By: Mark Popolizio, Esquire
In Caldera v. Insurance Company of State of Pennsylvania, No. C-11-321, 2012 U.S. Dist. LEXIS 12888 (S.D. Texas February 2, 2012) a claimant filed a private cause of action claim against the workers’ compensation carrier seeking double damages under the Medicare Secondary Payer Statute (MSP) in relation to certain payments Medicare made for medical treatment.
In this case, Medicare paid for two lumbar surgeries during a period in which the carrier had denied medical benefits. The parties subsequently entered into an Agreed Judgment in state court through which it was established that the condition requiring back surgery was, in fact, related to the claimant’s work accident. While the carrier accepted compensability of the claimant’s injury, this agreement did not liquidate damages or require that the carrier make any specific payments.
The claimant took the position that the Agreed Judgment established the carrier’s “responsibility” for the Medicare payments under the MSP, and that the MSP preempted any state law limitations to his claims.
The carrier moved to dismiss the case on grounds that it was not responsible for reimbursing Medicare’s payments under the MSP as it was not liable for these expenses as part of the underlying workers’ compensation action since the claimant had failed to properly exhaust his administrative remedies under the Texas workers’ compensation statute and was time barred from doing so.
The United States District Court for the Southern District of Texas (Nelva Gonzales Ramos, J.) dismissed the claimant’s action for lack of subject matter jurisdiction finding, in part, that the Agreed Judgment did not establish the carrier’s “responsibility” under the MSP, and that the MSP did not preempt required statutory and administrative claim requirements under the Texas workers’ compensation system.
The Caldera decision can be outlined in greater detail as follows:
The claimant sustained a low back injury in a 1995 work accident for which the carrier provided initial medical benefits. However, in July 2002 the carrier denied any further benefits on grounds that the claimant’s work injury had resolved and that any additional medical issues were unrelated to his work accident. The claimant did not appeal the carrier’s denial or otherwise further pursue his medical claims through the workers’ compensation case. In 1998, the claimant was awarded social security disability benefits and became a Medicare beneficiary in connection with his disability award.
In 2005 and 2006, the claimant underwent lumbar surgery totaling $42,637.41 which Medicare paid. The claimant did not seek prior approval of the surgeries in accordance with the required pre-authorization procedures under the Texas workers’ compensation system, nor did he otherwise file a claim for payment of these bills through the workers’ compensation case.
In April 2011, the parties entered into an Agreed Judgment through which the carrier agreed that the claimant’s underlying lumbar condition, including the need for the surgeries, was in fact related to the original 1995 work accident.
While the Agreed Judgment established compensability, there was no determination that the payments issued by Medicare were properly owed by the carrier, either in conjunction with that agreement or otherwise.1 Furthermore, as part of the litigation it was undisputed that the time period for the claimant to file a claim for these payments through the workers’ compensation system had long since expired.
In October 2011, the claimant filed a declaratory judgment suit under the MSP’s private cause of action provision2 seeking a court order requiring the carrier to pay twice the amount of Medicare’s payments, or $85,274.82 plus interest.3
The carrier moved to dismiss the claimant’s action on various grounds, including that the claimant’s claim was not proper under the MSP since he had failed to exhaust his administrative remedies as part of the workers’ compensation case.
The claimant argued that the Agreed Judgment demonstrated the carrier’s “responsibility” to reimburse the Medicare payments under the “by other means” reference contained in 42 U.S.C. § 1395y(b)(2)(B)(ii). This section, in pertinent part, states:
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. (Emphasis Added).
As part of this argument, the claimant contended that once a claim is determined to be compensable, the burden of demonstrating “responsibility” under the MSP is met and the scope of a primary payer’s responsibility is determined by the actual amount Medicare paid.
In this sense, the claimant viewed the compensability determination as basically permitting him “to don the ‘gorilla suit’ of Medicare to then go and collect from [the carrier] the full amount that Medicare had paid because Medicare had already determined that the amount was reasonable.”4
In addition, while conceding that he failed to exhaust his administrative recourses in the workers’ compensation action, the claimant argued that the MSP’s reimbursement provisions preempted the unexhausted state remedies.5
In response, the carrier argued that the Medicare payments did not constitute reimbursable “conditional payments” under the MSP since it had not made payment and could not reasonably be expected to make payment unless and until it was ordered to do so following the completion of the workers’ compensation administrative process.6 Accordingly, the carrier argued that it could only be considered a responsible primary payer to the extent it had made payment, or was reasonably expected to make payment, in accordance with state workers’ compensation law.7
The carrier also challenged the claimant’s preemption argument asserting that there was no conflict issue between the MSP and the Texas workers’ compensation statute. Specifically, the carrier noted that under Texas law a workers’ compensation carrier only becomes liable for medical treatment after the claimant has complied with all applicable state statutes and administrative code provisions, which the claimant failed to do and was since precluded from doing.
The carrier argued that the MSP “continually refer[s] back to the requirement that its enforcement must follow compliance with the relevant state workers’ compensation scheme,” making specific reference to certain provisions in the Code of Federal Regulations which it contended required claimants to file all “proper” claims and exhaust all available remedies.8 The carrier cautioned that a “finding that the administrative remedies need not be exhausted would create havoc in the workers’ compensation system by providing an incentive for claimants to fail to comply with its requirements.”9
How Did the Court Rule?
The court dismissed the claimant’s action.
The court found that the Agreed Judgment did not establish the carrier’s responsibility for Medicare’s payments under the “by other means” portion of 42 U.S.C. 1395y(b)(2)(B)(ii). As part of this assessment, the court declined to apply this phrase in such a manner as to permit a “free-for-all of legal theories.”10
Rather, the court stated that in order to find the carrier liable to pay under this theory there must be “an enforceable obligation such as a judgment or settlement” and that “[a] theory of liability that has not been pursued before imposing MSP collection provisions does not qualify as ‘other means.”11 In this regard, the court sided with prior precedent dismissing MSP actions in situations where the primary payer’s liability was not already established, noting that “liquidating the primary payer’s obligation is not a federal question that triggers federal jurisdiction.”12
As part of this analysis, the court found that since the carrier’s liability for medical expenses (either specified or generalized) had not been conceded, the scope of any liability needed to be determined in accordance with state workers’ compensation law. The court stated:
Medicare’s statutory obligation to pay only those medical expenses that are reasonable and necessary is not necessarily equivalent to medical expenses that are preauthorized, timely submitted for ICSP’s review, and payable pursuant to the workers compensation system. Because of Medicare’s determination of the amount, Caldera argues that he only needs to prove ICSP’s ‘responsibility’ (as opposed to ‘liability’), and that ‘responsibility’ is equivalent to a ‘compensable injury.’ However, it takes the convergence of ‘compensable injury’ as applied to ICSP’s liability and ‘covered amounts’ as applied to ICSP’s liability to get to the type of ‘responsibility’ that is demonstrated by a judgment, settlement, or ‘other means.’ (Emphasis by the court).13
In addition, the court ruled that the MSP did not preempt Texas workers’ compensation law in this instance agreeing with prior precedent holding that if a claimant’s right to payment is limited under a primary plan or by operation of state law, then Medicare’s claim is thereby equally limited.14 On this point, the court stated:
ICSP provides coverage under the terms of Texas workers’ compensation law. If the workers’ compensation administrative remedies are not exhausted and if ICSP does not voluntarily agree to pay, then Caldera has not demonstrated ICSP’s ‘responsibility’ by a judgment, settlement, or other means.15
Under this reasoning the court rejected the assertion that the Agreed Judgment cloaked the claimant with “the ‘gorilla suit’ of Medicare” empowering him to pursue full reimbursement against the carrier. Rather, the court noted that the claimant’s private right of action claim more appropriately “require[d] squeezing Medicare’s gorilla body into Caldera’s workers’ compensation overalls.”16
Based on the foregoing, the court dismissed the claimant’s suit for lack of subject matter jurisdiction.
About the Author
Mark Popolizio, Esquire is Section 111 Senior Legal Counsel for Crowe Paradis Services Corporation. Mark is a nationally recognized leader in MSP compliance. He has authored numerous articles on MSP issues including MMSEA Section 111, MSAs and conditional payments. Mark is a regularly featured presenter at national seminars and other industry events. Prior to dedicating his practice to MSP compliance in 2006, Mark practiced workers’ compensation and liability insurance defense for ten years representing carriers, employers, third party administrators and self insureds. Mark can be reached at firstname.lastname@example.org or (786) 459-9117.
1 Caldera v. Insurance Company of State of Pennsylvania, No. C-11-321, 2012 U.S. Dist. LEXIS 12888, at *2 (S.D. Texas February 2, 2012). Under the terms of the Agreed Judgment, it was agreed that the 1995 work accident was a “producing cause” of the claimant’s lumbar strain/sprain, L5-S1 disc protrusion, and L5-S1 disc herniation after July 23, 2002 (which was the date the carrier filed its denial of continuing benefits). This agreement did not contain any provisions requiring the carrier to pay medical or other damages. Agreed Order (April 12, 2011) at 3.
2 The private cause of action provision of the MSP is codified as 42 U.S.C. § 1395y(b)(3)(A). This section provides as follows: There is established a private cause of action for damages (which shall be in an amount double the amount otherwise provided) in the case of a primary plan which fails to provide for primary payment (or appropriate reimbursement) in accordance with paragraphs (1) and (2)(A).
3 In his prayer for relief, the claimant sought an order declaring that: (a) the MSP preempted the Texas Workers’ Compensation Act on grounds that under the MSP Medicare had already determined and paid for medical services it deemed reasonable and necessary, and that same were “part of a compensable injury pursuant to the Texas Workers’ Compensation Act, as reflected by a valid state court judgment;” (b) Medicare issued $42,637.41 in conditional payments; (c) the damages owed by the carrier to the claimant “for bringing this private cause of action shall be $85,274.82 which is an amount double that paid by Medicare as ‘conditional payments’”; and (d) assessment of interest on the alleged amount owed. Plaintiff’s Original Complaint & Request for Declaratory Relief (October 4, 2011) at 6.
4 Caldera, 2012 U.S. Dist. LEXIS 12888, at *7. Regarding his failure to timely liquidate this claim through the workers’ compensation system, the claimant took the position that the duration of the carrier’s “responsibility” was for his lifetime under the Texas labor code. Id.
5 Id. In support of this argument the claimant referenced, in part, 42 C.F.R. § 411.32(a) and 42 C.F.R. 411.24(f)(1). See, Plaintiff’s Brief in Response to Defendant’s FRCP 12(b) Motions and Plaintiff’s Brief in Support of Plaintiff’s Declaratory Judgment (November 10, 2011) at 12-13.
6 Caldera, 2012 U.S. Dist. LEXIS 12888, at *5. See also, Defendant’s Reply in Support of its Motion to Dismiss (January 13, 2012) at 3.
7 Defendant’s Reply in Support of its Motion to Dismiss (January 13, 2012) at 3.
8 Id. at 5-6; citing, 42 C.F.R. §§ 411.21 and 411.43.
9 Caldera, 2012 U.S. Dist. LEXIS 12888, at *11. Along these same lines, the carrier in its reply pleading in support of its motion to dismiss argued that “[a] carrier cannot be found liable to reimburse Medicare unless and until there has been compliance with a state’s ‘workers’ compensation law.’ The [MSP] statute does not enlarge the rights of a claimant subject to the workers’ compensation laws of a particular state, nor does the statute void a workers’ compensation claimant’s duty to follow a state’s workers’ compensation laws.” Defendant’s Reply in Support of its Motion to Dismiss (January 13, 2012) at 4.
10 Caldera, 2012 U.S. Dist. LEXIS 12888, at *9.
12 Id.; citing Glover v. Liggett Group, Inc., 459 F.3d 1304 (11th Cir. 2006) (per curiam). The court in Caldera noted that Glover outlined several “compelling reasons” for refusing to allow litigants to liquidate their claims in the course of the MSP action, including (i) questions regarding Congressional intent to expand federal jurisdiction over “traditional” state law claims; (ii) permitting the defendant to contest liability “without risk of an automatic doubling of liability” per the MSP’s penalty provisions; and (iii) preventing MSP actions from turning into class actions. Glover, 459 F.3d at 1309.
13 Caldera, 2012 U.S. Dist. LEXIS 12888, at *9.
14 Id. at *11 citing, Waters v. Farmers Texas Mutual Insurance Company, 9 F.3d 397 (5th Cir. 1993).
15 Caldera, 2012 U.S. Dist. LEXIS 12888, at *12.