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MAO-MSO Recovery II, LLC v. Farmers Insurance Exchange

United States District Court, C.D. California

May 7, 2018

MAO-MSO RECOVERY II, LLC, ET AL.
v.
FARMERS INSURANCE EXCHANGE, ET AL.

          Present: The Honorable CHRISTINA A. SNYDER, JUDGE

          CIVIL MINUTES - GENERAL

         Proceedings: (IN CHAMBERS) - DEFENDANTS' MOTION TO STRIKE OR, IN THE ALTERNATIVE, DISMISS PLAINTIFFS' SECOND AMENDED CLASS ACTION COMPLAINT in No. 17-2522 (Dkt. 82, filed January 22, 2018).

         DEFENDANTS' MOTIONS TO STRIKE OR, IN THE ALTERNATIVE, DISMISS PLAINTIFFS' SECOND AMENDED CLASS ACTION COMPLAINT in No. 17-2559 (Dkts. 81 & 82, filed January 22, 2018).

         I. INTRODUCTION

         Plaintiffs MAO-MSO Recovery II, LLC, MSP Recovery Claims, Series LLC, and MSPA Claims 1, LLC (collectively, “plaintiffs”) bring these two putative class action lawsuits against various corporate entities within the Farmers Insurance Group of Companies (hereinafter collectively referred to as “defendants”). Plaintiffs allege they are assignees of numerous Medicare Advantage Organizations (“MAOs”) and seek to recover double damages pursuant to the Medicare Secondary Payer (“MSP”) provisions of the Medicare Act, 42 U.S.C. § 1395y(b), based on defendants' failure to fulfill their statutory obligation to reimburse the MAOs for accident-related medical expenses. More than a dozen similar lawsuits have been filed by plaintiffs against other insurance companies throughout the country.[1]

         On March 31, 2017, plaintiffs filed a complaint in Case No. 2:17-cv-02559, the “Settlement Case, ” which alleges that defendants have a duty to reimburse the MAOs based on settlement agreements between tortfeasors insured by defendants and injured Medicare beneficiaries. On April 3, 2017, plaintiffs filed a related complaint in Case No. 2:17-cv-02522, the “No-Fault Case, ” alleging that defendants have reimbursement obligations because they issued no-fault insurance policies to Medicare beneficiaries injured in automobile accidents. Defendants filed motions to dismiss in both cases, but plaintiffs mooted those motions by amending their complaints. On September 6, 2017, defendants filed motions to dismiss the first amended complaints (“FACs”) for lack of standing and failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(1) and Rule 12(b)(6) of the Federal Rules of Civil Procedure. On November 20, 2017, the Court granted defendants' motions and dismissed the FACs for lack of standing, but granted leave to amend. On December 11, 2017, plaintiffs filed second amended complaints (“SACs”) in both actions.

         On January 22, 2018, defendants filed motions to strike or, in the alternative, dismiss the SACs. See No. 17-2559, dkts. 81 & 82; No. 17-2522, dkt. 82 (collectively, “Mot.”). On February 5, 2018, plaintiffs filed a joint opposition. No. 17-2559, dkt. 83; No. 17-2522, dkt. 83 (“Opp'n”). On February 12, 2018, defendants filed reply briefs. No. 17-2559, dkt. 84; No. 17-2522, dkt. 84 (collectively, “Reply”). On February 26, 2018, the Court heard oral argument, took the motions under submission, and directed the parties to engage in limited jurisdictional discovery with respect to plaintiffs' standing to assert claims against the various Farmers entities named in the SACs. Having carefully considered the parties arguments, the Court finds and concludes as follows.

         II. BACKGROUND

         A. Statutory Framework

         Medicare, enacted in 1965, is a federal health insurance program primarily benefitting those 65 years of age and older. See Social Security Amendments of 1965, Pub. L. No. 89-97, 79 Stat. 286 (codified as amended at 42 U.S.C. §§ 1395 to 1395kkk- 1). The Medicare Act consists of five parts: Part A, Part B, Part C, Part D and Part E. Parts A and B regulate the traditional fee-for-service Medicare program administered by the Centers for Medicare & Medicaid Services (“CMS”). See 42 U.S.C. §§ 1395c to 1395i-5; §§ 1395-j to 1395-w. Part C is the Medicare Advantage program-described in further detail below-wherein Medicare beneficiaries may elect to use private insurers, i.e., MAOs, to deliver their Medicare benefits. See 42 U.S.C. §§ 1395w-21 to w-28. Part D provides for prescription drug coverage, and Part E contains generally applicable definitions and exclusions. One such exclusion is the MSP provisions of the Act. See 42 U.S.C. § 1395y(b).

         1. MSP Provisions of the Medicare Act

         In 1980, Congress added the MSP provisions to the Medicare Act in an effort to contain rising Medicare costs. See Omnibus Reconciliation Act of 1980, Pub. L. No. 96- 499, 94 Stat. 2599 (codified as amended at 42 U.S.C. § 1395y(b)); see also Zinman v. Shalala, 67 F.3d 841, 843 (9th Cir. 1995). Prior to the MSP's passage, Medicare often acted as a primary insurer, that is, Medicare paid for its beneficiaries' medical expenses even if there was overlapping insurance coverage or when a third party had an obligation to pay for the expenses. The MSP makes Medicare a “secondary payer” and shifts responsibility for medical payments to other group health plans, workers' compensation, no-fault and liability insurers, which are considered “primary plans.” 42 U.S.C. § 1395y(b)(2). Specifically, the MSP prohibits Medicare from paying for items or services if “payment has been made or can reasonably be expected to be made” by a primary payer. Id. § 1395y(b)(2)(A)(ii).

         If a primary payer “has not made or cannot reasonably be expected to make payment with respect to the item or service promptly, ” Medicare is authorized to make a “conditional payment.” Id. § 1395y(b)(2)(B)(i). However, since Medicare remains the secondary payer, the primary payer must then reimburse Medicare for all conditional payments “if it is demonstrated that such primary plan has or had a responsibility to make payment with respect to such item or service.” Id. § 1395y(b)(2)(B)(ii). This 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.” Id.

         To facilitate recovery of these conditional payments, the MSP provides for a right of action by the United States, for double damages, against “any or all entities that are or were required or responsible” to make payment under a primary plan. Id. § 1395y(b)(2)(B)(iii). In addition to the right of action by the United States, Congress in 1986 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).” Omnibus Budget Reconciliation Act of 1986, Pub. L. No. 99-509, 100 Stat. 1874 (codified as amended at 42 U.S.C. § 1395y(b)(3)(A)). “The private cause of action allows Medicare beneficiaries and healthcare providers to recover medical expenses from primary plans.” Parra v. PacifiCare of Arizona, Inc., 715 F.3d 1146, 1152 (9th Cir. 2013).

         2. MAOs as Secondary Payers

         In 1997, Congress enacted Medicare Part C, now known as the Medicare Advantage program. Balanced Budget Act of 1997, Pub. L. No. 105-33, 111 Stat. 251 (codified as amended at 42 U.S.C. §§ 1395w-21 to w-28). Part C allows eligible participants to opt out of traditional Medicare and instead obtain benefits through MAOs, which receive a fixed payment from the CMS for each enrollee. 42 U.S.C. §§ 1395w-21, 1395w-23. Part C is intended to “allow beneficiaries to have access to a wide array of private health plan choices in addition to traditional fee-for-service Medicare. . . . [and] enable the Medicare program to utilize innovations that have helped the private market contain costs and expand health care delivery options.” H.R. Rep. No. 105-149, at 1251 (1997).

         Part C also includes a secondary payer provision that authorizes a MAO to charge a primary payer for medical expenses paid on behalf on an enrollee. See 42 U.S.C. § 1395w-22(a)(4). Although this provision does not expressly state that an MAO can avail itself of the MSP private cause of action at § 1395y(b)(3)(A), CMS regulations state that an “[MAO] will exercise the same rights to recover from a primary plan, entity, or individual that the Secretary exercises under the MSP regulations in subparts B through D of part 411 of this chapter.” 42 C.F.R. § 422.108(f). In addition, both the Eleventh and Third Circuits have held that an MAO has a private right of action under § 1395y(b)(3)(A) to recover conditional payments it made on behalf of its enrollees. See MSP Recovery, LLC v. Allstate Ins. Co., 835 F.3d 1351, 1361 (11th Cir. 2016); In re Avandia Marketing, Sales Practices, & Products Liability Litigation, 685 F.3d 353, 356, 367 (3d Cir. 2012).

         B. Procedural History

         1. Settlement and No-Fault Complaints

         On March 31 and April 3, 2017, plaintiffs filed their respective complaints in these cases, naming the Farmers Insurance Exchange and the Farmers Group Inc. d/b/a Farmers Underwriters Association as defendants. No. 17-2559, dkt. 1 (“Settlement Compl.”); No. 17-2522, dkt. 1 (“No-Fault Compl.”). The complaints allege that “numerous” MAOs assigned their recovery rights under the MSP to plaintiffs. Settlement Compl. ¶¶ 39-42; No-Fault Compl. ¶¶ 45-48.

         In the Settlement Case, plaintiffs allege that numerous Medicare beneficiaries, who were enrolled in Medicare Advantage plans administered by the MAOs, suffered injuries in accidents and received treatment paid for by the MAOs. Settlement Compl. ¶ 45. Plaintiffs allege that defendants had a primary responsibility to pay for these medical expenses pursuant to the MSP based on settlement agreements between tortfeasors insured by defendants and the injured Medicare beneficiaries, but failed to pay or reimburse the MAOs for these expenses. Id. ¶ 46. The complaint indicates that there are two “representative” MAOs and two “representative” Medicare beneficiaries but the names of these entities and individuals were redacted. Id. ¶¶ 57-58. Plaintiffs noted that the names of the beneficiaries and corresponding MAOs would be provided to defendants following the entry of a protective order. Id. at 15 n.9. Plaintiffs assert two claims against defendants: (1) a private cause of action for double damages pursuant to § 1395y(b)(3)(A); and (2) breach of contract by way of subrogation under 42 C.F.R. § 411.24(e). Id. at 18-20.

         In the No-Fault Case, plaintiffs allege that numerous Medicare beneficiaries injured in automobile accidents were both enrolled in Medicare Advantage plans administered by the MAOs and carried no-fault insurance policies issued by defendants that provided coverage for medical expenses related to injuries sustained in automobile accidents. No-Fault Compl. ¶ 52. Plaintiffs allege that defendants were required under the MSP to make primary payment for the beneficiaries' medical expenses covered by the MAOs, but defendants failed to pay or reimburse the MAOs. Id. ¶ 53. As in the Settlement Case, the identities of the “representative” beneficiaries and MAOs were redacted. Id. ¶¶ 48-49. Plaintiffs assert a single claim for double damages pursuant to § 1395y(b)(3)(A). Id. at 14-16. Both cases seek to certify nationwide classes of similarly situated MAOs. Settlement Compl. ¶ 50; No-Fault Compl. ¶ 59.

         2. First ...


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