Rising health care costs coupled with growing concern for the fiscal health of Medicare and Social Security have heightened federal authorities’ interest in controlling Medicare costs. Parties must reasonably consider Medicare’s past and future interests when settling a claim in the areas of general liability, automobile liability and workers compensation or risk action by the federal government to recover benefits mistakenly paid.
No one who has read the news in the last few years can fairly claim to be unfamiliar with the fiscal challenges confronting Medicare and Social Security, two of our nation’s leading “safety net” programs. While talk of reform of these programs is commonplace, few seem to be aware of the federal government’s heightened efforts to limit its financial exposure in this area or to recoup benefits paid out in error. Attorneys and parties to claims involving workers compensation, auto liability, and group medical insurance benefits need to be particularly careful to watch out for Medicare’s past and future interests in these matters or risk running afoul of the federal Centers for Medicare and Medicaid Services (CMS).
Protecting Medicare’s Interests
CMS is responsible for the administration of Medicare, the nation’s largest health care insurance program. When the Medicare law was enacted in 1965, Medicare was to be the primary payer for services to eligible insureds unless those services were rendered for a workers-compensation injury. As health care costs increased and the availability of private or employer-sponsored health insurance decreased, the federal government began assuming the increasing financial burden of paying for medical services for the aging and disabled population.
In the early 1980s, Congress enacted a series of provisions making Medicare the secondary payer when other groups, including automobile, liability (including self-insured plans) and no-fault insurers, were available to assume primary responsibility. These provisions have since become known as the Medicare Secondary Payer Act (MSP) and are codified under 42 U.S.C. §1395y(b)(2)(A)(ii). The original intention behind the statute was to shift costs assumed by the government through the Medicare program back to the primary payer.
In the early 1990s, when the prospect of a funding crisis for the Social Security and Medicare programs was fully recognized, the federal government began enforcing the MSP. The MSP prohibits Medicare from making any payment if payment “has been made or can reasonably be expected to be made” by the primary payer.1 The MSP also grants Medicare a priority right of recovery for benefits mistakenly paid.2 This right can be exercised directly or through subrogation reimbursement. The federal government, through CMS, can recoup benefits paid by Medicare from claimants, medical providers, employers, insurers, third-party administrators, and attorneys.3 According to the act, any entity or person having benefited from Medicare paying medical expenses is at risk for government action. The MSP also affords Medicare the right to recover twice the amount specified for recovery if legal action is required for recovery of benefits mistakenly paid.4
In consequence of these developments, all parties must reasonably consider Medicare’s past and future interests when settling a claim in the areas of general liability, automobile liability and workers compensation. If these interests are not reasonably considered, the parties and their attorneys may face enforcement remedies and lawsuits brought by the federal government. Protecting Medicare’s interest requires due diligence by all parties to a case regardless of whether it is an automobile (including no-fault), workers-compensation, or general liability claim. CMS has stated that in order to protect its interests adequately, parties must resolve conditional payments made by Medicare as well as protect their future interests. One method commonly used to protect Medicare’s future interests is a Medicare Set-Aside (MSA). However, to date, CMS has actively taken steps and set forth guidelines directly affecting the settlement of workers-compensation cases only.
Conditional payments are those payments made by Medicare when one or more factors are present: (i) the claimant/beneficiary fails to inform the provider that other insurance exists; (ii) the provider mistakenly bills Medicare; (iii) the claimant elects to receive unauthorized treatment; (iv) the carrier or self-insured denies the claim; (v) the carrier or self-insured does not pay promptly; (vi) the claimant fails to file or improperly files a claim; and/or (vii) the time between the occurrence of the injury and a decision by the court has been delayed.5 If Medicare pays benefits that are otherwise payable by a primary payer, CMS has a direct cause of action to recover.
Medicare should be placed on notice of its potential right to recover conditional payments through contact with the Coordination of Benefits Contractor (COBC). Any party can effectuate this notice, however Medicare requires an authorization executed by the beneficiary listing the parties that have communication authority.6
Upon initial contact, the COBC will require the following additional information:
The claimant’s name;
The claimant’s Medicare Health Insurance Claim Number (HCIN) or SSN;
The date of alleged illness/injury along with any diagnostic (ICD-9) code(s), if known;
Name and address of the insurance carrier or self-insured;
Name and address of the legal representatives;
Name of the insured; and
The policy/claim number.7
Once the COBC receives and processes this information, notices concerning the claimant’s benefits information are sent to the affected parties.
Prior to October 2, 2006, Medicare had over 50 benefit recovery contractors. However, the federal government recently named Chickasaw Nation Industries, Inc. — Administrative Services, LLC, the single benefits recovery contractor. Chickasaw is now referred to as the Medicare Secondary Payer Recovery Contractor (MSPRC) and is responsible for monitoring Medicare payments made on behalf of the claimant as well as verifying conditional payment amounts and CMS collection actions. The MSPRC can be contacted according to the type of claim being processed. Separate contact addresses are given for workers-compensation, auto/liability, and group health plan claims.8
Parties may begin settlement negotiations covering conditional payments upon contact with the COBC and receipt of benefit information from the MSPRC. Receiving a benefit resume from the MSPRC can be a lengthy process; therefore, counsel should notify the Medicare COBC as soon as a party becomes aware of Medicare’s potential interest. It is also prudent to make contact with the MSPRC well in advance of any settlement or pretrial hearing, in order to receive updated information.
Medicare’s Future Interest
One means by which parties can reasonably protect Medicare’s future interests is through a Medicare Set-Aside (MSA). This tool provides CMS with a settlement dollar amount to be set aside for future, injury-related medical expenses that Medicare would otherwise cover. CMS has stated that if they receive and approve the proposed set-aside amount prior to settlement, all parties will receive “safe harbor” protection from future government action.9 This also protects and preserves the claimant’s Medicare benefits for future treatment.
In addition to providing safe harbor to parties that reasonably consider and protect Medicare’s interests, CMS has implemented guidelines that assist parties in recognizing the triggers of an MSA submission. Under these guidelines, CMS’s review of a proposed settlement is required when:
The individual is a Medicare beneficiary at the time of settlement and the total settlement is greater than $25,000,10 or
The individual is not a Medicare beneficiary at the time of settlement, but the total settlement is over $250,000 and there is a reasonable expectation of Medicare entitlement within 30 months of the settlement date.11
The Secondary Payer Act is silent as to what constitutes a “reasonable expectation” of Medicare benefits. For purposes of clarity, CMS began issuing policy memoranda in 2001 to provide practitioners with some guidance. One such memorandum, issued on April 22, 2003, provided practitioners guidance on what constitutes a “reasonable expectation of Medicare entitlement within 30 months of the settlement.” The factors include:
a) The individual has applied for Social Security Disability Benefits;b) The individual has been denied Social Security Disability Benefits but anticipates appealing that decision;c) The individual is in the process of appealing and/or refiling for Social Security Disability Benefits;d) The individual is 62 years and 6 months old (i.e., may be eligible for Medicare based upon age within 30 months); ore) The individual has an end-stage renal disease (ESRD) condition but does not yet qualify for Medicare based upon ESRD.
It is important to remember that these are only guidelines. Given the review thresholds established by Medicare, a situation may arise where an MSA submission is not required but Medicare’s interests must still be considered and protected.12
Prescription Drug Benefits
On December 30, 2005, CMS issued a policy memorandum advising practitioners that all MSA submissions on or after January 1, 2006 would be required to consider the claimant’s future use of prescription medications. This memorandum contemplated the Medicare Part D benefit that was to become effective on January 1, 2006, giving all eligible beneficiaries a prescription drug benefit. However, this policy memorandum left practitioners with more questions than it answered.
Although examples were offered (e.g., the actual cost method was contrasted with the average wholesale pricing method), the method for calculating the price of the future prescription medications under the MSA allocation was left ambiguous. Also ambiguous is how to consider claimants’ possible future use of expensive brand-name medications versus generic medications. A further issue not addressed by the memorandum is that while Medicare Part D does not cover all prescription medications, applicable insurance plans and workers-compensation statutes may allow for coverage. It is important to be aware of these Medicare drug exclusions when calculating the future drug benefit in the MSA; those medications should not be considered since Medicare would not pay for them in any instance.
As mentioned above, to date CMS has developed guidelines and a review process in the area of workers-compensation law only. CMS has not issued any memoranda regarding how to consider its interests in liability cases. CMS has also made clear that it is not in a position to review or offer advisory opinions in the form of verification letters that relate to the submission of an MSA for liability purposes. What CMS has made clear is that all parties must consider its interests in any settlement.
In claims other than workers-compensation claims, one might consider drafting a document similar to an MSA that anticipates future medical and prescription drug expenses, identifies funds intended to be set aside for those future expenses, and directs the claimant to spend those funds for future injury-related treatment only. In addition, settlement language should be prepared that specifically reflects the steps taken to reasonably consider Medicare’s interests. Failure to consider Medicare’s interests may result in significant exposure including: (i) double damages for the insurance carrier or self-insured; (ii) government action against the attorney(s) under right of recovery; (iii) claimant’s loss of benefits under Medicare; (iv) a post settlement malpractice claim by claimant against the attorney.13
Given the distressed financial state of the Social Security and Medicare programs, it is abundantly clear that Medicare and the federal government will continue to enforce the MSP, seeking recovery whenever their interests are not being protected. We live in an era where health care costs continue to skyrocket and average age of the workforce continues to rise. Social Security and Medicare are at the forefront of the balancing act between social justice and economic reality. Meeting the challenges of maintaining this balance will require that all practitioners remain familiar with and aware of the changes in this new and relatively uncharted area of law.
1 42 U.S.C. §1395y (b)(2)(A)(ii).
2 42 C.F.R. §411.24 (2006).
4 42 U.S.C. §1395y (b)(3)(A).
5 Robert T. Lewis and Patty Meifert, “Don’t Forget Medicare’s Share — Failure to properly consider Medicare’s reimbursement interest may result in significant exposure,” 178 N.J.L.J. 1058 (2004).
6 The COBC can be contacted at: CMS-Medicare Coordination of Benefits Contractor, MSP Claims Investigation Project, P.O. Box 5041, New York, NY 10274-5041. Tel.: (800) 999-1118.
8 Workers Compensation: MSPRC – WC, PO Box 33831, Detroit, MI 48232-3831. Tel.: (866) 677-7220; Auto/Liability: MSPRC – Auto/Liability, PO Box 33828, Detroit, MI 48232-3828. Tel.: (866) 677-7220; Group Health Plans: MSPRC – GHP (Group Health Plan), PO Box 33829, Detroit, MI 48232-3829. Tel.: (866) 677-7220
9 Memorandum from Parashar B. Patel, Centers for Medicare and Medicaid Services, July 23, 2001; Memorandum from the Centers for Medicare and Medicaid Services, April 22, 2003.
10 Memorandum from the Centers for Medicare and Medicaid Services, April 25, 2006.
11 Memorandum from the Centers for Medicare and Medicaid Services, April 22, 2003.
12 42 C.F.R. §411.46
13 Robert T. Lewis and Patty Meifert, “Don’t Forget Medicare’s Share — Failure to properly consider Medicare’s reimbursement interest may result in significant exposure,” 178 N.J.L.J. 1058 (2004).
PATTY WISECUP is an associate at Arthur, Chapman, Kettering, Smetak, & Pikala, P.A. and brings to her practice 20 years’ hospital experience as a registered nurse. Her practice focuses on professional liability, intellectual property, medical malpractice litigation, auto liability litigation, and Medicare Set-Asides. She a charter member in the National Alliance of Medicare Set-Aside Professionals and is a Medicare Set-Aside Consultant-Certified.