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MSP Recovery False Claims Act Lawsuit Unsealed Against 315 Insurers

Recently, a False Claims Act lawsuit brought by MSP Recovery, LLC against 315 insurance companies was unsealed in the U.S. District Court for the Eastern District of Michigan. MSP Recovery alleged that the insurers and ISO are liable under the False Claims Act for causing medical expenses to be inappropriately paid by the Medicare Trust Fund by not satisfying their Section 111 reporting obligations. MSP further alleged that the insurers had engaged in a scheme with ISO that was supported by various defense attorneys to avoid reporting primary payer status to Medicare. MSP Recovery claimed that using ISO ClaimSearch they were able to determine that the insurers had not been reporting claims to Medicare as required. MSP Recovery also alleged that the defendants had violated various State false claims acts by causing payments to be inappropriately made by Medicaid.

Through previous class action lawsuits, MSP Recovery had deposed corporate representatives from various defendants regarding their Medicare compliance processes and procedures. MSP Recovery included transcripts from these depositions with their complaint. MSP Recovery claimed that the depositions supported their allegations of intentional failure to satisfy Section 111 reporting requirements.

Though rare, False Claims Act lawsuits are not new in the Medicare Secondary Payer field. In United States ex rel. Takemoto v. Nationwide Mut. Ins. Co., 674 Fed. Appx. 92 (2nd Cir. 2017), the Second Circuit Court of Appeals affirmed the dismissal of a False Claims Act lawsuit brought by a doctor employed by an MSP vendor, as the court held the doctor’s factual allegations were insufficient to establish liability under the False Claims Act. In United States ex rel. Hayes v. Allstate Ins. Co., 686 Fed. Appx. 23 (2nd Cir. 2017), the Second Circuit Court of Appeals also affirmed the dismissal of a False Claims Act lawsuit brought by a plaintiff’s attorney. In that case, the district court had found that the plaintiff’s attorney had filed the action in bad faith, as his allegations showed that he did not have knowledge of any specific illegal acts by the defendants.

MSP Recovery has alleged more particular facts than were alleged by the doctor and plaintiff’s attorney in the two cases above. However, other case law would support an argument for dismissal of MSP Recovery’s lawsuit.

Though the events arose before Section 111 reporting requirements went into effect, United States ex rel. Mason v. State Farm Mut. Auto. Ins. Co., No. CV07-297-S-EJL, 2008 U.S. Dist. LEXIS 56218 (D. Idaho July 23, 2008) has addressed the application of the False Claims Act to an insurer’s alleged failure to satisfy Medicare Secondary Payer obligations. In that case, a Medicare beneficiary alleged that the insurer, which had $100,000 in med pay coverage, was liable under the False Claims Act because the insurer did not issue payment or reimbursement for a surgery that was paid by Medicare. For reasons discussed below, the court initially dismissed the lawsuit without prejudice.

  • The complaint failed to allege a causal relationship sufficient for liability under the False Claims Act because the complaint did not allege if and when the insurer received a bill for the surgery at issue.

  • The allegations did not reflect an improper attempt by the hospital to receive payment from Medicare because regulations specifically allow for a conditional payment to be issued.

  • The plaintiffs did not allege facts showing that the insurer made “the false statements to Plaintiffs in order to avoid repaying Medicare and that this was done knowingly.” Id. at *32. The court noted that “[t]he Complaint fails to show that State Farm knew of its duty to reimburse Medicare.” Id. As the court explained,“[k]nowledge exists when a defendant actually knew or should have known, but deliberately ignores information that would have otherwise informed him of his duty.” Id. Because the complaint did not allege that the insurer actually knew that Medicare was billed for the surgery at issue or that the insurer recklessly ignored information that would have given the insurer such knowledge, the plaintiff had failed to allege that the insurer had sufficient knowledge to trigger liability under the False Claims Act.

  • The complaint did not provide sufficient allegations to establish a connection between the alleged false statements by the insurer omitting liability for the surgery and the insurer’s failure to reimburse Medicare. Specifically, the court held that “[w]ithout facts alleging that [the plaintiff] used the statements to allow State Farm to avoid payment, State Farm's ‘false statements’ alone are insufficient to state an FCA violation.” Id. at 34. The court found that the plaintiffs’ allegations did not show how a simple failure by the insurer to state that it may be liable for the surgery was likely to cause Medicare to not be reimbursed.

  • The complaint was subsequently amended, but the action was dismissed with prejudice by the district court and the dismissal was upheld by the Ninth Circuit Court of Appeals in United States ex rel. Mason v. State Farm Mut. Auto. Ins. Co., 398 Fed. Appx. 233 (9th Cir. 2010). The Ninth Circuit affirmed the dismissal for the reasons below.

  • The plaintiff failed to state a claim that the insurer “caused to be made a ‘false statement’ as required for liability under the False Claims Act.” Id. at 235. The hospital bill for the surgery at issue was not false because it was appropriate for Medicare to issue a conditional payment as authorized Medicare Secondary Payer statute, as the insurer had denied payment.

  • The insurer could not be liable under the False Claims Act because it had no obligation to reimburse Medicare at the time the bill was submitted to Medicare and did not concede liability until 9 months after the bill was submitted to Medicare. A potential obligation is not sufficient to give rise to liability under the False Claims Act.

MSP Recovery’s allegations focus on the defendants’ alleged failure to report claims as required. As noted above, Section 111 reporting requirements were not in effect at the time of the events in the Mason case. However, as the district court explained in Mason, “violations of laws, rules, or regulations alone do not create a false claim under the FCA.” Mason, 2008 U.S. Dist. LEXIS 56218 at *14-15. The outcome of the case filed by MSP Recovery should be determined within the narrower application of the False Claims Act. Other issues within the Medicare Secondary Payer compliance field are relevant to the analysis and we believe would be favorable to the defendants’ position.

MSP Recovery is supposed to be going public by the end of the year through a SPAC deal at a valuation of $32.6 billion. Clearly, they have persuaded investors that their potential recovery amount is tremendous. In an investor presentation filed with the Securities and Exchange Commission, MSP Recovery stated that “MSP’s yearly serviceable addressable market opportunity, we estimate is about $150 billion a year.” With seemingly unlimited funds, MSP Recovery will in all likelihood continue to file numerous lawsuits against insurers seeking enforcement of MSP obligations. MSP Recovery has already filed well over 100 class action lawsuits. Though they have mostly been dismissed, a class action was recently certified in state court in Florida. However, two previous class certifications in Florida state court were overturned by the appellate court.

Regardless of the outcome, the lawsuits filed by MSP Recovery show the enforcement of MSP obligations is only increasing and billions of dollars are at stake. RREs should have policies in place to ensure all reporting obligations are met.


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