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Humana Medical Plan, Inc. v. Western Heritage Insurance Co.

United States Court of Appeals, Eleventh Circuit

January 25, 2018

HUMANA MEDICAL PLAN, INC., Plaintiff-Appellee,

         Appeal from the United States District Court for the Southern District of Florida D.C. Docket No. 1:12-cv-20123-MGC


         A member of this Court in active service having requested a poll on whether this case should be reheard by the Court sitting en banc, and a majority of the judges in active service on this Court having voted against granting a rehearing en banc, it is ORDERED that this case will not be reheard en banc.

          TJOFLAT, Circuit Judge, dissenting:

         This case was brought by Humana Medical Plan, Inc., a medical insurer, against Western Heritage Insurance Company, the liability insurer of an alleged tortfeasor, to recover the sums Humana paid for the treatment of the injuries its insured, Mary Reale, sustained due to the tortfeasor's negligent act.

         Under the scenario presented by this case-a common one in insurance litigation-the medical insurer is a subrogee of its insured's tort claim to the extent of the sums it paid for the insured's treatment.[1] Under the common law and/or state statutory laws that codify the common law, if the insured establishes the tortfeasor's liability and the tortfeasor has a liability insurance policy that covers such liability, the medical insurer has a right to reimbursement of any expenses it paid on behalf of the insured that were included in the insured's recovery. This reflects the basic principle of indemnification behind all sorts of insurance agreements. See 13 Jeffrey E. Thomas & Francis J. Mootz, III, New Appleman on Insurance Law Library Edition § 158.02 (2017) ("Although an insurer is responsible for making payment, the wrongdoer is thought to be socially responsible. Placing the ultimate responsibility on the party who committed the breach or tort promotes social justice."). This right to recovery also prevents unjust enrichment: without the reimbursement right, the insured would enjoy a double recovery.

         In this case, Reale sued the alleged tortfeasor in state court. The case settled without an admission of liability by the tortfeasor. Reale released her claim against the tortfeasor and Western, as the tortfeasor's liability insurer, for an amount that included the sums Humana, her medical insurer, had expended on her behalf. The state court, applying state law, honored Humana's right to reimbursement but awarded Humana only a portion of the sums it paid on Reale's behalf. Unsatisfied with the award, Humana filed the lawsuit now before this Court, seeking further reimbursement from Western under federal law. Humana's complaint alleged that an act of Congress entitled it to recover from Western twice the amount it had expended for Reale's treatment, notwithstanding (i) that Reale had released her claim against Western when she settled her case against the tortfeasor (without the tortfeasor's admission of liability); and (ii) that Western, having remitted the proceeds of the settlement, was rendered immune from suit under state law.[2]

         Is it possible that Congress provided Humana, and other medical insurers similarly situated, such an entitlement? Humana says yes, in the Medicare Secondary Payer Act ("MSP Act"). Humana, as a Medicare Advantage Organization ("MAO"), contracts with Medicare insureds to provide them with Medicare and other benefits. In the scenario portrayed above, because Humana did not receive full reimbursement from the proceeds of Reale's settlement, the MSP Act, according to Humana, provided it with a cause of action against Western for twice the amount it paid for Reale's medical care and treatment. All Humana had to do to recover that amount was establish the tortfeasor's liability for Reale's injuries and that Western covered that liability. Reale's settlement with Western established that. This notwithstanding that the tortfeasor and Western had settled Reale's claim without admitting fault and that Reale-by releasing her claim against them-effectively exonerated them of all state-law liability.

         The District Court accepted Humana's interpretation of the MSP Act, and therefore concluded that MAOs like Humana have a cause of action against liability insurers like Western for damages in double the amount of their reimbursement claims. Humana Med. Plan, Inc. v. W. Heritage Ins. Co., 94 F.Supp.3d 1285 (S.D. Fla. 2015). The District Court reached this conclusion without discussing the displacing effect its holding would have on state subrogation laws in this Circuit. Nor did the Court appear concerned that its holding would nullify totally the release Reale gave the tortfeasor and Western. Western appealed, and a divided panel of this Court affirmed. Humana Med. Plan, Inc. v. W. Heritage Ins. Co., 832 F.3d 1229 (11th Cir. 2016).[3]

         This Court has voted to deny rehearing en banc. I dissent. The statutory right of action cited by Humana, the District Court, and the panel majority was not intended to protect MAOs. The policy reasons behind the right of action differ starkly from those which motivated the creation of the Medicare Advantage program. Moreover, the statutory text of the right of action never references Medicare Advantage insurers at all. Nor could it: the right of action predated the Medicare Advantage program, and the statute that codified Medicare Advantage insurers' common law subrogation rights, by seventeen years.

         Below, I begin my discussion of the case at hand with an overview of Medicare's statutory scheme, followed by an explanation of how Medicare Advantage works. I then explain why transmuting the private right of action meant for the traditional Medicare scheme into the Medicare Advantage setting defies the plain statutory text and ignores the policy reasons behind traditional Medicare and Medicare Advantage, respectively. Finally, I show how the Court's decision destroys the state-law framework that already exists to protect the subrogation rights of private insurers, like MAOs, and significantly frustrates the long-established public-policy goal of favoring compromise and settlement of civil claims in place of expensive, and here duplicative, litigation. Under the Court's holding, these results are the heavy price paid to afford MAOs a strict right to recover double their outlays from nonpaying liability insurers.


         A. Traditional Medicare

         Under the traditional Medicare framework, the Government acts as the health insurer, so it pays medical expenses directly out of the public fisc. Ctrs. for Medicare & Medicaid Servs., How Is Medicare Funded?, (last visited Jan. 12, 2018), In 1980, Congress enacted the MSP Act to protect the Medicare Trust Funds and rein in Medicare costs, which at that time were vastly exceeding actuarial projections. 5 James B. Wadley, West's Federal Administrative Practice § 6305 (2017). To accomplish this purpose, the Act, 42 U.S.C. § 1395y, gave the Government rights similar to the subrogation rights of private insurers under state law when the Government pays medical expenses on behalf of a beneficiary injured by a tortfeasor (or, put differently, acts as a "secondary payer"). The Act states that when Medicare compensates a beneficiary's covered medical expenses and another insurer-like a tortfeasor's liability insurer-also covers those expenses, then Medicare must condition its payment on reimbursement by that insurer (the primary payer), which must reimburse the Government within sixty days of receiving notice that it is responsible for the monies paid by the Government. See id. § 1395y(b)(2)(B)(i)- (ii). Thus, as with private insurers under state law, in a case in which both Medicare (acting as a person's health insurer) and a tortfeasor's liability insurer cover the same medical expenses, this has the effect of making Medicare an insurer of last resort.

         Yet the MSP Act affords the Government even stronger reimbursement rights than private insurers possess under state law. There, a secondary payer can seek reimbursement from an insured who received payment from a tortfeasor's liability insurer. Under the MSP Act, however, the Government can seek reimbursement from the beneficiary who has been compensated or from the tortfeasor's liability insurer directly. And this recovery right is not disturbed by any payments the liability insurer might have made already: the Government can recover its outlays from the liability insurer even though the insurer has already paid those outlays to the beneficiary in satisfaction of a settlement or judgment. See id. § 1395y(b)(2)(B)(ii) ("[A] primary plan, and an entity that receives payment from a primary plan, shall reimburse the appropriate Trust Fund for any payment made by the [Government] under this subchapter with respect to an item or service if it is demonstrated that such primary plan has or had a responsibility to make payment with respect to such item or service." (emphasis added)). Stated differently, a beneficiary's release of a liability insurer does not extinguish the liability insurer's obligation, as a primary payer, to reimburse the Government. The Government does not occupy the status of a subrogee of part of the beneficiary's claim against the tortfeasor; it has reimbursement rights as against the tortfeasor's liability insurer that are independent of the insured's right of action for recovery under tort law.

         1. The Government Right of Action

         To enforce this right, Congress created a right of action whereby the Government can seek double damages from a primary payer who has failed to reimburse the funds it owes in a timely fashion. See id. § 1395y(b)(2)(B)(iii). The right of action is triggered when the primary payer's responsibility to reimburse the Government has been demonstrated by a judgment, settlement payment, or "by other means." Id. § 1395y(b)(2)(B)(ii).

         2. The Private Right of Action

         In addition to the reimbursement right it provided the Government in the MSP Act, Congress also gave individuals who receive Medicare benefits a right to sue primary payers who fail to pay or reimburse the expenses for which they are responsible. That right of action, 42 U.S.C. § 1395y(b)(3)(A), states:

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) in accordance with [the MSP Act].

         A beneficiary can invoke this right of action whenever a primary payer fails to live up to its responsibilities under the MSP Act, regardless of whether Medicare has chosen to make a conditional payment of medical expenses on behalf of the beneficiary. See Stalley v. Catholic Health Initiatives, 509 F.3d 517, 527 (8th Cir. 2007) ("Congress contemplated that Medicare beneficiaries could recover double damages to vindicate their private rights when their primary payers fail to live up to their obligations, even if Medicare has made a conditional payment of the beneficiaries' expenses."). This is so because Medicare's secondary payment on behalf of the beneficiary does not completely release the beneficiary of her responsibility to pay her providers for her treatment. See id. at 526 ("Congress must have intended that a Medicare beneficiary could sue its primary insurer for expenses Medicare had already paid. . . . The idea that Congress expected the beneficiary to be able to sue to vindicate his or her own contractual and tort interests is bolstered by the fact that the beneficiary's expenses will have only been paid 'conditionally' by Medicare, which leaves the beneficiary with less than a final settlement of his or her liability to the health-care providers." (citation omitted)).

         In conjunction with the Government right of action, this right of action authorizes what is at bottom a debt-collection proceeding. A primary payer must reimburse the Government once it receives notice that the Government is a secondary payer, e.g., that Medicare made a payment of the beneficiary's medical expenses conditioned on reimbursement. 42 U.S.C. § 1395y(b)(2)(B)(ii). A judgment against the tortfeasor or a settlement agreement between the tortfeasor's liability insurer and the beneficiary triggers this responsibility. Id. Once the judgment is entered or settlement agreement is executed, the Government will demand reimbursement. If the primary payer rejects the demand, either the Government or the beneficiary can sue the primary payer for double the amount owed by the primary payer. Either can do so regardless of whether the primary payer has paid the settlement or judgment to the beneficiary, because the Government's right of reimbursement is distinct and independent from the beneficiary's right to recover his medical expenses in tort.

         In this case, however, the question is whether an MAO, a private insurer, has the same independent right of reimbursement under the Medicare Advantage program as does the Government under traditional Medicare. If it does, the MAO can recover double damages from the primary payer once the primary payer's liability is established through settlement with the Medicare beneficiary or the satisfaction of a judgment for the beneficiary and the primary payer refuses to pay. The MAO can recover double damages even though the primary payer has already paid the MAO's outlays to the Medicare beneficiary. Under this reading of the private right of action, the primary payer must pay the MAO's outlays twice: once to the beneficiary to obtain a release or a satisfaction of judgment and once to the MAO to satisfy the MAO's reimbursement right. This is a question of first impression. Before answering that question, however, we must first consider how Medicare Advantage functions in comparison to traditional Medicare.

         B. Medicare Advantage

         Congress created Medicare Advantage to "utilize innovations that have helped the private market contain costs and expand health care delivery options." H.R. Rep. No. 105-217, at 585 (1997) (Conf. Rep.), reprinted in 1997 U.S.C.C.A.N. 205-06. Under Medicare Advantage, private insurers contract with the Government, namely the Center for Medicare Services ("CMS"), to provide Medicare benefits to eligible individuals. U.S. Gov't Accountability Off., GAO-14-417T, Medicare: Contractors and Private Plans Play a Major Role in Administering Benefits 6 (2014). MAOs may also provide additional coverage of medical services not covered by Medicare. Id. CMS pays each MAO a fixed monthly payment, which is adjusted for insureds' health status and demographics, for each person enrolled in the MAO's plan. Id. MAOs are then left to manage those funds (along with the premiums, if any, they charge insureds to provide additional benefits not covered by Medicare) independently and can even include additional benefits, so long as their members receive all the Medicare benefits to which they are entitled. See 42 U.S.C. § 1395w-22(a)(1)-(3). Thus, once it has received its fixed allotment from CMS, an MAO pays any covered medical expenses out of its own funds, not the Medicare Trust Funds.

         This system is much different from traditional Medicare, where providers administer Medicare benefits and seek reimbursement directly from the Government for each individual medical service or procedure performed by physicians. Because MAOs receive a fixed amount of money from the Government and are left with discretion to manage those funds on their own as long as they provide their insureds with full Medicare benefits, MAOs accept the risk of loss if the subsidies they receive from the Government and any additional premiums they might charge for additional benefits are not enough to pay for all of those benefits. At the same time, however, MAOs stand to gain if their business practices and innovations save costs such that they can provide their insureds with full benefits at an operating cost lower than the amount they get from the Government. In this way, the Government's per capita payments incentivize the private market innovations that motivated Congress's creation of the Medicare Advantage program.


         Like Judge William Pryor, whose incisive dissent from the Court's opinion I echo and build upon, I disagree with the Court's construction of the private right of action. As Judge Pryor discusses aptly, this case should begin and end with the statutory text, which clearly excludes MAOs from the private right of action. See Humana, 832 F.3d at 1243 (Pryor, J., dissenting). Even if the text were not enough, the divergent policies underlying the MSP Act and the Medicare Advantage program confirm this conclusion. And to add icing on a cake already frosted, the panel majority's construction exterminates the state-law background that already protected private insurers like MAOs and substitutes in its place a scheme that is at once nonsensical and punitive. I discuss each of these points in turn.


         I begin with the MSP Act's text. Our task is to "interpret the relevant words [of a statute] not in a vacuum, but with reference to the statutory context." Torres v. Lynch, 578 U.S.__, 136 S.Ct. 1619, 1626 (2016). As Judge Pryor notes, the scope of the private right of action, 42 U.S.C. § 1395y(b)(3)(A), is limited by its references to paragraphs (1) and (2)(A) of § 1395y(b), the MSP Act's secondary payment provision. Humana, 832 F.3d at 1240-41 (Pryor, J., dissenting). Paragraph (1) generally prohibits primary plans from denying benefits on the ground that an individual is eligible for Medicare Part A. See 42 U.S.C. § 1395y(b)(1). That provision has no bearing in this appeal. Paragraph (2)(A) addresses only payment by the Government out of the Government's coffers.[4] It does so by referencing subparagraph (B), which refers repeatedly and exclusively to the Secretary of Health and Human Services and the Medicare Trust Funds: "[t]he Secretary may make payment, " "[a]ny such payment by the Secretary shall be conditioned on reimbursement to the appropriate Trust Fund, " "an entity that receives payment from a primary plan[] shall reimburse the appropriate Trust Fund for any payment made by the Secretary, " and "[i]f reimbursement is not made to the appropriate Trust Fund . . . the Secretary may charge interest." Id. § 1395y(b)(2)(B)(ii) (emphasis added). An MAO is not the Secretary of Health and Human Services, and it does not make payments out of the Medicare Trust Funds. It is a private actor paying claims out of private funds. As a result, this should be the end of the matter: when an MAO seeks reimbursement from a liability insurer and the liability insurer fails to pay, the liability insurer has not "fail[ed] to provide for primary payment (or appropriate reimbursement) in accordance with paragraphs (1) and (2)(A)." Id. § 1395(b)(3)(A) (emphasis added).


         Moving beyond the plain text, further contextual analysis confirms that MAOs cannot recover under the private right of action. At the time Congress enacted the MSP Act, all Medicare plans operated in the traditional Medicare environment. In that setting, when the Government acts as a secondary payer, it pays a specific amount for a specific service. ...

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