The Medicare, Medicaid, and SCHIP Extension Act of 2007: Medicare Gets Serious About Reimbursement in Personal Injury Liability Claims
Defendants, insurers, self-insureds and attorneys in personal injury litigation need to be aware of and comply with specific statutes and rules relating to Medicare in all cases involving plaintiffs who are Medicare beneficiaries or Medicare-eligible. Failure to comply with these rules can result in lawsuits, penalties and fines against defendants, insurers and self-insureds – even if they already have settled with the plaintiffs and closed their files. With stringent new reporting requirements taking effect on January 1, 2011, it is no longer sufficient for a settling defendant to attempt to protect itself by relying on the settling plaintiff to satisfy a Medicare lien. This article provides a brief overview of current law on Medicare liens, the new Medicare reporting requirements that will be implemented next year, and the need to consider Medicare’s interests when settling with Medicare beneficiaries who will require future medical care.
The Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA)1 is the most recent addition in a series of expansions to the Medicare Secondary Payer Act (MSPA). Enacted in 1980, the MSPA created a statutory duty for liability insurers and self-insured entities to protect Medicare’s interests with respect to past and future benefits paid by Medicare. The Centers for Medicare and Medicaid Services (CMS) is empowered by the MSPA to collect Medicare reimbursements and to pursue damages against any entity that has responsibility to reimburse Medicare after settlement of a claim. The MMSEA provides that liability insurers and self-insured entities2 must register with CMS for online reporting and report settlements with claimants who are Medicare beneficiaries. Reporting requirements under the MMSEA apply to foreign and U.S. entities.3 Insurance carriers and self-insured entities that do not reasonably consider and protect Medicare’s interests with respect to covered claims are subject to harsh penalties under the MMSEA.
CMS recently delayed the implementation date for the reporting requirements of the MMSEA until January 1, 2011.4 Nevertheless, liability insurers and self-insured entities already should be registered with CMS and testing data exchanges with the Coordination of Benefits Contractor using the Coordination of Benefits secure website. This testing will continue through the end of 2010, as needed.
Attorneys and insurers who are engaged in personal injury liability claims involving Medicare-eligible claimants must give serious consideration to the interests of Medicare when resolving these claims or risk facing significant penalties. This includes obtaining, through discovery or other means, the necessary information regarding a plaintiff’s Medicare eligibility or benefits and reporting the claim to CMS. Similarly, attorneys and insurers (and self-insureds) must take the necessary protective and proactive steps when negotiating a settlement with a Medicare-beneficiary or Medicare-eligible plaintiff. Specifically, they must ensure that Medicare liens are paid and that future medical expenses are reasonably considered and accounted for, such as in a Medicare Set-Aside (MSA) Agreement that becomes part of the settlement agreement.
The Medicare Secondary Payer Act
The MSPA was enacted with the purpose of ensuring that Medicare would remain a secondary payer5 for medical expenses in general liability, no-fault and workers’ compensation claims.6 Medicare often makes the first payment to providers for healthcare services. These Medicare payments, however, are considered “conditional payments” (commonly referred to as Medicare liens) under the MSPA.7
In situations where a primary payer is expected to pay, Medicare ultimately should not pay because Medicare is a payer of last resort. The MSPA mandates that in all situations where another entity is required to pay for covered services, that entity not only must pay before Medicare does, but must do so without regard to a patient’s Medicare entitlement. Under the MSPA, primary payers must give “reasonable consideration” to Medicare’s interests, including its past (or conditional) payments and future Medicare-covered expenses. In the litigation context, self-insured defendants and insurance companies with personal injury-related tort liabilities are considered primary payers under the MSPA and, therefore, must consider Medicare’s interests when resolving a claim or lawsuit involving Medicare-eligible parties.
1. Potential Penalties Under the MSPA
As a secondary payer, Medicare can and will seek reimbursement from a primary payer for its conditional payments if it determines that those payments were the responsibility of the primary payer.8 Although CMS cannot demand reimbursement until a beneficiary’s claim is settled,9 Medicare is entitled to reimbursement regardless of whether or not there has been a finding or admission of liability.10
If a responsible primary payer does not reimburse Medicare for its conditional payments, the potential remedies are severe. Significantly, the MSPA gives Medicare automatic subrogation rights for its conditional payments.11 Medicare, therefore, has a direct right of action to obtain reimbursement from both the primary payer (i.e., the settling defendant or its insurer) and the beneficiary of the payment (i.e., the settling claimant).12 Additionally, if CMS is forced to bring suit against a primary payer, Medicare is entitled to recover double damages plus interest.13 This is the case even though the primary payer already has settled with and made payment to the Medicare beneficiary. Thus, when negotiating a settlement, a defendant must ensure that the Medicare lien for past medical expenses will be satisfied and must reasonably consider Medicare’s interests if there is a prospect of future medical expenses.
2. Avoiding MSPA Penalties for Future Medical Expenses – The Medicare Set-Aside
In the context of liability claims, the MSPA has lacked a system of regulating compliance with its provisions, specifically in the realm of post-settlement medical payments. In contrast, in the workers’ compensation context, CMS has issued guidelines on how to best protect Medicare’s financial interests regarding future medical expense payments. For example, the guidelines recommend use of a CMS-approved MSA, which takes into account the future medical expenses that otherwise would be covered by Medicare over the claimant’s life expectancy. Only when the CMS-approved MSA has been exhausted and accurately accounted for to CMS will Medicare assume primary payment responsibilities for future Medicare-covered expenses related to the workers’ compensation injury.14
CMS has indicated that MSAs should be utilized in the workers’ compensation scenario and should be submitted to CMS for review when the claimant is either: (1) a current Medicare beneficiary and the total settlement amount is greater than $25,000; or (2) the claimant has a “reasonable expectation” of Medicare enrollment within 30 months of the settlement date and the anticipated total settlement amount for future expenses over the life or duration of the settlement agreement is expected to be greater than $250,000.15 CMS no longer reviews workers’ compensation MSA proposals when the total settlement amount is $25,000 or less. This standard, however, is not a “safe harbor”; it is only a workload review threshold.
Although CMS has not provided any clear guidance on how to consider Medicare’s future interests in liability cases, CMS has been reviewing liability MSAs on a discretionary basis since 2007.16 MSAs, therefore, can be a useful tool to protect against CMS enforcement actions in both the workers’ compensation and liability contexts.
The Medicare, Medicaid, and SCHIP Extension Act of 2007
The MMSEA substantially expands the federal government’s ability to seek reimbursement of past and future Medicare payments in covered claims, including liability claims. In addition to the requirements of the MSPA, primary payers also are required to comply with the registration and reporting requirements of Section 111 of the MMSEA. Under the MMSEA (like the MSPA), defendants and insurance companies (and self-insureds) with personal injury-related tort liabilities are considered primary payers. Like the MSPA, the MMSEA also requires that defendants and insurance companies with personal injury-related tort liabilities (and their respective counsel) all “reasonably consider” Medicare’s interests, including its future interests, when resolving personal injury liability claims. The overarching purpose of the MSPA and the MMSEA is to ensure that Medicare remains a secondary payer for medical expenses in general liability, no-fault and workers’ compensation claims and to shift the costs from Medicare to private sources.
To help achieve this goal, the MMSEA requires that Responsible Reporting Entities (RREs) communicate specified information regarding Medicare-eligible claimants to CMS to ensure proper coordination of benefits with the Medicare program.17 Liability insurers (including self-insureds), no-fault insureds and workers’ compensation plans are all RREs that are subject to this requirement If an RRE determines that a claimant is eligible for Medicare benefits, the RRE must report specific information to CMS when the claim is resolved by settlement, judgment, or other payment.18 The MMSEA requires that reportable information be submitted regardless of whether there is an admission of liability.19 This required information includes the identity of the claimant, the claimant’s social security number, the condition of the claimant for which he/she is being paid, and the date of the injury. Of course, CMS also requires the date and the amount of the settlement or payment.
For many years, plaintiffs’ law firms were the only parties in liability cases obligated to report settlements involving their Medicare-beneficiary clients. Defendants’ insurers and self-insured defendants now also bear this burden. After these settlements are reported, CMS will match the list of tort settlements reported by defendants against paid Medicare beneficiary claims. The MMSEA provides CMS with broad latitude to seek reimbursement of these claims. CMS, in the first instance, may choose to seek reimbursement from the plaintiff and the plaintiff’s law firm, even if settlement proceeds already have been distributed. But the MMSEA also permits CMS to seek reimbursement directly from defendants and their insurers for settlement payments that they have made.
The MMSEA imposes severe penalties for not complying with its reporting requirements, which are in addition to the penalties that can be imposed under the MSPA.20 Indeed, in cases of improper reporting, CMS has the right to impose a fine equal to $1,000 per day per claimant.21
Defendants, their insurers and their attorneys must exercise caution when handling personal injury-related tort claims. Although the MMSEA has alleviated some uncertainties about the MSPA’s application to personal injury liability cases, CMS has not yet promulgated guidelines for complying with all of the expanded requirements of the MMSEA when settling such claims. More specifically, CMS has not provided clear guidance on what actions will constitute “reasonable consideration” of Medicare’s future interests in liability claims.
When faced with a personal injury settlement involving a Medicare beneficiary or Medicare-eligible claimant, the defendants, their insurers and their attorneys must “reasonably consider” Medicare’s interests and report the required information about these claims to CMS. And, although MSAs are not currently required in personal injury liability claims, many commentators share the opinion that these agreements provide the best approach to protect Medicare’s interests for future expenses in such cases.22 Therefore, to the extent a liability settlement meets the criteria developed in the workers’ compensation context described above, the parties should consider a set-aside to protect Medicare’s interests where the claimant is expected to incur future medical expenses as a result of the accident giving rise to the claim.23
Additionally, to avoid the severe and cumulative penalties permitted under the MSPA and MMSEA, attorneys must request and obtain the necessary information regarding a plaintiff’s Medicare eligibility through discovery or other means, and also be aware of a plaintiff’s Medicare status during the settlement process.
The MSPA and the MMSEA were implemented with the goal of assuring Medicare’s secondary payer status and to ensure that the settling parties adequately protect Medicare’s interests. The cost of their application, and the risk and penalties for failing to act properly, ultimately will be borne by the parties involved in the underlying litigation and their counsel. It is likely that due to the high cost of noncompliance, the MMSEA will have a chilling effect on settlements in claims brought by Medicare beneficiaries, especially where the settlement value is equal to or less than the Medicare lien. There also are concerns that the MMSEA will increase the cost of settlement and delay the settlement process.24
At its best, the MMSEA provides a reminder to the parties to keep Medicare’s past and future interests in mind when settling cases. But at its worst, the MMSEA is a reporting statute that carries significant financial penalties, which may hinder the settlement of liability actions involving Medicare-eligible beneficiaries by requiring additional levels of approval and delay and by not allowing the settling parties to truly buy peace and finality. Hopefully, the CMS will provide additional guidance in the near future to help insurers, self-insured defendants and their attorneys better comply with the requirements of the MMSEA and MSPA.
1 Pub. L. No. 110-173 (2007) (codified in various sections of 42 U.S.C.).
2 These entities include Group Health Plans (including health insurance companies) (GHPs) and Non-Group Health Plans (including liability, no-fault, self-insurance and workers’ compensation insurance plans) (NGHPs).
3 CMS issued an alert on December 29, 2009, that provides information for foreign entities to register and report through the Coordination of Benefits secure website.
4 See CMS website at http://www.cms.gov/MandatoryInsRep/04_Whats_New.asp#TopOfPage.
5 Generally, Medicare is “secondary” in two situations: (1) GHPs for Medicare beneficiaries who are eligible Medicare beneficiaries (i.e., age 65 and older, or under the age of 65 with a disability or end-stage renal disease) and who have GHP coverage on the basis of their or their spouse’s current employment; and (2) when certain types of NGHP insurance coverage, including liability (and self-insurance), no fault and workers’ compensation insurance are responsible for a Medicare-eligible individual’s healthcare expenses. 42 U.S.C. § 1395y(b)(2)(A)(ii).
6 42 U.S.C. § 1395y(b).
7 There are other instances where a “conditional payment” by Medicare can arise, such as when: (1) a claim is denied or disputed by the primary payer; (2) the primary payer fails to make prompt payment; (3) Medicare makes payment without knowledge of the primary payer’s existence; (4) the claimant fails to document the primary payer’s existence; (5) Medicare is mistakenly billed instead of the primary payer; and (6) the beneficiary fails to file a proper claim due to mental or physical incapacity. See 42 C.F.R. §§ 411.45(a)(2), 411.53(2).
8 42 U.S.C. § 1395y(b)(2)(B)(ii); 42 C.F.R. § 411.24(b), (e).
9 See MSP Manual, Ch. 7, § 50.4.1.
10 See 42 U.S.C. § 1395y(b)(2)(B)(ii); 42 C.F.R. § 411.24; MSP Manual, Ch. 7, §126.96.36.199.
11 42 U.S.C. § 1395y(b)(2)(B)(iv); 42 C.F.R. § 411.26.
12 42 U.S.C. § 1395y(b)(2)(B)(ii); 42 C.F.R. § 411.24(b), (e).
13 42 U.S.C. § 1395y(b)(2)(B)(ii); 42 C.F.R. § 411.24(c)(2), (h), (m). Even if CMS takes no legal action to recover its conditional payments, CMS still may recover the lesser of the conditional payment or the full payment that the primary payer is obligated to pay. 42 C.F.R. § 411.24(c)(2). If the Medicare beneficiary does not timely reimburse Medicare for its conditional payments, a primary payer remains liable to reimburse Medicare for two times the reimbursement amount.
14 42 C.F.R. § 411.46(d)(2).
15 Workers’ Compensation Set-Aside Arrangements, https://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/Workers-Compensation-Medicare-Set-Aside-Arrangements/WCMSA-Overview.html, at 1 (hereinafter WCMSA).
16 It is important to point out that CMS’s refusal to review a liability MSA does not provide a “safe harbor” for settling parties. The parties still should protect Medicare’s interests, even as to post-settlement benefits.
17 42 U.S.C. § 1395y(b)(7)(A), (b)(8)(A).
18 42 U.S.C. § 1395y(b)(8)(A)(ii).
20 42 U.S.C. § 1395y(b)(7), (b)(8).
21 42 U.S.C. § 1395y(b)(8)(E)(i).
22 See Renee Y. Little, The Check’s Almost in the Mail: Legal and Practical Handling of Medicare Liens and Other Medicare Roadblocks to Settlement, Defense Research Institute Annual Meeting Course Materials, October 2008, at 590.
23 See WCMSA, at 3.
24 Rick Swedloff, Can’t Settle, Can’t Sue: How Congress Stole Tort Remedies From Medicare Beneficiaries, 41 Akron L. Rev. 557, 600 (2008).