Private Medicare Advantage Organization Plan Cannot Sue Participant’s Survivors for Advanced Medical Expense Reimbursement from Car Insurance Proceeds

A man walked through a parking lot, was struck by a car, and was injured. The man was hospitalized. He later died from his injuries. The man was a participant in a Medicare advantage organization (MAO) plan, which paid his hospital and medical bills.


His survivors made a demand for wrongful death damages against the driver's $500,000 automobile insurance policy. The MAO also made a claim against the driver’s automobile insurance policy for the $136,630.90 it expended for its participant's care. The survivors entered into a settlement with the driver’s automobile insurer, under which the insurer issued a $136,630.90 check jointly payable to the survivors' attorney and to the MAO, to be held in trust pending resolution of the parties' dispute, and paid the balance of the policy limits to the survivors.


The survivors then filed a complaint in the U.S. District Court for the District of Arizona, seeking declaratory and injunctive relief. The complaint contended that under Arizona law the policy proceeds were not subject to the MAO's anticipated claims. The survivors sought injunctive relief and a declaration that the MAO was not entitled to any reimbursement payments out of the wrongful death benefits paid by the driver’s automobile insurer to the survivors. The MAO counterclaimed, also seeking declaratory relief, arguing it was entitled to reimbursement under both the terms of its contract with the man and directly under the Medicare Act. The parties each moved for summary judgment.


The district court dismissed the MAO's claim under the Medicare Act for failure to a state claim and declined to exercise supplemental jurisdiction over the state law contract claim. The court held that a private MAO plan cannot sue a plan participant's survivors, seeking reimbursement for advanced medical expenses out of the proceeds of an automobile insurance policy.


The Ninth Circuit U.S. Court of Appeals affirmed. The court held that the district court had subject matter jurisdiction to determine whether the Medicare Act created a cause of action in the MAO's favor. The court reasoned that subject matter jurisdiction exists to determine whether a federal statute provides a private right of action. Interpretation of the Medicare Act presented a federal question.


The court subsequently held that the Medicare statute permitting MAOs to include in their plans provisions allowing for recovery against primary plans did not create a private cause of action. Specifically, the Medicare Secondary Payer provisions (MSP) of the Medicare Act make Medicare insurance secondary to any primary plan obligated to pay a Medicare recipient's medical expenses, including a third-party tortfeasor's automobile insurance. When Medicare makes a conditional payment on behalf of a beneficiary, the primary plan must reimburse the Trust Fund. Medicare Part C allows eligible participants to opt out of traditional Medicare and instead obtain various benefits through MAOs, which receive a fixed payment from the United States for each enrollee.


The private cause of action provided for by the MSP allows Medicare beneficiaries and healthcare providers to recover medical expenses from Medicare recipients' primary insurance plans. The statute described when coverage under an MAO plan was secondary to other insurance and permitted MAOs to include in its plan provisions allowing for recovery against primary plan. However, the statute did not create a private cause of action allowing an MAO to recover against a primary plan for payments made on behalf of plan participant. Moreover, a reference to another part of the Medicare statute authorizing the United States to bring an action against entities required or responsible under a primary insurance plan to make payment did not create a federal cause of action in favor of MAOs, but merely explained when MAO coverage was secondary to a primary plan.


The court held that the private cause of action against primary insurance plans provided by the Medicare Act did not authorize the MAO's claim against the man’s survivors. The court reasoned that the private cause of action against a primary insurance plan provided by the Medicare Act applied in case a primary plan failed to provide for primary payment.


The Ninth Circuit Court of Appeals declined to formulate a federal common law of subrogation so as to provide a basis for federal jurisdiction over the MAO's contract claim. The court noted the Medicare Act did not expressly direct the court to do so.


In declining to exercise supplemental jurisdiction over the MAO’s contract claim, the court noted that the doctrine of complete preemption did not apply to confer federal subject matter jurisdiction over the claim. The doctrine of complete preemption confers exclusive federal jurisdiction in instances in which Congress intended the scope of a federal law to be so broad as to entirely replace any state-law claim. The Medicare Act contained no civil enforcement scheme, and Congress did not indicate any intent to permit removal of all disputes over insurance proceeds to federal courts, and therefore the doctrine of complete preemption did not apply to confer federal subject matter jurisdiction over the claims by the MAO against the survivors of the participants in the MAO's plan.


Finally, the court held that the district court did not abuse its discretion when it dismissed the MAO’s state-law claims. Once the district court, at an early stage of litigation, dismissed the only claim over which it had original jurisdiction, it did not abuse its discretion in also dismissing the remaining state-law claims by declining to exercise its supplemental jurisdiction.


See: Parra v. PacifiCare of Arizona, Inc., 2013 WL 1693713 (C.A.9 (Ariz.), April 19, 2013) (not designated for publication).