FROM: The Rawlings Company, LLC DATE: July 2012 RE: Rights of Recovery for Medicare Advantage Organizations The purpose of this document is to communicate the position of The Rawlings Company, LLC, after consultation with legal counsel, regarding the subrogation/reimbursement rights in favor of Medicare Advantage organizations (“MAOs”). MAOs’ recovery rights under the Secondary Payer Act are identical to the recovery rights of Medicare, including the MAOs’ ability to pursue subrogation and reimbursement rights through a private cause of action. As outlined below, the practical implication of this analysis is that MAOs must be paid directly by the primary plan when matters settle. Failure to resolve MAOs’ claims at settlement will result in a private cause of action for double damages against the primary plan. On June 28, 2012, the Third Circuit Court of Appeals held that 42 U.S.C. 1395y(b)(3)(A) provides MAOs with “a private cause of action for damages…, 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” the MAO. In Re: Avandia Mktg.: Humana v. GlaxoSmithKline, 2012 U.S. App. LEXIS 13230 (3rd. Cir. Pa., June 28, 2012)at 13. The Court of Appeals further held that courts are bound to defer to CMS regulations, specifically 42 C.F.R. 108, which states: “The 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.” Id. at 28-29. In addition to relying on a statutory analysis and CMS issued regulations, the Court also relied on a December 5, 2011 memorandum issued by CMS, reiterating that Federal law establishes that MA plans exercise the same recovery rights as traditional Medicare exercises under the Medicare Secondary Payer act, including the right to file a reimbursement suit in Federal court. Citing 42 C.F.R. §422.108, the memorandum also states that recovery rights in favor of MA plans preempt conflicting state law and regulations. Humana is the first court of appeals decision to analyze MAOs’ recovery rights under the Medicare Secondary Payer Act, 42 U.S.C. 1395y(b)(2). The Court distinguished prior cases analyzing the recovery rights of MAOs (Care Choices HMO v. Engstrom, 330 F.3d 786 (6th Cir. 2003), Nott v. Aetna, 303 F.Supp. 2d 565 (E.D. Pa. 2004), Parra v. PacifiCare of Arizona, Inc., 2011 WL 1119736 (D. Ariz. Mar. 28, 2011), noting that none of those cases addressed the argument that the MAO could bring suit under the MSP private cause of action provision. Nor are New York or Arizona state court opinions addressing MAOs’ recovery rights relevant in light of Humana, because state law is preempted. U.S.C. §1395w-22(a)(4) provides that MA plans with subrogation/reimbursement rights “notwithstanding any other provision of law.” 42 C.F.R. §422.108 expressly states that the subrogation and reimbursement rights in favor of the MA plan are preemptive over conflicting state laws and regulations: “[T]he rules established under [42 CFR 422.108] shall supersede any state laws, regulations, contract requirements, or other standards that would otherwise apply to MA plans.” As stated above, the Humana Court was clear: courts are bound to defer to CMS issued regulations. To reiterate, MAOs’ recovery rights under the Secondary Payer Act are identical to the recovery rights of Medicare. Federal law thus provides that MAOs can pursue subrogation against any source of benefits defined as primary under the statutes and regulations even if it has already reimbursed the beneficiary. 42 U.S.C. §1395w-22(a)(4), 42 C.F.R. §422.108(f) Additionally, by virtue of exercising the same rights to recover from a primary plan, entity, or individual that Medicare exercises under the MSP regulations, MAOs have a direct right of action against any entity who made payment and any beneficiary or attorney who received payment and failed to reimburse Medicare for its payments. 42 C.F.R. 411.24(g).