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Eleventh Circuit votes against rehearing en banc regarding its previous 2016 ruling upholding Medicare Advantage Organization's statutory right to double damages against tortfeasor's liability insurer

On January 25, 2018, in Humana Medical Plan v. Western Heritage Insurance, No. 15-11436, a majority of the active service judges on the Eleventh Circuit Court of Appeals voted against rehearing en banc regarding its previous 2016 ruling upholding a Medicare Advantage Organization’s (MAO) statutory right to recover double the amount of its reimbursement claims against a tortfeasor’s liability insurer which had settled a negligence claim brought by the MAO’s insured. During the pendency of the underlying tort litigation, the MAO had issued an Organization Determination to its insured that it was due reimbursement of $19,155.41 for treatment of injuries arising from the tortious conduct. However, when the plaintiff subsequently settled the case against the tortfeasor for $115,000 from the liability insurer, the plaintiff indicated in the settlement agreement that there was no Medicare or other lien . The plaintiff then filed suit against the MAO in state court seeking a declaration (and reduction) of the amount owed to the MAO. Applying Florida law regarding collateral indemnity and subrogation, the trial court held that Humana was entitled to $3,685.03, but the Florida Third DCA reversed, holding that the Medicare Act creates an exclusive federal administrative process with federal judicial review. See Humana Med. Plan, Inc. v. Reale, 180 So. 3d 195, 199 (Fla. 3d DCA 2015). The MAO then filed suit in federal court, not against the MAO insured, but against the tortfeasor’s liability insurer. The MAO sought double damages from the liability insurer under the cause of action authorized by 42 U.S.C. Section 1395y(b)(3)(A). The district court ruled in the MAO’s favor, awarding double damages in the amount of $38,310.82, a ruling that was affirmed on appeal by the Eleventh Circuit on August 8, 2016, notwithstanding a vigorous dissent by Judge Pryor on the basis that Section 1395y(b)(3)(A) does not in fact authorize a private cause of action for MAOs, as opposed to Medicare. The January 25, 2018 order denying the rehearing on the Eleventh Circuit’s August 8, 2016 decision contains another vigorous dissent, authored by Judge Tjoflat, who noted that by inferring a private cause of action, the Court was thereby allowing an MAO to recover its outlay directly from a liability insurer rather than having to stand in the shoes of the insured and recover as part of the insured’s tort action, regardless of whether the tortfeasor has admitted liability or whether the liability insurer had already paid the MAO’s outlays to the tort victim. Judge Tjoflat predicted that the result of the decision, which enables MAOs to potentially recover double the full amount of its outlay without equitable reductions, will be that MAOs will always avail themselves of the private right of action under Section 1395y(b)(3)(A) rather than the traditional state-law scheme Congress also authorized and protected under Section 1395w-22(a)(4). According to Judge Tjoflat, “this also has the effect of rendering releases of liability under state law a nullity, because an insured’s release executed in favor of the liability insurer cannot release the liability insurer from the reimbursement responsibility it has to MAOs that is independent of its responsibilities to recompense the insured. And state laws precluding the use of a compromise settlement to establish a tortfeasor’s (and thus the liability insurer’s) liability are no longer of moment . Au contraire, a liability insurer’s execution of a settlement agreement creates its liability to the MAO.”