The opinion of the court was delivered by: Honorable Richard J. Arcara United States District Judge
Pending before the Court in each of the above two cases are motions by all of the respective defendants to dismiss for lack of subject-matter jurisdiction under Rule 12(b)(1) of the Federal Rules of Civil Procedure ("FRCP"). These cases are not related. In the interest of judicial economy, however, the Court has decided to issue a joint Decision and Order because these cases do have one legal issue in common that is central to all of the pending motions. That legal issue is whether a failure by the Medicare Secondary Payer ("MSP") system to issue a timely conditional payment letter creates federal jurisdiction over a negligence case that otherwise belongs in state court.
Plaintiffs in both cases-represented by the same counsel-argue that there is federal jurisdiction for two reasons. First, plaintiffs cite overwhelming frustration with Medicare's inability to follow its own policies and to decide in a timely fashion whether it will assert subrogation rights in any given negligence case. According to plaintiffs, Medicare takes so long to decide whether to assert subrogation rights-several years in some cases-that it holds up the final payments for cases that otherwise have settled. Plaintiffs argue that if Medicare intends on holding up settled cases than it ought to be a named defendant in federal court, which would force it to make faster decisions about its potential interests. Second, plaintiffs contend that the extraordinary delay that Medicare imposes on some litigants amounts to an unconstitutional taking of settlement awards in violation of the Fifth Amendment. All defendants counter with slightly different arguments that plaintiffs' frustration with the MSP system by itself does not create a case or controversy that a federal court can resolve.
The Court held a joint oral argument for all pending motions in both cases on November 4, 2011. For the reasons below, the Court grants all of the pending motions and dismisses both cases for lack of subject-matter jurisdiction.
The Bond case concerns personal injuries allegedly sustained on an entrance/exit ramp at a golf course. On June 18, 2010, Morag Bond ("Morag") visited the Rothland Golf Course in Akron, New York. Although the complaint does not contain details, the Rothland Golf Course allegedly features a ramp at a passageway that serves as an entrance and exit to the restaurant and shop on the premises. This ramp allegedly features "a sudden and dramatic drop/step" (Dkt. No. 1 ¶ 49) that did not announce itself through any special signage, lighting, or other warnings. Morag reached the step without seeing it, falling down on the ramp and sustaining multiple injuries to her right knee and leg. On March 28, 2011, Morag and her husband Nigel filed a complaint in federal court. The complaint contained two causes of action. In the first cause of action, Morag seeks compensation for negligence related to the step on the ramp. Important to her argument, Morag does not seek recovery for medical expenses. In the second cause of action, Nigel seeks compensation for loss of consortium and services.
Morag's relationship to Medicare bears heavily on the pending motions
to dismiss her case. Morag is a Medicare subscriber. As a Medicare
subscriber, Morag reported her case and her primary health insurer's
payments to the MSP system as required by 42 U.S.C. § 1395y(b)(7, 8),
42 C.F.R. § 411.25, and associated regulations. Morag did so even
though she has submitted no claims to Medicare and has received no
money from Medicare for injuries, a fact that the United States has
since confirmed. (See Dkt. No. 12 ¶ 4 ("[Medicare's] records show no
Medicare Part A or Part B reimbursement on behalf of Morag J. Bond for
items or services on or after June 18, 2010 (the date of the alleged
incident as stated in the complaint in this matter) through the date
of this declaration.").) Medicare requires prompt reporting of new
incidents and injuries because it is a secondary payer for medical
expenses and has subrogation rights to recover expenses that a primary
insurer ought to have paid. See 42 U.S.C. § 1395y(b)(2)(B)(iv) ("The
United States shall be subrogated (to the extent of payment made under
this subchapter for such an item or service) to any right under this
subsection of an individual or any other entity to payment with
respect to such item or service under a primary plan."); 42 C.F.R. §
411.26(a) ("With respect to services for which Medicare paid, CMS [the
Center for Medicare Services] is subrogated to any individual,
provider, supplier, physician, private
insurer, State agency, attorney, or any other entity entitled to
payment by a primary payer."). Medicare does not assert subrogation
rights in a given case until a final award or settlement has occurred,
at which point it sends a formal recovery demand letter to the
recipient of the award or settlement. Meanwhile, however, Medicare
sends a subscriber a "Rights and Responsibilities" letter as soon as
the subscriber or the subscriber's primary insurer informs it of a new
case. Under Medicare policy, Medicare is supposed to send the
subscriber a "Conditional Payment Letter" automatically within 65 days
of issuance of the Rights and Responsibilities letter. The Conditional
Payment Letter lists Medicare payments made so far that are related to
the injuries in question and can help litigants who are trying to set
up a settlement or other final award.
Although the MSP system described above appears straightforward in design, Morag felt compelled to file her personal-injury case in federal court because the system does not function in practice. In practice, according to Morag, Medicare takes far longer than 65 days, sometimes years, to issue a Conditional Payment Letter. Meanwhile, personal-injury plaintiffs who are Medicare subscribers find themselves caught between Medicare and private insurers who are primary payers. Even when a case settles, private insurers refuse to issue any payments until they know whether Medicare will assert subrogation rights and for what amount. Private insurers take this position out of fear of being fined under 42 U.S.C. §§ 1395y(b)(7)(B)(i) and (b)(8)(E)(i), which punish private insurers that fail to disclose what payments they have made to which people. At the same time, Medicare refuses to make any commitments about asserting subrogation rights or about any amount of subrogation until private insurers make final payment. The result of these various tensions is that a personal-injury case like Morag's can settle in principle but remain in suspended animation for years while private insurers and Medicare engage in a blinking contest. On top of these tensions, Morag's counsel in particular takes the position in his practice that he cannot do anything to assist Medicare determine its subrogation rights because that would conflict with his duty to advocate for the largest possible recovery for clients like Morag.
Morag and her counsel decided to bring their case here in an attempt to break through all of the tensions that affect personal-injury cases like hers. According to Morag, the United States is a necessary party to her case so long as Medicare insists on being the sole impediment to a final resolution. By making the United States a defendant, Morag can force Medicare to make decisions about its subrogation rights more quickly. Morag also can avoid a delay in final resolution of the case that runs so long that, in her view, it violates the Fifth Amendment by depriving her of a settlement without interest or other compensation.
Defendants, particularly the United States, believe that Morag's approach to Medicare subrogation is all wrong and that this Court lacks jurisdiction to preside over her case. Defendants argue that the underlying substance of Morag's case has nothing to do with the MSP system, meaning that the case does not "arise under" any federal law for purposes of 28 U.S.C. § 1331.*fn1
Defendants argue further that, to the extent that this case "arises under" Medicare statutes in particular, the United States has not waived sovereign immunity as expressed ...