Resolving Medicare Secondary Payer issues: A smart first step

The Strengthening Medicare and Repaying Taxpayers Act of 2011 (SMART) was signed into law on January 10, 2013. SMART was intended to address certain issues arising under the Medicare Secondary Payer Act of 1980 (MSP). As its name implies, MSP makes Medicare a secondary payer of medical benefits under certain circumstances. It requires that Medicare withhold payment of medical expenses to Medicare beneficiaries if that payment can reasonably be expected to be made under a workers' compensation or liability insurance plan.¹ Workers' compensation and liability insurers (including self-insureds) are referred to as “primary payers.”

If payment cannot reasonably be expected to be made by a primary payer, MSP permits Medicare to make the payment. For example, if a negligence claim for bodily injury is brought by a Medicare beneficiary against a defendant/insured, then while the claim is in litigation the liability insurer is not reasonably expected to make a payment because it is still defending the lawsuit. Therefore, Medicare will make the payment pending the outcome of the lawsuit. In this situation, Medicare’s payments are referred to as “conditional payments” because Medicare makes them conditional upon being reimbursed by the primary payer when the claim resolves.

Medicare has an automatic right to reimbursement from any primary payer (including not only insurers but also physicians, beneficiaries, attorneys, providers, suppliers, and state agencies) for conditional payments Medicare has made prior to the claim resolving. If there are multiple primary payers, Medicare has a right to reimbursement in full from any of them. Failure to reimburse Medicare within 60 days can result in the government bringing a direct action for not only the payment but also double the amount of the payment as an additional penalty.

Medicare’s secondary payer status and right to reimbursement are nothing new—MSP has been around for 30 years. However, renewed interest percolated recently with the enactment of new legislation—referred to as Section 111—which required primary payers to report claims involving Medicare beneficiaries to the Centers for Medicare and Medicaid Services (CMS).² The purpose of the reporting requirements was to enable CMS to identify all claims for which it is a secondary payer and collect conditional payments owed to it by the primary payers. Prior to the enactment of Section 111, CMS did not have a fast and easy way of identifying such claims, making it difficult for CMS to actually enforce its MSP reimbursement rights against primary payers. Now, with the enactment of Section 111, the claim is reported to Medicare’s coordination of benefits contractor, and the MSP recovery contractor can quickly initiate recovery efforts. And no dodging allowed—under Section 111, the failure to report claims to CMS results in a fine of $1,000 per day per claim.

Thus, the passage of Section 111, while seemingly procedural in nature, actually did impact the way many in the industry view and uphold MSP’s substantive provisions. As a result, interested parties’ rights and obligations under MSP have been scrutinized anew, generating a myriad of issues and questions.

SMART is intended to resolve five of these issues:

• How and when does an insurer know the amount of the conditional payment owed to Medicare?
• How does an insurer dispute a conditional payment amount? Is there an appeal process with respect to conditional payment determinations?
• How long does Medicare have to bring a suit to collect conditional payments?
• What happens if, despite best efforts, an insurer cannot acquire the information needed to report a claim under Section 111—doesn’t the $1,000 per day per claim penalty seem a bit harsh under these circumstances?
• Do insurers have to report and reimburse conditional payments for claims involving very small settlement amounts?

These five questions posed problems primarily for liability insurers, and to a lesser degree for workers' compensation insurers. Workers' compensation insurers report claims involving Medicare beneficiaries throughout the life of the claim, as long as they have “ongoing responsibility for medical” (i.e., workers' compensation insurers make medical payments directly to the providers). Because of ongoing reporting obligations, workers' compensation insurers are more likely to be aware of the conditional payment amounts sought by Medicare throughout the life of the claim, and well in advance of final settlement. Liability insurers, in contrast, report a claim under Section 111 only once, after payment of the settlement, judgment, or award, and therefore are unaware of conditional payment amounts owed until after settlement.

Moreover, workers' compensation insurers are also more likely to have claimants’ Social Security numbers—a necessary field under Section 111 for reporting a claim—thereby avoiding the $1,000 late penalty. Finally, disputing the amount of conditional payments owed to Medicare by liability insurers is a potentially thorny issue relative to workers' compensation insurers, because workers' compensation is a no-fault system. Liability insurers are faced with questions such as: “If the conditional payments are $100, but the defendant is only 10% liable, shouldn’t the defendant owe Medicare $10 and not $100?”

Thus, the passage of Section 111 and its reaffirmation of Medicare’s rights under the MSP have posed problems, particularly for liability insurers. SMART attempts to address some of these concerns.

Timing of conditional payment information

As noted above, in the liability insurance context, it is only after settlement has been reached between the parties that the MSP recovery coordinator will identify the conditional payment amounts and demand reimbursement. This can take several weeks or months. Thus, liability insurers do not know prior to settlement what the conditional payments will be. This uncertainty produces significant challenges to settlement efforts—plaintiffs and defendants alike hesitate to engage in settlement negotiations and agreements when there is money owed to Medicare but the amount will not be known until well after the settlement agreement has been finalized.

SMART attempts to address this problem for liability insurers. SMART outlines a new process whereby CMS will provide a final conditional payment amount to liability insurers (and other interested parties) prior to settlement. Under SMART, when the parties reasonably believe that settlement will be achieved in the next 120 days, either party can notify CMS of that anticipated settlement (we will refer to this below as the “notification date”). CMS will then make available conditional payment information on a website. The conditional payment information will be updated until the time of settlement. At any point after, when information is available, the parties can access the website to determine the conditional payment amounts owed as of that time, as well as the provider name, diagnostic codes, and dates of service. These downloads are referred to as the “statement of reimbursement amount.”

Furthermore, the last statement of reimbursement amount that is downloaded within three business days prior to the actual settlement date will constitute the final conditional payment amount subject to recovery. Thus, there is finality and certainty to the amount owed prior to settlement. One noteworthy caveat is that the final statement of reimbursement amount has to be one obtained at least 65 days after the notification date (in certain exceptional cases, it has to be one obtained at least 95 days after the notification date). An insurer who notifies CMS of an anticipated settlement and downloads a statement of reimbursement amount two weeks later cannot rely upon that statement to constitute the final conditional payment amount owed—presumably, CMS requires more time to ensure that all conditional payments have been accounted for and listed on that statement.

Discrepancies and appeals processes

SMART also addresses how to notify CMS of discrepancies in the statement of reimbursement amount. If an individual believes that there is a discrepancy, documentation must be provided in support of that belief, along with a proposal to resolve that discrepancy. Presumably, the proposal to resolve the discrepancy would often include the reduction or elimination of specific claims from the statement of reimbursement amount. CMS has 11 days to reject the proposal if it deems that there is no reasonable basis to include or remove claims, to agree to the proposal as is, or to establish an alternative discrepancy resolution proposal. (If CMS fails to act within 11 days, the proposal is deemed to be accepted.)

The discrepancy decisions outlined in SMART cannot be appealed (i.e., there shall be no administrative or judicial review of the determinations made by CMS). However, SMART does include a provision stating that an appeal process needs to be established for secondary payer determinations related to liability insurance. The details of that appeal process and right of appeal are not spelled out in SMART itself, but are to be promulgated as regulations at a future date.

Statute of limitations, penalty for non-reporting, and minimum thresholds

SMART provides that CMS will have three years from the date of notification of settlement, judgment, or award to pursue a civil action for recoupment of conditional payments from a primary payer. Prior to SMART, it was unclear which statute of limitations, if any, was applicable to such government actions.

SMART also amends Section 111’s penalty provision. Instead of making the $1,000 per day per claim fine mandatory and automatic, it will now be discretionary. Moreover, the $1,000 will be a maximum penalty. Going forward, failure to report a claim under Section 111 maycarry with it a civil penalty of upto $1,000 per day per claim. Presumably, under SMART, if the reporting entity has used good faith efforts to identify a beneficiary, then that entity will not be subject to penalties.

Finally, there are many times in the liability context where settlements are reached for nominal values or nonmonetary compensation. It did not make sense for CMS to spend more money in collection efforts than it gained in reimbursement. Thus, SMART requires that a minimum threshold amount will be calculated annually. For settlements lower than the threshold, CMS will not seek reimbursement for conditional payments, nor will CMS require the claim to be reported under Section 111. The threshold amount will be determined such that CMS’s costs of recovery will not be greater than the amount collected.

Does SMART answer all questions and resolve all issues? No. Important issues and concerns still exist—for example, the use of Medicare set-aside arrangements in liability settlements, and how best to protect Medicare’s interests with respect to future medical payments. More questions may be raised as the industry and Medicare continue to navigate this labyrinth in an effort to achieve balance between equity and practicality. But SMART is an intelligent, reasonable, and significant first step in addressing the concerns of all who have a stake.

¹ 42 U.S.C. §1395y(b)(2)(A)(ii).

² Section 111 of the Medicare, Medicaid and SCHIP Extension Act of 2007.