NEGRON v. PROGRESSIVE CASUALTY INSURANCE COMPANY et al
Filing
25
OPINION. Signed by Judge Noel L. Hillman on 3/1/2016. (dmr)
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
ELIZABETH NEGRON,
Relator/Plaintiff,
v.
PROGRESSIVE CASUALTY
INSURANCE CO., et al.,
Defendants.
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Civ. No. 14-577(NLH/KMW)
OPINION
APPEARANCES:
Jeremy Edward Abay
Sacks Weston Diamond, LLC
1845 Walnut Street
Suite 1600
Philadelphia, PA 19103
Counsel for Relator/Plaintiff
Carl D. Poplar
1010 Kings Highway South
Building Two
Cherry Hill, NJ 08034
Counsel for Defendant Progressive Casualty Insurance
Company and Progressive Garden State Insurance Company
Michael K. Loucks, pro hac vice
Kara E. Fay, pro hac vice
Skadden, Arps, Slate, Meagher & Flom, LLP
500 Boylston Street
Boston, Massachusetts 02116
Counsel for Defendant Progressive Casualty Insurance
Company and Progressive Garden State Insurance Company
1
Bernard John Cooney
US Attorney's Office
970 Broad Street
Suite 700
Newark, NJ 07102
Counsel for Defendant United States of America as an
Interested Party
HILLMAN, District Judge:
There are many unique aspects to insurance law.
This case
is no exception as it appears at first glance to be a race
between two powerful parties to determine who gets to come in
second place.
Relator Elizabeth Negron brings this qui tam action
pursuant to the False Claims Act, 31 U.S.C. § 3729 et seq. and
the False Claims Act of the State of New Jersey, N.J.S.A.
2A:32C-1 et seq.1
Relator alleges Defendants Progressive
Casualty Insurance Company and Progressive Garden State
Insurance Company allowed Medicare and Medicaid beneficiaries to
elect a “health first” automobile insurance policy in an online
1
The Federal False Claims Act prohibits the submission of
false or fraudulent claims for payment to the United States and
authorizes qui tam actions, by which private individuals may
bring a lawsuit on behalf of the Government in exchange for the
right to retain a portion of any resulting damages award.
Schindler Elevator Corp. v. U.S. ex rel. Kirk, 563 U.S. 401, 131
S. Ct. 1885, 1889, 179 L. Ed. 2d 825 (2011); U.S. ex rel.
Wilkins v. United Health Group, Inc., 659 F.3d 295, 298 n.1 (3d
Cir. 2011).
2
application which caused health care providers to submit medical
claims to Medicare and Medicaid in violation of secondary payer
laws.
Before the Court is a motion to dismiss Relator’s
complaint pursuant to Fed. R. Civ. P. 12(b)(6) filed by
Defendants.
The Court has considered the parties’ submissions,
and for the reasons that follow, Defendants’ motion will be
denied.
I.
BACKGROUND2
A. The Medicare and Medicaid Secondary Payer Act
Prior to 1980, Medicare, a joint federal and state program,
generally paid for medical services for beneficiaries regardless
of whether the beneficiary was covered by another health plan.
Fanning v. United States, 346 F.3d 386, 388 (3d Cir. 2003).
The
Medicare Secondary Payer (“MSP”) Act was enacted to cut health
costs and lower Medicare disbursements by assigning primary
responsibility for medical bills of Medicare recipients to
private health plans, where such plans exist.
Id. at 388-90.
The private plans are thus considered “primary” under the MSP
Act and Medicare serves as the secondary payer only when the
2
On January 28, 2014 Relator filed this qui tam action under
seal. On March 11, 2015 the United States declined to intervene
and the Court unsealed the complaint on March 17, 2015. On
August 3, 2015, the State of New Jersey declined to intervene.
3
primary payer does not provide coverage.
Id. at 390.
Congress enacted two provisions to support this goal:
First, the MSP bars Medicare payments where “payment
has already been made or can reasonably be expected to
be made promptly (as determined in accordance with
regulations)” by a primary plan. 42 U.S.C. §
1395y(b)(2)(A) (parenthetical in original). “Prompt”
payment is defined in the applicable regulations as
payment made within 120 days of either the date on
which care was provided or when the claim was filed
with the insurer, whichever is earlier. See 42 C.F.R.
§§ 411.21, 411.50. The MSP defines a “primary plan”
as “a workmen's compensation law or plan, an
automobile or liability insurance policy or plan
(including a self-insured plan) or no fault insurance
[.]” 42 U.S.C. § 1395y(b)(2)(A)(ii) (parenthetical in
original). This provision “is intended to keep the
government from paying a medical bill where it is
clear an insurance company will pay instead.”
Evanston Hosp. v. Hauck, 1 F.3d 540, 544 (7th
Cir.1993) (citation omitted).
Second, the MSP provides that when Medicare makes a
payment that a primary plan was responsible for, the
payment is merely conditional and Medicare is entitled
to reimbursement for it. 42 U.S.C. § 1395(y)(b)(2)(B);
Blue Cross and Blue Shield of Texas v. Shalala, 995
F.2d 70, 73 (5th Cir. 1993). Section 1395y(b)(2)(B)
provides:
Any payment under this subchapter with respect to
any item or service to which subparagraph (A)
applies shall be conditioned on reimbursement to
the appropriate Trust Fund established by this
subchapter when notice or other information is
received that payment for such item or service
has been or could be made under such
subparagraph.
42 U.S.C. § 1395y(b)(2)(B)(i). Medicare payments are
subject to reimbursement to the appropriate Medicare
Trust Fund once the government receives notice that a
4
third-party payment has been or could be made with
respect to the same item or service. Id.
Id. at 839.
In short, Medicare is the secondary payer where a
primary plan exists, including an automobile insurance plan.
U.S.C. § 1395y(b)(2)(A)(ii).
42
Medicare will not pay for any item
or service for which “payment has been made, or can reasonably
be expected to be made” by a primary plan.
Id.
The MSP Act
allows Medicare to conditionally pay medical expenses if the
primary plan does not pay promptly, but is later entitled to
reimbursement if the primary plan is responsible.
42 U.S.C. §
1395y(b)(2)(B)(i)-(ii).
The Federal Medicaid statute also has secondary payer
requirements.
42 U.S.C. §§ 1396k(a)(1), 1396a(a)(25).
B. New Jersey Insurance Regulations
Pursuant to N.J.A.C. 11:3–14.5, for policies issued after
January 1, 1991, automobile insurers must give policyholders the
option of using their personal health insurance as the primary
payer of medical bills resulting from a car accident.
The
regulation further states that policyholders who receive health
insurance exclusively through Medicare or Medicaid are
ineligible for this option.
Id.; see also New Jersey Auto
Insurance Buyer’s Guide, New Jersey Department of Banking and
5
Insurance, available at https://www.njm.com/AutoBuyersGuide/
Personal-Injury-Protection.htm (“Cost savings can also be
achieved by using your own health insurance as a primary source
of coverage in the case of injury related to an auto accident .
. . MEDICARE and MEDICAID cannot be used for the Health Care
Primary option.”).
This appears to be designed to make New
Jersey law consistent with federal law in that under the MSP Act
Medicare and Medicaid can never be the primary payer where
secondary insurance exists.
C.
Factual Background3
While purchasing an auto insurance policy online at
Progressive.com in December 2009, Relator had the choice of
3
On February 25, 2015, Relator filed a putative class action
against Defendants in the Superior Court of New Jersey Law
Division. In that action under the same facts, Relator alleges
violations of the New Jersey Consumer Fraud Act and New Jersey
Truth-in-Consumer Contract, Warranty and Notice Act as well as
fraud and contract claims. On November 5, 2015, the superior
court dismissed Relator’s complaint. See Lopez-Negron v.
Progressive Casualty Insurance Company, No. CAM-779-15, slip op.
(N.J. Super. Ct. Nov. 5, 2010). The court found that Relator
had not alleged that Defendants violated any New Jersey statutes
or administrative regulations. Id. at 9. Additionally, the
court found that although Defendants violated N.J.A.C. 11:315.7(a), which requires insurers to obtain coverage selection
forms from policyholders, this violation did not constitute a
per se violation of the Consumer Fraud Act. Id. at 11. The
opinion of the superior court, however, did not analyze or
contemplate purported violations of federal Medicare secondary
payer laws.
6
selecting a health first policy or a Personal Injury Protection
(“PIP”) primary insurer policy.
Under a health first policy, a
policyholder’s private health insurer is responsible for medical
bills resulting from an auto accident.
As we have noted and
will further explain infra, Medicare and Medicaid recipients are
not eligible for this type of coverage.
Under the more
expensive PIP primary insurer policy, the auto insurer assumes
this medical coverage as the primary payer.
The Progressive online application Relator used had a
question mark next to each option which explained the coverage.4
The explanation for the section of “PIP primary insurer” stated:
What does this cover?
This option determines whether Progressive Direct will
be your primary or secondary insurer for PIP Medical
Coverage.
What does it pay?
If you select “Yes” to the PIP Primary Insurer
4
A court in reviewing a Rule 12(b)(6) motion must only consider
the facts alleged in the pleadings, the documents attached
thereto as exhibits, and matters of judicial notice. S. Cross
Overseas Agencies, Inc. v. Kwong Shipping Grp. Ltd., 181 F.3d
410, 426 (3d Cir. 1999). A court may consider, however, “an
undisputedly authentic document that a defendant attaches as an
exhibit to a motion to dismiss if the plaintiff's claims are
based on the document.” Pension Benefit Guar. Corp. v. White
Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993). Here,
the parties do not dispute the authenticity of Defendants’
application, screenshotted and attached as an exhibit to its
motion to dismiss. This application is specifically referenced
and quoted in Relator’s complaint and may be properly considered
on this motion.
7
question, Progressive Direct will be the primary
insurer for your PIP Medical coverage. In the event
you are injured in an automobile accident, Progressive
Direct, not your health insurer, will be primarily
responsible for your medical bills. You should
selected “Yes” if:
One or more drivers listed on the policy are on
MEDICARE or MEDICAID
One or more drivers on the policy are on active
military duty
One or more drivers listed on the policy have no
health insurance coverage
If you selected “No” to the PIP Primary Insurer
question, your health insurer will be the primary
insurer for your PIP Medical coverage, and
Progressive Direct will be secondary. In the event
you are injured in an automobile accident, your
health insurer will be primarily responsible for
your medical bills. Please note that many health
insurers will NOT pay medical expenses associate
with injuries sustained in an automobile accident.
If you are uncertain about the scope of your health
insurance coverage, please check with your health
insurer. Please notify Progressive if your health
insurance status changes in the future.
(Loucks Decl., Ex. A. App. at 13-14 (emphasis in original);
Compl. ¶¶ 81-82.)
Using this online application, Relator selected a health
first policy even though she was a Medicare recipient.
On May
14, 2010, while she was covered by this policy, Relator was
involved in a motor vehicle accident and incurred medical
expenses.
When her health care providers submitted bills to
Progressive, Progressive’s claims adjuster sent denial letters
8
to Relator’s medical providers which explained that Relator had
selected a health first policy and instructed that all medical
bills should be submitted to her primary health insurer, which
for Relator was Medicare.
Two of Relator’s four providers
allegedly submitted medical bills to Medicare for reimbursement:
Diagnostic Imaging, Inc. and City of Philadelphia ambulatory
services.5 Medicare denied one claim as untimely but
conditionally paid Diagnostic’s claim which was later reimbursed
by Progressive.
II.
JURISDICTION
This Court has jurisdiction over Relator’s federal claims
under 28 U.S.C. § 1331, and may exercise supplemental
jurisdiction over Relator’s related state law claim under 28
U.S.C. § 1367.
III. STANDARDS OF LAW
A.
Motion to Dismiss
When considering a motion to dismiss a complaint for
failure to state a claim upon which relief can be granted
pursuant to Rule 12(b)(6), a court must accept all allegations
in the complaint as true and view them in the light most
5 It appears two other providers did not submit bills to
Medicare, Oxford Healthcare and Aria Health System.
9
favorable to the plaintiff.
347, 350 (3d Cir. 2005).
See Evancho v. Fisher, 423 F.3d
A complaint must contain “a short and
plain statement of the claim showing that the pleader is
entitled to relief.”
Fed. R. Civ. P. 8(a)(2).
A district court, in weighing a motion to dismiss, asks
“‘not whether a plaintiff will ultimately prevail but whether
the claimant is entitled to offer evidence to support the
claims[.]’”
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 563 n.8
(2007) (quoting Scheuer v. Rhoades, 416 U.S. 232, 236 (1974));
see also Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1953
(2009) (“Our decision in Twombly expounded the pleading standard
for ‘all civil actions[.]’”) (citation omitted).
The Third
Circuit has instructed district courts to conduct a two-part
analysis in deciding a motion to dismiss.
Fowler v. UPMC
Shadyside, 578 F.3d 203, 210 (3d Cir. 2009).
First, a district court “must accept all of the complaint’s
well-pleaded facts as true, but may disregard any legal
conclusions.”
Fowler, 578 F.3d at 210-11 (citing Iqbal, 129 S.
Ct. at 1949).
Second, a district court must “determine whether
the facts alleged in the complaint are sufficient to show that
the plaintiff has a ‘plausible claim for relief.’”
(quoting Iqbal, 129 S. Ct. at 1950).
10
Id. at 211
“[A] complaint must do
more than allege the plaintiff’s entitlement to relief.”
Id.
“‘[W]here the well-pleaded facts do not permit the court to
infer more than the mere possibility of misconduct, the
complaint has alleged – but it has not ‘show[n]’ - ‘that the
pleader is entitled to relief.’’”
Id. (quoting Iqbal, 129 S.
Ct. at 1949); see also Phillips v. County of Allegheny, 515 F.3d
224, 234 (3d Cir. 2008) (“The Supreme Court’s Twombly
formulation of the pleading standard can be summed up thus:
‘stating . . . a claim requires a complaint with enough factual
matter (taken as true) to suggest’ the required element.
This
‘does not impose a probability requirement at the pleading
stage,’ but instead ‘simply calls for enough facts to raise a
reasonable expectation that discovery will reveal evidence of’
the necessary element.”) (quoting Twombly, 550 U.S. at 556).
A court need not credit “bald assertions” or “legal
conclusions” in a complaint when deciding a motion to dismiss.
In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1429–
30 (3d Cir. 1997).
The defendant has the burden of
demonstrating that no claim has been presented.
Hedges v.
United States, 404 F.3d 744, 750 (3d Cir. 2005) (citing Kehr
Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1409 (3d Cir.
1991)).
11
B.
Rule 9(b)
The Third Circuit has held that “plaintiffs must plead FCA
claims with particularity in accordance with Rule 9(b).”
U.S.
ex rel. Wilkins v. United Health Group, Inc., 659 F.3d 295, 301
n.9 (3d Cir. 2011) (citing U.S. ex rel. LaCorte v. SmithKline
Beecham Clinical Labs., 149 F.3d 227, 234 (3d Cir. 1998)).
Fed. R. Civ. P. 9(b) states: “[i]n alleging fraud or mistake, a
party must state with particularity the circumstances
constituting fraud or mistake.
Malice, intent, knowledge, and
other conditions of a person’s mind may be alleged generally.”
See Craftmatic Securities Litigation v. Kraftsow, 890 F.2d 628,
645 (3d Cir. 1989) (“Fed. R. Civ. P. 9(b) requires plaintiffs to
plead the circumstances of the alleged fraud with particularity
to ensure that defendants are placed on notice of the ‘precise
misconduct with which they are charged, and to safeguard
defendants against spurious charges’ of fraud.”).
The Third Circuit made clear, however, that at the pleading
stage, Rule 9(b)’s particularity requirement does not require a
plaintiff to identify a specific claim for payment to state a
claim for relief.
Wilkins, 659 F.3d at 308.
Rather, the Third
Circuit suggested that a plaintiff should “identify
representative examples of specific false claims that a
12
defendant made to the Government in order to plead an FCA claim
properly.”
Id. (remanding the issue to the District Court).
Courts in this District have found that a plaintiff may satisfy
that requirement in one of two ways: (1) “by pleading the date,
place or time of the fraud;” or (2) using an “alternative means
of injecting precision and some measure of substantiation into
their allegations of fraud.”
U.S. ex rel. Wilkins v. United
Health Group, Inc., No. 08–3425, 2011 WL 6719139, at *2 (D.N.J.
Dec. 20, 2011) (on remand from the Third Circuit) (citing Lum v.
Bank of Am., 361 F.3d 217, 223–24 (3d Cir. 2004)).
In Foglia v. Renal Ventures Management, LLC, 754 F.3d 153,
155–56 (3d Cir. 2014), the Third Circuit explained that the
“Fourth, Sixth, Eighth, and Eleventh Circuits have held that a
plaintiff must show ‘representative samples’ of the alleged
fraudulent conduct, specifying the time, place, and content of
the acts and the identity of the actors,” while the “First,
Fifth, and Ninth Circuits, however, have taken a more nuanced
reading of the heightened pleading requirements of Rule 9(b),
holding that it is sufficient for a plaintiff to allege
particular details of a scheme to submit false claims paired
with reliable indicia that lead to a strong inference that
claims were actually submitted.”
13
Foglia, 754 F.3d at 155–56
(citations and quotations omitted).
Considering that “the
purpose of Rule 9(b) is to provide defendants with fair notice
of the plaintiffs' claims,” the Third Circuit adopted “the more
‘nuanced’ approach followed by the First, Fifth, and Ninth
Circuits.”
Id. at 156–57 (citations and quotations omitted).
Thus, in order to survive a motion to dismiss and satisfy
the standards of Rule 9(b), a plaintiff asserting claims under
the FCA “must provide particular details of a scheme to submit
false claims paired with reliable indicia that lead to a strong
inference that claims were actually submitted.”
(citations omitted).
Id. at 158–59
“Describing a mere opportunity for fraud
will not suffice,” and, instead, a plaintiff must provide
“sufficient facts to establish a plausible ground for relief.”
Id. at 159 (citations omitted).
IV. DISCUSSION
A.
The Federal False Claims Act
To state a claim under the FCA, a plaintiff must show that:
“(1) the defendant presented or caused to be presented to an
agent of the United States a claim for payment; (2) the claim
was false or fraudulent; and (3) the defendant knew the claim
was false or fraudulent.”
Hutchins v. Wilentz, Goldman &
Spitzer, 253 F.3d 176, 182 (3d Cir. 2001).
14
“The False Claims
Act seeks to redress fraudulent activity which attempts to or
actually causes economic loss to the United States government.”
Id. at 184.
Accordingly, liability does not attach unless the
claim would result in economic loss to the United States
government.
Id.
Defendants assert Relator has not sufficiently pled two of
the three prongs of an FCA claim: that the claims submitted were
false or fraudulent and were submitted knowingly.6
1.
Prong Two: The Claim was False or Fraudulent
Relator alleges that the claims Defendants caused her
health providers to submit to Medicare were false.
Specifically, Relator alleges Defendants denied the claims of
Relator’s health providers (Compl. ¶¶ 101-04) and instructed the
health providers to bill her health insurer (Compl. ¶¶ 104,
118), which caused her health providers to submit their bills to
Medicare whereby they implicitly certified their compliance with
Medicare secondary payer laws (Compl. ¶¶ 115, 120-31).
Defendants argue Relator’s complaint fails to allege that the
6
For the sake of completeness, the Court finds Relator has
sufficiently pled the first prong of an FCA claim, that
Defendants presented a claim or caused a claim to be presented
by alleging that Defendants “instructed” Relator’s medical
providers to submit claims to Relator’s health insurer. (Compl.
¶ 104.)
15
claims were false or fraudulent, that Relator’s claims could not
be conditionally paid by Medicare, or that the claims resulted
in a loss to the government.
“There are two categories of false claims under the FCA: a
factually false claim and a legally false claim.”
U.S. ex rel.
Wilkins v. United Health Grp., Inc., 659 F.3d 295, 305 (3d Cir.
2011).
“A claim is factually false when the claimant
misrepresents what goods or services that it provided to the
Government and a claim is legally false when the claimant
knowingly falsely certifies that it has complied with a statute
or regulation the compliance with which is a condition for
Government payment.”
Id. (citation omitted).
Legally false claims are based on a false certification
theory of liability and may be express or implied.
Rodriquez v.
Our Lady of Lourdes Med. Ctr., 552 F.3d 297, 303 (3d Cir. 2008),
overruled in part on other grounds by United States ex rel.
Eisenstein v. City of New York, 556 U.S. 928 (2009).
“Under the
‘express false certification’ theory, an entity is liable if it
falsely certifies that it is in compliance with regulations
which are prerequisites to Government payment in connection with
the claim for payment of federal funds.”
U.S. ex rel. Wilkins
v. United Health Grp., Inc., 659 F.3d 295, 305 (3d Cir. 2011)
16
(citing Rodriguez, 552 F.3d at 303).
The implied false certification theory, in contrast, is
premised “on the notion that the act of submitting a claim for
reimbursement itself implies compliance with governing federal
rules that are a precondition to payment.”
omitted).
Id. at 305 (citation
“[U]nder this theory a plaintiff must show that if
the Government had been aware of the defendant’s violations of
the Medicare laws and regulations that are the bases of a
plaintiff’s FCA claims, it would not have paid the defendant’s
claims.”
Id. at 307.
Here, Relator alleges her claims under the implied false
certification theory - that Defendants caused a claim to be
submitted to Medicare which violated the Medicare Secondary
Payer Act.
Specifically, Relator alleges Defendants denied
Relator’s medical bills and instructed Relator’s health care
providers to bill her health insurer as the primary payer.
Relator further alleges that as a result of Defendants’
instructions, Relator’s health care providers submitted claims
to Medicare, implicitly certifying their compliance with
Medicare secondary payer laws which were a precondition for
payment.
Based on these allegations, the Court finds that
Relator has sufficiently pled that Defendants submitted a false
17
claim.
Relator has stated a claim that Defendants violated the
Medicare Secondary Payer Act which prohibits payment by Medicare
as a primary payer where payment “has been made, or can
reasonably expected to be paid [by] . . . an automobile []
insurance plan or policy or under no fault insurance.”
U.S.C. § 1395y(b)(2)(A).
42
In this case, Medicare was prohibited
from acting as the primary payer because other insurance
existed.7
42 U.S.C. § 1395y(b)(2)(A)(ii); see also Medicare
Secondary Payer (MSP) Manual, Chapter 2 § 60 (implemented May 8,
2006), available at https://www.cms.gov/Regulations-andGuidance/Guidance/Manuals (“Medicare is secondary to no-fault
insurance even if State law or a private contract of insurance
stipulates that its benefits are secondary to Medicare benefits
or otherwise limits its payments to Medicare beneficiaries.”).
By remaining ignorant of the fact that Relator did not have
qualifying health insurance (i.e. a non-Medicare/Medicaid health
insurance policy) for a health first policy, Relator’s auto
insurer caused Realtor’s health providers to treat Medicare as
7
Additionally, Relator sufficiently alleged in her complaint
that Defendants violated New Jersey auto insurance regulations
(see N.J.S.A. 11:3-14.5), which also prohibit Medicare from
serving as the primary health insurer of health first policies.
18
the primary payer of Relator’s auto-related medical costs.
However, Medicare never was, nor by law could it ever be, a
primary payer given the existence of Relator’s no-fault policy.
Stated differently, Defendants caused Realtor’s health providers
to submit bills to Medicare that Medicare could never be
responsible for on a permanent basis.
Importantly here, and also for purposes of intent as we
discuss infra, Defendants had at least three opportunities to
prevent the sale of health first policies to Medicare and
Medicaid enrollees or, even if such sales had occurred, to
prevent the submission of claims to Medicare and Medicaid.
First, Defendants could have constructed their online
application to prevent Medicare and Medicaid enrollees from
purchasing health first policies.
This could have been
accomplished through pop-up warnings, by requiring applicants to
disclose the name of their health insurance carrier or provide a
certification that they are not Medicare/Medicaid recipients, or
by any number of other modifications to the online application
process.
Second, it seems reasonable to assume that the online
application process resulted in further post-application
underwriting review and further communications between the
19
Defendants and purchasers of health first policies such as the
issuance of a formal policy and declarations, the issuance of
permanent insurance cards, premium notices, and renewal
processes.
Each of these communications or interactions
presented a separate opportunity to ensure that health first
policies were not held by Medicare/Medicaid enrollees.
Lastly, both sides describe a claims adjustment process
which involved a real human being.
Yet, nowhere is it explained
why the adjustor did not ask the health providers submitting the
claims the simple question of what other insurance Realtor
presented to the health care provider when the services were
rendered.
Further, no reason is given why that same simple
question was not asked of Realtor at the beginning of the claims
adjustment process.
Patients of health care providers are
routinely asked for proof of insurance and insurance companies
routinely ask insureds to provide information about other
available and potentially primary or overlapping coverage.
Health care providers rarely miss an opportunity to get paid for
their services, and as we have noted, insurance companies rarely
miss the opportunity to come in second when it comes time to
pay.
Indeed, it would seem, whether employer-motivated or not,
20
that surveying potentially responsible insurance policies and
opining on, or determining, layers of priority is not only a
good business practice but an important part of a claims
adjustor’s job description.
To paraphrase a competitor’s
television advertisements: “That’s what you do.”
While the Court agrees that Relator has not pointed to
explicit language in the Medicare Secondary Payer Act which
states, “auto insurers must prevent persons insured by Medicare
from enrolling in health first policies which cause Medicare to
act as the primary payer,” the fact that such events apparently
occur and apparently so easily would have the effect if proven
of subverting the entire Medicare Secondary Payer statutory
scheme envisioned by Congress.
Regulated entities such as insurance companies undoubtedly
understand that the purpose of the Medicare (and Medicaid)
Secondary Payer laws is to prohibit those government-funded
programs from acting as the primary payer where other coverage
is available, such as an auto insurance policy.
It makes no
sense, adds unnecessary costs, and increases the risk of
administrative failure, for the claims process to figure that
out at the end rather than the beginning.
Simply put, the
Defendants are asking the Court to ignore the forest for the
21
trees.
The parties dispute the similarity between this case and a
Ninth Circuit case, U.S. ex rel. Mason v. State Farm Mut. Auto.
Ins. Co., 398 F. App'x 233 (9th Cir. 2010).
In Mason, the
plaintiff, a Medicare beneficiary, was involved in an auto
accident and underwent back surgery.
Id.
The plaintiff’s
primary insurer, State Farm, denied the claim for back surgery
because it found the injury was a pre-existing condition and not
covered under the policy.
Id. at 235.
paid the bill as a secondary payer.
As a result, Medicare
Citing 42 U.S.C. §
1395y(b)(2)(B)(i), the Ninth Circuit found that Medicare had
statutorily created liability as a secondary payer because when
State Farm denied the claim it did not appear they would make
payment within 120 days of the service.
Id.
The court thus
found that State Farm could not be liable under the FCA because
it had no obligation to reimburse Medicare at the time the claim
was submitted.
Id.
The Court agrees with Relator that Mason is distinguishable
for two reasons.
First, in Mason there was no dispute that
State Farm was the primary payer, while here Relator enrolled in
a health first policy whereby Relator’s health insurer,
Medicare, was to be the primary payer.
22
Second, State Farm’s
basis for denying the claim was a pre-existing condition.
Here,
Relator alleges Defendants did not have a legitimate basis for
denying the claim and kept deliberately ignorant of their
obligation to be primary payers.
Relator argues a more analogous case is U.S. ex rel.
Drescher v. Highmark, Inc., 305 F. Supp. 2d 451 (E.D. Pa. 2004).
In Highmark, the United States alleged that Highmark, a private
insurer, improperly paid MSP claims as the secondary payer when
it should have paid them as a primary payer.
Id.
The court
found that the United States properly stated a claim because it
alleged that Medicare paid claims that should have been paid by
Highmark.
Id. at 461.
Similarly, in this case, Relator alleges Medicare
improperly paid her medical bills as the primary payer.
Defendants argue Highmark is distinguishable because there the
plaintiff showed that the insurer knew it was not properly
processing MSP claims where here, Defendants did not know of
Relator’s Medicare status until after the claims were submitted.
The theory, or one theory, of Relator’s case, however, is that
Defendants deliberately remained ignorant of Relator’s status in
order to “palm off” claims to Medicare.
As in Highmark, Relator
alleges that as a result of Defendants’ “knowing dereliction of
23
its obligation to pay certain claims or pay as the primary
payer, claims that should have been submitted to [Defendants]
were ultimately presented to and paid by Medicare.”
Highmark,
305 F. Supp. 2d at 4578; see also U.S. ex rel. Sharp v. E.
Oklahoma Orthopedic Ctr., No. 05-572, 2009 WL 499375, at *18
(N.D. Okla. Feb. 27, 2009) (“[Highmark] found that an alleged
intentional violation of the MSP regulations stated a claim for
relief under the FCA, and the Court agrees with such
analysis.”).
Additionally, the Court rejects Defendants’ arguments that
Medicare permissibly paid the claims pursuant to Medicare’s
conditional payment provision and that the claims did not result
in a loss to the government.
The conditional payment provision
of the MSP Act permits Medicare to make payment with respect to
an item or service if a primary plan “has not made or cannot
reasonably be expected to make payment with respect to such item
or service promptly (as determined in accordance with
regulations).”
42 U.S.C. § 1395y(b)(2)(B)(i).
The conditional
payment provision permits Medicare to make a conditional
8
While the court in Highmark made these findings when analyzing
the “false or fraudulent” prong of pleading an FCA claim, the
same analysis is likewise helpful under prong three which
concerns whether Defendants knew the claim was false.
24
payment, for example, when coverage is disputed.
See, e.g.,
U.S. ex rel. Mason v. State Farm Mut. Auto. Ins. Co., 398 F.
App'x 233 (9th Cir. 2010).
The Court does not believe that
Congress intended to carve out an exception that would
essentially swallow the rule by permitting Medicare to routinely
act as the primary payer to another plan where no genuine
coverage dispute exists.
The Court rejects the notion that it
was acceptable for Medicare to pay Relator’s claim because
Defendants eventually reimbursed Medicare.
If that practice
regularly occurred, Defendants would essentially be receiving an
interest free loan from the government on claims they are
obligated to pay and were always obligated to pay.
Further, Relator’s complaint specifically alleges that
Defendants caused a claim to be submitted to Medicare which it
paid, but should not have.
(Compl. ¶ 107.)
This is a
sufficient allegation demonstrating economic loss.
Hutchins,
253 F.3d at 184 (“The False Claims Act seeks to redress
fraudulent activity which attempts to or actually causes
economic loss to the United States government.”).
At this
stage, Relator has sufficiently alleged that the claims
submitted were false or fraudulent.
B. Prong Three: The Defendant Knew the Claim was False or
Fraudulent
25
In her complaint, Relator alleges Defendants sold health
first policies to Medicare beneficiaries (Compl. ¶¶ 83, 91),
recklessly disregarded the requirement that they determine if
Medicare insures their policyholders (Compl. ¶¶ 83, 87, 119),
and failed to make reasonable and prudent inquires to ensure
compliance with governing regulations.
Defendants argue that
Relator does not allege Defendants knew her insurer was Medicare
before it denied payment or instructed that the claim be
submitted to her health insurer.
To satisfy the third prong of an FCA claim, Relator must
allege that Defendants knew the claim was false or fraudulent.
The term “knowingly” is defined in the FCA as follows:
“Knowingly” --(A) mean that a person, with respect to
information--(i) has actual knowledge of the
information;(ii) acts in deliberate ignorance of the
truth or falsity of the information; or(iii) acts in
reckless disregard of the truth or falsity of the
information; and (B) require no proof of specific
intent to defraud.
31 U.S.C.A. § 3729(b)(1).
As explained by another court:
For a defendant to be liable under the False Claims
Act, it must have acted knowingly; such knowledge can
be actual, 31 U.S.C. § 3729(b)(1)(A)(i), or
constructive, either because it acted in deliberate
ignorance of the truth, 31 U.S.C. § 3729(b)(1)(A)(ii),
or in reckless disregard of it, 31 U.S.C. §
3729(b)(1)(A)(iii). The “reckless disregard” prong was
26
enacted in a 1986 amendment to the False Claims Act,
and what appears to be the only congressional report
accompanying that bill states that the obligation is
“to make such inquiry as would be reasonable and
prudent to conduct under the circumstances.... Only
those who act in ‘gross negligence’ of this duty will
be found liable under the False Claims Act.” S. Rep.
99–345, at 20, 1986 U.S.C.C.A.N. 5266, 5285. The
provision is meant to target that defendant who has
“buried his head in the sand” and failed to make some
inquiry into the claim's validity. Id. at 21, 1986
U.S.C.C.A.N. at 5286. The inquiry, however, need only
be “‘reasonable and prudent under the circumstances,’
which clearly recognizes a limited duty to inquire as
opposed to a burdensome obligation.” Id.
U.S. ex rel. Williams v. Renal Care Grp., Inc., 696 F.3d 518,
530 (6th Cir. 2012).
Relator has fulfilled this pleading requirement by alleging
that Defendants failed to make reasonable and prudent inquiries
to ensure compliance with the MSP Act.
Further, Relator alleges
it was unreasonable for Defendants’ application to permit
applicants to select a health first policy, a cheaper option,
then fail to ask the applicant to identify their insurer in
order to ensure the applicant has the appropriate coverage to be
eligible for that policy.
(Compl. ¶ 123.)
Alternatively,
Relator alleges Progressive could have also asked whether the
applicant was insured by Medicare or Medicaid, instead of
27
putting this explanation in fine print.9
(Compl. ¶ 92.)
As we
note above, this is merely one of several opportunities that
Defendants had to determine whether Relator had qualifying
health insurance.
For these reasons, Relator has sufficiently
alleged Defendants knew the claim was false or fraudulent or
acted in reckless disregard of that knowledge.
C.
Relator’s Compliance with Rule 9(b)
Defendants also argue Relator’s complaint is insufficiently
pled under Fed. R. Civ. P. 9(b) because: (1) the complaint does
not have substantiated allegations of a wide-spread scheme and
(2) the complaint improperly lumps two distinct corporate
entities together.
The Court also rejects these arguments.
First, Relator’s citation to Defendants’ application
questions which purportedly all insurance applicants used online
at the time Relator applied for insurance substantiate her
allegations of a wide-spread scheme.
Second, the Court will not
dismiss Relator’s complaint because she has named two
Progressive entities as co-defendants, Progressive Casualty
9
The Court notes that a close look at the fine print of the
Progressive application shows that it instructs that applicants
“should” select Progressive as the insurer if one of more
drivers are insured Medicare and Medicaid. (Loucks Decl., Ex. A
at 13). Perhaps more accurate language would be to advise
applicants that they “must” select Progressive as the insurer if
they are insured by Medicare or Medicaid.
28
Insurance Company and Progressive Garden State Insurance
Company.
While she has pled some evidence that each had some
role in the alleged scheme, Relator claims she does not have
information related to which entity implemented the online
application, sold the health first policies, or denied the
claims.
At this pleading stage, Relator is not required to
allege more specific proofs.
“[R]equiring this sort of detail
at the pleading stage would be ‘one small step shy of requiring
production of actual documentation with the complaint, a level
of proof not demanded to win at trial and significantly more
than any federal pleading rule contemplates.’”
Foglia, 754 F.3d
at 156 (quoting United States ex rel. Grubbs v. Kanneganti, 565
F.3d 180, 190 (5th Cir. 2009)).
Indeed, “[t]he discovery
process will flush out the [several] entities’ individual
conduct, and defendants may make the appropriate motions should
it be determined that any of these entities had no involvement
in the circumstances of plaintiff's claims.”
United States v.
Medco Health Sys., Inc., No. 12-522, 2014 WL 4798637, at *11
n.12 (D.N.J. Sept. 26, 2014).
D.
New Jersey False Claims Act
Plaintiff alleges that the State of New Jersey is paying
many of the false claims submitted by Defendants by way of
29
Medicaid.
(Compl. ¶ 156).
The secondary payer laws which form
the gravamen of Relator’s complaint applied to Medicaid
recipients as well.
42 U.S.C. §§ 1396k(a)(1), 1396a(a)(25).
Relator has satisfied Foglia because she has sufficiently
alleged the particular details of Defendants’ scheme, paired
with reliable indicia that lead to a strong inference that
claims were actually submitted and paid by the State of New
Jersey based on the language of the application and the result
it had for Relator as a Medicare recipient.
157-58.
Foglia, 754 F.3d at
For these reasons, Relator’s New Jersey False Claims
Act claim is also sufficiently pled.
V.
CONCLUSION
Defendants’ motion to dismiss will be denied. An Order
consistent with this Opinion will be entered.
s/ Noel L. Hillman
NOEL L. HILLMAN, U.S.D.J.
At Camden, New Jersey
Dated:
March 1, 2016
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