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MAO-MSO Recovery II, LLC v. Allstate Insurance Co.

United States District Court, N.D. Illinois, Eastern Division

March 30, 2018

MAO-MSO RECOVERY II, LLC, MSP RECOVERY, LLC, and MSPA CLAIMS 1 LLC, Plaintiffs,
v.
ALLSTATE INSURANCE COMPANY, and ESURANCE PROPERTY AND CASUALTY INSURANCE COMPANY, Defendants.

          MEMORANDUM OPINION

          Andrea R. Wood, United States District Judge

         Plaintiffs, alleged assignees of legal claims held by numerous unidentified Medicare Advantage Organizations, have filed these two putative class action lawsuits against Defendants Allstate Insurance Company (“Allstate”) and Esurance Property and Casualty Insurance Company (“Esurance”). In both cases, Plaintiffs seek double recovery under the Medicare Secondary Payer provisions of the Medicare Act, 42 U.S.C. § 1395y(b)(2)-(3) (“MSP provisions”), for reimbursement of medical expenses that Plaintiffs allege various Medicare Advantage Organizations paid on behalf of Medicare beneficiaries despite Defendants' obligation to pay under the MSP provisions. The class action complaints are virtually identical, involving the same plaintiffs, defendants, allegations, and claims for relief, except for the presence of an additional contract claim in case number 1:17-cv-01340. Defendants have moved to dismiss all claims in both cases pursuant to Federal Rule of Civil Procedure 12(b)(6), [1] arguing that Plaintiffs fail to state a claim for relief. In the alternative, Defendants have also filed motions to dismiss or strike the class allegations in both complaints.[2] For the reasons discussed below, Defendants' motions to dismiss are granted without prejudice, and Defendants' motions to dismiss or strike the class allegations are therefore denied as moot.

         BACKGROUND[3]

         The MSP provisions of the Medicare Act attempt “to reduce Medicare costs by making the government a secondary provider of medical insurance when a Medicare recipient has other sources of primary insurance coverage.” Brown v. Thompson, 374 F.3d 253, 257 (4th Cir. 2004). To accomplish this, the MSP provisions shift responsibility for medical payments to other health plans-including no-fault and liability insurers, which are considered “primary plans”-by prohibiting Medicare from making a payment where “payment has been made, or can reasonably be expected to be made” by a primary plan. 42 U.S.C. § 1395y(b)(2)(A)(i). In those circumstances, Medicare may make a “conditional payment” if a primary plan “has not made or cannot reasonably be expected to make payment . . . promptly.” 42 U.S.C. § 1395y(b)(2)(B)(i). Conditional payments are made with the expectation that the primary plan will later reimburse Medicare if the primary plan is responsible for the cost. Id. The MSP provisions permit a private action for double damages by an injured party where the primary plan “fails to provide for primary payment (or appropriate reimbursement).” 42 U.S.C. § 1395y(b)(3)(A); see also Humana Med. Plan, Inc. v. W. Heritage Ins. Co., 832 F.3d 1229, 1234 (11th Cir. 2016) (noting that paragraph (3)(A) is not a qui tam statute but is instead available only when the plaintiff has suffered an injury in fact).

         Plaintiffs here purport to be assignees of such recovery rights originally held by numerous unidentified Medicare Advantage Organizations (“MAOs”). MAOs are private health insurers that have entered into contracts with Centers for Medicare and Medicaid Services (“CMS”) to provide Medicare benefits to Medicare beneficiaries. (No. 17-cv-01340, First Am. Compl., Dkt. No. 26 (hereinafter, “FAC I”) at ¶¶ 18-19 (citing 42 U.S.C. §§ 1395w-21, 1395w-23).) Part C of the Medicare Act gives Medicare beneficiaries the option of receiving Medicare benefits through these MAOs. (Id.) The MAOs pay healthcare providers directly for the care received by Part C enrollees in exchange for a fixed payment from the government. (Id.) MAOs are permitted to “exercise the same rights [as the government] to recover from a primary plan, entity, or individual . . . under the MSP regulations.” (Id. at ¶ 25 (quoting 42 C.F.R. § 422.108(f)).) Plaintiffs allege that “numerous” unidentified Medicare beneficiaries were members of the unidentified MAOs that have assigned their rights to Plaintiffs.

         In case number 17-cv-01340 (“Auto Insurance Case”), Plaintiffs allege that these Medicare beneficiaries were also insured under no-fault automobile insurance policies issued by either Allstate or Esurance. (FAC I at ¶ 51.) The Medicare beneficiaries were involved in automobile accidents in the United States that caused them to require medical services. (Id. at ¶ 52.) Plaintiffs allege that the cost of the medical services was required to be paid by Allstate or Esurance as primary plans under the MSP provisions, but that instead the Medicare beneficiary's MAO paid and Defendants failed to reimburse the MAO. (Id. at ¶ 52.) Plaintiffs now seek double damages pursuant to the MSP provisions for Defendants' failure to pay for or reimburse the costs of medical services paid for by the MAOs. In the Auto Insurance Case, Plaintiffs also assert a breach of contract claim, alleging that Defendants breached their insurance contracts with their insureds when they failed to meet their contractual obligation of paying no-fault benefits, including medical expenses arising out of automobile accidents. (FAC I at ¶¶ 82-86.) The complaint further alleges that, pursuant to federal Medicare regulations, MAOs are subrogated to the insureds' rights to recover from Defendants for such breach. (Id. at ¶ 82 (citing 42 C.F.R. § 411.26, which provides that “[w]ith respect to services for which Medicare paid, CMS is subrogated to any individual, provider, supplier, physician, private insurer, State agency, attorney, or any other entity entitled to payment by a primary payer”).)

         In case number 17-cv-02370 (“Tort Settlement Case”), Plaintiffs allege that Medicare beneficiaries receiving Medicare benefits from unidentified MAOs were injured in incidents involving tortfeasors insured by Defendants. (First Am. Compl., Dkt. No. 16 (“FAC II”) at ¶ 17.) The incidents caused the Medicare beneficiaries to require medical services, which were paid for by the Medicare beneficiaries' MAOs. (Id. at ¶ 47.) When the tortfeasors and Medicare beneficiaries entered into settlements to resolve claims against the tortfeasors, Defendants indemnified their insureds by making settlement payments to the Medicare beneficiaries. (Id. at ¶¶ 17, 48.) The settlements triggered Defendants' obligation under the MSP provisions to make primary payment for the Medicare-eligible medical services paid for by the MAOs, but Defendants failed to reimburse the MAOs. (FAC II at ¶¶ 1, 17, 48.) Like in the Auto Insurance Case, Plaintiffs seek double damages pursuant to the MSP provisions for the Defendants' failure to pay for or reimburse the cost of the medical services paid for by the MAOs.

         The complaints in the two actions do not allege any facts about Plaintiffs other than their places of incorporation and business and that, for each named Plaintiff, “[n]umerous MAOs have assigned their recovery rights to assert the causes of action alleged in this Complaint to Plaintiff.

         As part of those assignments, Plaintiff is empowered to recover reimbursement of Medicare payments made by the MAOs that should have been paid, in the first instance, by Defendants.” (FAC I at ¶¶44-46; FAC II at ¶¶ 41-43.) Similarly, in both complaints, the only allegation involving a particular Medicare beneficiary or MAO states that “[t]he representative MAOs are [redacted]. The representative Medicare Beneficiary is [initials]” and further explains that the name of the Medicare Beneficiary and corresponding MAO are not provided pursuant to HIPAA. (FAC I at ¶ 58; FAC II at ¶ 50.)

         Plaintiffs purport to bring claims on behalf of putative classes that include “[e]ntities that contracted directly with Centers for Medicare and Medicaid Services (‘CMS') and/or their assignees pursuant to Medicare part C, including but not limited to, MAOs and other similar entities, to provide Medicare benefits through a Medicare Advantage Plan . . .” and that made payments for benefits that should have been paid by Defendants as primary plans under the MSP provisions. (FAC I at ¶ 59; FAC II at ¶ 51.) As discussed further below, Plaintiffs have brought at least ten sets of nearly identical lawsuits against different insurer defendants in various district courts across the country.[4]

         DISCUSSION

         To survive a Rule 12(b)(6) motion to dismiss, the complaint must “give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). In addition, “a complaint must contain sufficient factual matter, accepted as true, to state a claim that is plausible on its face.” Silha v. ACT, Inc., 807 F.3d 169, 173 (7th Cir. 2015). That is, the “well-pleaded allegations must ‘plausibly give rise to an entitlement of relief.'” Id. at 174 (quoting Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)). “[T]he plausibility determination is ‘a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.'” McCauley v. City of Chicago, 671 F.3d 611, 616 (7th Cir. 2011) (quoting Iqbal, 556 U.S. at 679). While the Court accepts the complaint's factual allegations as true, it is not required to accept the complaint's legal conclusions. Iqbal, 556 U.S. at 678. “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id.

         I. Prudential Standing

         Defendants argue that the complaints should be dismissed because Plaintiffs have not pleaded any facts regarding any specific assignment to Plaintiffs of recovery rights from any particular MAO in connection with any particular Medicare beneficiary. Defendants' argument appears to be ...


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