Opinion ID: 613077
Heading Depth: 3
Heading Rank: 2

Heading: The Demonstrated Responsibility Provision in the Medicare Secondary Payer Act

Text: Central States argues that it cannot be liable under the private cause of action because its responsibility to pay had not yet been demonstrated prior to this litigation. The district court accepted this argument. Both Central States and the district court rely primarily on the reasoning of the Eleventh Circuit in Glover v. Liggett Group, Inc., 459 F.3d 1304 (11th Cir.2006), which considered when a tortfeasor  not a group health plan  may be liable under the Act's private cause of action. (Due to a quirk in the Act's history, as discussed in greater detail below, tortfeasors now counter-intuitively fall within the Act's definition of a primary plan.) The Glover case, in turn, based its holding on the Act's demonstrated responsibility provision, which states in pertinent part: A primary plan ... shall reimburse [Medicare] for any payment made by [Medicare] ... with respect to an item or service if it is demonstrated that such primary plan has or had a responsibility to make payment with respect to such item or service, 42 U.S.C. § 1395y(b)(2)(B)(ii).
The facts and procedural history in Glover are relatively simple. Two individuals filed a lawsuit against two major tobacco companies under the Medicare Secondary Payer Act's private cause of action. 459 F.3d at 1306-07. The plaintiffs, seeking to act as private attorneys general, sued to recover for the Medicare program all the expenditures it made [over an eight-year period] for health care services rendered in the State of Florida to Medicare beneficiaries for the treatment of diseases attributable to cigarette smoking. Id. at 1307. In other words, the plaintiffs sought first to use the Act to establish the tobacco companies' state-law tort liability for battery and, then, to recover reimbursement for payments made by Medicare. Id. Notably, the plaintiffs did not allege that the tobacco companies caused them any personal harm: they did not allege that they were smokers themselves, or that the defendants' refusal to pay for medical treatment forced them to foot the bill. After the district court dismissed their lawsuit for failure to state a claim, the Eleventh Circuit affirmed, citing both the demonstrated responsibility provision and a fear that a contrary holding would greatly expand federal jurisdiction over state-law tort cases. Id. at 1308-09. It is the Glover opinion's discussion of the demonstrated responsibility provision that has precipitated the current state of the law. Its reasoning arose from a valiant attempt to make sense of the conjunction in the Act's private cause of action, which creates liability against primary plans who fail to pay for treatment in accordance with paragraphs (1) and (2)(A). Id. § 1395y(b)(3)(A). But as discussed above in Part III.A, a primary plan cannot violate subparagraph (2)(A), which is addressed exclusively to Medicare, not to primary plans. Rather than digging this deeply into the statute, however, the Glover case reasoned that subparagraph (2)(A) mentions subparagraph (2)(B), that buried within subparagraph (2)(B) is sub-subparagraph (2)(B)(ii), and that sub-subparagraph (2)(B)(ii) places a condition on when a primary plan must reimburse Medicare for a conditional payment made by Medicare: a primary plan must reimburse Medicare only if its responsibility to pay for the treatment has already been demonstrated. See Glover, 459 F.3d at 1308-09. Accordingly, the Glover case reasoned, a primary plan cannot fail to pay in accordance with paragraph[] ... (2)(A)  and, thus, cannot be liable under the private cause of action  unless its responsibility to pay for the treatment has been demonstrated prior to the litigation. Id. at 1308-09. As for how a primary plan's responsibility must be demonstrated, Glover pointed to the next sentence of sub-subparagraph (2)(B)(ii): A primary plan's 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. This reasoning raises several questions, all left unanswered. First, why would Congress include a private cause of action within a statutory scheme but then limit its use to situations in which the defendant's liability has already been legally demonstrated? Assuming that a primary plan's responsibility to pay is generally demonstrated by a judgment, then the private cause of action (with its provision for double damages) is morphed into a super-judgment enforcement mechanism: when a primary plan is adjudged liable under the ERISA laws but obstinately refuses to pay the judgment, the plaintiff can file a new cause of action so that the primary plan is really forced to pay. But why would Congress think such an unusual mechanism to be necessary here? Why is the typical judicial process for executing judgments insufficient? No answer is given from Glover, Central States, or the Act's sparse legislative history. Second, why would Congress choose to limit so severely the Act's only private cause of action through a sentence buried multiple subparagraphs away, especially when that sentence is contained in a sub-subparagraph that is not directly referenced in the private cause of action's text? No answer. Third, how can the demonstrated responsibility provision limit the liability of a primary plan to a private party when the text of that provision only places a condition on when primary plans must pay Medicare, not private parties? No answer.
If Glover leaves us in the dark, the history of the demonstrated responsibility provision is like turning on a light. Although the private cause of action has existed in the Act almost since the Act's inception, [11] the demonstrated responsibility provision is of more recent vintage. Congress added that provision in 2003 as part of an effort to address a specific situation: to enable Medicare to sue tortfeasors whose torts caused medical expenses borne by Medicare. See generally Rick Swedloff, Can't Settle, Can't Sue: How Congress Stole Tort Remedies from Medicare Beneficiaries, 41 Akron L.Rev. 557, 571-87 (2008) (providing an extensive history of the Act). In a series of cases in the early 2000s, Medicare asserted claims against the settlements that arose from individual-and mass-tort cases involving tobacco companies, drug manufacturers, and breast-implant manufacturers. See Mason v. Am. Tobacco Co., 346 F.3d 36, 39 (2d Cir.2003) (citing these cases). Essentially, Medicare had paid for some of the plaintiffs' medical expenses, so once the plaintiffs recovered their damages (which included medical expenses) from the tortfeasors, Medicare sought reimbursement. Medicare brought these lawsuits under the Medicare Secondary Payer Act by relying on an ambiguity in the Act's definition of a primary plan. [12] See, e.g., Thompson v. Goetzmann, 337 F.3d 489, 493-95 (5th Cir.2003). The Act defined a primary plan to include a self-insured plan, but at the time the Act gave no guidance as to what constituted a self-insured plan. See 42 U.S.C. § 1395y(b)(2)(A) (2001), amended by Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub.L. No. 108-173, § 301, 117 Stat.2066, 2221-22 (2003). Attempting to capitalize on this ambiguity, Medicare argued that the tortfeasors were self-insured plans because rather than purchasing liability coverage from a separate insurance carrier, the tortfeasors chose to carry their own risk of liability. See Goetzmann, 337 F.3d at 495. The federal courts, however, rejected this argument. See, e.g., Mason, 346 F.3d at 42 ([C]ourts have rejected all efforts to apply [the Act's] heavy remedy and double damages to the context of tort litigation.); Goetzmann, 337 F.3d at 496-501. Similarly, when inventive private plaintiffs filed a lawsuit against tobacco companies for their medical expenses on the same theory under the Act's private cause of action, the Second Circuit rejected it for the same reason: tortfeasors simply were not self-insured plans. See Mason, 346 F.3d at 38-43. The Second Circuit concluded its opinion, in October 2003, with an unmistakable invitation to Congress: Future amendments will be required for the statute to extend to the defendants in this action. Id. at 43. Congress accepted the invitation only two months later. In December 2003, as part of the Medicare Modernization Act (which was best known for adding a prescription drug benefit for Medicare beneficiaries), Congress amended the Medicare Secondary Payer Act to accommodate Medicare's failed litigation position. For our purposes, Congress made two important changes. First, Congress expressly defined a self-insured plan as [a]n entity that engages in a business, trade, or profession ... if it carries its own risk (whether by a failure to obtain insurance, or otherwise) in whole or in part. Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub.L. No. 108-173, § 301(b)(1), 117 Stat. at 2221-22 (codified as amended at 42 U.S.C. § 1395y(b)(2)(A)). This amendment reflected Congress's clear intention to make tortfeasors liable under the Act. Although when stripped from its context, this new statutory definition seems an odd way to create tortfeasor liability, it makes perfect sense against the legislative backdrop: Medicare's insistence in court that tortfeasors were self-insured plans. Indeed, the statutory definition of a self-insured plan mirrored the definition in a pre-existing federal regulation, to which the Fifth Circuit refused to give Chevron deference (despite Medicare's protestations) in Goetzmann, 337 F.3d at 498 & n. 25, 501-02. [13] Moreover, the limited legislative history makes clear that Congress sought specifically to abrogate those cases, like Goetzmann, that narrowly defined self-insured plan and, thus, prevented tortfeasor liability under the Act; the legislative history even mentions Goetzmann by name. See H.R.Rep. No. 108-178, pt. 2 at 189-90 (2003) (stating that the amendment sought to address [r]ecent court decisions such as Thompson v. Goetzmann  that allowed firms that self-insure for product liability ... to avoid paying Medicare for past medical payments related to the claim). The second important amendment to the Act in 2003 was the demonstrated responsibility provision. See Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub.L. No. 108-173, § 301(b)(2)(A), 117 Stat. at 2222 (codified as amended at 42 U.S.C. § 1395y(b)(2)(B)(ii)). That provision states that a primary plan must reimburse Medicare only if its responsibility to pay has been demonstrated, which can occur through a judgment, settlement, or other means. 42 U.S.C. § 1395y(b)(2)(B)(ii). Isolated from the context of its inclusion, the language of this provision is baffling and cryptic. But with the benefit of knowledge of its history and the legislative backdrop, we believe that we can answer two questions that are necessary to resolve this case and place the demonstrated responsibility provision in its proper place. First, does the demonstrated responsibility provision place a limiting condition on the liability of all primary plans, or does it limit the liability only of tortfeasors? Second, does the demonstrated responsibility provision apply only to lawsuits brought by Medicare for reimbursement, or does that provision also apply to lawsuits brought by private parties under the private cause of action? We answer these questions in the next two subsections.
We believe that Congress added the demonstrated responsibility provision as a limiting principle only for tortfeasor liability under the Act. Although the text of that provision is addressed to all primary plans  the Act's broadest category of private insurer, see id. § 1395y(b)(2)(A), which includes self-insured plans, and therefore (after the 2003 amendments) tortfeasors  the context of its inclusion strongly suggests that Congress intended it only as a condition precedent to tortfeasor liability. As discussed above, Congress added the provision in the Medicare Modernization Act, in direct response to cases that prevented tortfeasor liability, as part of an effort to amend the Act to permit tortfeasor liability. The Medicare Modernization Act made no other major changes to the Medicare Secondary Payer Act, [14] so there is no reason to believe that Congress intended to affect the liability of primary plans other than tortfeasors  that is, traditional primary plans, like private insurers. Moreover, the concept of demonstrated responsibility makes sense only in the context of tort (where no evidence of responsibility exists until it is adjudicated ex post), rather than in the context of an insurance contract (where insurers assume the responsibility of paying for enumerated contingencies ex ante). See Mason, 346 F.3d at 42 (discussing, in one of the very cases that precipitated Congress' amendments to the Act, this problem with tortfeasor liability under the Act: alleged tortfeasors ... have yet to assume the medical costs of any identifiable group of individuals). Accordingly, we hold that the demonstrated responsibility provision limits only lawsuits against tortfeasors, not lawsuits against private insurers. This interpretation is now fully supported by a federal regulation adopted in February 2006. The demonstrated responsibility statutory provision states that responsibility can be demonstrated by judgment, settlement, or other means. 42 U.S.C. § 1395y(b)(2)(B)(ii). Recognizing that Congress intended to limit the impact of this provision to tortfeasors, the Centers for Medicare and Medicaid Services (which administers Medicare) promulgated a regulation that expressly defines other means to include a contractual obligation. 42 C.F.R. § 411.22(b)(3). In other words, the federal agency recognized that an insurance contract automatically demonstrates a traditional private insurer's responsibility to pay, thereby rendering the demonstrated responsibility provision superfluous in such cases. This regulation interprets the ambiguous statutory phrase other means and is reasonable because it implicitly acknowledges that while a tortfeasor's responsibility must be determined ex post, the nature of insurance is the assumption of responsibility ex ante. Cf. Chevron U.S.A. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842-844, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). The meaning of our holding and the regulation for the instant case is that the demonstrated responsibility provision does not bar Bio-Medical's lawsuit against Central States. Central States is a traditional insurer, not a tortfeasor. And the demonstrated responsibility provision places a condition precedent only on lawsuits against tortfeasors. Thus, that provision does bar Bio-Medical's claim in this case. A healthcare provider like Bio-Medical need not first demonstrate the responsibility of a private insurer like Central States before bringing a lawsuit for double damages under the Act's private cause of action. It need not first sue and win, in order to sue again. Thus far, although we have provided a more complete analysis on this issue than the Glover opinion, we do not yet part company with it, because Glover applied the demonstrated responsibility provision in a lawsuit where the defendant was a tortfeasor. The language in Glover sweeps broadly, however, and there is widespread confusion in the district courts about the proper scope of the demonstrated responsibility provision. For these reasons, we believe it is best to address another question: whether the demonstrated responsibility provision applies only to lawsuits brought by Medicare for reimbursement, or if that provision also applies to lawsuits brought by private parties under the private cause of action.
The demonstrated responsibility provision applies only to lawsuits brought by Medicare, not lawsuits brought by private parties under the Act's private cause of action. No fewer than five reasons militate in favor of this conclusion. First, and most importantly, the provision's text places a condition only on when primary plans must reimburse Medicare; it does not mention when plans must pay private parties. See 42 U.S.C. § 1395y(b)(2)(B)(ii). Second, the structure of the Act suggests that the provision is limited to the reimbursement of Medicare. Congress placed the provision within subparagraph (2)(B), which governs the relationship between Medicare and primary plans. See id. § 1395y(b)(2)(B). Nowhere does subparagraph (2)(B) mention private parties, which are considered elsewhere, in paragraph (3), see id. § 1395y(b)(3)(A). Third, the legislative history suggests the same. In the public law that added the demonstrated responsibility provision, the provision appeared under a heading entitled clarifying amendments to conditional payment provisions. Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub.L. No. 108-173, § 301(b), 117 Stat. at 2221-22. Only Medicare can make conditional payments. And both of the other two amendments added under this heading (including the one that permitted tortfeasor liability) governed Medicare's ability to seek reimbursement. See id. § 301(b)(1), (3), 117 Stat. at 2221-22 (codified as amended at 42 U.S.C. § 1395y(b)(2)(A), (B)(iii)). Fourth, as discussed above, the predominant legislative backdrop was Medicare's (not private parties') failed attempts to bring lawsuits against tortfeasors. Fifth, attempting to apply the demonstrated responsibility provision to lawsuits brought by private parties essentially relegates the private cause of action to a super-judgment enforcement mechanism, and no plausible explanation exists for why Congress would have sought to limit it in that way. We believe it is important to note that under our theory of the Medicare Secondary Payer Act, the ultimate result reached in the Glover case  dismissing a lawsuit brought by private parties against tortfeasors under the Act's private cause of action, 459 F.3d at 1308-10  was correct, although not for so broad a reason as the language in Glover states. Motivating the decision in Glover were concerns that a contrary holding (1) would drastically expand federal court jurisdiction by creating a federal forum to litigate any state tort claim in which a business entity allegedly injured a Medicare beneficiary and, similarly, (2) would undermine class action requirements. Id. at 1309. Our approach avoids those potential pitfalls. We believe that when Congress amended the Act in 2003 to permit lawsuits against tortfeasors and to add the demonstrated responsibility provision, Congress intended to permit lawsuits against tortfeasors only by Medicare, and not lawsuits against tortfeasors by private parties. Thus, the plaintiffs' case in Glover should have failed not because the defendant's responsibility to pay had not been previously demonstrated, but rather because the Act does not permit a private cause of action (as opposed to one brought by Medicare) in tort. Due to widespread confusion about the demonstrated responsibility provision in the federal courts, we believe it is worth mentioning the several district court cases that erroneously applied the provision in reliance on Glover (some of which were from within our circuit). In some of the district court cases, the plaintiffs  arguing that the Act was a qui tam statute  were uninjured individuals who attempted to sue tobacco companies or health systems on behalf of the United States, and the courts of appeals held dismissal appropriate, but on another ground: those plaintiffs lacked Article III standing. See, e.g., Nat'l Comm. to Preserve Soc. Sec. & Medicare v. Philip Morris USA Inc., 601 F.Supp.2d 505, 509 (E.D.N.Y.2009), vacated and remanded, 395 Fed.Appx. 772 (2d Cir.2010); Stalley v. Erlanger Health Sys., Nos. 1:06-CV-194, 2:06-CV-216, 2:06-CV-217, 2:06-CV-265, 3:06-CV-359, 2007 WL 672301, at -6 (E.D.Tenn. Feb. 28, 2007), aff'd on other grounds, Stalley v. Methodist Healthcare, 517 F.3d 911 (6th Cir.2008). In other district court cases, the district courts extended the Glover language even further  by applying the demonstrated responsibility provision to the traditional insurance context, rather than merely to lawsuits against alleged tortfeasors, to prevent lawsuits by healthcare providers against private insurers. See Nat'l Renal Alliance, LLC v. Blue Cross & Blue Shield of Ga., Inc., 598 F.Supp.2d 1344, 1354 n. 5 (N.D.Ga.2009); Fresenius Med. Care Holdings, Inc. v. Brooks Food Grp., Inc., Civil Action No. 3:07CV14-H, 2007 WL 2480251, at -8 (W.D.N.C. Aug. 28, 2007). All of these cases applied the demonstrated responsibility provision beyond its proper scope. This holding provides an independent reason for why the demonstrated responsibility provision does not preclude this lawsuit by Bio-Medical against Central States. Bio-Medical sued Central States under the Act's private cause of action. And the demonstrated responsibility provision places a condition that must be fulfilled only before primary plans (specifically, tortfeasors) must reimburse Medicare, not before they must pay private parties. Accordingly, that provision does not apply in this case, and Bio-Medical's lawsuit under the private cause of action can proceed. The district court erred in holding otherwise.
Central States makes three other arguments for its interpretation of the demonstrated responsibility provision, but none are persuasive. First, Central States argues that if we do not apply the provision in this case, we would render the provision surplusage. But that is plainly false: the demonstrated responsibility provision still applies in all instances where Medicare sues alleged tortfeasors for the reimbursement of medical expenses caused by the tortfeasors. Medicare cannot bring such a lawsuit until the alleged tortfeasor's responsibility to pay has been demonstrated. Second, Central States points to the word fails in the private cause of action, which provides for liability when a primary plan fails to [pay] in accordance with paragraphs (1) and (2)(A). See 42 U.S.C § 1395y(b)(3)(A). One cannot fail to pay, Central States argues, unless one has been told to do so and refused  in other words, unless one's responsibility to pay already has been demonstrated. Cf. Glover, 459 F.3d at 1309 (reasoning that it cannot be said that Defendants have `failed' to provide appropriate reimbursement until their responsibility has been demonstrated). But this argument stretches the word fails far beyond both its legal and common meanings. The most relevant definition in Ninth Edition of Black's Law Dictionary defines the verb to fail as to be deficient or unsuccessful; to fall short. Nowhere does this definition indicate that failing requires obstinacy, as Central States suggests. And in common usage, a student can fail an exam on his first attempt, just as a debtor can fail to make the first of many monthly payments. Third, Central States argues that the purpose of the demonstrated responsibility provision is to permit private insurers to contest their liability without the threat of double damages, which automatically apply under the private cause of action. In other words, Central States argues, the provision prevents the windfall recoveries that would accrue to private plaintiffs whenever a private insurer unsuccessfully contests its liability. But Central States provides no reason why Congress would seek to protect in this manner private insurers who violate the Act by shifting costs to Medicare. See Mason v. Am. Tobacco Co., 346 F.3d 36, 43 (2d Cir.2003) ([I]t is harsh to impose [Medicare Secondary Payer Act] liability against alleged tortfeasors, but it is not harsh to impose such liability against entities who renege upon a pre-existing contractual arrangement to provide healthcare coverage. That is, it is not harsh to use the statute to serve the purpose for which it was enacted.). Moreover, the double damages required by the Act's private cause of action are not a windfall to the private plaintiff; rather, as discussed below, the Act contemplates that Medicare will seek reimbursement out of that recovery, so the plaintiff most likely will keep only its half.
We pause briefly to review our holdings. The demonstrated responsibility provision in the Medicare Secondary Payer Act, 42 U.S.C. § 1395y(b)(2)(B)(ii), does not apply to lawsuits brought by private parties under the Act's private cause of action, id. § 1395y(b)(3)(A), because the Act does not purport to create an action by healthcare providers against tortfeasors. Rather, that provision applies only to lawsuits brought by Medicare for reimbursement. Nor does that provision limit lawsuits against traditional insurers; it limits only lawsuits against tortfeasors. The proper scope of the demonstrated responsibility provision, therefore, is to limit the class of alleged tortfeasors whom Medicare can sue for reimbursement: those who have already been adjudged liable (or have entered into a settlement, etc.) for causing harm that led to Medicare expenses. Applying these holdings to our case, it is clear that Bio-Medical must prevail under the Act's private cause of action. The private cause of action entitles the plaintiff to double damages when the defendant failed to pay in accordance with paragraphs (1) and (2)(A). Id. Bio-Medical sued Central States under the private cause of action, and as discussed in Part III(A) above, Bio-Medical has proven that Central States failed to pay in accordance with paragraphs (1) and (2)(A). Accordingly, Central States is liable under the private cause of action. All that remains is to answer one more lingering puzzle: What is the proper amount of double damages?