The Medicare, Medicaid and SCHIP Extension Act of 2007: a practitioner's introduction to resolving personal injury liability claims by Medicare beneficiaries.

• Author: Berdy, Christopher S.

WITH EVER-RISING health care costs and growing federal budget deficits, expansion of government powers to recoup government-provided health care expenditures should come as no surprise. Effective on July 1, 2009, the Medicare, Medicaid and SCHIP Extension Act of 2007 (1) ("MMSEA") substantially expands the federal government's ability to seek reimbursement for past and future Medicare payments. By imposing stringent reporting requirements and stiff penalties on Group Health Plans ("GHPs") and non-Group Health Plans ("non-GHPs") (including self-insurance, no-fault insurance, and workers' compensation insurance plans) involved in an estimated 2.7 million personal injury liability claims annually, the MMSEA provides Medicare additional tools with which to seek reimbursement for Medicare claims. (2) In essence, the MMSEA will require practitioners handling personal injury liability claims brought by Medicare beneficiaries to give serious, ongoing, and proactive consideration to past and future medical expenses covered by Medicare.

For those practitioners heretofore unfamiliar with the Medicare Secondary Payer Act, this article provides an introduction to the Secondary Payer Act and the MMSEA, focusing exclusively on Medicare reimbursement obligations for non-GHPs. In particular, the article explains the MMSEA's implications in the context of personal injury liability claims and provides practitioners with strategies to not only ensure statutory compliance, but also to reduce the risk of increased exposure in such cases. Because the MMSEA is grafted onto existing legislation (the Secondary Payer Act), this article first addresses the Secondary Payer Act and its obligations and potential penalties. In light of the expanded reach of Medicare into the realm of personal injury litigation through the MMSEA, as well as the attendant risks of failing to comply, practitioners cannot overestimate the importance of familiarizing themselves with these statutes.

1. Medicare and the Secondary Payer Act

   A. Introduction to Medicare

   Medicare is the federal health insurance program for individuals over the age of sixty-five, as well as for individuals under age sixty-five with permanent disabilities and permanent kidney failure. (3) The Centers for Medicare & Medicaid Services ("CMS"), a bureau of the Department of Health and Human Services, oversees the Medicare program and is responsible for implementation of the MMSEA. (4)

   B. The Medicare Secondary Payer Act

   By statute, Medicare has become generally a payer of "last resort." The Medicare Secondary Payer Act ("MSPA") mandates in all situations where another entity is required to pay for covered services that the other entity pay before Medicare does, and such entity must do so without regard to a patient's Medicare entitlement. (5) The MMSEA is the most recent addition in a series of expansions to the Secondary Payer Act to expand the areas in which Medicare is a "secondary" payer.

   At its inception, Medicare was not exclusively a secondary payer. When Medicare was first established, it was the "secondary" payer only for medical services covered by workers' compensation, and the "primary" payer for all other eligible medical services provided to eligible participants. (6) In direct response to increasing financial burdens on Medicare and to shift costs from the Medicare program to private payment sources, in 1980 Congress enacted the first of a series of provisions that collectively made Medicare the secondary payer when additional insurance was available to assume primary responsibility for medical payments. (7) As a result of these expansions, Medicare is rarely the primary payer for medical services if a private payer is available. (8)

   In general, Medicare is "secondary" in two situations. First, Medicare is a secondary payer to GHPs for Medicare beneficiaries who are eligible Medicare beneficiaries (e.g. age sixty-five and older or under than age sixty five, have a disability, or have end state renal disease) and who have GHP coverage on the basis of their own or their spouse's current employment with an employer that has least twenty employees for beneficiaries aged sixty-five or older, or at least 100 employees for the disabled, or have end stage Renal Disease and who have GHP coverage on any basis. (9) Second, Medicare is a secondary payer when certain types of non-GHP insurance coverage, including liability (including self-insurance), no-fault, and workers' compensation insurance are responsible for a Medicare-eligible individual's health care expenses. (10)

   C. Reimbursement Of Medicare "Conditional" Payments

   1. Medicare Conditional Payments Defined

      Although Medicare is a secondary payer, it often makes the first payment to providers for health care services. These Medicare past payments are considered "conditional," and as a secondary payer, Medicare can and will seek reimbursement from GHPs and non-GHPs ("primary payers") for conditional payments made if it determines that those payments were the responsibility of a primary payer. (11) Thus, as a secondary payer, Medicare conditionally pays for beneficiaries' treatment with the expectation of reimbursement for all or part of the payments it makes.

      Conditional payments can also arise when (1) a claim is denied or disputed by the primary payer; (2) the primary payer fails to make prompt payment; (3) Medicare makes payment without knowledge of the primary payer's existence; (4) the claimant fails to document the primary payer's existence; (5) Medicare is mistakenly billed instead of the primary payer; and, (6) the beneficiary fails to file a proper claim due to mental or physical incapacity. (12)

   2. Timing of Reimbursement To Medicare

      A Medicare beneficiary who receives payments from a primary payer must reimburse Medicare within sixty (60) days of receiving payment. (13) To that end, CMS's right to seek recovery accrues when a primary payer pays for a Medicare conditional payment by settlement, judgment, or "other means." (14) However, CMS cannot demand reimbursement until a beneficiary's claim is settled. (15)

   3. Amount Owed To Medicare

      Medicare has a right to reimbursement for health care services that a primary plan has or had a "responsibility" to pay. (16) Because this right to recover conditional payments does not accrue until after a settlement has been reached, a conditional payment can be difficult to compromise and to reduce below its actual amount. (17) Moreover, Medicare is entitled to reimbursement regardless of whether or not there has been a finding or admission of liability. (18) As a result, settlements may result in reimbursement to Medicare of all or a substantial portion of the settlement value.

      Nevertheless, the beneficiary may reduce the reimbursement amount owed by any "procurement costs"--the costs the beneficiary paid to an attorney in pursuing her claim. Moreover, the Medicare Secondary Payer Manual suggests that by involving CMS prior to reaching a settlement, the parties also may be able to compromise the amount owed to Medicare. (20) This compromise would result from negotiations with CMS and the parties, potentially complicating any settlement discussions.

      D. Protecting Medicare's Interests in Future Medical Expenses

      In the context of workers' compensation claims, CMS has developed and issued guidelines on how claimants are to consider and protect Medicare's financial interests regarding future medical expense payments. In contrast and as discussed below, CMS has yet to provide any clear guidance on how to consider Medicare's interests in personal injury liability claims.

   1. Medicare Set Aside Arrangements

      For workers' compensation claims, a CMS-recommended method of protecting Medicare's future financial interests is a Medicare Set Aside ("MSA"), which carves out a portion of any settlement proceeds for future medical expenses. (21) A set aside arrangement should be utilized and may be submitted for CMS review under either of the following two scenarios:

      (1) The claimant is currently a Medicare beneficiary and the total settlement amount is greater than $25,000; OR,

      (2) The claimant has a "reasonable expectation" of Medicare enrollment within thirty (30) months of the settlement date and the anticipated total settlement amount for future medical expenses and disability/lost wages over the life or duration of the settlement agreement is expected be greater than $250,000. (22)

      A claimant may have a "reasonable expectation" of Medicare enrollment when the individual (1) has applied for Social Security Disability Benefits; (2) has been denied Social Security Disability Benefits but anticipates appealing that decision; (3) is in the process of appealing and/or refiling for Social Security Disability Benefits; (4) is 62 and...