Mary Reale’s Six Year Medicare Part C Saga Continues

Medicare Set-Aside Blog, MSP Litigation on December 3, 2015
Posted by Jennifer Jordan, JD, MSCC

In the ongoing saga as to whether Medicare Advantage actually has the same recovery rights as the federal government when it comes to Medicare conditional payments, the Court of Appeals of Florida has determined that the underlying state court in Humana v. Reale lacked subject matter jurisdiction in determining an MAO’s reimbursement rights. This decision is not surprising given that section 405(h) of the Medicare Act contains an express preemption provision that provides that no decisions of the Secretary shall be reviewed by any person, tribunal or governmental agency other than those provided in the Act (note that MAOs have the same rights as the Secretary with regard to recoveries pursuant to 42 CFR 422.108). The opinion is also consistent with the cases coming out of Delaware, New York and Arizona finding that their collateral source statutes also did not apply to Medicare recoveries. Unfortunately vacating the underlying court’s apportionment of the plaintiff’s recovery, compromising Humana’s recovery, returns us to the place where MAOs are benefiting from recovery rights in the federal courts not entirely consistent with express statutory and regulatory provisions. However the dissent sheds much needed light on the fact that the questionable behavior of MAOs in their recovery efforts needs to be addressed by CMS. Furthermore, Judge Salter’s extensive citation of the section in my William Mitchell Law Review article highlighting the express language governing MAO recovery rights compared to those of the federal government, also generally calls into question the recovery rights under the Medicare Act of these private insurers.

For those unfamiliar with Mrs. Reale’s six year saga, she fell at the Hamptons West Condominiums in January 2009 and sustained injuries resulting in $19,155.41 of related medical expenses paid by Humana. To this day, despite the money sitting in escrow, no reimbursement has ever been made while the parties continue to engaged in the most convoluted litigation ever under the Medicare Secondary Payer Act. Originally Humana sued Mrs. Reale in May 2010 and was originally dismissed on the basis that the MSP does not provide a private cause of action under the MSP for Medicare Advantage Organizations (MAOs). While I believe that opinion to still be one of the most accurate judicial analysis of MAO recovery rights under the MSP, the 3rd Circuit Could of Appeals subsequently broadened MAO recovery rights in In Re Advandia in an opinion that remains unchallenged to date. However, by then Humana had dropped the suit against Mrs. Reale personally and instead started pursuing the condo’s insurer, Western Heritage, for double damages in January 2012. In March 2015, the US District Court found that Humana could maintain a private cause of action for double damages against Western Heritage, which was appealed and that suit is ongoing. Meanwhile Mrs. Reale sought a declaratory judgment against Humana in state court, challenging its recovery rights under the Florida subrogation and collateral source statutes. Humana moved for summary judgment on the basis that 1) administrative remedies were not exhausted, 2) federal preemption, and 3) the collateral source rule does not apply to Medicare claims. The circuit ordered summary judgment in October 2012, finding that state subrogation law applied and apportioned the total settlement to reflect that Mrs. Reale received a third of the full value of her claim and reduced Humana’s recovery to $3,685.03 after further adjusting for procurement costs. Humana timely appealed and on December 2, 2015, the circuit court opinion was vacated and remanded to be dismissed for lack of subject matter jurisdiction.

There is no doubt that claims involving Medicare benefits are going to have exclusive federal jurisdiction. Where the Reales first went wrong was making the leap from MAOs not having a private cause of action under the MSP to that somehow meaning that state court would be the appropriate jurisdiction. They then attempted to label the issue a “grievance” rather than a response to an “organizational determination” to again bypass the administrative remedy requirements, however again both still arise under the Medicare Act and never default to state jurisdiction. Lastly they attempted to claim that Humana waived the administrative remedy by suing first, but that still doesn’t suddenly make it a state court issue since still federal law. Medicare Advantage is still Medicare governed by the Medicare Act and as such, any related issues would be federal questions. Case law precedent has demonstrated that any issues with regard to Medicare benefits, regardless of who provided them, will arise under the Medicare Act no matter how creatively the complaint is crafted. As to the state law subrogation and collateral source claims, the express unambiguous federal preemption provision speaks for itself. So despite its six years in the making, this opinion is not surprising an should have been arrived at long ago. Unfortunately for Mrs. Reale (or technically her attorney by separate agreement), that means her money remains in escrow.

However the dissent does provide this opinion value in Judge Salter’s emphasis of the improper behavior of the MAOs in their recovery efforts, demonstrating that MAOs generally behave like the private insurers that they are rather than operating within the limits of the Medicare Act. Pursuant to 42 CFR 422.566, Mrs. Reale should have received, but never did, an organizational determination that would have advised her of her administrative remedies. Instead she received a letter from an attorney for Humana offering to negotiate her lien to avoid costly litigation, which it then initiated. Humana later decided against pursuing an elderly woman and instead shifted its focus to the deep pocket for twice the amount. And all of this was done without much regard to express regulations governing Medicare Advantage Organizations when providing Medicare benefits. Compounded by the questionable equality of recovery rights granted by Congress to MAOs as opposed to the federal government, this case shows that CMS desperately needs to reign in its Medicare Advantage providers and ensure that they are following the statutes and regulations that govern the Medicare Part C program. And if those statutes and regulations are not clear or in need of change, then that is a matter for Congress and not the federal courts.

Humana Medical Plan, Inc., Appellant, vs. Mary Reale, et al., Appellees.
2015 Fla. App. LEXIS 17999
December 2, 2015, Opinion Filed