United States District Court, Eastern District of New York
July 25, 2002
MASON, ET AL.
AMERICAN TOBACCO CO., ET AL.
The opinion of the court was delivered by: Weinstein, Senior District Judge.
Plaintiffs bring this class action pursuant to the private cause of
action provision of the Medicare as Secondary Payer ("MSP') statute.
42 U.S.C. § 1395y(b)(3)(A) (2002). They seek certification of the
following proposed class:
Individuals who have received or are receiving health
care services for the treatment of tobacco-related
illnesses, including, but not limited to, lung
cancer, heart disease, emphysema, and chronic
obstructive pulmonary disease, which services have
been paid for or are being paid for, by Medicare.
Defendants oppose certification and move to dismiss.
The motion of certification is denied and the case is dismissed.
Viability of the action and certification are intertwined and need to be
considered together. See W. Gordon Dobie, Assuming the Factual
Truthfulness of Plaintiffs' Complaint and the Class Certification
Decision, 71 U.S.L.W. 2019 (2002); Karin S. Schwarz et al., Notes From
the Cave: Some Problems in Dealing with Class Action Settlements, 163
F.R.D. 369, 382 (1995); Szabo v. Bridgeport Machines Inc., 249 F.3d 672
674 (7th Cir.) (Easterbrook, J.), cert. denied, ___ U.S. ___, 122 S.Ct.
348, 151 L.Ed.2d 263 (Oct. 9, 2001).
The complaint is based upon an imaginative but inappropriate
interpretation of an ambiguous statute. As construed by plaintiffs it
would permit a qui-tam type of individual action where the entire
judgement for double the medicare payments would be split between the
government and the named plaintiffs; it would not support an action
masquerading as one for a class. Plaintiffs' attempts to limit the
statute's interpretation to cover only large corporate defendants is a
limiting construction having no support in the statutory language or
legislative history. As sought to be applied by plaintiffs the statute
would (distort the federal-state substantive tort balance by creating a
harsh (double recovery) shadow federal tort action in any case where
medicare payments were made on behalf of any person injured by the
delict. The language of the provision, while confusing, does not support
This action is quite different from a lien that Medicare might have
after recovery by a plaintiff who was a medicare beneficiary and was
injured by a mass tort. "Medicare has a right to intervene in the action
against the tortfeasor and can bring or join any action against the
responsible primary payor. Medicare can also pursue third parties,
including attorneys, who receive payments of any sums which should be
reimbursed to Medicare, a fact that would cause any prudent personal
injury attorney to involve Medicare before any disbursement of settlement
proceeds is made." Denekas v. Shalala, 943 F. Supp. 1073, 1080 (S.D.Iowa
1996) (internal quotations omitted); see also 42 U.S.C. § 2651 (a)
(2002). The government has declined to intervene directly in this case,
instead bringing all claims before Judge Kessler in the District Court
for the District of Columbia. Despite the decision not to intervene
directly, a representative of the government argued forcefully on
plaintiffs' behalf at the hearing of July 2, 2002. See Transcript at
Should the court of appeals find that a valid cause of action has been
stated on behalf of a class, a viable class action could be accommodated
and certified under Rule 23 of the Federal Rules of Civil Procedure.
Denial of certification and dismissal is not based upon any failure to
come within the procedural ambit of Rule 23.
II. History of the MSP Provision
From 1965 to 1980 Medicare was the primary payer of health care costs
for individuals over the age of 65. United States v. Blue Cross Blue
Shield of Michigan, 859 F. Supp. 283, 286 (E.D.Mich. 1994). The Medicare
Secondary Payer Act of 1980 sought to lower Medicare's expenses by making
Medicare the secondary payer, after any other entity contractually
obligated to pay for an individual's primary health care. HIAA v.
Shalala, 23 F.3d 412, 414 (D.C.Cir. 1994).
Pursuant to the statute, Medicare is to be the secondary payer when:
[P]ayment has been made, or can reasonably be expected
to be made promptly (as determined in accordance with
regulations) under a workman's compensation law or
plan of the United States or a State or under an
automobile or liability insurance policy or plan
(including a self-insured plan) or under no fault
42 U.S.C. § 1395y(b)(2)(A)(ii) (2002).
In such cases, the primary insurer is expected to pay for the
services. If an entity responsible for payment fails to do so. the
government can sue that entity for reimbursement of payments Medicare
made. 42 U.S.C. § 1395y(b)(2)(B)(ii) (2002). In addition, the MSP
statute creates a private right of action with double recovery to
encourage private parties who are aware of non-payment by primary
insurers f to bring actions to enforce Medicare's rights.
42 U.S.C. § 1395y(b)(3)(A) (2002). In such private suits, both
Medicare and the private plaintiff can recover 100% of any amount that
should have been paid by the primary obligor. Id. The provision reads:
Private cause of action. There is established a
private cause of action for damages (which shall be in
an amount double the amount otherwise provided) in the
case of a primary plan which fails to provide for
primary payment (or appropriate reimbursement) in
accordance with [the MSP statute].
42 U.S.C. § 1395y(b)(3)(A) (2002).
Plaintiffs seek to recover under this statutorily authorized private
cause of action.
III. Statutory Interpretation
The words of the statute provide the initial basis for determining its
meaning. Robinson a. Shell Oil Co., 519 U.S. 337, 340, 117 S.Ct. 843, 136
L.Ed.2d 808 (1997). "[W]hen a general word or phrase follows a list of
specific persons or things, the general word or phrase will be interpreted
to include only persons or things of the same type as those listed." See
Black's Law Dictionary 535 (7th ed. 1999). See also United States v.
Abozid, 257 F.3d 191, 198 (2d. Cir. 2001). The list of responsible
entities in 42 U.S.C. § 1395y(b)(2)(A)(ii) primarily includes various
types of insurance companies: "a group health plan or large group health
plan, . . 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) (2002). The logical
inference is that a "self-insured plan" as included in that list means an
entity that has assumed a posture similar to that of an insurance
company. Defendants are not insurance companies and they have no apparent
agreement or policy to be self-insured plans covering general tort
Other courts have repeatedly suggested rejection of claims that
tortfeasors similar to defendants are "self-insured plans" under the
meaning of the MSP statute. See United States v. Philip Morris, Inc.,
116 F. Supp.2d 131, 135 (D.D.C. 2000); United States v. Philip Morris
Inc. 156 F. Supp.2d 1 (D.D.C. 2001); In re Diet Drugs (Phentermine,
Fenfluramine, Dexfenfluramine) Prods. Liab. Litig., Civ. A. 99-20593,
2001 WL 283163 (E.D.Pa. March 21, 2001); In re Orthopedic Bone Screw
Prods. Liab. Litig. 202 F.R.D. 154 (E.D.Pa. 2001); In re Silicone Gel
Breast Implants Prods. Liab. Litig., 174 F. Supp.2d 1242 (N.D.Ala.
2001); Thompson v. Goetzmann, No. Civ. A. 3:00-CV-21774, 2001 WL 771012
(N.D.Tex., July 3, 2001); In re Dow Corning Corp., 250 B.R. 298, 338 n.
24 (Bankr.E.D.Mich. 2000).
The Health Care Financing Admimstration ("HCFA"). which administers
Medicare, defines plan as "any arrangement. oral or written, by one or
more entities. to provide health benefits or medical care or assume legal
liability for injury or illness." 42 F.R.C. 411.21 (2002). HCFA defines a
self-insured plan as "a plan under which an individual, or private or
governmental entity, carries its own risk instead of taking out insurance
with a carrier." 42 F.R.C. 411.50 (2002). HCFA has ruled that "the mere
absence of insurance purchased from a carrier' does not necessarily
constitute a "plan' of self-insurance." Medicare as Secondary Payer and
Medicare Recovery Against Third Parties, 54 Fed. Reg. 41716, 41727 (Oct.
Defendants' status as accused tortfeasors, standing alone, does not
convert them under the statute into primary plans or self-insured plans
for Medicare beneficiaries injured, by using their products. As Judge
Kessler (dismissing similar claims brought by the government against
similar defendants) put it, one requirement for an entity to be a
self-insured plan is "the provider must establish a fund with an
independent fiduciary which is documented by a written agreement that
includes legal responsibilities and obligations required by State laws"
for payment of medical expenses of those injured by its products Mt.
Diablo Med. Ctr. v. Blue Cross & Blue Shield Ass'n, Dec. No. 96-D40,
1996 WL 862610 at *6 (P.R.R.B., July 1, 1996) quoted in United States v.
Philip Morris, Inc., 156 F. Supp.2d 1, 6 (D.D.C. 2001) . Defendants have
no such plan in place. Conceivably they might have a self-insured plan
covered by the statute to protect their own workers against medical costs
or to cover persons injured by their own vehicles, but that is an
entirely different category of self insurance from the kind of' coverage
against mass torts upon which plaintiffs predicate this suit.
Plaintiffs seek to narrow the breathtaking scope of the statute as they
interpret it by limiting it to large corporations. See Plaintiffs'
Memorandum of Points and Authorities in Support of their Motion for Class
Certification of Count 1 at 51 (April 1, 2002). As corporations (whose
corporate structure is designed to protect against individual stockholder
liability), plaintiffs argue, the defendants became self-insured plans.
There is no support in the statute for this purported limitation Similar
arguments have been rejected by other courts. United States v. Philip
Morris, 156 F. Supp.2d at 7-8.
The law assumes that legislatures are "reasonable persons pursuing
reasonable purposes reasonably." 1 Henry M. Hart, Jr. & Albert M.
Sachs, The Legal Process: Basic Problems in the Making and Application of
Law 1415 (tent. ed. 1958) quoted in Eva H. Hanks at. al., Elements of Law
256 (1994). If Congress designed the provision so that corporate
structure or wealth characterized a self-insured plan.
more specific statutory language would be expected.
Legislative history is an appropriate tool in interpreting ambiguous
statutes; the order of changes to legislation can provide insight into
the intention of Congress. See e.g. Paulina v. United States, 11 U.S. (7
Cranch) 52, 61, 3 LEd. 266 (1812) ("we consider the laws in the order in
which they were passed."). The legislative history of this statute
provides no indication of a Congressional design to include an enormous
group of Potential tortfeasors as primary payor's subject to double
recovery under the statute. The legislative history of the MSP Statute is
cryptic and uninformative on the interpretive question now raised. The
MSP was added in the Medicare Amendments of 1980 to cover automobile
insurance because of the widespread state requirement of insurance
against accident injuries in this specialized tort field. The House
report for the pertinent section reads:
MEDICARE PAYMENT LIABILITY SECONDARY IN CERTAIN
AUTOMOBILE INSURANCE CASES
Under Title VIII, medicare will have residual rather
than primary liability for the payment of services
required by a beneficiary as a result of an injury or
illness sustained in an auto accident whet payment for
the provision of such services can also be made under
an automobile insurance policy. Under this provision,
it is expected that medicare will ordinarily pay for
the beneficiary's care n the usual manner and then
seek reimbursement from the private insurance carrier
after, and to the extent that, such carrier's
liability under the private policy for the services
has been determined.
HR. REP. No. 96-1167, at 389 (1980), reprinted in 1980 U.S.C.C.A.N.
4726, 5752 (emphasis added).
The section was subsequently changed in both the Senate amendment and
in the joint conference agreement as indicated by the report:
Senate amendment. — The Senate amendment
contains a similar provision except that (a) medicare
would be the secondary payer in any case where care
can be paid for under any liability insurance policy
(including an automobile insurance policy) or under a
no-fault insurance plan; and (b) the Secretary is
authorized to waive this provision if he determines
that the probability of recovery or the amount
involved under such a policy or plan does not warrant
the pursuing of the claim.
Conference agreement. — The conference agreement
follows the Senate amendment with modifications to
clarify that the provision (a) is also applicable to
self insurance plans, and (b) will be administered,
with respect to the recovery of amounts payable under
a plan or policy, as provided in the House bill . . .
H.R. CONF. REP. NO. 7765, at 133 (1980), reprinted in 1980 U.S.C.C.A.N
4726, 5924 (emphasis added).
This sparse legislative history does not provide any indication that
the MSP statute was intended to apply to tortfeasors generally. Nor does
it oiler any support for plaintiffs' suggested distinction between large
corporations and "mom and pop" corporations without liability insurance.
There is no indication of legislative design to treat a homeowner or any
individual without insurance differently from a small "S" corporation or
a huge public corporation.
IV. Inappropriateness of Class Action
Plaintiffs have moved for class certification. A class action is not
appropriate. Class actions allow many small claims to be litigated
together, making it cost-effective to prosecute the claims. See, e.g.,
Oil Co. v. Bernard, 452 U.S. 89, 99-100 n. 11, 101 S.Ct. 2193, 68 L.Ed.2d
693 (1981). Requiring each individual to bring suit against the tobacco
companies to recover their individual Medicare costs would not be cost
effective. The MSP statute does not by its terms require each individual
covered by Medicare to bring stilt. Through a private cause at action any
"private attorney general" may sue. The statute does not specify that the
action be brought by a person who received the Medicare payment. It
authorizes a civil proceeding similar to a qui tam action where anyone
can bring a claim on behalf of the United States government and receive a
bounty See e.g. False Claims Act, 31 U.S.C. § 3730 (2002); Vermont
Agency of Nataral Res. v. U.S. ex rel. Stevens. 529 U.S. 765, 120 S.Ct.
1858, 146 L.Ed.2d 836 (2000).
If the class were certified according to the plaintiffs' proposal,
individual class members who received medicare benefits would receive a
portion of the bounty without having done any of the work (or taking any
of the risk) in bringing the suit. They would receive damages for being a
Medicare recipient with a tobacco-related illness. This resolution is
inconsistent with the qui tam-like nature of the MSP. All taxpayers or
payors of medical premiums are harmed by Medicare paying for services for
which other entities ought to cover. Plaintiffs' plan to divide the money
among Medicare recipients with a tobacco-related illness would be an act
of' benevolence, not a reason for class certification.
Defendants' motion to dismiss is granted. Certification is denied.
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