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Although a clear conflict exists between Pennsylvania law and federal law on the issue of whether an insurer has the right to assert a subrogation claim against a plaintiff’s tort recovery, U.S. District Judge Timothy Savage has ruled that the Pennsylvania courts must decide the question. In his 13-page opinion in Nott v. Aetna U.S. Healthcare, Savage ruled that a class-action lawsuit against Aetna must be remanded to the Bucks County Court of Common Pleas because the federal law at issue — the Medicare Act — does not “completely pre-empt” the Pennsylvania Motor Vehicle Financial Responsibility Law. Savage found that the two laws are in “direct conflict.” The Medicare Act, Savage noted, allows a health insurer providing replacement coverage for Medicare-eligible persons to include in its insurance contract a right of subrogation against an insured’s recovery from a third party for money previously paid for the insured’s medical care. But MVFRL, Savage said, prohibits subrogation from an insured’s recovery from a tortfeasor in a motor vehicle accident case. In the suit, plaintiffs attorneys Ronald J. Smolow and Michael H. Landis of Smolow & Landis challenge Aetna’s right to enforce its contractual subrogation claim against Arlene Nott’s or any Aetna policyholder’s tort recovery, arguing that it violates MVFRL’s bar against subrogation. Aetna’s lawyers — Burt M. Rublin, Raymond A. Quaglia and Paul Lantieri III of Ballard Spahr Andrews & Ingersoll — removed the suit to federal court and asked that it be dismissed, arguing that the federal law supersedes state law. “Plaintiff’s claims here are superseded because plaintiff has interpreted state law, i.e., Section 1720 [of MVFRL], to require certain benefits, i.e., the full benefits initially paid by Aetna under plaintiff’s Medicare plan coverage, as contrasted with the benefits minus sums paid to satisfy Aetna’s subrogation lien,” the Ballard lawyers wrote. “This requirement runs afoul of any intent by Congress to pre-empt the field of benefit standards,” they wrote. Aetna argued that Nott’s suit interpreted MVFRL “to require the provision of benefits to which plaintiff is not entitled under the Medicare plan documents or the Medicare statute or regulations.” Nott’s theory, they argued, is that the state law “prohibits subrogation that her Medicare plan documents and the Medicare statute and regulations permit.” As a result, they said, Section 1720 of MVFRL “is inconsistent with federal Medicare standards and is therefore superseded.” Nott’s lawyers responded by moving for the suit to be remanded to Bucks County, arguing that since the Medicare Act does not completely pre-empt MVFRL, the removal of the suit to federal court was improper. “The Pennsylvania judiciary is competent to determine whether state law has been pre-empted,” Smolow and Landis wrote. “State courts must be permitted to perform that function in cases brought before them, absent a congressional intent to the contrary,” they wrote. Now Savage has sided with the plaintiffs, saying: “We conclude that the Medicare Act does not completely pre-empt the plaintiff’s state causes of action. Therefore, we shall remand this case to the state court for resolution of the statutory conflict, a task it is competent to perform.” Savage found that the complete pre-emption doctrine “is stringently applied” and that “even if federal pre-emption is the only real issue in the case, there is no jurisdiction unless the pre-emption is complete.” The mere fact that a state law cause of action requires reference to federal law, Savage said, “is insufficient to establish complete pre-emption.” Conflict pre-emption, Savage said, “is not synonymous with complete pre-emption.” And unlike complete pre-emption, Savage said, “conflict pre-emption … does not confer federal jurisdiction.” Conflict pre-emption occurs when a federal affirmative defense to a state law claim is asserted, and is not a basis for removal, Savage found. “Conflict pre-emption, also known as ordinary pre-emption, arises when a federal law conflicts with state law, thus providing a federal defense to a state law claim, but does not completely pre-empt the field of state law so as to transform a state law claim into a federal claim,” Savage wrote, quoting the 2003 decision from the 5th U.S. Circuit Court of Appeals in Arana v. Ochsner Health Plan. As a result, Savage concluded that “whether plaintiff’s state law causes of action are pre-empted by operation of federal law under an ordinary conflict pre-emption analysis can be addressed by the state court.” Turning to the Medicare Act, Savage found that Congress did not intend for the provisions Aetna cited to completely pre-empt state law. “Congress did not create a federal scheme under the Medicare Act for the civil enforcement of a Medicare-substitute HMO’s subrogation rights arising out of its own contract. Rather, the act merely permits HMOs to include a right of subrogation in their own contracts with Medicare beneficiaries,” Savage wrote. “Both provisions in the Medicare Act relied upon by Aetna … are almost identical. There is no federal cause of action created by either subsection, let alone one whose pervasive federal character displaces all state causes of action,” Savage wrote. Aetna’s lawyers urged Savage to look to ERISA case law that recognized complete pre-emption in a similar context. But Savage found that “there is no language in the Medicare Act similar to that of Section 502(a) of ERISA, where Congress explicitly created a civil enforcement scheme. Nor is there any language in the legislative history of the Medicare Act indicating any congressional intent that the Medicare Act completely pre-empt a plaintiff’s state law cause of action.” As a result, Savage said, “the element of clear congressional intent necessary for application of complete pre-emption is missing.”

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