Illinois District Court Addresses Medicare Section 111 Reporting Obligations for Guaranty Funds; Dismisses Declaratory Action

A recent decision out of the U.S. District Court for the Northern District of Illinois, Eastern Division entitled Ill. Ins. Guar. Fund v. Cochran, 2021 U.S. Dist. LEXIS 78452 (April 23, 2021) illuminates the Centers for Medicare & Medicaid Services (CMS) view on the applicability of Medicare Secondary Payer (MSP)/MMSEA Section 111 reporting obligations as it pertains to workers’ compensation guaranty funds. Generally, a state guaranty fund is administered by a U.S. state to protect policyholders if an insurance company defaults on benefit payments or becomes insolvent. 

The Plaintiff in this action was Illinois Insurance Guaranty Fund (IIGF) which brought a three-count complaint against defendants Norris Cochran, in his official capacity as Acting Secretary of the U.S. Department of Health and Human Services (DHHS), and CMS. IIGF sought a declaration that it was not a “primary plan” or “applicable plan” under the MSP, and accordingly that a statutory reporting requirement should not apply. IIGF was created by the Illinois legislature in 1971, and its purpose is “to provide limited financial assistance to insurers and claimants in the event their insurers become insolvent.” IIGF pays “covered claims” for an insolvent insurer and is “deemed the insolvent company for those claims. In that respect, it is considered a source of last resort.

For background, it is important to understand a previous court decision (CIGA) which has created some confusion amongst Guaranty Funds. In 2019, the Ninth Circuit Court of Appeal issued an opinion regarding MSP obligations of the California Insurance Guarantee Association ("CIGA"), an entity like plaintiff. Cal. Ins. Guarantee Ass'n v. Azar, 940 F.3d 1061 (9th Cir. 2019). The Ninth Circuit concluded that CIGA was not a "primary plan" for MSP reimbursement purposes.  After the Ninth Circuit's decision, CIGA requested confirmation that CMS would not hold it "responsible for compliance with reporting as mandated by Section 111." CMS responded that, in keeping with the Ninth Circuit decision, CIGA was not required to perform Section 111 reporting for payments made on behalf of insolvent member entities based in California.

Noting the CIGA decision, on June 23, 2020, IIGF wrote to CMS "requesting a written opinion that IIGF, like CIGA, is not a 'primary plan' or 'applicable plan' under the MSP, such that IIGF need not continue Section 111 reporting." In a response dated August 12, 2020, the Director of the Office of Financial Management, which is a sub-component of CMS, stated: "We do not agree that the CIGA decision applies" and therefore declined to render the requested opinion. IIGF then filed this lawsuit.

IIGF brought three (3) claims for declaratory relief arising from the August 12, 2020 letter. First, IIGF sought a declaration that it is not a primary plan or applicable plan subject to Section 111 reporting. Second, IIGF alleged that the August 12, 2020 letter is a final agency action that should be set aside under the Administrative Procedure Act ("APA"), 5 U.S.C. § 706. Lastly, IIGF sought judicial review and reversal of CMS's alleged denial of IIGF's "claim" set forth in IIGF’s June 23, 2020, letter, under 42 U.S.C. § 405 (g) and § 1395ii.

IIGF alleged subject matter jurisdiction under: (1) 28 U.S.C. § 1331, federal question jurisdiction; (2) 28 U.S.C. §§ 2201-02, the Declaratory Judgment Act; (3) 5 U.S.C. § 702, the APA; and (4) various provisions of the Medicare Act, including 42 U.S.C. §§ 405(g), 1395ii, and 1395y(b). However, the government moved for dismissal of IIGF’s claims on two grounds: 1) lack of subject matter jurisdiction; and 2) lack of standing.

The court sided with the government on both counts and dismissed IIGF’s claims. Regarding subject matter jurisdiction, IIGF had not challenged its status as a “primary payer” in the context of a specific administrative claim for payment. Rather, IIGF only provided a letter requesting an opinion in the abstract. IIGF’s June 23, 2020 letter cannot be considered a “concrete claim for reimbursement” that satisfies Medicare’s presentment requirements. Further, IIGF failed to exhaust administrative remedies as to a determination regarding Section 111 reporting requirements which must be made during administrative review of a specific claim for recovery.

Regarding lack of standing, the Court found that IIGF failed to demonstrate an injury-in-fact. Rather, IIGF alleged a risk of potential injury at some undefined point in the future, which did not create standing. Although IIGF alleged that it could potentially face penalties for failing to comply with Section 111 requirements, and further that “Section 111 reporting is a burdensome drain on IIGF’s resources,” the Court argued that the mere potential of a penalty and burdens of compliance was not enough to constitute an injury-in-fact. For those reasons, the government’s motion to dismiss was granted without prejudice.

Commentary: Based upon this decision, should IIGF or another guaranty fund seek to challenge its primary plan/applicable plan status as a responsible reporting entity or as to any MSP obligations, to have standing the guaranty fund would need to challenge its responsibility via a dispute/appeal to an alleged conditional payment demand/notice from CMS. However, more than likely, based upon CMS’ view that the CIGA decision is only applicable to CIGA, CMS’ contractors/the dispute process would likely result in the same outcome finding the guaranty fund to still be responsible for the payments under the MSP. IIGF or other guaranty funds would likely need to continue to escalate the conditional payment dispute through the process to the Administrative Law Judge (ALJ) or District Court level for a deep dive as to the applicability of the MSP/Section 111 reporting obligations to guaranty funds.

As it currently stands however, guaranty funds and other “applicable plans” under the MSP should continue to report claims/settlements as required by MMSEA Section 111. As this District Court noted, CMS is currently working a final rule on how and when it may impose penalties for noncompliance with Section 111 reporting obligations. The text of the proposed NPRM which comment period closed on April 20, 2020 can be found here.

For questions on this decision or MMSEA Section 111/ MSP obligations, please contact us.