Humana Testing the National Waters for MAO Recoveries

Commentary, Medicare Set-Aside Blog, MSP Litigation on July 24, 2013
Posted by Jennifer Jordan, JD, MSCC

As the great debate over what recovery rights Medicare Advantage Plans possess continues, it appears that Humana is attempting to parlay its 3rd Circuit win in In re Avandia into a national standard. In July 2013, Humana and one of its holdings, Cariten Health Plan, filed four lawsuits throughout the United States against Farmers and some of its Mid-Centruy Insurance Company holdings for MSP reimbursements owed from no-fault coverage extended by the various Farmers holdings. Farmers responded to all four demands with a form letter maintained at its National Document Center that basically states that it has no legal obligation to honor third party demands because the coverage in question is a first party contract.

You will recall that in the In re Avandia appeal, the Third Circuit Court of Appeals overturned the district court opinion holding that an MAO could not bring a private cause of action under the MSP because MAOs were only granted the same powers as the the Secretary of Health and Human Services and the statute expressly bestowed that right only upon the United States in 42 U.S.C. 1395y(b)(2)(B)(iii), stating instead that the MAO can bring a private cause of action under a different section of the MSP statute, 42 U.S.C. 1395y(b)(3)(A). A private cause of action under 1395y(b)(3)(A) may be brought simply “in the case of a primary plan which fails to provide for primary payment (or appropriate reimbursement),” the only hurdle being achieving Article III standing. Unlike the medical provider in Michigan that was able to achieve standing despite not actually suffering an out-of-pocket loss given that it already accepted a Medicare conditional payment, the same for which it was seeking reimbursement on behalf of Medicare, an MAO can easily overcome standing since it made the improper payment, so a plausible way to overcome poor legislative drafting.

While I am certain that Humana is sitting on more than four cases, the initial lawsuits were filed in Tennessee, Texas, Missouri and Kansas. Tennessee has favorable MSP precedent in Bio-Medical Applications of Tenn., Inc. v. Cent. States Se. & Sw. Areas Health and Welfare Fund which gives private parties the ability to enforce the terms of the MSP without having to demonstrate responsibility for paying prior to initiating litigation. Texas on the other hand just had a Fifth Circuit Court of Appeals MSP private cause of action ruling that prioritized state workers’ compensation law over MSP recovery rights, and Farmers is arguing state contract law. While Missouri and Kansas don’t have any cases in particular that support either side, they are in different circuits so may not be random selections at all. Since we already know where the Third and Ninth circuits stand, and essentially the Second favors federal preemption in MSP matters, the outcome of theses case could give us a more complete outlook of the national picture for MAO recovery cases.

The other interesting factor of the complaints was the count for unjust enrichment. The argument is that the primary payer should not benefit from the MAO’s negotiated rates and instead should have to pay full price. Precedent lies in Phillips v. Kaiser [2011 U.S. Dist. LEXIS 80456 (7/25/11)], however that applies only when the MAO has to subrogate and Humana is arguing that it is not subrogating. But is it fair to argue unjust enrichment when asking the primary payer to not only pay more than the damages incurred, but to then double it? Seems Humana has a lot to gain if it can get that precedent established.

Of all the claims, the Texas one will be the most interesting. There has to be some merit to the idea that Farmers obligations lie only in the contract between it and its policy holder. If its policy holder was to make a claim against Farmers for the medical expenses, it would have to make payment. Farmers is only arguing that it owes no obligation to Humana, not that it didn’t have an obligation to make payment if its policy holder made a claim. Could the solution be as simple as Humana naming the Medicare beneficiary as the defendant and then let them implead Farmers? Can the MSP really create a legal obligation that was not bargained for by the contractual parties? It will be interesting to watch to see how this round turns out.


Cariten Health Plan v. Mid-Centruy Insurance Company
US District Court for the Eastern District of Tennessee, Knoxville Division
Case 3:13-cv-00417
Filed 7/17/13
Humana Insurance Co. v. Farmers Texas County Mutual Insurance Co. & Mid-Century Insurance Co. of Texas
US District Court for the Eastern District of Texas, Austin Division
Case 1:13-cv-00611-LY
Filed 7/22/13
Humana Health Plan v. Farmers Insurance Co.
US District Court for the Western District of MIssouri
Case No. 4:13-cv-730
Filed 7/22/13
Humana Health Plan v. Farmers Insurance Co.
US District Court for the District of Kansas
Case No. 13-2367-SAC-KGS
Filed 7/22/13