:: PBM Defeat In Medicaid Liability Dispute Has Financial Implications For Plan Sponsors
. . . [I]t is axiomatic that TennCare (a state agency that does not possess a Caremark card) could never comply with the card presentation requirement. Likewise, because TennCare cannot seek reimbursement from Caremark until it receives a claim from a pharmacy and subsequently discovers that the beneficiary is a dual eligible covered by Caremark, TennCare is often unable to comply with the plans’ timely filing limitation. Caremark’s procedural plan provisions-the card presentation and timely filing restrictions-inappropriately shift Caremark’s responsibility to pay pharmacy benefits on behalf of a plan participant onto the government. See Evanston Hosp., 1 F.3d at 543. As such, these insurance plan provisions effectively act to deny medical coverage on the ground that the plan participant is a Medicaid recipient, in violation of 42 U.S.C. § 1396b(o). Accordingly, we conclude that Caremark’s card presentation and timely filing plan restrictions impermissibly discriminate against Medicaid, and thus are invalid as applied. Caremark, Inc. v. Goetz, — F.3d —-, 2007 WL 737749 (C.A.6 Tenn.) (March 13, 2007)
While Medicaid claims regulations are tedious reading, this case is nonetheless a must-read for plan sponsors and claims administrators. If the Sixth Circuit opinion becomes prevailing law, and at present it is for plans located in that circuit, significant liabilities to the federal and state governments may be imposed on plans as a result of PBM denials of Medicaid reimbursement requests.
In this declaratory judgment action, Caremark sought a ruling from the U.S. district court that the Bureau of TennCare’s third-party claims for Medicaid reimbursement were subject to certain “card presentation†and “timely filing†restrictions contained in the pharmacy-benefit plans administered by Caremark. The United States intervened to protect the federal government’s interest in the funding dispute.
Medicaid In A Nutshell
Enacted in 1965 under Title XIX of the Social Security Act, Medicaid pays for medical and health-related assistance for certain vulnerable and needy individuals and families. See 28 U.S.C. § 1396, et seq. Administered by the States, Medicaid is financed with State and Federal funds and constitutes the largest source of health coverage for people with limited incomes.
Payer of Last Resort
Particularly important for present purposes, note that Medicaid is a payer of last resort. In other words, all other available third party resources must meet their legal obligation to pay claims before the Medicaid program pays for the care of an individual eligible for Medicaid. See, 42 U.S.C. § 1396a(25)
Under the Medicaid statutes, a State plan must provide that Medicaid beneficiaries assign to the state whatever rights he may have to payment for medical care. 42 U.S.C. § 1396k(a)(1))(A). States are required to take all reasonable measures to ascertain the legal liability of third parties to pay for care and services available under the State plan. If a State determines that there may be third party liability, the State is required to either “cost avoid” or “pay and chase” claims.
The two liability shifting mechanisms are explained this way:
Cost avoidance is where the provider of services bills and collects from liable third parties before sending the claim to Medicaid. Pay and chase is utilized when the State Medicaid agency pays the medical bills and then attempts to recover from liable third parties. States are generally required to cost avoid claims unless they have a waiver approved by CMS which allows them to use the pay and chase method.
The Intersection With Employer Plans
This is where it gets interesting for employer group health plans.
Some Medicaid beneficiaries may also have coverage through health benefit plans. How does this occur? An example: If a child is covered through a non-custodial parent’s employer-based plan and is also covered by Medicaid through the custodial parent, a situation of “dual coverage” could occur.
So, as a general matter, the duplicate coverage often occurs when employment-related health benefits are offered to an individual directly or through a relative.
As the primary payer, in such situations, plan sponsors are responsible for ensuring appropriate consideration of the state’s claim for reimbursement. Of course, the employer has typically contracted with a pharmacy benefit manager, such as Caremark, Express Scripts, etc., for prescription drug program management and assumes that the PBM is tending to such legal issues.
In the case of Caremark, this may prove to be a faulty assumption.
The Facts
Caremark conceded that TennCare (Tennessee’s Medicaid program) was the payor of last resort. The issue before the court arose in the context of plan restrictions. Caremark argued that TennCare could not recover benefits on behalf of plan participants who are subject to the following restrictions:
- the “card presentation†restriction;
- the “paper claims†restriction;
- the “timely filing†restriction; and
- the “out-of-network†restriction.
Since the parties essentially agreed on implementation of the out-of-network claims, the principal issue turned on whether the first three restrictions applied to Tenncare’s reimbursement claims.
Since Tenncare typically only discovered the existence of third party liability through Caremark’s coverage belatedly, the timely filing requirement effectively barred attempts to recover the Medicaid dollars. Further, Caremark routinely denied Tenncare’s claims as impermissible “paper” claims. While these restrictions would apply under the benefit plan terms, the issue boiled down to whether they could be asserted against Tenncare.
When Are Claims Assigned?
Much of the district court opinion was devoted to fine legal technicalities of when a Medicaid beneficiaries assignment of rights to Medicaid occurred.
Caremark asserted that the assignment occurred, not at the point of sale, but subsequent, and as Medicaid thus only received by assignment the beneficiary’s rights, the plan restrictions applied to Medicaid. Tenncare argued that the assignment occurred under the State statute at point of sale, and thus, the restrictions were unenforceable as against Tenncare by virtue of the statute.
The district court agreed with Tenncare.
Appeal To the Sixth Circuit
On appeal, Caremark argued that the district court erred in holding that TennCare’s third-party claims are not subject to the card presentation and timely filing restrictions for three reasons:
- a Medicaid recipient does not assign his or her rights to TennCare until TennCare makes a payment for the recipient’s prescription drugs;
- the district court impermissibly granted the assignee TennCare greater rights than the assignor plan participant; and
- the district court’s ruling violated ERISA’s preemption provisions.
Caremark’s Arguments Fail To Persuade
The Sixth Circuit rejected all of Caremark’s arguments. The court summarized its reasons as follows:
First, 42 U.S.C. § 1396a(a)(25)(I) and its legislative history establish that the card presentation and timely filing restrictions are impermissible grounds on which to deny reimbursement to a state Medicaid agency like TennCare. Second, the district court did not err in holding that a Tennessee Medicaid beneficiary’s assignment of rights to TennCare occurs at the point-of-sale. Third, the card presentation and timely filing restrictions are invalid as applied because they violate Medicaid’s anti-discrimination policies. Fourth, contrary to Caremark’s contention, ERISA actually requires health benefit plans such as Caremark to allow state Medicaid agencies to obtain reimbursement for Medicaid expenditures.
One of the more interesting arguments Caremark presented was based upon 42 U.S.C. § 1396a(a)(25)(I) which states:
[States shall] effect laws requiring health insurers … (iv)[to] agree not to deny a claim submitted by the State solely on the basis of the date of submission of the claim, the type or format of the claim form, or a failure to present proper documentation at the point-of-sale that is the basis of the claim, if-(I) the claim is submitted by the State within the 3-year period beginning on the date on which the item or service was furnished; and (II) any action by the State to enforce its rights with respect to such claim is commenced within 6 years of the State’s submission of such claim….
Inasmuch as that those changes went into effect in 2006, Caremark argued that prior law permitted the restrictions it imposed. The Sixth Circuit, however, viewed these changes as merely clarifying existing law.
Deference To Agency Position
The Sixth Circuit rejected Caremark’s arguments based upon the time of assignment citing guidance by the Centers for Medicare and Medicaid Services (“CMSâ€), the federal agency charged with administering the Medicaid statute. CMS has interpreted the statute to mean that a beneficiary’s assignment of rights occurs at the time that the beneficiary requests prescription drugs-in other words, at the point-of-sale. The Court stated:
We find CMS’s interpretation of the Medicaid statutory scheme-opining that a Medicaid beneficiary’s assignment of rights occurs at the point-of-sale-to be highly persuasive and entirely consistent with federal and Tennessee statutory and regulatory Medicaid frameworks. Thus, CMS’s guidance is “entitled to respect†and “some deference†by this Court. See Christensen, 529 U.S. at 587 (quoting Skidmore, 323 U.S. at 140) (internal quotation marks omitted).
ERISA Preemption Argument Rejected
The Court gave short shrift to Caremark’s preemption arguments, stating “far from preventing third-party claims for reimbursement by Medicaid, ERISA actually requires health benefit plans (like Caremark) to reimburse state Medicaid programs.” (citing 29 U.S.C. § 1169(b)). Further, the Court noted that, although ERISA generally preempts all state laws relating to employee benefit plans, ERISA specifically provides that its preemption provision does not apply to recoupment of Medicaid payments by the States. (citing 29 U.S.C. § 1144(b)(8))
Moreover, the United States Department of Labor (DOL) issued an advisory opinion that ERISA requires health benefit plans to reimburse Medicaid agencies and does not preempt reimbursement to a state. In the view of the DOL, ERISA “plainly requires an ERISA plan to pay for covered benefits as required by a State law under which the State, having made Medicaid payments, acquires the rights of a plan participant to receive plan benefits relating to such payments.â€
Note: This case, while complex at points, is worth careful consideration by plan sponsors and claims administrators.
Employer Liability – Assuming that Caremark’s position on Medicaid reimbursement is erroneous, who pays? A troubling position for plan sponsors may be found in an excerpt from the district court’s opinion:
Among other things, Caremark dispenses prescription drugs to eligible participants in benefit plans. Caremark asserts that these plans are created by its customers and these customers are ultimately responsible for any amounts due to TennCare.
In other words, Caremark is saying that they are just the intermediary – its customers owe any funds that are due.
In previous posts, the need to review PBM contracts has been noted. Given the potential for substantial liability to Medicaid programs if the Sixth Circuit opinion is the correct and final view, plan sponsors would be well advised to understand the allocation of responsibility provided in their PBM contracts. In effect, Caremark seems prepared to shift the cost burden back to the plan sponsors.
Other authorities - The opinion notes some contrary authority which the Court distinguished. That authority is as follows:
In making the argument that TennCare’s “assignment†rights take place after payment is made, Caremark principally relies on decisions by a district court in California and a district court in Michigan. In Belshe v. Laborers Health and Welfare Trust Fund for Northern California, 876 F.Supp. 216 (N.D.Cal.1994), a district court in Northern California ruled that ERISA preempted a California statute . . . Caremark also relies on Michigan Department of Social Services v. Shalala, 859 F.Supp. 1113 (W.D.Mich.1994), in which a district court for the Western District of Michigan held that the state Medicaid agency could not obtain reimbursement from Medicare for benefits paid to beneficiaries for skilled nursing care.
DOL Advisory Opinion - The DOL opinion may be reviewed here. The opinion concludes that ERISA does not preempt State recoupment actions and begins:
This responds to your request for guidance regarding Title I of the Employee Retirement Income Security Act of 1974 (“ERISAâ€), 29 U.S.C. 1101-1191c, in connection with an investigation of a pharmacy benefit manager (PBM) for potential violations of the False Claims Act. The investigation concerns allegations that the PBM improperly refused to reimburse government health insurance programs for prescription drug payments. In some cases, the States had made the payments without knowledge that the individuals involved were eligible for benefits under a private health insurance plan that was a customer of the PBM as well as for benefits under the State Medicaid program.
CMS Factsheet – A helpful fact sheet on the foregoing issue appears here.
See also -Â Prior press coverage
