In Re Avandia Marketing, Sales Practices & Products Liability Litigation

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 11-2664
_____________
IN RE: AVANDIA MARKETING, SALES PRACTICES and
PRODUCTS LIABILITY LITIGATION
GLAXOSMITHKLINE, LLC & GLAXOSMITHKLINE,
PLC
HUMANA MEDICAL PLAN, INC. and HUMANA
INSURANCE COMPANY, individually and on behalf of all
others similarly situated,
Appellants
______________
APPEAL FROM THE UNITED STATES DISTRICT
COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
(D.C. Civ. No. 10-6733 and MDL 1871)
District Judge: Honorable Cynthia M. Rufe
______________
Argued on January 24, 2012
______________
Before: McKEE, Chief Judge, FISHER, and GREENAWAY,
JR., Circuit Judges.
(Opinion Filed: June 28, 2012)
Richard W. Cohen, Esq. (argued)
Peter D. St. Phillip, Jr., Esq.
Gerald Lawrence, Esq.
LOWEY, DANNENBERG, COHEN & HART
One North Broadway
Suite 509
White Plains, NY 10601-0000
Counsel for Appellants
Thomas E. Zemaitis, Esq. (argued)
George A. Lehner, Esq.
Kenneth H. Zucker, Esq.
Pepper Hamilton
18th & Arch Streets
3000 Two Logan Square
Philadelphia, PA 19103-0000
Counsel for Appellees
Arthur N. Lerner, Esq.
Crowell & Moring
1001 Pennsylvania Avenue, N.W.
Washington, DC 20004-2505
Counsel for Amicus- Appellants
______________
OPINION
______________
2
GREENAWAY, JR., Circuit Judge.
Plaintiff Humana Medical Plan, Inc. and Humana
Insurance Company (collectively, “Humana”) brought suit
against GlaxoSmithKline, L.L.C. and GlaxoSmithKline plc
(collectively, “Glaxo”) alleging that Glaxo was obligated to
reimburse Humana for expenses Humana had incurred
treating its insureds’ injuries resulting from Glaxo’s drug,
Avandia. Humana runs a Medicare Advantage plan. Its
complaint asserts that, pursuant to the Medicare Act, Glaxo is
in this instance a “primary payer” obligated to reimburse
Humana as a “secondary payer.” The District Court
dismissed the action, agreeing with Glaxo that the Medicare
Act did not provide Medicare Advantage organizations
(“MAOs”) with a private cause of action to seek such
reimbursement. Humana filed a timely appeal.
The Medicare Secondary Payer Act, in 42 U.S.C. §
1395y(b)(3)(A), provides Humana with a private cause of
action against Glaxo. Even if we were to find, as Appellees
suggest, that this provision is ambiguous, we would
nonetheless be required to defer to regulations issued by the
Centers for Medicare and Medicaid Services (“CMS”). The
regulations make clear that the provision extends the private
cause of action to MAOs. Accordingly, we will reverse the
judgment of the District Court and remand for further
proceedings.
I. BACKGROUND
3
Glaxo manufactures and distributes Avandia, a Type 2
diabetes drug that has been linked to substantially increased
risk of heart attack and stroke. Thousands of Avandia
patients have alleged various injuries resulting from their use
of the drug and Glaxo has begun entering into agreements to
settle these claims. 1 As part of the settlement process, where
the claimant is insured by Medicare, Glaxo sets aside reserves
to reimburse the Medicare Trust Fund for payments it made
to cover the costs of treatment for the claimants’ Avandia-
related injuries.
While most Medicare-eligible individuals receive
Medicare benefits directly from the government, individuals
can elect instead to receive their benefits through private
insurance companies that contract with the government to
provide “Medicare Advantage” (“MA”) plans. 42 U.S.C. §
1395w-21(a)(1). Glaxo has not, to date, included
reimbursement of MA plans in the settlement agreements that
it has reached with Avandia claimants enrolled in MA plans,
although MAOs have paid the costs of treatment of Avandia-
related injuries for these claimants. 2 Humana’s MA plan
provides benefits to approximately one million people, and
1
By August 2011, when Appellants filed their brief, Glaxo
had paid more than $460 million to settle these claims.
2
An MA plan assumes full responsibility for paying the
medical costs of its plan participants in exchange for a fixed
annual per-participant payment from the government.
§ 1395w-23. This fixed, or “capitated,” amount is calculated
annually using a formula based on the cost of providing the
required benefits that would otherwise be covered by
traditional Medicare. Id.
4
Humana filed this lawsuit to seek reimbursement from Glaxo
for the costs of treating its enrollees’ Avandia-related injuries.
On November 17, 2010, Humana filed its class action
complaint in the Eastern District of Pennsylvania. 3 Humana
sought, on behalf of itself and a class of similarly-situated
MAOs: (1) damages under the Medicare Secondary Payer Act
(“MSP Act”), which provides a private cause of action, 42
U.S.C. § 1395y(b)(3)(A), allowing double damages for failure
to reimburse a secondary payer; and (2) equitable relief in the
form of an order compelling Glaxo to identify settling
Avandia claimants to the MAOs that cover them.
On December 23, 2010, Glaxo filed a motion to
dismiss. The District Court heard oral argument on the
motion and, on June 13, 2011, granted it. In dismissing the
action, the District Court noted that Part C of the Medicare
Act (the “Medicare Advantage” or “MA” statute) contains its
own secondary payer provision, 42 U.S.C. § 1395w-22(a)(4).
In re Avandia Mktg., Sales Practices, and Prods. Liability
Litig., 2011 WL 2413488, at *3 (E.D. Pa. June 13, 2011).
The District Court observed that this provision references the
MSP Act without fully adopting or incorporating it and that
its language is permissive, whereas the language of the MSP
Act is mandatory. Id. Given the existence of the MA
statute’s provision, specifically relevant to MAOs, the District
Court held that the private cause of action within the MSP
3
Many suits alleging Avandia-related injuries have been filed
in federal court and almost all are being coordinated for
pretrial purposes in the Eastern District of Pennsylvania. In
re Avandia Marketing, Sales Practices and Products Liability
Litigation, MDL Dkt. No. 1871. This case is among them.
5
Act did not apply to MAOs, nor did the secondary payer
provision in the MA statute create a private right of action for
MAOs. Id. at *4. Next, the District Court analyzed whether
an implied private right of action for Humana existed
according to the four-part test laid out by the Supreme Court
in Cort v. Ash, 422 U.S. 66 (1975). In re Avandia, 2011 WL
2413488, at *4. Although the District Court found that
Humana met the first prong of the test, as it was a member of
the class the statute was enacted to benefit, it found that
Humana failed on the other three prongs: there was no clear
legislative intent to create a remedy for Humana, it was not
consistent with the legislative scheme to imply a remedy, and
the cause of action was one traditionally litigated under state
law. Id. The District Court therefore found that no implied
private right of action existed.
Additionally, the District Court found that the statute’s
silence on the existence of a private right of action for MAOs
“does not create ambiguity, but rather indicates [Congress’s]
intent not to create a private right of action for MAOs.” Id. at
*5. With no ambiguity in the plain text of the statute, the
District Court held that the judicial deference to duly-enacted
regulations required by Chevron, U.S.A., Inc. v. Natural
Resources Defense Council, Inc, 467 U.S. 837, 842-43
(1984), did not come into play. Accordingly, the Court did
not defer to the CMS regulation that granted MAOs parity
with Medicare vis-à-vis recovery from primary payers, see 42
C.F.R. § 422.108(f). In re Avandia, 2011 WL 2413488, at *5.
Finally, Humana sought an order from the District
Court ordering Glaxo to disclose information about
settlements that Humana’s enrollees entered into with Glaxo.
The District Court declined to grant Humana the equitable
relief it sought. It found that Humana, and not Glaxo, had
6
access to information about which Avandia claimants were
enrolled in Humana’s MA plan and that Humana could use
this information to remind claimants of their obligation to
disclose any settlement they might reach with Glaxo. 4, 5 Id.Humana filed a timely Notice of Appeal. Humana
asks this Court to determine whether the District Court erred
in holding that the private cause of action in the MSP Act, 42
U.S.C. § 1395y(b)(3)(A), did not provide Humana with a
cause of action here. America’s Health Insurance Plans,
representing the health insurance industry, filed an amicus
brief in support of Humana.
II. JURISDICTION AND STANDARD OF REVIEW
The District Court had subject matter jurisdiction,
pursuant to 28 U.S.C. § 1331, because interpretation of the
federal Medicare Act presents a federal question. This Court
has appellate jurisdiction, pursuant to 28 U.S.C. § 1291. We
review de novo the decision of a district court granting a
motion to dismiss, pursuant to Rule 12(b)(6). McTernan v.
City of York, 577 F.3d 521, 526 (3d Cir. 2009). In ruling
upon a motion to dismiss, “all well-pleaded allegations of the
4
The District Court also noted that a pending amendment to
the MSP Act might arguably shift the reporting burden to
Glaxo, but declined to address that question because it was
not yet ripe. In re Avandia Mktg., Sales Practices, and Prods.
Liability Litig., 2011 WL 2413488, at *6 (E.D. Pa. June 13,
2011).
5
Humana did not appeal the District Court’s dismissal of its
claim for equitable relief.
7
complaint must be taken as true and interpreted in the light
most favorable to the plaintiffs, and all inferences must be
drawn in favor of them.” Id. (quoting Schrob v. Catterson,
948 F.2d 1402, 1408 (3d Cir.1991)).
III. ANALYSIS
Humana asks this Court to determine whether the
private cause of action for double damages created by the
Medicare Secondary Payer Act, 42 U.S.C. § 1395y(b)(3)(A),
provides it and other MAOs with the right to bring suit. 6 We
find that the plain text of the provision sweeps broadly
enough to include MAOs and that, even if we determined the
statute to be ambiguous on this point, deference to CMS
regulations 7 would require us to find that MAOs have the
same right to recover as the Medicare Trust Fund does. We
will therefore reverse the decision of the District Court.
A. The Medicare Statute
Subchapter XVIII of Chapter 7 of Title 42 of the
United States Code is entitled “Health Insurance for Aged and
Disabled,” and is more commonly known as the Medicare
6
Humana repeatedly states that an MAO has “standing” to
bring suit under the provision at issue. In order to avoid
confusion with the doctrine of constitutional standing, see
Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992),
this opinion avoids that term.
7
CMS is an operating division within the Department of
Health & Human Services which issues Medicare-related
regulations on behalf of the Secretary of Health & Human
Services.
8
Statute. 42 U.S.C. §§ 1395 to 1395kkk-1. The Medicare
Statute divides benefits into four parts. Part A, “Hospital
Insurance Benefits for Aged and Disabled,” and Part B,
“Supplementary Medical Benefits for Aged and Disabled,”
create, describe, and regulate traditional fee-for-service,
government-administered Medicare. §§ 1395c to 1395i-5; §§
1395-j to 1395w-5. Part C, inserted with the passage of the
Balanced Budget Act of 1997, Pub. L. 105-33, creates the
program now known as Medicare Advantage, which allows
for the creation of MA plans and is described in detail below.
§ 1395w-21 to -29. Finally, Part D provides for prescription
drug coverage for Medicare enrollees. § 1395w-101 to -154.
Part C allows Medicare enrollees to obtain their
Medicare benefits through private insurers (MAOs) instead of
receiving direct benefits from the government under Parts A
and B. § 1395w-21(a). CMS pays an MAO a fixed amount
for each enrollee, per capita (a “capitation”). The MAO then
administers Medicare benefits for those enrollees and
assumes the risk associated with insuring them. MAOs like
Humana are thus responsible for paying covered medical
expenses for their enrollees. Part C allows MAOs some
flexibility as to the design of their MA plans. The MAO is
required to provide the benefits covered under Parts A and B
to enrollees, but it may also provide additional benefits to its
enrollees. § 1395w-22(a)(1)-(3).
Part C also includes one of the two provisions that lie
at the heart of this case. Entitled “Organization as secondary
payer,” this provision states:
9
Notwithstanding any other provision of law, [an
MAO] 8 may (in the case of the provision of
items and services to an individual under [an
MA] plan under circumstances in which
payment under this title is made secondary
pursuant to section 1395y(b)(2)) of this title
charge or authorize the provider of such
services to charge, in accordance with the
charges allowed under a law, plan, or policy
described in such section--
(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.
§ 1395w-22(a)(4) (the “MAO secondary payer provision”).
8
The statutory text refers to MAOs as “Medicare+Choice”
organizations. For simplicity’s sake, this opinion substitutes
the contemporary terminology wherever that phrase appears.
See Medicare Prescription Drug, Improvement, and
Modernization Act of 2003, Pub. L. 108-173, 117 Stat. 2176,
42 U.S.C. §1395w-21 note (“[T]he Secretary shall provide
for an appropriate transition in the use of the terms
‘Medicare+Choice’ and ‘Medicare Advantage’ (or ‘MA’) in
reference to the program under part C of title XVIII of the
Social Security Act.”).
10
This provision (the “Part C secondary payer
provision”) cross-references § 1395y(b)(2) for its definitions
of primary payers and its positioning of Medicare as a
secondary payer. That cross-referenced provision is located
within § 1395y(b), the Medicare Secondary Payer Act,
enacted in 1980. It provides that Medicare cannot pay
medical expenses where “payment has been made or can
reasonably be expected to be made under a workmen’s
compensation law or plan of the United States or a State or
under an automobile or liability insurance policy or plan
(including a self-insured plan) or under no fault insurance.” §
1395y(b)(2)(A)(ii). Further, a business “shall be deemed to
have a self-insured plan if it carries its own risk (whether by a
failure to obtain insurance, or otherwise) in whole or in part.”
Id. Glaxo, which pays out of its own pocket to settle the
Avandia-related claims, is self-insured and therefore a
primary payer in this instance.
The MSP Act also gives the Secretary the authority to
make “conditional payments” in circumstances where a
primary payer is actually responsible for the cost of medical
treatment but “has not made or cannot reasonably be expected
to make payment with respect to such item or service
promptly.” § 1395y(b)(2)(B)(i). In such a circumstance, the
primary plan must subsequently reimburse the Medicare Trust
Fund. § 1395y(b)(2)(B)(ii). If the primary plan fails to
reimburse the Fund, “the United States may bring an action
against any or all entities that are or were required or
responsible . . . to make payment . . . under a primary plan.”
§ 1395y(b)(2)(B)(iii). The government may then collect
double damages, “in accordance with paragraph (3)(A).” Id.
11
Paragraph (3)(A) (the “MSP private cause of action
provision”) is the other provision central to this case. It
states:
There is 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) in
accordance with [the requirements of the MSP
Act].
§ 1395y(b)(3)(A).
The Medicare Statute thus creates two separate causes
of action allowing for recovery of double damages where a
primary payer fails to cover the costs of medical treatment.
When the Medicare Trust Fund makes a conditional payment
and the primary payer does not reimburse it, the United States
may bring suit pursuant to § 1395y(b)(2)(B)(iii).
Additionally, a private cause of action with no particular
plaintiff specified exists pursuant to § 1395y(b)(3)(A)
anytime a primary payer fails to make required payments. 9
9
Although the MSP private cause of action provision sweeps
broadly, it is not so broad that it can function as a qui tam
statute, allowing a private party to bring suit as an agent of
the government to collect moneys owed to the government.
Each of our sister circuits to have considered the question has
rejected this interpretation. Woods v. Empire Health, 574
F.3d 92, 101 (2d Cir. 2009); Stalley ex rel. United States v.
Orland Reg. Healthcare System, Inc., 524 F.3d 1229, 1234
(11th Cir. 2008); Stalley v. Methodist Healthcare, 517 F.3d
911, 919 (6th Cir. 2008); Stalley v. Catholic Health
12
Exactly how broadly this latter provision sweeps will
determine the outcome of this appeal.
B. Textual Arguments
1. MSP Private Cause of Action Provision
The plain text of the MSP private cause of action lends
itself to Humana’s position that any private party may bring
an action under that provision. It establishes “a private cause
of action for damages” and places no additional limitations on
which private parties may bring suit. § 1395y(b)(3)(A).
Accordingly, we find that the provision is broad and
unambiguous, placing no limitations upon which private (i.e.,
non-governmental) actors can bring suit for double damages
when a primary plan fails to appropriately reimburse any
secondary payer.
Glaxo presents no argument that undermines this
facially clear reading. The MSP private cause of action
provision allows for damages where the primary plan has
failed to pay “in accordance with paragraphs (1) and (2)(A).”
Id. Paragraph (2)(A), in turn, consistently refers to payments
“under this subchapter.” 10 § 1395y(b)(2)(A). Glaxo contends
that “payments under this subchapter” refers to payments
Initiatives, 509 F.3d 517, 527 (8th Cir. 2007); United Seniors
Ass’n v. Philip Morris USA, 500 F.3d 19, 26 (1st Cir. 2007).
10
The United States Code Service uses the word “title” in
place of “subchapter,” favored by the United States Code
Annotated. This opinion utilizes the statutory text from the
latter compilation.
13
made by the Medicare Trust Fund and excludes payments
from the MAO to private entities, which are instead “made
pursuant to private contracts of insurance between the MAO
and the participant.” (Id. at 25.)
In contrast, Humana argues that because “subchapter”
refers to the Medicare Act as a whole, and not in particular to
Parts A or B under which the government provides benefits
directly to enrollees, payments made by private providers
under Parts C or D are also covered. Humana supports this
assertion by highlighting other places in the Medicare Act
where Congress intentionally limited the applicability of a
provision to payments made under particular Parts of the
Medicare Act. (Appellants’ Br. 23.) These provisions refer
specifically to “payment made under part A or part B of this
subchapter,” § 1395y(a), or payment made “under Part B of
this subchapter,” § 1395y(c). See also § 1395y(f) (requiring
Secretary to establish guidelines as to whether payment may
be made for certain expenses “under part A or part B of this
subchapter”).
This language makes clear that “subchapter” refers to
the Medicare Act as a whole. Since the MSP Act and its
private cause of action provision do not attach any narrowing
language to “payments made under this subchapter,” that
phrase applies to payments made under Part C as well as
those made under Parts A and B. Accordingly, that language
cannot be read to exclude MAOs from the ambit of the
private cause of action provision.
It is worth noting that, although the MSP Act was
enacted before Part C, which created MAOs, private
Medicare risk plans were authorized under 42 U.S.C. §
1395mm in 1972, before the passage of the MSP Act. Act of
14
Oct. 30, 1972, sec. 226(a), Pub. L. 92-603, 86 Stat. 1396.
Thus, at the time it enacted the MSP Act, Congress was aware
that private Medicare providers existed. Had it intended to
prevent them from suing under the private cause of action
provision, Congress could have done so explicitly.
2. MAO Secondary Payer Provision
Glaxo raises a number of arguments stemming from its
contention that the MSP private cause of action provision
cannot be read in a vacuum. Glaxo urges this Court to
analyze the relationship between MAOs and the MSP Act by
beginning with the MAO secondary payer provision. The
plain text of the MAO secondary payer provision, Glaxo
avers, makes clear that MAOs do not have a federal cause of
action anywhere under the Medicare Act. Further, because
this provision specifically defines the relationship of MAOs
to secondary payer status and the MSP Act, it controls those
relationships, and the MSP private cause of action does not
apply to MAOs. 11
In Glaxo’s argument, the MAO secondary payer
provision, by stating that an MAO “may . . . charge or
authorize the provider of [ ] services to charge” the primary
payer, gives MAOs the right to include in their policy
11
Humana has not raised on appeal the question of whether
there is some private right of action for MAOs implied in the
Medicare Act, although the District Court found that no such
implied right of action exists. 2011 WL 2413488, at *4.
Accordingly, we are asked to determine whether the text of §
1395y(b)(3)(A) provides Humana with a cause of action and
nothing further.
15
contracts provisions making them secondary payers in
situations in which a primary payer would be liable under the
MSP Act. § 1395w-22(a)(4). It does not, however, provide a
federal remedy for the enforcement of that right. See
Alexander v. Sandoval, 532 U.S. 275, 286 (2001) (stating that
statute does not create private cause of action unless Congress
intended “to create not just a private right but also a private
remedy”). At oral argument, Glaxo asserted that this
provision was intended to preempt state law that could
preclude an MAO from positioning itself as a secondary
payer, as certain personal injury laws might.
Under the interpretation urged by Glaxo, no rights to
reimbursement are granted to an MAO by the Medicare Act.
Instead, such rights can be secured by the MAO’s contract
with an individual insured; that is, the insurance policy. This
policy may define an MAO as a secondary payer, according
to the definition contained in the MSP Act, and it may also
contain rights of reimbursement and subrogation. 12 Then, if a
primary payer were to fail to reimburse the MAO, the MAO
could sue to enforce its contractual rights in state court. It
could be made whole either by recovering from the primary
payer through subrogation or, if the insured has received
payment from the primary payer, from the insured directly.
The District Court accepted this interpretation of the
MAO secondary payer provision. 2011 WL 2413488, at *4;
12
As the District Court noted, the policy might also create an
obligation for the insured to inform the MAO of any primary
insurance coverage, including tort settlements where the
tortfeasor qualifies as a primary payer. In re Avandia, 2011
WL 2413488, at *4 n.40.
16
see also Parra v. PacifiCare of Arizona, Inc., Civ. No. 10-
008, 2011 WL 1119736 (D. Ariz. Mar. 28, 2011) (finding
Congress did no more than provide MAOs with “right to
charge and/or bill a beneficiary for reimbursement,
notwithstanding and [sic] state law or regulation to the
contrary” ). It is important to remember, though, that
Humana does not contend that § 1395w-22(a)(4) endows it
with a private right of action. Instead, it hangs its hat entirely
on the MSP Act provision. Thus, § 1395w-22(a)(4) is
relevant only inasmuch as it assists us in interpreting the MSP
private cause of action provision, and we are not persuaded
that it undermines the meaning of the plain text of that
provision.
Glaxo further contends that the reference to §
1395y(b)(2) in the MAO secondary payer provision, far from
incorporating the entirety of the MSP Act into Part C, in fact
makes clear that only the definition of a primary payer from
the MSP Act is incorporated there. (Appellees’ Br. 21-22.)
This argument is unavailing for the same reason—Humana is
not arguing that the MAO secondary payer provision provides
a cause of action through its reference to the MSP Act, but
that the language of the MSP private cause of action is itself
broad enough to encompass an MAO such as Humana,
regardless of the existence of § 1395w-22(a)(4). In order to
find these arguments persuasive, we would need to determine
that, although private insurers providing Medicaid services
could have brought suit under the MSP private cause of
action provision before the enactment of the MA secondary
payer provision, once that text became law, the MSP private
cause of action was closed to them. We will not reach this
conclusion.
17
Glaxo’s final argument based on the text of the MAO
secondary payer provision is that the permissive nature of the
language there (an MAO “may” charge a primary plan), in
contrast to the mandatory nature of the language in the MSP
Act (“Payment under this subchapter may not be made. . .”)
means that MAOs cannot be authorized to bring suit under
the MSP private cause of action. § 1395w-22(a)(4); §
1395y(b)(2)(A). Glaxo reads far too much into this
distinction. No MAO, acting rationally, would decline to
position itself as a secondary payer in order to charge primary
payers where appropriate. Accordingly, the fact that
Congress employs permissive language when establishing
rules for private, market-driven entities and mandatory
language when creating rules for the Secretary, a federal
official over whom Congress exercises control, has no effect
on the proper interpretation of MSP private cause of action.
In short, there is nothing in the text or legislative
history of the MA secondary payer provision that
demonstrates a congressional intent to deny MAOs access to
the MSP private cause of action.
3. Court Decisions
None of the decisions cited by Glaxo or the District
Court provide us with sufficient reason to conclude that, in
contravention of the plain text of the MSP private cause of
action provision, an MAO may not bring suit under it. The
District Court found that no federal private cause of action
exists under the MSP Act by relying on two cases, neither of
which had plaintiffs who made an argument based on the
MSP Act provision at issue here.
18
In Care Choices HMO v. Engstrom, 330 F.3d 786 (6th
Cir. 2003), the Sixth Circuit considered the argument of Care
Choices, a Medicare-substitute HMO, that it had an implied
federal private right of action allowing it to recover the cost
of an insured’s medical expenses, where the participant had
collected damages from the tortfeasor who had injured her.
That court declined to find an implied private right of action
in the provision allowing Care Choices to occupy secondary-
payer status. In so doing, it compared the language of the
MSP Act private cause of action provision with §
1395mm(e)(4), 13 finding the contrast to support its holding
that § 1395mm(e)(4) was not intended to create any private
right of action. Id. at 790. Whether Care Choices could have
brought suit as a private actor under the MSP Act was neither
raised nor addressed and thus the decision of the United
States Court of Appeals for the Sixth Circuit cannot guide us
here.
Similarly, in Nott v. Aetna U.S. Healthcare Inc., 303 F.
Supp. 2d 565 (E.D. Pa. 2004), the court considered whether §
1395mm(e)(4) or § 1395w-22(a)(4) created a federal scheme
for enforcement of a Medicare-substitute HMO’s subrogation
rights that would completely preempt conflicting state laws.
The Nott court noted explicitly that § 1395y(b)(2)(B)(ii), the
government’s cause of action for reimbursement, was not
implicated in the case, id. at 570, and it nowhere mentioned
13
Because Care Choices was a Medicare-substitute HMO and
not an MAO, the relevant, private-insurer-specific secondary
payer provision was not § 1395w-22(a)(4), but rather §
1395mm(e)(4), which contains nearly identical language.
The two provisions are logically subject to the same
interpretation.
19
the § 1395y(b)(3)(A) private cause of action. Relying
substantially on Care Choices, it held that “[t]here is no
federal cause of action created by either subsection” and thus
no preemption. Id. at 571.
Once again, because the decision does not discuss
whether a private insurer providing Medicare services can
bring suit under the MSP private cause of action, it is of
limited relevance here. 14
In contrast, the decision of the Court of Appeals for the
Sixth Circuit in Bio-Medical Applications of Tenn., Inc. v.
Central States Health and Welfare Fund, 656 F.3d 277 (6th
Cir. 2011), does specifically consider the MSP private cause
of action provision. There, the court held that the
“demonstrated responsibility” provision of the MSP 15 applied
14
For the same reasons, Parra v. PacifiCare of Arizona, Inc.,
cited by Glaxo and the District Court, is also inapposite.
2011 WL 1119736 (D. Ariz. Mar. 28, 2011). This unreported
decision adopts a magistrate’s report and recommendation
finding no implied private right of action in the MAO
secondary payer provision. The report and recommendation
relied heavily on Care Choices, and neither that decision nor
the decision of the district court addressed the argument that
an MAO could bring suit under the MSP private cause of
action provision.
15
“A primary plan . . . shall reimburse [the Trust Fund] for
any payment made by [Medicare] . . . with respect to an item
or service if it is demonstrated that such primary plan has or
had a responsibility to make payment with respect to such
item or service.” § 42 U.S.C. § 1395y(b)(2)(B)(ii)
20
only to situations in which the primary payer was a tortfeasor
and not to the case before it, in which the primary plan was
actually a primary insurer. Id. at 290-91. In explicating this
point, it noted that a tortfeasor could be held liable as a
primary payer under the MSP Act only when Medicare sues
for reimbursement from a primary plan and not when the
plaintiff is a private party. Id. at 292-93. It buttressed this
distinction between Medicare and private parties with a
number of arguments from the statute’s text and legislative
history. 16 Id. at 292. However, the private party bringing
suit in Bio-Medical was neither an MAO nor a Medicare-
substitute HMO, and the court there did not consider how
such an entity would fit into the dichotomy it described. As
the remainder of this opinion will demonstrate, we believe
that denying an MAO the rights to recovery provided to
Medicare would undermine the very purpose of the MA
program and that Congress did not intend this result.
C. Legislative History and Policy
Although we find the text of the statute to be
unambiguous, we nonetheless include here a discussion of the
16
These reasons include, inter alia, that the demonstrated
responsibility provision’s “text places a condition only on
when primary plans must reimburse Medicare; it does not
mention when plans must pay private parties,” that “the
structure of the Act suggests that the provision is limited to
the reimbursement of Medicare,” and that “the predominant
legislative backdrop was Medicare’s (not private parties’)
failed attempts to bring lawsuits against tortfeasors.” Bio-
Medical Applications of Tenn., Inc. v. Central States Health
and Welfare Fund, 656 F.3d 277, 292 (6th Cir. 2011).
21
legislative history and policy rationales that support our
conclusion.
Congress’s goal in creating the Medicare Advantage
program was to harness the power of private sector
competition to stimulate experimentation and innovation that
would ultimately create a more efficient and less expensive
Medicare system. See, e.g., H.R. Rep. No. 105-217, at 585
(1997) (Conf. Rep.) (stating that MA program was intended
to “enable the Medicare program to utilize innovations that
have helped the private market contain costs and expand
health care delivery options”). It was the belief of Congress
that the MA program would “continue to grow and eventually
eclipse original fee-for-service Medicare as the predominant
form of enrollment under the Medicare program.” Id. at 638.
The MA program was thus, like the MSP statute, “designed to
curb skyrocketing health costs and preserve the fiscal
integrity of the Medicare system.” Fanning v. United States,
346 F.3d 386, 388 (3d Cir. 2003).
It would be impossible for MAOs to stimulate
innovation through competition if they began at a competitive
disadvantage, and, as CMS has noted, MAOs compete best
when they recover consistently from primary payers. Policy
and Technical Changes to the Medicare Advantage and the
Medicare Prescription Drug Benefit Programs, 75 Fed. Reg.
19678, 19797 (Apr. 15, 2010). When they “faithfully pursue
and recover from liable third parties,” MAOs will have lower
medical expenses and will therefore be able to provide
22
additional benefits to their enrollees. 17 Id. If Medicare could
threaten recalcitrant primary payers with double damages and
MAOs could not, MAOs would be at a competitive
17
CMS explains this mechanism more fully elsewhere:
We note that MAOs claim expenses related to MSP
recoveries as part of their administrative overhead.
MA organizations that faithfully pursue and recover
from liable third parties will have lower medical
expenses. Lower medical expenses make such plans
more attractive to enrollees. The lower the medical
expenses in an MA plan, the higher the potential
rebate. The rebate is calculated as the difference
between the cost of Medicare benefits and the
benchmark for that plan. The benchmark is a fixed
amount. Therefore, as the cost of Medicare benefits go
down (with the benchmark remaining constant), the
larger the rebate. Therefore, as more MSP dollars are
collected or avoided, medical expense go down and
rebates go up, allowing the sponsoring MA
organization to offer potential enrollees additional
non-Medicare benefits funded by rebate dollars. Such
non-Medicare benefits include reductions in cost
sharing. Since cost sharing is generally expressed as a
percentage of medical costs, such cost sharing will also
be proportionally lower as overall medical costs go
down—providing MA organizations offering such
plans with an additional competitive edge.
Policy and Technical Changes to the Medicare Advantage
and the Medicare Prescription Drug Benefit Programs, 74
Fed. Reg. 54634, 54711 (proposed Oct. 22, 2009).
23
disadvantage, unable to exert the same pressure and thus
forced to expend more resources collecting from such payers.
It is difficult to believe that it would have been the intent of
Congress to hamstring MAOs in this manner.
Although the legislative history is nowhere explicit
that MAOs may bring suit for double damages under the MSP
private cause of action or using any other provision, it does
make clear that MAOs were intended to enjoy a status
parallel to that of traditional Medicare:
Under original fee-for-service, the Federal
government alone set legislative requirements
regarding reimbursement, covered providers,
covered benefits and services, and mechanisms
for resolving coverage disputes. Therefore, the
Conferees intend that this legislation provide a
clear statement extending the same treatment to
private [MA] plans providing Medicare benefits
to Medicare beneficiaries.
H.R. Rep. No. 105-217, at 638. 18
Our sister circuits have determined that the MSP Act
provides traditional Medicare with a cause of action for
double damages “[i]n order ‘to facilitate recovery of
conditional payments.’” Stalley v. Methodist Healthcare, 517
18
Because Congress clearly intended there to be parity
between MAOs and traditional Medicare, we find additional
support for our decision in § 1395y(b)(2)(B)(iii), the
government’s cause of action for recovery from primary
payers, which also provides for double damages.
24
F.3d 911, 915 (6th Cir. 2008) (quoting Glover v. Liggett
Group, Inc., 459 F.3d 1304, 1307 (11th Cir. 2006)). We see
nothing in the text or legislative history of the statute to imply
that Congress did not intend to facilitate recovery for MAOs
in the same fashion.
The District Court determined that providing MAOs
with a right of action would not advance the program’s cost-
savings aim because “payments to the MA from the Medicare
trust fund are capitated annually, shifting the economic risk of
excessive medical expenses from the government to the MA
organization.” 2011 WL 2413488, at *4. As we have
explained elsewhere, “[t]he Government pays MA plan
participants a set amount of money based on the plans’
enrollees’ risk factors and other characteristics rather than
paying them a fee for specific services performed.” U.S. ex
rel. Wilkins v. United Health Grp., Inc., 659 F.3d 295, 300
n.4 (3d Cir. 2011). This capitation rate is based in part on the
“adjusted average per capita cost” to the Medicare Trust Fund
of covering a traditional Medicare participant in that year. 42
U.S.C. § 1395w-23(c)(1)(D); § 1395mm(a)(4) (defining
“adjusted average per capita cost” as “average per capita
amount that the Secretary estimates in advance . . .would be
payable in any contract year for services covered under parts
A and B of this subchapter. . . if services were to be furnished
by other than an eligible organization”).
The District Court’s logic on this point is flawed for
several reasons. If an MA plan provides CMS with a bid to
cover Medicare-eligible individuals for an amount less than
the benchmark amount calculated by CMS, it must use
seventy-five percent of that savings to provide additional
benefits to its enrollees. 42 U.S.C. §§ 1395w-24 (b)(1)(C)(i),
25
(b)(3)(C), (b)(4)(C). 19 The remaining twenty-five percent of
the savings is retained by the Medicare Trust Fund.
Accordingly, when MAOs spend less on providing coverage
for their enrollees, as they will if they recover efficiently from
primary payers, the Medicare Trust Fund does achieve cost
savings. 20
19
The “Beneficiary Rebate Rule” provides in full:
The MA plan shall provide to the enrollee a
monthly rebate equal to 75 percent (or the
applicable rebate percentage specified in clause
(iii) in the case of plan years beginning on or
after January 1, 2012) of the average per capita
savings (if any) described in paragraph (3)(C)
or (4)(C), as applicable to the plan and year
involved.
42 U.S.C. § 1395w-24(b)(1)(C)(i). In 2012, the federal
government began to retain a larger portion of the savings and
the rebate proportion became tied to assessments of MAO
quality. § 1395w-24(b)(1)(C)(i).
20
Our decision here unquestionably results in cost savings for
the Medicare Trust Fund because our holding on the meaning
of the private cause of action will apply equally to private
entities that provide prescription drug benefits pursuant to
Medicare Part D. See 42 U.S.C. § 1395w-151(b) (requiring
that provisions relating to the MA program and MAOs be
read to include part D plans). Because Part D prescription
drug plans explicitly share gains and losses with the federal
government, 42 U.S.C. § 1395w-115(e), the Medicare Trust
26
Further, cost savings for the Medicare Trust Fund was
not Congress’s only goal when it created the MA program.
Congress structured the program so that MAOs would
compete for enrollees based on how efficiently they could
provide care to Medicare-eligible individuals. When, by
recovering from primary payers, MAOs save money, that
savings results in additional benefits to enrollees not covered
by traditional Medicare. Thus, ensuring that MAOs can
recover from primary payers efficiently with a private cause
of action for double damages does indeed advance the goals
of the MA program.
We recognize that only Congress can create private
rights of action and that “[t]he judicial task is to interpret the
statute Congress has passed to determine whether it displays
an intent to create not just a private right but also a private
remedy.” Sandoval, 532 U.S. at 286 (2001) (citation
omitted). The analysis here of text and legislative history lies
strictly within the bounds of that task. Our understanding of
the policy goals of the MA program merely buttresses what
we have already found in the text of the Medicare Act: MAOs
are not excluded from bringing suit under the MSP private
cause of action.
D. Chevron Deference
Although we hold the text of § 1395y(b)(3)(A) to
unambiguously provide Humana with a private cause of
action, we recognize that a declaration that the language of
the Medicare Act is clear may be counterintuitive. After all,
Fund unquestionably loses money if these private entities
recover less from primary payers.
27
the Medicare Act has been described as among “the most
completely impenetrable texts within human experience.”
Cooper Univ. Hosp. v. Sebelius, 636 F.3d 44 (3d Cir. 2010)
(quoting Rehab. Ass'n of Va., Inc. v. Kozlowski, 42 F.3d 1444,
1450 (4th Cir. 1994)). We therefore find that, even if the
statute’s text were deemed to be ambiguous, we would apply
Chevron deference and would reach the same conclusion.
The Supreme Court in Chevron established a two-part
test for determining when a federal court ought to defer to the
interpretation of a statute embodied in a regulation formally
enacted by the federal agency charged with implementing that
statute. 467 U.S. at 842-43. First, the court must determine
whether Congress’s intent on the issue is clear — if so, it
must abide by that intention, regardless of any regulations. If
the statute is unclear, that is, “silent or ambiguous with
respect to the specific issue, the question for the court is
whether the agency’s answer is based on a permissible
construction of the statute.” Id. at 843. We defer to the
agency’s regulations “unless they are arbitrary, capricious, or
manifestly contrary to the statute.” Id. at 844.
CMS “has the congressional authority to promulgate
rules and regulations interpreting and implementing
Medicare-related statutes.” Torretti v. Main Line Hosps.,
Inc., 580 F.3d 168, 174 (3d Cir. 2009); see also 42 U.S.C.
§1395hh(a)(1) (“The Secretary shall prescribe such
regulations as may be necessary to carry out the
administration of the insurance programs under this
subchapter.”); 42 U.S.C. § 1395w-26(b)(1) (“The Secretary
shall establish by regulation [ ] standards . . . for [MA]
organizations and plans consistent with, and to carry out, this
part.”). Thus, we must accord Chevron deference to
regulations promulgated by CMS.
28
CMS regulations state that an “MA organization 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. The plain language of this
regulation suggests that the Medicare Act treats MAOs the
same way it treats the Medicare Trust Fund for purposes of
recovery from any primary payer. In this circumstance, we
are bound to defer to the duly-promulgated regulation of
CMS.
Later CMS statements lend further support to this
understanding of the rule. In attempting to predict the savings
generated for MAOs as a result of their secondary payer
status, CMS “assume[d] a similar MSP rate for MA enrollees
as obtains in original Medicare.” Policy and Techinical
Changes to the Medicare Advantage and the Medicare
Prescription Drug Benefit Programs, 74 Fed. Reg. 54634,
54711 (proposed Oct. 22, 2009). If MAOs lacked the
recovery mechanism available to “original” Medicare, this
assumption would be facially invalid.
Additionally, a recent memorandum from CMS
specifically responded to decisions of the federal courts
holding that MAOs were not “able to take private action to
collection for [MSP] services under Federal law because they
have been limited to seeking remedy in State court.” Ctrs. for
Medicare & Medicaid Svcs., Dep’t of Health and Human
Svcs. Memorandum: Medicare Secondary Payment
Subrogation Rights (Dec. 5, 2011). This memorandum
clarified that CMS itself understood § 422.108 to assign
MAOs “the right (and responsibility) to collect” from primary
29
payers using the same procedures available to traditional
Medicare. 21 Id.
Glaxo argues that this regulation does not directly
interpret the MSP private cause of action because the
Secretary exercises the right to recover pursuant to §
1395y(b)(2)(B)(iii), which allows the United States to “bring
an action against any or all entities that are or were required
or responsible . . . to make payment . . . under a primary
plan.” The government may then collect double damages, “in
accordance with paragraph (3)(A),” the MSP private cause of
action. Id. Glaxo’s logic suggests that the regulation would
allow MAOs to exercise rights to recovery under the
government’s cause of action, contrary to the plain language
of the statute. However, given the cross-reference within §
1395y(b)(2)(B)(iii), the statute itself equates the United
States’ right to recover with a private party’s right to recover.
Thus, the regulation refers, ultimately, to the private cause of
action in § 1395y(b)(3)(A) and deference to it supports
Humana’s right to bring suit under that provision.
IV. CONCLUSION
The language of the MSP private cause of action is
broad and unrestricted and therefore allows any private
plaintiff with standing to bring an action. 22 Since private
21
The memorandum also noted that these same rights,
responsibilities, and procedures apply to Part D prescription
drug plan sponsors via 42 C.F.R. § 423.462.
22
Because we find that Humana had the right to sue in federal
court pursuant to § 1395y(b)(3)(A), we need not address its
30
health plans delivered Medicare services prior to the 1980
passage of the MSP Act, Congress was certainly aware that
private health plans might be interested private parties when it
drafted the cause of action, and it did not exclude them from
that provision’s ambit. That decision is logically consistent
because affording MAOs access to the private cause of action
for double damages comports with the broader policy goals of
the MA program. Further, even if we were to find the
statutory text to be ambiguous on the issue, Chevron
deference to CMS regulations, which grant MAOs parity with
traditional Medicare, would require us to find in favor of
Humana here.
For all these reasons, we will reverse the District
Court’s dismissal of the complaint, pursuant to Rule 12(b)(6),
and remand for further proceedings consistent with this
opinion.
argument that the District Court also had jurisdiction pursuant
to the Class Action Fairness Act, 28 U.S.C. § 1332(d).
31