In most states, the most famous exception being Louisiana, there’s no such thing as a “direct action” against an insurance company by the allegedly injured person. That means that X (or someone claiming through X), 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 as Secondary Payer (“MSP”) statute is changing the law in unexpected ways.
We first got wind of this when the decision, Michigan Spine & Brain Surgeons, PLLC v. State Farm Mutual Automobile Insurance Co., 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 abreast of drug/device developments, Apparently, however, the more important decision was over 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 to persons who had health insurance provided by the defendants. Well, one of the things we all know and love about health insurers is their endlessly creative ways of denying coverage. In Bio-Medical, the defendant insurer had written its policy so that its benefits terminated the moment that the beneficiary also became eligible for Medicare. 656 F.3d at 280. In Michigan Spine, the denial of coverage was due to “pre-existing condition.” 2013 U.S. Dist. Lexis 17721, at *2.
In both Bio-Medical (by design) and Michigan Spine (by happenstance) the results of the denials of coverage was that the health 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 Medicare than had would have been the case had the private insurer not denied coverage. 656 F.3d at 281.
But turnabout, under MSP, is evidently fair play. The health care providers who were stiffed by the insurer denials turned around and brought suit against those insurers as private plaintiffs under the MSP. The question, particularly in Bio-Medical, is whether they had standing (the right) to do that under the Act. First, the court in Bio-Medical held that the insurance provision in question – terminating benefits due to Medicare eligibility – was blatantly illegal:
[The insurer] would have us completely emasculate the Act. If private plans could terminate coverage whenever a planholder became entitled to Medicare, then private plans often would do just that, thereby forcing Medicare to bear the full burden by itself. Medicare would not be the secondary payer; it would be the only payer. . . . Applying the law to this case, [the insurer] violated the Act by terminating the patient’s coverage.
656 F.3d at 283 (emphasis original).
The question then became, could the plaintiff – a health 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 providers who would otherwise have been reimbursed by the defendant insurer could bring MSP claims. The private right of action was in the passive voice:
There is established a private cause of action for damages (which shall be in an amount double the amount otherwise provided) in the case of a primary plan which fails to provide for primary payment (or appropriate reimbursement). . . .
Id. at 284 (quoting 42 U.S.C. §1395y(b)(3)(A)).
There follows a lot of MSP-related mumbo jumbo providing the technical basis for the court’s decision, but the bottom line is that the insurer’s counterarguments proved too much, “if a primary plan’s [that is to say, the insurer in this instance] violation . . . is necessary for a party to prevail on the private cause of action, then the private cause of action is rendered inoperative.” 656 F.3d at 286. The court refused to nullify 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, has since been amended to solve the problem). Suffice it to say that the court in Bio-Medical held that an MSP private plaintiff need not do so before ever bringing suit. Thus, the stiffed medical services provider could sue the insurer who stiffed it under MSP – including for double damages:
The meaning of our holding and the regulation for the instant case is that the “demonstrated responsibility” provision does not bar [the provider’s] lawsuit against [the insurer]. [It]is a traditional insurer, not a tortfeasor. And the “demonstrated responsibility” provision places a condition precedent only on lawsuits against tortfeasors. . . . A healthcare provider . . . need not first demonstrate the responsibility of a private insurer . . . before bringing a lawsuit for double damages under the Act’s private cause of action. It need not first sue and win, in order to sue again.
656 F.3d at 291.
Michigan Spine, decided by a federal district court bound by the Sixth Circuit’s prior decision, did basically the same thing, except that the health care provider more or less lucked into the lawsuit. The denial of coverage was for reasons unrelated to Medicare, and due to the patient’s age, Medicare stepped in. 2013 U.S. Dist. Lexis 17721, at 6. That didn’t make a difference:
[The defendant insurer] also contends that Bio-Medical is distinguishable because the patient/insured in that action assigned her rights under the insurance plan to . . . the medical care pro-vider. . . . Nowhere in that case does it suggest that it was intended only to apply to medical service providers who are assigned rights under an insurance contract.
Id. at *15-16.
OK, back to our original point – direct actions. We don’t see anything in the “there shall be” phrasing of the MSP statute that limits standing in suits of this nature to health care providers who are stiffed by insurers. If the end result is that Medicare picks up the 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-Medical would cut that off, but Y would be the tortfeasor, not Z.
We can’t say whether Congress intended, in enacting and then amending the MSP, to create a direct action statute against traditional insurers, but under Bio-Medical, that seems to be the way things are headed.