Standing Under 42 USC 1395y(b)(3)(A)

Medicare Set-Aside Blog on February 20, 2013
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Until recent application in Medicare Part C recoveries, the only person able to bring a private cause of action under the MSP, besides the United States, had been a Medicare beneficiary [see O’Connor v. Mayor and City Council of Baltimore, 494 F.Supp.2d 372 (2007)]. The MSP is not a qui tam statute; therefore, Article III standing must be demonstrated.  A plaintiff must show: (1) an injury in fact; (2) a causal connection between the injury and the defendant’s conduct; and (3) that the injury will likely be redressed by a decision in his favor. In O’Connor, the plaintiff sued on his own behalf as a Medicare beneficiary whose workers’ compensation medical benefits were improperly denied, causing Medicare to make conditional payments which he attempted to recover from his employer in order to reimburse Medicare. For years, litigious predators like Erin Brochovich tried to bring MSP claims against random large insurers as private citizens to no avail.  The closest an outsider ever came to standing was a taxpayer seeking reimbursements because his tax dollars were used to pay for Medicare; however, even that failed to prove injury sufficient to bring a claim under the MSP. That is until now. 

I could not possibly be more disappointed with the decision by the United States District Court for the Eastern District of Michigan Southern Division in Michigan Spine and Brian Surgeons, PLLC v. State Farm Mutual Auto. Ins. Co. which permitted a claim by a medical provider against a liability insurer for recovery of PIP payments that had been denied, thus causing Medicare to make conditional payments. In order to achieve standing under Article III of the United States Constitution, the plaintiff must be able to prove injury in fact and that injury is supposed to be of his or her own personal rights. In this case, the provider made an affirmative election to accept payment from Medicare, effectively waiving its ability to recover from the patient or any other insurer. The provider was paid; therefore, it has suffered no loss, even if the PIP payments were ever proven to be improperly denied given the nature of the preexisting condition. 

Now I was deposed on this very issue for two hours yesterday, so let me tell you a few things about how a conditional payment comes into existence if you don’t already know. Pursuant to the Medicare statute, any provider that accepts Medicare must first determine if any other form of payment is available. If another source is available, it should be billed first, then if the  payment is not made in a timely fashion (defined as within 120 days), Medicare may by statute make a conditional payment. In this case, the provider has to make the election to accept the Medicare payment, settling for payment at the Medicare fee schedule. This payment is typically the lowest available, but it is guaranteed and has no contingency on the legal outcome of the insurance claim. If, however, a provider is risk tolerant and patient, he or she may instead elect to assert a lien against any potential insurance proceeds. (Most states have statutes that control that course of action.) Litigation takes a long time, so it is very likely that the Medicare billing window (365 days) will close during that process and the opportunity to accept a Medicare payment lost.  Nevertheless, if an insurance payment is made, the provider stands the chance to recover more than the Medicare fee schedule would have provided because he or she is not governed by pre-negotiated insurance rates. All this being said, the provider has no obligation to continue to chase down payment once the Medicare election has been made. The only way he or she would have a reimbursement obligation is in the event that someone else makes payment for  the same service after the Medicare payment has been accepted. So where exactly is the injury to the provider to achieve standing if they’ve already been paid???

So if you have already accepted payment and would have to make reimbursement to Medicare if you happened to prevail and obtain the payment that you were denied by the insurer before making the Medicare election, what exactly is the point of this litigation? For example, if Medicare paid $100K and you successfully recovered $200K, you give Medicare its $100K payment back and you still end up with $100K. There would be a reduction for procurement costs of course but that only benefits the attorneys. OH, BUT WAIT!  You still have the original Medicare payment in the bank. Look at that, you just got paid twice.

The court here unfortunately relied heavily upon the decision in Bio-Medical Application of Tenn, Inc. (656 F.3d 277), another MSP analysis gone horribly wrong. That was a case where the insurer terminated medical benefits upon the patient’s becoming a Medicare beneficiary, in clear violation of the Medicare statute. The provider eventually submitted its billings to Medicare while still continuing to seek payment from the insurer and eventually filed suit inclusive of an MSP claim. Because the violation of the Medicare Act had not been adjudicated yet, the insurer argued that its payment responsibility had not yet been demonstrated. The court made some wild assumptions that Congress could not possibly have created such limited legislation and surely intended providers to advocate on behalf of Medicare. It finally concluded that the limitation only applied when Medicare was filing suit against a primary plan and that no one else needed to show responsibility for payment. Interestingly, the fact that the deceased beneficiary had assigned her rights to the plaintiff was never analyzed to see if that would have been enough to achieve standing as she clearly had a right to sue over her own benefit determination. But alas, medical providers now neither have to demonstrate responsibility nor suffer an actual injury to bring claims under the MSP. Let the frivolous suing begin. 

Clearly we have lost all control over the reach of 42 USC 1395y(b)(3). The application to Medicare Advantage plans pales in comparison to this. Hopefully, the Supreme Court will see its way to granting cert in the In re Avandia case requested on December 5, 2012. While the question there is limited to whether the statute created a private cause of action for MA plans, the concept of standing clearly needs to be addressed and perhaps we can obtain some clarity as to how these provider filed suits should turn out. Until then, good luck insurers…

See the order here.