As parents, or friends of parents, the last weekend has been exceptionally difficult.  Friends have debated whether to tell their children what happened in Newtown, Connecticut, and, if so, how to explain what happened.  Many of us likely have friends calling for greater gun control, and others calling for greater access to guns for protection, all referencing the Second Amendment.  I, personally, have a difficult time with both sides of the issue.   On the one hand, I do not understand why a civilian needs an automatic or assault weapon.  On the other hand, the founding fathers put the right to bear arms in the Second Amendment, even before protecting the right against unreasonable search and seizure.  And the answer to my question can be answered by the question, "Why do you have to be able to say something offensive?" Some reenacting weapons are considered assault rifles because they have sniper scopes too. I know any number of responsible and irresponsible gun owners who take weapons into entirely inappropriate circumstances, but legally. Then again, it took three seconds to reload a rifle in 1787, when the constitution was written.  The issue of original intent versus modern circumstances is one that occurs in all constitutional issues, but seems to be more intense in these discussions of gun control, or not, and gun safety.  In short, the questions and issues are numberless, and a discussion covering all of them is coming.  We will be asked questions by friends because we are lawyers.  And we will not necessarily have all of the answers.

In a major decision concerning privilege waiver, the Illinois Supreme Court, in Center Partners, LTD v. Growth Head GP, LLC, ruled that the subject matter waiver doctrine does not apply to privileged communications disclosed in an extrajudicial context.  The Court’s decision, which can be accessed here, answered a question of first impression in Illinois and will serve as influential authority when other states consider the scope of subject matter waiver.

Terry Baynes of Thomson Reuters has an interesting article on efforts by a few plaintiffs’ attorneys to “crowd source” consumer arbitration claims.  The effort arises out of the Supreme Court’s decision in AT&T Mobility v. Concepcion, 131 S.Ct. 1740 (2011), upholding class action waivers in mandatory arbitration clauses.  The article discusses how two plaintiffs’ attorneys have created a website to generate consumer interest in filing multiple arbitration claims against a company with the stated goal of overwhelming the company “with hundreds or thousands of claims.”   The article quotes one of the founding lawyers as saying, “If it happens enough, companies will want class actions again.”  Andrew Pincus, who represented AT&T Mobility before the Supreme Court, is quoted as calling the site “marketing front for plaintiffs’ law firms.”  Mr. Pincus discussed Concepcion at DRI’s 2011 Class Action Seminar in Washington, DC.  DRI will hold the next edition of the Class Action Seminar on July 25 and 26, 2013.  That program is expected to include discussions of the Supreme Court’s current term’s class action and collective action cases.  More details on that will follow soon.

The Supreme Court of the United States is meeting today to decide which cert. petitions will be granted for the new term, which formally begins next Monday.  One of the petitions distributed for review at the conference will be that from Hadden v. United States, in which DRI – The Voice of the Defense Bar filed an amicus curiae brief in support of cert.  The issue in the case is whether, under the Medicare Secondary Payer Act, the government is entitled to full reimbursement of its Medicare payments when a beneficiary compromises a tort claim and recovers a reduced amount for medical expenses, or whether the government (like its beneficiary) is entitled to only a proportionate recovery from the settlement.  The petition is listed on the scotusblog.com (a blog devoted to coverage of the Supreme Court) as one of the “Petitions to Watch” at this conference.  Today, at about 9:30 a.m. eastern, the court is expected to release its list of the petitions granted in today’s conference.

As the rest of us return from the last long weekend of summer, the U.S. Supreme Court send us scurrying back to our computers this morning with news that it has accepted Travelers' cert petition in Standard Fire Ins. Co. v. Knowles, 11-1450.  At issue is a ruling by an Arkansas District Court declaring that Travelers could not remove a homeowner's class action against to federal court because the underlying claimants had stipulated that they were seeking damages under $5 million, the jurisdictional limit for removal under CAFA.  

This fall, the United States Supreme Court will reconsider the issue of affirmative action in higher education for the first time since its 2003 decision in Grutter v. Bollinger.  In Grutter the Court held that, “The Equal Protection Clause does not prohibit the [University of Michigan] Law School’s narrowly tailored use of race in admissions decisions to further a compelling interest in obtaining the educational benefits that flow from a diverse student body.”  The Court will consider the appeal of Abigail Fisher, a white student, who alleges she was denied admission to the University of Texas because of the color of her skin.  At issue in the Fisher case is whether the Court’s decisions interpreting the Equal Protection Clause of the Fourteenth Amendment, including Grutter, permit the University of Texas at Austin’s use of race in undergraduate admissions decisions. 

The Supreme Court’s decision stands to have great impact nationally.  Numerous amicus briefs have been filed in support of both litigants.  Of note, the University of California (UC) president and chancellors, the state of California, the California Institute of Technology and a group of student organization at UC campuses are among at least 69 organizations that have filed amicus briefs in support of the University of Texas at Austin.  California is one of a few states that have already prohibited affirmative action in college admissions following the passage of Proposition 209 in 1996.  In its amicus brief, UC attorneys argued that the university system’s experience after Prop. 209 “sheds important light on the practical, real-world obstacles faced by universities seeking to obtain the educational benefits that flow from a diverse student body.”  Similarly, the brief filed on behalf of the state of California by Attorney General Kamala Harris observed that if California, a large and diverse state, could not achieve an acceptable level of diversity in its public universities in the absence of race-conscious admissions policies, other states with more homogeneous populations would struggle to an even greater extent.

Despite several initiatives enacted after the passage of the proposition, UC has not been able to reverse the decline in minority admission and enrollment since 1998, when the law went into effect.  Between 1995 and 2009, African Americans consistently represented between 7 and 8 percent of new high school graduates in California.  In 1995, African Americans made up 7.3 percent of admitted freshmen at UC Berkeley, but by 1998, that figure had dropped to 3.2 percent. In 2010 and 2011, it was 3.9 percent. UCLA saw similar results.

Is diversity a sufficiently compelling reason to use race in admissions decisions?  Is there a compelling interest in obtaining educational benefits from a diverse student body?  Could a reversal of the Court’s decision in Grutter result in less diverse student bodies at public colleges and universities as has been experienced in California?

Alison Y. Ashe-Card

Womble Carlyle Sandridge & Rice, LLC

As Congress Resets the Clock Until After the Elections, the Supreme Court Issues Significant Opinions Limiting Governmental Power to Restrict Commercial Speech

The Toxic Tort Litigation Blog brings to the attention of defense practitioners weapons to add to their defense arsenal. An article in the Bloomberg BNA Toxics Law Reporter (6/14/02), titled "Making the Most of Twombly/Iqbal in Product Liabililty Cases," offers a valuable primer concerning how the pleading requirements under Rule 8(a) of the Federal Rules of Civil Procedure have been reinterpreted and reshaped by the U.S. Supreme Court in two landmark decisions, Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S 662,129 S. Ct. 1937 (2009).

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[1] 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)[2], 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.[3]
 
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[4] 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)[5] 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”[6] or the permissive term “may”[7].  Before moving on to the second part of its analysis the court distinguishes this case from other recent federal cases[8] 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.[9]  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[10] and CMS’ memo of December 5, 2011,[11] 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).[12] 
 
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:

1. 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?
2. 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.

[1] Care Choices HMO v. Engstrom, 330 F.3d 786 (6^th 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).
[2] In Re Avandia Mktg., Sales Practices, and Prod. Liability Litig., 2011 WL 2413488 (E.D. Pa. June 13, 2011).

[3] 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. 

[4] 42 U.S.C. § 1395w-21 to -29.

[5] “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).”

[6] 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.

[7] 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. 

[8] See footnote 1, supra. 

[9]Chevron U.S.A. Inc. v. National Resources Defense Council, Inc., 467 U.S. 837 (1984).

[10] “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.”

[11] Ctrs. For Medicare & Medicaid Svcs., Dep’t of Health and Human Svcs. Memorandum: Medicare Secondary Payment Subrogation Rights (Dec. 5, 2011).

[12] 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.

Earlier this week, the U.S. Supreme Court struck down several key provisions of an Arizona law (SB 1070, Support Our Law Enforcement and Safe Neighborhoods Act) targeting illegal immigrants, ruling the state interfered with congressional authority over U.S. borders, but it let stand a requirement that police check the immigration status of people they stop for traffic or other offenses.  Reaction by law enforcement officials in Arizona, and others, has been mixed.  Police Chief Roberto Villaseñor of Tucson said that he wonders if his agency has been dealt an “impossible mandate,” while Amy Rezzonico, spokeswoman for Arizona’s attorney general’s office said, “I’m pretty sure it will be business as usual to some degree.”  The court left open the possibility that the surviving provision could be challenged, should it lead to prolonged detentions solely to determine immigration status.  "No American should ever live under a cloud of suspicion just because of what they look like. Going forward, we must ensure that Arizona law enforcement officials do not enforce this law in a manner that undermines the civil rights of Americans, as the Court’s decision recognizes," said President Obama.

Marc Miller, a vice dean and law professor at the University of Arizona said, “By making it a mandate and lining up against the warnings of the Supreme Court, it’s created an impossibly difficult question for police and sheriffs.  Are we concerned about racial profiling? Absolutely.”  Will enforcement of this law likely result in racial profiling?  Is it fair to question one’s legal residency or U.S. citizenship simply on the basis of the color of their skin?  What impact will this law have on the Hispanic community and other minority communities?  Are the civil liberties of all Americans at risk?