Repaying Medicare Advantage (Part C) liens – is anyone safe?

By Stephen M. Cornelius and Gregg E. Viola

Every litigator knows, or certainly should know, that it is imperative to timely repay Medicare liens after a case is resolved.  The law and procedures for identifying standard Medicare Parts A and B liens, appealing the amount of such liens and satisfying the reimbursement of said liens has evolved over time, resulting in a more standardized, streamlined process.[i]  What a number of practitioners fail to appreciate, however, is that there is a distinction between Medicare Parts A and B versus Medicare Part C a/k/a Medicare Advantage.  Unlike the evolution of the law and procedures related to Medicare Parts A and B liens, Medicare Advantage (Part C) liens are not as well known, and can be difficult to identify, thereby posing a significant risk and exposure to insurance companies and attorneys.  This article explores issues related to the failure to repay Medicare Part C liens, including recent trends that have arisen from litigation across the country, potential exposure to settling insurers, attorneys and parties, and practice pointers for litigators to limit their exposure going forward.

What is Medicare Part C?

The Medicare Act[ii] consists of five parts – A, B, C, D and E – and functions as a “federally funded health insurance program for the elderly and the disabled.”[iii]  Medicare Parts A and B “create, describe, and regulate traditional fee-for-service, government-administered Medicare.”[iv]  Medicare Part C, on the other hand, outlines the Medicare Advantage program, which was succinctly summarized by the United States Court of Appeals for the Third Circuit as follows:

Part C allows Medicare enrollees to obtain their Medicare benefits through private insurers [called Medicare Advantage Organizations] (MAOs) instead of receiving direct benefits from the government under Parts A and B….  [The Centers for Medicare and Medicaid Services (CMS)] pays an MAO a fixed amount for each enrollee, per capita….  The MAO then administers Medicare benefits for those enrollees and assumes the risk associated with insuring them.  MAOs… are thus responsible for paying covered medical expenses for their enrollees.[v]

In other words, Part C enables Medicare beneficiaries to elect private insurers in lieu of the government to deliver their Medicare benefits.[vi]  “To be approved to be an MAO, the private insurer must enter a bidding process, meeting certain threshold requirements.”[vii]  If approved, the MAO must provide an “Evidence of Coverage” approved by CMS to its enrollees on an annual basis, extend the same basic benefits offered to traditional Medicare enrollees under Parts A and B, and abide by CMS national coverage determinations.[viii]

Secondary Payer Provisions

Congress enacted the Medicare Secondary Payer (MSP) statutory scheme[ix] to “curb the rising costs of Medicare.”[x]  Under the MSP, private insurers covering the same treatment as Medicare would be deemed “primary payers” and Medicare would be considered a “secondary payer,” whereby Medicare benefits became an entitlement of last resort, available only if no private insurer was liable.[xi]  That being said, the MSP “gives the Secretary the authority to make ‘conditional payments’ in circumstances where a primary payer is actually responsible for the cost of medical treatment but ‘has not made or cannot reasonably be expected to make payment with respect to such item or service promptly.’”[xii]  If such a “conditional payment” is made, the “primary plan must subsequently reimburse the Medicare Trust Fund[,]” or else the “United States may bring an action against any or all entities that are or were required or responsible … to make payment … under a primary plan” and “then collect double damages[.]”[xiii]  The class of “any or all entities” includes “an entity that receives payment from a primary plan,”[xiv] and the Code of Federal Regulations specifically provides that “CMS has a right of action to recover its payments from any entity, including a beneficiary, provider, supplier, physician, attorney, State agency or private insurer that has received a primary payment.”[xv]

The MSP “does not mention MAOs and refers almost exclusively to the Secretary, the United States, and the Medicare trust fund.”[xvi]  However, there is a separate provision in Part C entitled “Organization as secondary payer” (hereinafter referred to as the “MAO Secondary Payer Provision”) that cross-references the MSP and provides, in pertinent part, that a MAO

may (in the case of the provision of items and services to an individual under a Medicare+Choice plan under circumstances in which payment under this subchapter is made secondary pursuant to section 1395y(b)(2) of this title) charge or authorize the provider of such services to charge …

(A)      the insurance carrier, employer, or other entity which under such law, plan, or policy is to pay for the provision of such services….[xvii]

Because the MAO Secondary Payer Provision does not expressly provide a MAO with the right to assert a private cause of action, or address the issue of double damages, two issues have emerged: (1) whether a MAO can assert a private cause of action for reimbursement of secondary payments, and, if so, (2) whether a MAO can recover double damages.  As discussed below, recent decisions from across the country have held that MAOs can essentially step into the shoes of the government and pursue a private cause of action against a wide range of “entities” that fail to reimburse the MAO for conditional payments, and recover double damages.

National Trends – MAO Private Cause of Action and Double Damages

The primary cases that recently addressed these issues are In re Avandia Marketing Sales Practices and Products Liability Litigation (“In re Avandia”),[xviii] Humana Medical Plan, Inc. v. Western Heritage Insurance Company (“Western Heritage”)[xix] and Humana Insurance Company v. Paris Blank, LLP (“Paris Blank”).[xx]  As discussed herein, these cases have not only held that a MAO has standing to bring a private cause of action and recover double damages, but expansively defined the “entities” that can be liable to a MAO, including attorneys.

In In re Avandia, thousands of claimants sued and/or threatened to sue Glaxo, a self-insured manufacturer of Avandia, a diabetes medication.[xxi]  As part of a settlement fund created by Glaxo, monies were set aside to reimburse the Medicare Trust Fund for conditional payments (i.e. Medicare Parts A and B), but no reserves were set aside to reimburse MAOs, including Humana.[xxii]  As a result, Humana filed a class action, on behalf of itself and other similarly situated MAOs, asserting a private cause of action against Glaxo for reimbursement of conditional payments, and seeking double damages under the MSP.[xxiii]  On appeal from the United States District Court for the Eastern District of Pennsylvania’s dismissal of Humana’s class action, the United States Court of Appeals for the Third Circuit held that MAOs may bring a private cause of action under the MSP, explaining that the MSP “is broad and unambiguous, placing no limitations upon which private (i.e., non-governmental) actors can bring suit for double damages when a primary plan fails to appropriately reimburse any secondary payer.”[xxiv]  Alternatively, the Court stated in dicta that, even if the MSP was ambiguous, “deference to CMS regulations would require [the Court] to find that MAOs have the same right to recover as the Medicare Trust Fund[.]”[xxv]  Accordingly, the Third Circuit recognized a private cause of action for MAOs against self-insured entities, including the recovery of double damages.

In Western Heritage, the underlying plaintiff was enrolled with Humana (a MAO) and was injured at a condominium complex (the “condo”).[xxvi]  Humana made approximately $19,000 in conditional payments towards the plaintiff’s medical expenses.[xxvii]  After the plaintiff filed suit, Humana issued an Organization Determination for the $19,000.[xxviii]  The parties settled for $115,000, and the plaintiff released the condo and its liability insurer, Western Heritage Insurance Company (“Western Heritage”), representing that there was no Medicare lien while agreeing to indemnify the condo and Western Heritage against claims for Medicare liens.[xxix]  Humana attempted to sue the plaintiff in State Court, but voluntarily dismissed the action.[xxx]  Western Heritage then issued the settlement check jointly to the plaintiff and Humana as payees, and the plaintiff filed a motion for sanctions for non-compliance with the settlement agreement.[xxxi]

In response, the parties agreed to a Stipulated Order, in which the Court ordered that the settlement check would be issued to the plaintiff, without Humana included as a payee, and that the plaintiff’s attorney would hold $19,000 in trust to satisfy the lien.[xxxii]  Western Heritage paid the $115,000 settlement in accordance with the terms of the Court’s Order, but the plaintiff’s attorney, rather than reimburse Humana, attempted to file an action for declaratory judgment against Humana, which was dismissed for lack of jurisdiction.[xxxiii]  Humana, in turn, demanded reimbursement from Western Heritage, who refused, leading to Humana filing suit against Western Heritage in the United States District Court for the Southern District of Florida.[xxxiv]

After the District Court awarded Humana summary judgment, Western Heritage appealed, and the United States Court of Appeals for the Eleventh Circuit affirmed the entry of judgment, holding that Humana possessed a private right of action against a liability insurer that did not reimburse the MAO within 60 days of settlement, and that Western Heritage’s payment to the plaintiff was “insufficient to extinguish its prospective reimbursement obligation to Humana,” despite payment being issued in accordance with a Court order.[xxxv]  Moreover, the Eleventh Circuit held that double damages were not only recoverable, but that they are “required” under the MSP because “the private cause of action uses the mandatory language ‘shall’ to describe the damages amount.”[xxxvi]  Accordingly, the Eleventh Circuit recognized a private cause of action for MAOs against a tortfeasor’s liability insurer, including a mandatory award of double damages against the insurer when it “fails to provide for primary payment or appropriate reimbursement.”[xxxvii]

In Paris Blank, the plaintiff, who was enrolled with Humana (a MAO), was involved in a motor vehicle accident.[xxxviii]  Humana made conditional payments in the amount of approximately $191,000 towards the plaintiff’s medical expenses.[xxxix]  The plaintiff retained Paris Blank, LLP (the “law firm”) to file suit on her behalf, and the case ultimately settled for about $475,000, of which a number of different insurance companies contributed.[xl]  The law firm advised CMS of the settlement, who, in turn, confirmed that there was no Medicare lien (under Parts A and B), but, of course, was silent as to any Medicare Advantage (Part C) lien.[xli]  Of note, the law firm was aware of the existence of Humana, as one of the settlement checks was made payable jointly to Humana and the law firm in the amount of $20,000.[xlii]  After the insurance company who issued the $20,000 check refused the law firm’s request to reissue the check payable solely to the plaintiff, the law firm proceeded to deposit the funds without Humana’s endorsement.[xliii]  The law firm then disbursed the settlement monies to the plaintiff, after which Humana issued an Organization Determination for the previous $191,000 conditional payment.[xliv]  The law firm requested a waiver, arguing that CMS previously confirmed that there was no Medicare lien, but Humana denied the request, and the law firm ultimately did not reimburse Humana.[xlv]

As a result, Humana filed suit against the law firm in the United States District Court for the Eastern District of Virginia.[xlvi]  The law firm filed a Motion to Dismiss, which was denied.[xlvii]  In its ruling, the District Court, after acknowledging that there was no Fourth Circuit precedent on point, relied heavily upon the reasoning in In re Avandia, referring to the decision as a “thorough and well reasoned opinion.”[xlviii]  Consistent with the Third Circuit, the District Court found that the MSP affords MAOs a private right of action for double damages where a primary plan fails to pay, and held that Humana could maintain its action against the law firm because, among other reasons, attorneys are enumerated in the Code of Federal Regulations as an “entity” from whom recovery under the MSP may be sought.[xlix]  Accordingly, the District Court for the Eastern District of Virginia recognized a private cause of action for MAOs against attorneys and law firms, including the recovery of double damages.

Practice Pointers

As MAOs continue to secure favorable precedent establishing their right to pursue private causes of action and recover double damages against more and more classes of persons/entities who “receive” payments from a primary payer, litigators must implement practices to identify and resolve Medicare Advantage (Part C) liens as early as practicable.  As an initial measure, plaintiffs’ attorneys should expand their initial intake forms to attempt to confirm whether prospective clients are enrolled in Medicare, are Medicare eligible and/or have received Evidence of Coverage from a MAO.  The client should also be advised to notify the attorney of any documentation she receives from a MAO, including, for example, Evidence of Coverage and Organization Determinations.  The earlier an attorney can identify the involvement of a MAO, the more equipped she will be to address conditional payment reimbursements at the time of settlement.

MAOs can be difficult to identify because, as noted above, they are private insurers, and there is no standardized, streamlined mechanism (like for Medicare Parts A and B) for attorneys to easily discern which insurers participate in the Medicare Advantage (Part C) program.  Therefore, during the course of discovery, and as insurance plans are identified and medical records and bills are produced, it is prudent for attorneys to cross-check the names of such insurers with the available list of MAOs online.  This is particularly important in light of the facts in Paris Blank, in which the identification of Humana by one of the settling insurance companies put the lawyer on notice that a MAO was involved, thereby triggering exposure to the lawyers for failing to timely reimburse the MAO for conditional payments.

Attorneys can also expect additional discovery to identify Medicare Advantage (Part C) liens, including interrogatories and deposition inquiries, as well as particularized settlement terms to address the issuance of payment, satisfaction of Medicare liens and affirmations from the settling plaintiff that she is not enrolled in a Medicare Advantage program.  In this regard, plaintiff’s attorneys can expect defense counsel to include harsher, liquidated damages-like provisions for the failure to repay an unidentified MAO.  With the holding in Western Heritage, where a MAO was awarded summary judgment against a tortfeasor’s liability insurer for issuing payment in accordance with the terms of a Court Order, insurance companies and attorneys must undertake the appropriate precautions to identify and protect conditional payments, as the exposure for failing to reimburse MAOs is ever expanding.

[i] See e.g., the Strengthening Medicare and Repaying Taxpayers (SMART) Act of 2012, 42 U.S.C. § 1395y(b)(2)(B)(viii).

[ii] 42 U.S.C. § 1395 et seq. (the “Medicare Act”).

[iii] Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 506 (1993).

[iv] In re Avandia Mktg. Sales Practices & Prod. Liab. Litig. (“In re Avandia”), 685 F.3d 353, 357 (3d Cir. 2012) (citing Medicare Act §§ 1395c to 1395i-5; 1395j to 1395w).

[v] In re Avandia, 685 F.3d at 357–58 (citing Medicare Act § 1395w–21(a)).

[vi] See Medicare Act §§ 1395w-21-29.

[vii] See Honey v. Bayhealth Med. Ctr., Inc., No. CV K13C-05-018 RBY, 2015 WL 4594163, at *4 (Del. Super. Ct. July 28, 2015).

[viii] Id.

[ix] Medicare Act § 1395y(b) (the “MSP”).

[x] Humana Med. Plan, Inc. v. W. Heritage Ins. Co., 832 F.3d 1229, 1234 (11th Cir. 2016).

[xi] Id.

[xii] In re Avandia, 685 F.3d at 358 (quoting MSP § 1395y(b)(2)(B)(i)).

[xiii] Id. (citing MSP § 1395y(b)(2)(B)(iii)).

[xiv] MSP § 1395y(b)(2)(B)(ii) (emphasis supplied).

[xv] 42 C.F.R. § 411.24(g) (emphasis supplied).

[xvi] W. Heritage, 832 F.3d at 1234 (emphasis supplied).

[xvii] Medicare Act § 1395y(b)(3)(A) (the “MAO Secondary Payer Provision”).

[xviii] 685 F.3d 353 (3d Cir. 2012).

[xix] 832 F.3d 1229 (11th Cir. 2016).

[xx] 187 F. Supp. 3d 676 (E.D. Va. 2016).

[xxi] In re Avandia, 685 F.3d at 355.

[xxii] Id.

[xxiii] Id. at 355-56.

[xxiv] Id. at 357, 359.

[xxv] Id. at 357.  It is noteworthy that, in response to widespread litigation regarding these issues, CMS issued a Memorandum dated December 5, 2011, clarifying its position that MAOs and Prescription Drug Plan (PDP) sponsors (i.e. Medicare Part D) are afforded the same rights under the MSP as the Medicare Trust Fund.  The Memorandum is accessible at the following link:

[xxvi] W. Heritage, 832 F.3d at 1232.

[xxvii] Id.

[xxviii] Id.  An Organization Determination is essentially the MAO equivalent of a CMS Conditional Payment Letter.

[xxix] Id.

[xxx] Id.

[xxxi] Id.

[xxxii] Id.

[xxxiii] Id.

[xxxiv] Id. at 1233.

[xxxv] Id. at 1238-40.

[xxxvi] Id. at 1240.

[xxxvii] See id. at 1239.

[xxxviii] Humana Ins. Co. v. Paris Blank LLP (“Paris Blank”), 187 F. Supp. 3d 676, 678 (E.D. Va. 2016).

[xxxix] Id.

[xl] Id.

[xli] Id.

[xlii] Id.

[xliii] Id.

[xliv] Id.

[xlv] Id.

[xlvi] Id.

[xlvii] Id. at 677.

[xlviii] Id. at 681.

[xlix] Id. at 681-82.