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Theories v. Practicality: The Simplest Answer is Often the Best!

By: Chris Aguiar, Esq.

I recently spent a few days in DC with some of my colleagues, subrogation attorneys from all over the country. As is typical in conferences, we spent several hours a day putting our heads together, learning and educating, as well as coming up with strategies to combat some of the more recent efforts to find new ways to challenge the third-party recovery rights of benefit plans. Any time 50 lawyers get together in a room debating the same topic, things can get interesting, to say the least. It’s always fascinating to see how things that seem so clear can be all but.

ERISA 502(a)(3), the provision that provides a plan fiduciary with the right to obtain “appropriate equitable relief” has been provided by Congress as an “exclusive remedy”. I have historically interpreted that to mean that a self-funded plan governed by ERISA is limited as to the type of action it can take against a plan participant that refuses to cooperate with their reimbursement obligation. The “exclusive remedy” provided by ERISA is equitable relief.  Quite simply, equitable relief typically means that a benefit plan can only recover the money that the plan participant recovered, specifically (or any asset purchased with it). If the Plan cannot locate that specific pot of money or trace it to an asset, it is not entitled to any other of the participant’s money. My interpretation has always been that a Plan will not be able to seek legal relief (i.e. a breach of contract). It appears some of my colleagues still believe legal relief may be possible. Regardless of where you fall on that debate – there are practical considerations that I think are important to remember and will put the plan in the best possible position to recover.

Consider this hypothetical:

Imagine for a moment that Bob Participant, upon getting a $100,000.00 settlement related to injuries he sustained in an accident, which were paid by his benefit plan, loses the money. While gleefully skipping down Main Street to deposit the money in the bank, Bob fails to realize his shoes are untied, trips, and drops the briefcase of money on the floor causing it to open. At that exact moment, an unseasonably strong gust of wind grabs hold of the money and quickly moves it to the nearby raging river, which just so happens to be infested with money thirsty piranhas who voraciously devour every last dollar…

While this hypothetical seems like the stuff of fantasy novels, let’s bring back a modicum of reality … how many “Bobs” in America would have sufficient money or assets to satisfy a judgment rendered by a court in favor of a benefit plan that sues a participant for a breach of contract when that participant fails to comply with the terms of the benefit plan and reimburse the settlement funds? Wouldn’t the Plan have been in a better position to get its money back had it been in front of the money rather than having to chase it down the street?

Whether you believe that a breach of contract action against a plan participant is allowed despite the exclusive remedy granted by ERISA, equity, it’s always better to be able to prevent the money from being put at risk. If the Plan is in a position where it must consider the viability of a breach of contract claim – its already in trouble because the likelihood of a participant having $100,000.00 after losing that amount on the fantastic voyage he took down Main Street on his way to the bank is very unlikely. 

One thing is for certain, while the debate regarding the viability of breach of contract claim in an ERISA matter apparently is still alive, few can debate that enforcing your equitable rights and preventing the money from being in danger is the most likely path to success in a third party recovery situation.


Know when to fold ‘em

By: Chris Aguiar, Esq.

Last week, I teased this blog post on Linkedin with vague commentary about effective cost containment not being just about recovering as much money as possible, but also about being knowledgeable and understanding when its best to cut losses.  One of the attorneys in our office is currently working on a file where a benefit plan may be ill-advisedly pushing the limits of the law.  You see, in subrogation and reimbursement cases, there is a rule called the “Made Whole Rule”.  This rule is one of equity that operates to eliminate a plan’s recovery rights when a plan participant does not recover the full amount of their damages (i.e. they weren’t “made whole”).  Now, those of us with private self-funded plans that enjoy the benefit of state law preemption can point to our plan terms and the current state of Federal law which holds that clear and unambiguous language that disclaims application of this rule and others like it will control and allow plans to recover regardless of whether the participant was made whole.

This plan, however, is unfortunately governed by state law as it is not a private self-funded benefit plan; preemption does not operate in its favor.  The participant had $800,000.00 in medical damages, alone, and received a $1,000,000.00 settlement.  Those numbers alone may indicate to some that the participant was, indeed, made whole.  However, the damages discussed above are ONLY the medical damages.  We have yet to discuss any other damages, including but not limited to:  1) lost wages (present and future) 2) pain and suffering 3) future care, etc.  The list of damages in serious accidents such as this can be extensive, and all of those categories hold considerable value and are compensable in the eyes of the law.  The particular jurisdiction in which this plan sits happens to have one of the most aggressive made whole rules in the country, and the judges there tend to be very pro participant.  Accordingly, it’s a safe assumption that given the participant will really only receive about $600,000.00 after fees and costs of pursuit – it’s quite easy to see that the participant will not likely be considered to have been “made whole” in the eyes of the court.

Despite that, The Phia Group’s attorney has been able to negotiate for a reimbursement of approximately 20% the Plan’s interest.  Should the Plan decide to try to enforce a right of full reimbursement, and the court apply the made whole rule, the Plan will receive no recovery at all and will have endured the extra time, expense, and possibly even media fallout for ‘dragging its participant through this ordeal’, of protracted litigation.

Plans, and we as their advisors, must be cognizant of the rules of the jurisdictions in which we operate and realize when a good outcome is unlikely.  Sometimes, even if one has a good case and can win and recover its entire interest, the cost of doing so paired with the inability to obtain reimbursement of the costs of pursuit can render the action moot, because the cost can in many instances outweigh the interest.  This is even more true, of course, in situations where the Plan is likely to lose.

Effective cost containment is about looking at the situation and determining the most cost effective approach – winning does not always equate to the best outcome.


Even the best Plans can backfire!

By: Chris Aguiar, Esq.

As we saw last week, you cannot add the Patriots’ winning the Super Bowl to the list of absolutes in life (despite what my New England brethren might tell you).  After death and taxes, few things are a given.  Something similar can be said, that success is not a given, in the world of subrogation/reimbursement

Last week, I had the pleasure of traveling to Kansas City, Kansas to testify on behalf of a client in a Preliminary Injunction Hearing in Federal District Court as we attempted to obtain a Temporary Restraining Order, a court proceeding to officially freeze the ability of an attorney or his client from spending money to which the Plan asserts an equitable lien by agreement.   We spent weeks preparing, researching, committing facts to memory, and rehearsing examinations so that we could put our client in the best position to succeed.  Unfortunately, the Judge had other Plans.  Despite having witnesses from Kansas and beyond ready to testify – the Judge did not allow any testimony to be heard.

In the end, we were ultimately able to secure everything we needed for our client, but it's notable that something as simple (and typically predicable) as the procedure that a hearing will follow was entirely up to the discretion of the Judge that day.  The Judge seemed to have an agenda, and there would be no deviating from it.  We ended up on the right side of that agenda, but what if the alternative had been true –a significant risk given that Kansas qualifies as an anti-subrogation state.  It’s very important in subrogation cases to consider all options.  In many cases there is no doubt that the Plan’s rights are strong, but enforcement often comes at a significant cost.  Unfortunately, in the world of Health Subrogation where Plan expenses appear to be limitless while tort reform and other factors allow auto policies to be limited to, in many cases, less than $100,000.00, the cost of enforcing the rights of the Plan in full can leave the Plan worse off than it started.   That can even be true when things go exactly right – imagine when a Judge decides to throw a wrench into “the Plan”!


Nice to see you, 2018. Should we Expect more of the same?

By: Chris Aguiar, Esq.

Wow!  What a year 2017 has been.  As I sit here and prepare to start the New Year off with a bang by heading to Kansas to testify in federal court on behalf of a client, I’m reminded of just how much more complex subrogation (and self-funding in general) has become.  More and more of our clients (and The Phia Group, as well) are being dragged into court to defend their practices and attempts to curb the cost of health care.  This is especially on my mind because just this week two Courts in different areas of the Country ruled in favor of our clients. Hospitals challenging our attempts to be innovative, attorneys in anti-subrogation states trying to punish us for being effective at what we do and finding massive holes in their laws, or attorneys on behalf of their clients pushing the limits of current subrogation law and attempting to simply disburse settlement funds in an effort to avoid the reimbursement rights of self-funded benefit plans, prudent management of plan assets is harder than ever before; I don’t expect that trend to reverse.  Even the Federal Government is throwing some interesting curveballs into the rotation.  What will the impact of the changes to Healthcare Reform be on the mandates that were such pivotal cornerstones to The Affordable Care Act and what impact will that  have on the employer-sponsored health plans?

Though it always seems like everything is up in the air, one thing is for certain – self funding is not for the weak.  With a target constantly on our backs, we have to be diligent and make sure we are crossing all of our T’s and doing everything by the book (err … the plan document).  Any misstep is being dissected by those on the other side of the table as they continue to try to search for ways to invalidate the benefits of self-funding.  Whatever 2018 has in store – The Phia Group is proud to be standing on the front lines with our clients and look forward to what I expect to be another action packed year.

Thank you to all of our clients and partners, congratulations on all of your successes, and a Happy New Year to all.  Let’s show 2018 what we’ve got!
 


A Little 2017 Holiday Cheer… Subrogation Style!

By: Chris Aguiar, Esq.

On the heels of the NASP conference in Austin, Texas I felt it appropriate to bring along some Holiday Cheer after a questionable 2016.  Everything in the subrogation world in 2016 was viewed through the prism of the Montanile decision where the Supreme Court ruled the a plan who allowed its participant to obtain a settlement fund and not do enough to enforce its reimbursement right could be held without a remedy if the participant spent the settlement funds on non-traceable assets.  After 15 years of decisions favoring benefit plans, Montanile seemed like a little bit of coal under the tree, and some worried that it signaled a shift that might lead to more scrutiny on benefit plans and burdens being shifted onto benefit plans in order to enforce their rights.  I’m happy to report this Holiday season that those fears may have been premature.

I just returned from Austin, Texas where the Country’s best and brightest subrogation attorneys converged at the NASP Conference to chat about the year in subrogation and I can tell you that 2017 has given us a fair amount to be thankful for and hope that the tide has not turned as courts continue to render decisions that are favorable to benefit plans.  For example, in Mull v. Motion Picture Indus. Health Plan, 2017 U.S. App. LEXIS 13949, the 9th Circuit joined the 5th, 6th, & 11th Circuits in deciding that a recovery provision referenced only in an SPD can be enforceable when the SPD is adopted as all or part of the plan.

There also appears to be some positivity surfacing in the courts for MAO’s and their ability to enforce the same rights and obligations upon Medicare recipients as traditional Medicare.  Courts historically held that MAOs did not have an implied federal right of action to sue primary payers in Federal Court.  Over the past year, however, courts have ruled that there is indeed a right of action and that, much like with traditional Medicare, there can be severe penalties levied against parties who do not comply with the requirements of reimbursement under the Medicare Secondary Payer Act, such as treble damages as well as fines of $1,000.00 a day for a carrier’s failure to report.

So, don’t let Montanile and 2016 get you down.  There are several strategies that can be utilized to both ensure that a plan participant  and/or their attorney will cooperate with a plan’s right of reimbursement, and in the event that funds do get disbursed – that isn’t the end of the analysis.  And as is often the case with the law, if you wait long enough the law changes.  The important thing is to make sure you have the resources to stay abreast of all the changes and strategies to maximize recoveries.

Now enough about subrogation … let’s go get ready to spread some actual Holiday Cheer ….. a Merry Christmas and  Happy Holidays to all!
 


Words With No Meaning - Subrogation Accident Questionnaire

By: Chris Aguiar, Esq.

Google “average words spoken per day” and you might see some interesting entries – such as, men use 7,000 words a day on average, as compared to women’s 20,000.  When deciding what to write about today – it struck me that so much of my day handling issues on behalf of the benefit plans I represent have to do with words; which ones are used, the context in which they are used, and what they mean.  When having discussions with the Phia Team, we always find ourselves asking, “what does that mean”?  That’s because so much of the law, especially in health plan law, rests on just how clear the terms of the Plan are.  It’s important that everyone be on the same page.  When someone uses the word “normal”, everyone thinks they know what that means – but in reality, it means something slightly different to everyone.  Norms are subjective, so use of the word isn’t necessarily sending the same message universally.  When viewed that way, of course there are misunderstandings.

This whole line of thinking stemmed from a subrogation investigation I was involved in a few weeks ago.  Interestingly, it wasn’t on behalf of a client - I was involved in it for my sister.  My sister fell down the stairs at home and sprained her ankle– and of course, she received an accident questionnaire; naturally, she called me and the following conversation ensued:

… Cell phone rings …

Sister: Hi Chris, I got a letter from my insurance company asking about my ankle.  Isn’t this what you do for a living?

Me:  Yes, it is.  What do you need?

Sister:  Why are they asking me this?

Me:  … Gives long detailed explanation about subrogation and why the insurance company would be asking this question… (Omitted in the interests of brevity)

Sister:  I don’t want to deal with this, what do I do?

Me:  Put that you fell at home and let’s see if they ask any more questions.

As it turns out, the insurance company didn’t ask any more questions.  You might be thinking, “of course they didn’t, Chris – your sister fell at home”.  Well, that’s only partly true.  See, to my sister she was “home” but as far as the insurance company is concerned, she wasn’t.  That’s because my sister doesn’t own her home – she lives in the 2nd floor walk-up apartment owned by my immigrant parents.  Technically, she could bring a claim against my parents and as we know, so could the insurance company.  See “home” is another word on a list of words I call “words with no meaning.”  “Home” is where you lay your head at night, but depending on the context in which it’s being used – it isn’t necessarily something you own, and that has implications on a subrogation investigation.

But I knew what any good subrogation investigator knows – and that is that most of the time, the insurance company will get an accident letter that reads “fell at home” and they close the investigation without further research.  It may not have been a lot of money, but for my immigrant parents, it was a headache I didn’t want them to have to deal with, and it was definitely a lost recovery opportunity for the insurance company.  If you just take the words that people say at face value, you may misunderstand what they actually mean because the fact of the matter is, you have a different idea in your head of what was meant when they used certain words.  Whether it’s in your everyday conversations or in the terms of an employee benefit plan – make sure you say what you mean and you mean what you say.  Prepare yourself properly for a subrogation accident questionnaire. In your day to day life, it most often leads to minor misunderstandings and maybe some hurt feelings, but in the world of health benefits, it could lead to lengthy legal disputes and significant losses in Plan assets.


U.S. Airways v. McCutchen – Where Are they Now?
By: Chris Aguiar, Esq.

The health benefits industry can feel like a whirlwind, especially for self-funded plans.  We always seem to be running around trying to figure out how to comply with the law, only to have it change and start the cycle all over again.  We are experiencing this as we speak with the Affordable Care Act (a.k.a. Obamacare) and its possible successor, the American Health Care Act.  As a result, we tend to move on from issues more quickly once they seem to be resolved even though perhaps they linger.

Remember McCutchen?  In the subrogation world, U.S. Airways v. McCutchen was a big deal.  It finally answered the question that every benefit plan, TPA, and recovery vendor was fighting over since the beginning of time on their subrogation cases; can a court override the terms of a private, self-funded benefit plan under the purview of ERISA?  U.S. Airways lost the case, but the decision that now clarified and established the law was clear; specific unambiguous plan language rules the day.  Of course, the Montanile decision threw a bit of a curveball into our world, but that’s a blog post for another day. Fast forward almost four years (that’s right, the Supreme Court decision in McCutchen came down in 2013 – can you believe it was already that long ago?); does anyone know what happened to U.S. Airways?  

In addition to what turned out to be the main issue in the McCutchen case, that the plan terms were not good enough for the Third Circuit, there were many more issues to consider when the case was remanded (i.e. sent back) to the lower courts for additional findings.  As it turned out, U.S. Airways utilized BOTH a Summary Plan Description (SPD) and a Plan Document (PD).  That alone was not the kiss of death, but the SPD explicitly provided that the terms in the PD controlled if there was a conflict. Unfortunately for them, there was!  The SPD provided for recovery from McCutchen’s underinsured motorist coverage (UIM), but the PD did not.  Since the PD was the controlling document in that case, U.S. Airways was not entitled to a recovery against the UIM.

So what was the ultimate outcome?  U.S. Airways was entitled to assert its $64,000.00 lien against $10,000.00 in liability coverage rather than against $100,000.00 in UIM coverage.  It is important to know all of the facts and understand all of the factors that might impact your case.  As we saw in U.S. Airways v. McCutchen – language in the SPD and/or PD was deficient and contradictory – and that led to U.S. Airways losing out on recoveries as well as the costs of bringing those actions.  Every case is different, and every entity has its own motivations as to why they engage in litigation, but it is important to make sure you have all your ducks in a row and that you have the tools needed to actually win the fight, or you might get stuck holding the bag.  The McCutchen case helps us in the subrogation world every single day because of what the Supreme Court ultimately held, but the law can change on any given day.  Make sure you are prepared for the whirlwind!


Court Nixes Health Plan’s Subrogation Claim
Posted December 22, 2015, 3:11 P.M. ET
By Carmen Castro-Pagan
A health plan isn’t entitled to reimbursement of $48,000 in medical expenses it paid on behalf of a minor beneficiary who was injured in an all-terrain vehicle accident, the U.S. District Court for the District of Arizona ruled.


In granting the beneficiary’s motion to dismiss, Judge Diane J. Humetewa ruled Dec. 17 that the plan’s reimbursement clause was unenforceable because it wasn’t included in the formal plan document, but instead was part of the summary plan description. The court further held that in light of the conflict between the plan and the SPD, the terms of the master plan controlled.
The case is Apollo Educ. Grp. Inc. v. Henry, 2015 BL 419831, D. Ariz., No. 2:15-cv-00143-DJH, 12/17/15

The Supreme Court Seeks Solutions to the Latest Challenges to Subrogation Rights in Montanile Case
By Catherine Dowie

The facts of the latest healthcare subrogation challenge on the SupremeCourt’s docket (Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan) will be familiar to many. As you may recall from the June 2015 article,“TheRoad to Recovery: Subrogation Gets Its Day in Court… Again,” following a motor vehicle accident, Robert Montanile’s health plan paid over $120,000 on his behalf, subject to all plan terms, including a subrogation and reimbursement provision.
Read more…

FEHBA Preempts Kansas Anti-Subrogation Regulation
By Carmen Castro-Pagan
The Federal Employees Health Benefits Act preempts a Kansas administrative regulation prohibiting subrogation and reimbursement clauses in health insurance contracts of federal government employees, the U.S. Court of Appeals for the Tenth Circuit ruled .
The appeals court, in the Oct. 29 opinion, joining other federal courts in ruling that FEHBA preempts state laws limiting subrogation and reimbursement clauses. The decision confirmed the lower court’s ruling that a federal employee must reimburse her insurer because federal common law also displaced Kansas regulation.
The case is Helfrich v. Blue Cross & Blue Shield Ass’n, 2015 BL 356222, 10th Cir., No. 14-3179, 10/29/15