In most states, the most famous exception being Louisiana, there’s no such thing as a “direct action” against aninsurance company by the allegedly injured person. That means that X (or someone claiming throughX), who was allegedly injured by Y, cannot sue Z, who is Y’s liability insurer.
Well, now it appears that there may be an exception– if the injured person also happens to be a Medicare beneficiary. It’s another example of how the Medicare asSecondary Payer (“MSP”) statute is changing the law in unexpected ways.
We first got wind of this when the decision, MichiganSpine & Brain Surgeons, PLLC, , v. State Farm Mutual Automobile InsuranceCo., 2013 U.S. Dist. Lexis 17721 (E.D. Mich. Feb. 11, 2013), showed up,more or less by accident, in one of the ongoing searches we use to stay abreastof drug/device developments, Apparently, however, the more important decision wasover a year ago in Bio-Medical Applications, Inc. v. Central States Health& Welfare Fund, 656 F.3d 277 (6th Cir. 2011).
Here’s what’s going on.
In both Bio-Medical and Michigan Spine,the plaintiffs were health care providers who provided medical services topersons who had health insurance provided by the defendants. Well, one of the things we all know and loveabout health insurers is their endlessly creative ways of denyingcoverage. In Bio-Medical, thedefendant insurer had written its policy so that its benefits terminated themoment that the beneficiary also became eligible for Medicare. 656 F.3d at 280. In Michigan Spine, the denial ofcoverage was due to “pre-existing condition.” 2013 U.S. Dist. Lexis 17721, at *2.
In both Bio-Medical (by design) and MichiganSpine (by happenstance) the results of the denials of coverage was that thehealth care costs in question were picked up by Medicare. 656 F.3d at 281; 2013 U.S. Dist. Lexis 17721,at *2. In Bio-Medical, at least,the health care provider plaintiff also received a lower reimbursement from Medicarethan had would have been the case had the private insurer not deniedcoverage. 656 F.3d at 281.
But turnabout, under MSP, is evidently fairplay. The health care providers who werestiffed by the insurer denials turned around and brought suit against thoseinsurers as private plaintiffs under the MSP. The question, particularly in Bio-Medical, is whether they hadstanding (the right) to do that under the Act. First, the court in Bio-Medical held that the insurance provisionin question – terminating benefits due to Medicare eligibility – was blatantlyillegal:
[The insurer] would have us completely emasculate theAct. If private plans could terminatecoverage whenever a planholder became entitled to Medicare, then private plansoften would do just that, thereby forcing Medicare to bear the full burden byitself. Medicare would not be the secondary payer; it would be the onlypayer. . . . Applying thelaw to this case, [the insurer] violated the Act by terminating the patient'scoverage.
656 F.3d at 283 (emphasis original).
The question then became, could the plaintiff – ahealth care provider that not only wasn’t paid but subjected to self-help(offsets) by the illegally operating insurer – do anything about it.
The Sixth Circuit held that health care providerswho would otherwise have been reimbursed by the defendant insurer could bringMSP claims. The private right of actionwas in the passive voice:
There is established a private cause of action fordamages (which shall be in an amount double the amount otherwise provided) inthe case of a primary plan which fails to provide for primary payment (orappropriate reimbursement). . . .
Id. at 284 (quoting 42 U.S.C. §1395y(b)(3)(A)).
There follows a lot of MSP-related mumbo jumboproviding the technical basis for the court’s decision, but the bottom line isthat the insurer’s counterarguments proved too much, “if a primary plan’s [thatis to say, the insurer in this instance] violation . . . is necessaryfor a party to prevail on the private cause of action, then the private causeof action is rendered inoperative.” 656F.3d at 286. The court refused tonullify the private action by accepting the defendant insurer’s reading. Id.
There follows more mumbo-jumbo about the MSP’s“demonstrated responsibility” provision (which according to the opinion, hassince been amended to solve the problem). Suffice it to say that the court in Bio-Medical held that an MSPprivate plaintiff need not do so before ever bringing suit. Thus, the stiffed medical services providercould sue the insurer who stiffed it under MSP – including for double damages:
The meaning of our holding and the regulation for theinstant case is that the “demonstrated responsibility” provision does not bar [theprovider’s] lawsuit against [the insurer]. [It]is a traditional insurer, not atortfeasor. A nd the “demonstrated responsibility” provision places a conditionprecedent only on lawsuits against tortfeasors. . . . A healthcare provider . . . neednot first demonstrate the responsibility of a private insurer . . . before bringing a lawsuit for double damagesunder the Act’s private cause of action. It need not first sue and win, in order to sueagain.
656 F.3d at 291.
Michigan Spine, decided by a federaldistrict court bound by the Sixth Circuit’s prior decision, did basically thesame thing, except that the health care provider more or less lucked into thelawsuit. The denial of coverage was forreasons unrelated to Medicare, and due to the patient’s age, Medicare steppedin. 2013 U.S. Dist. Lexis 17721, at*6. That didn’t make a difference:
[The defendant insurer] also contends that Bio-Medicalis distinguishable because the patient/insured in that action assigned herrights under the insurance plan to . . . the medical care pro-vider. . . . Nowhere in that case does it suggest that itwas intended only to apply to medical service providers who are assigned rightsunder an insurance contract.
Id. at *15-16.
OK, back to our original point – directactions. We don’t see anything in the“there shall be” phrasing of the MSP statute that limits standing in suits of thisnature to health care providers who are stiffed by insurers. If the end result is that Medicare picks upthe bill as a result of a coverage denial, then why couldn’t anybody sue? And if the “demonstrated responsibility”provision doesn’t apply to “private insurers,” then why couldn’t X sue Z,provided that Medicare paid X’s bills after Z refused? Possibly the “tortfeasor” language in Bio-Medicalwould cut that off, but Y would be the tortfeasor, not Z.
We can’t say whether Congress intended, in enactingand then amending the MSP, to create a direct action statute againsttraditional insurers, but under Bio-Medical, that seems to be the waythings are headed.
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