Medicare Advantage Plans & Tort Recovery Rights:One Federal Court’s Perspective on the Recovery Debate




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Recently, the federal district court presiding over Humana Medical Plan, Inc. v. Reale  held that a Medicare Advantage Plan does not have the same independent right to sue third-party tortfeasors as does the United States under the Medicare Secondary Payer Act.  As settling parties (or parties who have obtained judgments) work towards finding Medicare compliance solutions, this case may be instructive in identifying who has rights to sue and how those rights are to be enforced where Medicare beneficiaries are concerned.

Case Overview
The court dismissed a recovery action brought by Humana Medical Plan, Inc. (“Humana”), the administrator of a Medicare Advantage plan, stating that the court lacked subject matter jurisdiction because Humana did not have standing under the Medicare Secondary Payer Act (“MSP”).  Humana had sought reimbursement of conditional payments, in the amount of $19,155.41, that it made on behalf of Mary Reale (“Reale”), a Medicare Advantage plan participant, who incurred injuries as the result of a slip and fall. 

Reale filed a separate action against a condominium association and its insurer to seek recovery for her injuries, which resulted in a settlement in excess of $19,155.41.  Humana then brought this action, asserting it was entitled, under the MSP, to the recovery of the $19,155.41 paid to Reale.  Specifically, Humana asserted that the MSP, paired with 42 C.F.R. § 422.108(f), entitled it to reimbursement.  Reale argued that the case had to be dismissed because the MSP did not grant Humana a private cause of action and, therefore, the Court lacks subject-matter jurisdiction. 

According to 42 C.F.R. § 422.108(f), a Medicare Advantage organization (here, Humana), “will exercise the same rights to recover from a primary plan, entity, or individual that the Secretary exercises under the MSP regulations.”  But as the court noted, under the MSP, the Secretary’s authority is limited to making payments "‘conditioned on reimbursement to the appropriate Trust Fund.’"  Reale, 2011 U.S. Dist. LEXIS 8909, at *5 (quoting 42 U.S.C. § 1395y(b)(2)(B)(i)).  Of importance, under the MSP, it is the United States, not the Secretary, who is vested with full authority to bring an action for reimbursement.   Therefore, the court concluded, because the Secretary does not have the authority to bring an action for reimbursement, Humana cannot claim such a right under 42 C.F.R. § 422.108(f).  As a result, the Court ruled that Humana failed to bring a claim arising under federal law.  Accordingly, the court granted Reale’s motion to dismiss. 

In sum, the case concluded that only Medicare (that is, the United States) was entitled, in accordance with the MSP, to reimbursement for conditional payments made.  Humana, which was serving as a Medicare Organization, could not likewise pursue recovery for conditional payments it made under the current provisions of the MSP. 

What is Medicare Advantage (“MA”)?
An MA plan is established under Part C of Title XVIII of the Social Security Act.  The MA program allows eligible individuals to elect to receive Medicare benefits through enrollment in private insurance plans.  For individuals enrolled in MA plans, the federal government pays for all or most of the premiums for the insurance in lieu of paying Medicare benefits directly to medical providers, as under the “regular” Medicare arrangement.  Private insurance carriers, who participate in the MA program, contract with CMS to administer Medicare benefits. The federal government pays for MA coverage on a monthly basis, 42 USC § 1395w-23, and then annually determines the “per-capita” rates for these payments, 42 USC § 1395mm.  

What Are an MA Plan’s Recovery Rights Going Forward?
Over the past few years, MA plans have been asserting a right to reimbursement under a claim of a Medicare-based right supported in part by the MSP and federal regulations.  Prior to this time, MA plans often agreed to have their claims resolved pursuant to or consistent with the decisions Care Choices HMO v. Engstrom, 330 F.3d 786 (6th Cir. 2003),  and Nott v. Aetna U.S. Healthcare, Inc., 303 F. Supp. 2d 565 (E.D.Pa. 2004).   In 2005, however, the federal regulations were amended.  42 C.F.R. § 422.108(f) was amended to state that an “MA organization will exercise the same rights to recover from a primary plan, entity, or individual that the Secretary exercises under the MSP.”  This new language was eventually realized and utilized by MA organizations in enforcing their recovery rights. 

The scope of an MA plan’s right of recovery has been a hotly contested matter.  Up until the Reale decision, there had been no definitive case law on the matter, although there were several lawsuits underway.  In the wake of this decision, one could argue that the pendulum might have swung back in the direction of state-law application and a focus upon policy language. 

The Reale decision is only a district court decision, and we fully expect the decision to be appealed.  Furthermore, the decision should not be construed in any way as a complete prohibition of an MA plan’s claim for reimbursement.  Rather, this decision stands for the proposition that an MA plan does not have a private cause of action in federal court on the basis of the MSP and the federal regulations.  There is no reason to believe that an MA plan could not assert a right under state law based upon policy language issued to an MA plan participant.  As a result, settling parties (i) should become familiar with state law subrogation and reimbursement doctrines, and (ii) should request plan language when dealing with a case where an MA plan is involved. 

The debate on this issue is far from over.  Nevertheless, the Reale case can be used outside of the Eleventh Circuit by settling or negotiating parties as another discussion item when seeking an equitable resolution for all constituents involved.

The Garretson Resolution Group will continue to closely monitor this case and similar ones as the Medicare compliance rules continue to be interpreted by the courts to identify the roles and responsibilities that are a part of achieving total Medicare compliance.

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