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Cert Denial in Subrogation Case Could Complicate Mass Torts
The Legal Intelligencer
The U.S. Supreme Court has denied certiorari from a U.S. Court of Appeals for the Third Circuit decision that private insurers that provide Medicare benefits have the right to recover, just as the federal government does, from GlaxoSmithKline for expenses incurred for injuries consumers have suffered by taking the drugmaker's Avandia diabetes drug.
The Third Circuit is the first circuit court to determine that Medicare Advantage/Part C organizations, or private insurers that get paid by the government to provide Medicare benefits, have the same right as the government to make subrogation claims and assert liens in federal court against settlements plaintiffs receive, said Michael Russell, an attorney with lien administrator Garretson Resolution Group, headquartered in Cincinnati and Charlotte, N.C.
The Supreme Court's order is also important because it shifts the subrogation right to recovery from state court to federal court, Russell said.
"It does make for a much more complicated situation with large complex mass torts because you're dealing with thousands of people, because you have hundreds of [Medicare] Part C plans," Russell said.
Whether private insurers offering Medicare benefits also are entitled to double damages as the federal government is remains an open question, Russell said.
Lawyers could reach out prior to settlement to the Medicare lienholders to work out pre-settlement deals to resolve the liens, Russell said.
GSK counsel Jay Lefkowitz, Christopher Landau and K. Winn Allen of Kirkland & Ellis in Washington, D.C., and Nina M. Gussack, George A. Lehner, Thomas E. Zemaitis and Kenneth H. Zucker of Pepper Hamilton in Philadelphia argued in their petition for writ of certiorari that the Third Circuit has "adopted the broadest construction of all by holding the [Medicare Secondary Payer] Act creates a cause of action for private insurers to sue tortfeasors for double damages, even though Medicare did not pay the benefits and regardless of whether those insurers have adequate subrogation remedies under state law ... this lawsuit should not be permitted to proceed simply because it was filed in Philadelphia, not Cincinnati."
The Sixth Circuit took the narrowest view in reasoning the act provides only the United States, not private insurers or Medicare beneficiaries, with a cause of action against tortfeasors, GSK argued in its petition.
GSK also said there were conflicts with decisions from the First and Eighth circuits.
Humana's counsel, Thomas C. Goldstein of Goldstein & Russell in Washington, D.C.; Christopher M. Todoroff and D. Gary Reed of Humana; and Richard W. Cohen, Gerald Lawrence and Peter St. Phillip of Lowey Dannenberg Cohen & Hart in White Plains, N.Y., said that there was no circuit split at all. The Sixth Circuit case did not involve a Medicare Advantage organization but a medical care provider suing a health insurer that contested it did not have secondary payer responsibility, GSK said.
GSK acknowledges that settling with Medicare beneficiaries renders GSK a primary plan under the Medicare Secondary Payer Act, and Medicare Advantage organizations are paid to provide identical care for Medicare-eligible individuals under contracts with the U.S. Department of Health and Human Services, Humana argued.
The public policy of the Secondary Payer Act is to ensure efficiency through not making secondary payers "chase the primary plan for reimbursement to the point of litigation," Humana argued.
GSK's counsel argued that the Third Circuit's decision would make for bad policy for several reasons.
One, plaintiffs who receive benefits from Medicare or Medicare Advantage plans would be incentivized to sue tortfeasors for double damages, thus creating a "lucrative new federal tort remedy for all manner of personal-injury actions," GSK argued.
Two, private insurance companies offering Medicare Advantage and Medicare-substitute plans could sue tortfeasors directly and "forgo their traditional state-law remedies in favor of the more lucrative federal cause of action that the Third Circuit has created," GSK argued.
Humana countered in court papers that there is no risk that Medicare Advantage organizations would bring double-damages actions if primary payers like GSK simply pay the reimbursements owed.
"The clear public policy of the [Medicare Secondary Payer Act] is for primary plans to pay or reimburse Medicare secondary payers," Humana argued. "No public policy concern is served by letting primary plans evade that duty based upon the happenstance that a Medicare enrollee received Medicare benefits under Part C rather than Parts A and B."
Three, settlement efforts in mass tort cases would be threatened, GSK argued.
The amicus briefs in support of GSK included the plaintiffs' advisory committee in the Avandia multidistrict litigation.
The plaintiffs lawyers argued that the Third Circuit's decision would destabilize the ability of federal courts to effectuate mass tort settlements, would create a windfall for private insurance companies and impact the rights of tens of thousands of injured Avandia plaintiffs, not just "corporate conglomerates."
The plaintiffs lawyers supported GSK's position because both GSK and plaintiffs lawyers have a financial interest in a rule in which a tortfeasor's liability is not deduced from a settlement and paid out to a Medicare-affiliated secondary payer, Humana argued.
"Primary plans calculate that they can bargain to settle claims for less by agreeing to pay the MAO's interest to the plaintiff and the plaintiffs lawyer," Humana argued. "The plaintiffs lawyer agrees to in fact, often insists on that arrangement, confident that the MAO will not pursue the enrollee and that, if it does, state court will not enforce the MAO's right to be paid."
There are over 13 million people, or one-quarter of those eligible for Medicare, who are enrolled in Medicare Advantage plans, according to court papers.
Judge Joseph A. Greenaway, writing for the panel of Chief Judge Theodore A. McKee and Judge D. Michael Fisher, issued the Third Circuit's opinion in favor of Humana's position.
"We are disappointed that the U.S. Supreme Court declined to grant review in the Humana matter; other circuit courts have disagreed with the Third Circuit as to whether Medicare Advantage organizations have a right of action against settling defendants," a GSK spokeswoman said in a statement.
Representatives for Humana did not respond to requests for comment.
This article originally appeared in The Legal Intelligencer.