Federal Preemption for Medicare Part C in Arizona

Commentary, Medicare Set-Aside Blog, MSP Litigation on May 15, 2014 | Posted by Jennifer Jordan, JD, MSCC

In an opinion filed May 13, 2014, the Court of Appeals of Arizona ruled that a Medicare Part C plan is not prevented from recovery due to Arizona’s anti-subrogation doctrine. The case involved a nursing home abuse and neglect settlement for $1.2 million, from which the estate felt no need to make reimbursement to the decedent’s Medicare Advantage plan. Unlike most other Part C litigation, this case was not about whether an MAO can file a private cause of action under the MSP as the parties here understand and accept that they cannot. The issue at hand is that the Medicare Act permits an MAO to seek reimbursement when other coverage is available, whether directly from the responsible party or to the extent that the beneficiary has received payment from such a responsible party, the latter of which is the situation here.

Medicare Part C contains an express preemption provision: “The standards established under this part shall supersede any State law or regulation (other than State licensing laws or State laws relating to plan solvency) with respect to MA plans which are offered by MA organizations under this part.” 42 U.S.C.A. § 1395w-26(b)(3). In the MMA of 2003, among the many substantial changes to the Medicare Act, Congress amended Part C to overcome confusion in court cases at the time by removing certain “to the extent” language and listing specific standards subject to preemption. By expressly stating that “[s]tate laws, do not, and should not apply, with the exception of state licensing laws or state laws related to plan solvency” [H.R. Rep. No. 108-391, at 557], the appellate court here felt that Congress purposely meant for the Medicare Part C reimbursement provisions to supersede state common law. The plain wording evidences Congress’s intent that the standards established under Part C preempt state law intentionally preventing its reimbursement.

So in the greater context of where this case stands in the ongoing Medicare Advantage rights debate, it appears to support the idea that an MAO cannot bring a private cause of action under the MSP and is limited to its right to add policy provisions to bill a primary payer when available or recover from a beneficiary who has received an insurance settlement. Even if a private cause of action were considered here, the 9th Circuit has already ruled that such an action under 42 U.S.C. 1395y(b)(3)(A) cannot be brought against an estate because the statute expressly applies only to primary plans that failed to pay.

With regard to state law preemption in general, the ruling here is consistent with the cases in New York where the anti-subrogation provision was a little different but the outcome essentially the same. In NY there existed an express exception for statutory recovery rights so the argument was that MAOs do not possess the same recovery rights as traditional Medicare and therefore should not be allowed reimbursement from insurance settlements in NY. The courts have found that the plain language of the Medicare Act prevents a state from passing a law that prevents Medicare from recovering, therefore the NY statute was preempted. This doesn’t affect the underlying compensibility under state law, only Medicare’s ability to recover from the responsible party or beneficiary. This could become an important distinction when the Georgia law limiting medical benefits to 400 weeks becomes an issue for Medicare.

And to conclude, kudos go out to defense co-counsel Fennemore Craig for a case well-pled.

THE ESTATE OF DEBORAH A. ETHRIDGE, an Arizona probate estate, by and
through its Co-Personal Representatives, TAMIKA PRADIA and KEYANA KING;
TAMIKA PRADIA and KEYANA KING, in their individual capacities and as
statutory beneficiaries of the Estate of Deborah Ethridge, Plaintiffs/Appellees, v.
RECOVERY MANAGEMENT SYSTEMS, INC., an Arizona corporation
authorized to do and doing business in Maricopa County, Arizona; SOUTHWEST
CATHOLIC HEALTH NETWORK CORPORATION, an Arizona corporation
authorized to do and doing business in Maricopa County, Arizona by, through, and
under the name of MERCY CARE PLAN and MERCY CARE ADVANTAGE,
Arizona businesses, Defendants/Appellants.
No. 1 CA-CV 12-0740
COURT OF APPEALS OF ARIZONA, DIVISION ONE
2014 Ariz. App. LEXIS 88
May 13, 2014, Filed