On June 28, 2012, the Third Circuit became the first Federal court of appeals to address the secondary payer rights of Medicare Advantage Organizations (also known as Medicare Part C plans). In In re Avandia Marketing, Sales Practices and Products Liability Litigation, the court held that the Medicare Secondary Payer Act (“MSP”) provides Medicare Advantage Organizations (“MAOs”) with a private cause action to seek recovery against a primary payer (such as a liability insurer or self-insured defendant in a personal injury matter) in Federal court. In coming to this conclusion the court relies on i) the broad language of the MSP Act as applied to private causes of action, ii) the policy and purpose behind the Federal Medicare Advantage (“MA”) program, and iii) the regulations promulgated by the Centers for Medicare and Medicaid Services (“CMS”).
This case marks a departure from federal district court decisions which have denied MAOs (and Medicare-substitute health maintenance organizations) a federal independent right to sue primary payers, and in some cases, indicated that MAOs should seek potential remedies in state court based on a contractual claim and/or conflict preemption principles. While this case did not reach the issue of whether the defendant/primary payer was liable to the MAO nor did it address the level of disclosure (e.g., specificity of notice to defendants) required by the MAOs to identify a primary payer, the court’s decision will alter the framework by which parties settle cases involving Medicare-enrolled beneficiaries. Specifically, as parties engage in settlement negotiations in nationwide litigations, the lien resolution process for participating claimants will likely evolve to include both conditional payments made by CMS as well as a private insurer acting as a provider of a MAO. For those settling parties, however, who have in place for their settlements a proactive process to verify and resolve appropriate healthcare reimbursement claims, the court’s decision should not be disruptive.
In re Avandia Marketing, Sales Practices and Products Liability Litigation, No. 11-2664, decided June 28, 2012, the Third Circuit Court of Appeals reversed a district court decision (Eastern District of Pennsylvania), which dismissed the claim of Humana Insurance Company (“Humana”) and other similarly situated providers of MAOs against GlaxoSmithKline, LLC and GlaxoSmithKline plc (collectively, “GSK”) for reimbursement of medical expenses incurred as a result of ingestion of GSK’s drug, Avandia. The Third Circuit also remanded the case for further proceedings consistent with its opinion. This ruling is based on the reading of a statutory private cause of action for MAOs under 42 U.S.C. § 1395y(b)(3)(A), which is supported by both the analysis of the MA Program’s legislative purpose of and CMS’ interpretation evidenced in 42 C.F.R. § 422.108. The court was able to distinguish Humana’s claim from prior, conflicting federal decisions and ultimately found that Congress did not intend to deny MAOs the same right as traditional, fee for service Medicare Parts A and B (“Medicare”) and therefore, the court concluded MAOs have a private cause of action under the MSP to assert claims against a primary payer.
The District Court Decision
Humana filed its complaint based on the claim that under the MSP it was granted secondary payer rights and thus it was entitled to reimbursement for covered expenses it paid related to Claimants in the Avandia MDL action. Humana also sought equitable relief in the form of an order compelling GSK to identify settling Avandia claimants to MAOs who may have covered them. In dismissing the complaint, the district court determined that: (1) Medicare’s private right of action set forth in 42 U.S.C. § 1395y(b)(3)(A) does not apply to MA Plans; (2) the secondary payer provisions of the Medicare Advantage program, (found in 42 U.S.C. § 1395w-22(a)(4)), did not create a private cause of action (either express or implied); (3) the MA statute’s silence on the existence of a private cause of action for MAOs was not ambiguous, but rather indicative of Congressional intent to not create a private cause of action for MAOs; and (4) absent any such ambiguity there was no need to defer to a CMS regulation that granted MAOs parity with Medicare. Finally, the district court denied Humana’s request for equitable relief to order GSK to disclose information about settlements that Humana’s enrollees entered into with GSK, holding that Humana, not GSK, had access to information about which Avandia claimants were enrolled in Humana plans and could act accordingly to remind its enrollees of their obligations to disclose any settlement they might reach with GSK.
The Third Circuit’s Decision
The Third Circuit utilizes a three part analysis in reaching its conclusion that the plain text of the MSP is broad and unrestricted, and therefore, allows any private plaintiff with standing, including MAOs, to bring a cause of action against primary payers.
The first and most pivotal part of this analysis focuses on the Medicare statute itself. The court begins its discussion with the sections pertaining to MAOs and gives particular emphasis to the secondary payer provision found at 42 U.S.C. § 1395w-22(a)(4). Unlike the district court which declined to find any express or implied reference to Medicare’s rights, the Third Circuit states that § 1395w-22(a)(4) cross references § 1395y(b)(2)’s definition of primary payer and its positioning of Medicare as a secondary payer. After making this connection the court turns its attention to Medicare’s rights under § 1395y(b)(3)(A) and emphasizes that this section does not designate what entity may bring such an action, supporting Humana’s position that any private party may bring suit when that party is a secondary payer seeking recourse from a primary payer. The court concludes that no viable arguments have been presented to sway its broad interpretation and it dismisses any narrow interpretations regarding reference to “subchapter” or the permissive term “may”. Before moving on to the second part of its analysis the court distinguishes this case from other recent federal cases by stating that none of those cases had addressed the issue at hand - a claim brought under 42 U.S.C. § 1395y(b)(3)(A) (the MSP private cause of action).
The second part of the court’s analysis has a more practical thrust and examines the legislative history and policy goals of the MA program. The court states that denying MA plans a private right of action is tantamount to putting MA plans at competitive disadvantage in their effort to provide an appealing alternative to traditional, fee for service Medicare (Parts A & B) for Medicare entitled individuals. As such, the court posits this denial of a private cause of action would hinder MAOs from providing benefits to its enrollees and would run counter to Congress’ stated goal to utilize the private sector to create more efficient and less expensive healthcare options for Medicare entitled individuals. The court closes this second part with an examination of the cost savings impact on the Medicare system as a whole and concludes that the Medicare Trust Fund will achieve cost savings if MAOs spend less on coverage as a result of their ability to recover from primary payers. In a footnote that is sure to get some attention, the court notes that its decision will unquestionably result in cost savings for the Medicare Trust Fund because its holding on the meaning of the private cause of action under the MSP statute will apply equally to private entities that provide prescription drug benefits pursuant to Medicare Part D, citing Medicare Part D’s secondary payer provisions under 42 U.S.C. §1395w-115(e).
The final part of the court’s analysis addresses whether regulations that CMS has promulgated to interpret the MSP statute should be accorded deference if the private cause of action provisions are determined to be ambiguous when applied to MAOs. The court frames this issue of deference owed to a federal administrative agency’s regulation by applying the Chevron standard. Chevron provides a two-step test in determining whether a federal agency’s statutory interpretation is granted a broad amount of deference. Step one assesses whether Congress, in enacting legislation, has spoken unambiguously about an issue within the statute itself. If Congress did not speak unambiguously, then step two asks whether the federal administrative agency’s statutory interpretation enacted in a regulation is reasonable. The court cites to 42 C.F.R. § 422.108 and CMS’ memo of December 5, 2011, in support of its conclusion that CMS’s interpretation of the MSP statute is reasonable, and thus finds deference is warranted should an ambiguity be found regarding the MSP’s private cause of action applying to MAOs.
In sum, the Third Circuit held that MAOs have an equal and parallel private right of action (as traditional fee for services Medicare) to sue primary payers where those payers fail to provide for payment or appropriate reimbursement to MAOs. The Third Circuit was not asked to, and did not reach the question of whether GSK was liable to Humana, only that the private cause of action remedy applied to MAOs, including Humana. Instead, the Third Circuit reversed the district court’s dismissal of Humana’s complaint and remanded the case back to the district court for further proceedings. How the district court resolves the matter and whether any relief is afforded Humana is still an unknown.
The Take Aways
While the debate regarding the rights of MAOs may continue in other federal appellate jurisdictions (and perhaps even in the Third Circuit), the impact of this decision will likely be felt immediately and nationwide. Over the past few years, the general issue of Medicare compliance has been a hotly debated topic. Going forward, all parties who settle liability claims will likely implement procedures to identify which settling claimants are enrollees of Medicare Part C plans (MAOs) (and hence, the defendant is in those instances, in effect, would be a primary payer within the meaning of the MAO and MSP statutes).
The remaining issues focus on the mechanics of applying the In re Avandia decision. CMS’ regulations (42 C.F.R. §422.108(b) mandate that MAOs, must for each MA plan, (a) identify payers that are primary to Medicare (b) identify the amounts payable by those payers and (c) coordinate benefits. So the questions that remain include:
- Does “omnibus” notice given to the defendant (that lacks claimant level detail) “perfect” a MAO’s interest such that the primary payer (defendant) must then protect the MAO’s interests as part of the coordination of benefits paid by the MAO to its enrollees who settle claims with the defendant?
- What will come, if anything, of the Medicare Part D comment on remand?
The DRI MSP Task Force will continue to monitor this evolving situation, and provide updates to DRI members as warranted. DRI members can always access our webpage at http://www.dri.org/News/MSP for additional information.
 Care Choices HMO v. Engstrom, 330 F.3d 786 (6th Cir. 2003); Nott v. Aetna U.S. Healthcare Inc., 303 F.Supp. 2d 565 (E.D. Pa. 2004); Parra v. PacfiCare of Arizona, Inc., 2011 WL 1119736, (D.Ariz. Mar 28, 2011).
 In Re Avandia Mktg., Sales Practices, and Prod. Liability Litig., 2011 WL 2413488 (E.D. Pa. June 13, 2011).
 Interestingly, the Third Circuit notes in its Footnote 5 that Humana did not appeal the District Court’s dismissal of its claim to obtain the claimant listings as part of its equitable relief.
 42 U.S.C. § 1395w-21 to -29.
 “There is established a private cause of action for damages (which shall be in an amount double the amount otherwise provided) in the case of a primary plan which fails to provide for primary payment (or appropriate reimbursement) in accordance with paragraphs (1) and (2)(A).”
 Some lawyers, including members of the DRI MSP Task Force, have maintained that this term as used in § 1395y(b)(2)(A) referred to payments made by Medicare and excluded payments made by MA plans. The court rejects this narrow interpretation and states that the term refers to the Medicare Act as a whole.
 Some lawyers, including members of the DRI MSP Task Force, have maintained that this term as used in § 1395w-22(a)(4) indicates that a MA plan’s right is permissive and based on a contractual theory of recovery (state based) rather than a federal right. The court does not reject the contractual interpretation, but points out that Humana is proceeding under the MSP private cause of action, not a right based in § 1395w-22(a)(4). The court does, however, reject the argument that the fact Congress uses permissive language to establish rules for private, market-driven entities and mandatory language when creating rules for the Secretary (of HHS), a federal official over which Congress exercises control, has any impact on the proper interpretation of the MSP private cause of action.
 See footnote 1, supra.
Chevron U.S.A. Inc. v. National Resources Defense Council, Inc., 467 U.S. 837 (1984).
 “The MA organization will exercise the same rights to recover from a primary plan, entity, or individual that the Secretary exercises under the MSP regulations in subparts B through D of part 411 of this chapter.”
 Ctrs. For Medicare & Medicaid Svcs., Dep’t of Health and Human Svcs. Memorandum: Medicare Secondary Payment Subrogation Rights (Dec. 5, 2011).
 The “state of the art” for mass tort settlement programs includes the utilization of a Lien Resolution Administrator to identify, verify and resolve statutory liens and reimbursement claims of governmental health plans. At the direction and agreement of the settling parties the role of Lien Resolution Administrator can be expanded to include the identification of participating claimants as MAO enrollees through a variety of proven procedures, including: (1) participation in a voluntary MAO lien resolution program;(2) following the procedures and protocols established by a neutral third party (at the direction of the parties) as Lien Resolution Administrator; and/or (3) through the claimant on his or her own initiative.