PROTECTING MEDICARE’S INTERESTS IN LIABILITY SETTLEMENTS
By: Jennifer L. Morris
New Medicare laws have caused significant changes to the liability settlement process. In December 2007, the Medicare, Medicaid and SCHIP Extension Act of 2007 (the “MMSEA”) was signed into law. While protecting Medicare’s interests in settlements is not a new requirement, the recent changes to the law affect what “protecting Medicare’s interests” actually entails. Accordingly, this article provides an introduction to the new Medicare reimbursement law and the MMSEA reporting requirements.
Medicare as a Secondary Payer
The Medicare Secondary Payer Act, enacted in 1980, attempted to reduce Medicare costs by requiring that Medicare be a secondary payer when a third-party payer or other “primary” insurance is available. Thus, Medicare acts as the “secondary payer” and is only responsible for those amounts not covered by a primary payer. This includes reimbursement for past treatment as well as protection of Medicare’s interests when future treatment will be necessary.
Medicare has what is frequently referred to as a “super lien.” This means that Medicare is not required to notify anyone of its right to reimbursement, nor is it required to make a request for reimbursement in order to enforce its right to recovery. Instead, the parties to a liability claim must notify Medicare of the claim, take action to determine the amount of the reimbursement and make payment accordingly.
Previously, under the Medicare Secondary Payer Act, the burden was on the injured party to satisfy Medicare’s liens. Defendants and their insurers were able to satisfy their obligations by requesting that injured parties satisfy liens out of their settlement proceeds. Thus, due to rising Medicare costs and ineffective recovery of secondary payments under the prior Act, the MMSEA was enacted in 2007.
Who is Required to Report?
The MMSEA has significantly expanded the duties of insurers under the Medicare Secondary Payer Act, shifting the burden from injured parties to insurance entities to satisfy reporting requirements for settlements involving Medicare recipients. The MMSEA imposes reporting requirements upon Responsible Reporting Entities, or “RREs”. RREs include group health plans, liability insurers, no-fault-insurers, workers’ compensation insurers, and individuals or entities engaged in business which are self-insured. RREs must report to the Center for Medicare and Medicaid Services (CMS), which is responsible for the implementation of the MMSEA. RREs must report every case where a settlement, award, judgment or other payment is made that involves a Medicare beneficiary, and are ultimately responsible for complying with the reporting process.
Medicare Reporting Obligations
RRE must report to CMS any settlement, judgment, award, or other payment to the claimant, regardless of whether or not there is an admission or determination of liability. The first step in addressing that obligation is to determine whether a plaintiff is Medicare eligible, and report that information to CMS. Accordingly, RREs should implement a procedure in their claims review process to ensure compliance. First and foremost, each individual claimant or potential member of a settlement group must be assessed for Medicare status. The date of birth, gender, SSN and Health Insurance Claim Number will be submitted electronically via CMS query to determine whether the claimant is a Medicare beneficiary. If the query results determine that the claimant is a Medicare beneficiary, the RRE must report the claim to the Coordination of Benefits Contractor (“COBC”), and may have to submit other information specific to the claim, such as the nature and extent of the injury or illness, the facts about the incident giving rise to the injury or illness, information sufficient to assess the value of reimbursement, and future care planning.
The next step is to communicate with the Medicare Secondary Payer Recovery Contractor (“MSPRC”) to determine what Medicare payments were and were not related to the underlying claim. The MSPRC may issue a conditional payment summary, including an itemized list of charges, dates of service, the amount billed, and diagnostic codes. It is important that the conditional payment summary be reviewed to verify that each charge included is related to the underlaying settlement. In some circumstances, one may need to ask that the Medicare lien amount be compromised or waived in order to allow the claim to settle. Accordingly, the MSPRC does not recommend waiting until a claim is settled before reporting the claim.
Payments to Medicare
Once it is determined that Medicare is entitled to reimbursement, the time frame for making such reimbursement is relatively narrow. Once notified of a final settlement between the Medicare beneficiary and the third-party payer, the MSPRC will issue a final demand letter setting forth Medicare’s entitlement. Regardless, payment must then be made within 60 days of settlement. Failure to timely make payment could result in liability to the insurance carrier, the attorneys and/or the claimant.
Penalties and Fines
In an effort to make these new reporting requirements enforceable, the MMSEA imposes on RREs a $1,000 per day penalty for non-compliance. Essentially, insurers could pay $1,000 per day for each claimant whose Medicare status is not fully reported to CMS. It is therefore imperative that the status of every claimant be verified through the query process, regardless of the claimant’s age or any other thresholds.
Additionally, if reimbursement is not made to Medicare within 60 days, CMS may bring an action against any entity that was required to reimburse Medicare as a primary payer. Not only can Medicare potentially collect the entire amount of their payments from these entities, they may also collect double the lien amount, plus interest. With such steep penalties, it is important that reportable claims do not slip through the cracks.
Future Medical Care
In situations that involve future medical care, the situation becomes more difficult. Although Medicare Set-Asides (“MSAs”) have become common in the Workers’ Compensation arena, they are not yet mandatory for liability settlements. An MSA is money set aside in an interest-bearing account from any settlement, judgment or award for any future medical expenses. Although the MMSEA does not specifically require MSAs, they are often the best way of protecting Medicare’s interest as a secondary payer. Thus, if possible to use a portion of a liability settlement for future treatment, an MSA may be an effective way of showing Medicare that its interests have been considered.
In liability cases, CMS is not bound by any allocation made by the parties for an MSA. However, even if Medicare will not review the settlement and provide specific approval for a set-aside, the parties must still take Medicare’s future interests into account. It is therefore advisable to undergo an MSA review by a competent provider to determine Medicare’s future interests, and then proceed with settlement. As in Workers’ Compensation, the settlement documents can be drafted so as to require that a claimant track the MSA money through an annual accounting, and when the funds are gone, request that Medicare begin payments.
Please note that CMS announced on Feb. 16, 2010 that the date for first reporting by non-group health plan RREs has been delayed from April 1, 2010 to January 1, 2011.