Illinois Court Denies Motion to Dismiss and Motion to Strike or Deny Class Allegations Against MSP Recovery

Another shot was fired in the ongoing battle between MSP Recovery LLC and insurers. On July 13, 2018 an Illinois District Court denied two motions brought by State Farm, one to dismiss based on the Second Amended Complaint and a second to strike or deny class allegations.

As we recently reported, MSP Recovery was recently slapped on the wrist by the Illinois Court regarding standing in another action the law firm brought against State Farm. In Recovery v. State Farm Mut. Auto. Ins. Co., MSP Recovery appears to have regained a small win.

Attempting to build off of their recent win, State Farm alleged that MSP Recovery lacked standing, or in the alternative, that Plaintiffs have failed to state a claim upon which relief can be granted. More specifically, State Farm brought a factual challenge to standing, arguing that Plaintiffs did not hold valid assignments from Medicare Advantage Organizations.

State Farm disputed that Plaintiffs held valid assignments to pursue rights of recovery under the Medicare Secondary Payer Act (MSP) provisions. In support of this argument, Plaintiffs contended that Florida Healthcare Plus (FHP), an HMO with appropriate standing, assigned its right of recovery under the MSP to La Ley Recovery (LLR) which then assigned its rights of recovery to MSP Recovery. A second assignee, SummaCare, was also alleged to have assigned its right of reimbursement as well. However, the Court found ultimately this agreement could not confer standing as, interestingly, documentation assigning such right was signed after[1] the claim was filed. Regardless, the Court disagreed with State Farm.

Referring to a document titled “Recovery Agreement” the Court found intent by FHP to transfer claims under the MSP to La Ley Recovery (LLR) which in turn assigned its rights to MSP Recovery LLC. The Court did note that the agreement between FHP and LLR required any assignee must be approved by FHP. This was shown through settlement agreements between FHP and some of the Plaintiffs.

State Farm then attempted to argue that even if valid assignments existed, no injuries were suffered to the exemplar beneficiary in this matter. State Farm contended that they had notified CMS of the injury to a representative beneficiary and then paid a series of medical bills under that representative beneficiary’s car insurance policy which then exhausted the policy coverage limits. The Court noted that according to 42. C.F.R § 411.24(i), a “primary payer must reimburse Medicare even though it has already reimbursed the beneficiary or other party.” As payments were not made to FHP/LLR standing in the place of the Agency, the court found a question as to whether an injury was suffered. And as the court “need only find that one plaintiff has standing to permit the case to go forward” the motion was denied. As such, the Court ruled that Plaintiffs sufficiently alleged their claims and subsequently, their Motion to Dismiss based upon lack of standing was dismissed. This is specifically of note as typically when benefits have been exhausted, Medicare has not pursued recovery where a primary plan demonstrated that the policy had been exhausted.

The Court then turned to the argument that contract law would require dismissal. However, this position was unsuccessful as the Court held that 42 C.F.R § 411.24(e) could be enforced over State Farm’s contract argument and federal law supersedes state laws, regulations, contract requirements, or other standards that would otherwise apply to MAOs. In other words, a state cannot take away an MAO’s right under federal law and the MSP regulations to bill or to authorize providers and suppliers to bill for services for which Medicare is not the primary payer. This is a bit startling as in many similar cases the argument of state contract was wholly separate from the MSP Private Cause of Action provision. However, this departure in the District Court of Illinois could be the presage to the winds of change in these cases going forward.

Finally, the Court found State Farm’s Motion to Strike Class Allegations as premature. As a result, Recovery v. State Farm will continue to be litigated.

In summary, the ongoing rollercoaster that is MSP/MAO litigation is continuously keeping us on our toes. One case may provide victory for the recovery agents and one may not, but it is of the utmost importance to keep abreast of the constant litigation. Gordon & Rees will continue to vigilantly follow these cases and report accordingly.

Should you have any questions regarding the above or need any Medicare compliance assistance, please do not hesitate to contact Gordon & Rees Medicare Compliance Group. 

[1] Constitutional standing must exist at the time the lawsuit is filed.