False Claims Act Litigation via the Medicare Secondary Payer Act Rears its Ugly Head Again

The Federal False Claims Act (FCA) is in place to deter fraud upon the U.S. government. Arguably, whistleblowers are incentivized to bring such actions due to the potential to recover treble damages, or three times the actual damages, against the fraudulent entity if successful. Specifically, under the FCA, 31 U.S. Code Sections 3729, it is unlawful for any person to “knowingly make, use or cause to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government or knowingly conceal, or knowingly and improperly avoid or decrease an obligation to pay or transmit money or property to the Government.” The civil penalty associated with this is “not less than $5,000 and not more than $10,000 …. plus 3 times the amount of damages which the Government sustains because of the act of that person.” 

Regarding the intersection of Medicare Secondary Payer (MSP) with FCA litigation, many on the workers’ compensation, general liability, and no-fault primary payer side likely recall two cases entitled United States of America ex. rel. Dr. Kent Takemoto v. ACE et al. and United States, ex. rel. J. Michael Hayes v. Allstate Insurance Company, et al. As of January 2016, both Takemoto and Hayes’ actions were dismissed in the Western District of New York for failure to plead specificity in their claims.

In Hayes, the Relator, a plaintiff’s attorney, claimed that various insurance companies were shifting their obligations to reimburse the Medicare Trust Fund for conditional payments by using general boilerplate release language in settlement documents. This alleged shifting of the obligation was an action designed to “improperly avoid or decrease an obligation” under the FCA. Although a novel concept, the merits of the argument were not addressed since the amended complaint was dismissed by the U. S. District Court with prejudice on February 8, 2016.

In Takemoto, an executive that previously worked for an MSP vendor alleged that various liability insurance carriers and other companies refused to meet their MSP obligations since they declined his former company’s MSP compliance services. This case was dismissed with prejudice on January 20, 2016, finding that Takemoto’s amended complaint failed to allege plausible causes of action.

Another MSP FCA case that later came out in 2016 was Negron v. Progressive. In Negron, Relator alleged that Defendants violated both the Federal FCA as well as New Jersey’s FCA by allowing Medicare and Medicaid beneficiaries to elect a “health first” automobile insurance policy through an online application, which caused health care providers to submit claims to Medicare and Medicaid in violation of secondary payer laws. Not only did the case proceed on the merits at the federal FCA level, but it later continued on the New Jersey FCA state level. Negron certainly set forth significant implications for auto/no-fault and workers’ compensation payers. Arguably, the Negron case invoked the notion that insurers should ensure that Medicare beneficiaries do not enroll in plans where Medicare can be designated as the primary payer, and further should proactively identify Medicare beneficiaries to ensure that Medicare does not pay conditionally.

Fast Forward to 2021 and What’s Happening Now- MSP Recovery Files Qui Tam Whistleblower Lawsuit Against 315 Auto Insurers

Earlier this week on August 18, 2021, a press release was issued indicating that the qui tam complaint —under seal until now after being filed two years ago in U.S. District Court for the Eastern District of Michigan, Southern Division (“U.S. District Court”) on behalf of the U.S. government and multiple states (“Subject Jurisdictions”) — essentially seeks to recover billions of dollars for the federal and certain state governments from these auto insurers for claims they should have paid (but didn’t) because they deliberately filed false reports that failed to acknowledge their obligations as required by federal law.

Specifically, MSP Recovery is alleging that the auto insurers intentionally developed a scheme through the filing of known false reports. As primary payers are aware, MMSEA Section 111 Reporting requires insurers to file quarterly reports with the Centers for Medicare & Medicaid Services (“CMS”) when, in their capacity as “Primary Payers”, they have an obligation to pay or reimburse Medicare and the Subject Jurisdictions. The alleged scheme set forth by MSP Recovery in its lawsuit is alleged to have involved the intentional systematic filing of reports that failed to contain the insurers’ true responsibility of when debts were owed to the Medicare Trust Fund. The qui tam FCA Complaint has not yet been made available public for review. However, Sanderson Firm will provide updates as they arise on this case and as the Complaint is made available.

Attorney-client privilege is held in the highest regard for our clients at Sanderson Firm. Contact us if you have questions on MSP Best Practices and methodologies to avoid being the target of MSP FCA litigation.