Texas Workers’ Comp vs. Medicare Secondary Payer Act: Will the Supreme Court Decide Which Will Prevail?

On August 8, 2013, Guadalupe Caldera petitioned the U.S. Supreme Court to take cert in his case against The Insurance Company of the State of Pennsylvania. Last spring, the Fifth Circuit Court of Appeals upheld a District Court opinion finding that the insurer had no obligation to reimburse Medicare for medical care that the carrier had stipulated its responsibility for in an Agreed Judgment, because at the time of the surgeries in question, the claimant failed to seek pre-authorization pursuant to state workers’ compensation law from the carrier, despite the fact that carrier had administratively closed his claim several years before. The Fifth Circuit essentially said that the carrier had no responsibility to pay for the medical treatment in question; therefore, the carrier has no obligations to repay Medicare under the Medicare Secondary Payer Act (MSP).

On its face, this appears to be a Supremacy Clause issue. Does the MSP supersede state law and create coverage where none otherwise exists? On this issue alone, the Fifth Circuit is correct in its analysis and finding that it does not. Absent an underlying legal obligation to pay for medical treatment, Medicare has no right to reimbursement. But that is not the question in Caldera. Following the termination of Caldera’s workers’ compensation benefits, Medicare became his primary payer. It wasn’t until an agreed judgment was later entered into that the MSP was triggered enabling Medicare to reach back to the carrier for reimbursement. Responsibility attached upon agreement and not under Texas law for purposes of an MSP reimbursement claim. There are two different "responsibilities" at play here and it is the one defined in the MSP that should have prevailed.

It is important to understand the order of events to see why this distinction is significant. Caldera’s medical benefits were terminated in 2003 when an adjuster decided that no further treatment was related to the claim. Given that Caldera was unrepresented and already receiving SSDI benefits and entitled to Medicare, he simply transitioned over to Medicare, which paid for all of his work related treatment inclusive of surgeries in 2005 and 2006. Caldera later obtained legal representation and challenged the termination of his benefits, ultimately resulting in an Agreed Judgment in 2009 in which the carrier stipulated to responsibility for all medical treatment back to the date of injury. Because the Texas law does not permit settlement and award of medical damages, even under these circumstances, Caldera could not personally recover those expenses regardless. However as the Medicare beneficiary, he did have standing to bring a private cause of action on behalf of Medicare under 42 U.C.S.C. § 1395y(b)(3)(A) for recovery of twice those payments.

To illustrate the point, it is helpful to look at the MSP Manual where CMS explains how the MSP attaches in a liability claim. When you are injured in an accident, seldom does a liability carrier immediately accept responsibility and start making medical payments. That is the reason for PIP coverage as well as why Congress permitted Medicare conditional payments in the first place. It is generally not until the end, when there is a judgment or settlement, that the carrier finally makes payment inclusive of all related medical expenses, past and/or future. The manual explains that upon settlement, judgment, award or other payment that the MSP arises by operation of law, entitling Medicare to reimbursement. Prior to that moment in time, those were just Medicare benefits paid on behalf of a Medicare beneficiary. If there was no one to blame for the accident, Medicare would have to pay. If the beneficiary didn’t file a claim (and assuming Medicare couldn’t subrogate) or lost his suit, Medicare would simply remain primary and the MSP never triggered. So had Mr. Caldera never challenged his workers’ compensation termination or The Insurance Company of the State of Pennsylvania prevailed in the impending judicial review, Medicare would have remained primary payer. It is only because the carrier voluntarily entered into that Agreed Judgment rather than face the potential of an unfavorable judicial review of Caldera’s workers’ comp appeal that it exposed itself to the MSP. Had the claimant been covered by any other private health insurance or even if Medicare were solely exercising its subrogation rights, this would probably not be an issue. However, due to the statutory recovery rights in play here, the outcome of this situation could very well lie within the MSP alone with only the Agreed Judgment being significant in the outcome.

The MSP statute and regs are clear that responsibility, for purposes of MSP recoveries alone, may be demonstrated by a settlement, judgment, award or other payment. The Fifth Circuit focused on responsibility under the state workers’ comp law which is moot in light of the agreed judgment for purposes of the MSP. This case really no longer has anything to do with the underlying workers’ comp case and can be adjudicated under the MSP alone. Mr. Caldera’s workers’ comp rights are irrelevant as he brings this suit standing in the shoes of the federal government invoking its statutory recovery rights triggered by the carrier’s admission of responsibility in the Agreed Judgment.

All that being said, the petition takes a different approach in appealing to the high court to take cert. The petition alleges a three-way split among the circuits with respect to what is meant by “demonstrated responsibility.” It uses the Bio-Medicare Applications of Tennessee Sixth Circuit case to illustrate how that court overcame the majority of circuits requiring that there must be some demonstration of liability by the primary payer by distinguishing a private cause of action by the United States made under 42 U.S.C.S. § 1395y(b)(2)(B)(iii) compared to those by private citizens under 42 U.S.C.S. § 1395y(b)(3)(A). The responsibility language exists only in the former, therefore, the Sixth Circuit determined that the restriction applied only to government recoveries. Cases filed under the latter only need to demonstrate that the primary payer failed to make payment, which is the case here. This same Sixth Circuit case has already led to another unfortunate result in Michigan where a provider who had already billed and accepted a conditional payment from Medicare was granted standing to pursue recovery on behalf of Medicare under 42 U.S.C.S. § 1395y(b)(3)(A) for double that same payment from the primary payer without any liability determination. Additionally, that section of the statute is being manipulated to overcome the poorly worded statutory and regulatory provisions governing Medicare Advantage plans, therefore, it is imperative that the high court take action in this case to prevent any further absurdities.

With regard to absurd outcomes, the public policy implications here are important. On the most basic level, it is ludicrous to believe that one must seek pre-authorization from an insurer that cut off medical benefits to begin with. To allow an insurer to accept responsibility for a medical condition but not obligate it to reimburse the entity that absorbed its obligations screams of unjust enrichment. But even more disconcerting is the idea that this could encourage more workers’ compensation carriers to improperly terminate benefits at will in the hope that some percentage of claimants will just go away and enable it to shift medical obligations to Medicare and other private health insurers because even if they were to fight back later and prevail, there is potential that the carrier would not have to reimburse medical expenses incurred in the interim. Because the outcome of this case is simply wrong on so many levels, it is imperative that the Supreme Court seriously consider this petition.

What is the likelihood of the Court taking cert in this case? The MSP does not have a great success rate so far. The Court refused to hear Hadden v. US, but the circuit conflict implied in that case just wasn’t there. The outcome in Hadden was completely consistent with all Medicare policies, regs and laws, unconscionable as they may be. The Court also refused to take cert in In re Avandia. Again, there was no conflict and the outcome was reasonable within the Third Circuit's interpretation and analysis of the MSP. While we are desperate for a high court opinion on anything MSP related, it was understandable that the Court elected not to open that can of worms on those cases. But beside the constitutional implications this case represents, I truly believe this outcome to have been wrong and in desperate need of redress.

Reponses are due by September 11, 2013, and it is likely that we could have a decision as to whether the Court will hear this case by year end. While the state law issue is not at the crux of this decision, sufficient amici could easily make the Tenth Amendment the issue; therefore, it is imperative that all primary payers serious consider filing briefs. CMS has a long history of essentially disregarding state law arguments when challenging the extent of reimbursement and/or Medicare set-aside obligations, therefore, a decision of this kind could finally force the issue and bring an end to the overreaching demands make by CMS.

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