Bio–med. Applications of Tenn. Inc. v. Cent. States Southeast

• Decision Date: 02 September 2011
• Docket Number: Nos. 09–6121,09–6169.,s. 09–6121
• Citation: 656 F.3d 277
• Parties: BIO–MEDICAL APPLICATIONS OF TENNESSEE, INC., Individually and as assignee of Patient, dba BMA of Kingsport, Plaintiff–Appellee/Cross–Appellant,v.CENTRAL STATES SOUTHEAST AND SOUTHWEST AREAS HEALTH AND WELFARE FUND, Defendant–Appellant/Cross–Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

656 F.3d 277

BIO–MEDICAL APPLICATIONS OF TENNESSEE, INC., Individually and as assignee of Patient, dba BMA of Kingsport, Plaintiff–Appellee/Cross–Appellant,

v.CENTRAL STATES SOUTHEAST AND SOUTHWEST AREAS HEALTH AND WELFARE FUND, Defendant–Appellant/Cross–Appellee.

Nos. 09–6121

09–6169.

United States Court of Appeals, Sixth Circuit.

Argued: Jan. 11, 2011.Decided and Filed: Sept. 2, 2011.

ARGUED: Edward H. Bogle, Central States Funds Law Department, Rosemont, Illinois, for Appellant. James F. Bennett, Dowd Bennett, LLP, Clayton, Missouri, for Appellee. ON BRIEF: Edward H. Bogle, James P. Condon, Central States Funds Law Department, Rosemont, Illinois, for Appellant. James F. Bennett, Dowd Bennett, LLP, Clayton, Missouri, Douglas T. Gibson, the Gibson Firm LLC, Marietta, Georgia, for Appellee.Before: MERRITT, COOK, and WHITE, Circuit Judges.MERRITT, J., delivered the opinion of the court, in which COOK, J., joined. WHITE, J., (pp. 297–300), delivered a separate concurring opinion.

OPINION

MERRITT, Circuit Judge.

Medicare costs are rising. In 1980, Congress enacted the Medicare Secondary Payer Act (the “Act”) to counteract the growth of these costs. Before the Act, Medicare paid for all medical treatment within its scope and left private insurers merely to pick up whatever expenses remained. The Act inverted that system; it made private insurers covering the same treatment the “primary” payers and Medicare the “secondary” payer. This case involves the proper construction of the Act. At stake is who should bear the cost of kidney dialysis treatment—private insurers, healthcare providers, or Medicare—and the proportionate responsibility of each.

Three questions are presented. First, can a “group health plan” (a type of private insurer employers often use) immediately deny coverage to one of its insureds simply because that person became eligible for Medicare after being diagnosed with end-stage renal disease (a chronic kidney disease)? Looking to the text and purpose of the Act, we hold that a group health plan cannot.¹

Second, when a group health plan violates the Act, what is the remedy for injured healthcare providers like plaintiff? If the “group health plan” fails to pay a provider “promptly,” then Medicare can step in and make a temporary payment on behalf of the delinquent private insurer.² For this situation, the Act also contains a private cause of action that permits a private party, such as a healthcare provider, to sue the private insurer. ³ Pointing to a different provision in this convoluted statute, several federal courts (including the district court below in this case) have held that in order for a private insurer to be liable under the private cause of action, the private insurer's responsibility to pay must also be “demonstrated” (e.g., via a prior judgment or settlement) prior to the litigation.⁴ Some of those courts found that an existing contract for the insurer to pay the provider is insufficient. We reject that interpretation. After engaging in a close reading of the Act's tortuous text and studying its amendment history, we believe that the Act's “demonstrated responsibility” provision serves as a limitation only in a very specific situation: when Medicare seeks reimbursement for medical expenses caused by tortfeasors. Thus, we hold that a healthcare provider need not previously “demonstrate” a private insurer's responsibility to pay before bringing a lawsuit under the Act's private cause of action.

Third, what is the proper amount of damages under the Act's private cause of action? The private cause of action establishes damages “which shall be in an amount double the amount otherwise provided,” 42 U.S.C. § 1395y(b)(3)(A), but nowhere does the Act “otherwise provide” for the proper reference point for the doubling. Should double damages equal twice the amount the healthcare provider would have received from the private insurer, or twice the amount that Medicare conditionally paid the healthcare provider? We believe that double damages serve two purposes: First, much like treble damages in the antitrust laws, they punish and deter disfavored conduct—here, the shifting of costs from private insurers to Medicare. Second, double damages provide a needed incentive for healthcare providers to bring lawsuits to vindicate Medicare's interests; the Act enables Medicare to share in the proceeds by bringing its own lawsuit. On this third issue, however, we choose to remand to the district court due to a paucity of briefing on the relevant facts and law.

Accordingly, for reasons explained more fully below, we AFFIRM the district court's judgment as to the first question, we REVERSE as to the second question, and we REMAND as to the third question for further proceedings consistent with this opinion.

I. Factual and Procedural Background

The facts in this case are simple and undisputed. Central States provides health insurance to workers, retirees, and their dependents. Bio–Medical operates kidney dialysis centers. In August 2005, a patient who was insured by Central States was diagnosed with end-stage renal disease and immediately began receiving dialysis treatment at one of Bio–Medical's centers. The patient assigned her rights under the insurance plan to Bio–Medical, which submitted to Central States its bills for the cost of this treatment. Central States initially paid Bio–Medical for the treatment.

On November 1, 2005, three months after the patient was diagnosed with end-stage renal disease, the patient became entitled to Medicare benefits. See 42 U.S.C. § 426–1. Her insurance plan provided that her coverage ceased at that time, specifically because of her entitlement to Medicare. The plan states: “Coverage under this Plan shall terminate on the earliest of the following dates: ... (b) the date [the insured] first becomes entitled to Medicare benefits....” Central States, however, did not yet realize that the patient was entitled to Medicare benefits, so it continued to pay Bio–Medical for the patient's dialysis treatment for two more months.

In January 2006, Central States discovered that the patient was entitled to Medicare benefits. In spite of the “may-not-take-into-account-Medicare-benefits” language of the Medicare Secondary Payer Act, recited in footnote 1 above, Central States immediately terminated her coverage. Bio–Medical informed Central States of its belief that Central States was not legally permitted to terminate coverage due to a patient's entitlement to Medicare benefits. Bio–Medical continued to treat the patient and bill Central States, but Central States refused to make any further payments. Additionally, Central States declared that its termination of the patient's coverage was retroactive to November 1, 2005—the date on which the patient became entitled to Medicare benefits—and that Central States, therefore, had overpaid Bio–Medical in an amount of approximately $25,600 for the previous two months of treatment. Central States recovered all but about $4,000 of the alleged overpayment by offsetting it against amounts to be paid on other patients' accounts.

The patient died on May 18, 2006. Bio–Medical continued to provide her dialysis treatment until her death. Although Bio–Medical continued to bill Central States for the treatment, Central States made no further payments to Bio–Medical. Bio–Medical alleges that the outstanding balance of its bills to Central States—which span from November 1, 2005, to May 18, 2006—is approximately $210,000. Bio–Medical, however, did receive some payment for the patient's treatment: after being rebuffed by Central States, Bio–Medical billed Medicare, which paid Bio–Medical an amount that is undisclosed in the record. Bio–Medical alleges that the amount it received from Medicare is less than what it would have received from Central States.

Bio–Medical challenged Central States' decision to deny coverage through Central States' internal appeals process (to no avail) and then filed the instant lawsuit. Bio–Medical asserted two distinct claims under the same basic theory: (1) an ERISA claim, under 29 U.S.C. § 1132(a)(1)(B), for unpaid benefits under the patient's insurance policy that Bio–Medical, as her assignee, had the right to recover; and (2) a private cause of action for double damages under the Medicare Secondary Payer Act, 42 U.S.C. § 1395y(b)(3)(A), for Central States' violation of that statute.

The district court granted summary judgment to Bio–Medical on its ERISA claim. By denying coverage due to the patient's entitlement to Medicare benefits, the district court explained, Central States violated the Act's prohibition against insurers “taking into account” an insured's eligibility for Medicare due to end-stage renal disease. But the district court granted Central States' motion to dismiss Bio–Medical's claim under the Act's private cause of action. Relying on a string of federal cases, the district court reasoned that a necessary precondition to a lawsuit under the private cause of action for double damages was that the defendant's responsibility to pay must have been previously “demonstrated” before the filing of the claim, and that Central States' responsibility to pay had not yet been so “demonstrated” or established in this case.

Both parties timely appealed. Central States appeals the district court's grant of summary judgment to Bio–Medical on the ERISA claim, and Bio–Medical cross appeals the district court's dismissal of its claim for double damages under the Act's private cause of action.

II. ERISA Claim: Whether the Medicare Secondary Payer Act Prevents Private Insurers from Terminating an Insured's Coverage Due to His Entitlement to Medicare Benefits⁵

Medicare, a federal health-insurance program, provides health-insurance benefits to people sixty-five years of age or older, disabled people, and people with end-stage renal disease. Stalley v. Methodist Healthcare, 517 F.3d 911, 915 (6th Cir.2008) (cit...