Everything You Never Wanted to Know about the Medicare Secondary Payer Act
By now, many of us have learned just enough about the impending changes to the Medicare Secondary Payment Act to spark some curiosity. What will actually change come July 1, 2009? What steps should we be taking to protect our clients and ourselves from the harsh penalties? How can we accomplish the increased due diligence that is required without impeding the already slow settlement process? These questions arise as a result of the unspecific requirements that are about to be imposed on liability carriers. Unfortunately, it can only be speculated how the changes will actually play out, and to what extent liability carriers (and their lawyers) will be affected. In any event, we can take certain steps right away to ensure that we have put forth a reasonable and good faith effort to protect Medicare’s interest wherever possible.
THE MEDICARE SECONDARY PAYER ACT
Protecting Medicare’s interests in settlements is not a new requirement, but the recent changes pose some questions as to what “protecting Medicare’s interest” actually entails with regard to future liability. A bit of background to put the changes into context may be appropriate. Medicare is a health insurance program for people age 65 or older, people under 65 with certain disabilities and people of all ages with End Stage Renal Disease. A 2001 report by the U.S. General Accounting Office showed that certain agencies, including Medicare, were losing money because of payment errors in worker’s compensation claims. The Medicare Secondary Payer Act was a response to that finding. The Centers for Medicare and Medicaid Services (CMS), of the Division of Health and Human Services (HHS), administers the Medicare Secondary Payer statute as part of their coordination of benefits initiative. The statute (see endnotes) basically requires that Medicare be a secondary payer when a third-party payer is responsible for treatment. This includes reimbursement for past treatment and protection of Medicare’s interests when future treatment will be necessary.
Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 has new reporting requirements for liability insurance (including self-insurance), no-fault insurance, and worker’s compensation. These changes will go into effect on July 1, 2009. The primary change shifts the burden to insurance carriers to find out if a plaintiff is Medicare eligible and then report that information to Medicare. Carriers will need to report on settlements, judgments, awards or other payments that occur on or after July 1, 2009 and on claims for which carriers have responsibility for ongoing payments for medical services as of July 1, 2009. The reporting is to be quarterly, and must be made regardless of whether there is a determination of liability. Carriers also will need to report assumption of responsibility for ongoing medical treatment pending investigation. If the payment is terminated after investigation, this also must be reported.
More specifically, the change requires that the identity of a Medicare beneficiary whose illness, injury, incident, or accident was at issue be reported. In addition to the identity of the individual, the rules require “other information” specified by the Secretary of Health and Human Services that is necessary to determine the coordination of benefits (future care), including any applicable recovery claim (past care.) The term “other information” has not been defined by the Secretary of Health and Human Services, but likely includes both personal information, such as a Social Security Number and date of birth. “Other information” also likely means information specific to the claim, injury and treatment status of the claimant so that Medicare can make its own determination of the plaintiff’s likely need for future care. In an effort to make the new requirements enforceable, the changes also impose penalties for noncompliance. In fact, the penalties are quite steep at $1,000 per day for non-compliance.
The reporting requirements place a greater burden on our liability carrier clients. They need to be aware of cases where the claimant will need to be reported as Medicare eligible. While liability carriers will undoubtedly take measures to undertake the required investigation at the claims level, it is essential that defense attorneys follow up throughout the case to ensure that the proper claimants are being reported, and that the necessary steps are taken early to keep the settlement process moving along when the time comes. Because this duty is an affirmative one, it is especially important to make sure that claims that should be reported do not slip through the cracks. At $1,000 per day, liability carriers and their attorneys cannot afford to fail to report a Medicare eligible claimant.
WHAT ARE MEDICARE’S RIGHTS?
We know that we must consider and protect Medicare’s interests, both past and future, in settlements and awards. That said, what exactly are Medicare’s interests? The statute says that Medicare does not make payment for covered items or services to the extent that “payment has been made, or can reasonably be expected to be made under a workman’s compensation law or plan of the United States or a State or under an automobile liability insurance policy or plan (including a self-insured plan) or under no-fault insurance.” This serves to protect both the payments that Medicare has made in the past as well as future payments. Medicare also maintains the right to recover medical expenses that it conditionally paid when a third-party also pays for those expenses.
Once it is determined that Medicare is entitled to reimbursement, the time frame for reimbursing Medicare is relatively narrow. Medicare cannot demand a recovery until a settlement has been reached between the Medicare beneficiary and the third-party payer. However, once an agreement is finalized, payment must be made within 60 days of the settlement. Failure to make timely payment could result in liability to the carrier, the attorneys and the plaintiff after the settlement has been completed, and the plaintiff may be denied benefits in the future.
This is another aspect that defense attorneys must be ready to handle. If a settlement is finalized, attorneys must make absolutely certain that Medicare is paid any reimbursement it is entitled to receive. At the time of settlement, it also will be necessary to have demonstrated and documented exactly how Medicare’s future interests will be protected. This is where the Medicare Set-Aside may come into play.
Worker’s Compensation cases are already subject to reporting requirements. Medicare Set-Asides (MSA’s) have become commonplace in this arena as a tool to ensure compliance. However, MSA’s are not yet mandatory for liability settlements, and requiring MSA’s in these types of cases may not even be a realistic option. Regardless of whether MSA’s become a requirement, defense attorneys should become familiar with the MSA process and know how to evaluate when a MSA is an option as part of a settlement.
As a bit of background, a Medicare-set aside is an amount of money placed in an interest bearing account when a bodily injury claim is settled to pay for future medical treatment that would otherwise be covered by Medicare. The MSA allocation can be self-administered or professionally administered by a custodial fund administrator. It is only after the MSA’s funds are exhausted that Medicare will pay for additional treatment.
From the perspective of the parties, the central question is – what is the absolute least amount of money that can be put into a MSA while still satisfying Medicare’s interest? Determining the portion of a settlement allocated toward future treatment requires consideration of several factors, including the plaintiff’s age, gender, education, job duties, type of injury, and treatment patterns. It is also important to consider other significant health issues, such as diabetes, drug or alcohol dependence, or other chronic illnesses.
Not surprisingly, a bit of an industry has evolved in response to the MSA requirement in Worker’s Compensation. Numerous companies have sprung up to assist in analyzing and setting up Medicare Set-Aside accounts. These companies will compile the documents necessary for a proposed MSA, including medical records, an anticipated treatment plan, expected treatment costs and other related information. Additionally, they are often able to assist in obtaining annuity quotes to cover the cost of the MSA. Because setting up MSA’s is a task involving many variables and unknowns, these companies may be a prudent choice if your firm or company is new to the MSA area.
In the context of a Worker’s Compensation full and final compromise (which closes out all future claims) a MSA must be submitted if: 1) The individual is a Medicare beneficiary at the time of settlement and the total settlement exceeds $25,000; OR 2) The individual is not a Medicare beneficiary at the time of the settlement, but the total settlement exceeds $250,000 AND there is a reasonable expectation of Medicare entitlement within 30 months of the settlement date. A “reasonable expectation of Medicare entitlement” is based on several considerations. Some examples include whether the claimant has applied for SSDI or is appealing a denial of SSDI, and whether the claimant is 62 ½ (30 months from turning 65).
It is not yet clear how and in what way MSA’s will be used or required in liability settlements. They are a practical vehicle for compliance in Worker’s Compensation because of the nature of the settlement agreements. A settlement can be clearly split up into indemnity payments and medical expenses. Therefore, it is much easier to make a reasonably accurate estimate of what portion of a Worker’s Compensation settlement is actually meant to cover future treatment. This concept does not readily translate to liability settlements, which involve policy limits, pain and suffering damages, and contributory negligence. These complicate the task of accurately specifying what portion of a liability settlement, if any, is intended to apply to future treatment.
That said, if it is possible to earmark a portion of a liability settlement for future treatment, a MSA, though not required, may be an effective way of showing Medicare that its interests have been considered. One further step would be to report the MSA to the CMS, which reviews and approves MSA’s in Worker’s Compensation compromises. Although there is no formal set-aside process for liability settlements, CMS will likely still review the set-aside and advise of its position. At the very least, the good faith attempt to protect Medicare has been documented.
Sifting through the statute and unspecific requirements is only so helpful. In the end, the question still remains – what do we need to do to make sure we are being compliant, and how can we be compliant without slowing the settlement process? The key is likely more investigation up front. An authorization to access a plaintiff’s Medicare file should be issued. Written discovery and depositions should seek to discover a plaintiff’s Medicare status and potential eligibility. If the case is lengthy, additional inquiries throughout the case may be necessary in the event the plaintiff’s eligibility changes. If the case does not involve future treatment or a Medicare eligible individual, your work is done. If it appears that the plaintiff may be eligible, and there is medical basis for future treatment, Medicare’s interests should be considered from the out-set. It may be necessary to secure medical opinions regarding necessity and extent of future treatment, and in more complex cases, the services of an outside vendor may be necessary. Obviously, if these issues are not addressed until the time of settlement, the disposal of the case will likely come to a screeching halt while these issues are sorted out.
An Ohio firm, well-versed in the MSP area, has published various helpful articles. One such article includes some tips for settlement worth noting. The article cautions that some liability settlements involving critically injured plaintiffs are so large that CMS may presume the plaintiff is being compensated for future medical expenses, especially if the other elements of damages are capped. In very large settlements, a set-aside, though not required, may be the best option to show a consideration of Medicare’s interests. The article also notes that a set-aside should be strongly considered if a liability case settles after a verdict with interrogatories delineating future medicals. Obviously, in these types of cases, the problem of accurately assessing the amount to set aside for future treatment is no longer an issue. The article also details two options that exist when a reasonable person would believe that a settlement involves an allocation toward future medical expenses. First, both attorneys should take steps to identify the allocation and ensure that the amount will either be set-aside or otherwise documented as being used for future care. Medicare will not step in and take over any more payments until it is satisfied that amount has actually been spent on treatment. Second, the attorneys might consider contacting their regional Medicare office and sharing the facts of the case in the event Medicare would like to review and approve the proposed allocation. If documented, these steps will demonstrate a reasonable and good faith effort to comply with the MSP.
It is too early to know for certain exactly how diligent Medicare will be in the enforcement of the reporting requirements. Although auditing is costly, the $1,000 a day penalty may off-set that cost enough for Medicare to take advantage of its expanding rights. There are varying opinions on what will happen come July 1, 2009. It may turn out that Medicare does nothing to enforce its rights, and attempting compliance with an unclear statute may prove too costly to attempt. However, with the new penalties on the books, it seems much more prudent to play it safe and advise clients to take the time to carry out some initial investigation when cases begin. Additionally, until we know what these changes really mean, defense attorneys must be completely confident that Medicare’s future interests have been protected before payment should be disbursed to the claimant. Therefore, taking proactive steps to complete the investigation is necessary to properly negotiate the settlement of a case. Although much remains unknown, there are steps that can and should be taken once the July 1, 2009 changes hit. With any luck, some additional investigation when a case begins will be sufficient to protect our clients and ourselves from the harsh penalties.
 Sec. 1395y ‑ Exclusions from coverage and Medicare as secondary payer
(b) (2) Medicare secondary payer
(A) In general
Payment under this subchapter may not be made, except as provided in subparagraph (B), with respect to any item or service to the extent that—
(i) payment has been made, or can reasonably be expected to be made, with respect to the item or service as required under paragraph (1), or
(ii) payment has been made, or can reasonably be expected to be made promptly (as determined in accordance with regulations) under a workmen’s compensation law or plan of the United States or a State or under an automobile or liability insurance policy or plan (including a self‑insured plan) or under no fault insurance.
In this subsection, the term "primary plan" means a group health plan or large group health plan, to the extent that clause (i) applies, and a workmen’s compensation law or plan, an automobile or liability insurance policy or plan (including a self‑insured plan) or no fault insurance, to the extent that clause (ii) applies.
. 42 U.S.C. § 139y(b)(2)
. 42 U.S.C. § 1395y(b)(2)(B)(ii)
.42 CFR § 411.24(h)
 Garretson, Matthew, Medicare’s Reimbursement Claim- The Only Constant is Change. April, 2008. Garretson, Matthew, Making Sense of Medicare Set-Asides. May, 2006. (See website www.garretsonfirm.com).