New York Plaintiffs Once Again Attempt to Avoid Medicare Part C Reimbursements and Fail

Medicare Set-Aside Blog on December 31, 2012
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Two interesting cases emerged out of the State of New York last week in which both the state and federal courts held that Medicare Part C plans do in fact have a “statutory” recovery right sufficient to preempt Section 5-335 of the New York General Obligations Law. You may recall that, in August 2011, the Supreme Court of NY in Kings County held in Ferlazzo v. 18th Avenue Hardware (929 N.Y.S.2d 690) that Medicare Advantage Organizations (MAOs) could only add subrogation rights to their policies and did not have the necessary statutory reimbursement right that Medicare Parts A and B possess; therefore, could not assert a lien or subrogation right against personal injury settlements in New York under the 2009 law. Because federal opinions in 2010 and 2011 such as Humana, Parra and Kaiser all found that the express wording of the Medicare statute grants MAOs only the powers of the Secretary of Health and Human Services, it was decided that MAOs could not establish a private cause of action under the MSP to sue for recovery. In August 2012, the 3rd Circuit Court of Appeals found that an MAO could maintain a private cause of action under a different section of the MSP and the tides turned in favor of MAO recoveries. What is interesting about last week’s cases is that they both grant MAOs recovery rights, but do so in different ways from each other as well as from the 3rd Circuit. 

In Meek-Horton, et al. v. Trover Solutions, et al., plaintiff Rebecca Meek-Horton filed suit on behalf of herself and all similarly situated Medicare beneficiaries enrolled in Medicare Advantage plans who settled New York personal injury or wrongful death insurance claims. The New York law passed in 2009 to encourage insurance settlements presumes that any such recovery does not include any compensation for medical expenses except where there is a statutory right of reimbursement; therefore, the plaintiffs felt they have no obligation to reimburse the MAO. The MAO plans disagreed and assert a statutory recovery right expressly exempted by the state law. The Court ultimately found the plaintiffs’ arguments were defeated by the plain language of the the governing statute. 42 USC 1395w-26(b)(3) expressly preempts all but a limited number of state licensing and solvency laws and the New York law in question does not fall into those categories. Furthermore, 42 CFR 422.108(f) also expressly states that “the rules established under this section supersede any State laws, regulations, contract requirements, or other standards that would otherwise apply to MA plans.” Because the plaintiffs exclusively plead their claims under the New York state law, claiming they were not seeking benefits or reimbursement for benefits so the Medicare Act did not apply, the U.S. District Court for the Southern District of N.Y. found the federal preemption sufficient to dismiss the action for failing to state a claim upon which relief could be granted.

Now, in Trezza v. Trezza, et al., Oxford Health Plans, as a non-party appellant, challenged a June 2011 order granting a plaintiff’s motion to extinguish its claim for reimbursement. The plaintiff was injured in 2005 in an automobile driven by her husband and recovered $25,000 in PIP from his auto policy and the $50,000 policy limits from the other driver. From this amount, Oxford sought $37,787.64 in reimbursement for treatment received related to the accident. Here the court found while the Medicare statute states that the MAO is a express secondary payer (42 USC 1395w-22(a)(4)), the statute provides only the ability to contractually create a right of reimbursement with their insureds; therefore, it did not have the necessary statutory recovery right needed to preempt the New York law. However, the court then went on to look at preemption alone as an issue of first impression. Referencing the Supremacy Clause of the United States, the court basically determined that it had an obligation to determine the intent of Congress. When Part C was created in 1997, it contained a preemption clause barring inconsistent state laws and regulations. The MMA of 2003 replaced that with a more comprehensive version outlined in the House of Representatives Report, particularly due to confusion in court cases at the time. This version clarifies that the Medicare Advantage program is a federal program operating under federal rules.

The 1997 preemption clause barred state laws and regulations inconsistent with the “standards” issued by CMS, a term not defined in the Medicare Act. However, the term in the context of preemption means a statutory provision or a regulation promulgated under the Act and published in the CFR. Because the Medicare statute expressly instructs the Secretary to establish by regulation other standards to carry out Part C, 42 CFR 422.108(f) provides for a preemption sufficient to defeat the New York statute. Based on the express preemption provision in 42 USC § 1395w-26(b)(3) and the regulations set forth in 42 CFR 422.108(f), the court held that N.Y. General Obligations Law § 5-335, insofar as applied to MAOs under Medicare Part C, is preempted by federal law since it would impermissibly constrain contractual reimbursement rights authorized under the “Organization as secondary payer” provisions of the Medicare Act. Furthermore, the court also agreed with a local U.S. District Court that this conclusion would be the same regardless of whether MAOs maintain a private cause of action under the MSP or not. 

So where does this leave things?  MAOs are clearly going to get their reimbursement, even in New York. The case law shows that this is so, if not by a private cause of action under 42 USC 1396y(b)(3)(A), then contractually under their plan provisions with no ability of any state statute to contravene that right. In December 2011, CMS issued a statement to all Part C and D carriers essentially telling them that they should continue to pursue their recovery rights regardless of those early court outcomes. Clearly, CMS knew more than they let on at the time. It is the right outcome as Medicare beneficiaries should not be treated differently merely because of a Part C election. If Medicare is secondary, then all beneficiaries should face the same reimbursement obligations regardless of which plan they elect. Otherwise, Part C beneficiaries would benefit from a windfall and Part A & B recipients would be doing the suing. 

Given that we’ve established that Medicare is Medicare and due its reimbursement and are on the verge of MSP reform becoming law, 2013 should focus on equitable apportionment. Regardless of all of these other issues, it is still unconscionable that Medicare refuses to compromise its recovery in the face of limited insurance such as evident in Trezza. How fast Medicare tells us that it wants all its money is irrelevant when it negates the ability to settle anyway. 

REBECCA MEEK-HORTON, et al, on behalf of themselves and all others similarly
situated, Plaintiffs, – against – TROVER SOLUTIONS, INC. D/B/A HEALTHCARE
RECOVERIES, et al, Defendants.
11 CV 6054 (RPP)
2012 U.S. Dist. LEXIS 181839
December 21, 2012, Decided
December 26, 2012, Filed

Janine Trezza, respondent, v Dana Trezza, et al., defendants; Oxford Health
Plans, et al., nonparty-appellants. (Index No. 39553/07)
2012 N.Y. App. Div. LEXIS 9000; 2012 NY Slip Op 9048
December 26, 2012, Decided