Opinion ID: 783808
Heading Depth: 2
Heading Rank: 1

Heading: Are the Defendants a Primary Plan?

Text: 10 As already noted, the MSP statute allows Medicare to be reimbursed whenever a primary payer has wrongfully failed to provide healthcare coverage to an individual pursuant to a primary plan. The statute defines primary plan as a group health plan or large group health plan, ... a workmen's compensation law or plan, an automobile or liability insurance policy or plan ( including a self-insured plan ) or no fault insurance.... 42 U.S.C. § 1395y(b)(2)(A) (emphasis added). Regulations promulgated under the MSP statute define self-insured plan as an arrangement, oral or written ... to provide health benefits or medical care or [to] assume legal liability for injury or illness under which an entity carries its own risk instead of taking out insurance with a carrier. 42 C.F.R. §§ 411.21, 411.50(b). 11 Plaintiffs argue that each defendant in this action is a self-insured plan as a matter of law because the corporate structure through which each conducts its business has the purpose and legal effect, in part, to assume legal liability for injury. Plaintiffs' Brief at 15. That is, the corporate form in and of itself is a means of self-insurance because it allows individual directors and shareholders to shift liability from themselves to the corporation. Or, as the plaintiffs put it, it is commonly recognized that liability insurance and the corporate structure accomplish the same ends, and are `substitutes' for each other. Plaintiffs' Brief at 41. 12 The obvious problem with this approach is that it turns every corporation into an insurance company subject to suit under the MSP statute. But courts have uniformly rejected similar readings of the statute as seriously overbroad. The rejection is best stated in Philip Morris II: 13 Its logical implication is that any [corporate] entity with a risk of legal liability which chooses to retain any portion of that risk, no matter how small, may be pursued under MSP on the ground that it is a self-insured plan. ... The practical effects of [this] conception of MSP liability would transform the statute, meant primarily for use against insurers, see Philip Morris [I], 116 F.Supp.2d at 146 n. 22, into the very across-the-broad procedural vehicle for suing tortfeasors, which this Court has already declared impermissible. Id. at 135. Significantly, the Government is unable to provide any logically consistent way in which this outcome could be averted. 14 Philip Morris II, 156 F.Supp.2d at 7-8. 15 The plaintiffs here try to supply the argument's missing logical consistency by asserting that only large corporations will be per se subject to suit under the MSP statute because it is only large corporations, like defendants, that can afford to bear all the risk of their potential liabilities, that is, to self-insure. Plaintiffs' Brief at 49. But the district court correctly rejected this assertion because the text and the legislative history of the MSP statute do not support any such distinction between large corporations and `mom and pop' corporations without liability insurance. There is no indication of a legislative design to treat a homeowner or any individual without insurance differently from a small `S' corporation or a huge public corporation. Mason v. American Tobacco Co., 212 F.Supp.2d at 93. See also Thompson v. Goetzmann, 337 F.3d at 502 (there is simply no statutory support for the government's position that uninsured `sophisticated corporations' are per se self-insurers); Philip Morris II, 156 F.Supp.2d at 7 (the Government never advances any reason why a distinction should be made under MSP between `sophisticated corporations' and other parties, and how such a dichotomy could hold up in practice). 16 In their reply brief, plaintiffs make the following assertion in a further attempt to overcome this problem: 17 We do not posit that every entity, or every tortfeasor, without insurance is a self-insured plan. We do contend, however, that every publicly-traded corporation — such as the defendants — that does not purchase insurance to cover the risk of its activities is, to that extent, a self-insured plan as a matter of law. 18 Reply Brief at 21 (emphasis in original). 19 But limiting the MSP statute to publicly-traded corporations has no more basis in the statutory text or the regulations promulgated pursuant to the statute than does limiting the statute to sophisticated corporations. It also makes less sense in light of the fact that some of the largest corporations in the world are closely-held, and not publicly-traded, corporations. 20 The plaintiffs also argue that the defendants are self-insured plans as a matter of fact because they have made numerous public statements, made for the most part in documents required to be filed with the Securities and Exchange Commission, declaring that they will meet future tort liability through internal funds, and not through the purchase of liability insurance. See Plaintiffs' Brief at 57-60. These statements may very well be assertions of a preference for self-insurance on the part of the defendants. But regulations promulgated by the Health Care Financing Administration (HCFA), the agency that administers Medicare, state explicitly that `the mere absence of insurance purchased from a carrier does not necessarily constitute a plan of self-insurance.' Philip Morris II, 156 F.Supp.2d at 6 (quoting Medicare as Secondary Payer and Medicare Recovery Against Third Parties, 54 Fed. Reg. 41716, 417272 (Oct. 11, 1989)). Further, HFCA itself has ruled that `[o]ne of the conditions for a self-insurance program is that the provider must establish a fund with an independent fiduciary which is documented by a written agreement that includes legal responsibilities and obligations required by State laws.' Id. (quoting Mt. Diablo Med. Ctr. v. Blue Cross & Blue Shield Ass'n, Dec. No. 96-D40, 1996 WL 862610 at  (P.R.R.B. July 1, 1996)). Thus, [t]he statute's requirement of the existence of a primary `plan', connotes some type of formal arrangement by which an entity consciously undertakes to set aside funds to cover potential future liabilities and a formal procedure for processing claims made against that fund pursuant to the terms of the `plan.' In re Diet Drugs Prods. Liab. Litig., 2001 WL 283163 at . 21 But the complaint merely declares the purely legal conclusion, which we have just held to be incorrect, that a `self-insured plan' within the meaning of the MSP statute includes a corporation that has decided not to buy insurance for the legal liabilities or obligations that might be imposed on it, whether or not that decision is written down, and whether or not the corporation has established reserves to cover such liabilities or obligations. Fourth Amended Class Action Complaint, ¶ 34. The complaint does not allege, even in a conclusory fashion, that the defendants, alone or collectively, have actually established any concerted plan to pay anyone's healthcare expenses beyond having made a decision to set aside funds to cover potential future tort liability. This is not sufficient to constitute a self-insured plan for the purposes of the MSP statute, and the district court correctly held that, at least on the strength of the allegations set forth in the complaint, the [d]efendants have no such plan in place. Mason v. American Tobacco Co., 212 F.Supp.2d at 92. See also Thompson v. Goetzmann, 337 F.3d at 500-01 (we are compelled to pose the rhetorical question, where's the plan?); Philip Morris II, 156 F.Supp.2d at 6 (dismissing MSP claim where plaintiffs failed to allege the existence of claims-handling procedures; of a fiduciary ... or of written documents allocating legal responsibilities and obligations). 22 Our conclusion here is not called into question by the Eleventh Circuit's very recent decision in Baxter Int'l. That case involved the federal government's motion to intervene in a mass tort litigation in which a settlement had been negotiated between a plaintiff class and a group of defendants who were manufacturers of silicone breast implants. The government sought intervention in order to seek reimbursement under the MSP statute for medical costs of class members which had been paid by Medicare. The Eleventh Circuit reversed the district court's dismissal of the motion, a decision that was in part based upon a finding that the defendants were not a self-insured plan within the meaning of the MSP statute. 23 The instant case is clearly distinguishable. Through the establishment of a settlement fund, the Baxter Int'l defendants had assumed obligations to pay for the medical costs of plaintiff class members. Thus, as the Eleventh Circuit noted, [a]ccording to the Government's complaint, about 81,000 claimants had received some payment from [the settlement fund] as of April 1999. To date, more than 400,000 women have registered as potential claimants, and [the defendants] have paid more than $1 billion into the settlement fund. 345 F.3d at 873-74, 2003 WL 22120071 at . The instant case presents a far different situation. Here the plaintiffs are asserting claims under the MSP statute against alleged tortfeasors who have yet to assume the medical costs of any identifiable group of individuals. At most, the plaintiffs can only assert that the defendants have set aside funds to cover possible future liabilities. But the Eleventh Circuit specifically held in Baxter Int'l that the mere set[ting] aside of funds ... to cover future liabilities is insufficient by itself to constitute a self-insurance plan within the meaning of the MSP statute. Id. 345 F.3d at 894, . Indeed, the court declared its agreement with the district court's opinion in the instant case, which it correctly characterized as rejecting the theory that a large corporation without insurance that was accused of inflicting a tortious injury was, by definition, operating a self-insured plan. Id. at 895, n. 22, , n. 22. For the reasons discussed above, we have rejected this theory as well. 24