In a reversal of arguments as to the enforceability of claims for reimbursement of Medicare Advantage Plans, on December 26, 2012 [argued September 21, 2012] the New York State Appellate Division, Second Judicial Department has reversed the lower court’s decision in the appeal of the matter of the Kings County Supreme Court decision of Trezza v. Trezza, 32 Misc 3d 1209[A], 2011 NY Slip Op 51237[U] (Sup Ct, Kings County). 

The Second Department held that: “General Obligations Law §5-335, insofar as applied to Medicare Advantage organizations under Part C, is preempted by federal law since it would impermissibly constrain contractual reimbursement rights authorized under the “Organization as secondary payer” provisions of the Medicare Act.” [Click here to Download the Appellate Court decision].

By way of relevant background, Janine Trezza was injured in a motor vehicle accident while riding in a vehicle operated by her husband. Oxford Health Plus, the Medicare Advantage plan, paid $37,787.64 in medical expenses for plaintiff’s accident-related injuries. Plaintiff received a settlement of $75,000.00 out of which Oxford Health Plus claimed entitlement to reimbursement of $37,787.64.

The Supreme Court, Kings County, granted the plaintiff’s motion to extinguish the purported lien and/or claim for reimbursement based upon the following reasoning:

Courts have held that because the Medicare Act did not establish a federal scheme for the civil enforcement of HMO subrogation rights, it did not create a private cause of action (Nott, 303 F.Supp.2d at 570See also Care Choices HMO v. Engstrom, 330 F.3d 786, 789 [6th Cir. 2003]). The Medicare Act therefore does not create a statutory right of reimbursement; instead, it allows HMOs to include subrogation rights in its contracts with beneficiaries (Nott, 303 F.Supp.2d at 570). Because “the Medicare Act permits, but does not mandate, HMO insurers to contract for subrogation rights” (id. at 571), subrogation in this context remains a state contract law issue (id. at 572Care Choices, 330 F.3d at 790).

In a matter of first impression before the Appellate Division, the Court further examined the preemptive effect the Medicare Act may have on General Obligation Law §5-335.

In its analysis, the Appellate Division observed:

Thus, the Medicare Act provides that Medicare Advantage organizations may create a right of reimbursement for themselves in their insurance agreements with Medicare insureds. Moreover, “[t]he standards established under [Part C] shall supersede any State law or regulation (other than State licensing laws or State laws relating to plan solvency) with respect to [Medicare Advantage] plans which are offered by [Medicare Advantage] organizations under [Part C]” (42 USC § 1395w-26[b][3]), and “[a] State cannot take away [a Medicare Advantage] organization’s right under Federal law and the MSP regulations to bill, or to authorize providers and suppliers to bill, for services for which Medicare is not the primary payer” (42 CFR 422.108[f]).

Yet General Obligations Law § 5-335 would prohibit Medicare Advantage organizations from exercising the contractual right to reimbursement in that it would constrain contractual reimbursement rights where the insured entered into a personal injury settlement. In other words, General Obligations Law § 5-335, which, insofar as at issue here, clearly does not constitute a licensing law or a law relating to plan solvency, would, in the context of such personal injury settlements, “take away [a Medicare Advantage] organization’s right under Federal law and the MSP regulations to bill, or to authorize providers and suppliers to bill, for services for which Medicare is not the primary payer” in contravention of the federal regulations enabled by 42 USC § 1395w-26(b)(1) (42 CFR 422.108[f]).

The Court noted that although Medicare Advantage plans had no “statutory right of reimbursement” as used in General Obligations Law § 5-335, the Medicare Act expressly pre-empted the application of § 5-335.

 The Court concluded that “because General Obligations Law § 5-335 is expressly preempted by the Medicare Act, the Supreme Court erred in granting the plaintiff’s motion to extinguish the purported lien and/or claim for reimbursement based on that section.”

Although the decision reinstated the claim of reimbursement of the Medicare Advantage Plan against the settlement proceeds, it did not preclude other arguments to attack the validity and amount of the purported claim.

As such, this case should not be considered a windfall for Medicare Advantage-type Plans in asserting liens and/or claims for reimbursement from personal injury settlements. As in cases involving ERISA self-insured type plans, the language in the plan should be examined in each particular case to ascertain grounds to attack the amounts claimed in addition to other arguments and defenses.

 We will continue to monitor developments in this as well as other areas as they pertain to liens and claims for reimbursement in personal injury cases.