New York Medicare Advantage Update
You may recall that in August 2011, the Supreme Court of NY in Kings County ruled in Ferlazzo v. 18th Avenue Hardware that because Medicare Advantage plans’ reimbursement rights were not statutory, its recovery efforts violated GOL § 5-335 prohibiting liens against personal injury settlements. Due to the 3rd Circuit’s recent opinion in Avandia, it appears that the state may be changing direction as well. Potts, et al. v. Rawlings Co., et al. is a putative class action by enrollees in Medicare Advantage plans seeking a declaratory judgment that MAOs basically do not have a right to seek reimbursement from settlements of lawsuits, consistent with rulings in 2011 cases like Ferlazzo. As with all great MSP cases, the court relied upon plaintiffs’ failure to exhaust administrative remedies under the Medicare Act and dismissed for lack of subject matter jurisdiction.
The U.S. Supreme Court clearly explained in Heckler v. Ringer [466 U.S. 602, 614-15 (1984)] that “the sole avenue for judicial review for all claims arising under the Medicare Act” is through the exhaustion of administrative remedies before the Secretary. At the end of the day, a challenge to an MAO’s reimbursement rights is really just benefits determination. Using state law as a defense does not change the fact that the claim for reimbursement arises under the Medicare Act. And furthermore, this court was not swayed by the fact that administrative exhaustion could be by-passed simply because a private entity served the public function of providing the Medicare benefits.
But that left arguments about federal preemption. Plaintiffs argued that their claims arise under state contract law and the NY anti-subrogation statute, not under the Medicare Act. The Supremacy Clause of the U.S. Constitution clearly states that where a state statute conflicts with, or frustrates, federal law, the former must give way. Furthermore, the Medicare Act contains a very broad, express preemption clause. Lastly, the Medicare Advantage secondary payer statute itself states that MA organizations may charge primary payers “[n]otwithstanding any other provision of law.” 42 U.S.C. § 1395w-22(a)(4). Whether the 3rd Circuit is correct and the MAO has a private cause of action under the MSP or not is immaterial to the question of whether the NY state statute is preempted. Plaintiffs must first exhaust all administrative remedies available under the Medicare Act before seeking redress in court.
So where does that leave us with regard to MAO recoveries in New York? With or without the Avandia decision, the NY statute contravenes the purpose of the Medicare Act provisions specifically put into place to prevent Medicare (or its private contractors) from making payments where someone else should have or has. More specifically contravening its rights to recover from individuals who actually recovered money for medical damages that Medicare did in fact pay for but who would prefer to keep it. It is not fair to the likes of Blue Cross or United Health that Medicare can recover from personal injury claims and they cannot, but private entities have the ability to adjust rates to compensate for such, whereas Medicare plans are governed by federal law. Cases like Ferlazzo were decided on the basis that MAOs had to subrogate under state law due to the lack of a private cause of action under the MSP, but now that the 3rd Circuit has introduced a new point of view on that issue, it appears that MAO recoveries are governed primarily by federal law even if actual policy reimbursement issues may still remain within the parameters of state law.
SYLVIA POTTS, ROLAND LYONS, AND LORETHA SMITH, individually and on
behalf of all others similarly situated, Plaintiffs, -against- THE RAWLINGS
COMPANY, LLC, INGENIX INC., EMBLEM HEALTH COMPANY LLC, HIP
OF NEW YORK, INC., OVATIONS INC., OXFORD HEALTH PLANS (NY), INC.,
and UNITEDHEALTH GROUP, INCORPORATED, Defendants.
11 Civ. 9071 (JPO)
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OFNEW YORK
2012 U.S. Dist. LEXIS 137802
September 25, 2012, Decided