The Medicare Secondary Payer Act and section 111 of the Medicare, Medicaid, SCHIP Extension Act of 2007: implications for claim management and resolution for liability insurance plans.

• Author: White, Tamela J.

IN THE UNITED STATES, Medicare, along with other government-sponsored health benefit plans including Medicaid and SCHIP (State Children's Health Insurance Program), is a stabilizing giant in public health intervention. The United States Department of Health and Human Services (DHHS) and its operating division, the Centers for Medicare and Medicaid Services (CMS) together operate one of the largest health care businesses in the world. Medicare, funded entirely by the United States government, provides benefits to persons over 65 years of age, persons with end stage renal disease, and persons receiving Social Security Disability for at least twenty four (24) months] Medicaid and SCHIP are needs-based programs funded through both state and federal resources. (2)

One in every four Americans receives benefits from these programs, and the populations served are those considered most vulnerable due to age, socioeconomic status, underlying health conditions, and other immutable factors. (3) Medicare, Medicaid, and SCHIP spending exceeded that of the Department of Defense in 2009, despite the country being in two (2) wars and engaged in numerous other defense-related missions. (4) Because of the programs' suprainflationary cost increases, calls to action for health care expenditure cost containment and control have been made often since these programs were established. (5) Fiscal responsibility is generally recognized as a necessity if these programs are to survive.

In 1980, Congress reversed twenty-five (25) years of uncontrolled payment of health care benefit claims through passage of the Medicare Secondary Payer Act (MSP). (6) The MSP declares that Medicare is the secondary payer to other available payment sources for healthcare-related costs arising out of a particular triggering event (qualifying) event. The MSP provides that Medicare is not obligated to pay where there exists in place, for the benefit of the individual Medicare participant, another payment source. Medicare beneficiaries, beneficiaries' attorneys, and alternative payment source plans (including, as discussed in greater detail below, liability insurers, self-insurance plans, employer-based group health plans, and workers' compensation plans (private or state-funded (7))) are all subject to the MSP's mandates.

MSP recovery efforts by CMS have been robust. The DHHS estimates that in the first eleven (11) months of 2009, alone, MSP enforcement saved the Medicare trust approximately $6.24 billion dollars. (8) However, $6.24 billion dollars is miniscule in comparison to the program, representing a mere 1.2% of Medicare's 2009 total benefits payments. (9)

From inception and until 2007, CMS' MSP recovery efforts were through a framework designed around trailing indicators. CMS relied upon published mandates providing that notice and repayment obligations be satisfied by beneficiaries within sixty (60) days (the "60-day rule") of receipt of a settlement or resolution payment. Beneficiaries and their attorneys regularly signed settlement releases affirming these repayment obligations had been or would be satisfied within the 60-day rule requirement. Insurers and payer sources had no separate obligation to report payments to CMS.

In 2007, Congress passed Section 111 of the Medicare, Medicaid, and SCHIP Extension Act (MMSEA), changing this paradigm by imposing an obligatory, leading indicator framework system upon primary payer sources. (10) MMSEA mandatory reporting is anticipated to result in significant costs savings for the government, both in procurement (collection) and administrative (clerical) related expenses. (11) The MMSEA accomplishes these savings by shifting the onerous burden to primary payers to timely report payments when made to beneficiaries and/or their counsel. Failure to timely report payments exposes primary payers to substantial noncompliance penalties ($1,000 a day) if there is a failure to report either single (lump sum) payments or ongoing (ongoing medical) payment agreements, as well as to MSP recovery action, which allows for double damages. The MMSEA makes primary payer sources the Orwellian "Big Brother" to beneficiaries and their counsel, forcing primary payers to administratively account for payments so that CMS may recover Medicare trust funds.

This article provides a resource for counsel and liability primary payer entities, discussing (a) the MSP, its historical judicial treatment and construction of its provisions, and (b) Section 111 of the Medicare, Medicaid, and SCHIP Extension Act (MMSEA), specifically in the context of the liability (and self-insurance) insurance, nonworkers' compensation, non-Group Health Plan (NGHP) context. (12) Brief treatment is also given to the Federal Medical Care Recovery Act (MCRA) applicable to service members and future issues such as Medicaid Set-Aside Agreements, as these will be an area to monitor as government enforcement turns to those arenas.

1. The Medicare Secondary Payer Act (MSP)

   In its infancy, Congress made no provision in the 1965 Social Security Act (13) for Medicare to be a secondary payment source for medically necessary care provided to beneficiaries. From 1965-1980, the United States experienced a significant, inflationary trend in healthcare costs and spending, which even in 2010 remains a political hot potato and public policy concern. To control health care costs and to recover moneys paid where alternative, primary payment sources exist, (14) in 1980, the "Medicare Secondary Payment Amendments to the Social Security Act" (15) (MSP) were passed.

   MSP provides that if a beneficiary receives medically-necessary care for which payment has been or is reasonably expected to be paid by a primary payer source, Medicare does not have to pay at all. (16) Because the existence of a primary payer may be unknown or ambiguous when care is provided, in order to protect the beneficiary, Medicare may issue payment conditionally to the provider. As a condition of program participation and for Medicare essentially to be willing to invest in the individual's health, each beneficiary must agree that Medicare can recoup money that it has spent, prohibiting the beneficiary from profiting on an illness or injury. As an additional protection for individual Medicare beneficiaries, Medicare cannot deny conditional payment merely because a beneficiary has not completed a Medicare beneficiary application form. (17)

   Once conditional payments have been recovered from a primary payer source, Medicare may assert any future recovery rights directly against the beneficiary, (18) a beneficiary's attorney, (19) or, alternatively, from the primary payer source. (20) Medicare can only recover on its conditional payments. If a beneficiary receives other forms of economic (such as lost wages or household services) or noneconomic recovery, Medicare cannot claim those sums under the MSP.

   Often, primary payment source obligations ripen only after a beneficiary seeks necessary health care. Under those circumstances, Medicare makes conditional payments to health care providers where a known or identified primary plan has not or "reasonably cannot be expected to" pay for the item or service "promptly." (21) "Prompt payment" in this context means payment of the health care provider's bill in one hundred twenty (120) days. (22) If a primary plan does pay for the subject-care within that four month time period, Medicare is obligated to pay any non-deductible or co-pay balance not otherwise paid for by a primary plan. (23) The United States' right to recover conditional payments made where a primary plan has not or is not reasonably anticipated to pay within 120 days of the health care provided, are superior to "any right ... of an individual or any other entity to payment with respect to such item or service under a primary plan." (24)

   A private settlement agreement between a responsible primary source and a beneficiary does not bind the United States and cannot circumvent government recovery rights. (25) An attempted apportionment of economic and noneconomic percentages by private agreement that favors the beneficiary such that the amount of prior, paid medical costs are not repaid in accordance with CMS requirements also will not be recognized by the government. (26) The Government cannot recover against nonbeneficiaries that have legitimate derivative claims, provided that any resolution of derivative claims is not a sham intended to divert funds ultimately to the benefit of the Medicare beneficiary. (27)

   CMS recognizes and does not disturb in MSP recovery efforts any apportionment via final judgment and/or jury award. (28) Nonetheless, MSP preempts state statutory apportionment provisions, the United States' recovery rights in this regard being recognized as not merely rights of subrogation:

   The [Medicare Secondary Payer] legislation does not confine the HHS' right of reimbursement to its right of subrogation. The statute grants HHS an independent right of recovery against any entity that is responsible for payment of or that has received payment for Medicare related items or services, including the beneficiary herself ... This independent right of recovery ... is not limited by the equitable principle of apportionment stemming from the subrogation right ... Nothing in the [language of the Act] limits Medicare's right of full reimbursement. (29) Hence, state laws designed to protect private interests in the event of liability insurance carrier insolvency are preempted by the MSP, as are any state laws that that otherwise interfere with federal recovery. (30) For instance, a Texas law that sanctioned health care providers for not billing within eleven (11) months of service with beneficiary debt forgiveness (payment forfeiture) (31) and an Indiana statute establishing a prioritized lien in favor of a hospital against any personal injury judgment award have been judicially challenged and found to be...