In a case with far-reaching implications, the Eleventh Circuit Court of Appeals issued an opinion concluding that the Medicare Secondary Payer Act (MSP) permits a private insurance company/PART C Medicare Advantage Organization (MAO) to sue a tortfeasor’s insurance carrier for reimbursement of medical expenses incurred by the MAO, and allowing a recovery of double its damages as a private party. 

In Humana Medical Plan, Inc. v. Western Heritage Insurance Company (D.C. Docket 1:12-cv-20123-MGC), Ms. Reale (a Medicare PART C beneficiary) and her husband sued Hamptons West Condominium Association (insured by Western Heritage) for personal injury damages.  Western Heritage negotiated the settlement with Ms. Reale, and during the consummation of the settlement, Ms. Reale’s MAO, Humana, issued Ms. Reale a determination that it was entitled to reimbursement for $19,155.41 for medical charges covered by Humana as a secondary payor under the MSP. 

Learning of the reimbursement obligation, Western Heritage attempted to name Humana on the settlement check.  The Florida state trial court hearing the tort action, however, ordered Western Heritage to issue a check to the Reales for the total amount of the settlement.  Thereafter, the parties stipulated that while Humana would not be a payee on the check, Reales’ attorney would hold the $19,155.41 in trust, pending resolution of the Reales’ litigation with Humana over the proper reimbursement amount.  Rather than pursue the administrative appeal process, the Reales sought clarification from the state trial court regarding the amount owed to Humana.[1]

Applying Florida law regarding collateral indemnity and subrogation, the trial court eventually held that Humana was only entitled to $3,685.03 of its demanded$19,155.41. Humana then directly sued Western Heritage for double the $19,155.41 pursuant to the private cause of action provided under 42 U.S.C. §1395y(b) of the MSP). 

The Eleventh Circuit concluded that pursuant to the MSP, an MAO like Humana has the same status as Medicare as a secondary payer to a primary plan with the same rights to reimbursement. Accordingly, rather than having to pursue its right to reimbursement as CMS might, the court also held that an MAO such as Humana could pursue its right to reimbursement as a private party pursuant to the private cause of action provided for in 42 U.S.C. Sec. 1395y(b)(3)(A).

In addition, notwithstanding Western Heritage’s efforts to ensure reimbursement to Humana in the tort action, the court held that Western failed to provide for primary payment or appropriate reimbursement when they paid the entire settlement amount to Ms. Reale.  While admitting that the MSP private cause of action did not describe what constituted “appropriate reimbursement” or how to provide therefor, the court robotically ruled that the MAO was entitled to payment as demanded within 60 days notwithstanding the reimbursement already paid to Ms. Reale citing 42 C.F.R. 411.24(i)(1).  Thus, 60 days after Western tendered the settlement to the Reales and their attorney, because no party had reimbursed Humana, Western became obligated to pay double damages directly to Humana pursuant to the MSP’s private cause of action provision.  See 42 U.S.C. Sec. 1395y(b)(3)(A).

After Humana v. Western Heritage, there is no truly safe way to resolve a case involving a Medicare or Medicare Advantage beneficiary without the carrier making a direct payment in the total amount demanded by the MAO within 60 days of settlement.  MAO’s now have a double damage incentive to pursue primary payors instead of their insureds for Medicare Plan C reimbursement.  Accordingly, insurers and their counsel must be extremely cautious in resolving claims involving MAO reimbursement claims, and should make sure plaintiff’s counsel is aware of the ramifications of the MAO’s interests on potential settlements as soon.