Danger! Rough Waters Ahead: Enforcement of New Medicare Law Could Shipwreck Your Settlement
Dicta - The Journal of the Knoxville Bar Association – August 2009
By Heidi A. Barcus and Ian P. Hennessey

When it was signed into law on December 29, 2007, much of the media attention surrounding the Medicare, Medicaid, and SCHIP Extension Act of 2007 (“MMSEA”)¹ was focused on the political showdown between Congress and the Bush Administration over health insurance for children in low-income families.  However, the final bill contained new measures aimed at protecting Medicare’s interests as a secondary payer where a different primary payer is responsible for Medicare beneficiary’s medical expenses.²  The specific amendments, effective July 1, 2009, created a new layer of responsibilities for insurance carriers, self-insured entities, and workers’ compensation plans.  More importantly, these reforms indicate that the federal government is now committed to more aggressively pursuing reimbursement for payments made on behalf of Medicare beneficiaries in liability cases.

Furthermore, it is no longer sufficient to put language in the settlement agreement which places the burden on the plaintiff to pay the Medicare lien.  Failure of counsel for either party to write a check to Medicare could result in a lawsuit directly against the attorney or the party.  Following settlement or judgment, Medicare is permitted to bring direct action to recover its expenses against an insurance carrier, even if the carrier has already paid a judgment or settlement to the Medicare beneficiary.  In addition, Medicare may seek reimbursement directly from any party – including attorneys – that received payment from an entity responsible for paying the beneficiary’s medical expenses.  Accordingly, both plaintiff and defense attorneys must become aware of the new provisions as well as the existing law and regulations concerning Medicare as a secondary payer.

Background
When Medicare law was originally enacted in 1965, Medicare was in most cases the primary payer for hospital care for those over 65 years old – even when another source of coverage existed.  However, the 1965 version of the Medicare law also provided that coverage would be secondary to workers’ compensation benefits, and that any payment to or on behalf of a Medicare beneficiary eligible for workers’ compensation benefits would be contingent upon reimbursement.³  Over time, Congress enacted a series of amendments that made Medicare the secondary payer to certain additional primary plans.⁴  The purpose of these amendments was to shift costs from the Medicare program to private sources of payment.⁵  These provisions are commonly referred to as the Medicare Secondary Payer (MSP) provisions and can be found at 42 U.S.C. § 1395y(b).⁶ 

Pursuant to the MSP provisions, the Centers for Medicare & Medicaid Services (“CMS”) is prohibited from making payments for covered services if payments have been made or can reasonably be expected to be made under a primary plan.⁷  CMS is permitted, however, to make payments for covered services when the primary plan has not made or cannot reasonably be expected to make payment “promptly,”⁸ which is defined as “within 120 days after receipt of the claim.”⁹  Such payments are conditioned upon reimbursement by the primary plan responsible for making payment.¹⁰  Primary plans are required to reimburse Medicare for any payment made by Medicare for covered services if it is demonstrated that the primary payer has or had a responsibility to make payment for the covered services.¹¹  A primary plan’s responsibility for making such payment may be demonstrated by a judgment, a payment conditioned upon the recipient’s compromise, waiver, or release of payment (whether or not there is a determination or admission of liability) for the covered services included in a claim against the primary plan or the primary plan’s insured, or by other means.¹²

Under the statute, the term “primary plan” refers to a group health plan or large group health plan under subsection (i), or a workers’ compensation plan, automobile insurance policy, liability insurance policy, or no-fault insurance under subsection (ii).¹³  “Liability insurance”means insurance (including a self-insured plan) that provides payment based on legal liability for injury or illness or damage to property.¹⁴  This category includes, but is not limited to, automobile liability insurance, uninsured motorist insurance, underinsured motorist insurance, homeowners’ liability insurance, malpractice insurance, product liability insurance, and general casualty insurance.¹⁵

Under previous versions of the statute, many insurance companies and self-insureds were able to avoid classification as primary payers due to a condition precedent in the language of the statute.  Until 2003, insurance carriers and self-insureds were responsible for making payment only if they could do so “promptly,” which was defined in the regulations as within 120 days.¹⁶  In practice, this requirement had the effect of relieving insurance carriers and self-insureds from responsibility as a primary payer because the applicability of the statute rested on whether the entity had the ability to render payment “promptly.”  However, the Medicare Modernization Act of 2003 removed the word “promptly” from the statute, thereby rendering insurance carriers and self-insureds primary payers regardless of their ability to make payments within 120 days.¹⁷ 

MMSEA Reporting Requirements
Under MMSEA, effective July 1, 2009, insurance carriers, self-insureds, and workers’ compensation plans (referred to as “responsible reporting entities” or “RREs”) must collect and report certain information to CMS regarding any settlement, award, judgment, or other payment made to a Medicare beneficiary.  The duty to report arises when there is an expectation of making a payment (e.g. settlement or judgment) – if there is no liability and no expectation of making payment, there is no duty to report.¹⁸  However, if the RRE fails to report information in a timely manner as required under the statute, the RRE will be subject to civil penalties of $1,000 for each day that a claim report is untimely.¹⁹

The reporting provisions of the MMSEA require RREs to determine whether a claimant (including an individual whose claim is unresolved) is entitled to Medicare benefits and, if so, to report the identity of the claimant as well as certain other information to CMS.²⁰  As such, RREs are required to implement claims review procedures that identify whether an injured party is a Medicare beneficiary.  If a duty to report exists, the RRE must provide notice to CMS of the Medicare beneficiary’s identity (including the social security number of the injured party).²¹  In addition, the RRE must also provide a description of the specific situation, the circumstances, and, if appropriate, the time period during which the RRE is primary to Medicare.²²  Finally, the RRE must provide any additional information required by CMS to make an appropriate determination concerning coordination of benefits, including any applicable recovery claim.²³ 

Reporting requirements differ based on the nature of the liability claim against the primary payer.  In the case of a settlement, judgment, award, or other payment without a separate ongoing responsibility to pay for covered services at any time, only one report is required to be submitted by the RRE.²⁴  However, if a primary payer has accepted an ongoing responsibility to pay for covered services (such as in cases involving workers’ compensation and no-fault claims) then the RRE must submit two reports – an initial record to reflect the acceptance of ongoing payment responsibility and a second record to reflect the final date of ongoing payment responsibility.²⁵

Medicare Recovery and Reimbursement
The reforms to MSP reporting requirements under the MMSEA demonstrate that the federal government is now committed to more aggressively pursuing reimbursement for payments made on behalf of Medicare beneficiaries in liability cases.  Accordingly, it is important that attorneys familiarize themselves with existing regulations concerning Medicare’s recovery and reimbursement as a secondary payer.

CMS is permitted to initiate recovery as soon as it learns that payment has been made or could be made by an RRE under workers’ compensation, any liability or no-fault insurance, or an employer group health plan.²⁶ The amount of CMS’s recovery depends on whether it must resort to legal action to obtain reimbursement.  If it is not necessary for CMS to take legal action to recover, CMS recovers the lesser of (i) the total amount of conditional payments made on behalf of the beneficiary or (ii) the full amount paid in resolution claim, whether the result of a judgment or settlement.²⁷  For example, assume that Medicare paid $50,000 for medical care on behalf a beneficiary who has a brought a claim seeking compensation for the injuries giving rise to the medical care.  If the beneficiary settles her claim for $100,000, Medicare will recover its full $50,000.  If the beneficiary settles her claim for $25,000, Medicare will recover $25,000.

In addition, there is no provision within the statute or the regulations which recognizes any allocation of fault in a liability judgment or settlement.  The regulations do allow, however, for the deduction of “procurement cost” (e.g. attorneys fees) when a beneficiary’s claim is disputed, thereby allowing plaintiffs’ counsel to be compensated.²⁸ 
If CMS must take legal action to obtain reimbursement from a primary payer, CMS is permitted by statute²⁹ and regulation³⁰ to recover double damages.  In the event CMS takes legal action to recover conditional payments for which a primary payer is responsible, the beneficiary must cooperate in the action.³¹  If CMS’s recovery action is unsuccessful due to the beneficiary’s failure to cooperate, CMS may recover directly from the beneficiary.³² 
CMS has a direct right of action to recover from any primary payer.³³  CMS may recover by direct collection or by offset against any monies CMS owes the entity responsible for refunding the conditional payment.³⁴  In addition to its right to recover from the primary payer, CMS has a right of action to recover its payments from any entity, including a beneficiary, provider, supplier, physician, attorney, state agency or private insurer that has received payment from a primary payer.³⁵  CMS also has a subrogation interest in payments owed by a primary payer, which may be enforced against any individual, provider, supplier, physician, private insurer, state agency, attorney, or other entity entitled to payment by the primary payer.³⁶  Further, CMS has the right to join or intervene in any action related to the events that gave rise to the need for services for which Medicare paid.³⁷  Thus, just as workers’ compensation carriers have a statutory right to intervene in a lawsuit by an employee against an employer, the interests of Medicare are statutorily protected by a right to intervene in a lawsuit between a beneficiary and a third party.

If the beneficiary or other party receives payment from a primary payer, the beneficiary or other party must reimburse Medicare within 60 days.³⁸  If Medicare is not reimbursed within 60 days, the primary payer must reimburse Medicare, even if it has already reimbursed the beneficiary or other party.³⁹  In addition, CMS may charge interest if reimbursement is not made before the expiration of the 60-day period that begins on the date on which notice or other information is received by CMS that payment has been or could be made under a primary plan.⁴⁰

Conclusion
Beginning on July 1, 2009, all RREs are responsible for tracking and reporting claims to determine whether an injured claimant is a Medicare beneficiary.  However, in March 2009, CMS announced a delay in implementing its reporting process until January 1, 2010.  Nevertheless, when the reporting process becomes effective, RREs must provide reports retroactive to July 1, 2009. 

Disclaimer: The information contained herein is strictly informational; it is not to be construed as legal advice.