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The United States Court of Appeals for the Fifth District (Texas) ruled that a claim for reimbursement of the costs for treatment for the effects of an industrial injury paid by Medicare, cannot circumvent the requirements of state workers’ compensation law. In other words, federal law does not preempt state law procedural requirements. Here is what happened in the case of Guadalupe Caldera vs The Insurance Company of the State of Pennsylvania.

Caldera injured his back at work in 1995. Workers’ compensation carrier Insurance Company of the State of Pennsylvania (“ICSP”) initially paid Caldera benefits pursuant to Texas state law. Still suffering from the injury, Caldera applied for and obtained Medicare benefits in 1998.

He then had two back surgeries: one in 2005 and another in 2006. Medicare paid for both, with costs totaling $42,637.41. Although Caldera did not seek preauthorization for either surgery from ICSP (a prerequisite for payment under Texas workers’ compensation law), he filed a claim with ICSP for these expenses, arguing that ICSP – not Medicare – was responsible for payment. An “Agreed Judgment” between ICSP and Caldera established that Caldera’s 1995 injury was the producing cause of the conditions that gave rise to his surgeries, but it did not liquidate any damages or require any payment.

Caldera filed a Medicare Secondary Payer Statute (MSP) reimbursement claim against ICSP in the state court action, seeking double-damages. At the time Caldera suffered no out-of-pocket loss for these costs. Medicare had taken no steps to recover these funds from ICSP or Caldera. His motivation – MSP contains a private right of action to incentivize citizens to aid the government in recovering funds erroneously paid by Medicare. (See 42 U.S.C. § 1395y(b)(3)(A)). A Medicare beneficiary may recover from his workers’ compensation carrier twice the amount that Medicare paid on his behalf if, among other things, the carrier qualifies as a “primary plan” – that is, if it “can reasonably be expected” to cover the expense “under a workmen’s compensation law or plan.” Id. § 1395y(b)(2)(A). To succeed, then, Caldera had to state a plausible claim that ICSP “can reasonably be expected” to pay for his surgeries under Texas workers’ compensation law.

ICSP answered that Caldera could not recover under the MSP because – regardless of the extent-of-injury issue – ICSP had no obligation to pay for surgeries that were not preauthorized in accordance with Texas workers’ compensation law. Caldera filed and lost a declaratory judgment action to determine whether the MSP preempts ICSP’s state-law defense. The United States Court of Appeals for the Fifth District (Texas) affirmed the dismissal in favor of ICSP.

The Court of Appeals noted that “Medicare serves as a back-up insurance plan to cover that which is not paid for by a primary insurance plan.” But, Caldera admits that he failed to obtain preauthorization for his surgeries, a state-law prerequisite for the receipt of workers’ compensation benefits from ICSP. Nevertheless, Caldera argues that ICSP qualifies as a “primary plan” that “can reasonably be expected” to pay because the MSP preempts the Texas preauthorization requirement. Caldera broadly argues that the MSP preempts any state laws that “impede the intent of recouping monies from primary payers” like ICSP.

The Court of Appeals agreed that “Congress explicitly prohibited workers’ compensation and other insurers from subordinating their payment obligations to those of Medicare.”. However, the court went on to state “[t]he MSP and its implementing regulations do not, however, extend so far as to eviscerate all state-law limitations on payment, as Caldera suggests. ….Indeed,numerous MSP regulations (indeed, an entire subchapter) presuppose the application of state workers’ compensation laws. …. In sum, we conclude that Congress intended the MSP to complement, not supplant, state workers’ compensation rules. This includes the preauthorization requirement that Caldera failed to meet before he filed suit.” The Court of Appeals concluded that Texas has gone to great lengths to craft a statutory structure that “carefully constructs rights, remedies, and procedures” to provide adequate coverage for injured workers…..That structure “contains detailed procedures and penalties for failures of the various interested parties to comply with statutory and regulatory requirements.” Id. at 440. “We will not upset this well-oiled machine absent a clear directive from Congress.”