Florida Federal District Court Finds Med-Pay Policy Proves Primary Payer Responsibility and Allows MSP Private Cause of Action for Double Damages

On March 15, 2017, the United States District Court for the Southern District of Florida published its opinion on MSPA Claims I v. Century Surety Company, concluding that based on the USCA 11th Circuit opinions MSP Recovery, LLC v. Allstate Insurance Co., and Humana Medical Plan, Inc. v. Western Heritage Insurance Co., MSPA Claims I, an assignee of a Medicare Advantage Plan (MAP), has the right to recover medical expenses the MAP paid on behalf of one of its enrollees from Century Surety Company, the liability insurer that issued a commercial liability insurance policy with a Med-Pay clause. The court finds that MSPA Claims I has a private cause of action under the Medicare Secondary Payer Act (MSPA), as Century Surety is responsible for the payment of the medical expenses based on the existence of the Med-Pay policy and its denial in reimbursing same.

Facts of Case

Plaintiff, MSPA Claims I, LLC, is the assignee of Florida Healthcare Plus (FHCP). FHCP is a Medicare Advantage Organization (MAO) and a participant in the Medicare Program pursuant to a MAP. FHCP contracted with the Centers for Medicare & Medicaid Services (CMS) to provide Medicare benefits to eligible members enrolled in FHCP's Medicare Advantage health plan under part C of the Medicare Act. Defendant, Century Surety Company, is an insurance company that issues commercial general liability insurance policies that contain Med-Pay benefits provisions. Med-Pay is no-fault insurance that pays medical expenses for injuries sustained on the insured property or premises. Under the MSPA, Defendant is considered the primary payer for any medical bills arising from an injury incurred by an individual on property insured by Defendant.

On April 20, 2013, an enrollee in FHCP's MAP (Enrollee) was injured in an accident that occurred on property insured by Defendant. At the time of the accident, Enrollee was a member of a MAP managed by FHCP. Under the Plan, FHCP's obligations are secondary to other available insurance plans. Enrollee received medical services, treatment, and supplies for the injuries incurred in the April 20, 2013, accident. Despite its status as secondary payer, FHCP was charged for Enrollee's medical services incurred as a result of the accident. After determining that the medical charges submitted were for medically necessary procedures and services, FHCP rendered payments for the treatment and services Enrollee received as a result of the accident.

Pursuant to its contract with CMS, FHCP paid a total of $2,982.00. Defendant was aware of its obligations, Enrollee's injuries, and the medical services and supplies provided to Enrollee but failed to pay for the medical services and supplies or to reimburse the secondary payer, FHCP.

Plaintiff’s Claim and Defendant’s Position

A primary plan's failure to pay for medical expenses for which it is responsible, or its failure to reimburse CMS for any payments made on behalf of a beneficiary, vests CMS with a direct right of action against the primary plan. Plaintiff maintains that FHCP, and now Plaintiff as FHCP's assignee, has the same rights as CMS to pursue recovery from a primary plan. Plaintiff also maintains that it can recover payments from a primary plan based on theories of legal and equitable subrogation and as a third party beneficiary. Thus, Plaintiff brings five causes of action: (1) a private cause of action for double damages under 42 USC 1395y(b)(3)(A); (2) breach of contract for failure to pay Med-Pay benefits; (3) breach of contract for failure to pay Med-Pay benefits based on conventional subrogation; (4) breach of contract for failure to pay Med-Pay benefits based on equitable subrogation; and (5) breach of contract for failure to pay Med-Pay benefits based on conventional subrogation arising from third-party beneficiary rights. Each count of the Amended Complaint seeks attorneys' fees pursuant to Florida Statutes, section 627.428. Additionally, Plaintiff alleges a putative class of similarly situated Medicare Advantage Organizations. Defendant's motion seeks to dismiss all counts, the class allegations, and the requests for attorneys' fees.

Court’s Decision and Discussion

Defendant's motion seeks to dismiss every count of the Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). Essentially, Defendant seeks to dismiss Counts I through IV on the basis that Plaintiff's theories of recovery are not supported by the law. After briefing was complete on the motion to dismiss, the Eleventh Circuit issued two opinions that resolve the issues raised in Defendant's motion in relation to Counts I through IV. As the court sets out below, those decisions affirm the underlying theories of recovery that form the bases of Counts I through IV and, consequently, the motion to dismiss is denied as to these counts. Regarding Count V, however, the court indicates that while it is based on a potentially viable theory of recovery, it has not been adequately pled and, therefore, is dismissed with leave to replead. Additionally, the court finds that Plaintiff's claims for attorneys' fees are not supported by the law and are dismissed. The Court also denies the motion to dismiss the class allegations in order to have the issues more fully briefed at the class certification stage.

The Motion to Dismiss Count I is Denied

Defendant seeks to dismiss Count I of the Amended Complaint because Plaintiff has failed to satisfy a condition precedent to a claim for double damages under the MSPA at 42 USC 1395y(b)(3)(A). Specifically, Defendant maintains that Plaintiff has failed to demonstrate that Defendant is liable for Enrollee's medical costs. Defendant relies on several district court cases from this district that hold that liability for medical costs can only be demonstrated by a separate adjudication or agreement. However, after the briefing in this case, the Eleventh Circuit addressed this issue and held that "a contractual obligation may serve as sufficient demonstration of responsibility for payment to satisfy the condition precedent to suit under the MSPA." MSP Recovery, LLC v. Allstate Insurance Co., 835 F.3rd1351,1361 (11th Cir. 2016). Therefore, the court finds that a plaintiff sufficiently pleads satisfaction of the condition precedent if a plaintiff has alleged that the defendant's valid insurance contract renders the defendant responsible for the primary payment of the plaintiff's medical expenses. The court therefore concludes that since Plaintiff has sufficiently pled facts to satisfy the condition precedent, Defendant's motion to dismiss Count I was denied.

The Motion to Dismiss Count II is Denied

Defendant seeks to dismiss Count II of the Amended Complaint because 42 CFR 411.24(e) does not create a private cause of action and there is no private cause of action in the MSPA. Subsequent to the filing of the Motion to Dismiss, the Eleventh Circuit decided Humana Medical Plan, Inc. v. Western Heritage Insurance Co., 832 F.3rd 1229 (11th Cir. 2016). The Humana Court held that "an MAO may avail itself of the MSPA private cause of action when a primary plan fails to make primary payment or to reimburse the MAO's secondary payment." Therefore, the court finds that contrary to Defendant's assertions, an MAO, such as FHCP, does have a private cause of action under the MSPA. The court therefore concludes that Plaintiff, FHCP's assignee, does have a private cause of action under the MSPA. Consequently, the motion to dismiss Count II was denied.

The Motion to Dismiss Counts III and IV is Denied

Defendant moves to dismiss Counts III and IV, for "conventional subrogation" and "equitable subrogation," based on Plaintiff's failure to adequately allege that the contract between FHCP and Enrollee contains a subrogation clause. However, as Plaintiff plead in the Amended Complaint, FHCP's plan includes a clause titled "Evidence of Coverage," which states: “we have the right and responsibility to collect for covered Medicare services for which Medicare is not the primary payer. According to CMS regulations at 42 CFR sections 422.108 and 423.462, FHCP, as a Medicare Advantage Organization, has the right to exercise the same rights of recovery that the Secretary exercises under CMS regulations in subparts B through D of part 411 of 42 CFR and the rules established in this section supersede any State laws.” The court therefore denied the motion to dismiss Plaintiff's subrogation claims, Counts III and IV.

The Motion to Dismiss Count V is Granted With Leave to Amend

In order to sue Defendant for breach of its contract with its insured, Plaintiff must establish that it is a third party beneficiary of that contract. Here, the court rules that Plaintiff has not pled this theory in its Amended Complaint. Nor has it pled any facts that would show that the medical providers are intended third party beneficiaries of Defendant's policy with its insured. Thus, the court concludes that Plaintiff has failed to allege a necessary element of its claim: that it is an intended third party beneficiary of the contract that was allegedly breached, the contract between Defendant and its insured. Consequently, the court grants the motion to dismiss as to Count V with leave to amend.

The Motion to Dismiss the Class Allegations Is Denied

Defendant maintains that, as a matter of law, Plaintiff's claims are not appropriate for class action treatment and, therefore, Plaintiff's class action allegations should be dismissed. Plaintiff responds that it is premature to address the class allegations at this stage of the proceedings and that it is more appropriate to deal with the class allegations at the class certification stage of the litigation. The court finds that because the evidentiary record has not yet been developed, the court cannot yet make a rigorous analysis. Therefore, the court denied the motion to dismiss the class allegations without prejudice.

Plaintiff's Request for Attorneys' Fees

Defendant moved to dismiss Plaintiff's request for attorneys' fees pursuant to Florida Statutes, section 627.428, which are included in every count. Defendant argued that Plaintiff does not have rights under section 627.428, which states, in relevant part: “upon the rendition of a judgment or decree by any of the courts of this state against an insurer and in favor of any named or omnibus insured or the named beneficiary under a policy or contract executed by the insurer, the trial court or, in the event of an appeal in which the insured or beneficiary prevails, the appellate court shall adjudge or decree against the insurer and in favor of the insured or beneficiary a reasonable sum as fees or compensation for the insured's or beneficiary's attorney prosecuting the suit in which the recovery is had.” Section 627.428(1), Fla. Stat.

The court indicates that under the language of the statute, only an insured or named beneficiary has rights. Defendant maintains that Plaintiff is not an insured, a named beneficiary, or the assignee of an insured. While the law is clear that an assignee of the insured may recover under section 627.428, the law is also clear that a subrogee of the insured may not recover fees under section 627.428. The court therefore concludes that since Plaintiff has not alleged that it is an assignee of the insured, Enrollee, Plaintiff is not entitled to fees under section 627.428. Consequently, the court granted the motion to dismiss Plaintiff's claims for attorneys' fees under Section 627.428.

Conclusion

As I have been warning about for a long time, Medicare secondary payer compliance has become a significant issue for all property and casualty insurers. Where historically only a settlement, judgment, award, or payment invited Medicare into your claim, now the acceptance of ongoing responsibility for medical thru mandatory insurer reporting, or as shown here, simply the existence of a no-fault policy (like med-pay, PIP, or work comp) is sufficient to prove an insurer’s MSP responsibility to reimburse CMS, MAPs, PDPs, medical providers, claimants or their estates. As the responsible primary payer, should your insurer fail to reimburse any of these entities, then any of these may file suit under the MSPA and seek double damages against your insurer. To prevent this, every insurer must build a robust and comprehensive MSP compliance program that ties in mandatory insurer reporting with conditional payment resolution. Or find a partner that focuses solely on this particular challenge and is able to build a personalized compliance program that identifies the existence of such conditional payments early in the claims process, advocates on your behalf with CMS, MAPs, PDPs, medical providers, claimants or their estates, and is able to resolve such conditional payments before they rise to MSP private causes of action for double damages.

ABOUT THE AUTHOR

Rafael Gonzalez, Esq. serves as president and chief legal counsel of Flagship Services Group, a Medicare and Medicaid compliance company providing property and casualty insurers with mandatory reporting, conditional payment, and set aside allocation services. He has over 30 years experience in the auto, liability, no-fault, and work comp insurance industry, specializing in Medicare Secondary Payer compliance. Rafael earned his BS degree from the University of Florida, and his JD degree from the Florida State University.

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