Beware of the Power of the “MAO” or Be Ready to Pay Three Times

Recently, in Humana Med. Plan, Inc. v. W. Heritage Ins. Co., 26 Fla. L. Weekly Fed. C591 (11th Cir. 2016), the United States Court of Appeal for the Eleventh Circuit held, in a case of first impression, that the Medicare Secondary Payer Act (“MSP”) allows a Medicare Advantage Organization (“MAO”) to assert a private cause of action against a tortfeasor’s liability insurer for reimbursement for secondary payments. In this case, Humana, a Medicare insurance carrier, brought suit against Western Heritage, who provided liability insurance for a tortfeasor, seeking reimbursement for payments Humana made on behalf of the plaintiff/enrollee, Mary Reale, after she was injured. While Western Heritage was negotiating a settlement with Reale in her personal injury action, Humana, an MAO, advised that it was entitled to $19,155.41 as reimbursement for covered medical charges as a secondary payor under the MSP.

Although Western Heritage attempted to add Humana as a payee on the settlement draft, the state court judge in Reale’s personal injury case ordered Western Heritage to tender full payment without the lien holder on the check and also ordered Reale’s counsel to withhold sufficient funds in a trust account to resolve all of the medical liens. Western Heritage issued full payment of the settlement under the terms of the state court’s order with the understanding that Reale and her attorney would reimburse Humana. Reale disputed the amount of the reimbursement claim and filed suit against Humana in state court, bypassing Humana’s administrative appeal process. While this litigation was pending, Humana sued Western Heritage in federal court, seeking double the $19,155.41, under the private cause of action provided for by the MSP. After a federal district court entered summary judgment for Humana, Western Heritage appealed.

The Eleventh Circuit affirmed and held that the MSP allows an MAO to bring a private cause of action against a tortfeasor’s liability insurer seeking reimbursement for secondary payments. The court reasoned that, under the MSP, an MAO has the same status as Medicare with the same rights to reimbursement. Consequently, the Eleventh Circuit concluded that an MAO can pursue its right of reimbursement as a private party pursuant to the private cause of action provided for in the MSP, 42 U.S.C. Sec. 1395. Further, despite Western Heritage’s efforts to ensure reimbursement to Humana in the state court personal injury action, the Eleventh Circuit held that Western Heritage nevertheless failed to provide for primary payment or appropriate reimbursement when it paid the entire settlement amount to Reale. While acknowledging that the MSP private cause of action does not define appropriate reimbursement, the court nonetheless held that Humana, as the MAO, was entitled to payment within sixty days of its demand, despite the reimbursement already paid to Reale. As a result, sixty days after Western Heritage paid the settlement to Reale, because no one reimbursed Humana, Western Heritage was subject to direct liability to Humana for double damages pursuant to the MSP’s private cause of action provisions.

In the aftermath of this decision, insurers and their counsel should be extra cautious in resolving cases involving MAO reimbursement claims, and should try to ensure that all parties are aware of the consequences of an MAO’s interests in the proceeds of any settlement. Otherwise, as this case demonstrates, it could prove costly.

If you have any questions or need further information about the above, please contact our appellate and insurance coverage division at info@kubickidraper.com. This group offers our clients over 175 years of combined appellate experience and the legal insight born of literally thousands of appeals and involvement in hundreds of insurance coverage disputes.