United States District Court, C.D. California
MAO-MSO RECOVERY II, LLC, ET AL.
FARMERS INSURANCE EXCHANGE, ET AL.
Present: The Honorable CHRISTINA A. SNYDER, JUDGE
CIVIL MINUTES - GENERAL
(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,
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).
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.
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.
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.
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. §
MSP Provisions of the Medicare Act
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).
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.
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).
MAOs as Secondary Payers
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).
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.
Settlement and No-Fault Complaints
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.
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.
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.