Medicare Advantage and Prescription Drug Plans Have Secondary Payer Recovery Rights, Too, but Are They Just Like Medicare s Rights?

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1 Medicare Advantage and Prescription Drug Plans Have Secondary Payer Recovery Rights, Too, but Are They Just Like Medicare s Rights? Mary Re Knack Ogden Murphy Wallace 901 5th Ave, Suite 3500 Seattle, WA rknack@omwlaw.com

2 Mary Re Knack is a member of the Healthcare and Litigation Departments of Ogden Murphy Wallace in Seattle, where she provides legal services to members of the healthcare industry, as well as and guidance and advice to the insurance industry and self-insureds with respect to their obligations under the MSP Act and Section 111 of the MMSEA.

3 Medicare Advantage and Prescription Drug Plans Have Secondary Payer Recovery Rights, Too, but Are They Just Like Medicare s Rights? Table of Contents I. Medicare Background...5 II. Medicare Secondary Payer Act...5 III. MSP Recovery...6 IV. Legal Framework...6 V. Best Practices in Light of Uncertainty...8 VI. Next Steps in Clarifying Part C and Part D Plan Recovery Rights...9 Medicare Advantage and Prescription Drug Plans Have Secondary Payer... Knack 3

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5 Medicare Advantage and Prescription Drug Plans Have Secondary Payer Recovery Rights, Too, but Are They Just Like Medicare s Rights? I. Medicare Background Medicare is a federal health insurance program established in 1965 for people age 65 or older, and people under age 65 with certain disabilities or diseases. The program is comprised of multiple parts. Part A, Hospital Insurance. The federal government manages Part A which helps cover inpatient care in hospitals and skilled nursing facilities, hospice care and some home health care. Most people don t pay a premium for Part A because they already paid for it through their payroll taxes while working. Even so, beneficiaries are generally obligated to pay a portion of the cost for each covered service. Part B, Medical Insurance. Like Part A, the federal government manages Part B which helps cover doctors services, outpatient care and some other medical services that Part A doesn t cover. Most people pay a monthly premium for Part B and a portion of costs for each covered service. Part C. In 1997, Congress created Part C, then referred to as Medicare+Choice, now commonly referred to as Medicare Advantage. Part C is another way to get Part A and B coverage. Part C plans are offered by private companies and follow rules set by Medicare. Part C plans must cover all the services Part A and B cover and can offer extra coverage. Congress created the Part C program to bring the private sector into the Medicare arena with the goal of generating competition and innovation in the delivery of health care. These programs are funded out of the same Medicare trust funds as Part A and B and the federal government pays Part C plans a set amount each month for each enrollee. The Part C plan then manages the services. A Medicare beneficiary can choose to enroll in a Part C plan instead of traditional Medicare. Part D, Prescription Drug Insurance. In 2003, Congress created Part D which provides a subsidy to private insurance plans to provide coverage for prescription drugs. Enrolling in a Part D plan is an option for Medicare beneficiaries. Most people pay a monthly premium for this coverage. II. Medicare Secondary Payer Act In 1980 Congress enacted the Medicare Secondary Payer Act (42 USC 1395y(b)) to establish that Medicare pay second when another party is legally responsible for care and treatment provided to a Medicare beneficiary. The Act requires that certain primary plans, specifically liability insurance (including self-insurance) and no-fault insurance be the primary payer for items and services furnished to a Medicare beneficiary. This typically arises in the context of a tort claim for personal injuries, but can arise whenever a Medicare beneficiary makes a claim and the damages include Medicare eligible expenses. The Act applies to settlements, judgment and other obligations of primary plans. To make sure that primary plans pay first, Congress prohibited Medicare from making payment for any item of service to the extent that payment has been made, or can reasonably be expected to be made by a primary plan. 42 USC 1395y(b)(2)(A). Where a primary plan s obligation may not be determined promptly or there is uncertainty of a primary plan s obligation, Medicare may make payment, on condition that if the beneficiary later recovers then Medicare will be reimbursed. 42 USC 1395y(b)(2)(B). These are called conditional payments. Medicare s ability to recoup conditional payments that are later recovered from a primary plan is essential to MSP law. Medicare Advantage and Prescription Drug Plans Have Secondary Payer... Knack 5

6 III. MSP Recovery There has been much written about how CMS enforces its obligation to pay second and to recoup from primary plans or beneficiaries when it makes conditional payments under Parts A and B. Essentially, CMS has a direct action for double damages against any responsible party. 42 USC 1395y(b)(2)(B)(iii). This includes anyone who has made payment and anyone who has received payment. Id. CMS also has a right of subrogation (42 USC 1395y(b)(2)(B)(iv)) and a right of offset. Lastly, CMS provides a separate statutory private cause of action which allows for recovery of double damages when a primary plan fails to make a primary payment (or to reimburse a conditional payment). 42 USC 1395y(b)(3)(A). There is no limitation on what private parties may sue or be sued under the statute. However, unlike Parts A and B, Part C and D plans right to recovery of conditional payments under the MSP Act are not as carefully articulated. When Congress created the Part C program, it provided that in the situation where if payment had been under Part A or B Medicare would be a secondary payer, then a Part C plan too is a secondary payer. In less than clear language, Congress provided that a Part C plan may look to an insurer, employer or other entity, or the individual (when the individual has been paid) for reimbursement. 42 USC 1395w-22(a)(4). When Congress created the Part D program, it defined Part D plans secondary payer rights as operating in the same manner as the Part C program secondary payer rights. 42 U.S.C. 1860D-2(a)(4). Courts across the country have differed in opinion as to the extent of recovery rights that Part C, and thereby Part D plans, have to recover payments made by a Part C or D plan from other insurance or a settlement, a judgment, or an award. Some jurisdictions have held that Part C and D plans are limited to recovery rights under state law. Other jurisdictions have found that Part C and D plans have a Private Cause of Action under 42 USC 1395y(b)(3)(A) to recover double damages for payments it makes that are not reimbursed. IV. Legal Framework In attempt to pursue their secondary payer rights some Part C plans have brought suit under 42 USC 1395y(b)(3)(A), the private cause of action provision in the statute claiming double damages. In November 2010 Humana filed a class action in the Eastern District of Pennsylvania seeking damages under 42 USC 1395y(b)(3)(A) (the private cause of action) from GlaxoSmithKine due to settlements paid by GlaxoSmithKline to Medicare beneficiaries associated with their use of the drug Avandia. GlaxoSmithKine moved for dismissal of the claim. Humana argued that 42 U.S.C. 1395y(b)(3)(A) unambiguously granted a private cause of action to Part C plans. The court found that it did not. Rather, the court held that Humana only had a lien right under state law to recover such payments. The District Court explained that the MSP recovery provisions for Part C were permissive, whereas for Parts A and B it was mandatory and thus the Private Cause of Action provision in the MSP Act did not apply to Part C plans nor did the secondary provision in the Part C statute create a private right of action for Part C plans. See In Re Avandia v. GSK. In re Avandia Mktg., Sales Practices & Prods. Liab. Litig., 685 F.3d 353(3d Cir. Pa. 2012), cert. denied, 133 S. Ct (2013). About the same time, Manuel Parra s survivors made a demand against the insurer for the driver who caused the accident that led to Mr. Parra s death as allowed under Arizona law. The demand was settled yet the auto insurer insisted that PacifiCare, Mr. Parra s Part C plan, be included on the settlement check and the survivors disagreed. Payment of an amount equal to the amount expended on Mr. Parra s medical care was ultimately made to the survivors attorney and PacificCare and the proceeds were held in trust pending resolution of the dispute. Mr. Parra s survivors then filed suit seeing declaratory relief that the proceeds were not subject to PacfiCare s claims. PacifiCare counterclaimed and sought declaratory relief that it was entitled to reimburse- 6 Nursing Home/ALF Litigation September 2017

7 ment both under the MSP Act and the terms of its agreement with Parra. The District Court granted summary judgment in favor of the survivors and held that PacifiCare did not have a private cause of action under the Medicare statute or the MSP Act. Parra v. Pacificare of Arizona, 715 F.3d 1146, 1150 (9 th Cir. Ariz. 2013). The Court found that the proper place for a Part C reimbursement claim lies in the state courts under traditional contract theories. On December 5, 2011, CMS, in response to inquiries regarding Part C plan MSP recovery rights and the district court decisions in In re Avandia and Parra, published a memorandum in support of Part C and Part D plans having the right to collect for payment of services when Medicare is not the primary payer. In the memorandum, CMS went so far as to state that Part C and Part D plans can exercise the same rights of recovery that the Secretary of Health and Human Services exercises under the existing MSP regulations. While the CMS memo was clear about its position on Part C and Part D recovery rights, a memorandum issued by an administrative agency may carry weight under Chevron deference, but it is not binding, and therefore litigation continued. Chevron deference is a well-known, two-part test established by the U.S. Supreme Court for determining when a federal court ought to defer to the interpretation of a statute by the federal agency charged with implementing that statute. See Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). On July 12, 2012, the Third Circuit Court of Appeals reversed the U.S. District Court decision in In Re Avandia. The Third Circuit found that Part C plans have the same rights to recovery as Medicare and additionally that Part C plans have a right to pursue a private cause of action for double damages pursuant to 42 USC 1395y(b)(3)(A) for conditional payments that are not reimbursed. In Re Avandia, 685 F.3d 353. Presumably because Part D plans have the same secondary payer rights as Part C plans, the court would have found the same for Part D plans, had they been present in the case. On April 15, 2013, the U.S. Supreme Court denied certiorari to review the In Re Avandia case; therefore, the decision of the Third Circuit remained in place. Just four days later, on April 19, 2013, the Ninth Circuit affirmed the District Court s decision in the Parra case, and held that Part C plans do not have the same rights to recovery as Medicare does but rather may include provisions for recovery of conditional payments in their contract with the beneficiary. Further, the Court held that 42 USC 1395y(b)(3)(A) did not provide PacifiCare with a remedy because PacifiCare made no claim against the insurer (the primary plan) and made no showing that the insurer had failed to make payment. The Court noted that the claim for relief [wa]s not against the insurer, or even against Parra s estate for sums received from a primary plan for medical expense, but rather against the Survivors and their claim to this disputed res. Parra, 715 F.3d at The Court found that the intent of the private cause of action statute was not to be used where a primary payer essentially interplead the funds but rather was to allow a private party to bring suit in the party s own name to remedy the wrong done to it. Quoting Woods v. Empire Health Choice, Inc., 574 F.3d 92, 98 (2d. Cir. 2009). The Parra Court stated that it need not resolve whether In Re Avandia was correctly decided because there Humana made its claim against the primary payer. Parra, 715 F.3d at Then on September 24, 2014, the U.S. District Court for the Western District of Texas (Austin Division) rejected the U.S. magistrate judge s recommendation in Humana v. Farmers Texas County Mutual Insurance Company, 95 F. Supp. 3d 983 (D. Tex. 2014) that there was no private cause of action for Part C plans and instead found the analysis in In Re Avandia persuasive and chose to follow it instead. The decision is the first in the Fifth Circuit to follow the line of reasoning from the Third Circuit s In Re Avandia decision. On December 16, 2014 in Collins v. Wellcare Health Plans, 73 F. Supp. 3d 653 (E.D. La. 2014), the U.S. District Court for the Eastern District of Louisiana decided that the Part C plan had a private cause of action under the MSP to secure reimbursement from its insured to recover conditional payments that it had Medicare Advantage and Prescription Drug Plans Have Secondary Payer... Knack 7

8 made related to an automobile accident. This is the second decision from the Fifth Circuit to follow In Re Avandia. The last case included here involves an insurer, Western Heritage, that settled a liability claim only to learn after the settlement that the claimant was a Medicare beneficiary. In an attempt to mitigate its risk, Western Heritage tried to add conditions to the release. The plaintiff s attorney resisted and the state court required Western Heritage to pay the funds, allowing the claimant and his attorney to address any Medicare reimbursement issues. The plaintiff was enrolled in a Part C plan with Humana. Humana received an unfavorable ruling with regard to its lien and filed an appeal to the state court of appeals. Humana also filed a lawsuit against Western Heritage in the U.S. District Court for the Southern District of Florida requesting the full value of its lien. Despite the appeal pending in the state court, on March 16, 2015, the District Court held as a matter of law that Humana was entitled to maintain a private cause of action for double damages against Heritage under 42 USC 1395y(b) (3)(A). Humana Medical Plan v. Western Heritage Ins. Co., 94 F.Supp. 3d 1285, (S.D. Fla. 2015). In the Court s interpretation of the MSP Act, Western Heritage was required to pay Humana when the case had settled. Western Heritage has appealed, and the case is presently pending in the Eleventh Circuit. Oral argument was held in the spring and a decision is expected in late summer or early fall, Thus, we currently have two Circuit court opinions, one in the Ninth Circuit and the other in the Third Circuit, with differing views on Part C recovery rights. Both Circuits agree that Part C and Part D plans have the right to recover conditional payments; however, they disagree as to whether Part C and Part D plans can use the private right of action under 42 USC 1395y(b)(3)(A) to enforce that right and pursue double damages. The U.S. Supreme Court s denial of review in the In Re Avandia case does not provide guidance in that it first was too close in time to the decision in the Ninth Circuit (Parra); but more importantly, legally, the U.S. Supreme Court had the right to deny certiorari, and not hearing the case has no precedential value. Each Circuit court can still interpret the law based on legal authority that exists across the country. It is likely that if the 11 th Circuit Court in the Humana v. Western Heritage appeal follows the 3 rd Circuit s In Re Avandia decision, then courts across the country will find that Part C and D plans have a private cause of action. But, if the 11 th Circuit Court follows Parra instead, then just the opposite will likely be the case. V. Best Practices in Light of Uncertainty Until Congress clarifies the MSP law, the U.S. Supreme Court or more Circuits rule on this issue, the manner in which Part C or D plans can pursue their right to reimbursement remains unclear. As such, insurers and self-insureds and their counsel should include in their handling of claims with Medicare beneficiaries the question of whether a Part C or D plan has paid for any associated care. Further, primary payers and their counsel should check the current status of recovery rights for Part C and D plans in the respective forum jurisdiction when handling a claim involving a Medicare beneficiary. Just like with Medicare Parts A and B, it is imperative to answer the threshold question of whether a claimant is Medicare eligible because if they are, a Part C or D plan may have paid for care related to the claim and if so, the plan would have a right to reimbursement. Keep in mind that eligibility for Medicare can be based on a number of factors other than age (65 years or older) such as diagnosis of Lou Gehrig s disease or end stage renal disease, or entitlement to Social Security disability income. Also remember that this question must continue to be asked throughout the case because the critical factor is whether the claimant is a Medicare beneficiary at the time of settlement or judgment and not the date of the injury or the accident. It can be a challenge to determine whether a claimant is enrolled with a Part C or Part D plan and if so which one. While the CMS query function reveals whether someone is enrolled with Medicare, it does not 8 Nursing Home/ALF Litigation September 2017

9 reveal the type or name of the plan. Using discovery to ask a claimant to identify all health plans with whom the claimant is enrolled or that have made payment is an option. But, many Medicare beneficiaries do not appreciate that they may be enrolled with a Part C or D plan. And, it is not uncommon for their counsel to also not appreciate that there may be a Part C or D plan in the picture. Another problem is that a Medicare beneficiary may change their Part C or D plan each year, so there may be multiple Part C or D plans involved. Another resource can be billing statements from the providers from whom the claimant sought treatment as they may reveal what plan has made payments. In addition, if a claimant is a Medicare beneficiary but receives a Conditional Payment Letter from CMS stating that no conditional payment is due to be reimbursed, while many think that establishes there is no reimbursement obligation, it is often an indicator that there is a Part C or Part D plan in the picture that should be considered. As noted above, the Third Circuit in In Re Avandia is the only U.S. Circuit to date that has established that Part C plans have a private cause of action against primary plans. The Third Circuit includes the states of Pennsylvania, New Jersey, and Delaware. In addition, U.S. District Court opinions should be reviewed for the state in which the claim resides to see if a court has addressed the rights of Part C and D plans to recovery. In those jurisdictions where courts have determined that Part C and D plans have a private cause of action for recovery, the best practice for primary plan and its counsel is to determine whether a Part C or D plan is involved and to have a strategy in place to address this reimbursement obligation at the time of settlement. Otherwise the Part C or D plan may have a claim for double damages. Further, the release language should address how reimbursement obligations will be satisfied. For those jurisdictions that do not recognize that a Part C or D plan has a private cause of action, information about a Part C and/or Part D plan is still important because the liens still need to be addressed. The question is just by whom. For those jurisdictions that have not yet addressed the question, it is best to proceed as though a Part C or Part D plan have a private cause of action. VI. Next Steps in Clarifying Part C and Part D Plan Recovery Rights As discussed above, the secondary payer laws for Part C are themselves conflicting and unclear. Moreover, they often do not make sense in the prescription drug context. Without clear direction or guidance, Part D plans have been left to guess what their obligations are under the MSP and how to implement them. In the end, Part D plans are unsure what rights and obligations they have and how those rights and obligations may affect beneficiaries and primary payers involved in resolving claims with beneficiaries. The limited guidance available creates a process by which it appears that Part D plans pay for a beneficiary s prescription drugs but then later are forced to seek reimbursement for those payments. This process is inefficient and costly to enforce. Further, pursuit of secondary payer recovery for Part D payments often costs more than can be recovered and thus is a waste of government and Part D plan resources. Finally, even though Section 111 of the Medicare Medicaid S-CHIP Extension Act (MMSEA) requires payers that settle claims with Medicare beneficiaries to report those settlements to Medicare, this process is not linked to Part D plans, meaning that the data about a settlement is not shared with Part D plans, leaving these plans without the opportunity to identify a recovery or a coordination of benefits opportunity at the time. Generally Part D plans only learn about a settlement long after the case is resolved. In an attempt to solve these issues, the Medicare Advocacy Recovery Coalition (MARC) is working on proposed legislation the SPARC Act similar to the SMART Act, which was signed into law in January 2013 as Part of the Medicare IVIG Access and Strengthening Medicare and Repaying Taxpayers Act of 2012 and helped improve the processes for MSP recovery and reporting under Parts A and B for all stakeholders. The SPARC Act (the Secondary Payer Advancement, Rationalization and Clarification Act) has been intro- Medicare Advantage and Prescription Drug Plans Have Secondary Payer... Knack 9

10 duced in the House of Representatives HR 1122 and MARC is working to support its passage. If passed, the SPARC Act will make clear who is responsible for prescription drug costs and when they must be reimbursed. It will also make clear when that responsibility begins, how a Part D plan can recover for past payments, and when, and how CMS must share data to help facilitate the secondary payer process and recovery. The end result will be savings for the federal government as well for Part D plans. The Medicare Advocacy Recovery Coalition (MARC) is a national coalition advocating for the improvement of the MSP programs. The coalition collaborates and develops strategic alliances with beneficiaries, affected companies, and a wide range of other stakeholders to work with the Congress and government agencies to implement MSP reforms that will improve the process for all. DRI is a steering committee member. The legislation would repeal the vague language described above that grants Part D plans secondary payer rights in the same manner as Part C plans and instead provides a clear, five-part secondary payer process. This process includes granting permission to a Part D plan to be subrogated against a beneficiary or a party in a liability action to recover past payments made for prescription drugs that should have been included in the settlement, the judgment, or the award. Similar to the recovery process for Part A and B plans, there would be a three-year statute of limitations, and the final recovery would be reduced by procurement costs associated with pursuing the claim. The SPARC Act would also permit a Part D plan to waive the secondary payer provisions if the Part D plan determines that a waiver is in the best interest of the Medicare program, similar to existing federal law. This would allow Part D plans to pursue recovery only when the recovery would exceed the cost of collection. The SPARC Act would also require CMS to pass along to a Part D plan the information included in a report under Section 111 of the MMSEA, which would bring the case resolution to the attention of the Part D plan and thus to allow the Part D plan to coordinate benefits. Further, when an entity has the ongoing responsibility to pay for medical benefits, the SPARC Act would require a Part D plan to ensure that the pharmacy or the entity providing the prescription drugs sends the bills to the entity with the ongoing responsibility instead of billing the Part D plan. Resolving questions about Part D plans obligations to pursue reimbursement and payers obligations to make reimbursement to Part D plans is needed to fill the guidance void and to provide certainty in the handling of claims in the liability and the workers compensation context. The SPARC Act will do just that. To learn more about the SPARC Act and how you can help support it becoming law, please see marccoalition.com/. At the same time, you or your organization can join MARC as a member to stay abreast of the progress of the SPARC Act, as well as of the status of implementation of the SMART Act and other MSP program issues. 10 Nursing Home/ALF Litigation September 2017