Consequences of Non-Compliance With Medicare Secondary Payer Acts

This article is intended as a warning to corporate compliance officers and to corporate in-house counsel and their outside defense counsel dealing with certain personal injury claims and lawsuits against the corporation.

This article is not meant to simply point you to the statutory or regulatory provisions which give rise to the need for this warning, but rather to warn you of the need to engage outside counsel knowledgeable in this area of the law, when responding to personal injury claims or lawsuits that do or may involve Medicare recipient claimants or plaintiffs.

The Warning

If the claimant/plaintiff that has made a personal injury claim against your company has been, is, or may in the future be receiving Medicare benefits (i.e. if such claimant/plaintiff is “Medicare Eligible”), then both your company and its defense counsel must take some extraordinary actions to protect themselves from some grave adverse consequences.

Entities Defined for Purposes of this Warning

The Centers for Medicare and Medicaid Services (CMS) is the federal government entity responsible for obtaining reimbursement for Medicare costs from settlements or judgments in personal injury cases.

Responsible Reporting Entities (RREs) are in essence those who are responsible for paying settlements or judgments to those eligible for Medicare benefits in personal injury claims and lawsuits, including liability insurance carriers and, where all or a portion of the claim may be self-insured or subject to a self-insured retention, the self-insured companies against whom the claims are made.  Under the law, a “self-insured plan” is defined such that “an entity that engages in a business, trade or profession, shall be deemed to have a self-insured plan if it carries its own risk (whether by a failure to obtain insurance or otherwise) in whole or in part.”

The Coordination of Benefits Contractor (COBC) is the entity that oversees the process of identifying primary payers to Medicare for the health care benefits available to a Medicare beneficiary and that coordinates the payment process.  This entity is basically the entity through which RREs report to the CMS.

The Medicare Secondary Payer Recovery Contractor (MSPRC) is an entity that is responsible for the recovery of amounts owed to the Medicare program as a result of settlement, judgments, awards, or other payments by liability insurance (including self-insurance), no fault insurance, or worker’s compensation.  In essence, this is the entity which determines and demands the amounts due to Medicare from personal injury claim settlements and judgments.

The Extraordinary Actions that Must be Taken

In connection with personal injury claims and lawsuits against the company which do or may in the future involve Medicare eligible claimants/plaintiffs, the following actions, among others, must be taken:

1. Determine claimant’s eligibility:

Under the law, the RREs must determine whether a claimant/plaintiff is Medicare eligible and is thus one for whom Medicare reimbursement obligations are triggered.  If the personal injury claim is a pre-litigation matter, this must be done through whatever means are available including obtaining an Injured Party Affidavit.  If the claim is in litigation, formal and informal discovery should also be utilized, including, but not limited to, obtaining such an Injured Party Affidavit.  The RRE cannot, under the law, rely on a claimant’s response to discovery or informal inquiry, and so the defense counsel should secure a Social Security number and other necessary information and use the CMS “Query” system to determine whether the particular claimant/plaintiff is eligible.  This process of checking eligibility and payment of benefits should be done again and again throughout the litigation.  The CMS will allow this to be done once per month.  The RRE must submit the Social Security number, name, date of birth and gender of the injured party with each request.

The inquiries and discovery sent must be fashioned to determine if the injured party is “Medicare eligible.”  Those who are Medicare eligible include individuals that are either:

• 65 years of age or older  and have worked for at least 10 years in Medicare covered employment; or
• Less than 65 years of age and also
  • Have received Social Security disability insurance benefits for 24 months or more; or
  • Have received Railroad Retirement Board disability benefits for 24 months or more; or
  • Have end-stage renal disease (i.e., permanent kidney failure requiring dialysis or transplant); or
  • Have amyotrophic lateral sclerosis disease (i.e., Lou Gehrig’s disease); or
  • Have met any other qualifications entitling the individual to receive Medicare benefits.

2. Report the claim to the government

If such claimant/plaintiff is one for whom Medicare reimbursement obligations are triggered, this must be reported to the federal government.  The RRE must report the claims, and that the RRE may potentially have primary responsibility to CMS by letter to the COBC.  It should be noted that recent enactments require the RRE to register with CMS through the COBC secure website for on-line reporting.  The RRE must register with the CMS for reporting if they have an expectation of making a payment, settlement or award to a Medicare beneficiary in the future.   The trigger to report a given claim is whether there is an expectation of making a payment.  If the company is convinced that there will be no liability and that it will never pay any amount in settlement or judgment, there is no duty to report that claim.  That is a big gamble and the general rule should be to report.  There are also quarterly reporting requirements.

3. Obtain the government’s initial view regarding the potential amount owed them

The RRE and/or its defense counsel need to obtain from the injured claimant/plaintiff a “Consent (for Medicare) to Release” form executed by the injured party or by a representative.   With that in hand the RRE and its defense counsel can then forward that form along with a letter requesting a copy of the “Conditional Payment Letter” to the MSPRC.  The Conditional Payment Letter will list payments Medicare has made to the injured party that it believes are related to the claim.

4. Clarify the amount actually paid relative to the claim in question

The RRE and its defense counsel must review the Conditional Payment Letter for “relatedness” and identify payments unrelated to the injuries associated with the claim.  Where the claimant/plaintiff has counsel, defense counsel should work with claimant’s/plaintiff’s counsel to reach an agreement as to which payments are related to the underlying claim and which are not.  Counsel should then jointly strike unrelated claims and return the modified Conditional Payment Letter to the MSPRC with a detailed letter of explanation.  This written dispute should identify unrelated ICD-9 codes.  If the RRE and its defense counsel do not keep on top of the items that the CMS is throwing into the beneficiary’s claim costs, they could get stuck with cancer treatment Medicare costs for a slip and fall claim.  Do everything possible to push unrelated care costs off of the Medicare reimbursement demand.

5. Obtain the government’s updated view of the amounts owed

The MSPRC should subsequently send an updated Conditional Payment Letter.  As needed, the RRE/defense counsel should send a request for this letter.  Negotiations should be entered with Medicare’s representative as needed to reach an agreed amount of conditional payments—before settlement negotiations or mediation begin for the underlying claim.  The MSPRC will enter an interim conditional payment demand after negotiations.

6. Move toward settlement/judgment

Only after the RRE/its counsel have, to the best of their ability, defined what amount the government wants, should the company enter into settlement negotiations (or move into trial). The RRE may want Medicare representatives involved in any mediation/settlement negotiations.  The goal of the RRE/its defense counsel is to come to an agreed sum or narrow range representing Medicare’s reimbursement before settlement negotiations are finalized.

7. Report the settlement/judgment to the government

The RRE/its counsel must send the executed settlement agreement to the MSPRC with a request for a Final Payment Letter.  If there has been a judgment, then entry of judgment should be sent with the request for the Final Payment Letter.  The Total Payment Obligation to Claimant (TPOC) must be reported by the RRE to the CMS through the electronic reporting system.  This obligation is subject to some minimal Total Payment Obligations to Claimant threshold amounts.  There are additional reporting requirements regarding On-going Responsibility for Medicals (ORM).

8. Get the government paid

The MSPRC will issue a Final Demand Letter regarding the amount that must be paid, and that amount must be paid out of the settlement/judgment.  Disputes regarding the amount owed are handled through correspondence sent to the MSPRC.  It is incumbent upon the RRE and its defense counsel to get the federal government paid.  The defense counsel as well as the company that engages the defense counsel has the obligation to get the government paid.  There are various options relative to how to make settlement or judgment payment checks payable, such that the government’s interests are protected.  The corporate RRE and its defense counsel should carefully weigh the pros and cons of such options.

Medicare must be reimbursed within 60 days of any payment to the claimant.

Future Payments

Potential future payments and Medicare Set-Aside Arrangements (MSA) pose significant, difficult and unresolved issues and discussion of this topic is beyond the space limitations of this article.

Grave Adverse Consequences

Failure to make the government whole can lead to a reimbursement suit by the government or by a private individual.  Double damages for the Medicare payments (and at least in the case of the private suits, attorney’s fees) are recoverable.  Failure to inform the government of settlement, judgment or other payments can result in fines of $1,000 a day for every day that the claim is not timely reported for each and every claimant.

Checklist of Needed Actions

1. Determine eligibility
2. Report the claim
3. Obtain the government’s initial view regarding amount owed
4. Clarify the amount owed
5. Obtain the government’s updated view regarding the amount owed
6. Negotiate settlement with claimant/go to judgment
7. Inform the government of settlement/judgment
8. Get the government paid

Reiteration of Warning—If the company does not follow these required steps, both the company and its defense counsel could suffer grave adverse consequences.

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About the Author

Dale Markland is a founding partner of the Markland Hanley law firm in Dallas, Texas.  Mr. Markland has tried more than 200 cases to verdict in state and federal courts and has a national practice.  This practice focuses on litigation in which engineering, medical, scientific and other technical issues are of particular significance, including the defense of product liability actions.

Dale has been selected by his peers as one of the Best Lawyers in America in the field of product liability.  He has also been selected for inclusion in Texas Best Lawyers 2010 in the field of product liability litigation.  He has been rated AV by the Martindale-Hubbell Legal Directory every year since 1980.  He is a Sustaining Member in the Product Liability Advisory Counsel, Inc.

Mr. Markland may be contacted by telephone at 469.341.3634 or by email at dmarkland@marklandhanley.com.

This article is not intended to serve as legal advice or as a comprehensive summary of the law, of regulations, or of activities required under those laws or regulations, and should not be relied upon in lieu of consultation with appropriate legal advisors in your jurisdiction.

Tags: dale markland, medicare, medicare compliance, responsible reporting entities