Estate of Ethridge v. Recovery Mgmt. Sys., Inc.

• Decision Date: 13 May 2014
• Docket Number: No. 1 CA–CV 12–0740.,1 CA–CV 12–0740.
• Citation: Estate of Ethridge v. Recovery Mgmt. Sys., Inc., 235 Ariz. 30, 326 P.3d 297, 686 Ariz. Adv. Rep. 12 (Ariz. App. 2014)
• Parties: The ESTATE OF Deborah A. ETHRIDGE, an Arizona probate estate, by and through its Co–Personal Representatives, Tamika Pradia and Keyana King; Tamika Pradia and Keyana King, in their individual capacities and as statutory beneficiaries of the Estate of Deborah Ethridge, Plaintiffs/Appellees, v. RECOVERY MANAGEMENT SYSTEMS, INC., an Arizona corporation authorized to do and doing business in Maricopa County, Arizona; Southwest Catholic Health Network Corporation, an Arizona corporation authorized to do and doing business in Maricopa County, Arizona by, through, and under the name of Mercy Care Plan and Mercy Care Advantage, Arizona businesses, Defendants/Appellants.
• Court: Arizona Court of Appeals

235 Ariz. 30

326 P.3d 297

686 Ariz. Adv. Rep. 12

The ESTATE OF Deborah A. ETHRIDGE, an Arizona probate estate, by and through its Co–Personal Representatives, Tamika Pradia and Keyana King; Tamika Pradia and Keyana King, in their individual capacities and as statutorybeneficiaries of the Estate of Deborah Ethridge, Plaintiffs/Appellees,

v.RECOVERY MANAGEMENT SYSTEMS, INC., an Arizona corporationauthorized to do and doing business in Maricopa County, Arizona; Southwest Catholic Health Network Corporation, an Arizona corporationauthorized to do and doing business in Maricopa County, Arizona by, through, and under the name of Mercy Care Plan and Mercy Care Advantage, Arizona businesses, Defendants/Appellants.

No. 1 CA–CV 12–0740.

Court of Appeals of Arizona, Division 1.

May 13, 2014.

Knapp & Roberts, PC By Craig A. Knapp, David L. Abney, Scottsdale, for Plaintiffs/Appellees.

Gibson Dunn & Crutcher, LLP By Miguel A. Estrada, Robert E. Johnson, Washington, D.C., Fennemore Craig, PC By Jill M. Covington, Scott L. Altes, Theresa Dwyer–Federhar, Phoenix, for Defendants/Appellants.

Judge PATRICIA K. NORRISdelivered the opinion of the Court, in which Presiding Judge PETER B. SWANN and Judge SAMUEL A. THUMMA joined.

OPINION

NORRIS, Judge.

¶ 1 In this opinion, we hold Part C of the Medicare Act and its associated regulations preempt Arizona's anti-subrogation doctrine and, therefore, a Medicare Advantage plan may seek reimbursement for medical expenses it paid for one of its enrollees from the settlement of claims that sought compensation for those expenses on behalf of the enrollee.Accordingly, we reverse the judgment of the superior court and remand for further proceedings consistent with this opinion.

FACTS AND PROCEDURAL BACKGROUND¹

¶ 2 In September 2007, Deborah Ethridge died as a result of neglect by her caregiver, a nursing home.Ethridge had contracted to receive Medicare benefits from Appellant Mercy Care Advantage, a private health insurer operating a Medicare Advantage plan.Pursuant to the plan, Mercy Care Advantage paid for the medical services Ethridge received as a consequence of the nursing home's negligence (“medical expenses”).

¶ 3 Ethridge's estate sued the nursing home for abuse and neglect under Arizona's Adult Protective Services Act (“APSA”), seeAriz.Rev.Stat. (“A.R.S.”)§§ 46–451 to –459 (Supp.2013),² and, inter alia, sought compensation for Ethridge's medical expenses.³Ethridge's statutory beneficiaries also participated in the case and requested compensatory and punitive damages under Arizona's wrongful death statutes.SeeA.R.S. §§ 12–611 to –613 (2003).⁴The estate and statutory beneficiaries (collectively, the “Estate” unless separately identified) ultimately settled their claims against the nursing home for $1.2 million.

¶ 4 After the settlement, Mercy Care Advantage requested the Estate to reimburse it for the medical expenses.In response, the Estate sued Mercy Care Advantage and its associated entities, seeking a declaratory judgment that Mercy Care Advantage was not entitled to reimbursement for the medical expenses under Arizona's anti-subrogation doctrine—a common law doctrine that bars the subrogation or assignment of personal injury claims.SeeState Farm Fire & Cas. Co. v. Knapp,107 Ariz. 184, 185, 484 P.2d 180, 181(1971);Allstate Ins. Co. v. Druke,118 Ariz. 301, 304, 576 P.2d 489, 492(1978).On cross-motions for judgment on the pleadings, the superior court determined that federal Medicare law and its associated regulations did not preempt Arizona's anti-subrogation doctrine, thus agreeing with the Estate that Mercy Care Advantage was not entitled to reimbursement.

DISCUSSION

¶ 5 The narrow issue here is one of preemption: Does Part C of the Medicare Act⁵ and its associated regulations preempt Arizona's common law anti-subrogation doctrine, thereby allowing a Medicare Advantage plan to seek reimbursement for medical expenses it paid for an enrollee from the settlement of claims that sought compensation for those expenses on behalf of the enrollee?⁶If Congress intended Medicare Part C and its associated regulations to preempt state common law doctrines, then Mercy Care Advantage is entitled to seek reimbursement.If, however, Congress did not so intend, then Arizona's anti-subrogation doctrine applies and the superior court appropriately granted judgment for the Estate.

¶ 6 This issue is one of law and subject to de novo review.Save Our Valley Ass'n,216 Ariz. at 218–19, ¶ 6, 165 P.3d at 196–97(citation omitted)(in reviewing judgment on the pleadings, appellate court reviews superior court's legal conclusions de novo);Hutto v. Francisco,210 Ariz. 88, 90, ¶ 7, 107 P.3d 934, 936(App.2005)(citation omitted)(federal preemption issues reviewed de novo).To decide this issue, we begin with a discussion of Medicare and its evolution.

I.Medicare, Medicare Part C, and the Relevant Regulatory Provisions

¶ 7 Medicare is a federal health insurance program benefitting individuals who are over 65, or have a disability, or are suffering from end-stage renal disease.42 U.S.C.A. § 1395c.The Centers for Medicare and Medicaid Services (“CMS”), an operating division of the Department of Health and Human Services, administers the program.Medicare is divided into two types of insurance: Medicare Part A covers hospital care and related services, 42 U.S.C.A. §§ 1395c to 1395i–5, and Medicare Part B covers other medical services and equipment.42 U.S.C.A. §§ 1395j to 1395w–5.⁷

¶ 8 When Medicare was enacted in 1965, the federal government was, primarily, financially responsible for all covered items and services.Because of rising Medicare costs, however, in 1980, Congress enacted Medicare secondary payer legislation(“MSP legislation”).Omnibus Reconciliation Act of 1980, Pub.L. No. 96–499, § 953,94 Stat. 2599(codified as amended at 42 U.S.C.A. § 1395y(b));Zinman v. Shalala,67 F.3d 841, 843(9th Cir.1995).The MSP legislation made Medicare secondary to any “primary plan,” meaning that Medicare pays healthcare costs only when no other coverage is available through another insurance plan, from a tortfeasor, or otherwise.42 U.S.C.A. § 1395y(b)(2)(A).⁸

¶ 9 Even though not required, Medicare may conditionally pay a beneficiary's medical expenses when that beneficiary suffers an injury covered by a primary plan.42 U.S.C.A. § 1395y(b)(2)(B)(i).If the beneficiary subsequently recovers the medical expenses from the primary plan, the beneficiary must reimburse Medicare.Zinman,67 F.3d at 843;42 U.S.C.A. § 1395y(b)(2)(B)(ii)(“[A] primary plan [or] an entity that receives payment from a primary plan, shall reimburse” Medicare once the primary plan's responsibility has been established by a judgment or settlement.(emphasis added)).⁹To enforce its reimbursement rights, Medicare may bring a cause of action against “any or all entities that are or were required or responsible ... to make payment....”42 U.S.C.A. § 1395y(b)(2)(B)(iii);see generallyZinman,67 F.3d at 845–46.

¶ 10 Although eligible persons may still obtain traditional Medicare, in 1997Congress provided an additional option for Medicare beneficiaries when it enacted Medicare Part C. Balanced Budget Act of 1997, Pub.L. No. 105–33, § 4001,111 Stat. 251(codified as amended at 42 U.S.C.A. §§ 1395w–21 to w–28).Medicare Part C allows eligible individuals to opt out of traditional Medicare and instead obtain both Part A and Part B coverage through private companies approved by CMS, known as Medicare Advantage plans.42 U.S.C.A. §§ 1395w–21,1395w–27.

¶ 11 Medicare Part C was intended to reduce the costs of Medicare to the federal government by “enabl[ing] the Medicare program to utilize innovations that have helped the private market contain costs and expand healthcare delivery options.”H.R.Rep. No. 105–149, at 1251(1997).CMS grants contracts to Medicare Advantage plans based on a bidding system.42 U.S.C.A. § 1395w–24(a).A Medicare Advantage plan submits a bid based on the estimated costs per enrollee for services covered under Medicare Parts A and B. 42 U.S.C.A. § 1395w–24(a)(1)(A).If the bid is less than the benchmark (the maximum amount Medicare will pay a plan in a particular area), then the Medicare Advantage plan receives a rebate equal to 75% of the difference between the bid and the benchmark, but must use that rebate to provide additional benefits to its enrollees.42 U.S.C.A. § 1395w–24(b)(1)(C)(i), (b)(3)(C), (b)(4)(C).

¶ 12 Unlike traditional Medicare, Medicare Part C does not, by itself, require reimbursement or create a private right of action to pursue reimbursement.SeeParra v. PacifiCare of Ariz., Inc.,715 F.3d 1146, 1153(9th Cir.2013).Instead, the relevant statutory provision, 42 U.S.C.A. § 1395w–22(a)(4)( “Part C authorization provision”), simply allows Medicare Advantage plans to seek reimbursement when other coverage is available.The Part C authorization provision provides:

Notwithstanding any other provision of law, a [Medicare Advantage plan] may (... under circumstances in which payment under this subchapter is made secondary pursuant to section 1395y(b)(2) of this title) charge or authorize the provider of such services to charge ...(A) the insurance carrier, employer, or other entity which under such law, plan, or policy is to pay for the provision of such services, or (B) such individual to the extent that the individual has been paid under such law, plan, or policy for such services.

Id.¹⁰

¶ 13 The reference to § 1395y(b)(2) contained in the Part C authorization provision does not, as Mercy Care Advantage contends, grant Medicare Advantage plans the same right to reimbursement enjoyed under traditional Medicare.The cross-reference simply explains when a Medicare Advantage plan is made secondary to a primary plan and thereby allowed to seek reimbursement—under the same circumstances as a traditional Medicare plan under § 1395y(b)(2).Parra,715 F.3d at 1154(“The...