1. ERISA REIMBURSEMENT LITIGATION NOAH LIPSCHULTZ SHAREHOLDER LITTLER MENDELSON MEDICARE ADVANTAGE TPL RECOVERY DANIEL GOLDBERG ASSOCIATE GENERAL COUNSEL OPTUMINSIGHT (FORMERLY INGENIX) STATE DEVELOPMENTS CHAD GABERT ASSOCIATE GENERAL COUNSEL OPTUMINSIGHT (FORMERLY INGENIX) 2011 – The Year in Health Care Subrogation & Reimbursement

2. 2011 Self-Funded ERISA Reimbursement Litigation

3. Reimbursement / Subrogation Rights under ERISA ERISA Section 502(a)(3): Authorizes a Civil Action:  “by a participant, beneficiary, or fiduciary”  To enjoin any practice violating ERISA or the terms of an ERISA plan, OR  To obtain “appropriate equitable relief” to: Redress violations mentioned above OR To enforce any provisions of ERISA or “the terms of the plan”

4. Reimbursement / Subrogation Rights under ERISA Is Plan self-funded, or insured?  If self-funded, state laws that “relate to” the plan are preempted.  29 U.S.C. Section 1144(a) and Shaw v. Delta Air Lines, 463 U.S. 65 (1983) Effect: State anti-subrogation laws, attorney lien statutes, and other laws which might contradict ERISA plan reimbursement provisions are preempted. Does stop loss render plan insured?  Administrative Committee of the Wal-Mart Stores Health and Welfare Plan v. Willard, 302 F. Supp. 2d 1267, 1282-84 (D. Kan. 2002) (plan self-funded for purposes of ERISA “deemer” clause preemption analysis, despite purchase of stop-loss insurance and other insurance services) aff’d, 393 F.3d 1119 (10th Cir. 2004); What about other insured portions of plans?  Providence Health Plans of Oregon v. Simnitt, 2009 U.S. Dist. LEXIS 20876 *10, Case No. 08-44-HA (D. Ore March 13, 2009) (rejecting argument that stop loss insurance altered self-funded status of ERISA plan, noting “Because defendant’s medical expenses did not trigger coverage under Providence’s insurance policies, there is no basis upon which this court can indirectly apply Oregon insurance statutes.

5. Key Supreme Court Cases Great-West Life & Annuity Ins. Co., et. al. v. Knudson, 534 U.S. 204 (2002) Sereboff v. Mid Atlantic Med. Servs., 547 U.S. 346 (2006)

6. Knudson: Facts Action to enforce ERISA plan subrogation / reimbursement provisions under Section 502(a)(3) of ERISA Plan paid over $325,000 in medical expenses relating to MVA Plan participant recovered $650,000  Over $256K goes to special needs trust per CA law  Over $373K goes to attorney’s fees and costs  Roughly $14K goes to the plan for reimbursement claim (amount the parties allocated in settlement)  Settlement judicially-approved in state court

7. Knudson: Take-Away Restitution at Law:  Judgment imposing personal liability for $ Restitution at Equity:  Constructive trust or equitable lien over fund or funds in (or could be traced to) property in defendant’s possession Key Point:  $$ not in Knudsons’ possession when lawsuit filed – instead in possession of attorneys’ and third party (special needs trust) Lower court denied motion to amend to add attorneys and special needs trust, and Plan did not appeal (more on that later!) Dissent (Ginsburg / Stevens):  Too arcane! Congress did not have these distinctions in mind when drafting ERISA

8. Sereboff Sereboffs recovered 750K in MVA, plan paid 75K in medical benefits Money disbursed to Sereboffs and attorneys Plan filed suit under Section 502(a)(3) to enforce plan reimbursement provisions, and moved for a TRO requiring Sereboffs to preserve 75K pending resolution of its reimbursement rights

9. Sereboff Court distinguishes Knudson on the grounds that the funds were in the “possession” of defendant in Sereboff, unlike Knudson This enabled claim to sound in equity, for the relief was sought against a specific fund in Sereboff’s possession and not against their assets generally

10. Sereboff: Keys Plan should:  Identify a fund (distinct from general assets) from which recovery is sought, and  Specify share of the fund to which Plan is entitled Must seek such relief from a fund or funds in possession of the party sued Equitable defenses such as “made whole” do not apply  It is an equitable lien by agreement, not a “subrogation lien”

11. Is Equitable Relief “Appropriate”? Sereboff – “footnote 2” – reserves question on whether relief was “appropriate” under Section 502(a)(3) because not raised below Popular argument with lawyers defending ERISA participants in these recovery actions Argument that enforcing plan terms to require full reimbursement not “appropriate” because “unfair” and “inequitable” to plan participants  They were not made whole, plan didn’t pay for recovery, etc.

12. “Appropriate” Equitable Relief “Appropriate” argument has not fared well since Sereboff:  Administrative Committee of the Wal-Mart Stores, Inc. Associates’ Health and Welfare Plan v. Shank, 500 F.3d 834 (8 th Cir. 2007)  Rejecting “made whole” and pro rata arguments, enforcing unambiguous plan language requiring reimbursement as “appropriate” under Section 502(a)(3)  Zurich Am. Ins. Co. v. O’Hara, 604 F.3d 1232 (11 th Cir. 2010)  Same result, rejecting “made whole” and “common fund” limitations on reimbursement

13. Other en vogue Arguments “Pro rata” reduction Ahlborn – Medicaid case ERISA regs / drafting of SPD CIGNA / Amara – emphasis on equitable remedies such as reformation

14. Procedural Issues: Proper Defendant Harris Trust and Savings Bank v. Salomon Smith Barney, 530 U.S. 238 (2000)  Not an ERISA reimbursement case  Issue was whether a non-fiduciary “party in interest” to a prohibited transaction could be a proper defendant in an action under Section 502(a)(3) for breach of ERISA  Key Statement: Section 502(a)(3) “admits of no limit (aside from the “appropriate equitable relief” caveat) on the universe of possible defendants.”

15. Proper Defendant in Reimbursement Action under Section 502(a)(3) Recall in Knudson – plan attempted to name parties in possession of disputed funds (attorney / trust) and court reserved the issue, since it was not appealed Bombardier Aerospace Employee Welfare Benefits Plan v. Ferrer, Poirot and Wansborough, 354 F.3d 348 (5 th Cir. 2003)  ERISA plan participant’s counsel a proper defendant in an action to enforce reimbursement provision against their client  Client has “constructive” possession of settlement funds subject to reimbursement when lawyer possesses funds  Plan’s right to fund trumps lawyer’s right to get paid first, because terms of plan came first  State “common fund” rule preempted  Mode of analysis foreshadows Sereboff

16. Proper Defendant under Section 502(a)(3) Longaberger Co. v. Kolt, 586 F.3d 459 (6 th Cir. 2009)  Plan paid $113k in benefits, MVA settled for $135K  Lawyer disburses most of settlement fund (45K to himself, 86K to client plan participant, nominal sums to other counsel)  Plan obtained TRO against lawyer and client, and judgment against each for a portion out of each’s fund. Only attorney appealed.  Court held that attorney was properly sued, and his disbursement of funds did not present a barrier under Sereboff  Ohio state law re: attorney liens – preempted to the extent inconsistent with ERISA plan

17. Proper Defendant under Section 502(a)(3) AC Houston v. Berg, (9 th Cir. December 2010)  Similar facts and argument to Longaberger  Only attorney’s fees at issue and only attorney defendant contesting lien  9 th Circuit holds, 2-1 that ERISA plan reimbursement terms do not apply to counsel for ERISA plan beneficiary, following prior decision of Hotel Employees & Restaurant Employees v. Gentner, 50 F.3d 719 (9 th Cir. 1994) Case law mixed, with cases within 4 th and 8 th Circuit holding that ERISA plan may not seek “appropriate equitable relief” against counsel for ERISA plan beneficiary 11 th Circuit appears to follow Longaberger, (Johnson Controls v. Flaherty, et. al. (11 th Cir., January 2011)

18. More Recent ERISA Reimbursement Cases U.S. Airways v. McCutchen, (W.D. Pa 2010)  Granting SJ to plan to enforce plan reimbursement language, following Sereboff and rejecting “made whole” and “common fund” arguments CGI, Inc. v. Rose, (W.D. Wash 2011)  Cross-motions for SJ Plan’s claim was “appropriate” under Section 502(a)(3) against plan member, no pro rata reduction based on alleged limited recovery, however, attorney’s fees / costs deducted from reimbursement, and suit against counsel barred Aetna Life Ins. Co. v. Kohler, (N.D. Ca. 2011)  Refusing to dismiss claim for reimbursement under Section 502(a)(3), indicating inclination to enforce plan language, and that such a claim would be “appropriate” Ozarks Coca-Cola v. Ritter (W.D. Mo. 2011)  Claim for reimbursement sustained as to fund held in attorney’s trust account, but not over settlement “offer” which had yet to be accepted, with court noting that plan had right to be reimbursed from funds that come into plan participant’s possession in the future

19. More Recent ERISA reimbursement Cases Reinhart Companies Employee Benefit Plan v. Vial, (W.D. Mich. 2011)  Language in one plan provide for recovery out of funds received from “a responsible or liable party”  Court held that settling medical providers were not a “responsible or liable party” because they disputed liability and never found liable  Other plan more broad, allowing for recovery regardless of any finding of responsibility or liability and regardless of whether third party actually “caused” injuries  However, issue as to whether defendants “possessed” all of the funds over which lien sought (did not sue attorney, so could not go after $190k), could only go after 60k held by named defendant conservators  Issue of fact on whether reimbursement provisions applied to dependents

20. DANIEL S. GOLDBERG ASSOCIATE GENERAL COUNSEL OPTUMINSIGHT (FORMERLY INGENIX) DANIEL.GOLDBERG@OPTUM.COM (952) 833-6279 Medicare Advantage Third Party Liability Recovery

21. Topics Medicare & Medicare Advantage Recovery Rights Current Legal Landscape – Federal Court Precluded  Parra, Avandia, and Reale State Court Recovery Option?  Anti-Subro States – Is there federal preemption or does state law preclude MA recovery?  NY Decisions What’s on the Horizon?

22. Medicare Secondary Payer Act (MSP) “Houston, We Have A Problem... “ MA Recovery Right problems stem from a statute that is convoluted, confusing and far from a model of clarity.  See Estate of Urso v. Thompson, 309 F.Supp.2d 253, 256-59 (D.Conn. 2004)

23. Medicare & Medicare Advantage Recovery Rights Traditional Medicare – Basics Under the MSP:  “Payer of Last Resort”  Secondary to other insurers Auto / liability insurance plans, WC plans, no fault insurance  Payments are “conditional,” entitled to reimbursement from primary plan if medicals are due to third party liability incident  Recovery Rights  Subrogation rights against tortfeasor / any entity responsible for payment  Reimbursement rights against entity that has received payment from liable party  Authority to bring a recovery action lies with the United States  Recovery Formula – Procurement Costs Reduction  Reduce total lien by a proportionate share of procurement costs Court costs, attorney fees  See 42 U.S.C. §§ 1395y(b)(2)(A) & (B), 1395y(b)(3)(A); 42 CFR § § 411.24(g), 411.37(c)

24. Medicare Advantage Rights Under the MSP  MA plan is secondary payer, just as Medicare  Payment “conditioned” on reimbursement  Exercise the same recovery rights from a primary plan, entity, or individual that the Secretary of CMS exercises  Subrogation / Reimbursement: MA plan may charge any entity or individual (1) responsible for paying for the medical services or (2) receiving payment from a party responsible for paying for the medical services  State Law Preempted – MSP standards supersede any State law with respect to the MA plans  See 42 U.S.C. §§1395w-22a(4), 1395w-26(b)(3); 1395y(2)(B)42; C.F.R. §§ 422.108(f), 422.402

25. Current MA Recovery Landscape Recent Federal Court Decisions –No Private Cause of Action  Federal courts lack jurisdiction because MA plans have no federal cause of action to seek reimbursement recovery in federal court Cases  Parra, et al v. PacifiCare, 2011 U.S. Dist. LEXIS 33630 (D. AZ, 3/25/11)  In Re: Avandia Marketing Litigation, 2011 U.S. Dist. LEXIS 63544 (E.D. PA, 6/13/11)  Humana v. Reale, 2011 U.S. Dist. LEXIS 8909 (S.D. FL, 1/31/11)

26. No Federal Reimbursement Claim in MSP for MA Plans Parra  Federal court lacks subject matter jurisdiction (federal jurisdiction) because MA plan does not have a private cause of action for third party liability recovery, neither explicit or implicit, under the MSP  Recognized MSP creates a federal reimbursement right, but Statute “stop[s] short of creating a federal private right of action to enforce the right” and statute does not contain any jurisdictional provision granting exclusive jurisdiction over Medicare reimbursement claims.  Statute only protects MA plans right to charge and / or bill an MA recipient for reimbursement, “notwithstanding any state law or regulation to the contrary.”  MA plan must proceed in state court; state courts better suited to address what is essentially a contract claim and are just as capable as federal court to address preemption question relevant to the reimbursement claim

27. No Federal Reimbursement Claim in MSP for MA Plans In Re Avandia  MSP does not give MA plans a private right of action to enforce its rights as a secondary payer  MSP only provides a private right of action for Medicare to sue for reimbursement, none provided for MA  Neither an explicit or implicit private right for MA to sue for reimbursement under the MSP (citing Care Choices HMO v. Engstrom, 330 F.3d 786 (6 th Cir. 2003); Nott v. Aetna, 303 F.Supp. 2d 565 (E.D. PA 2004) and Parra)  MA plan has a remedy in state court to enforce terms of its insurance contracts

28. No Federal Reimbursement Claim in MSP for MA Plans Reale  MSP authorizes the United States to bring a lawsuit for Medicare reimbursement recovery  MA plans only have the same recovery rights as the Secretary of CMS.  Secretary’s authority under MSP (42 U.S.C. 1395y(b)(2)(B)(i)) is limited to making payments “conditioned on reimbursement”  Since MSP doesn’t give Secretary authority to bring reimbursement suit, MA plans lack a federal cause of action under MSP

29. State Court Option – What Is It? Is There A State Court Option?  Parra and Avandia referenced MA ability to sue in state court:  MSP created a federal reimbursement right for MA plans  MA plan may seek reimbursement / subrogation in state court  State courts just as capable as federal courts to address preemption questions relevant to resolving reimbursement claim  What Does This Mean?  MA plans can pursue reimbursement claims in state court based on the MSP created federal reimbursement right when there is contractual third party liability (TPL) recovery language in the policy. What if the policy has no TPL recovery language?  Anti-Subro States: If MA plan contains reimbursement language, does the plan’s reimbursement right preempt / supersede the state’s anti-subrogation law?

30. Anti-Subro States – MA Claim Viable? Federal Preemption or State Law Applicable?  Preemption – MA plan argues that MSP preempts / supersedes all state laws that interfere with MA plan’s reimbursement rights  State laws that restrict or limit subrogation rights are inapplicable Secretary shall establish standards by regulation for MA Plan organizations consistent with and to carry out this part, and “provided that any standard so established shall supersede any State law or regulation... to the extent such law or regulation is inconsistent with such standards.” 42 U.S.C § 1395w-26(b)  How Far Does Preemption Extend?  “Notwithstanding any other provision of law, a [MA Plan] organization may (in the case of the provision of services to an individual under a [MA] under circumstances in which payment... is made secondary pursuant to section 1395y(b)(2))... charge...... such individual to the extent that the individual has been paid under the plan for such services.” 42 U.S.C. §1395y(b)(2)(A)

31. NY: Anti-Subro Law Applies Two NY Trial Court Decision (supreme court) – NY anti-subro law (GOL §5-335) prohibits MA plan reimbursement  Trezza v. Rodriguez, 2011 N.Y. Misc. LEXIS 3240 (Sup. Crt. NY, Kings County, June 23, 2011)  Ferlazzo v. 18 th Ave. Hardware, Inc., 2011 N.Y. Misc. LEXIS 4175 (Sup. Crt., Kings County, August 22, 2011) Decisions recognize that MA plan’s have “statutory permission” to include reimbursement provision in MA contract, but contract right is subject to state law prohibition against reimbursement Long Term Impact: No Federal Uniformity. MA Recovery will be dependent on state law if NY decisions followed by other anti-subro states  Did Congress intend the federal MA program to be dictated by the law of 50 different states?

32. On The Horizon? Parra – On appeal to the 9 th Circuit Avandia – On appeal to the 3 rd Circuit Reale – Appeal to the 11 th Circuit likely  Best chance for reversal – District Court rational not as persuasive, reasoned as the Parra and Avandia Class Action: Refunds of MA Reimbursement payments  Meek-Horton v. Trover Solutions, Inc. d/b/a Healthcare Recoveries, Inc., et al, (Sup. Crt NY, NY County)  Likely see more class actions in other anti-subro states

33. CHAD H. GABERT ASSOCIATE GENERAL COUNSEL OPTUMINSIGHT (FORMERLY INGENIX) CHAD.GABERT@OPTUM.COM (952) 833-6279 2011 State Developments

34. Colorado Colorado Revised Statute 10-1-135 (“Made Whole Act”)  Effective August 11, 2010.  Member must be made whole before reimbursement is allowed. There is a rebuttable presumption that the member has not been made whole if all available insurance limits have been tendered.  Subrogation is only allowed if the member has not pursued a personal injury claim within 60 days of the applicable statute of limitations running.  Common Fund Applied.  The Act applies to fully insured, self-funded non-ERISA and possibly fully insured ERISA.  Arbitration available when the member’s made whole status is disputed. Is anyone arbitrating these matters? Results?

35. Louisiana Louisiana Senate Bill 169, Section 1881  The Act, which became effective on August 15, 2011, was sponsored by Senator Claitor (personal injury attorney).  Health care payors successfully lobbied to soften the bill’s reimbursement impact.  The Act’s stated goals are as follows:  Prohibit health insurers from recovering against auto med pay without first obtaining written consent until nine months after the accident have elapsed; and  Prohibit reimbursements that exceed the amounts actually paid by an insurer or insurance provider.

36. Louisiana Operational Impact  During the first nine months after an auto accident, a health insurer may not seek reimbursement from auto med pay without first obtaining written consent from the insured or his/her legal representative.  After nine months have elapsed from the date of the accident, a health insurer may seek reimbursement, without consent, from the med pay carrier for the remaining med pay policy balance.  A health insurer cannot recover more than the amount it actually has paid.  The Act only applies to fully insured plans and possibly Medicaid.

37. Texas Quintana v. Ingenix, Cause Number 10-03069-L, 193 rd Judicial District, Dallas County, Texas Member's attorney's attempt to essentially preclude health payors from pursuing subrogation against the responsible tortfeasor and/or their insurer(s)

38. Texas Facts  Quintana, a member of a Self-Funded ERISA qualified health plan (“plan”) was injured in a car accident in which he had significant comparative fault.  Quintana reached a tentative settlement resolving the underlying third-party claim and the plan’s reimbursement interest.  After the third-party settlement fell apart, the liability insurer, State Farm, approached Ingenix about resolving the plan’s subrogation interest.  Ingenix provided State Farm with a medical payment summary itemizing the plan’s reimbursement interest. The summary had previously provided to the member who had in turn provided it to State Farm.  The plan and State Farm eventually settled the subrogation claim for less than what the member had previously offered. Under the settlement, the plan's reimbursement interest was assigned to State Farm.  Quintana subsequently sued Ingenix and State Farm alleging violations of his right to privacy, conspiracy to invade his privacy, HIPAA violations and intentional infliction of emotional distress.

39. Texas Procedural Posture  The lawsuit, which the member filed in Dallas County District Court, was removed to Federal Court.  The presiding judge, the Honorable A. Joe Fish, subsequently remanded the case back to state court holding that lawsuits against ERISA plans for routine state law claims were not preempted by ERISA.  In March 2011, the member settled all of his claims against State Farm.  On September 21, 2011, the member amended his complaint to certify a Texas class action seeking injunctive and/or declaratory relief alleging invasion of privacy, negligence, violation of Texas Medical Privacy statutes, violation of the Texas Administrative Code and the intentional infliction of emotional distress.

40. Finally, Some Good News – Hawaii, Mississippi, South Dakota A verdict/judgment will make a member whole as a matter of law. Armstrong v. Mississippi Farm Bureau Cas. Co., 2011 WL 71453 (Miss. App. 2011); and Anti-subrogation legislation was defeated in both Hawaii and South Dakota.

41. Questions??