Medicare Advantage Claims Under MSP Preempt Arizona’s Anti-Subrogation Doctrine

Medicare Set-Aside Blog, MSP Litigation on February 18, 2014
Posted by Kimberly Wiswell

In the ongoing evolution of case law concerning Medicare Advantage Plans and their recovery rights under the Medicare Secondary Payer Act (MSP), the Supreme Court of Arizona has determined that a Medicare Advantage plan may recover medical expenses from its enrollees’ personal injury settlements despite Arizona’s anti-subrogation doctrine, a common law doctrine that bars the subrogation or assignment of personal injury claims [see generally State Farm Fire & Cas. Co. v. Knapp, 107 Ariz. 184, 484 P.2d 180 (1971); Allstate Ins. Co. v. Druke, 118 Ariz. 301, 576 P.2d 489 (1978)]. This result was reached on appeal in a 2007 suit for nursing home abuse and neglect filed under Arizona’s Adult Protective Services Act and beneficiaries’ claims under the Arizona’s wrongful death statute which settled for $1.2 million. Despite seeking damages specifically for the decedent’s medical expenses, plaintiffs alleged that the Medicare Advantage Organization (MAO) that paid for said treatment was not entitled to reimbursement under this common law doctrine. The MAO of course argued that the MSP preempts common law.

In determining whether Congress intended for the MSP to preempt state common law, the court acknowledged than an MAO does not possess the same reimbursement rights as traditional Medicare, but is required to to seek reimbursement pursuant to 42 U.S.C. 1395w-22(a)(4) when other coverage is available. It is also important to note that the MSP provides an express preemption clause, stating that “[t]he 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.” [see 42 U.S.C.A. § 1395w-26(b)(3)]. In furtherance of these statutes, there are also several regulations on point, specifically 42 C.F.R. 422.108(f) and 422.402. However because the statute only mentions laws and regulations and not common law, plaintiffs continued to argue that preemption did not apply but the court was not persuaded. The court focused analysis on the use of the word ‘any’ in conjunction with law or regulation and inferred that limiting preemption to only positive enactments would contradict Congress’ use of such a broad term. Furthermore, because the regulations created by the Secretary expressly enumerated exceptions to state laws superseded to include licensing and laws related to plan solvency, as well as all state standards including those established through case law, it was clear to the court that the MSP was meant to supersede state common law.

Note that this decision is consistent with similar conclusions arrived at in New York with regard to application to its anti-subrogation statute. The analysis there was slightly different in that it involved an actual law rather than common law, but more specifically that law’s express exemption for statutory recoveries. Because Medicare Part C does not possess the same recovery rights as traditional Medicare, the argument was that it was not to be afforded the exemption. Although MAOs are unquestioningly not entitled to bring a private cause of action under 42 U.S.C. 1395y(b)(2)(B)(iii), they are statutory secondary payers and entitled to some form of reimbursement and all of the New York decisions arrived at the conclusion that the plain language of the Part C preemption provision and CMS regulations clearly supported federal preemption.

While this decision does not finally determine if an MAO can bring a private cause of action under the MSP, it does further solidify the MSP’s position with regard to federal preemption. Federal law as a general proposition does supersede state law, however it also does not create coverage where none previously existed. State law will generally dictate compensability, meaning that reimbursement obligations will ultimately be controlled by state law. However state law cannot frustrate federal law, therefore state laws that purposefully interfere with federal reimbursements will likely not survive. Medicare, or its private sector counterpart, will ultimately be reimbursed and less energy should be spent trying to circumnavigate that fact. It is the nature and extent of that reimbursement that we need to spend more time getting CMS to understand and apply to its reimbursement demands.


No. 1 CA-CV 12-0740
2014 Ariz. App. LEXIS 23
February 13, 2014, Filed