In Re Avandia Marketing, Sales Practices & Products Liability Litigation

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_____________

No. 11-2664

_____________

IN RE: AVANDIA MARKETING, SALES PRACTICES and

PRODUCTS LIABILITY LITIGATION

GLAXOSMITHKLINE, LLC & GLAXOSMITHKLINE,

PLC

HUMANA MEDICAL PLAN, INC. and HUMANA

INSURANCE COMPANY, individually and on behalf of all

others similarly situated,

Appellants

______________

APPEAL FROM THE UNITED STATES DISTRICT

COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

(D.C. Civ. No. 10-6733 and MDL 1871)

District Judge: Honorable Cynthia M. Rufe

______________

Argued on January 24, 2012

______________

Before: McKEE, Chief Judge, FISHER, and GREENAWAY,

JR., Circuit Judges.

(Opinion Filed: June 28, 2012)

Richard W. Cohen, Esq. (argued)

Peter D. St. Phillip, Jr., Esq.

Gerald Lawrence, Esq.

LOWEY, DANNENBERG, COHEN & HART

One North Broadway

Suite 509

White Plains, NY 10601-0000

Counsel for Appellants

Thomas E. Zemaitis, Esq. (argued)

George A. Lehner, Esq.

Kenneth H. Zucker, Esq.

Pepper Hamilton

18th & Arch Streets

3000 Two Logan Square

Philadelphia, PA 19103-0000

Counsel for Appellees

Arthur N. Lerner, Esq.

Crowell & Moring

1001 Pennsylvania Avenue, N.W.

Washington, DC 20004-2505

Counsel for Amicus- Appellants

______________

OPINION

______________

2

GREENAWAY, JR., Circuit Judge.

Plaintiff Humana Medical Plan, Inc. and Humana

Insurance Company (collectively, “Humana”) brought suit

against GlaxoSmithKline, L.L.C. and GlaxoSmithKline plc

(collectively, “Glaxo”) alleging that Glaxo was obligated to

reimburse Humana for expenses Humana had incurred

treating its insureds’ injuries resulting from Glaxo’s drug,

Avandia. Humana runs a Medicare Advantage plan. Its

complaint asserts that, pursuant to the Medicare Act, Glaxo is

in this instance a “primary payer” obligated to reimburse

Humana as a “secondary payer.” The District Court

dismissed the action, agreeing with Glaxo that the Medicare

Act did not provide Medicare Advantage organizations

(“MAOs”) with a private cause of action to seek such

reimbursement. Humana filed a timely appeal.

The Medicare Secondary Payer Act, in 42 U.S.C. §

1395y(b)(3)(A), provides Humana with a private cause of

action against Glaxo. Even if we were to find, as Appellees

suggest, that this provision is ambiguous, we would

nonetheless be required to defer to regulations issued by the

Centers for Medicare and Medicaid Services (“CMS”). The

regulations make clear that the provision extends the private

cause of action to MAOs. Accordingly, we will reverse the

judgment of the District Court and remand for further

proceedings.

I. BACKGROUND

3

Glaxo manufactures and distributes Avandia, a Type 2

diabetes drug that has been linked to substantially increased

risk of heart attack and stroke. Thousands of Avandia

patients have alleged various injuries resulting from their use

of the drug and Glaxo has begun entering into agreements to

settle these claims. 1 As part of the settlement process, where

the claimant is insured by Medicare, Glaxo sets aside reserves

to reimburse the Medicare Trust Fund for payments it made

to cover the costs of treatment for the claimants’ Avandia-

related injuries.

While most Medicare-eligible individuals receive

Medicare benefits directly from the government, individuals

can elect instead to receive their benefits through private

insurance companies that contract with the government to

provide “Medicare Advantage” (“MA”) plans. 42 U.S.C. §

1395w-21(a)(1). Glaxo has not, to date, included

reimbursement of MA plans in the settlement agreements that

it has reached with Avandia claimants enrolled in MA plans,

although MAOs have paid the costs of treatment of Avandia-

related injuries for these claimants. 2 Humana’s MA plan

provides benefits to approximately one million people, and

1

By August 2011, when Appellants filed their brief, Glaxo

had paid more than $460 million to settle these claims.

2

An MA plan assumes full responsibility for paying the

medical costs of its plan participants in exchange for a fixed

annual per-participant payment from the government.

§ 1395w-23. This fixed, or “capitated,” amount is calculated

annually using a formula based on the cost of providing the

required benefits that would otherwise be covered by

traditional Medicare. Id.

4

Humana filed this lawsuit to seek reimbursement from Glaxo

for the costs of treating its enrollees’ Avandia-related injuries.

On November 17, 2010, Humana filed its class action

complaint in the Eastern District of Pennsylvania. 3 Humana

sought, on behalf of itself and a class of similarly-situated

MAOs: (1) damages under the Medicare Secondary Payer Act

(“MSP Act”), which provides a private cause of action, 42

U.S.C. § 1395y(b)(3)(A), allowing double damages for failure

to reimburse a secondary payer; and (2) equitable relief in the

form of an order compelling Glaxo to identify settling

Avandia claimants to the MAOs that cover them.

On December 23, 2010, Glaxo filed a motion to

dismiss. The District Court heard oral argument on the

motion and, on June 13, 2011, granted it. In dismissing the

action, the District Court noted that Part C of the Medicare

Act (the “Medicare Advantage” or “MA” statute) contains its

own secondary payer provision, 42 U.S.C. § 1395w-22(a)(4).

In re Avandia Mktg., Sales Practices, and Prods. Liability

Litig., 2011 WL 2413488, at *3 (E.D. Pa. June 13, 2011).

The District Court observed that this provision references the

MSP Act without fully adopting or incorporating it and that

its language is permissive, whereas the language of the MSP

Act is mandatory. Id. Given the existence of the MA

statute’s provision, specifically relevant to MAOs, the District

Court held that the private cause of action within the MSP

3

Many suits alleging Avandia-related injuries have been filed

in federal court and almost all are being coordinated for

pretrial purposes in the Eastern District of Pennsylvania. In

re Avandia Marketing, Sales Practices and Products Liability

Litigation, MDL Dkt. No. 1871. This case is among them.

5

Act did not apply to MAOs, nor did the secondary payer

provision in the MA statute create a private right of action for

MAOs. Id. at *4. Next, the District Court analyzed whether

an implied private right of action for Humana existed

according to the four-part test laid out by the Supreme Court

in Cort v. Ash, 422 U.S. 66 (1975). In re Avandia, 2011 WL

2413488, at *4. Although the District Court found that

Humana met the first prong of the test, as it was a member of

the class the statute was enacted to benefit, it found that

Humana failed on the other three prongs: there was no clear

legislative intent to create a remedy for Humana, it was not

consistent with the legislative scheme to imply a remedy, and

the cause of action was one traditionally litigated under state

law. Id. The District Court therefore found that no implied

private right of action existed.

Additionally, the District Court found that the statute’s

silence on the existence of a private right of action for MAOs

“does not create ambiguity, but rather indicates [Congress’s]

intent not to create a private right of action for MAOs.” Id. at

*5. With no ambiguity in the plain text of the statute, the

District Court held that the judicial deference to duly-enacted

regulations required by Chevron, U.S.A., Inc. v. Natural

Resources Defense Council, Inc, 467 U.S. 837, 842-43

(1984), did not come into play. Accordingly, the Court did

not defer to the CMS regulation that granted MAOs parity

with Medicare vis-à-vis recovery from primary payers, see 42

C.F.R. § 422.108(f). In re Avandia, 2011 WL 2413488, at *5.

Finally, Humana sought an order from the District

Court ordering Glaxo to disclose information about

settlements that Humana’s enrollees entered into with Glaxo.

The District Court declined to grant Humana the equitable

relief it sought. It found that Humana, and not Glaxo, had

6

access to information about which Avandia claimants were

enrolled in Humana’s MA plan and that Humana could use

this information to remind claimants of their obligation to

disclose any settlement they might reach with Glaxo. 4, 5 Id.

Humana filed a timely Notice of Appeal. Humana

asks this Court to determine whether the District Court erred

in holding that the private cause of action in the MSP Act, 42

U.S.C. § 1395y(b)(3)(A), did not provide Humana with a

cause of action here. America’s Health Insurance Plans,

representing the health insurance industry, filed an amicus

brief in support of Humana.

II. JURISDICTION AND STANDARD OF REVIEW

The District Court had subject matter jurisdiction,

pursuant to 28 U.S.C. § 1331, because interpretation of the

federal Medicare Act presents a federal question. This Court

has appellate jurisdiction, pursuant to 28 U.S.C. § 1291. We

review de novo the decision of a district court granting a

motion to dismiss, pursuant to Rule 12(b)(6). McTernan v.

City of York, 577 F.3d 521, 526 (3d Cir. 2009). In ruling

upon a motion to dismiss, “all well-pleaded allegations of the

4

The District Court also noted that a pending amendment to

the MSP Act might arguably shift the reporting burden to

Glaxo, but declined to address that question because it was

not yet ripe. In re Avandia Mktg., Sales Practices, and Prods.

Liability Litig., 2011 WL 2413488, at *6 (E.D. Pa. June 13,

2011).

5

Humana did not appeal the District Court’s dismissal of its

claim for equitable relief.

7

complaint must be taken as true and interpreted in the light

most favorable to the plaintiffs, and all inferences must be

drawn in favor of them.” Id. (quoting Schrob v. Catterson,

948 F.2d 1402, 1408 (3d Cir.1991)).

III. ANALYSIS

Humana asks this Court to determine whether the

private cause of action for double damages created by the

Medicare Secondary Payer Act, 42 U.S.C. § 1395y(b)(3)(A),

provides it and other MAOs with the right to bring suit. 6 We

find that the plain text of the provision sweeps broadly

enough to include MAOs and that, even if we determined the

statute to be ambiguous on this point, deference to CMS

regulations 7 would require us to find that MAOs have the

same right to recover as the Medicare Trust Fund does. We

will therefore reverse the decision of the District Court.

A. The Medicare Statute

Subchapter XVIII of Chapter 7 of Title 42 of the

United States Code is entitled “Health Insurance for Aged and

Disabled,” and is more commonly known as the Medicare

6

Humana repeatedly states that an MAO has “standing” to

bring suit under the provision at issue. In order to avoid

confusion with the doctrine of constitutional standing, see

Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992),

this opinion avoids that term.

7

CMS is an operating division within the Department of

Health & Human Services which issues Medicare-related

regulations on behalf of the Secretary of Health & Human

Services.

8

Statute. 42 U.S.C. §§ 1395 to 1395kkk-1. The Medicare

Statute divides benefits into four parts. Part A, “Hospital

Insurance Benefits for Aged and Disabled,” and Part B,

“Supplementary Medical Benefits for Aged and Disabled,”

create, describe, and regulate traditional fee-for-service,

government-administered Medicare. §§ 1395c to 1395i-5; §§

1395-j to 1395w-5. Part C, inserted with the passage of the

Balanced Budget Act of 1997, Pub. L. 105-33, creates the

program now known as Medicare Advantage, which allows

for the creation of MA plans and is described in detail below.

§ 1395w-21 to -29. Finally, Part D provides for prescription

drug coverage for Medicare enrollees. § 1395w-101 to -154.

Part C allows Medicare enrollees to obtain their

Medicare benefits through private insurers (MAOs) instead of

receiving direct benefits from the government under Parts A

and B. § 1395w-21(a). CMS pays an MAO a fixed amount

for each enrollee, per capita (a “capitation”). The MAO then

administers Medicare benefits for those enrollees and

assumes the risk associated with insuring them. MAOs like

Humana are thus responsible for paying covered medical

expenses for their enrollees. Part C allows MAOs some

flexibility as to the design of their MA plans. The MAO is

required to provide the benefits covered under Parts A and B

to enrollees, but it may also provide additional benefits to its

enrollees. § 1395w-22(a)(1)-(3).

Part C also includes one of the two provisions that lie

at the heart of this case. Entitled “Organization as secondary

payer,” this provision states:

9

Notwithstanding any other provision of law, [an

MAO] 8 may (in the case of the provision of

items and services to an individual under [an

MA] plan under circumstances in which

payment under this title is made secondary

pursuant to section 1395y(b)(2)) of this title

charge or authorize the provider of such

services to charge, in accordance with the

charges allowed under a law, plan, or policy

described in such section--

(A) the insurance carrier, employer, or other

entity which under such law, plan, or policy is

to pay for the provision of such services, or

(B) such individual to the extent that the

individual has been paid under such law, plan,

or policy for such services.

§ 1395w-22(a)(4) (the “MAO secondary payer provision”).

8

The statutory text refers to MAOs as “Medicare+Choice”

organizations. For simplicity’s sake, this opinion substitutes

the contemporary terminology wherever that phrase appears.

See Medicare Prescription Drug, Improvement, and

Modernization Act of 2003, Pub. L. 108-173, 117 Stat. 2176,

42 U.S.C. §1395w-21 note (“[T]he Secretary shall provide

for an appropriate transition in the use of the terms

‘Medicare+Choice’ and ‘Medicare Advantage’ (or ‘MA’) in

reference to the program under part C of title XVIII of the

Social Security Act.”).

10

This provision (the “Part C secondary payer

provision”) cross-references § 1395y(b)(2) for its definitions

of primary payers and its positioning of Medicare as a

secondary payer. That cross-referenced provision is located

within § 1395y(b), the Medicare Secondary Payer Act,

enacted in 1980. It provides that Medicare cannot pay

medical expenses where “payment has been made or can

reasonably be expected to be made under a workmen’s

compensation law or plan of the United States or a State or

under an automobile or liability insurance policy or plan

(including a self-insured plan) or under no fault insurance.” §

1395y(b)(2)(A)(ii). Further, a business “shall be deemed to

have a self-insured plan if it carries its own risk (whether by a

failure to obtain insurance, or otherwise) in whole or in part.”

Id. Glaxo, which pays out of its own pocket to settle the

Avandia-related claims, is self-insured and therefore a

primary payer in this instance.

The MSP Act also gives the Secretary the authority to

make “conditional payments” in circumstances where a

primary payer is actually responsible for the cost of medical

treatment but “has not made or cannot reasonably be expected

to make payment with respect to such item or service

promptly.” § 1395y(b)(2)(B)(i). In such a circumstance, the

primary plan must subsequently reimburse the Medicare Trust

Fund. § 1395y(b)(2)(B)(ii). If the primary plan fails to

reimburse the Fund, “the United States may bring an action

against any or all entities that are or were required or

responsible . . . to make payment . . . under a primary plan.”

§ 1395y(b)(2)(B)(iii). The government may then collect

double damages, “in accordance with paragraph (3)(A).” Id.

11

Paragraph (3)(A) (the “MSP private cause of action

provision”) is the other provision central to this case. It

states:

There is established a private cause of action for

damages (which shall be in an amount double

the amount otherwise provided) in the case of a

primary plan which fails to provide for primary

payment (or appropriate reimbursement) in

accordance with [the requirements of the MSP

Act].

§ 1395y(b)(3)(A).

The Medicare Statute thus creates two separate causes

of action allowing for recovery of double damages where a

primary payer fails to cover the costs of medical treatment.

When the Medicare Trust Fund makes a conditional payment

and the primary payer does not reimburse it, the United States

may bring suit pursuant to § 1395y(b)(2)(B)(iii).

Additionally, a private cause of action with no particular

plaintiff specified exists pursuant to § 1395y(b)(3)(A)

anytime a primary payer fails to make required payments. 9

9

Although the MSP private cause of action provision sweeps

broadly, it is not so broad that it can function as a qui tam

statute, allowing a private party to bring suit as an agent of

the government to collect moneys owed to the government.

Each of our sister circuits to have considered the question has

rejected this interpretation. Woods v. Empire Health, 574

F.3d 92, 101 (2d Cir. 2009); Stalley ex rel. United States v.

Orland Reg. Healthcare System, Inc., 524 F.3d 1229, 1234

(11th Cir. 2008); Stalley v. Methodist Healthcare, 517 F.3d

911, 919 (6th Cir. 2008); Stalley v. Catholic Health

12

Exactly how broadly this latter provision sweeps will

determine the outcome of this appeal.

B. Textual Arguments

1. MSP Private Cause of Action Provision

The plain text of the MSP private cause of action lends

itself to Humana’s position that any private party may bring

an action under that provision. It establishes “a private cause

of action for damages” and places no additional limitations on

which private parties may bring suit. § 1395y(b)(3)(A).

Accordingly, we find that the provision is broad and

unambiguous, placing no limitations upon which private (i.e.,

non-governmental) actors can bring suit for double damages

when a primary plan fails to appropriately reimburse any

secondary payer.

Glaxo presents no argument that undermines this

facially clear reading. The MSP private cause of action

provision allows for damages where the primary plan has

failed to pay “in accordance with paragraphs (1) and (2)(A).”

Id. Paragraph (2)(A), in turn, consistently refers to payments

“under this subchapter.” 10 § 1395y(b)(2)(A). Glaxo contends

that “payments under this subchapter” refers to payments

Initiatives, 509 F.3d 517, 527 (8th Cir. 2007); United Seniors

Ass’n v. Philip Morris USA, 500 F.3d 19, 26 (1st Cir. 2007).

10

The United States Code Service uses the word “title” in

place of “subchapter,” favored by the United States Code

Annotated. This opinion utilizes the statutory text from the

latter compilation.

13

made by the Medicare Trust Fund and excludes payments

from the MAO to private entities, which are instead “made

pursuant to private contracts of insurance between the MAO

and the participant.” (Id. at 25.)

In contrast, Humana argues that because “subchapter”

refers to the Medicare Act as a whole, and not in particular to

Parts A or B under which the government provides benefits

directly to enrollees, payments made by private providers

under Parts C or D are also covered. Humana supports this

assertion by highlighting other places in the Medicare Act

where Congress intentionally limited the applicability of a

provision to payments made under particular Parts of the

Medicare Act. (Appellants’ Br. 23.) These provisions refer

specifically to “payment made under part A or part B of this

subchapter,” § 1395y(a), or payment made “under Part B of

this subchapter,” § 1395y(c). See also § 1395y(f) (requiring

Secretary to establish guidelines as to whether payment may

be made for certain expenses “under part A or part B of this

subchapter”).

This language makes clear that “subchapter” refers to

the Medicare Act as a whole. Since the MSP Act and its

private cause of action provision do not attach any narrowing

language to “payments made under this subchapter,” that

phrase applies to payments made under Part C as well as

those made under Parts A and B. Accordingly, that language

cannot be read to exclude MAOs from the ambit of the

private cause of action provision.

It is worth noting that, although the MSP Act was

enacted before Part C, which created MAOs, private

Medicare risk plans were authorized under 42 U.S.C. §

1395mm in 1972, before the passage of the MSP Act. Act of

14

Oct. 30, 1972, sec. 226(a), Pub. L. 92-603, 86 Stat. 1396.

Thus, at the time it enacted the MSP Act, Congress was aware

that private Medicare providers existed. Had it intended to

prevent them from suing under the private cause of action

provision, Congress could have done so explicitly.

2. MAO Secondary Payer Provision

Glaxo raises a number of arguments stemming from its

contention that the MSP private cause of action provision

cannot be read in a vacuum. Glaxo urges this Court to

analyze the relationship between MAOs and the MSP Act by

beginning with the MAO secondary payer provision. The

plain text of the MAO secondary payer provision, Glaxo

avers, makes clear that MAOs do not have a federal cause of

action anywhere under the Medicare Act. Further, because

this provision specifically defines the relationship of MAOs

to secondary payer status and the MSP Act, it controls those

relationships, and the MSP private cause of action does not

apply to MAOs. 11

In Glaxo’s argument, the MAO secondary payer

provision, by stating that an MAO “may . . . charge or

authorize the provider of [ ] services to charge” the primary

payer, gives MAOs the right to include in their policy

11

Humana has not raised on appeal the question of whether

there is some private right of action for MAOs implied in the

Medicare Act, although the District Court found that no such

implied right of action exists. 2011 WL 2413488, at *4.

Accordingly, we are asked to determine whether the text of §

1395y(b)(3)(A) provides Humana with a cause of action and

nothing further.

15

contracts provisions making them secondary payers in

situations in which a primary payer would be liable under the

MSP Act. § 1395w-22(a)(4). It does not, however, provide a

federal remedy for the enforcement of that right. See

Alexander v. Sandoval, 532 U.S. 275, 286 (2001) (stating that

statute does not create private cause of action unless Congress

intended “to create not just a private right but also a private

remedy”). At oral argument, Glaxo asserted that this

provision was intended to preempt state law that could

preclude an MAO from positioning itself as a secondary

payer, as certain personal injury laws might.

Under the interpretation urged by Glaxo, no rights to

reimbursement are granted to an MAO by the Medicare Act.

Instead, such rights can be secured by the MAO’s contract

with an individual insured; that is, the insurance policy. This

policy may define an MAO as a secondary payer, according

to the definition contained in the MSP Act, and it may also

contain rights of reimbursement and subrogation. 12 Then, if a

primary payer were to fail to reimburse the MAO, the MAO

could sue to enforce its contractual rights in state court. It

could be made whole either by recovering from the primary

payer through subrogation or, if the insured has received

payment from the primary payer, from the insured directly.

The District Court accepted this interpretation of the

MAO secondary payer provision. 2011 WL 2413488, at *4;

12

As the District Court noted, the policy might also create an

obligation for the insured to inform the MAO of any primary

insurance coverage, including tort settlements where the

tortfeasor qualifies as a primary payer. In re Avandia, 2011

WL 2413488, at *4 n.40.

16

see also Parra v. PacifiCare of Arizona, Inc., Civ. No. 10-

008, 2011 WL 1119736 (D. Ariz. Mar. 28, 2011) (finding

Congress did no more than provide MAOs with “right to

charge and/or bill a beneficiary for reimbursement,

notwithstanding and [sic] state law or regulation to the

contrary” ). It is important to remember, though, that

Humana does not contend that § 1395w-22(a)(4) endows it

with a private right of action. Instead, it hangs its hat entirely

on the MSP Act provision. Thus, § 1395w-22(a)(4) is

relevant only inasmuch as it assists us in interpreting the MSP

private cause of action provision, and we are not persuaded

that it undermines the meaning of the plain text of that

provision.

Glaxo further contends that the reference to §

1395y(b)(2) in the MAO secondary payer provision, far from

incorporating the entirety of the MSP Act into Part C, in fact

makes clear that only the definition of a primary payer from

the MSP Act is incorporated there. (Appellees’ Br. 21-22.)

This argument is unavailing for the same reason—Humana is

not arguing that the MAO secondary payer provision provides

a cause of action through its reference to the MSP Act, but

that the language of the MSP private cause of action is itself

broad enough to encompass an MAO such as Humana,

regardless of the existence of § 1395w-22(a)(4). In order to

find these arguments persuasive, we would need to determine

that, although private insurers providing Medicaid services

could have brought suit under the MSP private cause of

action provision before the enactment of the MA secondary

payer provision, once that text became law, the MSP private

cause of action was closed to them. We will not reach this

conclusion.

17

Glaxo’s final argument based on the text of the MAO

secondary payer provision is that the permissive nature of the

language there (an MAO “may” charge a primary plan), in

contrast to the mandatory nature of the language in the MSP

Act (“Payment under this subchapter may not be made. . .”)

means that MAOs cannot be authorized to bring suit under

the MSP private cause of action. § 1395w-22(a)(4); §

1395y(b)(2)(A). Glaxo reads far too much into this

distinction. No MAO, acting rationally, would decline to

position itself as a secondary payer in order to charge primary

payers where appropriate. Accordingly, the fact that

Congress employs permissive language when establishing

rules for private, market-driven entities and mandatory

language when creating rules for the Secretary, a federal

official over whom Congress exercises control, has no effect

on the proper interpretation of MSP private cause of action.

In short, there is nothing in the text or legislative

history of the MA secondary payer provision that

demonstrates a congressional intent to deny MAOs access to

the MSP private cause of action.

3. Court Decisions

None of the decisions cited by Glaxo or the District

Court provide us with sufficient reason to conclude that, in

contravention of the plain text of the MSP private cause of

action provision, an MAO may not bring suit under it. The

District Court found that no federal private cause of action

exists under the MSP Act by relying on two cases, neither of

which had plaintiffs who made an argument based on the

MSP Act provision at issue here.

18

In Care Choices HMO v. Engstrom, 330 F.3d 786 (6th

Cir. 2003), the Sixth Circuit considered the argument of Care

Choices, a Medicare-substitute HMO, that it had an implied

federal private right of action allowing it to recover the cost

of an insured’s medical expenses, where the participant had

collected damages from the tortfeasor who had injured her.

That court declined to find an implied private right of action

in the provision allowing Care Choices to occupy secondary-

payer status. In so doing, it compared the language of the

MSP Act private cause of action provision with §

1395mm(e)(4), 13 finding the contrast to support its holding

that § 1395mm(e)(4) was not intended to create any private

right of action. Id. at 790. Whether Care Choices could have

brought suit as a private actor under the MSP Act was neither

raised nor addressed and thus the decision of the United

States Court of Appeals for the Sixth Circuit cannot guide us

here.

Similarly, in Nott v. Aetna U.S. Healthcare Inc., 303 F.

Supp. 2d 565 (E.D. Pa. 2004), the court considered whether §

1395mm(e)(4) or § 1395w-22(a)(4) created a federal scheme

for enforcement of a Medicare-substitute HMO’s subrogation

rights that would completely preempt conflicting state laws.

The Nott court noted explicitly that § 1395y(b)(2)(B)(ii), the

government’s cause of action for reimbursement, was not

implicated in the case, id. at 570, and it nowhere mentioned

13

Because Care Choices was a Medicare-substitute HMO and

not an MAO, the relevant, private-insurer-specific secondary

payer provision was not § 1395w-22(a)(4), but rather §

1395mm(e)(4), which contains nearly identical language.

The two provisions are logically subject to the same

interpretation.

19

the § 1395y(b)(3)(A) private cause of action. Relying

substantially on Care Choices, it held that “[t]here is no

federal cause of action created by either subsection” and thus

no preemption. Id. at 571.

Once again, because the decision does not discuss

whether a private insurer providing Medicare services can

bring suit under the MSP private cause of action, it is of

limited relevance here. 14

In contrast, the decision of the Court of Appeals for the

Sixth Circuit in Bio-Medical Applications of Tenn., Inc. v.

Central States Health and Welfare Fund, 656 F.3d 277 (6th

Cir. 2011), does specifically consider the MSP private cause

of action provision. There, the court held that the

“demonstrated responsibility” provision of the MSP 15 applied

14

For the same reasons, Parra v. PacifiCare of Arizona, Inc.,

cited by Glaxo and the District Court, is also inapposite.

2011 WL 1119736 (D. Ariz. Mar. 28, 2011). This unreported

decision adopts a magistrate’s report and recommendation

finding no implied private right of action in the MAO

secondary payer provision. The report and recommendation

relied heavily on Care Choices, and neither that decision nor

the decision of the district court addressed the argument that

an MAO could bring suit under the MSP private cause of

action provision.

15

“A primary plan . . . shall reimburse [the Trust Fund] for

any payment made by [Medicare] . . . with respect to an item

or service if it is demonstrated that such primary plan has or

had a responsibility to make payment with respect to such

item or service.” § 42 U.S.C. § 1395y(b)(2)(B)(ii)

20

only to situations in which the primary payer was a tortfeasor

and not to the case before it, in which the primary plan was

actually a primary insurer. Id. at 290-91. In explicating this

point, it noted that a tortfeasor could be held liable as a

primary payer under the MSP Act only when Medicare sues

for reimbursement from a primary plan and not when the

plaintiff is a private party. Id. at 292-93. It buttressed this

distinction between Medicare and private parties with a

number of arguments from the statute’s text and legislative

history. 16 Id. at 292. However, the private party bringing

suit in Bio-Medical was neither an MAO nor a Medicare-

substitute HMO, and the court there did not consider how

such an entity would fit into the dichotomy it described. As

the remainder of this opinion will demonstrate, we believe

that denying an MAO the rights to recovery provided to

Medicare would undermine the very purpose of the MA

program and that Congress did not intend this result.

C. Legislative History and Policy

Although we find the text of the statute to be

unambiguous, we nonetheless include here a discussion of the

16

These reasons include, inter alia, that the demonstrated

responsibility provision’s “text places a condition only on

when primary plans must reimburse Medicare; it does not

mention when plans must pay private parties,” that “the

structure of the Act suggests that the provision is limited to

the reimbursement of Medicare,” and that “the predominant

legislative backdrop was Medicare’s (not private parties’)

failed attempts to bring lawsuits against tortfeasors.” Bio-

Medical Applications of Tenn., Inc. v. Central States Health

and Welfare Fund, 656 F.3d 277, 292 (6th Cir. 2011).

21

legislative history and policy rationales that support our

conclusion.

Congress’s goal in creating the Medicare Advantage

program was to harness the power of private sector

competition to stimulate experimentation and innovation that

would ultimately create a more efficient and less expensive

Medicare system. See, e.g., H.R. Rep. No. 105-217, at 585

(1997) (Conf. Rep.) (stating that MA program was intended

to “enable the Medicare program to utilize innovations that

have helped the private market contain costs and expand

health care delivery options”). It was the belief of Congress

that the MA program would “continue to grow and eventually

eclipse original fee-for-service Medicare as the predominant

form of enrollment under the Medicare program.” Id. at 638.

The MA program was thus, like the MSP statute, “designed to

curb skyrocketing health costs and preserve the fiscal

integrity of the Medicare system.” Fanning v. United States,

346 F.3d 386, 388 (3d Cir. 2003).

It would be impossible for MAOs to stimulate

innovation through competition if they began at a competitive

disadvantage, and, as CMS has noted, MAOs compete best

when they recover consistently from primary payers. Policy

and Technical Changes to the Medicare Advantage and the

Medicare Prescription Drug Benefit Programs, 75 Fed. Reg.

19678, 19797 (Apr. 15, 2010). When they “faithfully pursue

and recover from liable third parties,” MAOs will have lower

medical expenses and will therefore be able to provide

22

additional benefits to their enrollees. 17 Id. If Medicare could

threaten recalcitrant primary payers with double damages and

MAOs could not, MAOs would be at a competitive

17

CMS explains this mechanism more fully elsewhere:

We note that MAOs claim expenses related to MSP

recoveries as part of their administrative overhead.

MA organizations that faithfully pursue and recover

from liable third parties will have lower medical

expenses. Lower medical expenses make such plans

more attractive to enrollees. The lower the medical

expenses in an MA plan, the higher the potential

rebate. The rebate is calculated as the difference

between the cost of Medicare benefits and the

benchmark for that plan. The benchmark is a fixed

amount. Therefore, as the cost of Medicare benefits go

down (with the benchmark remaining constant), the

larger the rebate. Therefore, as more MSP dollars are

collected or avoided, medical expense go down and

rebates go up, allowing the sponsoring MA

organization to offer potential enrollees additional

non-Medicare benefits funded by rebate dollars. Such

non-Medicare benefits include reductions in cost

sharing. Since cost sharing is generally expressed as a

percentage of medical costs, such cost sharing will also

be proportionally lower as overall medical costs go

down—providing MA organizations offering such

plans with an additional competitive edge.

Policy and Technical Changes to the Medicare Advantage

and the Medicare Prescription Drug Benefit Programs, 74

Fed. Reg. 54634, 54711 (proposed Oct. 22, 2009).

23

disadvantage, unable to exert the same pressure and thus

forced to expend more resources collecting from such payers.

It is difficult to believe that it would have been the intent of

Congress to hamstring MAOs in this manner.

Although the legislative history is nowhere explicit

that MAOs may bring suit for double damages under the MSP

private cause of action or using any other provision, it does

make clear that MAOs were intended to enjoy a status

parallel to that of traditional Medicare:

Under original fee-for-service, the Federal

government alone set legislative requirements

regarding reimbursement, covered providers,

covered benefits and services, and mechanisms

for resolving coverage disputes. Therefore, the

Conferees intend that this legislation provide a

clear statement extending the same treatment to

private [MA] plans providing Medicare benefits

to Medicare beneficiaries.

H.R. Rep. No. 105-217, at 638. 18

Our sister circuits have determined that the MSP Act

provides traditional Medicare with a cause of action for

double damages “[i]n order ‘to facilitate recovery of

conditional payments.’” Stalley v. Methodist Healthcare, 517

18

Because Congress clearly intended there to be parity

between MAOs and traditional Medicare, we find additional

support for our decision in § 1395y(b)(2)(B)(iii), the

government’s cause of action for recovery from primary

payers, which also provides for double damages.

24

F.3d 911, 915 (6th Cir. 2008) (quoting Glover v. Liggett

Group, Inc., 459 F.3d 1304, 1307 (11th Cir. 2006)). We see

nothing in the text or legislative history of the statute to imply

that Congress did not intend to facilitate recovery for MAOs

in the same fashion.

The District Court determined that providing MAOs

with a right of action would not advance the program’s cost-

savings aim because “payments to the MA from the Medicare

trust fund are capitated annually, shifting the economic risk of

excessive medical expenses from the government to the MA

organization.” 2011 WL 2413488, at *4. As we have

explained elsewhere, “[t]he Government pays MA plan

participants a set amount of money based on the plans’

enrollees’ risk factors and other characteristics rather than

paying them a fee for specific services performed.” U.S. ex

rel. Wilkins v. United Health Grp., Inc., 659 F.3d 295, 300

n.4 (3d Cir. 2011). This capitation rate is based in part on the

“adjusted average per capita cost” to the Medicare Trust Fund

of covering a traditional Medicare participant in that year. 42

U.S.C. § 1395w-23(c)(1)(D); § 1395mm(a)(4) (defining

“adjusted average per capita cost” as “average per capita

amount that the Secretary estimates in advance . . .would be

payable in any contract year for services covered under parts

A and B of this subchapter. . . if services were to be furnished

by other than an eligible organization”).

The District Court’s logic on this point is flawed for

several reasons. If an MA plan provides CMS with a bid to

cover Medicare-eligible individuals for an amount less than

the benchmark amount calculated by CMS, it must use

seventy-five percent of that savings to provide additional

benefits to its enrollees. 42 U.S.C. §§ 1395w-24 (b)(1)(C)(i),

25

(b)(3)(C), (b)(4)(C). 19 The remaining twenty-five percent of

the savings is retained by the Medicare Trust Fund.

Accordingly, when MAOs spend less on providing coverage

for their enrollees, as they will if they recover efficiently from

primary payers, the Medicare Trust Fund does achieve cost

savings. 20

19

The “Beneficiary Rebate Rule” provides in full:

The MA plan shall provide to the enrollee a

monthly rebate equal to 75 percent (or the

applicable rebate percentage specified in clause

(iii) in the case of plan years beginning on or

after January 1, 2012) of the average per capita

savings (if any) described in paragraph (3)(C)

or (4)(C), as applicable to the plan and year

involved.

42 U.S.C. § 1395w-24(b)(1)(C)(i). In 2012, the federal

government began to retain a larger portion of the savings and

the rebate proportion became tied to assessments of MAO

quality. § 1395w-24(b)(1)(C)(i).

20

Our decision here unquestionably results in cost savings for

the Medicare Trust Fund because our holding on the meaning

of the private cause of action will apply equally to private

entities that provide prescription drug benefits pursuant to

Medicare Part D. See 42 U.S.C. § 1395w-151(b) (requiring

that provisions relating to the MA program and MAOs be

read to include part D plans). Because Part D prescription

drug plans explicitly share gains and losses with the federal

government, 42 U.S.C. § 1395w-115(e), the Medicare Trust

26

Further, cost savings for the Medicare Trust Fund was

not Congress’s only goal when it created the MA program.

Congress structured the program so that MAOs would

compete for enrollees based on how efficiently they could

provide care to Medicare-eligible individuals. When, by

recovering from primary payers, MAOs save money, that

savings results in additional benefits to enrollees not covered

by traditional Medicare. Thus, ensuring that MAOs can

recover from primary payers efficiently with a private cause

of action for double damages does indeed advance the goals

of the MA program.

We recognize that only Congress can create private

rights of action and that “[t]he judicial task is to interpret the

statute Congress has passed to determine whether it displays

an intent to create not just a private right but also a private

remedy.” Sandoval, 532 U.S. at 286 (2001) (citation

omitted). The analysis here of text and legislative history lies

strictly within the bounds of that task. Our understanding of

the policy goals of the MA program merely buttresses what

we have already found in the text of the Medicare Act: MAOs

are not excluded from bringing suit under the MSP private

cause of action.

D. Chevron Deference

Although we hold the text of § 1395y(b)(3)(A) to

unambiguously provide Humana with a private cause of

action, we recognize that a declaration that the language of

the Medicare Act is clear may be counterintuitive. After all,

Fund unquestionably loses money if these private entities

recover less from primary payers.

27

the Medicare Act has been described as among “the most

completely impenetrable texts within human experience.”

Cooper Univ. Hosp. v. Sebelius, 636 F.3d 44 (3d Cir. 2010)

(quoting Rehab. Ass'n of Va., Inc. v. Kozlowski, 42 F.3d 1444,

1450 (4th Cir. 1994)). We therefore find that, even if the

statute’s text were deemed to be ambiguous, we would apply

Chevron deference and would reach the same conclusion.

The Supreme Court in Chevron established a two-part

test for determining when a federal court ought to defer to the

interpretation of a statute embodied in a regulation formally

enacted by the federal agency charged with implementing that

statute. 467 U.S. at 842-43. First, the court must determine

whether Congress’s intent on the issue is clear — if so, it

must abide by that intention, regardless of any regulations. If

the statute is unclear, that is, “silent or ambiguous with

respect to the specific issue, the question for the court is

whether the agency’s answer is based on a permissible

construction of the statute.” Id. at 843. We defer to the

agency’s regulations “unless they are arbitrary, capricious, or

manifestly contrary to the statute.” Id. at 844.

CMS “has the congressional authority to promulgate

rules and regulations interpreting and implementing

Medicare-related statutes.” Torretti v. Main Line Hosps.,

Inc., 580 F.3d 168, 174 (3d Cir. 2009); see also 42 U.S.C.

§1395hh(a)(1) (“The Secretary shall prescribe such

regulations as may be necessary to carry out the

administration of the insurance programs under this

subchapter.”); 42 U.S.C. § 1395w-26(b)(1) (“The Secretary

shall establish by regulation [ ] standards . . . for [MA]

organizations and plans consistent with, and to carry out, this

part.”). Thus, we must accord Chevron deference to

regulations promulgated by CMS.

28

CMS regulations state that an “MA organization will

exercise the same rights to recover from a primary plan,

entity, or individual that the Secretary exercises under the

MSP regulations in subparts B through D of part 411 of this

chapter.” 42 C.F.R. § 422.108. The plain language of this

regulation suggests that the Medicare Act treats MAOs the

same way it treats the Medicare Trust Fund for purposes of

recovery from any primary payer. In this circumstance, we

are bound to defer to the duly-promulgated regulation of

CMS.

Later CMS statements lend further support to this

understanding of the rule. In attempting to predict the savings

generated for MAOs as a result of their secondary payer

status, CMS “assume[d] a similar MSP rate for MA enrollees

as obtains in original Medicare.” Policy and Techinical

Changes to the Medicare Advantage and the Medicare

Prescription Drug Benefit Programs, 74 Fed. Reg. 54634,

54711 (proposed Oct. 22, 2009). If MAOs lacked the

recovery mechanism available to “original” Medicare, this

assumption would be facially invalid.

Additionally, a recent memorandum from CMS

specifically responded to decisions of the federal courts

holding that MAOs were not “able to take private action to

collection for [MSP] services under Federal law because they

have been limited to seeking remedy in State court.” Ctrs. for

Medicare & Medicaid Svcs., Dep’t of Health and Human

Svcs. Memorandum: Medicare Secondary Payment

Subrogation Rights (Dec. 5, 2011). This memorandum

clarified that CMS itself understood § 422.108 to assign

MAOs “the right (and responsibility) to collect” from primary

29

payers using the same procedures available to traditional

Medicare. 21 Id.

Glaxo argues that this regulation does not directly

interpret the MSP private cause of action because the

Secretary exercises the right to recover pursuant to §

1395y(b)(2)(B)(iii), which allows the United States to “bring

an action against any or all entities that are or were required

or responsible . . . to make payment . . . under a primary

plan.” The government may then collect double damages, “in

accordance with paragraph (3)(A),” the MSP private cause of

action. Id. Glaxo’s logic suggests that the regulation would

allow MAOs to exercise rights to recovery under the

government’s cause of action, contrary to the plain language

of the statute. However, given the cross-reference within §

1395y(b)(2)(B)(iii), the statute itself equates the United

States’ right to recover with a private party’s right to recover.

Thus, the regulation refers, ultimately, to the private cause of

action in § 1395y(b)(3)(A) and deference to it supports

Humana’s right to bring suit under that provision.

IV. CONCLUSION

The language of the MSP private cause of action is

broad and unrestricted and therefore allows any private

plaintiff with standing to bring an action. 22 Since private

21

The memorandum also noted that these same rights,

responsibilities, and procedures apply to Part D prescription

drug plan sponsors via 42 C.F.R. § 423.462.

22

Because we find that Humana had the right to sue in federal

court pursuant to § 1395y(b)(3)(A), we need not address its

30

health plans delivered Medicare services prior to the 1980

passage of the MSP Act, Congress was certainly aware that

private health plans might be interested private parties when it

drafted the cause of action, and it did not exclude them from

that provision’s ambit. That decision is logically consistent

because affording MAOs access to the private cause of action

for double damages comports with the broader policy goals of

the MA program. Further, even if we were to find the

statutory text to be ambiguous on the issue, Chevron

deference to CMS regulations, which grant MAOs parity with

traditional Medicare, would require us to find in favor of

Humana here.

For all these reasons, we will reverse the District

Court’s dismissal of the complaint, pursuant to Rule 12(b)(6),

and remand for further proceedings consistent with this

opinion.

argument that the District Court also had jurisdiction pursuant

to the Class Action Fairness Act, 28 U.S.C. § 1332(d).

31