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HMOs have the right under Pennsylvania law to assert a subrogation claim against an auto accident victim’s tort recovery — despite the general bar against subrogation in the Pennsylvania Motor Vehicle Financial Responsibility Law — because Pennsylvania’s HMO Act exempts them from such laws, a federal judge has ruled. U.S. District Judge Harvey Bartle III found that the HMO Act, passed in 1972, effectively exempted HMOs from all state insurance laws then in existence as well as future insurance laws — unless they specifically apply to HMOs. In his five-page opinion in Wirth v. Aetna U.S. Healthcare, Bartle found that since MVFRL was passed later, and since it does not specifically reference HMOs in the section that prohibits subrogation, HMOs are exempt. As a result, Bartle dismissed a proposed class-action suit against Aetna brought by an insured who claimed that Aetna violated MVFRL by asserting a lien against the proceeds of a settlement in his auto accident case. The ruling is a victory for Aetna’s attorneys, Raymond A. Quaglia and Paul Lantieri III of Ballard Spahr Andrews & Ingersoll, who argued that the HMO Act’s exemption provision would be rendered meaningless if it did not apply to MVFRL. In their brief, Quaglia and Lantieri argued that the HMO Act’s exemption clause clearly shows that MVFRL is one of the laws it was designed to exempt. The law states that HMOs “shall not be subject to the laws of this state now in force relating to insurance corporations engaged in the business of insurance nor to any law hereafter enacted relating to the business of insurance unless such law specifically and in exact terms applies to such health maintenance organization.” The critical phrase, the defense lawyers argued, is “specifically and in exact terms.” Bartle agreed, saying “there is nothing in [MVFRL] � 1720 [the anti-subrogation clause] which ‘specifically and in exact terms applies’ to HMOs. Consequently, as a result of � 1560(a) [of the HMO Act], � 1720 does not abrogate the subrogation provisions of the Aetna healthcare agreement.” Plaintiffs attorney Ronald J. Smolow of Smolow & Landis in Trevose argued that Aetna was ignoring the plain meaning of MVFRL’s anti-subrogation clause — which was designed to bar subrogation by all insurers — and that the law does specifically reference HMOs by using terms such as “program” and “group contract.” “The plain meaning of � 1720, in its entirety, is that the Legislature clearly intended to prohibit all subrogation in the motor vehicle realm, including subrogation by HMOs,” Smolow wrote. “The Legislature did not split hairs. It manifestly intended to cover HMOs just like all other insurers. There is not a scintilla of legislative evidence that in enacting 1720 the Legislature intended to exempt HMOs,” he wrote Section 1720, Smolow said, starts with the phrase: “there shall be no right of subrogation or reimbursement.” “When the Legislature used the term ‘no,’ it meant ‘no.’ If it intended to limit the prohibition to insurance companies, it would have said ‘no insurer,’” Smolow wrote. Although the legislative history of � 1720 is scant, Smolow said, what little there is “indicates … a desire to apply the prohibition broadly for the sake of uniformity and consistency.” From a “common sense” point of view, Smolow said, � 1720 “is aimed at HMOs just like it is aimed at insurers.” The law is also “specifically applicable to HMOs,” he argued, because it uses the terms “program” and “group contract” — terms that Smolow said “are specific terms that zero in on HMOs.” Employing standard principles of statutory construction, Smolow argued that the court’s task was to interpret both MVFRL and the HMO Act in a way that would give meaning to both laws and further the intent of the Legislature. “Prohibiting HMO subrogation furthers the purpose of the MVFRL and is consistent with the HMO Act. On the other hand, allowing HMO subrogation conflicts with the MVFRL,” Smolow wrote. The HMO Act, Smolow said, is “silent” on the subject of subrogation. And in light of MVFRL, which was passed after it, he said, HMOs do not have any expectation of subrogation. By contrast, Smolow said, HMO subrogation “flatly conflicts and interferes with” the purposes of the MVFRL and � 1720. “Allowing HMOs to subrogate in motor vehicle cases would cause higher auto insurance premiums, contrary to the MVFRL’s avowed purpose of lowering those premiums. Similarly, it would frustrate the state’s ability to administer a uniform scheme which prohibits subrogation and bars tort claims against third party tortfeasors for recovery of medical expenses,” Smolow wrote. If HMOs are allowed to subrogate, Smolow said, “one of two things will happen, either of which would be contrary to the purposes of the MVFRL. In order to make them whole, injured insureds have to be permitted to claim their HMO medical expenses from a tortfeasor, and plead and prove those medical expenses at trial … . This would multiply the cost of collecting those damages and increase liability of the third-party tortfeasor.” As a result, Smolow said, the cost of motor vehicle insurance would be driven up, directly conflicting with MVFRL’s stated goal of cost reduction. The other possibility, Smolow said, is that HMOs will subrogate against a plaintiff’s recovery for pain and suffering, claiming the same as reimbursement of medical payments, even though MVFRL does not permit the plaintiff to recover such payments. “This leads to the fundamentally inequitable situation where an injured plaintiff can never be made whole because he can’t collect medical expenses from a tortfeasor but must still pay back the HMO. This would be unconscionable,” Smolow wrote. HMO subrogation would also “cause manifest distortions in the Pennsylvania insurance markets,” Smolow argued, because it would “give HMOs, as excess carriers, superior subrogation rights over primary motor carriers and other excess healthcare plans such as Blue Cross.” As a result, Smolow said, HMOs “would have an unfair competitive advantage over other excess health insurers who have greater risk exposure. At the same time it would impose added risk and financial burden on motor vehicle insurers who will be faced with larger claims and greater risk in paying out claims for medical care. In effect, motor vehicle insurers would be paying for medical expenses and reimbursing HMOs.” But Aetna’s lawyers argued that Smolow was missing their point about the effect of the HMO Act’s exemption. The HMO Act exempts HMOs from any law that does not “specifically and in exact terms” refer to HMOs, Quaglia and Lantieri noted. Smolow’s argument “misses the point,” they said, when he contends that the language of � 1720 is sufficiently “sweeping” and “all inclusive” to “cover HMOs just like all other insurers.” “Essentially, plaintiff would have the court interpret the HMO exemption to say that HMOs are only exempt from insurance laws which are not broad enough to apply to them. If this interpretation were correct, the HMO exemption would be rendered superfluous,” Quaglia and Lantieri wrote. “Contrary to plaintiff’s nonsensical reading, the HMO exemption necessarily manifests a legislative intent and understanding that there will be insurance laws which arguably apply to HMOs on their face but from which HMOs are nonetheless exempt because such laws do not apply to them ‘specifically and in exact terms.’ … � 1720 is such a law.” Bartle sided with the defense and specifically rejected Smolow’s argument that a ruling in Aetna’s favor would create unfairness in the insurance market. “Whether or not, as plaintiff contends, HMOs like Aetna have an unfair competitive advantage under Pennsylvania law is a matter properly addressed by the Commonwealth’s General Assembly, not this court,” Bartle wrote.

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