Provident Life and Acc. Ins. Co. v. US, No. CIV-1-89-190

• Court: United States District Courts. 6th Circuit. Eastern District of Tennessee
• Citation: 740 F. Supp. 492
• Docket Number: CIV-1-89-316.,No. CIV-1-89-190
• Parties: PROVIDENT LIFE AND ACCIDENT INSURANCE COMPANY, and its affiliate, Provident Life and Casualty Insurance Company, Plaintiffs, v. The UNITED STATES of America and Louis W. Sullivan, M.D., Secretary of the United States Department of Health and Human Services, Defendants. UNITED STATES of America, Plaintiff, v. PROVIDENT LIFE AND ACCIDENT INSURANCE COMPANY, Defendant.
• Decision Date: 29 August 1990

740 F. Supp. 492

PROVIDENT LIFE AND ACCIDENT INSURANCE COMPANY, and its affiliate, Provident Life and Casualty Insurance Company, Plaintiffs,
v.
The UNITED STATES of America and Louis W. Sullivan, M.D., Secretary of the United States Department of Health and Human Services, Defendants.
UNITED STATES of America, Plaintiff,
v.
PROVIDENT LIFE AND ACCIDENT INSURANCE COMPANY, Defendant.

Nos. CIV-1-89-190, CIV-1-89-316.

United States District Court, E.D. Tennessee, S.D.

June 14, 1990.

Motion to Alter or Amend Granted; Motion for Clarification Granted; Motion to Alter or Amend Denied August 29, 1990.

740 F. Supp. 493

COPYRIGHT MATERIAL OMITTED

740 F. Supp. 494

Timothy H. Bolden, Provident Life and Acc. Ins. Co., Chattanooga, Tenn., Rita M. Theisen, Charles W. Havens, III, Michael F. McBride, Leboeuf, Lamb, Leiby & MacRae, Washington, D.C., for Provident Life and Acc. Ins. Co

Michael F. Hertz, Stephen D. Altman, Stanley E. Alderson, U.S. Dept. of Justice, Washington, D.C., for U.S.

Motion of United States to Alter or Amend Granted; Motion of Provident Life and Accident Co. for Clarification Granted; Motion to Alter or Amend Denied August 29, 1990.

MEMORANDUM

EDGAR, District Judge.

This consolidated action is before the Court upon the following motions:

1. Government's motion to dismiss the declaratory judgment action of Provident Life and Accident Insurance Company ("Provident") (CIV-1-89-190, Court File No. 5);

2. Government's motion for partial summary judgment as to the liability of Provident (CIV-1-89-316, Court File No. 32);

740 F. Supp. 495

3. Provident's motion to dismiss the Government's statutory enforcement action (CIV-1-89-316, Court File No. 4); and

4. Provident's motion for summary judgment in its declaratory judgment action (CIV-1-89-190, Court File No. 54).

For the reasons set forth herein, the motions of the Government and Provident to dismiss will be DENIED. Provident's motion for summary judgment will be GRANTED IN PART and DENIED IN PART. The Government's motion for partial summary judgment will be GRANTED IN PART and DENIED IN PART.

I. Background

The United States administers the Medicare program, 42 U.S.C. §§ 1395 et seq., through the Department of Health and Human Services ("HHS"). Medicare is health insurance for the elderly and disabled available as a result of contributions through payroll deductions ("FICA"). Beneficiaries continue to contribute to the cost of medical care through co-payments, deductibles and premiums. Medicare is divided into two parts which differ in terms of benefits, eligibility and administration. Medicare Part A covers the hospital insurance program, including hospital expenses, skilled nursing facilities, home health care and hospice care. Medicare Part B is the supplemental medical insurance program, covering physicians' services and miscellaneous ancillary health care expenses.

HHS administers Medicare through the Health Care Financing Administration ("HCFA"), an agency of the HHS. The local Social Security offices process applications for enrollment and provide some informational back-up regarding the Medicare program. Day-to-day administration and operation of the Medicare program is handled through private insurance companies that have contracted with the Government as either Part A intermediaries or Part B carriers. Intermediaries process initial determinations on coverage. Carriers are insurance companies HCFA has chosen to process all Part B claims submitted by (1) individual beneficiaries, or (2) physicians and providers of care who have agreed to accept Medicare assignment. 42 U.S.C. §§ 1395h, 1395u; 42 C.F.R. §§ 421.1 et seq. Provident is neither an intermediary nor a carrier.

The Medicare program encompasses four basic groups: (1) Persons who have reached age 65 and are entitled to receive either Social Security, widows or Railroad Retirement benefits; (2) Disabled persons of any age who have received Social Security, widows or Railroad disability benefits for 25 months; (3) Persons with end-stage renal disease ("ESRD") who require dialysis treatment or a kidney transplant; and (4) Persons over age 65 who are not eligible for either Social Security or Railroad Retirement benefits who purchase Medicare coverage by payment of a monthly premium. This lawsuit revolves around the claims of the "working aged." The "working aged" are those Medicare beneficiaries who are also active employees working for an employer of 20 or more employees. 42 C.F.R. §§ 405.340-.341.

Originally, Medicare was the primary source of payment for the medical expenses of all of its beneficiaries, with one exception, where payment has been or could reasonably be expected to be made by a workers' compensation law or plan. 42 U.S.C. § 1395y(b)(1). However, as Medicare expenditures rose dramatically, Congress turned to private insurance to cover frequently paid for items and services. Beginning with the Omnibus Budget Reconciliation Act of 1980 ("OBRA 80"), Congress sought to reduce Medicare spending and to insure the continued fiscal integrity of the Medicare program by enacting the Medicare Secondary Payer ("MSP") provisions. In general, these statutes shifted to employer health plans the responsibility for being the primary payer of the medical expenses of the "working aged." In essence, the provisions merely changed the order of payment responsibility between Medicare and employer health plans. This series of amendments to the Medicare program has given rise to suits by the Government against insurance companies to recover Medicare overpayments allegedly due under the MSP provisions. See United

740 F. Supp. 496

States v. Blue Cross and Blue Shield of Michigan, 726 F.Supp. 1517 (E.D.Mich. 1989) (declaratory and reimbursement action); United States v. Travelers' Ins. Co., No. H-89-271(JAC) (D.Conn. filed March 13, 1990) (declaratory and reimbursement action)

On March 31, 1989, Provident filed an action in this Court (CIV-1-89-190) seeking a declaration as to its and the Government's legal obligations and responsibilities under 42 U.S.C. § 1395y. Provident disputes any obligations to reimburse the Government for payments made by Medicare on behalf of the "working aged." Provident also seeks a declaration requiring the Government come up with a system to handle Medicare payments to be made by an employer plan.

The Government filed a declaratory action in the United States District Court for the District of Columbia on April 5, 1989. (CIV-1-89-316). The Government seeks a declaration that it is entitled to recover the amount of Medicare overpayments made to or on behalf of the "working aged" that should have been paid under the employer plans, which were either insured, underwritten or administered by Provident. The Government also seeks a declaration which would compel Provident to identify the beneficiaries that benefitted from such Medicare payments and those who may benefit from medicare overpayments in the future. After being transferred to this Court for resolution, this Court consolidated the two actions for purposes of both discovery and trial. (CIV-1-89-316, Court File No. 35; CIV-1-89-190, Court File No. 43).

II. Motions to Dismiss

In its motion to dismiss (CIV-1-89-316, Court File No. 4), Provident argues that the Government's statutory reimbursement action should be dismissed since it allegedly should have been filed as a compulsory counterclaim in Provident's declaratory action. Fed.R.Civ.P. 13(a) provides in pertinent part:

(a) Compulsory Counterclaims. A pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction....

The purpose of this rule is to prevent the fragmentation of litigation, multiplicity of actions and to conserve judicial resources. U.S. General, Inc. v. Joliet, 598 F.2d 1050, 1054 (7th Cir.1979); Sue & Sam Mfg. Co. v. B-L-S Const. Co., 538 F.2d 1048, 1051 (4th Cir.1976); Columbia Plaza Corp. v. Security Nat. Bank, 525 F.2d 620, 626 (D.C.Cir.1975); Audubon Life Ins. Co. v. F.T.C., 543 F.Supp. 1362, 1370 (M.D.La.1982).

Where one party does not file a compulsory counterclaim in a pending action, but, instead, files a second action based on that claim in another court, courts generally follow the "first-filed" rule. See Computer Associates Int'l, Inc. v. Altai, Inc., 893 F.2d 26, 28-29 (2d Cir.1990) ("A district court `may enjoin the suitor in a more recently commenced case from taking any further action in the prosecution of that case' if the claims presented in the second action should have been interposed as compulsory counterclaims to the claims in the suit pending before it.") (quoting National Equip. Rental, Ltd. v. Fowler, 287 F.2d 43, 45 (2d Cir.1961)); Zalman v. Armstrong, 802 F.2d 199, 203 (6th Cir.1986) ("Ordinarily, the question of whether to issue a stay may be answered merely by examining the dates upon which the actions were filed."). Since the Government's action, however, has been transferred to this Court and consolidated with Provident's action, Provident's motion to dismiss, if granted, would not further any of the policies behind Fed.R.Civ.P. 13(a). Provident's motion to dismiss will, therefore, be DENIED.

The Government has filed its own motion to dismiss Provident's action (CIV-1-89-316, Court File No. 5), asking the Court to reject "an anticipatory suit such as this that suggests forum shopping

740 F. Supp. 497

and an unseemly race to the courthouse door." Id. at 2. In the alternative, the Government has asked the Court to stay Provident's action pending conclusion of the Government's enforcement action

Federal courts have the discretion to not hear a declaratory judgment action even though it is within their...