On January 25, 2018, the United States Court of Appeals for the 11th Circuit issued a decision denying the request for a rehearing, en banc, in relation to the case of Humana Med. Plan, Inc. v. W. Heritage Ins. Co., 832 F.3d 1229 (11th Cir. 2016). The 2016 decision by the 11th Circuit pertained to the case of Humana Med. Plan v. W. Heritage Ins. Co., 94 F. Supp. 3d 1285 (S.D. Fla. 2015), in which the primary issue was the applicability of reimbursement rights established by the Medicare Secondary Payer Act (“MSP Act”) to Medicare Advantage Organizations (“MAO”) (private insurers that contract with the Center for Medicare Services to provide Medicare benefits to eligible individuals). Although the recent 11th Circuit decision does not change the current status or application of the law, in my experience as a mediator, it has become apparent that there are numerous liability insurance professionals and personal injury attorneys (both plaintiff and defense) who are unfamiliar with the issues presented by the 2015 and 2016 decisions and practical implications associated with same. This unfamiliarity with the MAO issue is effectively hindering settlement efforts and creating significant issues for insurance carriers post-verdict. As such, below please find a brief summary of the case history, central issues involved, and current status / application of the law.
For those who would like to gain a more in-depth understanding of the MAO issue in the context of personal injury claims and subrogation rights, I highly recommend that you review the thirty-seven (37) page dissent to the recent decision …it is an easy read that provides a detailed framework of the MAO issue, along other useful, related information. In his dissent, the Honorable Gerald B. Tjoflat outlines the procedural and substantive histories of the underlying state and federal cases; provides statutory background and context; offers analysis of the Medicare structure in relation to subrogation rights; addresses the manner in which MAOs fit into the statutory scheme; provides insight regarding the implications of the decision in terms of personal injury cases pending in the 11th Circuit’s jurisdiction (Florida, Georgia, Alabama); and offers input as to what personal injury attorneys and insurance professionals can do to avoid the pitfalls created by the decision.
I. The Underlying Cases:
In the underlying action, the plaintiff, Mary Reale (“Reale”), filed a lawsuit against Hamptons West Condominium Association, Inc. (“Hamptons”) in Florida state court as the result of injuries she sustained on the Hamptons’ premises. The case settled without an admission of liability by Hamptons. Reale entered into a settlement agreement with Hamptons, by which she agreed to release her claim against Hamptons and its liability insurer, Western Heritage Ins. Co. (“Western Heritage”). As part of the settlement agreement, Reale agreed to release Hamptons and Western Heritage from the sums that Humana, her medical insurer, had expended on her behalf. The state court honored Humana’s right to reimbursement, but awarded Humana only a portion of the money it paid on Reale’s behalf. Humana was unhappy with the award, so it filed suit in federal court, arguing that it did not receive full reimbursement from the settlement proceeds to which it was entitled under federal law.
In the federal action, Humana alleged that the MSP Act entitled it to recover from Western twice the amount it had expended for Reale’s treatment, notwithstanding that: (i) Reale had released her claim against Western when she settled her case against Hamptons (without Hamptons’ admission of liability); and (ii) Western, having paid the proceeds of the settlement, was immune from suit under state law. Humana argued that, to recover double the amount, it only needed to establish Hampton’s liability for Reale’s injuries and that Western covered that liability. The Court agreed and granted Humana summary judgement; in its ruling, the Court held that Reale’s settlement with Western established liability, notwithstanding that Hamptons and Western had settled Reale’s claim without admitting fault, and that Reale, via her release, effectively exonerated them of all state-law liability. Western appealed to the 11th Circuit, which affirmed the District Court’s ruling.
II. Medicare’s Right to Reimbursement:
A primary payer is required to reimburse Medicare once it receives notice that Medicare is a secondary payer, e.g., that Medicare made a payment of the beneficiary’s medical expenses conditioned on reimbursement. 42 U.S.C. § 1395y(b)(2)(B)(ii). A judgment against a tortfeasor or a settlement agreement between a tortfeasor’s liability insurer and the beneficiary triggers this responsibility. Id. Once the judgment is entered or settlement agreement is executed, the Government will demand reimbursement. If the primary payer rejects the demand, either the Government or the beneficiary has the right to sue the primary payer for double the amount owed by the primary payer.
III. MAOs’ Right to Reimbursement:
In light of the 2015 decision by the U.S. District Court for the Southern District of Florida and the subsequent 11th Circuit decisions, it currently stands that MAOs’ rights as secondary payers are the same as the government’s rights under the traditional Medicare scheme. Accordingly, pursuant to 42 U.S.C. § 1395y(b)(3)(A), an MAO’s reimbursement right is not derivative of its own beneficiary’s right to recover in a tort action. Rather, an MAO is entitled to recover the sums it expended on behalf of its beneficiary directly from a defendant’s liability insurer pursuant to its own private cause of action because its right of reimbursement is independent from the beneficiary’s right to recover medical expenses in tort; and it may do so notwithstanding the tortfeasor’s denial of liability, and regardless of whether the liability insurer has already paid the MAO’s outlays to its beneficiary. Moreover, if the MAO is not reimbursed in accordance with strict “reimbursement” guidelines and definitions, it has the right to recover double the amount of its outlay.
As noted by Judge Tjoflat in his dissent, MAOs are now effectively considered unnamed beneficiaries of liability insurance policies in that MAOs’ rights are primary rather than derivative. As a result, certain substantive state-law rules are rendered inoperative, such as those precluding such a suit on the basis of res judicata and those prohibiting the splitting of causes of action. In cases resulting in settlements, this has the potential effect of nullifying liability releases under state law because a beneficiary’s release executed in favor of a defendant’s liability insurer cannot release the liability insurer from the reimbursement responsibility it has to the MAO that is independent of its responsibilities to recompense the beneficiary. And a liability insurer’s execution of a settlement agreement creates its liability to the MAO, regardless of language denying liability. Additionally, in cases ending in judgment, satisfaction of the judgment by the liability insurer does not alter the MAO’s right to seek reimbursement from the liability insurer after the fact.
Additionally, state equitable doctrines preventing unjust enrichment of a beneficiary are also effectively rendered inoperable. Given that an MAO has an independent right to seek reimbursement of its outlays from a tortfeasor’s liability insurer, it does not have to pursue reimbursement from its insured beneficiary if the beneficiary recovered those outlays in a tort action. The beneficiary can keep the portion of the settlement or judgment that would have been apportioned to the medical insurer. As such, it appears that double recovery is now permitted.
IV. Implications of Treating MAO Reimbursement Rights the Same as Medicare Reimbursement Rights:
Allowing MAOs the same rights to reimbursements as Medicare creates certain problems for both liability insurance professionals and attorneys who handle personal injury claims. Although the primary impact of the MAO issue is on liability insurance companies, there is a distinct secondary impact on personal injury attorneys (both plaintiff and defense). Liability carriers are now forced to implement stronger protocols in dealing with MAO liens, much as was the case with Medicare liens when the Medicare laws changed a few years back. When the MAO liens have not been properly addressed, the result is unnecessary compromise or delay of settlement opportunities. This is a growing trend, and I have seen mediations fail as the result of unresolved questions concerning potential MAO liens, whether due to unfamiliarity with the MAO issue or incomplete discovery. This is why it is important to ensure that all Medicare and MAO liens have been expressly confirmed and addressed prior to engaging in settlement discussions.
Additionally, because the law leaves liability insurers more vulnerable to double recovery, attorneys should expect liability insurers to require additional language in written releases to protect against such potential exposure. For example, if a liability insurer conducts an exhaustive investigation that reveals no MAO involvement in a case, yet it is later discovered that an MAO was involved, the liability insurer will nevertheless potentially be responsible for double reimbursement. Thus, because of this additional vulnerability, attorneys should not be surprised by insurance carriers requiring express language in settlement agreements stating the amount that will be paid to each MAO upon settlement. Additionally, just as many releases include language addressing indemnification relating to ordinary medical liens, attorneys should expect carriers to require language outlining indemnification responsibilities associated with MAO liens, subsequent MAO reimbursement actions, and penalties associated with same.
Notwithstanding the foregoing, it is important to keep in mind that MAOs are not necessarily incentivized to reduce their liens or even make themselves known in a particular suit. As noted by Judge Tjoflat, because the MAO is not a subrogee and enjoys an independent cause of action, if a case goes to trial, the trial court would have no basis under current state law to distribute any part of the beneficiary’s recovery to the MAO. Moreover, the MAO would have no reason to submit to the trial court’s jurisdiction because it would be entitled to receive full reimbursement and double damages from the liability insurer in a separate suit if the liability insurer refused to pay after completion of the beneficiary’s suit. The MAO would have no need or desire to intervene; due to the lucrative prospect of double damage incentivizes, MAOs are incentivized to keep quiet while their beneficiaries proceed with litigation. This is all the more reason why it is important to address MAO status through discovery.
Ultimately, it is imperative that personal injury attorneys and liability insurers understand the MAO issue and handle MAO liens with the same care as they handle Medicare liens. In a personal injury action, it is in everyone’s best interest to determine whether any MAOs are involved and to ensure that any liens are properly addressed prior to formalizing any settlement agreement or proceeding to trial. There may be further appeals associated with this matter in the future, and if so, this analysis will be updated accordingly.