United States v. Baxter International, Incorporated

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT FILED

________________________

U.S. COURT OF APPEALS

ELEVENTH CIRCUIT

No. 01-16782 September 15, 2003

________________________ THOMAS K. KAHN

CLERK

D. C. Docket No. 00-00837-CV-N-S

UNITED STATES OF AMERICA,

Plaintiff-Appellant,

versus

BAXTER INTERNATIONAL, INCORPORATED; BAXTER HEALTHCARE

CORPORATION, et al.,

Defendants-Appellees,

PLAINTIFFS' STEERING COMMITTEE,

Defendant-Intervenor-

Appellee.

________________________

Appeal from the United States District Court

for the Northern District of Alabama

_________________________

(September 15, 2003)

Before TJOFLAT, ANDERSON and CUDAHY*, Circuit Judges.

ANDERSON, Circuit Judge:

This case grows out of the 1995 settlement of a class-action products liability

suit against manufacturers of silicone breast implants. The settlement resulted in

the creation of a reimbursement mechanism by which several settling

manufacturers agreed to cover certain health care expenses incurred by or on behalf

of qualified members of the plaintiff class. The Government, as intervenor, sought

to recover for medical bills it paid on behalf of Medicare beneficiaries who

received treatment related to silicone breast implants. The district court dismissed

the Government's complaint in intervention for failure to state a claim. We

conclude that the dismissal was in error. We therefore reverse and remand.

I. BACKGROUND

A. Historical Background

The underlying case is result of an order by the Judicial Panel on Multi-

District Litigation, which consolidated all then-pending products liability claims

against the manufacturers of silicone breast implants into a single action before the

United States District Court for the Northern District of Alabama. The exact

*

Honorable Richard D. Cudahy, United States Circuit Judge for the Seventh Circuit,

sitting by designation.

2

details of the underlying claims are not of significance to the disposition of the

appeal before us. It is enough to observe that, in general, the plaintiffs allege that

they suffered, or fear that they will contract, a variety of systemic illnesses

traceable to silicone breast implants, necessitating in some instances that the

implants be surgically removed at considerable expense.

The litigation resulted in a settlement valued at $4.2 billion that initially

involved eight defendant manufacturers (the “Lindsey settlement”). On September

1, 1994, after conducting a fairness hearing, the district court approved the terms of

the Lindsey settlement, with modifications. See In re Silicone Gel Breast Implant

Litig., No. CV 92-P-10000-S, MDL No. 926, Civ. A. No. CV94-P-11558-S, 1994

WL 578353 (N.D. Ala. Sept. 1, 1994) (approving modified settlement and

redefining parameters of class membership). Subsequently, one of the larger

defendants, Dow Corning, declared bankruptcy, and several other defendants

(apparently dissatisfied with the court-imposed modifications) chose not to

participate in the settlement, leaving the following companies as appellees now

before us: Baxter International, Inc.; Bristol-Myers Squibb Co., Minnesota Mining

and Manufacturing Co. (“3M”); Union Carbide Corp.; and Union Carbide

Chemical & Plastics Co.

3

After the modifications were publicized to class members, and after the

settlement was restructured to take account of Dow Corning's bankruptcy filing, the

district court gave final approval to the settlement by order of December 22, 1995.

This became known as the “Revised Settlement Program,” or RSP. The

participating implant manufacturers are referred to collectively as “the RSP

Defendants,” 1 the appellees before us.

The revised settlement class covered personal injury or death claims by

members of a class consisting of: persons who received silicone breast implants

before June 1, 1993; all children born to mothers with breast implants before April

1, 1994; and their spouses or other relatives. The Government,2 as well as a

number of private insurers, moved to intervene prior to approval of the settlement

for purposes of asserting claims for reimbursement of medical claims paid on

behalf of class members. The district court denied these motions as premature. Its

1

The settlement agreement purported to make the class claimants, rather than the RSP

Defendants, liable for reimbursement claims by the Government or by other insurers. The

district court did not, however, render its decision based on any agreement by the parties that the

RSP Defendants were not liable. Wisely, none of the defendants attempts to argue here that

parties could override a statutory right of action afforded to the Government by a contractual

arrangement to which the Government was not a party.

2

When this case was initiated, the agency administering the Medicare program was

known as the Health Care Financing Administration (HCFA), a subunit of the Department of

Health and Human Services (HHS). Subsequently, the unit was renamed as the Centers for

Medicare and Medicaid Services (CMS). For simplicity, we refer to the intervenor/appellant

here as “HHS,” “the Government” or “Medicare.”

4

order stated, in pertinent part: “The court will consider these issues at a later time,

before any distributions... are made, and hopefully on the basis of motions that in

some appropriate manner identify the persons on whose behalf subrogation

claimants have paid medical expenses, rather than simply assert a general claim

against the class.”

In accordance with the settlement, the RSP Defendants created a Claims

Office to review the documentation submitted by prospective class members and

determine what level of benefits, if any, applicants were eligible to receive. Also

as part of the claims process, the district court appointed an Escrow Agent, who is

responsible for overseeing the investment and disbursement of the settlement

proceeds. The position has been held since its inception by Edgar C. Gentile, III.

The district court granted the Escrow Agent, as an agent of the court, “judicial

immunity” for actions taken in his quasi-judicial capacity, unless he acts in the

clear absence of jurisdiction.

The settlement resulted in the creation of two funds relevant to this case.

The principal fund, called the RSP Settlement Fund (or sometimes MDL 926

Settlement Fund) is the account from which claims are paid. The second, the

Common Benefit Fund, was created by a surcharge on the RSP Defendants for

5

purposes of paying legal fees and expenses incurred for the “common benefit” of

all claimants. Both funds are administered by the Escrow Agent.

The RSP Defendants made their first payment into the settlement fund in

January of 1996, and at the direction of the district court, the Escrow Agent began

issuing settlement payments to class members in mid-1996. According to the

Government's Complaint, about 81,000 claimants had received some payment from

the RSP as of April 1999. To date, more than 400,000 women have registered as

potential claimants, and the RSP Defendants have paid more than $1 billion into

the RSP Settlement Fund. More than 52,000 breast implant recipients opted out of

the settlement class, according to the Complaint, and the Defendants have made

payments outside the RSP process to an unspecified number of them.

It is not clear from the record to what extent the RSP Defendants carried

liability insurance coverage (other than “self insurance,” about which more will be

said shortly) for the events giving rise to the class members' claims, or to what

extent these defendants have received compensation from such insurance for

payments made into the two settlement funds. It is apparent that the implant

companies had at least some liability coverage, because the settlement agreement

expressly provides for the Defendants' insurers to have access to the otherwise

6

confidential records of class claimants. We therefore take as established for

purposes of this appeal that some third-party insurance coverage exists.

Beginning in 1995 and continuing through March of 2000, the Government

entered into a series of “tolling agreements” with the RSP Defendants while

negotiating over the Government's access to information about the settlement

participants, for purposes of determining which class members may have received

Government health benefits for which the Government was entitled to

reimbursement. Under these tolling agreements, the Defendants agreed that they

would not argue laches, statute of limitations or similar “timeliness” defenses if the

Government was forced to file suit. In exchange, the Government agreed to forego

filing suit during settlement negotiations. Negotiations between the Government

and the RSP Defendants did not produce an agreement. Consequently, in March of

2000, the Government filed the complaint in intervention giving rise to this appeal.

B. The Medicare Secondary Payer (MSP) Statute

The Government's Complaint initially relied on two distinct but related

statutes and their accompanying regulations: (1) the Medicare Secondary Payer

(“MSP”) statute, 42 U.S.C. § 1395y(b), and (2) the Medical Care Recovery Act

7

(“MCRA”), 42 U.S.C. § 2651. Although all of the Government's claims were

dismissed, it is appealing only the dismissal of the MSP claim. 3

The MSP is actually a collection of statutory provisions codified during the

1980s with the intention of reducing federal health care costs. See Zinman v.

Shalala, 67 F.3d 841, 845 (9th Cir. 1995) (“The transformation of Medicare from

the primary payer to the secondary payer with a right of reimbursement reflects the

overarching statutory purpose of reducing Medicare costs.”); Provident Life &

Accident Ins. Co. v. United States, 740 F. Supp. 492, 498 (E.D. Tenn. 1990) (“The

intent of Congress in shifting the burden of primary coverage from Medicare to

private insurance carriers was to place the burden where it could best be

absorbed.”). In a nutshell, the MSP declares that, under certain conditions,

Medicare will be the secondary rather than primary payer for its insureds.

Consequently, Medicare is empowered to recoup from the rightful primary payer

(or from the recipient of such payment) if Medicare pays for a service that was, or

should have been, covered by the primary insurer. Although the statute is

3

While the MSP statute is directed at recovery from “primary plans,” the MCRA statute is

directed at recovery from tortfeasors. It provides that, where the Government is obliged to pay

for the medical care of a person who is injured “under circumstances creating tort liability upon

some third person... to pay damages therefor,” the Government has the right to recover from the

tortfeasor (or their insurers) the “reasonable value” of the care it provides. 42 U.S.C. § 2651(a);

see United States v. Haynes, 445 F.2d 907, 908-09 (5th Cir. 1971) (discussing history and

purpose of MCRA statute).

8

structurally complex – a complexity that has produced considerable confusion

among courts attempting to construe it – the MSP's function is straightforward. As

we explained in Cochran v. HCFA, 291 F.3d 775, 777 (11th Cir. 2002):

[I]f payment for covered services has been or is reasonably

expected to be made by someone else, Medicare does not have to pay.

In order to accommodate its beneficiaries, however, Medicare does

make conditional payments for covered services, even when another

source may be obligated to pay, if that other source is not expected to

pay promptly.

Medicare originated as a series of amendments to the Social Security Act

enacted in 1965, providing a source of payment for hospital care for those over 65.

The program was, for the most part, the primary source of payment for its

beneficiaries even when another source of coverage existed. However, the 1965

amendments also provided that coverage would be secondary to workers'

compensation benefits, and that any payment to or on behalf of a Medicare

beneficiary eligible for workers' compensation benefits would be contingent upon

reimbursement. See S. Rep. No. 404 at § 1862, 89th Cong., 1st Sess. (1965),

reprinted at 1965 U.S.C.C.A.N. 1965, 2127-28 (“no payment may be made... for

any item or service for which payment has been made, or can reasonably be

expected to be made, under a workman's compensation law or plan of the United

States or a State. Any payment ... with respect to any [such] item or service must

9

be conditioned on reimbursement being made to the appropriate trust fund for such

payment if any when notice or other information is received that payment for such

item or service has been made under such a law or plan.”); see also Parkview

Hosp., Inc v. Roese, 750 N.E.2d 384, 388 (Ind. Ct. App. 2001) (discussing early

history and evolution of MSP statute). That language became the template for the

modern MSP provision.

In pertinent part, the MSP statute in its current form provides:

(A) In general

Payment under this subchapter may not be made, except as

provided in subparagraph (B), with respect to any item or service to

the extent that –

...(ii) payment has been made or can reasonably be

expected to be made promptly (as determined in accordance

with regulations) 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.

In this subsection, the term “primary plan” means... a

workmen's compensation law or plan, an automobile or liability

insurance policy or plan (including a self-insured plan) or no

fault insurance, to the extent that clause (ii) applies.4

(B) Repayment required

4

Part of the dispute in this case revolves around the meaning and scope of the statutory

term “self-insured plan.” Two HHS regulations are pertinent. Under 42 C.F.R. § 411.50(b), a

“self-insured” plan “means a plan under which an individual, or a private or governmental entity,

carries its own risk instead of taking out insurance with a carrier.” Under 42 C.F.R. § 411.21, a

“plan” is defined as “any arrangement, oral or written, by one or more entities, to provide health

benefits or medical care or assume legal liability for injury or illness.”

10

(i) Primary plans

Any payment under this subchapter with respect to any

item or service to which subparagraph (A) applies shall be

conditioned on reimbursement to the appropriate Trust Fund

established by this subchapter when notice or other information

is received that payment for such item or service has been or

could be made under such paragraph.

(ii) Action by United States

In order to recover payment under this subchapter for

such an item or service, the United States may bring an action

against any entity which is required or responsible under this

subsection to pay with respect to such item or service (or any

portion thereof) under a primary plan (and may, in accordance

with paragraph (3)(A) collect double damages against that

entity), or against any other entity (including any physician or

provider) that has received payment from that entity with

respect to the item or service, and may join or intervene in any

action related to the events that gave rise to the need for the item

or service.

(iii) Subrogation rights

The United States shall be subrogated (to the extent of

payment made under this subchapter for such an item or service)

to any right under this subsection of an individual or any other

entity to payment with respect to such item or service under a

primary plan.

42 U.S.C. §1395y(b)(2)(A)-(B). Subparagraph (b)(3)(A), which is referenced

above, provides for a private right of action, with double damages available, if a

primary plan “fails to provide for primary payment (or appropriate reimbursement)

in accordance with” the preceding MSP regulations. See 42 U.S.C. §

1395y(b)(3)(A).

11

Pursuant to these provisions of the MSP statute, HHS has enacted

regulations setting forth the means by which the Government can bring an action to

recoup payments from a primary coverage plan. These regulations read, in

pertinent part:

If a Medicare conditional payment is made, the following rules

apply:

(a) Release of information. The filing of a Medicare claim

by or on behalf of the beneficiary constitutes an express

authorization for any entity, including State Medicaid and

workers' compensation agencies, and data depositories,

that possess information pertinent to the Medicare claim

to release that information to CMS. This information will

be used only for Medicare claims processing and for

coordination of benefit purposes.

(b) Right to initiate recovery. CMS may initiate recovery as

soon as it learns that payment has been made or could be

made under workers' compensation, any liability or no-

fault insurance, or an employer group health plan...

...(e) Recovery from third parties. CMS has a direct right of

action to recover from any entity responsible for making

primary payment. This includes an employer, an

insurance carrier, plan, or program, and a third party

administrator...

...(g) Recovery from parties that receive third party payments.

CMS has a right of action to recover its payments from

any entity, including a beneficiary, provider, supplier,

physician, attorney, state agency, or private insurer that

received a third party payment.

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(h) Reimbursement to Medicare. If the beneficiary or other

party receives a third party payment, the beneficiary or

other party must reimburse Medicare within 60 days.

(i) Special rules. (1) In the case of liability insurance

settlements and disputed claims under employer group

health plans and no-fault insurance, the following rule

applies: If Medicare is not reimbursed as required by

paragraph (h) of this section, the third party payer must

reimburse Medicare even though it has already

reimbursed the beneficiary or other party.

42 C.F.R. § 411.24. Additionally, the regulations define “prompt” or “promptly,”

when used in connection with third-party payments, to mean “payment within 120

days after receipt of the claim.” 42 C.F.R. § 411.21.

The MSP, in its present form, originated with enactment of the Omnibus

Budget Reconciliation Act (“OBRA”) of 1980, Pub.L. No. 96-499, § 953, 94 Stat.

2599 (1980). OBRA amended the Medicare Act to provide that Medicare

payments “may not be made with respect to any item or service to the extent that

payment has been made, or can reasonably be expected to be made (as determined

in accordance with regulations) ... under an automobile or liability insurance policy

... or under no fault insurance.”5

5

As the measure was originally proposed in the House, Medicare would have been

secondary only to automobile insurance; a Senate amendment, adopted in conference, added no-

fault and liability insurance. See House Confc. Rep. No. 96-14, 96th Cong., 2d Sess. 133,

reprinted in 1980 U.S.C.C.A.N. 5903, 5924.

13

Since enacting the MSP statute, Congress has expanded its reach several

times, making Medicare secondary to a greater array of primary coverage sources,

and creating a larger spectrum of beneficiaries who no longer may look to

Medicare as their primary source of coverage.6 More significantly for our

purposes, Congress has repeatedly clarified and augmented the Government's

powers to recoup conditional Medicare payments from primary sources.

The Deficit Reduction Act (“DERFA”) of 1984 conferred on the

Government a direct right of action to recover its payments from any entity “which

would be responsible for payment” under a “law, policy, plan or insurance,” and

provided that the Government would be subrogated to the right of any individual or

entity to receive payment. DERFA also modified the original wording of the

secondary payment provision by adding the modifier “promptly,” so that the

pivotal phrase dictated that a Medicare payment “may not be made with respect to

any item or service to the extent that payment has been made, or can reasonably be

6

In the Omnibus Budget Reconciliation Act of 1981, Congress augmented the MSP to

provide that Medicare would be secondary to group health coverage for end-stage renal patients.

H. Res. 3982, 97th Cong., 1st Sess., 95 Stat. 357 (1981) at § 2146. In the Tax Equity and Fiscal

Responsibility Act (“TERFA”) of 1982, Congress made Medicare the secondary payer for

“working aged” employees and their spouses between the ages of 65 and 69 belonging to large

employer group health plans (covering twenty or more workers). H. Res. 4961, 97th Cong., 2d

Sess., 96 Stat. 324 (1982) at § 116. In the Omnibus Budget Reconciliation Act (“OBRA”) of

1986, Congress made Medicare the secondary payer for disabled individuals enrolled in large

employer group health plans. H. Res. 5300, 99th Cong., 2d Sess., 100 Stat. 1874 (1986) at §

9319.

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expected to be made promptly ... with respect to such item or service, under a

workman's compensation plan 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

no-fault insurance(.)” H. Res. 4170, 98th Cong., 2d Sess., 98 Stat. 494 (1984) at §

2344. In OBRA 1986, Congress added the private right of action for double

damages codified at 42 U.S.C. § 1395y(b)(3)(A). It also added the cross-reference

to that section in § 1395(b)(2)(B)(ii), which enables the Government to collect

double damages “in accordance with” the new private right of action. H. Res.

5300, 99th Cong., 2d Sess., 100 Stat. 1874 (1986) at § 9319.

II. THE DECISION BELOW

The Government's Complaint advanced nine counts: (1) a claim for

reimbursement against the RSP Defendants as third-party payers under the MSP;

(2) double damages against the RSP Defendants as third-party payers under the

MSP; (3) single damages under the MSP against the RSP Defendants as entities

that caused payments to be made, or received such payments, from product liability

insurers; (4) a subrogation claim under the MSP against disbursements from the

MDL Settlement Fund and/or the Common Benefit Fund; (5) a claim for

declaratory relief that the RSP Defendants are liable under the MSP to reimburse

Medicare for past payments to breast implant patients, and are obligated under 42

15

C.F.R. § 411.25 to provide Medicare with notice of all payments to Medicare

beneficiaries; (6) a single damages claim under the MSP against the Escrow Agent

as a person who received payment from the RSP Defendants and/or from product

liability insurers to pay the claimants; (7) a claim for injunctive relief under the

MSP to enjoin the Escrow Agent from making disbursements to Medicare patients

pending resolution of Medicare's MSP claims and to compel disclosure of

identifying information concerning all past or contemplated settlement payments to

Medicare beneficiaries; (8) a claim for injunctive relief similar to Count VII under

the MCRA, and (9) a demand under the MCRA for payment from the MDL

Settlement Fund of the Government's reasonable costs for paying for care of

Medicare patients for injuries alleged to be caused by a breast implant. Thus,

Counts I through VII arose under the MSP or its regulations, while counts VIII and

IX arose under the MCRA. 7

The district court (after first granting the Plaintiffs' Steering Committee the

right to intervene) granted the motions to dismiss filed by the RSP Defendants, the

Escrow Agent, and the Plaintiffs' Steering Committee, finding that the Government

had failed to state a claim upon which relief could be granted.8

7

As noted above, the Government has now abandoned its MCRA claims.

8

The opinion below was published as In re Silicone Gel Breast Implant Products Liability

Litig., 174 F. Supp. 2d 1242 (N.D. Ala. 2001).

16

The court first evaluated whether the Government had a claim for

reimbursement under 42 U.S.C. § 1395y(b), the MSP statute. The court found that

– whether the Government was bringing a direct action in its own right under the

statute or was acting as the subrogee to the patient's rights – an essential element to

state a claim under the MSP was to identify both the services provided and the

patient who received them. In addition to the need for the Defendants to know the

identity of the patients and the amount in dispute, the court noted that the

beneficiaries themselves are interested parties and have the right to challenge the

reimbursement request and to petition the Government to waive its claim.

The court rejected the Government's argument that it was unable to plead the

identity of the beneficiaries in question because of the settlement's confidentiality

provisions. The court found that the Defendants were under no statutory duty to

collect information about the identity of potential claimants, and that absent such a

duty, it was irrelevant whether the settlement was structured with the purpose of

evading disclosure. Because the Government had an alternative means of relief –

like any other insurer, it could file a petition for reimbursement with the RSP

Claims Office – the court found no need to relieve the Government from

compliance with the MSP statute or the pleading standards of Fed. R. Civ. P. 8(a).

17

Next, the court considered whether the Government was entitled to

reimbursement under 42 C.F.R. § 411.24(i), the “double payment” regulation

adopted pursuant to the MSP. Under Section 411.24(i), a “third party payer” may

be required to reimburse Medicare if it paid a provider or a claimant when it knew,

or should have known, that Medicare had made a conditional primary payment as

provided by the MSP. The district court found this regulation inapplicable,

because the relevant portion of the MSP statute applies only to insurers or “self-

insured plans.” The court rejected the Government's contention that the implant

manufacturers could be viewed as “self-insured plans.” The RSP Defendants were

thus outside the coverage of the statute and not subject to the “double payment”

regulation.

Further, the court found that the Government had no direct right of action

against a third-party payer that had already made payment to its insured, because

such a payer was no longer “required or responsible... to pay” as provided by the

MSP statute, § 1395y(b)(2)(B)(ii). The Government may proceed against such an

insurer only in its role as subrogee, the court held. Relying on Health Ins. Ass'n of

America v. Shalala, 23 F.3d 412 (D.C. Cir. 1994) (“HIAA”), and on general

principles of common law, the court held that, as a subrogee, the Government was

required to “plead and prove [that] the third-party payer knew or should have

18

known of Medicare's conditional payments at the time payment was made to the

beneficiary.” Because, in the district court's view, the Government failed to do so,

its claims under the “double payment” provision were fatally flawed.

The court declined to adopt the Government's interpretation that the

existence of the MSP statute itself puts insurers on constructive notice that they

must inquire into whether Medicare has paid a beneficiary before they pay a claim.

Rather, citing HIAA, the court held that “knowledge” requires the Government to

show that, at the time it paid the claim, the insurer had “direct information... or

information necessary to draw the conclusion” that Medicare had made a

conditional payment to the particular recipient. It was insufficient, the court held,

that the Government's prior intervention in the case generally alerted the

Defendants that Medicare might have paid some claims.

The court rejected the Government's contention that the Defendants'

knowledge was a factual matter to be proven at trial. The court observed that the

Government's own complaint alleged that the RSP Defendants “did not ascertain”

whether Medicare had made payments on behalf of any of the RSP claimants. With

that assertion, the court felt that the Government had effectively pled itself out of

court.

19

Next, the court addressed whether the Government could bring a claim in

Count II against the RSP Defendants for double damages pursuant to 42 U.S.C. §

1395y(a)(3)(A) and 42 C.F.R. § 411.24(c)(2). Having held that the Defendants

were not liable even for single damages, the district court summarily rejected the

Government's claim for double damages.

Similarly, the district court summarily rejected the Government's claims for

declaratory relief (Count V) and injunctive relief (Count VII). The court then

considered whether any of the defendants could be liable under the MSP as entities

that “received payment,” as provided in 42 U.S.C. § 1395y(b)(2)(B)(ii). (Although

the court acknowledged that the Government's claim under this section ran against

both the RSP Defendants and the Escrow Agent, its discussion focused almost

exclusively on the role of the Escrow Agent.) First, the court – again relying on

HIAA – held that a mere “pass-through” could not be said to have “received”

payment under any ordinary understanding of that term, since “receipt” suggests a

degree of autonomous control. Further, the court observed that the term “recover”

in the statute suggested that the Government must proceed against an entity

actually in possession of the money – either the ultimate payer or the ultimate

payee – and not an entity that temporarily held the money and relinquished it.

Additionally, the court observed that the Defendants did not fit either the statute's

20

or HHS regulations' illustration of who qualifies as an entity that receives

payment: the statute uses the illustration “any physician or provider,” while 42

C.F.R. § 411.24(g) refers to “a beneficiary, provider, supplier, physician, attorney,

State agency or private insurer that has received a third party payment.” All of

those entities, the court observed, are likely to be ultimate recipients of payment

rather than mere conduits. Where an entity has merely remitted payment as a pass-

through, the court held, that entity is reachable only through 42 C.F.R. §§

411.24(i), which requires proof of knowledge of Medicare's prior payment that is

lacking in this case.

III. DISCUSSION

We review a district court's grant of a motion to dismiss for failure to state a

claim de novo. Abate of Georgia, Inc. v. Georgia, 264 F.3d 1315, 1315 (11th Cir.

2001). A motion to dismiss a complaint in intervention is reviewed under the same

standard applicable to consideration of a motion to dismiss the original plaintiffs'

complaint. Southwest Ctr. for Biological Diversity v. Berg, 268 F.3d 810, 819-20

(9th Cir. 2001). In evaluating the sufficiency of a complaint under Rule 12(b)(6),

courts must be mindful that the Federal Rules require only that the complaint

contain “a short and plain statement of the claim showing that the pleader is

entitled to relief(.)” Fed. R. Civ. P. 8(a). In applying Rule 12(b)(6), "a complaint

21

should not be dismissed for failure to state a claim unless it appears beyond a doubt

that the [complainant] can prove no set of facts in support of his claim which would

entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102

(1957).

The district court granted the motion on two grounds: first, that the

Government's Complaint was defective because it did not include the identity of

the recipients of federal health care benefits and the nature of the expenditures, and

second, that the MSP statute did not entitle the Government to proceed on its

chosen theories against these defendants. Thus, we must consider both whether the

Government has viable claims under the applicable law, and, if so, whether the

Government's pleading was sufficient to invoke the MSP.

A. Sufficiency of Complaint

The district court held that, “at a minimum,” a complaint under the MSP

statute must identify the Medicare beneficiaries for whose care reimbursement is

sought. Because the Complaint here failed to do so, the court held, the MSP counts

were subject to dismissal.

Because the Federal Rules embody the concept of liberalized “notice

pleading,” a complaint need contain only a statement calculated to “give the

defendant fair notice of what the plaintiff's claim is and the grounds upon which it

22

rests.” Conley, 355 U.S. at 47, 78 S.Ct. at 103; see also Caribbean Broad. Sys.,

Ltd. v. Cable & Wireless PLC, 148 F.3d 1080, 1086 (D.C. Cir. 1998) ("[A] plaintiff

need not allege all the facts necessary to prove its claim."). We have observed that

the threshold of sufficiency to which a complaint is held at the motion-to-dismiss

stage is “exceedingly low.” See In re Southeast Banking Corp., 69 F.3d 1539,

1551 (11th Cir. 1995) (“[F]or better or for worse, the Federal Rules of Civil

Procedure do not permit district courts to impose upon plaintiffs the burden to

plead with the greatest specificity they can.”).

Rule 24 requires merely that an intervenor's petition “shall state the grounds

[for intervention] and shall be accompanied by a pleading setting forth the claim or

defense for which intervention is sought.” Fed. R. Civ. P. 24(e). “The

determination of whether the proposed intervenor's complaint states a cause of

action is controlled by the general rules on testing a pleading; the factual

allegations of the complaint are assumed to be true... and the pleading is construed

liberally in support of the pleader.” Pin v. Texaco, Inc., 793 F.2d 1448, 1450 (5th

Cir. 1986) (internal quotes and citation omitted); accord County of Santa Fe v.

Public Serv. Co. of N.M., 311 F.3d 1031, 1035 (10th Cir. 2002).

The Supreme Court has said in the context of a standing determination that

“[a]t the pleading stage, general factual allegations of injury resulting from the

23

defendant's conduct may suffice, for on a motion to dismiss we presume that

general allegations embrace those specific facts that are necessary to support the

claim.” Nat'l Org. for Women, Inc. v. Scheidler, 510 U.S. 249, 256, 114 S.Ct. 798,

803 (1994) (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 561, 112 S.Ct.

2130, 2137 (1992)). In Swierkiewicz v. Sorema, N.A., 534 U.S. 506, 511, 122

S.Ct. 992, 997 (2002), the Court held that in the employment discrimination

context, a complaint is not subject to dismissal for failure to state a claim merely

because it fails to “plead facts establishing a prima facie case” of discrimination.

As the Court emphasized there:

The liberal notice pleading of Rule 8(a) is the starting point of a

simplified pleading system. ... Rule 8(a) establishes a pleading

standard without regard to whether a claim will succeed on the merits.

<Indeed, it may appear on the face of the pleadings that a recovery is

very remote and unlikely but that is not the test.'

Id. at __, 122 S.Ct. at 999 (quoting Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct.

1683 (1974)).

Courts typically allow the pleader an extra modicum of leeway where the

information supporting the complainant's case is under the exclusive control of the

defendant. See Peters v. Amoco Oil Co., 57 F. Supp. 2d 1268, 1284-85 (M.D. Ala.

1999) (holding that complaint setting forth general allegations about nature of

conspiracy was sufficient despite heightened pleading standard applicable to

24

conspiracy claims under Fed. R. Civ. P. 9(b), where information about extent of

alleged conspiracy was within defendants' exclusive control); see also Quality

Foods de Centro America, S.A. v. Latin American Agribusiness Dev. Corp., 711

F.2d 989, 995 (11th Cir. 1983) (holding that liberalized consideration of complaint

espoused in Conley “is particularly true in an antitrust suit where the proof and

details of the alleged conspiracy are largely in the hands of the alleged

co-conspirators.”).

The situation presented here – an intervenor bringing a claim on the basis of

injury to a large group of others, the identities of whom the intervenor claims

cannot be determined without discovery – is not unlike that commonly presented in

a class action, such as the one that underlies our case. In a class action, it is

sufficient that a complaint generally give the defendant notice of the nature and

scope of the plaintiffs' claims; it is not necessary that the class representatives plead

evidence or otherwise meet any burden beyond the minimal Rule 8 standard. See

7B WRIGHT, MILLER & KANE, FEDERAL PRACTICE & PROCEDURE § 1798 (2d ed.

1986) at 417-18 (“All of the pleading provisions of the federal rules are applicable

in class actions and operate in much the same fashion as they do in other litigation

contexts. ... No greater particularity is necessary in stating a claim for relief in a

class action than in other contexts.”); Alba Conte & Herbert B. Newberg, 6

25

NEWBERG ON CLASS ACTIONS § 18:46 (4th ed. 2003) (“It is not necessary... that

class members be specifically identified; the plaintiff need not name names. In

addition, the complaint need not set forth the exact number of class members. It is

sufficient to indicate the approximate size of the class and provide or describe facts

making ultimate identification of class members possible when that identification

becomes necessary.”). Indeed, the Supreme Court's seminal statement of the

standard for dismissal, Conley, involved a class action by African-American

railroad clerks who alleged that their union had breached its duty of fair

representation by discriminating against them.

In view of the foregoing, we find that the district court applied too exacting a

standard when it found the Government's Complaint fatally deficient for failing to

identify each member of the plaintiff class on whose behalf Medicare made a

conditional payment.9 The crucial information that the district court here found

9

In determining the required elements of a proper complaint, the district court placed

principal reliance on In re Dow Corning Corp., 244 B.R.705 (E.D. Mich 1999), which involved

Government claims under the MSP and MCRA seeking reimbursement from a manufacturer that

opted out of this litigation. See id. at 713 (detailing necessary contents of Government's claims).

Significantly, Dow Corning arose in the context of a Chapter 11 proceeding to validate the

cramdown of a plan of reorganization, pursuant to 11 U.S.C. § 1129(b)(1), not in the context of a

Rule 12(b)(6) motion to dismiss. Consideration of a § 1129(b)(1) motion requires the court to

review evidence and resolve issues of fact. Thus, the Government did not have the benefit of the

deferential review afforded to allegations at the motion-to-dismiss stage. Dow Corning's

standard for what constitutes an adequately supported objection to the validation of a §

1129(b)(1) reorganization is of limited usefulness in determining what an ordinary civil

complaint in intervention must contain.

26

necessary to complete the Government's Complaint – “the Medicare beneficiaries

who have received benefits from the defendants” – is outside the Government's

control. At best, the Government may be able to generate a list of all patients who

received treatment for breast implant-related medical conditions during the period

covered by the RSP settlement.10 Such a list would be wildly over-inclusive, as it

could include: patients whose implants were not manufactured by any of the RSP

Defendants; patients who had their implants removed for reasons other than

tortiously inflicted injury; patients who opted not to participate in the settlement;

and patients participating in the class whose application for RSP benefits may (for

whatever reason) not be approved by the Claims Office so that they will never

receive payment. The Government could not in good faith purport to be bringing

its Complaint on behalf of such a patently inaccurate list of beneficiaries. See Fed.

R. Civ. P. 11(b) (“By presenting to the court... a pleading, written motion, or other

paper, an attorney or unrepresented party is certifying that to the best of the

person's knowledge, information, and belief, formed after an inquiry reasonable

under the circumstances... the allegations and other factual contentions have

10

Even this is a dubious assumption. Many women will doubtless have received

Medicare-compensated treatment for generic symptoms not specifically identified on their

providers' bills as related to breast implants, or perhaps not diagnosed as implant-related until

later in the course of treatment.

27

evidentiary support”). While the Government might be able to arrive at a rough

approximation, the RSP Defendants (either directly or through the Claims Office)

have access to: (1) the names of the approximately 400,000 registered potential

claimants, and (2) the approximately 81,000 people whose claims, to date, have

been deemed worthy of payment. They are, consequently, in the far more

advantageous position to compile an accurate list of Medicare patients for whom

MSP payments have been made or requested.11

The pleading standards urged by the RSP Defendants are akin to the

heightened requirements of Fed. R. Civ. P. 9, which apply to claims of fraud,

mistake, duress and other “special matters.” Where Rule 9 is implicated, plaintiffs

must plead not only the general nature of their injuries but also the specifics of how

and when they were injured. See, e.g., Brooks v. Blue Cross & Blue Shield of

Florida, Inc., 116 F.3d 1364, 1380-81 (11th Cir. 1997) (under Rule 9(b), plaintiff

alleging fraud must plead “(1) the precise statements, documents, or

misrepresentations made; (2) the time, place, and person responsible for the

11

The district court believed that the Government was required to plead the names of

Medicare patients who have actually received payment from the Defendants. Because tens of

thousands of pending claims remain to be evaluated by the RSP Claims Office, even if the

Government were able to produce a perfectly accurate list in compliance with the district court’s

standards, such list would be obsolete essentially from the day of submission due to the ongoing

claims adjudication process. We fail to see how the conduct of this litigation would be aided by

forcing Medicare at this initial stage to produce what will necessarily be a grossly inaccurate and

constantly changing claimant list.

28

statement; (3) the content and manner in which these statements misled the

Plaintiffs; and (4) what the defendants gained by the alleged fraud”); Coffey v.

Foamex L.P., 2 F.3d 157, 161-62 (6th Cir. 1993) (Rule 9(b) requires plaintiff in

fraud case “at a minimum, to allege the time, place, and content of the alleged

misrepresentation on which he or she relied; the fraudulent scheme; the fraudulent

intent of the defendants; and the injury resulting from the fraud”). By implication,

then, a complaint governed by the ordinary standard of Rule 8 – and there is no

dispute that Rule 8 applies here – need not allege the particulars of each instance of

injury in order to survive a motion to dismiss.12

It is significant here that, out of a class of 400,000 potential claimants, it

appears beyond dispute that at least some class members will have received

conditional Medicare payments.13 No one suggests to the contrary. Therefore,

12

The Defendants argue that it would be inequitable to allow Medicare to proceed on the

basis of an unspecific complaint when the Government failed to request access to the names of

the RSP claimants – a request that the district court had indicated it might view favorably.

Whether or not the Government conducted itself with optimal diligence is not conclusive. A

complaint that is otherwise satisfactory under Rule 8 – as is this one – does not become

inadequate merely because the complainant had access to more detailed information but failed to

include it. (We note that the district court did not rely on the Government's failure to move for

disclosure of the identity of the RSP claimants as a basis for dismissing the Complaint.)

13

In a sworn declaration submitted to the district court in May 2000, the Government

reported that 457 people (140 who participated in the RSP settlement and 317 who opted out)

had identified themselves to HHS as having received payment from the breast implant litigation.

This number hints at the immense litigation management problems that would ensue if the

29

given the benefit of discovery, it appears not only possible but in fact inevitable

that the Government will turn up a number of claims eligible for reimbursement.

That the Government cannot now provide a name, date and dollar amount

corresponding to any particular Medicare payment for which reimbursement is

owed does not indicate beyond doubt that it has “no case,” which is what a court

must find to grant a motion to dismiss.14

Finally, we note that requiring the Government to plead with the specificity

Defendants seek would run counter to the intent of the MSP statute. In carrying

Government were forced to plead the individualized medical and payment histories of each of its

beneficiaries.

14

Our facts materially differ from those presented in City of Birmingham v. American

Tobacco Co., 10 F. Supp. 2d 1257 (N.D. Ala. 1998), on which the district court relied. In City of

Birmingham, which involved a somewhat analogous claim for recovery of health care expenses

under a state statute, the district court found that the plaintiffs were required to plead details

about each patient and each expenditure for which reimbursement was sought. In that non-class

action, however, there was considerable doubt as to whether the plaintiffs could identify even a

single person for whose care they were entitled to reimbursement, and information as to the

patients' identities and medical history was within the plaintiffs' exclusive control. It is also

noteworthy that, even in City of Birmingham, the court did not dismiss the complaint outright,

but rather, granted the plaintiffs leave to amend.

For similar reasons, we do not find the principal case cited by Defendants, Health Care

Serv. Corp. v. Brown & Williamson Tobacco Corp., 208 F.3d 579 (7th Cir. 2000), to be on point.

In Brown & Williamson, the Seventh Circuit upheld the dismissal of a subrogatory claim by

various Blue Cross/Blue Shield associations suing tobacco companies to recover for smoking-

related health care expenses for their insureds. Although the court did find the complaint lacking

because it failed to plead the identity of the parties insured, its principal weakness was a failure

to show either a right to recovery or a basis for federal jurisdiction, both of which are supplied in

our case by the MSP statute. Moreover, as with City of Birmingham, Brown & Williamson did

not arise out of an underlying class action, which (in our case) itself serves to give the defendants

notice of the universe of patients for whose expenses reimbursement may be sought.

30

out its principal purpose of shifting the burden of paying for health care from

Medicare to private insurers, the MSP creates as a practical matter a need for

insurers to determine, before paying a disputed liability claim (involving among its

alleged damages medical expenses likely to have been paid by Medicare), whether

the Government has made a conditional payment, upon peril of being forced to pay

the same claim twice. As the second payer, such insurer is in a position to

determine which claim has been, or is at risk of being, paid twice, while Medicare,

as the first payer, is not. Because the statute is built on the recognition that

Medicare frequently will not know which of its payments has been subsequently

duplicated by an insurer, it would – in this unique setting of a class action

involving thousands of claimants – defeat the purpose of the statute to require that

the Government identify each patient, procedure, and payment amount at the

pleading stage without benefit of discovery.

We readily conclude that the district court erred in dismissing the complaint

for failure to identify the beneficiaries for whose care reimbursement is sought.

B. Scope of MSP Statute

1) Were Medicare's payments conditioned on reimbursement?

The RSP Defendants argue here that the Government’s right to recoup its

payments never arose, because under the terms of the MSP statute, Medicare's

31

payments were not “conditional” at all. The disputed statutory provisions, 42

U.S.C. §§ 1395y(b)(2)(A) and (b)(2)(B), provide:

(A) In general

Payment under this subchapter may not be made, except as

provided in subparagraph (B), with respect to any item or service to

the extent that –

(i) payment has been made, or can reasonably

expected to be made, with respect to the item or service as

required under [regulations governing group health

plans], or

(ii) payment has been made or can reasonably be expected

to be made promptly (as determined in accordance with

regulations) 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. ...

In this subsection, the term “primary plan” means a group

health plan or large group health plan, to the extent that

clause (i) applies, and a workmen's compensation law or

plan, an automobile or liability insurance policy or plan

(including a self-insured plan) or no fault insurance, to

the extent that clause (ii) applies.

(B) Repayment required

(i) Primary plans

Any payment under this subchapter with respect to any

item or service to which subparagraph (A) applies shall be

conditioned on reimbursement to the appropriate Trust Fund

established by this subchapter when notice or other information

32

is received that payment for such item or service has been or

could be made under such paragraph.

Defendants argue that subparagraph (A) operates as a limitation on the right

of reimbursement in subparagraph (B), so that a Medicare payment is conditioned

on reimbursement only if “payment has been made or can reasonably be expected

to be made promptly” by another insurer. In other words, Defendants argue that

Medicare is entitled to reimbursement only if Medicare pays after payment from a

primary insurance source either has already been made or is expected promptly.

Otherwise, in Defendants' view, Medicare's payment is unconditional and may not

be recouped.

Grammatically, Defendants' interpretation is a possible reading of the statute.

However, we think the much more plausible interpretation of the statute is that

Medicare would endeavor not to pay where a “primary plan” has paid or is

expected to pay promptly, but any payment that Medicare does make is secondary

and is subject to reimbursement from sources of primary coverage under the

statute. This more plausible interpretation is also a grammatically correct

construction of the language of the statute. The crucial phrase in §

1395y(b)(2)(B)(i) – “to which subparagraph (A) applies” – plausibly modifies “any

item or service,” meaning any item or service covered by a primary plan as defined

33

in the last paragraph of §1395y(b)(2)(A). The court in Brown v. Thompson, 252 F.

Supp. 2d 312, 317 (E.D. Va. 2003) recently rejected Defendants’ interpretation,

and adopted the interpretation we adopt today. The Brown court held:

[T]he reference in subparagraph B to <item or service to which

subparagraph A applies' must refer only to that portion of

subparagraph A that defines a primary plan. In other words, the

reference to subparagraph A in subparagraph B serves simply to define

the universe of reimbursable payments to consist of those where

primary coverage exists. ... Properly construed, therefore,

subparagraph B requires reimbursement for a payment, as here, that

<has been made' from a <primary plan' as defined in subparagraph A.

It is clear that an item or service paid by a primary plan defined in the last

paragraph of subparagraph (A) is, in the language of subparagraph (B), an “item or

service to which subparagraph (A) applies.” In other words, subparagraph (A)

applies by defining the universe of reimbursable payments.

Our interpretation is further supported by a close examination of the

language of subparagraphs (A) and (B). Subparagraph (B) refers to payments

“with respect to any item or service to which subparagraph (A) applies.” This

would include any payments contemplated by subparagraph (A). Turning to

subparagraph (A) to ascertain what payments it contemplates, we see that it

contemplates that Medicare should not pay if payment has been made or is

reasonably expected from a group health plan (subparagraph (A)(i)), and that

34

Medicare should not pay if payment has been made or can reasonably be expected

to be made promptly under plans including liability insurance or self-insured plans

(subparagraph (A)(ii)). By contrast subparagraph (A) clearly contemplates

Medicare will pay when it does not reasonably expect prompt payment by such

primary obligors – precisely the payments which Defendants argue are not

reimbursable. We believe that the much more plausible interpretation of the

statutory language indicates that these payments are reimbursable. These are

payments “with respect to any item or service to which subparagraph (A) applies”

because subparagraph (A) defines their universe and contemplates Medicare paying

them.

Although only our more plausible interpretation comports with the purpose

of the statute, see infra, the two grammatically correct potential interpretations

mean that the statute might be considered ambiguous. Where such ambiguity

exists, the reasonable interpretation of the agency charged with implementing the

statute is entitled to judicial deference, under the principles enumerated by the

Supreme Court in Chevron USA, Inc. v. Natural Resources Defense Council, Inc.,

467 U.S. 937, 104 S.Ct. 2778 (1984).

The first step in the two-step Chevron review is to determine whether

Congress has “directly and unambiguously spoken to the precise question at issue.”

35

Georgia Dept. of Med. Assistance v. Shalala, 8 F.3d 1565, 1567 (11th Cir. 1993)

(“Georgia DMA”) (quoting Chevron, 467 U.S. at 842-43, 104 S.Ct. at 2781-82). If

so, the court's inquiry is at an end, for it must honor Congress' clearly expressed

intent. Determining whether Congress has unmistakably addressed the issue

requires looking at "the particular statutory language at issue, as well as the

language and design of the statute as a whole." Georgia DMA, 8 F.3d at 1567

(citing Sullivan v. Everhart, 494 U.S. 83, 89, 110 S.Ct. 960, 964 (1990)).

If Congress has not directly addressed the issue, or the statutory provision

is ambiguous, we come to the second stage of Chevron: whether the agency's

construction of the statute is reasonable and consistent with congressional intent.

If so, we must accede to it. See Dawson v. Scott, 50 F.3d 884, 887 (11th Cir. 1994)

(“Agency interpretation is reasonable and controlling unless it is <arbitrary,

capricious, or manifestly contrary to the statute.'”) (quoting Chevron, 467 U.S. at

844, 104 S.Ct. at 2782); Bigby v. INS, 21 F.3d 1059, 1063 (11th Cir. 1991) ("[W]e

defer to an agency's reasonable interpretation of a statute it is charged with

administering."). The consistency of an agency's interpretation over time is a factor

in determining the level of deference due. Good Samaritan Hosp. v. Shalala, 508

U.S. 402, 417, 113 S.Ct. 2151, 2161 (1993); see also Teamsters v. Daniel, 439 U.S.

551, 566 n. 20, 99 S.Ct. 790, 800 n. 20 (1979) ("It is commonplace in our

36

jurisprudence that an administrative agency's consistent, longstanding

interpretation of the statute under which it operates is entitled to considerable

weight.").

Here, we find that HHS – which was expressly delegated by Congress to

formulate rules implementing the MSP statute – has consistently taken the position

that Medicare payments are conditional and subject to recoupment regardless of

whether another insurer can be expected to render a prompt primary payment. We

start with the agency's notion of what it means for a Medicare payment to be

“secondary.” HHS regulations state that “<[s]econdary', when used to characterize

Medicare benefits, means that those benefits are payable only to the extent that

payment has not been made and cannot reasonably be expected to be made under

other insurance that is primary to Medicare.” 42 C.F.R. § 411.21. In other words,

the regulation rejects Defendants’ interpretation, and embraces our interpretation –

that conditional medical payments are made to beneficiaries whose primary

coverage has not yet paid and is not expected to pay promptly.

In updating its regulations to account for congressional revisions in 1984

through 1987, the agency stated its understanding that “Medicare makes

conditional primary payment only if the other insurer will not pay promptly.”

Medicare as Secondary Payer and Medicare Recovery Against Third Parties, 53

37

Fed. Reg. 22335, 22336 (proposed June 15, 1988). Similarly, in characterizing

Congress' 1987 revisions to the secondary payment provisions regarding coverage

for end-stage renal patients, HHS stated: “Medicare may not make conditional

primary payments on behalf of an ESRD beneficiary who is covered by an

employer group health plan if the plan <can reasonably be expected' to pay.”

Medicare as Secondary Payer and Medicare Recovery Against Third Parties, 54

Fed. Reg. 41716, 41717 (Oct. 11, 1989); see also Medicare Program, Services

Covered Under Automobile Medical, No-Fault, or Liability Insurance; Services

Furnished to ESRD Beneficiaries Who Are Covered Under Employer Group Health

Insurance, 48 Fed. Reg. 14802, 14807 (April 5, 1983) (“Congress clearly intended

that Medicare not pay first when there is a reasonable expectation that the employer

plan will pay as promptly as Medicare. ... Medicare will be primary payer for items

and services not covered by the employer plan and will make conditional primary

payments if the intermediary or carrier determines that the employer plan will not

pay promptly.”). These and other authoritative HHS interpretations evidence that

the agency has always understood that it will endeavor not to make payments

where a payment has already been made by, or can reasonably be expected to be

made by, a primary insurer, but that payment may be made conditionally under §

38

1395y(b)(2)(B) when Medicare does not reasonably expect prompt primary

coverage payment.

We find the agency's interpretation to be in accord with the structure, history

and purpose of the MSP statute, all of which plainly indicate that Congress wanted

Medicare's payments to be secondary and subject to recoupment in all situations

where one of the statutorily enumerated sources of primary coverage could pay

instead. It is readily apparent that the interpretation evidenced in the HHS

regulations, which we also adopt, correctly implements the statutory purpose. The

RSP Defendants do not deny that the clear statutory purpose of the Medicare

Secondary Payer statute was to make Medicare’s obligation secondary to that of

designated primary obligors, with the intention of reducing federal health care

costs. This statutory purpose is universally accepted. It is also clear that HHS’

interpretation would fulfill the congressional purpose, while Defendants’

interpretation would frustrate that purpose.15

Next we turn from the foregoing general purpose of the statute to the specific

language which Defendants argue supports their interpretation: “Any payment

15

If Medicare’s payments were conditional only if Medicare paid when the primary

obligor had already paid or was expected to pay promptly, as Defendants would have us hold,

then the vast majority of Medicare payments for services also covered by primary obligors would

not be conditional. This is so because the only payments Defendants want to label as conditional

are the very payments which § 1395y(b)(2)(A) provides Medicare should not make at all. Thus,

Congress’ cost-saving measures would have borne little or no fruit.

39

under this subchapter with respect to any item or service to which subparagraph

(A) applies shall be conditioned on reimbursement ....” § 1395y(b)(2)(B)(i).

Defendants argue that subparagraph (A) refers to situations where the primary

obligor has already paid or can be expected to pay promptly; thus, Defendants

argue that Medicare payments are conditional only in such situations. However,

subparagraph (A) makes is clear that those are the very situations in which

Medicare should endeavor not to pay. Thus, Defendants’ interpretation would

require us to indulge the illogical premise that Congress intended for Medicare to

pay claims that it knew for a fact had already been paid, or were about to be paid,

by the primary obligor – the very claims which the statute clearly contemplates that

Medicare would endeavor not to pay.

Thus, both the general statutory purpose, and the purpose evident in the very

language upon which Defendants rely, is manifestly inconsistent with Defendants’

interpretation. By contrast, our interpretation, and that adopted by the regulations,

fully implements the general congressional purpose, and is consistent with both the

purpose and the precise language of §§1395y(b)(2)(A) and (B). In our view,

Congress intended that Medicare would always be secondary to the sources of

primary coverage enumerated in the statute.

40

Our interpretation not only fulfills the statutory purpose, but is consistent

with the congressional intent as evidenced in the legislative history. Congress

quite clearly expressed its understanding of how the secondary payment

mechanism was designed to work in 1984, when enacting amendments that

clarified the government’s direct and subrogatory rights against third-party payors

The bill establishes the statutory right of medicare [sic] to recover

directly from a liable third party, if the beneficiary himself does not do

so, and to pay a beneficiary, or on the beneficiary's behalf pending

recovery where such third party is not expected to pay promptly.

H.R. Rep. No. 98-432, at 1803 (1984), reprinted in 1984 U.S.C.C.A.N. 697, 1417

(emphasis added). Unmistakably, Congress intended that contingent payments

made because the primary payer was not expected to pay promptly would be

subject to recovery.

The legislative history of the MSP indicates that it originated as a device to

recoup payments from automobile insurance coverage. See Mason v. American

Tobacco Co., 212 F. Supp. 2d 88, 93 (E.D.N.Y. 2002) (quoting original House bill,

which referred only to “automobile insurance”). It is not at all uncommon for

automobile insurance claims to be litigated and thus to take more than 120 days to

be resolved. See, e.g., Waters v. Farmers Texas County Mut. Ins. Co., 9 F.3d 397

(5th Cir. 1993) (denying summary judgment on MSP claim arising out of

41

automobile accident three years earlier and remanding case for trial). The same is

true of workers' compensation claims, which have been included within the scope

of the MSP since its inception. Indeed, Medicare regulations specifically

contemplate recovery where the third-party payment is the result of a judgment or a

litigation settlement, which as a practical matter will almost always take more than

120 days. See 42 C.F.R. §411.37 (providing that Medicare will deduct from its

recovery a pro rata share of attorney fees and other “procurement expenses”

incurred to secure a judgment or settlement). Congress fully contemplated such

delays when it provided for Medicare to pay contingently. See H.R. Rep. No.

1167, 96th Con., 2d Sess., at 389 (1980) (“Medicare will ordinarily pay for the

beneficiary's care in the usual manner and then seek reimbursement from the

private insurance carrier after, and to the extent that, such carrier's liability under

the private policy for the services has been determined.”). If the Defendants'

interpretation were correct, it could well preclude recovery from automobile

liability or workers' compensation insurance – the very sources for which the MSP

was designed – since those sources routinely pay claims more than 120 days after

the provision of medical treatment.

The historical evolution of these statutory provisions also supports the

interpretation adopted by the agency. When Congress expanded the secondary

42

payer provision in the Omnibus Budget Reconciliation Act of 1981 so that it would

include those enrolled in federal employee health plans and end-stage renal patients

covered by group health plans, the provision read as follows:

(2)(A) In the case of an individual who is entitled to benefits

under [Medicare] part A or is eligible to enroll under part B ...

payment under this title may not be made, except as provided in

subparagraph (B), with respect to any item or service furnished during

the period described in subparagraph (C) to the extent that payment

with respect to expenses for such item or service (i) has been made

under any group health plan ... or (ii) the Secretary determines will be

made under such a plan as promptly as would otherwise be the case if

payment were made by the Secretary under this title.

"(B) Any payment under this title with respect to any item or

service to an individual described in subparagraph (A) during the

period described in subparagraph (C) shall be conditioned on

reimbursement to the appropriate Trust Fund established by this title

when notice or other information is received that payment for such

item or service has been made under a plan described in subparagraph

(A).

See H. Res. 3982, 97th Cong., 1st Sess., 95 Stat. 357 (1981) (emphasis added).

Thus, in the 1981 version, it is clear that subparagraph (B) incorporates

subparagraph (A) only to indicate that the two subparagraphs apply to the same set

of individuals – those entitled to benefits under Medicare Part A or eligible to

enroll in Medicare Part B – not to the same set of payments.

In the Tax Equity and Fiscal Responsibility Act of 1982 (TERFA), Congress

revised the MSP provision so as to make Medicare the secondary payer for

43

“working aged” recipients under age 70 and their spouses enrolled in employer

group health plans. TERFA added the following conditional payment provision to

42 U.S.C. § 1395y:

(3)(A)(i) Payment under this title may not be made, except as

provided in clause (ii), with respect to any item or service furnished ...

to an individual who is over 64 but under 70 years of age ... who is

employed at the time such item or service is furnished to the extent

that payment with respect to expenses for such item or service has

been made, or can reasonably be expected to be made, under a group

health plan ...

(ii) Any payment under this title with respect to any item or

service ... shall be conditioned on reimbursement to the appropriate

Trust Fund ... when notice or other information is received that

payment for such item or service has been made under a group health

plan.

H. Res. 4961, 97th Cong., 2nd Sess., 96 Stat. 324 (1982) (emphasis added). The

conditional payment provision, in this iteration, patently applied to any item or

service for which a group health plan might pay. It in no way limited the

Government’s right of recovery to those items or services for which a third-party

payment was made or reasonably anticipated before Medicare made its payment.

Congress again amended the MSP in 1986 with the purpose, inter alia, of

prohibiting employer group health plans from offering lesser benefits to senior

citizens based on their Medicare eligibility. At that point, the “secondary payer”

provision read:

44

(4)(A)(i) A large group health plan may not take into account

that an active individual is eligible for or receives benefits under this

title ...

"(ii) Payment may not be made under this title, except as

provided in clause (iii), with respect to any item or service to the

extent that payment has been made, or can reasonably be expected to

be made, with respect to the item or service as required under clause

(i).

"(iii) Any payment under this title with respect to any item or

service to which clause (i) applies shall be conditioned on

reimbursement to the appropriate Trust Fund established by this title.

See H. Res. 5300, 99th Cong., 2nd Sess.,100 Stat. 1974 (1986). In this incarnation,

Medicare's right of reimbursement in subparagraph (A)(iii) (what is now

subparagraph (B)) refers back to and incorporates subparagraph (A)(i), which

concerns the duty of large group health plans to render primary payment. Again,

this version makes clear that the reference to subparagraph (A) in Medicare's right

of reimbursement merely characterizes the broad category of coverage to which

Medicare will be secondary. It cannot possibly be read as limiting Medicare's right

of recovery to payments made after a group health plan has already paid or is

expected to pay.

The current wording of the MSP was adopted as part of the Omnibus Budget

Reconciliation Act of 1989, H. Res. 3299, 101st Cong., 1st Sess., 103 Stat. 2186

(1989). There is no indication in the legislative history that, between 1986 and

45

1989, Congress changed its mind and decided that Medicare should cease being the

secondary payer for a substantial subset of claims.16 Although the 1989

amendments obscured the clarity of the prior versions of the conditional payment

provision, we cannot glean from this obscurity an unambiguous legislative purpose

to narrow the MSP in the way that Defendants urge.

Our view is further sharpened by Congress' addition of the modifier

“promptly” in 1984. Defendants have offered no logical explanation, and we can

discern none, for why Congress would have intended to divest Medicare of the

right to pursue recovery if payment from another insurer was probable, yet –

because of a coverage dispute – unlikely to occur within the 120-day window of

16

To the extent that there is any record of legislative intent at all, it indicates that Congress

was dissatisfied that Medicare was not recouping as much from primary payers as it could; there

is not the slightest indication of congressional sentiment that Medicare was recovering too much.

See 136 Cong. Rec. S13419-01 (daily ed. Sept. 19, 1990) (statement of Sen. Roth)

(“Unfortunately, performance under the MSP Program has not measured up. Failure to follow

the MSP law is costing the taxpayer billions of dollars. ... Studies by the General Accounting

Office and the inspector general of the Department of Health and Human Services have

repeatedly identified the MSP program as gushing with leaks of Federal tax dollars.”); 135 Cong.

Rec. S11848-01 (daily ed. Sept. 26, 1989) (statement of Sen. Durenberger) (discussing, in

context of FY 1990 appropriations bill for health agencies, inadequacy of expenditures by

Medicare intermediaries on MSP recoupment activity). In the 1989 OBRA legislation containing

the confusing passage which is the subject of this dispute, Congress simultaneously enacted

measures augmenting Medicare's ability to identify the existence of primary coverage, by giving

HHS access to data from the IRS and the Social Security Administration. In so doing, Congress

indicated in its statement of intent that “[u]nder current law, HHS is unable to identify all

Medicare secondary payer situations, principally because HHS is unable to identify cases in

which Medicare beneficiaries have primary coverage through a spouse's plan.” H.R. Rep. 101-

247, at 1021, reprinted in 1989 U.S.C.C.A.N. 1906, 2492 (1989). Nothing in the statement of

intent indicates a desire to restrict Medicare's ability to recover conditional payments, or a

realization that the 1989 amendments would be so construed.

46

“promptness.”17 Rather, it is apparent that the concern for “promptness” is

motivated by a desire to prevent either the health care provider or the patient from

going without compensation for a prolonged period while an insurance dispute is

being resolved. Indeed, that is exactly how Congress – in enacting an earlier

iteration of the MSP – explained its insertion of the term “promptly” in determining

when Medicare may pay conditionally. See H.R.Rep. No. 208, 97th Cong., 1st

Sess. 955, 956 (1981), reprinted in 1981 U.S.C.C.A.N. 396, 1318 (“The payment

arrangements contemplated by the conferees are intended to minimize patient

anxiety about the source of payment and to avoid delays in reimbursement for

expenses incurred in connection with the use of [medical] equipment, supplies or

services.”); see also Nat'l Ass'n of Patients on Hemodialysis & Transplantation,

Inc. v. Heckler, 588 F.Supp. 1108, 1128 (D.D.C. 1984) (explaining that Congress'

decision to allow Medicare to pay conditionally when group health plan was not

expected to render prompt payment “was a response to the conferees' concern about

patient anxiety regarding the source of promptness of payment and delays in

reimbursement”); Brown, 252 F. Supp. 2d at 319 (“The sole purpose of the phrase

17

Suppose, for instance, that a Medicare patient was injured as the result of a multi-party

automobile accident in which each motorist carried private insurance, yet each insurer refused to

pay until liability could be sorted out among the participants. Even though it was certain that

some insurer would ultimately pay – the only question being which – Defendants' interpretation

would deprive Medicare of the ability to lay claim to the insurance proceeds if Medicare made a

conditional payment on the basis that private payment was not “promptly” forthcoming.

47

<reasonably expected to be made promptly' in subparagraph A is to ensure that

needed Medicare payments are not delayed to the detriment of a Medicare

beneficiary”). It is for that reason that, even where Medicare reasonably anticipates

that another insurer will pay eventually, it may pay conditionally if the dispute over

primary coverage is likely to last more than 120 days.

Although the agency interpretation finds overwhelming support in the

congressional purpose and legislative history, the case law has been less uniform.

Several courts have accepted Defendants' view that Medicare's payment is

conditional and subject to recoupment only in the circumstances described in one

portion of subparagraph (A): the rightful primary insurer has paid, or is expected to

do so promptly. See In re Dow Corning Corp, 250 B.R. 298, 348 (Bankr. E.D.

Mich. 2000); In re Diet Drugs, No. MDL 1203, Civ.A. 99-20593, 2001 WL 283163

at * 11 n.20 (E.D. Pa. March 21, 2001); In re Orthopedic Bone Screw Prod.

Liability Litig., 202 F.R.D. 154, 167-68 (E.D. Pa. 2001).18

18

In Thompson v. Goetzmann, 315 F.3d 457 (5th Cir. 2002), the Fifth Circuit originally

accepted the premise that the Government's right of recovery under the MSP was limited to

situations in which another primary coverage source had paid or was expected to pay promptly.

See id. at 468. Upon the Government's petition for rehearing en banc, however, the panel

withdrew its opinion and issued an amended opinion which, while reaching the same ultimate

result, no longer relied upon the limited construction of subparagraph (A) that Defendants

advance here. See Thompson v. Goetzmann, 337 F.3d 489 (5th Cir. 2003) (amending initial

Goetzmann decision). In a preface to the amended opinion, the court stated that, while it

remained convinced that the statute's wording supported its original conclusion that the

Government may not collect from a primary plan unless such plan is expected to pay promptly, it

48

However, in Cochran v. HCFA, 291 F.3d 775 (11th Cir. 2002), our dicta

read the statute in accordance with the Government's more expansive view. See id.

at 777 (“In order to accommodate its beneficiaries ... Medicare does make

conditional payments for covered services, even when another source may be

obligated to pay, if that other source is not expected to pay promptly.”). That is the

way most other courts have interpreted it. See Rybricki v. Hartley, 792 F.2d 260,

262 (1st Cir. 1986) (Breyer, J.) (“Taken literally, [the MSP] simply says (in respect

to a Medicare subscriber with a private source of insurance), <if we can be

reasonably certain that the insurance company will pay, Medicare won't pay; if we

cannot be certain, Medicare will pay, but then, if the company pays you, you must

reimburse Medicare.'”) (parenthetical in original); accord Evanston Hosp. v.

Hauck, 1 F.3d 540, 544 (7th Cir. 1993) (citing Rybricki, “[t]he Medicare law ...

forbids payment where a third party can reasonably be expected to make prompt

payment,” and conversely, Medicare is allowed to pay conditionally where

contested tort litigation cannot be expected to yield prompt payment); Smith v.

recognized that its interpretation risked producing an “absurd result ... [that] precludes the right

to reimbursement from any disputed or potentially disputed funds,” since a disputed fund could

never be expected to pay promptly. See id. at 492. We agree with the most recent Fifth Circuit

opinion that the interpretation urged by Defendants, and accepted by the courts cited above,

produces an absurd result. Moreover, we point out in the text above that this result is not

indicated by the plain language of the statute. Rather, our construction is a much more plausible

construction of the plain language of the statute.

49

Farmers Ins. Exchange, 9 P.2d 335, 338-39 (Colo. 2000) (en banc); Brown, 252 F.

Supp. 2d at 317; Oregon Ass'n of Hospitals v. Bowen, 708 F. Supp. 1135, 1140-41

(D. Ore. 1989); Vogt v. Wausau Hosp., Inc., No. 93-2707, 1994 WL 246552 at * 2

(Wis. Ct. App. 1994); see also Thomas J. Nyzio, Medicare Recovery in Liability

Cases, S.C. LAWYER , May/June 1996, at 20, 21-22 (“Under the statute, payment

may not be made with respect to any item or service to the extent that payment has

been made, or prompt payment... can reasonably be expected to be made, under a

liability or no fault insurance policy or plan. However, payments can be made in

the event that a provider will not receive prompt payment from a third party payer

or from the proceeds of a liability settlement or judgment. These payments,

however, are conditioned on reimbursement to Medicare in the event that payment

for the same services is received from a liability or no fault insurer.”) (citations

omitted); Susan G. Haines & Tomas D. Begley, Jr., Workers' Compensation

Medicare Set-Aside Trusts, ABA Brief/Practice Tips (Fall 2001) (“Medicare may

make a conditional payment for services if Medicare does not reasonably expect

the third-party insurer to make its primary payment promptly.”).

In summary, we conclude that the agency’s interpretation is eminently

reasonable. Indeed, the agency’s interpretation follows the most plausible

interpretation of the statutory language, and is the only construction of the

50

language which is consistent with the clear statutory purpose. Both the legislative

history and the uninterrupted history of revisions to the MSP statute support this

interpretation. We have no doubt that payments made by Medicare on behalf of

breast-implant patients were conditioned upon reimbursement if the patients later

recovered from one of the primary sources enumerated in 42 U.S.C. §

1395y(b)(2)(A).

2) Do the RSP Defendants qualify as “self-insured,” so that their

payments to the class members were made “under a primary

plan” and thus subject to a recoupment action under the MSP

statute?

The Government contends that the RSP Defendants are liable under the MSP

statute on the basis that they operated under a “self-insured plan.” 19 The parties

dispute whether the Government's Complaint alleged the existence of a self-insured

plan with sufficient detail. In its opinion, 174 F. Supp. 2d at 1254-55, the district

court expressed its relevant holdings in several articulations, which we number for

ready reference:

(1) that a “<self-insured plan’ connotes some type of formal arrangement ...”

(2) “ ... by which funds are set aside and accessed to cover future liabilities;”

19

The Government concedes that the RSP settlement mechanism, which antedated the

Government's Medicare payments, is not a “self-insured plan” as that term is understood in 42

U.S.C. § 1395y(b)(2)(A)(iii). Rather, the Government's theory is that the individual companies

were each operating under a plan of self-insurance in which they arranged to purchase third-party

liability coverage and self-insure up to the amount of their policies' deductibles.

51

(3) “[P]ayments [by a tortfeasor], without more, [do not] constitute a <plan' of

self-insurance;”

(4) “The mere absence of insurance purchased from a carrier does not

necessarily constitute a <plan' of self-insurance” (quoting 54 Fed. Reg. 41727 (Oct.

11, 1989); and

(5) “Payments of deductibles ... do not constitute a <plan' of self-insurance.”

We agree with the district court as to the first, third and fourth holdings, but not as

to the second and fifth.

There is remarkably little legal authority (none binding in our Circuit)

categorically defining what it means to operate a “self-insurance plan.” Black's

Law Dictionary defines “self-insurance” as: “The practice of setting aside a fund to

meet losses instead of insuring against such through insurance. A common practice

of businesses is to self-insure up to a certain amount, and then to cover any excess

with insurance.” BLACK'S LAW DICTIONARY 1220 (5th ed. 1979). The first

sentence of the dictionary definition suggests that an advance set-aside of funds

would usually be a part of a self-insurance plan.20 See Jackson v. Donahue, 457

20

However, the second sentence is not inconsistent with the commonly understood

practice of self-insuring up to a certain amount, and then covering any excess with insurance,

often with no set-aside of funds.

A more recent edition of Black's defines “self-insurance” as simply: “A plan under which

a business sets aside money to cover any loss.” The same edition defines “self-insured retention”

as: “The amount of an otherwise-covered loss that is not covered by an insurance policy and that

52

S.E.2d 524, 528 (W.Va. 1995) (“The phrase <self-insurance' means, generally, the

assumption of one's own risk and, typically, involves the setting aside of a special

fund to meet losses and pay valid claims(.)”); COUCH ON INSURANCE 3D § 10:1

(stating that, while “[t]he term <self-insurance' has no precise legal meaning,” it

generally implies “the same sort of underwriting procedures that insurance

companies employ,” such as estimating likely losses and setting aside reserves).

Other authorities, however, suggest a more elastic definition. See In re

Amatex Corp., 107 B.R. 856, 872 (Bankr. E.D. Pa. 1989) (“Self insurance is best

compared to the familiar <deductible' amount referenced in most insurance policies.

It is common knowledge to anyone who has ever filed an insurance claim subject to

same that the deductible must be exhausted before the liability of the insurer

begins.”); 22 APPLEMAN ON INS. 2d § 140.5 (Eric Mills Holmes, ed., 2003) at 407

n.67 (“True self-insurance occurs when an entity retains all risks against which it

might otherwise insure. This type of self-insurance is popular among governmental

entities as a result of statutory immunity or costs. Another type of self-insurance

occurs when an entity purchases liability insurance for a certain limit and any

[usually] must be paid before the insurer will pay benefits.” BLACK'S LAW DICTIONARY 807,

1365 (7th ed. 1999). This definition, like its predecessor, suggests that self-insurance can be

understood both as the practice of setting aside a reserve to pay claims, and the practice of paying

a deductible before third-party coverage becomes effective.

53

amount of exposure thereof is retained by the entity.”); see also Sears, Roebuck &

Co. v. IRS, 972 F.2d 858, 861 (7th Cir. 1992) (stating, in context of dispute over

tax treatment of insurance transaction between related corporate entities, that

“<[s]elf- insurance' is just a name for the lack of insurance – for bearing risks

oneself.”); Beech Aircraft Corp. v. United States, 797 F.2d 920, 922 (10th Cir.

1986) (stating, in tax case similar to Seventh Circuit’s Sears, Roebuck, that “[s]elf-

insurance is not the equivalent of insurance. If one having an insurable risk retains

the risk of his own loss, there is no risk transfer, and the arrangement is self-

insurance.”); In re North American Royalties, Inc., 276 B.R. 860, 864 (Bankr. E.D.

Tenn. 2002) (holding, in construing contract of insurance, that “[t]he term <self-

insured' means that the plan sponsor... does not have insurance; it pays the

expenses from its income.”). These and other authorities strongly indicate that

“self-insurance” is an unscientific and imprecise term, the interpretation of which

varies with the context.

Our understanding of what it means to operate under a “self-insured plan” is

informed by HHS regulations, to which – because of Congress' express delegation

and the agency's recognized expertise in the area – we are duty-bound to defer if

they are reasonable. For purposes of the MSP statute, HHS regulations define a

“plan” of insurance as including “any arrangement, oral or written, by one or more

54

entities, to ... assume legal liability for injury or illness.” 42 C.F.R. § 411.21.

Inclusion of the term “oral” suggests an intent to reach informal, ad hoc

arrangements in addition to traditional insurance policies; obviously, no standard

insurance company issues coverage verbally. In addition, the regulations provide

the following definition of a “self-insured” plan: a “[s]elf-insured plan means a

plan under which an individual, or a private or governmental entity, carries its own

risk instead of taking out insurance with a carrier.” 42 C.F.R. § 411.50(b).

HHS has purposefully adopted a broad definition of what it means to be self-

insured. For instance, the agency does not limit its definition to plans that are

certified to operate as self-insurers by state insurance regulators. In enacting its

inclusive definition, the agency explained that to do otherwise would enable a

responsible party to elude MSP liability by paying a claim out of pocket instead of

submitting the claim to its liability insurer – a mechanism not unlike the RSP

compensation process here. See Medicare as Secondary Payer and Medicare

Recovery Against Third Parties, 53 Fed. Reg. 22335, 22339-40 (proposed June 15,

1988). Of particular significance here, HHS has expressly defined a “liability

insurance payment” for purposes of the MSP statute to include: “A payment to

cover a deductible required by a liability insurance policy, by any individual or

55

other entity that carries liability insurance or is covered by a self-insured plan.” 42

C.F.R. § 411.50(b).

The agency's view is especially persuasive in the absence of a universally

accepted and authoritative definition of “self-insured plan” which Congress might

have contemplated in drafting the statute. Thus, the district court's first articulation

– that a self-insured plan connotes some type of ex ante arrangement to assume

legal liability for medical expenses – is consistent with the regulation, to which we

agree deference is due.21 For the same reason, we agree that the district court's

third articulation – that a tortfeasor's mere payment, without more, would not

constitute a plan of self-insurance – is consistent with the regulations, as is its

fourth – that the mere absence of insurance does not necessarily constitute a plan of

self-insurance. See Medicare as Secondary Payer and Medicare Recovery Against

Third Parties, 54 Fed. Reg. 41716, 41727 (Oct. 11, 1989) (“We note that the mere

absence of insurance purchased from a carrier does not necessarily constitute a

21

To the extent that the district court meant by its term “formal” arrangement something

more than that the arrangement must be ex ante and must be an arrangement, albeit oral, to

assume legal liability or pay for medical expenses, the district court would have required more

than the regulations; we see no warrant for requiring more.

56

<plan' of self-insurance.”). In other words, without a plan or prearrangement, there

can be no self-insured plan.22

However, it is apparent from the foregoing quotations from the regulations

that the district court's second and fifth holdings are inconsistent with the

regulations. The district court's fifth holding is squarely inconsistent with the

regulation's affirmative provision that a “liability insurance payment” includes “an

out-of-pocket payment, including a payment to cover a deductible required by a

liability insurance policy, by any entity that carries liability insurance or is covered

by a self-insured plan.” 42 C.F.R. § 411.50(b). There is nothing in the plain

meaning of the statute which might preclude the agency's interpretation to include

within the self-insured concept the commonly occurring circumstance of an

individual or entity planning ahead of time to assume responsibility and liability for

certain risks up to a designated amount, and to procure an insurance policy to cover

22

We see no tension between our position and that in the cases cited by Defendants,

United States v. Philip Morris, Inc., 116 F. Supp. 2d 131 (D.D.C. 2000), and Mason v. American

Tobacco Co., 212 F. Supp.2d 88 (E.D.N.Y. 2002). In each case, the district court dismissed MSP

claims seeking Medicare reimbursement from tobacco companies accused of tortiously injuring

their customers. In Philip Morris, the Government's claim was found flawed because it merely

made the conclusory allegation that the defendants were “responsible” for payment under the

MSP without advancing a basis – and, specifically, without alleging the existence of a coverage

plan. Id. at 146. In Mason, the plaintiffs' claim rested solely on the theory that a large

corporation without insurance that was accused of inflicting a tortious injury was, by definition,

operating a self-insured plan. There was no suggestion that the tortfeasor had purchased

supplemental insurance and made arrangements to cover the deductible out of its own funds. See

id. at 92. We agree with these courts to the extent that they hold that the MSP requires the

existence of some sort of plan as opposed to a mere post hoc assumption of liability.

57

the excess. As we have seen, the relevant statutory term “self-insured plan” has no

precise legal meaning, seems to be interpreted by some authorities more rigidly, but

is interpreted by other authorities to include precisely such a combination of self-

insurance up to a certain amount with the excess to be covered by an insurance

policy. Consistent with the latter authorities, common experience teaches us that

planning such a combination of deductibles and insurance policies is often referred

to as self-insurance. Because the statute has no unambiguous meaning in this

regard, deference is due to the regulation, and the district court's contrary holding

cannot stand.

We also disagree with the district court's second holding, that self-insurance

requires a set-aside of funds to cover the risks assumed. Even the sparse legal

authority which suggests that there usually will be a reserve for losses, also

indicates that “self insurance” has no precise legal meaning. Other authorities

suggest there is no absolute need for a set-aside of funds. We see no basis in the

statute or in any well-established meaning of the statutory term “self-insured plan”

to conclude that the term unambiguously requires a set-aside of funds. Thus, we

look to the regulations. We conclude that an absolute requirement that funds be set

aside is plainly inconsistent with the thrust of the regulations: that a self-insurance

plan encompasses any arrangement, even an oral one, to assume such risks, 42

58

C.F.R. § 411.21; and that it encompasses the combination of deductibles and

insurance policies discussed above, which in common experience often do not

include a set-aside of funds. 42 C.F.R. § 411.50(b). See also 42 C.F.R. §

411.50(b) (defining “self-insured plan” as a plan to carry one's “own risk instead of

taking out insurance,” a definition requiring only a “plan” and no other

formalities).23 There being no unambiguous requirement in the statutory term “self-

insured plan” that a set-aside of funds is necessary, and the same being plainly

inconsistent with the thrust of the regulations, we vacate the district court's holding

requiring a set-aside as a prerequisite for a “self-insured plan.”

We recognize that the Fifth Circuit in Thompson v. Goetzmann, 315 F.3d

457 (5th Cir. 2002); opinion withdrawn and reissued as amended on other

grounds, 337 F.3d 489 (5th Cir. 2003), extensively discussed the meaning of a self-

insured plan in this statute, and concluded that “a <primary plan' of <self-insurance'

requires an entity's ex ante adoption, for itself, of an arrangement for (1) a source of

23

The Defendants' suggestion that the word “instead” means that “self-insurance” can

exist only in an arrangement including no insurance is wholly without merit. Not only would that

be a grudging construction of the language, it would be inconsistent with the thrust of 42 C.F.R.

§ 411.50(b), which contemplates a combination of insurance policies and deductibles, and with

the clear weight of authority that an entity can self-insure for a designated amount and purchase

coverage for liability exceeding the designated amount. See, e.g., BLACK'S LAW DICTIONARY

1220 (5th ed. 1979) (explaining, in defining self-insurance, that “[a] common practice of

businesses is to self-insure up to a certain amount, and then to cover any excess with

insurance.”).

59

funds, and (2) procedures for distributing these funds when claims are made against

the entity.” Id. at 463.

We note first that we fully agree with the Fifth Circuit that the term “plan” in

the statutory term “self-insured plan” clearly contemplates an ex ante arrangement.

This is clear in both the statute and the regulation. It is probable that this is the

extent of the holding in Goetzmann, and that the balance of the foregoing quotation

from the Fifth Circuit case is dicta. Apparently the only issue in Goetzmann was

whether a single, discreet, settlement by a tortfeasor with a single plaintiff whereby

the tortfeasor paid the plaintiff with its own funds, without more, constituted a

“self-insured plan.” 24 We agree with this holding because that circumstance would

not entail a “plan” or ex ante arrangement. It is probable therefore that what the

Fifth Circuit said about setting aside funds and procedures is dicta.

24

The following quotations from Goetzmann indicate that these were the facts, thus

defining the holding:

• “[W]e ... also agree with the other district courts that have concluded that an

alleged tortfeasor who settles with a plaintiff is not, ipso facto, a ‘self-insurer’

under the MSP statute.” Id. at 462.

• “[I]t is wrong for the government to contend that an entity’s negotiating of a

single settlement with an individual is sufficient, in and of itself, for such entity to

be deemed as having a ‘self-insurance plan.’” Id. at 463 (emphasis in original).

• “[N]owhere does the MSP statute mention or even suggest that an alleged

tortfeasor who settles a single claim with a single plaintiff falls within the ambit

of the statute’s category of a ‘self-insurance’ plan.” Id. at 464.

• “But [the defendant] has only negotiated a discreet settlement with a single

plaintiff and paid that plaintiff accordingly. It is simply a non sequitur for the

government to infer from ‘payment responsibility’ in tort a preexisting primary

plan of self-insurance.” Id. at 465 (emphasis in original).

60

We respectfully disagree with the Goetzmann dicta to the effect that there

cannot be a self-insured plan absent a setting aside of the funds and formal

procedures. We agree with Goetzmann that the statutory term “self-insured plan”

should be read in the context of a “primary plan.” However, especially because the

statutory definition of a primary plan expressly includes self-insured plans, we see

nothing in that context requiring either a set-aside of funds or formal procedures.

See 42 U.S.C. § 1395y(a)(2)A) (“In this subsection, the term ‘primary plan’ means

... a workman’s compensation law or plan, an automobile or liability insurance

policy or plan (including a self-insured plan) or no-fault insurance”) (parenthetical

in original). We gather from the Fifth Circuit opinion that it derived its concept of

the scope and limit of the term “self-insured” from the “ordinary meaning” of that

term, which it derived in turn from several legal authorities, principally the Couch

treatise. However, as noted above, even the legal authority relied upon by

Goetzmann acknowledged that there was no precise legal meaning, and while some

authorities suggest that a set-aside of funds and formal procedures often

accompany self-insured plans, other authorities, as noted above, suggest otherwise.

Goetzmann does not alter our conclusion that there is no precise legal meaning for

the statutory term “self-insured plan” that is well-established enough to rise to the

61

level of rendering a statutory term unambiguous.25 Accordingly, it is appropriate to

look to the regulations to which we owe deference.26

Applying the foregoing principles to the instant complaint, it is here alleged

that “the RSP defendants were self-insured against the risk of products liability

claims by breast implant recipients, and paid such claims from self-insured funds or

25

The Goetzmann court also rejected the Government’s argument that the statute was

ambiguous. Again, however, it appears likely that the court was focusing on the precise facts of

the case and its narrow holding – that a discreet settlement by a single tortfeasor out of its own

funds would not by itself (that is, without any prearrangement or plan) constitute a self-insured

plan. This seems likely because, as discussed above, there is no precise legal meaning of the

statutory term sufficiently well-established to rise to the level of rendering it unambiguous with

respect to the Goetzmann dicta to the effect that a set-aside of funds and formal procedures are

required. In other words, the statute may well be unambiguous with respect to the requirement of

a plan or ex ante arrangement, but it is not with respect to the Goetzmann dicta. To the extent the

Fifth Circuit intended to hold otherwise, we respectfully disagree.

26

We note that the Goetzmann court relied heavily on a questionable assumption

regarding the interaction of the MSP statute and the aforementioned Medical Care Recovery Act,

42 U.S.C. § 2651. Because the express purpose of the MCRA is to impose liability upon

tortfeasors to repay the Government for the reasonable value of health care furnished to a

tortiously injured party, the Goetzmann court found that reading tortfeasor liability into the MSP

“would, in effect, eliminate the need for the MCRA, or at least condemn some of Congress'

language in the MCRA to the scrap heap of surplusage.” Id. at 465. However, the Goetzmann

reasoning does not resolve this perceived conflict, as it would itself render superfluous that

portion of the MSP statute imposing liability on an entity “required or responsible” to pay under

a “primary plan” of self-insurance – i.e., a self-insured tortfeasor. The Goetzmann view would

also render superfluous a substantial portion of the Government’s subrogatory right conferred by

the MSP statute, because establishing the liability of the patient’s insurer to Medicare necessarily

may require bringing a subrogation action against the tortfeasor. Moreover, Goetzmann’s

perception of an overlap between the coverage of the MCRA and the MSP may be in error. See

United States v. Philip Morris, Inc., 116 F. Supp. 2d 131, 140-44 (D.D.C. 2000) (holding, after

extensive analysis of statute’s legislative history, that MCRA applies exclusively to federal

health care expenditures other than Medicare, such as coverage for military personnel and their

dependents); accord In re Diet Drugs, Nos. MDL 1203, CIV.A, 99-20593, 2001 WL 283163

(E.D. Pa. March 21, 2001) at *7-*8.

62

retained earnings.” The allegation that the Defendants self-insured “against the

risk ... of claims” indicates that the plan or arrangement existed before the claims

did, thus satisfying the requirement of an ex ante arrangement to assume legal

liability. Moreover, there are suggestions in the record that the plan or arrangement

may have included a combination of self-insurance with respect to certain amounts

and the purchase of insurance policies as to other amounts, precisely the kind of

combination of deductibles and insurance policies deemed by the regulations to

constitute a self-insured plan. We readily conclude that, with respect to the self-

insured plan issue, the allegations are sufficient to survive a challenge under Rule

12(b)(6).27

27

We discern no merit in the argument pressed by the Steering Committee intervenors that

the RSP Defendants' payments are excepted from the reach of the MSP statute because they are

not directly pegged to the amount of health care expenses incurred by the class members. Courts

have uniformly concluded that a settlement agreement that includes a non-itemized element of

compensation for a plaintiff's medical care is “for” medical expenses, even if the exact share or

amount is indeterminate. See Share Health Plan of Illinois, Inc. v. Alderson, 674 N.E.2d 69, 72

(Ill. App. Ct. 1996) (holding that HHS can recover Medicare payments from beneficiary's lump-

sum settlement of tort claim “regardless of whether and how amounts are designated”); see also

Wilson v. Washington, 10 P.3d 1061, 1067 (Wash. 2000) (en banc) (finding that state Medicaid

lien attached to entire amount of patient's medical malpractice settlement, not just amount

earmarked for medical expenses); accord Calvanese v. Calvanese, 710 N.E.2d 1079, 1082 (N.Y.

1999). That interpretation is consistent with HHS' own understanding. See Medicare Program;

“Without Fault” and Waiver of Recovery from an Individual as it Applies to Medicare

Overpayment Liability, 63 Fed. Reg. 14506, 14514 (proposed March 25, 1998) (“Since liability

payments are usually based on the injured or deceased person's medical expenses, liability

payments are considered to have been made <with respect to' medical services related to the

injury even when the settlement does not expressly include an amount for medical services.”).

63

3) Can the RSP Defendants be forced to repay Medicare, when it is

undisputed that they had no actual knowledge of Medicare's

specific payments on behalf of particular beneficiaries?28

The Government argues that the district court erred in dismissing the

Government’s subrogation claim pursuant to Rule 12(b)(6). As both parties and

the district court understood, the Government clearly has subrogation rights to

obtain reimbursement of its conditional payments. Section 1395y(b)(2)(B)(iii)

provides:

(iii) Subrogation rights

The United States shall be subrogated (to the extent of payment

made under this subchapter for an item or service) to any right under

this subsection of an individual or any other entity to payment with

respect to such item or service under a primary plan.

In granting the Rule 12(b)(6) dismissal, the district court rejected the Government’s

subrogation claim, apparently either requiring proof that the RSP Defendants

actually knew they were paying tort claimants whose medical expenses had already

28

At the outset, we agree with the district court that dismissal was not warranted on the

grounds that the Government failed to plead that it attempted to recoup its duplicate payments

from the Medicare beneficiaries in the plaintiff class before seeking recoupment from the

Defendants; it was adequately pled. We decline to address and express no opinion on the merits

of Defendants' argument that the Government is obligated to seek reimbursement first against

each member of the plaintiff class before pursuing reimbursement from the RSP Defendants,

because the issue is not necessary to our holding, and because the issue was inadequately

addressed by the district court and inadequately briefed on appeal. The Defendants are free to

assert this argument on remand, and the district court should address it anew after appropriate

development of the record and briefing with respect to the agency's policies and practices, and

with respect to the relevant statutes, regulations, and other authorities.

64

been paid by Medicare, or applying an unrealistically strict perception of

constructive knowledge. At one point, the district court said that the Government

had affirmatively pled facts defeating its claim, in that its complaint acknowledged

that the RSP Defendants “did not ascertain” whether any of the tort claimants to be

paid had actually received Medicare benefits. We reject this ground without need

for further discussion; in effect, the district court required actual knowledge, and

we hold that constructive knowledge is sufficient. Our discussion henceforth will

focus on constructive knowledge.

We presume that Congress legislates against the backdrop of established

principles of state and federal common law, and that when it wishes to deviate from

deeply rooted principles, it will say so. See United States v. Texas, 507 U.S. 529,

534, 113 S.Ct. 1631, 1634-35 (1993) (“Statutes which invade the common law ...

are to be read with a presumption favoring the retention of long-established and

familiar principles, except when a statutory purpose to the contrary is evident. In

such cases, Congress does not write upon a clean slate. In order to abrogate a

common-law principle, the statute must speak directly to the question addressed by

the common law.”) (internal quotes and citations omitted). It is well established at

common law that a tortfeasor that pays a settlement to a claimant with knowledge –

actual or constructive – that another entity has a subrogation claim against the

65

proceeds is not insulated from suit by the subrogee by virtue of the incorrect

payment. See Dadeland Dodge, Inc. v. American Vehicle Ins. Co., 698 So.2d 929,

931 (Fla. Dist. Ct. App. 1997) (holding that tortfeasor that has constructive

knowledge of insurer's perfected right of subrogation cannot rely on insured's

release to preclude insurer's claim for reimbursement); accord State Farm Fire &

Cas. Co. v. Pacific Rent-All, Inc., 978 P.2d 753, 770 (Hawaii 1999); Aetna Cas. &

Surety Co. v. Norwalk Foods, Inc., 480 N.Y.S.2d 851, 852 (N.Y. Civ. Ct. 1984);

see also Poole Truck Line, Inc. v. State Farm Mut. Auto. Ins. Co., 294 S.E.2d 570,

571-72 (Ga. Ct. App. 1982) (because state law makes no-fault automobile coverage

mandatory, tortfeasor can be charged with constructive knowledge that motorist

carried insurance and that motorist’s insurer had a statutory right of subrogation,

thus precluding tortfeasor from invoking its settlement with injured motorist to bar

insurer’s subrogation claim).

In a case involving the Government’s subrogation rights under this same

statutory provision, the D.C. Circuit has held that a party, standing in the shoes

filled by the RSP Defendants in this case, can avoid reimbursing Medicare under

the instant statutory provisions only if its payment to the wrong party was made

without knowledge (either actual or constructive). HIAA, 23 F.3d at 418 (“If a

third party payor wants to avoid having to make two payments for the same service,

66

it should refrain from paying someone whom it knows or should know that HCFA

already has paid.”). Further defining the content of constructive knowledge in the

instant context, the D.C. Circuit cited with approval the agency’s interpretation that

constructive knowledge is satisfied when the third-party payor has in its possession

direct information that Medicare has made a conditional payment, or has in its

possession information necessary to draw the conclusion that Medicare has made

such a payment.29 The D.C. Circuit interpreted the latter reference to mean that

third-party payors would be expected to draw certain inferences based on published

Medicare procedures. Id.

We believe that the constructive knowledge standard is fully consistent with

the intent of the MSP statute, and indeed necessary if the statute is to fulfill its

purpose. The overriding purpose of the MSP statute was to allocate primary

responsibility for the payment of claims to private insurance, where available.

29

The HIAA definition of constructive knowledge is essentially identical to that proffered

by Defendants from the affidavit of HHS administrator Paul J. Olenick, which the Government

submitted in HIAA as its statement of when HHS will consider an insurer to have the requisite

knowledge to trigger liability under 42 C.F.R. § 411.24(i)(2). See Def. Ex. B (“A third party

payer <learns' of a Medicare conditional primary payment when it receives information which

makes it aware, or should make it aware, that Medicare has made a conditional primary payment.

This would be the case when the third party payer receives direct information that Medicare has

made a conditional payment or when it receives the information necessary to draw the conclusion

that Medicare has made a primary payment.”) (emphasis in original).

67

Between two sources of coverage, the insurer that pays second is in the

superior position to prevent an erroneous or misdirected payment. The first payer

can avoid such an outcome only by refusing to pay at all. Congress foreclosed that

option in 42 U.S.C. §§ 1395y(b)(2)(A) and (b)(2)(B) by providing for Medicare to

pay first where payment from the primary insurer was not reasonably forthcoming.

When Medicare pays, therefore, it is paying “in the dark” – it does not know, and

cannot know, whether someone else will pay.30 By contrast, when the primary

insurer later pays, Medicare's prior payment will normally be a matter of

ascertainable fact.

In light of the well-established common law of subrogation, consistent with

the purposes of the MSP statute, and following the D.C. Circuit, we hold that either

knowledge or constructive knowledge is sufficient. Thus, if the RSP Defendants

30

HHS and Congress have repeatedly flagged Medicare's inability to ascertain the

existence of alternative sources of coverage as a weakness in the secondary payer program. See,

e.g., Dept. of Health and Human Serv., Office of the Inspector Gen. (“HHS IG”), Survey of

Medicare Payments to Workers' Compensation Recipients in the State of Florida, No. A-04-01-

07003 (January 2003) at 6 (“Unfortunately, the system as currently structured does not provide a

standard procedure that ensures that Medicare is informed of all [workers' compensation]

settlements”); HHS IG, Medicare Prepayment Review: MSP Procedures at Carriers, No. OEI-07-

89-01683 (August 1991) at 2 (citing estimate that, based on random sampling of processed by

private contractors, “Medicare lost in excess of $600 million in FY 1988 due to unidentified

primary payment sources”). Overlapping coverage is particularly difficult to detect where, as

here, the Medicare payment and the insurance payment go to different recipients (Medicare's to

the doctor or hospital, and the alleged tortfeasors' directly to the patient). In light of this well-

recognized weakness, it is therefore reasonable for the agency to interpret the MSP, and

Congress' subsequent revisions of it, as imposing the risk of loss on the alternative payer for

failing to determine whether Medicare has already paid for the same service.

68

had either knowledge or constructive knowledge that some of the recipients of the

funds they were paying out had received breast implant-related medical treatment

for which Medicare already paid, then the RSP Defendants would be liable to

reimburse the Government pursuant to § 1395y(b)(2)(B)(iii).

We need not at this early stage of the litigation attempt to define the precise

scope of the constructive knowledge that will trigger liability, because we conclude

that the Government’s allegations in that regard survive Rule 12(b)(6).31 The

Government has alleged that the RSP Defendants structured the settlement in a

manner so as to avoid learning any identifying information about the class

members, including their Medicare eligibility. A party that willfully blinds itself to

a fact, as the Complaint here alleges occurred, can be charged with constructive

knowledge of that fact.32 See Williams v. Obstfeld, 314 F.3d 1270, 1278 (11th Cir.

31

We note that the Federal Rules provide that the defendants' knowledge is an element

that “may be averred generally,” thus eschewing the particularity standard that applies to other

mental-state elements (fraud, mistake) under Rule 9. See Fed. R. Civ. P. 9(b).

32

We need not at this stage decide the significance of the facts that might be developed in

this regard. However, it is clear that a party should not be able to avoid constructive knowledge

and shield itself from statutory liability by consciously avoiding information which would

constitute constructive knowledge and result in liability. In addition to facts that might be

developed in this regard on remand, the district court might also address the relevance and

significance of knowledge in fact obtained during the claims process, and whether such

knowledge should be imputed to the RSP Defendants or whether they should be deemed to have

consciously avoided same. At this early stage, and without development of the relevant facts,

analysis by the district court, or adequate briefing from the parties, we decline to address this

issue further and express no opinion as to its resolution.

In this regard, the parties have discussed whether an entity standing in the shoes of the

69

2002) (stating in context of civil RICO action that “[u]nder the doctrine of willful

blindness or deliberate ignorance, which is used more often in the criminal context

than in civil cases, knowledge can be imputed to a party who knows of a high

probability of illegal conduct and purposely contrives to avoid learning of it.”);

Commodity Futures Trading Commission v. Sidoti, 178 F.3d 1132, 1136-37 (11th

Cir. 1999) (holding, in context of commodities fraud action, that “the element of

knowledge may be inferred from deliberate acts amounting to willful blindness to

the existence of fact or acts constituting conscious purpose to avoid

RSP Defendants has a duty to investigate for the benefit for the Government to discover

Medicare’s involvement. The discussion of the parties revolved around 42 C.F.R. § 411.25(a)

(“If a third party payer learns that [HHS] has made a Medicare primary payment for services for

which the third party payer has made or should have made primary payment, it must give notice

to that effect to the Medicare intermediary or carrier that paid the claim.”). In light of our

decision that the Government’s allegations survive Rule 12(b)(6), and in light of the discovery

that will be available to the Government on remand that may reveal to the Government any

information that investigation by the Defendants could have yielded, thus possibly mooting the

duty-to-investigate issue, we decline to address it at this stage. To the extent that the district

court's discussion (see In re Silicone Gel, 174 F. Supp. 2d at 1257) constitutes a holding that

Medicare cannot interpret § 411.25(a) to require an insurer to inquire into the existence of a prior

Medicare payment, we note that the district court did not address whether the agency had

interpreted its regulation, or the significance thereof. See, e.g., Medicare Program; Medicare

Secondary Payment, 59 Fed. Reg. 4285, 4286 (Jan. 31, 1994) (explaining the statute and

regulations concerning third-party payors with primary obligations to which Medicare is

secondary, and suggesting pursuant to 42 C.F.R. § 411.25 that where there has been delay in

paying by the primary obligor, it should assume that Medicare made a conditional payment: “A

beneficiary who is eligible for Medicare files a claim for primary payment with a third party

payer, the claim is denied, the beneficiary appeals, and the denial is reversed. (The third party

payer should assume that Medicare made a conditional primary payment in the interim.)”). If the

duty to investigate issue should become a live one on remand, then the district court should

address the issue afresh conducting an appropriate analysis, e.g., ascertaining any relevant agency

interpretation and determining the extent of Chevron deference, if any.

70

enlightenment."). The Complaint therefore sufficiently alleges constructive

knowledge, despite the Government's concession that the Defendants did not

acquire actual knowledge of Medicare's conditional primary payments.33

For all of the foregoing reasons, we conclude that the Government’s

allegations of constructive knowledge are sufficient, and the Government’s

subrogation claim under §1395y(b)(2)(B)(iii) survives the Rule 12(b)(6)

challenge.34

33

In responding to the motion to dismiss, the Government asked the district court for

leave to amend its Complaint to plead knowledge with more detail if the court were to find that

knowledge was a required element at the pleading stage. The district court denied that motion,

having found that the Government had no viable claim under the MSP regardless of how it was

pled. Because we reverse the district court's legal determination as to the viability of the

Government's case, the district court's reason for denying leave to amend is no longer valid and

that denial is accordingly vacated.

34

The text of Part III.B(3) of this opinion has focused only on the Government’s §

1395y(b)(2)(B)(iii) subrogation claim for double payment (relating to the primary obligor’s

liability to reimburse Medicare even though it has already paid the Medicare beneficiary). In its

brief on appeal, the Government also argued, in somewhat summary fashion, that in such

situation it also has a direct cause of action for double payment pursuant to §1395y(b)(2)(B)(ii),

and that the “direct action for double payment” is not conditioned upon a determination that the

primary obligor paid the Medicare beneficiary even though it knew or should have known that

Medicare had already covered relevant expenses. In other words, the Government argues that §

1395y(b)(2)(B)(ii) creates a strict liability “direct cause of action for double payment.” We note

that the D.C. Circuit in HIAA, 23 F.3d at 417, apparently rejected this argument, inferring from

the language of the statute that the Government had a claim against the “required or responsible”

entity until that entity made payment, and thereafter had a claim against the person who received

such payment. See 42 U.S.C. §1395y(b)(2)(B)(ii) (“The Untied States may bring an action

against any entity which is required or responsible under this subsection to pay with respect to

such item or service ... under a primary plan ... or against any other entity (including any

physician or provider) that has received payment from that entity with respect to the item or

service”). The district court, following the D.C. Circuit, rejected the Government’s argument on

the same ground.

We need not in this case decide whether the inference drawn by the D.C. Circuit and the

71

district court is the only reasonable interpretation of the statute, because we reject the

Government’s argument in this case on other grounds. The only support for its position

proffered by the Government in this case is 42 C.F.R. §411.24(i), which provides in relevant

part:

(i) Special rules. (1) In the case of liability insurance settlements and

disputed claims under employer group health plans and no-fault insurance, the

following rule applies: If Medicare is not reimbursed [by the recipient of the

insurance payment] ... the third party payer must reimburse Medicare even though

it has already reimbursed the beneficiary or other party.

(2) The provisions of paragraph (i)(1) of this section also apply if a third

party payer makes its payment to an entity other than Medicare when it is, or

should be, aware that Medicare has made a conditional primary payment.

However, we do not believe that the regulation supports the Government's litigation position of

strict liability without regard to knowledge or constructive knowledge. The regulation indicates

that a third-party payor who pays the patient is still liable for a “double payment” to Medicare in

two situations: (1) when the source of the third-party payment is a liability insurance settlement

or a disputed claim under group insurance or no fault coverage, or (2) when other circumstances

give the third-party payor knowledge or constructive knowledge of Medicare’s prior payment.

Both the language of the regulation and the explanation provided by HHS in promulgating the

regulation suggest that the distinction between subparagraphs (1) and (2) is not between strict

liability and liability only if there is knowledge or constructive knowledge. Rather, the use of the

term “disputed claims” in subparagraph (1) indicates that HHS was singling out cases in which

the third party would not pay until after considerable delay – which delay, coupled with the

existence of the MSP statute and regulations, HHS apparently deems to be sufficient to constitute

constructive knowledge that Medicare will have made a conditional payment. The explanation

provided by HHS in promulgating its final version of the rule focuses upon constructive

knowledge or “awareness,” and bears out this interpretation:

We agree that when an employer group health plan (EGHP) or no-fault

insurer routinely pays primary benefits on behalf of a Medicare beneficiary

without knowledge of Medicare's primary payment, the insurer has acted

responsibly and should not be liable for reimbursing HCFA if HCFA is unable to

recover from the party that received the insurer's primary payment. However, if a

third party pays an entity other than Medicare even though it was, or should have

been, aware that Medicare had made a conditional primary payment, the third

party must reimburse Medicare. ... Liability insurers should be aware of Medicare

involvement, and therefore should not pay a claim without first checking to find

out if Medicare has made conditional payments. The EGHP or no-fault insurer

should be aware that, if the claim was disputed, Medicare may have made a

conditional payment.

72

4) Does the MSP's “double damages” provision apply to a payer

that has paid the beneficiary but fails to promptly pay the

Government's “double payment” reimbursement claim?

Medicare's right of action for double damages originates in Section

1395y(b)(2)(B)(ii), entitled “Action by United States.” It provides that “the United

States may bring an action against any entity which is required or responsible under

this subsection to pay with respect to such item or service (or any portion thereof)

Medicare as Secondary Payer and Medicare Recovery Against Third Parties, 54 Fed. Reg. 41716,

41721 (Oct. 11, 1989) (emphasis added). Thus, neither the language of the regulation nor the

official explanation at promulgation supports the Government’s assertion of strict liability in this

case. Rather, the regulation and official interpretation indicate that constructive knowledge is

required.

Having rejected the Government’s only authority for imposing strict liability with respect

to a “direct cause of action for double payment” under § 1395y(b)(2)(B)(ii), we conclude that this

case should proceed with the law of the case being that the Government must prove at least

constructive knowledge to prevail in its claim for double payment under either §

1395y(b)(2)(B)(ii) or § 1395y(b)(2)(B)(iii).

As we noted in the text with respect to our discussion of the subrogation claim for double

payment, we need not at this early stage of the litigation define the precise scope of constructive

knowledge that will trigger liability, because constructive knowledge in the form of willful

blindness has been amply pleaded in this case. Moreover, the contours of constructive

knowledge were not adequately addressed by the district court and have not been adequately

addressed in the briefs on appeal.

Although the district court opinion, the briefs on appeal, and this opinion have focused on

the “double payment” claim, nothing in this opinion precludes the district court on remand from

entertaining a Government claim pursuant to the “direct action for single payment,” i.e., where

the RSP Defendants have not yet paid or the RSP claimants have not yet received such payment.

See 42 U.S.C. § 1395y(b)(2)(B)(ii) (“In order to recover payment under this subchapter for ... an

item or service, the United States may bring an action against any entity which is required or

responsible ... to pay with respect to such item or service ... under a primary plan ... or against any

other entity (including any physician or provider) that has received payment from that entity with

respect to the item or service”) (parenthetical in original).

73

under a primary plan (and may, in accordance with paragraph (3)(A) collect double

damages against that entity)” (emphasis added). Paragraph (3)(A), which the

provision incorporates, then establishes a private cause of action for double

damages “in the case of a primary plan which fails to provide for primary payment

(or appropriate reimbursement) in accordance with such paragraphs (1) and

(2)(A).”35 There is no dispute that, under subparagraph (2)(B)(ii), the Government

can sometimes bring a double damages action. The only disagreement is whether

the qualifier “or appropriate reimbursement” empowers Medicare to recover double

damages from an entity that has made its primary payment to the beneficiaries but

fails to make a duplicate payment to Medicare on demand.

The district court ultimately rejected the Government's double damages

claim on the same rationale that it dismissed its single damages claim. However,

we have already reversed the district court's holding with respect to the

Government's single damages claim. See Part III.B., supra. Accordingly, we also

reverse the district court's dismissal of the Government's double damages claim and

vacate the district court's rulings in that regard. While we expect the district court

35

Paragraph (1) pertains to the responsibility of group health plans to assume primary

responsibility for the coverage of their Medicare-eligible beneficiaries, and is not implicated

here.

74

on remand to address the double damages claim on a clean slate, we offer a few

comments to call attention to several pertinent matters.

We note that the statute is not clear as to when the Government is entitled to

more than single damages. The statute gives the Government the right to seek

double damages “in accordance with paragraph (3)(A),” see 42 U.S.C. §

1395y(b)(2)(B)(ii). Paragraph (3)(A) in turn establishes a private cause of action

for double damages if a primary plan “fails to provide for primary payment (or

appropriate reimbursement) in accordance with ... paragraphs (1) and (2)(A).”

Paragraph (1) prohibits an employer group health plan from offering lesser

coverage to employees over 65 or their spouses on the basis of their Medicare

eligibility. Paragraph (2)(A) defines which sources of outside coverage will be

primary with respect to Medicare. The pivotal ambiguity is in the term

“reimbursement,” which can plausibly refer either to the insurer’s obligation to

reimburse Medicare (the Government’s view), or the insurer’s duty to reimburse

the injured party for out-of-pocket medical expenses (the Defendants’ view), or

both.

The pertinent regulations to which we owe deference are codified at 42

C.F.R. §§ 411.24(c)(1) and (c)(2). In these regulations, HHS draws a distinction

between claims in which the insurer willingly repays Medicare versus those in

75

which Medicare is forced to litigate. Only in the second category of cases,

according to the regulations, will the Government demand double damages. The

Government cited the regulations in its Complaint, but did not rely on § 411.24(c)

in its briefs to the district court or here. The district court did not pass on whether

the regulations were authorized by and consistent with the statute, nor – so far as

we can find – has any other federal court.

Another matter to which the district court should give attention is whether

the proof required to establish entitlement to double damages is the same as that

required for single damages, and if that seems suggested by the statutory language,

whether it makes sense in light of the statutory structure and purpose. Finally, if

the same proof or standard is suggested for both single and double damages, the

court should consider whether that would be inconsistent with the common-law

principle that an award of multiple damages usually requires a heightened showing

of wrongful intent.

5) Can either the MSP Defendants or the Escrow Agent be sued

under the MSP as an entity that “received payment” from a

primary plan?

The Government argues that the MSP Defendants can be sued under §

1395y(b)(2)(B)(ii) as entities that “received payment” from a primary plan, on the

basis that they received payment from their liability carriers. The Government

76

further argues that the Escrow Agent is reachable under the same provision because

it received payment from the MSP Defendants and/or their insurance companies.

The district court dismissed both contentions on the basis that, under the common

understanding of the term “received,” the statute covers only the ultimate recipient

of the payments – not someone merely handling the money as a conduit.

The pertinent statutory passage provides that “the United States may bring an

action against any entity which is required or responsible under this subsection to

pay... or against any other entity (including any physician or provider) that has

received payment from that entity with respect to the item or service(.)” 42 U.S.C.

§ 1395y(b)(2)(B)(ii). Under the doctrine of ejusdem generis, “when an

enumeration of specific things is followed by some more general word or phrase,

then the general word or phrase will usually be construed to refer to things of the

same kind or species as those specifically enumerated.” City of Delray Beach v.

Agricultural Ins. Co., 85 F.3d 1527, 1534 (11th Cir. 1996); see also Snapp v.

Unlimited Concepts, Inc., 208 F.3d 928, 934 (11th Cir. 2000) (“We must interpret

<a general statutory term ... in light of the specific terms that surround it.'”) (quoting

Hughey v. United States, 495 U.S. 411, 419, 110 S.Ct. 1979, 1984 (1990)).36

36

In Snapp, we examined a provision in the Fair Labor Standards Act, 29 U.S.C. § 216(b),

providing that “[a]ny employer who violates the provisions of section 215(a)(3) of this title shall

be liable for such legal or equitable relief as may be appropriate... including without limitation

77

Applying ejusdem generis here, we can assume that Congress intended the term

“any other entity” to be understood with reference to “physician” and “provider,”

and to encompass only entities of like kind.

The agency's implementing regulation, 42 C.F.R. § 411.24(g), lists as

examples of entities liable as recipients: “a beneficiary, provider, supplier,

physician, attorney, State agency or private insurer that has received a third party

payment.” This list is broader than that furnished by the statute, but even the

agency's examples all are entities that would be receiving payment under a claim of

right or entitlement to retain it.

The Escrow Agent clearly is not of like kind to a doctor or provider. The

uncontested evidence is that the Escrow Agent acts in a purely ministerial role

serving the district court. All of the discretionary decisions about which claims to

honor are made by the Claims Office, which is a separate entity.37 The Escrow

Agent is limited to petitioning the court if he wishes to refrain from making a

payment. His only real power appears to be in making sure that the RSP

employment, reinstatement, promotion, and the payment of wages lost and an additional equal

amount as liquidated damages.” Applying the principle of ejusdem generis, the Snapp court held

that punitive damages were entirely unlike the remedies enumerated in the statute, all of which

were intended to compensate the plaintiff rather than punish the defendant; therefore, we held

that punitive damages were not intended by Congress as part of the remedial scheme. Id. at 935.

37

When a potential class member appeals the denial of her claim, the appeal goes first to

the Claims Administrator and then to the district court, not to the Escrow Agent.

78

Defendants continually contribute enough money to sustain the settlement fund,

which does not equate to discretion over the payment of claims.

In HIAA, the D.C. Circuit invalidated as exceeding HHS' statutory authority

the former 42 C.F.R. § 411.24(e), which provided that Medicare's direct right of

action under 42 U.S.C. § 1395y(b)(2)(B)(ii) extended to a third-party administrator

of an employer self-insurance plan as an entity charged with “making primary

payment.” The court held that the statute contemplated liability only for parties

who were responsible for payment, not merely responsible for the ministerial

function of making the payment. The court likened HCFA's interpretation to

extending liability to the bank on which the health insurers benefit checks were

drawn, even though the bank obviously had no discretion over whether and to

whom payment was made. Id. at 416-17.

In 1996, Congress amended the MSP, reinstating in part provisions struck

down by HIAA. Specifically, the 1996 amendments to § 1395y(b)(2)(B)(ii)

provide that the Government “may not recover from a third-party administrator

under this clause in cases where the third-party administrator would not be able to

recover the amount at issue from the employer or group health plan and is not

employed by or under contract with the employer or group health plan at the time

the action for recovery is initiated(.)” Although this legislation evidences

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congressional intent to reach third-party administrators under certain

circumstances, it does not assist the Government here, since it is conceded that

Gentile is an agent of the court, neither employed by nor under contract with the

RSP Defendants.38

Finally, any analogy between the Escrow Agent and a third-party

administrator is inapt. While it is true that Congress has clarified that HHS can

sometimes lodge a claim against a third-party administrator even where the

administrator is merely a “pass-through” who is not ultimately responsible for

paying the claimant, the potential analog to a third-party administrator in our case

is the Claims Office, not the Escrow Agent. A self-insurer hires a third-party

administrator to do what the Claims Office is doing here: to decide who gets paid

and how much. The Government, however, did not name the Claims Office or its

38

The only case the Government cites supporting its position that a trustee-like entity

could be regarded as having “received” the money it handles is King v. United States, 379 U.S.

329, 85 S.Ct. 427 (1964). King arose under an entirely different statutory scheme – it evolved

out of a Chapter 11 bankruptcy proceeding. The court-appointed “distributing agent” in that case

(significantly, the president of the bankrupt company as opposed to a disinterested functionary)

was held to be personally liable for having depleted the bankruptcy estate by paying private

claims before paying the Government, because of his considerable authority to object to the way

the estate was distributed. The King court strictly limited the holding to its facts. See id., 379

U.S. at 339, 85 S.Ct. at 432 (“We are not prepared to articulate any general rule defining the

responsibility of distributing agents to make and press... objections [to a plan of distribution].

We hold only that King, on the facts of this case, did have such a responsibility. As president of

the debtor corporation he must have been aware of the Government's potential claim(.)”). It is a

considerable stretch to apply such a limited, fact-specific holding to our entirely different

context.

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administrator as defendants. Consequently, the district court was correct in

dismissing Count VI against the Escrow Agent.39

We reach a different conclusion, however, as to the RSP Defendants.

Section 411.24(g) of the regulations lists an “insurer” as an example of a party that

may be liable as having received payment. As we have seen, the MSP treats self-

insured entities as “insurers.” The structure of the underlying transaction here – the

RSP manufacturers paid into the settlement fund out of their own earnings, then

submitted claims to their liability carriers for partial reimbursement – is not unlike

that commonly occurring in which one insurance carrier re-insures or carries excess

liability coverage, thus making it both a payer (to its insured) and a recipient (in

relation to its re-insurer). We believe that is the sort of arrangement HHS

contemplated in including insurers and state agencies among the class of parties

39

From the comments of counsel for the Government at oral argument, and from the

parties' discussion at the hearing before the district court on May 15, 2000, we discern that the

Government's main interest in laying a claim for reimbursement against the Escrow Agent was to

keep the Agent in the case as a party so that he would be subject to any order granting

appropriate injunctive relief. We note that Count VII, seeking injunctive relief against the

Escrow Agent, is still alive, see Part III.B.(6), infra. Thus, pending further developments in the

district court on remand, the Escrow Agent remains a party. In any event, we believe that the

district court would retain the ability to direct the Escrow Agent's management of the settlement

funds as required to preserve the Government's rights, whether or not substantive claims remain

against him, either pursuant to the court’s supervisory powers, or by retaining him or joining him

to afford appropriate relief to the parties.

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that could be liable on the basis of receiving payment.40 The RSP Defendants do

not argue that the regulation is invalid, and we see nothing unreasonable in the

regulation as applied to this case.

The record is devoid of detail about the role of the Defendants' liability

insurance carriers. If our understanding is correct – that the RSP companies

initially financed the settlement, then filed claims with their insurers, which will

provide reimbursement based on their independent evaluation of the class

members' claims – then the district court's description of the RSP Defendants as

mere intermediaries between their insurance companies and the class members is

not accurate. Rather, it appears that the RSP Defendants would keep the insurance

companies' payments to reimburse them for what they paid the class members.

Consequently, it is conceivable that the Government could prove that the RSP

Defendants “received payment” from a third party within the meaning of the

statute.

6) Does the Government have a claim under the MSP statute for

declaratory and injunctive relief (Counts V and VII)?

40

The references to “a State agency” and “a private insurer” in § 411.24(g) indicate that

HHS believes a party can be a recipient of payment even if all it is receiving is reimbursement for

its own prior payments, rather than (as with a doctor) a fee for services rendered.

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In addition to damages, the Government's Complaint sought: (1) a

declaratory judgment that the RSP Defendants are liable under the MSP to

reimburse Medicare for past payments to breast implant patients, and are obligated

to provide Medicare with notice of all payments to Medicare beneficiaries, and (2)

an injunction prohibiting the Escrow Agent from making disbursements to

Medicare patients pending resolution of the Government's claims, and to compel

disclosure of identifying information concerning all past or contemplated

settlement payments to Medicare beneficiaries.

Although both declaratory relief and injunctive relief may be unnecessary

depending on further developments on remand, the entire landscape of this case has

changed with our disposition of this appeal. We prefer for the district court to

evaluate the need for such relief in the first instance in light of the new landscape.41

We therefore vacate the dismissal of the Government’s claims for declaratory and

injunctive relief, which will enable the district court to fashion the most

appropriately tailored remedy. 42

41

For example, it is not beyond doubt that there may be need of injunctive relief to afford

complete relief to the parties.

42

We suspect that most of the Government’s requests for injunctive relief will be

effectively moot in any event. Because we reinstate the bulk of the Government’s substantive

claims for damages, discovery can now proceed and the Government will thereby gain access to

the information it sought by way of a declaratory or injunctive order. In light of this likely

mootness, we do not address the Defendants’ arguments regarding whether, and to what extent,

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VII. CONCLUSION

We reverse the district court's dismissal of Counts I, II, III and IV as they

regard the RSP Defendants. We also vacate the district court's dismissal of the

Government's requests for declaratory and injunctive relief in Counts V and VII.

Finally, we affirm the district court's dismissal of Count VI, which sought

reimbursement from the Escrow Agent as an entity receiving payment.43

AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.

the MSP statute allows for declaratory or injunctive relief as a remedy.

43

As noted, the Government has abandoned Counts VIII and IX.

84