South Carolina Lawyer
SC Lawyer, May 2010, #3.
Medicare Muscles Up: Complying with Medicare Secondary Payer Mandatory Reporting
South Carolina LawyerMay 2010Medicare Muscles Up: Complying with Medicare Secondary Payer Mandatory ReportingBy Cynthia B. Hutto and Eli A. PoliakoffSection 111 of the Medicare, Medicaid and SCHIP Extension Act requires entities that resolve certain claims with Medicare beneficiaries to report details of the settlement to the federal government. These reporting obligations-and the $1,000 per day, per claim penalty for non-compliance-are not limited to insurers. Defendants subject to Section 111 should incorporate the reporting requirements into the claim evaluation and settlement process and take proactive steps to minimize exposure to penalties and liabilities.
Medicare is the federally funded health insurance program for individuals 65 years of age or older and individuals of all ages who meet other eligibility standards, such as disability. As the program's costs have increased, the federal government has taken steps to limit Medicare's expenditures when another entity has primary payment responsibility for a beneficiary's medical expenses.
For example, Medicare can "conditionally" pay medical expenses of a beneficiary injured by a third party, but may recover those expenses from the beneficiary's settlement with a third party. In these situations, Medicare is the "secondary payer" and can assert the "Medicare lien" against the settlement. Medicare also has existing statutory and regulatory authority to recover secondary payments from anyone who receives the settlement (such as the beneficiary or his/her lawyer) or is responsible for making the settlement (including the settling defendant or its insurer). See 42 U.S.C. § 1395y(b)(2)(B); 42 C.F.R. §§ 411.24 and 411.37. The Section 111 reporting requirements enhance Medicare's ability to identify "secondary payer" circumstances and recover conditional payments by forcing third-party payers to self-disclose settlements, payments and other awards with or to Medicare beneficiaries.
The agency that administers Medicare and runs the reporting program (the Centers for Medicare and Medicaid Services, "CMS") labels the party with the reporting duty as the Responsibly Reporting Entity (RRE). RREs "must implement a procedure in their claims review process to determine whether an injured party is a Medicare beneficiary and gather the information necessary for Section 111 reporting." See MMSEA Section 111 Medicare Secondary Payer Mandatory Reporting (Non-Group Health Plan) User Guide Version 3.0 (February 22, 2010), at http://www.cms.hhs.gov/MandatoryInsRep/Downloads/NGHPUserGuideV3022210.pdf at 19 ("User Guide"). In general, six factors determine which events are subject to the reporting obligations.
Reporting Responsibility. Section 111 applies to "liability insurance (including self-insurance), no fault insurance, and workers' compensation" plans and arrangements. 42 U.S.C. § 1395y(b)(8)(F). "Self-insurance" can be demonstrated by a failure to obtain insurance; for example, where a product liability defendant settles without resort to insurance. See CMS Alert, "Who Must Report" (Feb. 24, 2010) at 11, at http://www.cms.hhs.gov/MandatoryInsRep/Downloads/NGHPAlertRREsWhoMustReport.pdf. However, CMS broadly interprets "self-insurance" to also include entities that carry their own risk through a deductible or co-pay on a liability insurance policy. Id. at 11. Therefore, even if an entity has liability insurance, a deductible payment is considered "self-insurance" for purposes of Section 111. As CMS notes, "such deductibles and co-payments constitute liability self-insurance, and require reporting by the self-insured entities." Id. at 12.
CMS's latest Section 111 guidance, issued in late February 2010, eases the reporting burden for most insureds. The insurer must report the deductible and any amount in excess of the deductible "where the [insured's] self-insurance in question is a deductible." Id. at 4. Accordingly, in the typical settlement scenario where the insured is responsible for only a deductible, the insurer has the reporting obligation. However, an insured may need to report if it pays a settlement without recourse to insurance or "without informing its insurer." Id. at 5. CMS has not clarified what actions constitute "informing" the insurer for purposes of Section 111.
Additionally, the insured may need to report settlements directly paid to a claimant if the insured is subsequently reimbursed from its insurer under a policy that has responsibility beyond a certain limit, such as excess insurance. In fronting policies, the reporting duty generally attaches to the party that pays the settlement to the claimant.
Defendants (or their insurers) subject to joint and several liability must report the entire settlement, not only their...