NJ District Court Permits False Claims Act Suit Against Progressive to Continue
On March 1, 2016, the U.S. District Court for the District of New Jersey denied a motion to dismiss in a False Claims Act (FCA) suit against Progressive Insurance, essentially granting standing to the relators. Case involves Progressive “health first” auto policies sold online in New Jersey that caused Medicare to be billed as primary payer. New Jersey law (N.J.A.C. 11:3-14.5) requires auto insurers give policy holders the option of using their personal health insurance as the primary payer for bills resulting from an accident for a lower rate. Although the product information and application stated that it could be elected if the applicant is covered by Medicare or Medicaid, the online interface does not prevent Medicare or Medicaid recipients from electing it anyway.
In the case of the relator, Elizabeth Negron, she elected a health first policy despite her Medicare status and when injured in an auto accident, her bills were send to Progressive and denied with instructions to bill her health insurer. Two of the four providers did send bills to Medicare, of which it properly denied one and paid the other. Despite Progressive making reimbursement to Medicare, is that one payment that triggered the FCA claim.
To state a claim under the FCA, a plaintiff must show that: “(1) the defendant presented or caused to be presented to an agent of the United States a claim for payment; (2) the claim was false or fraudulent; and (3) the defendant knew the claim was false or fraudulent.” “Knowingly” is defined in the statute as a person who i) has actual knowledge of the information; (ii) acts in deliberate ignorance of the truth or falsity of the information; or(iii) acts in reckless disregard of the truth or falsity of the information. It is not required to prove specific intent to defraud. Such knowledge can be active or constructive, meaning the defendant can act in ignorance of the truth or reckless disregard of it. This reckless disregard provision was added in a 1986 amendment and was specifically targeted at defendants who bury their heads in the sand and fail to make some inquiry into the validity of the claim. It is this amendment that will be Progressive’s main problem.
The court noted that the relator fulfilled her pleading requirements by alleging that Progressive failed to make reasonable and prudent inquiries into who the health insurance was when electing the cheaper option. Progressive could have easily asked in the application if the applicant was covered by any of the excluded coverages and the application could have automatically terminated if so checked. Instead the burden was on the applicant to know the option was not available after reading the application fine print or related marketing materials and not apply. Because Progressive acted in reckless disregard of the truth about applicant’s health insurance, this case has been permitted to proceed. FCA carries treble damages and a civil money penalty of between $5,000 to $10,000 per false claim, of which Ms. Negron as the whistleblower stands to receive between 15% to 25%. As a qui tam action, that means three times the amount of the payment plus the penalty for ever bill paid by Medicare that shouldn’t have been across all New Jersey policy holders who elected the cheaper coverage but were covered by Medicare or Medicaid. And then if this case is successful, all other insurers that write auto in New Jersey should be review their health insurance verification practices as they could be next.
From a general MSP perspective, it is important to note that the court did not care that Progressive had made reimbursement. It was the act of causing the overpayment that gives rise to this suit. The one saving grace for nongroup health MSP applications that was pointed out through case law analysis is that the obligation to make payment had to exist at the time the claim was submitted to Medicare in order for it to be false. Medicare making conditional payments is permissible if there is really a coverage dispute as liability does not set in until settlement, judgment, award or other payment. But if liability is undeniable and the practice of disputing claims more a tactic to delay payments, then the FCA should be seriously considered. In the two recent FCA cases brought against just about the entire P&C industry for alleged settlement practices that shift the burden of payments to Medicare, both incidentally recently dismissed with prejudice as to the relators, neither pinpointed an actual payment that was erroneously made by Medicare. For the FCA to attach, the government must actually suffer an identifiable economic loss. So the lesson here is basically to be cautious of wait for Medicare to catch you then make reimbursement strategies because while that would alleviate MSP exposures, there may still the FCA to consider.
ELIZABETH NEGRON, Relator/Plaintiff, v. PROGRESSIVE CASUALTY INSURANCE CO., et al., Defendants.
Civ. No. 14-577(NLH/KMW)
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY
2016 U.S. Dist. LEXIS 24994
March 1, 2016, Decided