Appellate Court Revives Medicare Secondary Payer Act Suits by Collection Agents

By Jim Sams | September 9, 2020

A federal appellate panel’s ruling opens the floodgates for hundreds of lawsuits filed by collection agents that are seeking billions of dollars in double damages from insurance carriers that are accused of failing to pay for care that ended up being provided by Medicare and Medicaid.

The 11th Circuit Court of Appeals decided that the Medicare Secondary Payer Act gives MSP Recovery Claims and MSAP Claims the right to pursue claims that were assigned to them by managed care organizations that contracted with Medicare Advantage Plan insurers. In a consolidated case, the panel vacated decisions by two District Court judges in Miami that collection agents have no standing under the act.

“This is historical. Period,” said attorney John H. Ruiz, founder of MSP Recovery. He said the ruling will allow his firm and other collection agents to continue to pursue hundreds of lawsuits that have been filed seeking recoveries “in the billions.”

“This latest decision pretty much solidifies everything I set out to accomplish,” Ruiz said.

The decision is part of a series of rulings that together are making the Medicare Secondary Payer Act a major headache for insurers. In February, the 11th Circuit ruled that parties that bring private causes of action against carriers for violating the Medicare Secondary Payer Act don’t have to comply with the three-year notice requirement that applies when Medicare itself seeks recovery from an insurer that had been ordered to pay for medical care or agreed to in a legal settlement.

Ruiz said his firm has spent $150 million in investor’s money to build a database going back 13 years that includes 25 million individuals who received care from Medicare of Medicaid that should have been paid by private carriers. He said he learned while practicing personal injury law in Miami that health care providers did not understand their rights under the Medicare Secondary Payer Act, so he developed an algorithm to identify medical care that was paid by Medicare and Medicaid for beneficiaries whose care should have been provided by auto, workers’ compensation and liability insurers.

MSP Recovery’s website shows 114 Medicare Secondary Payer Act putative class-action lawsuits have been filed in state and federal court. Ruiz said more will be coming.

The Medicare Secondary Payer Act allows Medicare or other parties to collect double damages by showing that Medicare paid medical bills that an insurance carrier should have paid. A body of case law has established that Medicare Advantage Organizations — which contract with the government to provide care at fixed prices — enjoy the same right of recovery.

The case decided by the 11th Circuit on Friday involved managed care organizations that contracted with Medicare Advantage plans to provide care at capitated rates, meaning a fixed amount for each person covered, no matter how much treatment is required. The court called such companies, often physician groups, “downstream organizations.” The crux of issue for the consolidated cases before the appellate panel was whether collection agents that have been assigned rights by downstream organizations can collect double damages.

MSP Recovery and MSAP Claims had filed suit for monies allegedly owed by Ace American Insurance Co., Auto-Owners Insurance Co., Southern-Owners Insurance Co., Owners Insurance Co., Travelers Casualty and Surety Co., and Liberty Mutual Fire Insurance Co.

The 11th Circuit said it gave deference to arguments presented in an amicus curiae brief filed by the U.S. Department of Health and Human Services. The panel noted that the act was touted as a cost-saving measure when it was signed into law by President Ronald Reagan in 1986. It was intended to “incentivize” private actors to protect the government’s interests.

“Allowing downstream actors who have directly paid beneficiaries’ medical bills or reimbursed an MAO to recoup damages would plainly benefit the Medicare Advantage system,” the court said. “It would enable downstream actors to avoid costs that, under the Medicare Secondary Payer Act, should be borne by primary payers, not actors within the Medicare Advantage system.”

The decision didn’t give MSP Recovery everything it wanted. The 11th Circuit agreed with the district court that its lawsuits were incorrectly pleaded, but it reversed the decision to dismiss those cases with prejudice, meaning MSP can amend its lawsuit and try again.

Heather Sanderson, chief legal counsel for the Franco Signor consulting firm in Bradenton, Florida, said the decision creates more potential liability for insurers, even though it is limited in scope. She said the decision applies to managed care organizations that were paid directly by Medicare beneficiaries. In most cases, the Medicare Advantage Organization makes those payments itself.

“It’s a relatively small segment of potential plaintiffs,” she said.

Still, Sanderson said the decision is concerning because there is no deadline to file claims. She said the government does not divulge the identities of persons who are enrolled in Medicare Advantage Plans, so insurers are often not aware when they approve a settlement that the insured person is Medicare beneficiary. Medicare covers people who receive Social Security disability benefits, so it’s not as simple as checking the person’s age, she said.

“They can forever file a private claim action, thats where I think the court is lacking logic,” Sanderson said.

She said her firm supports legislation in Congress that would require Medicare to identify to insurers beneficiaries enrolled in Medicare Advantage plans.

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