In the movie Raiders of the Lost Ark, our hero, Indiana Jones, is faced with a pivotal challenge that, on its face, appears to bring Indy’s quest to recover the Ark of the Covenant to an untimely end. The scene takes place in the busy streets of Cairo, close to where Indy believes the Ark to be buried, and the action begins after his partner Marion Ravenwood is snatched from a marketplace by a band of assassins. When Marion disappears, Indy frantically searches the crowd but is soon surrounded by a sea of people going about their business. Suddenly, the throng parts and Indy finds himself face-to-face with a bad guy donned head-to-toe in black and swinging a mighty, oversized scimitar in a manner that indicates the man is no casual swordsman.

On first glance, it appears Indiana Jones’s options have finally run out. But Indy will have none of it. Once the initial surprise wears off, Dr. Jones dismisses the assassin with a shrug, pulls his gun, and shoots the man dead on the spot with a single shot. The crowd cheers and runs off with the sword. The immediate threat is eliminated, although other battles remain to be fought down the road.

What do Indiana Jones and the timely demise of a black-robed assassin have to do with the private cause of action provision of the Medicare Secondary Payer Act? While globetrotting to remote archaeological cites and thwarting masked foes may not be part of our everyday job descriptions, our role in assessing and acting on sudden game-changing situations is no less important — especially when plaintiffs’ lawyers continue to try to place more and more obstacles in our way. One of the more recent campaigns by counsel opposite is to cite the Medicare Secondary Private Cause of Action as a means to inflate the value of their case(s) when negotiating settlement agreements. Knowing the potential implications of a private cause of action will effectively minimize any leverage plaintiffs try to gain from this position, allowing the defense team to better face the other boulders which will inevitably come rolling their way.

I. The Medicare Secondary Payer Act

In 1980, Congress initiated a series of amendments to the Medicare Act, 42 U.S.C. §§ 1395-1395hhh, in an effort to “reduce Medicare costs by making the government a secondary provider of medical insurance coverage when a Medicare recipient has other sources of primary insurance cov­erage.”¹ The amendments are commonly known as the Medicare Secondary Payer provisions (“MSP”).² The MSP provides that Medicare is precluded from paying for any item or service of medical care for which it otherwise would have been obligated to pay when payment has been made or can reasonably be expected to be made under a workers’ compensation plan, an automobile or liability insurance policy, a self-insured policy, or under no-fault insurance.³

Medicare is authorized, however, to make conditional payments for medical care when a primary plan has not made or cannot reasonably be expected to make payment promptly.⁴ A primary plan (or any entity that receives payment from a primary plan) is required to reimburse Medicare for any conditional payment “if it is demonstrated that such primary plan has or had a responsibility to make [the] payment.”⁵ Further, “[a] primary plan’s responsibility for such payment may be demonstrated by a judgment, a payment conditioned upon the recipient’s compromise, waiver, or release (whether or not there is a determination of liability) of payment for items or services included in a claim against the primary plan or the primary plan’s insured, or by other means.”⁶

If a settlement is involved, Medicare’s claims must be paid up front out of the settlement proceeds before any distribution occurs, as Medicare has a priority right of recovery for conditional payments. If reimbursement is not made before the expiration of the 60-day period that begins on the date notice of, or information related to, a primary plan’s responsibility for such payment or other information is received (i.e., the settlement date), Medicare may charge interest on the amount of the reimbursement until reimbursement is made.⁷ If Medicare is not timely reimbursed for its conditional payments, the statute allows the United States to enforce the reimbursement provisions of the MSP — and to seek double damages.⁸

The statute also allows [cue the John Williams orchestra] a private cause of action. And, just like the United States, the private party may also seek double damages.

II. Private Cause of Action Under the MSP

The MSP creates a private cause of action with double recovery “to encourage private parties who are aware of non-payment by primary plans to bring actions to enforce Medicare’s rights.”⁹ The specific statutory subpart at issue follows:

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 paragraphs (1) and (2)(A).¹⁰

Recently, the plaintiffs’ bar has been encouraging its colleagues to cite the MSP private cause of action in the context of settlement discussions. Is it as bad as a pit of snakes? No, but it does require an understanding of the applicability of the underlying statute in order to thwart any arrows that may be launched in your direction.

III. Private Cause of Action Scenario

Plaintiffs will typically whip out the private cause of action as leverage to try to increase the value of their cases and to bring about more timely and efficient settlements. In a pharma or device case, the scenario could play out in the following manner:

Plaintiff John Doe, a 72-year-old gentleman, files suit for alleged injuries incurred from the use of your product. As a result of the injuries, Mr. Doe had to be hospitalized for several months where he underwent numerous surgical procedures, after which he spent one month in a rehabilitation facility. During this time, he accumulated $500,000.00 in medical expenses, which were all paid by Medicare.

You spend countless hours and dollars working the case through the discovery process and, as a trial date approaches, the inevitable settlement discussions begin. The facts are such that the science supports your case, but you happen to be in a plaintiff-friendly venue, and Mr. Doe is a likable, if not misguided, fellow. In any event, counsel for Mr. Doe wants $1,000,000.00 to settle the case, citing the high Medicare lien as one of the hurdles preventing him from going any lower. You hold your ground and state the case is not worth more than a nominal amount plus the cost of bringing the case through trial, and you recognize that the Medicare lien can likely be negotiated to a reduced amount. So you counter with an offer somewhere in the range of $250,000.

When you mention the cost of bringing the case to trial, counsel for Plaintiff begins licking his chops and tells you he’s glad you brought that up, because if it goes to trial and Plaintiff gets a verdict, then Plaintiff intends to seek a separate private cause of action against you pursuant to 42 U.S.C. § 1395y(b)(3)(A) for an additional $1,000,000 — because, he asserts, he will be entitled to double the amount owed to Medicare.

So what to do? Is what he is suggesting even possible? Should you raise your counter to avoid having to deal with a private cause of action? Is a private cause of action still a possibility even if the case does settle?

The short round answer is not a very satisfactory one: It depends. A number of factors, discussed below, play into whether the threat of a private cause of action is as ominous as it sounds. Theoretically, a private cause of action is possible if plaintiff secures a verdict, but a series of conditions precedent must be met before a private cause of action becomes viable.

IV. Conditions Precedent for Private Cause of Action

A. Responsibility to Pay Must Be Established Before Private Cause of Action Can Be Brought

Under 42 U.S.C. § 1395y(b)(2)(B)(ii), an entity shall be required to reimburse Medicare “if it is demonstrated that such a primary plan has or had a responsibility to make payment with respect to such item or service” (emphasis added). Notably, a private cause of action can only be brought against proven tortfeasors — not alleged tortfeasors. This principle was demonstrated in the case of Glover v. Liggett Group, Inc.¹¹

Glover involved plaintiffs who brought a Medicare secondary payer private cause of action against a cigarette manufacturer for medical expenses paid by Medicare. Plaintiffs sought to use the MSP private cause of action to establish defendants’ state law tort liability for battery and then to recover reimbursement for payments made by Medicare on account of the tortious conduct.¹² Defendants moved to dismiss, based, upon other things, plaintiffs’ failure to state a claim for which relief could be granted because the MSP provided no private cause of action against an alleged tortfeasor whose responsibility for payment of a Medicare beneficiary’s medical costs had not been established, by agreement or otherwise.¹³ The district court dismissed the plaintiffs’ MSP claims, holding that no private cause of action existed against an alleged tortfeasor where the defendants’ responsibility to pay for a Medicare beneficiary’s healthcare expenses had not already been established.¹⁴ Plaintiffs appealed.¹⁵

The Eleventh Circuit affirmed the district court’s ruling and concluded that “section 1395y(b)(3) does not create a private cause of action against alleged — as opposed to proven — tortfeasors whose responsibility for payment of medical costs has not been previously established.”¹⁶

B. Medicare Must Have Made Payments on Plaintiff’s Behalf

The court in Geer v. Amex Assurance Co. 2010 U.S. Dist. Lexis 66834 (E.D. Mich.) cited Glover in the context of a first-party no-fault claim and cited two conditions precedent that must be satisfied prior to invoking a private cause of action under the MSP:

There are two important conditions precedent that must be satisfied prior to invoking [the MSP’s private cause of action]. First, Medicare must have actually made payments on the plaintiff’s behalf. […] Second, the primary insurer must be “responsible” for paying the benefits at issue. This responsibility may be “demonstrated by a judgment, a payment conditioned upon the recipient’s compromise, waiver or release (whether or not there is a determination or admission of liability) of payment for items or services included in a claim against the primary plan or the primary plan’s insured, or by other means.”¹⁷

Another example of plaintiff unsuccessfully raising the MSP private cause of action is demonstrated in the case of Sullivan v. Farm Bureau, 2011 U.S. Dist. LEXIS 35817. In Sullivan, plaintiff was injured when he was struck by a car while crossing an intersection on his bicycle.¹⁸ Plaintiff sued two insurance companies in state court for failing to make payments.¹⁹ Because one of plaintiff’s counts was a private cause of action brought under the MSP, the defendants removed the case, citing federal question jurisdiction under 28 U.S.C. § 1331 and plaintiff’s reliance on the MSP federal statute as the basis for one of his counts.²⁰ Strangely enough, plain­tiff argued lack of diversity or alternatively sought dismissal of the MSP count of the complaint in order to avoid imposition of federal jurisdiction.²¹ Procedurally, the court granted his motion to dismiss the count as a motion to amend his complaint and granted remand.²²

In granting remand, however, the court used the opportunity to provide an analysis as to why the MSP Act claim was premature. The court, citing Geer, noted there were two conditions precedent to the filing of such a claim: 1) that Medicare must have actually made the payments on plaintiff’s behalf (which was not in dispute); and 2) that the insurer must be “responsible” for making the payments.²³ That responsibility could be demonstrated by judgment or by payment conditioned upon the recipient’s compromise, waiver, or release (whether or not there is a determination or admission of liability) or by other means.²⁴ Because plaintiff attempted to simultaneously litigate his MSP claim with the underlying claim, the MSP claim was premature.

In other words, in addition to establishing responsibility for paying the benefits at issue, plaintiff must also establish that Medicare must have made payments on the plaintiff’s behalf. Of note, the latter is usually a much easier bar to hurdle and will rarely be in dispute if counsel for plaintiff threatens a private cause of action.

V. Considerations

The MSP private cause of action has different implications, depending on whether it is potentially in play during settlement negotiations or at the trial stage.

A. Settlement Considerations

A skilled plaintiffs’ lawyer will best use the MSP private cause of action as leverage when negotiating a settlement — and only in the context of a threat to bring a private cause of action if the case goes to trial and plaintiffs get a verdict. Once the case settles, however, the private cause of action should not be a factor. Yes, the private cause of action becomes ripe when the defendant’s obligation to have paid has been established by settlement or judgment; however, each and every settlement agreement you enter into should require plaintiffs to indemnify defendants for liability related to the MSP Act. The indemnification agreement should insulate the settling defendant from any recovery from a potential private cause of action, making it moot, even if it is potentially available.

B. Trial Considerations

If the case proceeds to trial through verdict and the conditions precedent have been met, the private cause of action could be legitimate. At that point, there is no corresponding indemnification agreement, and double damages for the Medicare payments remain a distinct possibility. Consideration of defendants’ anticipated success at trial, the possibility of a renewed settlement opportunity, and/or the actual amount of the Medicare payments at issue should all be factors dictating whether or not the risk of going to verdict outweighs the potential risk of a private cause of action.

VI. Conclusion

While the MSP private cause of action cannot be dismissed, it is not as powerful a weapon as the plaintiffs’ bar would have you believe. Knowing when the private cause of action becomes a threat provides the key to determining how much deference is warranted, and conversely, the ammunition to minimize, if not eliminate it, with a well-aimed shot.

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[1] Thompson v. Goetzmann, 337 F.3d 489, 495 (5th Cir. 2003).

[2] Brown v. Thompson, 374 F.3d 253, 257 (4th Cir. 2004).

[3] 42 U.S.C. § 1395y(b)(2)(A); 42 C.F.R. §411.50.

[4] 42 U.S.C. § 1395y(b)(2)(B)(i).

[5] 42 U.S.C. § 1395y(b)(2)(B)(ii).

[6] Id.; see also 42 C.F.R. § 411.22(b)(3) (“A primary payer’s responsibility for payment may be demonstrated by […] a settlement […].”).

[7] Id.; see also 42 C.F.R. § 411.24.

[8] 42 U.S.C. § 1395y(b)(2)(B)(iii).

[9] Glover v. Liggett Group, Inc., 459 F.3d 1304, 1307 (11th Cir. 2006).

[10] 42 U.S.C. § 1395y(b)(3)(A).

[11] Glover v. Liggett Group, Inc., 459 F.3d 1304 (11th Cir. 2006).

[12] Id. at 1307.

[13] Id.

[14] Id.

[15] Id. at 1308.

[16] Id. at 1309.

[17] Geer v. Amex Assurance Co., No. 09-11917 (E.D. Mich. July 6, 2010) at *9-*10.

[18] Sullivan v. Farm Bureau Mutual Insurance Co. of Michi­gan, No. 1: 10-cv-909 (W.D. Mich. Apr. 1, 2011) at *2.

[19] Id. at *3.

[20] Id. at *4.

[21] Id. at *7.

[22] Id.

[23] Id. at *9.

[24] Id.

Finis