March 2, 2010

The Elephant in the Room
Wants More Peanuts

By Kevin L. Connors

On All Fours with the
Medicare Secondary Payor Act

Recalling the halcyon days of simple general releases extinguishing third party liability for any and all claims for economic and non-economic damages asserted by injured Plaintiffs, the administrative nightmares imposed by the Medicare Secondary Payor Statute, 42 U.S.C. § 1395, are now obsequiously ubiquitous for those of us involved in the resolution and extinguishment of third-party liability for personal injuries, as well as for workers’ compensation claims, with the responsibility now being imposed on both sides of the litigation “v”, settlement recipients, being Medicare-eligible Plaintiffs, and those “responsible” for the “injury” that ultimately necessitates future medical care otherwise falling under Medicare reimbursement protocols, in the absence of Medicare’s reimbursement interest being protected under a formal Medicare Set-Aside.

So what do we need to know, when do we need to know it, and what do we do with what we need to know and do?

First, if you are a liability insurer, a workers’ compensation insurance carrier, or a self-insured, either for liability and/or for workers’ compensation matters, you will need to register online with the Centers for Medicare and Medicaid Services (forever affectionately CMS), with the registration link at www.cms.hhs.gov/MandatoryInsRep, with the online registration date having been in 2009.

Pay now, you have done that.

No less importantly, Pennsylvania, not to be left out, is now tracking the federal government’s secondary payor legislation, with the enactment of its own legislation, “Medical Assistance Third Party Liability Law”, generally referred to as Act 44, under which the Commonwealth’s Department of Public Welfare (DPW) will have expansive administrative oversight of recipients of personal injury settlements on or after September 8, 2008. 

Act 44, like the Medicare statute, empowers the DPW to have administrative oversight over claims adjusters, insurers, insureds, and counsel, to insure that the DPW is repaid for medical bills that it has paid during the pendency of the personal injury or workers’ compensation claim.

Empowering the federal or state agency with administrative oversight translates into the federal and state agencies having the power to impose monetary penalties against any party that is non-compliant.  In avoidance of both non-compliance and potential liability for related penalties, it is critical that medical liens be identified through early intervention with either CMS or DPW being a cautionary tale of compliance.

Now what?

Recognizing that these statutes, at the federal and state level, are intended to protect the federal and state government from paying for medical treatment that both believe to be the responsibility of other parties, and that settlements, both in casualty and workers’ compensation matters, should not seek to short sell the government’s financial interests, CMS and DPW are now empowered, as secondary payors, to:

(a)           Require involved parties, subject to CMS and DPW regulations, to protect the interests of CMS and DPW through set aside agreements, established to pay for future medical care so that the related medical care is not first submitted for payment to Medicare, thereby establishing a legislative requirement that the otherwise liable primary payor in the settlement remains so, over time through the set aside agreement.

(b)           Not accounting for the interests of CMS and DPW, when and where required, will almost certainly entitle you for cast membership as a hacked-up extra in Saw VI, the simple message being, that these systems cannot be ignored or subjugated, so as to allow for non-medicated deep REM sleep.

The Basics

Some definitions might help us to understand what we are talking about.

Medicare, in its infinite wisdom, defines a “primary payor” as a liability insurer, a workers’ compensation insurer, or a self-insured entity, providing liability insurance, no fault insurance, automobile insurance, and/or workers’ compensation insurance; alternatively, for the self-insured entity, it is the ability to self-insure for liability that would otherwise be borne by the liability/workers’ compensation insurer.

Medicare eligibility begins either at age 65, and/or if a “recipient” has been on Social Security Disability for 24 months or longer, and/or is in end stage renal failure.

In liability claims, Medicare’s recovery rights begin upon payment of the settlement funds, irrespective of any determination with respect to any admissions or denials of the “primary payors” liability.

All too obviously, a defense verdict, rendered by a factfinder, be it jury or judge, negates Medicare’s recovery rights, extinguishing third party liability under the Medicare Secondary Payor Act.

For workers’ compensation claims, Medicare’s recovery rights begin with the initiation of benefit payments.

More Basics

All insurance companies, and that means you, and all self-insureds, are required to be registered with the Department of Health and Human Services (HHS).

If you are “registered” as an insurance carrier or self-insured, you must report all judgments, awards, or settlements to the HHS; mandatory reporting by “payors” is scheduled to begin on April 1, 2010.

Medicare has established a web-base “query” system, allowing primary payors, that means you, to verify who is eligible, that means whomever you have written the settlement check to, and to allow it, CMS, the “Elephant in the Room”, to monitor payments, again meaning that you better be safe, rather than sorry.

Basically

Simply put, Medicare seeks to protect itself from becoming responsible for Medicare-covered medical and prescription drug payments that are, in fact, at least in terms of how Medicare views it, the result of a claim-related injury, resulting in the necessity of lifetime care.

To effectuate its goal of reimbursement and recovery, Medicare has established defined MSA thresholds for workers’ compensation claims, and it is in the process of developing the same for liability claims; although liability claims are not currently “defined” by Medicare for MSA thresholds, it is anticipated that they shortly will be.

Do not try Door #3, through which the parties seek to characterize medical treatments as being for pre-existing or for non-claim related conditions, as Medicare reserves the right to recover the entire settlement, if it characterizes the settlement as being fraudulent in terms of the necessity and relatedness of future medical care.

Under certain very limited circumstances, Medicare will compromise reimbursement claims for values under $100,000.00, in which case Medicare evaluates several factors, to include, the inability of an uninsured debtor to pay, the government’s inability to collect, balancing the costs of collecting against an uninsured party, versus the costs of collecting the full amount, and whether the government’s ability to collect is uncertain, either due to factual or financial issues.

Reporting Requirements

Primary payors, insurance carriers and self-insureds, must register, through Medicare’s registration portal, www.cms.hhs.gov/MandatoryInsRep, in order to designate the Medicare-mandatory “Responsible Reporting Agent” (RRE). 

After registering, RRE(s) are required to verify recipients’ benefit statuses, and to make “timely” reports to HHS, of settlements, judgments, or awards benefiting Medicare-eligible persons.

Under the “Oops, I forgot to report” category, the penalty is $1,000.00 per day for non-compliance.

RRE(s) can also contact Medicare, to determine or notify of a beneficiary's Medicare eligibility, by contacting the “Coordination of Benefits Contractor” (COBC), at 1-800-999-1188, or by writing to:

MSPRC Liability (For 3rd party liability claims)
PO Box 33828
Detroit, Michigan  48232-5828

Or

MSPRC WC (For workers’ compensation claims)
PO Box 33831
Detroit, Michigan 48232-5831

HHS set up www.MSPRC.COM as an information portal.

If you are contacting MSPRC directly, you must provide all identifying information, including the name of the Plaintiff, Plaintiff’s counsel, the insurance carrier, and the insurer claim number.

Back to Basics

An MSA is a future cost projection of Medicare-covered medical expenses for treatment and prescription medications that an injured recipient will most likely be required to need because of the claim-related injury.

As such, Medicare requires that MSA(s) be approved by CMS before consummation of the settlement, absent the primary payor, guaranteeing to be responsible for whatever CMS determines must be the amount set aside for future medical care under the MSA.

Although statutory thresholds have not been established for liability claims, the statutory thresholds for workers’ compensation claims are as follows:

(a)           Injured recipients, either receiving Medicare benefits, or receiving Social Security Disability Benefits for 24 months or longer, must seek CMS approval, if the settlement exceeds $25,000.00;

(b)           No less true, injured recipients expecting to become Medicare-eligible within 30 months of the workers’ compensation settlement, where the workers’ compensation settlement exceeds $250,000.00, must secure CMS approval of an MSA; this sub-category, can include someone 62 ½ years old, and/or someone who has applied for SSD, and/or is appealing an SSD denial.

In liability actions, the apparent trigger for Medicare reviewing the settlement, either before or after consummation, is whether the settlement or award is “substantial”, and it is overtly obvious that the injured recipients will continue to require ongoing medical care for the claim-related injury.

Don’t Do

Settlements cannot be characterized in releases as being payments for non-claim-related injuries, as that release language can still be pierced by Medicare, seeking reimbursement for medical treatment that it believes is for the claim-related injury.

And no less problematic are releases requiring the injured recipients to pay Medicare, and/or to indemnify the “primary payors”, as opposed to a CMS-approved MSA, as Medicare will still hold “primary payors” liable for Medicare reimbursements, if the injured recipients are unable to reimburse Medicare directly for claim-related medical treatment.

If Medicare has an interest in the settlement, whether involving a liability or workers’ compensation claim, the release effectuating the settlement between the injured recipient and any “primary payor”/third party must include language in the release recognizing Medicare’s interests, for the protection of not only Medicare but the parties bound by the release.

Medicare’s Collection Rights

If still standing up, Medicare’s collection rights remain absolute and enforceable for six years from the date of settlement, with the six year statute of limitations tolling as of the payment of settlement funds.  As yet, it is uncertain if Medicare’s statute of limitations tolls as of the execution of the settlement release, the “primary payor” tender of settlement funds, in satisfaction of the claim-related liability, or upon the injured recipient’s actual receipt of the settlement funds.

To avoid collection liability, Medicare must be advised of its potential right to reimbursement, as Medicare has one year from the date of notification of that potential right for reimbursement to file its claim for recovery.  It then has three years from the date upon which it pays for medical services to seek collection.

If, or when, Medicare files a collection suit to recover its payments, both the beneficiary and the primary payor are liable for interest on the reimbursement being sought, as well as being exposed to liability for double Medicare’s conditional payments.  Interest begins to accrue 60 days after the primary payor’s payment to the beneficiary, although, in most cases, Medicare charges interest beginning 60 days after its demand for reimbursement.

DPW Issues

Tracking Medicare secondary payor requirements, DPW, by virtue of becoming liable as the initial payor on medical bills ultimately determined to be the responsibility of a third party, has, like Medicare, a statutory reimbursement right, allowing it to seek collection against the liable party, or to assert a lien against the beneficiary, requiring satisfaction in the event of a third party recovery.

Failure to comply with a DPW demand can result in DPW imposing monetary penalties.

If the injured beneficiary/recipient is on public assistance, notice of the settlement or lawsuit must be made in writing, via certified and regular mail, to:

Division of Third-Party Liability;
Department of Public Welfare;
PO Box 8486
Harrisburg, PA  17105

When notifying DPW, include the following:

• Name of DPW recipient;
• Relevant medical assistance identification number;
• DPW recipient’s date of birth;
• Name of recipient’s attorney, and contact information;
• Identify the insurance carrier(s) and claim number(s); and,
• The Court term and number of the pending litigation.

There is a $5,000.00 fine, charged to either the recipient, the Defendant, or the Defendant’s insurance carrier, for failure to provide this information. 

Without DPW’s written consent, a Plaintiff cannot settle or release the DPW’s claim against a third party, and the DPW claim must be resolved prior to the settling parties entering into an indemnification agreement.  If asked, DPW will provide a written statement to either third parties or their insurers, that DPW does not have a claim against the settlement proceeds.

Closing

These are issues that must be taken very seriously, given the extent to which the involved parties might be subject to ongoing and not insignificant liability, for failure to insure the protection of the interests of Medicare and DPW.  Shortcuts are not advised, and caution breeds disclosure for both security and consent.

Questions

Questions concerning casualty litigation practice and procedures, can be directed to our general litigation department attorneys.

Questions concerning issues with regard to workers’ compensation litigation, can be directed to our workers’ compensation attorneys.

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