Medical Court’s reasoning that the addition to the MSPA regarding demonstration of responsibility is only logical when in the context of the tort and should not be applied to a case involving an insurance contract, where the carriers assume the responsibility of paying by virtue of their contract with the petitioning party. The court went on to say that their decision not to dismiss was implicitly supported by the Sixth Circuit’s recent decision in Michigan Spine, which allowed a claim to proceed against the defendant - State Farm in that case as well - prior to any “demonstrated responsibility” on the part of the defendant to pay an underlying no-fault claim.

Please note that this is not the final decision in this case. Instead, the court’s decision denying dismissal only allows the parties to proceed and litigate their claims based on the merits of the case.

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.

Court Determines MSA Funds Not To Be Considered When Calculating Pension Plan Offset Amounts

In Rood v. New York State Teamsters Conf. Pension & Ret. Fund, 2014 U.S. Dist. LEXIS 115722, the Plaintiff alleged a claim for disability pension benefits under the Employee Retirement Income Security Act (ERISA) and filed suit following a recalculation of his pension benefits, where the Defendant, a multi-employer plan that provides pension funds, included the amount of the Plaintiff’s Medicare-set Aside (MSA) in its calculation to offset the amount of monthly benefits he should receive.

The language of the Plan provides that the amount of Fund Disability Benefits the participant receives will be reduced by the amount of their worker’s comp benefits, “unless such amounts also are used to offset other payment sources (i.e., Social Security disability awards, long-term disability, etc.) for which he may be entitled.” The Plan’s language specifically names Social Security disability awards and long term disability as examples of this exception, and the Plaintiff argued that his MSA should be similarly considered under the title of “other payment sources.” The Court agreed and found that the “etc.” following the two enumerated categories left the language of the Plan open to interpretation. Because the MSA is used to offset another payment source, Medicare, the funds in the Plaintiff’s MSA should not have been included when the Defendant recalculated the Plaintiff’s pension benefits.  The Court’s analysis focused on the fact that the Plaintiff was only able to use part of his Worker’s Compensation Award without any restrictions since the portion allocated to the MSA is strictly for medical expenses otherwise reimbursable by Medicare and is not accessible by the Plaintiff.

CMS Issues Alert on Reporting HICNs and SSNs

On September 10, 2014, CMS issued an Alert providing that, beginning January 5, 2015, CMS will no longer require Medicare Health Insurance Claim Numbers (HICNs) or Social Security Numbers for Section 111 reporting if the RRE reports certain data allowing CMS to identify Medicare beneficiaries. This Alert implements the SMART Act requirement that CMS revise its Section 111 reporting requirements to allow RREs to report claims without providing the claimant's HICN or SSN.

The Alert provides as follows:
In accordance with Section 204 of the Strengthening Medicare and Repaying Taxpayers Act of 2012 (SMART Act), the Centers for Medicare and Medicaid Services (CMS) is modifying the existing requirements related to the submission of HICNs and SSNs when NGHP RREs report settlements, judgments, awards, or other payments. CMS highly recommends, but does not require, that NGHP RREs submit the HICN or full SSN as part of their reports, as it significantly increases CMS’ ability to accurately identify an individual as a Medicare beneficiary. However, effective January 5, 2015, where a NGHP RRE cannot obtain an individual’s HICN or full SSN, RREs may report the following data elements that will enable CMS to properly identify a Medicare beneficiary:

•Last five digits of SSN
•First Initial
•Surname
•Date of Birth
•Gender

If NGHP RREs are unable to obtain or do not provide the HICN, full SSN, or any of the above listed data elements, they must document their attempts to obtain this information.
(RRE’s may use the model language provided by CMS located in the Downloads section of the Mandatory
Insurer Reporting (MIR) for NGHP page at http://go.cms.gov/mirnghp.)
A subsequent Alert will be published prior to the January 5, 2015 implementation, which will include additional instructions for entry of the partial SSN into the Claim Input File or Query Input File. Please continue to visit the MIR NGHP section of the CMS.gov web site at http://go.cms.gov/mirnghp for the most current information.

Fortunately, this change in reporting requirements will help RREs in cases involving Medicare beneficiaries who refuse to disclose their HICN and full SSN due to privacy concerns. It is still recommended, however, to obtain SSNs and HICNs if possible.

We will provide you with an update once CMS issues a subsequent Alert. If you have any questions, please do not hesitate to let us know.

Don't Forget to Register! Free CEU Webinar happening September 16, 2014

Be sure to register today and join us on September 16, 2014 at 1:00 PM CST for a free webinar! Attorney Melisa Zwilling will discuss the most recent Medicare compliance developments you need to know. In addition, she will share information on how you can save tremendous dollars on both conditional payment claims and MSAs.  This webinar will cover both liability and workers' compensation topics. Click on the following link to register and secure your spot now:  

https://www4.gotomeeting.com/register/159112759

CE credit for this webinar is available for AL, CA, FL, GA, KY, LA, MS, NC, NH, OK, and TX.  In order to receive CE credit, you must provide your license number and the state for which credit is requested at the time of webinar registration.

Update on Collection of Prescription Drug Information via WCMSAP

On August 19, 2014, CMS issued an alert addressing an upcoming enhancement to the Workers Compensation Medicare Set-Aside Portal (WCMSAP) concerning collection of prescription drug information.

Starting October 6, 2014, WCMSAP users will be able to directly input prescription drug information into the online portal, which will then calculate the proposed prescription drug portion of the WCMSA proposal. This enhancement will include new data-entry pages that will allow users to indicate if a claimant is taking or expecting to take prescription drugs as a result of the workers’ compensation injury. Additionally, users will be able to utilize a search tool and select drugs by searching the drug name, National Drug Code (NDC), or a manufacturer name. Once a drug has been chosen and added to the portal case, the portal will display drug name, dosage, NDC, PPU (price per unit) and the number of years based on life expectancy. Users can then enter the frequency of the drug use and the system will determine the expected drug costs.

The forthcoming features will be available for all new and existing Work-In-Progress cases submitted on or after October 6, 2014. Prescription drugs will continue to be verified and priced using the monthly Redbook Drug Reference in effect at the date of submission.

As the date of implementation draws near, CMS will publish a new alert including images of the new WCMSAP prescription drug pages, as well as more detailed information.

Please check back with us for the most up to date information!