Chapter 37 - § 37.1 • MEDICARE CONDITIONAL PAYMENTS

• Jurisdiction: Colorado

§ 37.1 • MEDICARE CONDITIONAL PAYMENTS

The Medicare secondary payer (MSP) statute was originally enacted in 1980 and is codified under federal law at 42 U.S.C. § 1395y(b). The statute was amended by the Omnibus Budget Reconciliation Act of 1989 (OBRA '89) and again by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA).

The OBRA '89 provisions became the subject of significant controversy for several years due to conflicting federal court decisions regarding the interpretation of the amended statutory language. The language at issue states:

(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 . . .
(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-insurance plan) or under no fault insurance.
In this subsection, the term "primary plan" means . . . a workman'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.¹
. . . (i) Primary Plans
Any payment under this subchapter . . . shall be conditioned on reimbursement to the appropriate Trust Fund established by this subchapter when notice or other information is received that payment for such item or service has been or could be made under such subparagraph. . . .
(ii) Action by United States
In order to recover payment under this subchapter for such an item or service, the United States may bring an action against any entity which is required or responsible (directly, as a third-party administrator, or otherwise) to make payment with respect so such item or service (or any portion thereof) under a primary plan . . . , or against any other entity (including any physician or provider) that has received payment from that entity with respect to the item or service, and may join or intervene in any action related to the events that gave rise to the need for the item or service. . . .²

In 2002, the Fifth Circuit decided Thompson v. Goetzman,³ holding that a payment by the defendant directly to the plaintiff did not constitute a "self-insurance plan" under the federal MSP statute, since the defendant did not have formal claims procedures in place similar to those used by an insurance company. The Goetzman court also found that the existing language of the MSP statute limited the government's right to recover its MSP claim to those situations in which a third-party payer was expected to pay promptly (within 120 days, according to the MSP regulations) for the plaintiff's medical claims. Thus, the defendant in Goetzman was held not to be a "third-party payer" under the MSP statute and was permitted to completely avoid repayment of Medicare's considerable MSP claim in that case.

The following year, the Eleventh Circuit arrived at the opposite conclusion regarding the meaning of the language in 42 U.S.C. § 1395y(b)(2)(A) and (B). In United States v. Baxter International, Inc.,⁴ the court concluded that it was the clear intent of the statute that Medicare always be secondary, regardless of whether prompt payment could be expected from a third-party payer. The Baxter court also rejected Goetzman's holding that a setting aside of funds and the existence of formal claims procedures are necessary to the existence of a "self-insurance plan."

MMA, which was enacted by Congress in 2003, contained significant revisions to the MSP statute that were clearly directed at setting this controversy aside. Specifically, MMA made the following changes to the MSP statute (with new language underlined and removed language stricken through):

(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 . . .
(ii) payment has been made or can reasonably be expected to be made promptly (as de termined in accordance with regulations)under a workmen's compensation law or

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