Background

In order to understand Medicare Secondary Payer processes and the impact of Medicare Mandatory Insurer Reporting, one must have some understanding of the logic behind the statues.  When Medicare was conceived by msp_imageand signed into law by President Johnson in 1965, the statue provided that Medicare would pay secondary to workers' compensation state laws first passed by Maryland in 1902.  Subsequently, in 1980 under President Jimmy Carter's administration, Medicare became secondary payer to group health plans, liability and no-fault insurance.  In 2003, the Medicare Modernization Act brought about the Recovery Audit Contractors (RACs) and increased awareness of fraud and abuse.  Unfortunately, Medicare Part A is still predicted to be exhausted by 2019.

Under the MMSEA Section 111, Mandatory Insurer Reporting statue, it is CMS's stated goal to prevent Medicare from paying primary, not to focus on recovery in situations where Medicare paid primary or to create additional revenue from civil penalties for not reporting.  CMS saves significantly more trust fund money using prevention than it does from recovery.

The industry must keep in mind that in October 2006 there was a very significant change in the Medicare Secondary Payer law interpretation and implementation when CMS consolidated all MSP into one contractor and removed control from the Medicare Regional Offices and housed it with the Medicare Central Office in Baltimore Maryland.  Processes have been streamlined and changed -- turnaround time has dropped significantly with equal gains in consistency and quality.  With that said, many of the documents, including the MSP Internet Only Manual (IOM) are significantly out of date -- it does not, in its entirety, reflect the reality of today's processes.  Other published documents, such as attorney guides should be not be taken entirely at face value. A review of the law and regulations in light of current processes demonstrates that the bulk of the provisions (including most of the general paragraphs) are applied to Workers' Compensation and Group Health Plan, with few specific provisions for liability and no-fault.  What follows in this article is a description of the new MSP processes and how the laws are applied today.  The Statue and Federal Regulations provide broad powers, but are applied by CMS with care and above all with reason.

Coordination Of Benefits and Medicare Secondary Payer

The provisions are known as the Medicare Secondary Payer (MSP) provisions and are found at section 1862(b) of the Social Security Act (the Act). These provisions prohibit Medicare from making payment if payment has been made or can reasonably be expected to be made by the following primary plans when certain conditions are satisfied: group health plans, workers’ compensation plans, liability insurance, or no-fault insurance. If payment has not been made or cannot be expected to be made promptly by a workers’ compensation plan, liability insurance, or no-fault insurance, Medicare may make a conditional payment, under some circumstances, subject to Medicare payment rules. Conditional payments are made subject to repayment when the primary plan makes payment. When Medicare is secondary payer, the order of payment is the reverse of what it is when Medicare is primary. The other payer pays first and Medicare pays second. CMS divides the implementation of this act into two pieces:

Mandatory Insurer Reporting -- avoiding cost to Medicare by providing information to claims processors about a beneficiary benefits:

 

  • Group Health Plan coverage,
  • Worker's compensation settlements / set-asides,
  • Liability insurance (pending law suits) and
  • No-fault coverage
These tasks are performed by the Coordination Of Benefits Contractor (COBC).  The COBC generates leads from provider intake information, employer data matching, plaintiff attorneys and until recently the Voluntary Data Sharing Agreements (VDSAs) with a number of large Group Health Plan insurers.  To preclude Medicare from paying primary, the COBC posts information about primary insurers on the Common Working File (CWF).  The information in the CWF is referenced by Providers and Medicare Claims Processors as part of their task to make sure Medicare doesn't pay if another plan should pay primary.
Collecting this information from diverse sources and dealing with the inconsistencies has been source of frustration for the COBC.  For instance, changes in  a working (referred to as "working-aged") beneficiary's GHP coverage, retirement or departure have not been regularly reported leading to denied claims for the beneficiary and extra work for the insurance plan in defenses.
Directly collecting information about workers’ compensation plan’s “Ongoing Responsibility for Medicals” or ORM, which is similar to a GHP’s responsibility to pay for medicals, is new and the MSPRC processes (recovery) associated with them are new too.
The COBC has historically learned of most Non-GHP cases through Medicare Secondary Payer Questionnaires, attorneys reporting their intent to litigate on behalf of a beneficiary and some medical review and allocator companies that regularly report workers' compensation cases.
Requiring all plans to report under Mandatory Insurer reporting on a regular basis should significantly improve the situation.

Medicare Secondary Payer Recovery -- recovering "over payments" or “conditional payments” made by Medicare

  • Payments that should have been paid by an employer's Group Health Plan (GHP)
  • Conditional payments made to a provider, because the beneficiary was incapacitated or the GHP denied coverage
  • Payments that should have been paid by no-fault insurance
  • Conditional payments made to a beneficiary pending the result of a liability or worker's compensation settlement
CMS seeks recovery for money they spent on medical claims that rightly should have been paid by another entity.  These claims go be various names according to the industry dealing with them.   Medicare tends to call them "over payments," plaintiff attorneys call them "liens" or "reimbursement claims" and in statute they are "conditional payments."  By which ever term they are referred to, it means the collection of individual Medicare claims that Medicare deems should have been paid by another entity as documented in an Interim Conditional Payment Letter and formally in the Demand Letter.  With the advent of Mandatory Insurer Reporting, a large number of these conditional payments will stopped and there will be  reduced need for MSP Recovery; however, no data collection system is perfect and there are situations where there is little chance of avoiding the necessity to pay conditionally, particularly in liability settlements.

Recovering payments that should have been made by a Group Health Plan (GHP)

Based on the information gathered by the COBC, Medicare's computer systems compare their records of who has group health insurance coverage and identifies payments where Medicare mistakenly paid primary.  Medicare sends Demand letters (or for large volume recoveries “Demand Packages”) containing the Medicare claims to the Primary Plan with a summary copy to the employer.  It is important to note that Medicare holds the employer, not the Plan, responsible for payment of the demand.  Insurers process the demand package as part of their service to the employer.

Recovering payments that should have been made by a Workers’ Compensation Plan or No-Fault Insurer

Workers’ Compensation Plans and No-Fault insurers have what Medicare calls “Ongoing Responsibility for Medicals” or ORM.  When the COBC discovers that a No-Fault insurer or a workers’ compensation plan should pay primary, either through reporting or a Medicare Secondary Payer Questionnaire, the COBC adds a record to the CWF to indicate that claims processors should deny Medicare claims related to that incident.  Providers have to bill either the No-Fault insurance or the Workers’ Compensation carrier for for payment.  The COBC indicates "relatedness" by adding appropriate ICD codes to the CWF.  The record remains on the CWF as an "on-going" obligation and claims are denied until the benefits have exhausted as evidenced by reporting exhaustion via Section 111 reporting or, historically, sending an exhaust letter sent to the MSPRC.  The MSPRC monitors these cases to determine if they are being correctly denied while benefits exist and will check the case after exhaust to determine if Medicare mistakenly paid claims.  If Medicare made conditional payments before the benefits exhaust, Medicare will seek recovery from the insurer.  If the benefits have exhausted and all of the payments were made appropriately, then Medicare does not seek to recover their conditional payments.  If the benefits have exhausted, but there was a settlement made to the beneficiary that was not used by the beneficiary in the context of recovering from his injury (e.g. he bought a new television), then Medicare may pursue recovery from the beneficiary.  For No-Fault insurers, Medicare's recovery efforts from the insurer in these situations can not exceed the no-fault insurance limit.   For example:
  • A beneficiary with a $10,000 no-fault policy limit was injured in a car accident and Medicare conditionally paid $2,000 for first hospital visit.  Subsequently, before Medicare sought reimbursement from the insurance carrier, the $10,000 was properly exhausted on related medical services.  Medicare will not seek recovery.
  • A beneficiary with an unlimited no-fault policy limit was injured in car accident and Medicare conditionally paid $2,000 for the first hospital visit.  Medicare will seek recovery for the $2,000 in claims and any subsequent claims related to the incident that are mistakenly billed to Medicare.
  • A beneficiary with an unlimited no-fault policy limit settles with the insurer for a lump sum.  Medicare may seek reimbursement of any conditional payments before the settlement from the insurer and from the beneficiary after the settlement.
The insurers' Mandatory Insurer Report will alert the COBC to the existence of the claim against their No-Fault plan  and the ORM data will aid Medicare in any recovery efforts.
Remember that CMS follows the money.  If the provider was paid by the insurer and Medicare, Medicare will recover the payment from the provider (Duplicate Primary Payment).  If the insurer settled with the beneficiary, Medicare will recover from the beneficiary.  If the beneficiary does not pay, they are subject to referral to Treasury for collections.
If the workers’ compensation or no-fault benefits have not been properly exhausted, Medicare will seek to recover from the insurer before seeking to recover from the beneficiary with an informal demand letter.  This informal demand process of seeking recovery from the no-fault insurer does not follow the standard MSP recovery process (e.g., accrue interest and subsequent referral to Treasury for collections), but a recalcitrant insurer may be pursued by Medicare through the courts.

Recovering from workers' compensation settlement, judgement or award

Prior to settlement, the COBC follows the same process as above for adding a record to the CWF to deny claims and encourage providers to bill workers' compensation and seek recovery of any mistaken payments.  Medicare will seek recovery from a lump sum settlement that does not have provisions for future medical costs and the beneficiary is explicitly liable for reimbursing Medicare for the conditional payments.  If an award includes provisions for future medical costs and exceeds $25,000, the beneficiary may request that a structured settlement (set-aside) be established.  If the beneficiary does not want a structured settlement, then the claims related to the incident are denied until the workers' compensation settlement is exhausted and Medicare becomes primary.
If the beneficiary, or the courts, decide that a structured settlement must be established, the process is the same, except that the beneficiary reports annual exhaustion of the annuity funds to the MSPRC.  Once the annual allotment has exhausted, providers can bill Medicare as the primary insurer. There is no recovery process related to workers' compensation future medicals as Medicare claims are regularly denied until exhaustion, although Medicare may pursue individuals that use the set-aside for other than related medical costs in the courts.

Reporting and Recovering from a liability settlement, judgement or award

Medicare has asserted in Federal Court that insurers have always been required by HHS regulations to report liability settlements, but prior to the passage of MMSEA Section 111 Mandatory Insurer Reporting the COBC learned of a pending liability suit from a Medicare Secondary Payer Questionnaire or directly from a plaintiff attorney.
Plaintiff attorneys are required to report a pending lawsuit and that is to the advantage of the attorney as he will receive an interim conditional payment letter that he can take forward as part of the litigation for special damages.  If the attorney ignores this step, in addition to civil penalties for not reporting, he may open himself up to a malpractice suit on behalf of the surprised beneficiary when Medicare pursues recovery from the beneficiary.  Remember, insurers and self-insured are not required to report pending settlement: they report the outcome of the settlement to Medicare.
Medicare, through the MSP recovery process seeks reimbursement from a liability settlement from the beneficiary, not the insurer, self-insured or the beneficiary's attorney.  A liability insurer's decision to settle a claim is their business decision (e.g., avoid a potential lawsuit) or as the result of a legal action, they have no a priori obligation to pay.  Injured parties and / or their plaintiff attorneys pursue payment, judgment or award -- not Medicare.  In contrast, Group Health Plans, No-Fault insurers and Workers’ Compensation plans have an a priori obligation to pay and much of the statute and provisions were conceived to enforce that obligation; and even then it is very important to note that Medicare holds employer, not their GHP insurers, liable for accrued interest and employers are the ones that are referred to Treasury for collections.  Could Medicare pursue damages from a liability insurer if they are unable to recover from the beneficiary -- yes, they subrogate the beneficiary's right to recovery, but they pursue such cases through the civil courts.  Again, beneficiaries are held liable and are referred to Treasury for collections without Medicare turning to the insurers for damages.

Protecting Medicare's Interest

Medicare's recovery efforts under the Medicare Secondary Payer Recovery Contract do not include subrogation of the beneficiary's right to recover from a third party.  In fact, for liability, workers' compensation and no-fault claims, Medicare seeks recovery directly from the beneficiary.  Since Medicare recovers from the beneficiary, it does not seek to recover more than the settlement amount of the case or litigation.  Medicare may demand up to the settlement amount minus any procurement costs if Medicare's conditional payment exceeds the settlement amount, but in practice Medicare tries to leave some of the settlement for the beneficiary.??Although there are no statutes or administrative law requiring that insurers (payers)  "Protect Medicare's Interest" by directly reimbursing Medicare or setting up annuities to cover future medicals, by statute Medicare can seek recovery directly from the insurer if they are unable to recover from the beneficiary or a settlement unduly shifts the burden of medical payments to Medicare.  It is important to note that such a recovery would be conducted outside of the normal recovery process (not a role of the MSPRC); it would be through civil court proceedings (see US vs Stricker).
Medicare does want Insurers to take into consideration that the beneficiary may not be aware, or prepared to deal with reimbursing Medicare for any conditional payments made on their behalf.
  • In the past many insurers that became aware of conditional payments issued two party checks (or three party if there is an attorney involved) with Medicare as one of the payees; however recent trial court litigation has cast a shadow on that approach
  • In the past, some defense attorneys have add text to the settlement documents making the plaintiff attorney liable for any Medicare reimbursement. but most State Bar’s have subsequently condemned that approach and defense has been requesting indemnification from plaintiff
  • Some insurers determine the amount of conditional payment made by Medicare by requesting provider records.  Then, at settlement, they withhold the amount, have the beneficiary sign a release and subsequently reimburse Medicare.  This approach has led to some problems (particularly in Florida) where courts have accused insurers of unduly retaining funds waiting on a conditional payment letter from CMS

No approach to date has been without some pitfalls

Medicare Secondary Payer Right to Recover and Penalties

The following paragraph is the part of the statute that has been the subject of much discussion and consternation:
SEC. 1862 |42 U.S.C. 1395y|(2)(B)(iii) Action by United States.—In order to recover payment made under this title for an item or service, the United States may bring an action against any or all entities that are or were required or responsible (directly, as an insurer or self-insurer, as a third-party administrator, as an employer that sponsors or contributes to a group health plan, or large group health plan, or otherwise) to make payment with respect to the same item or service (or any portion thereof) under a primary plan. The United States may, in accordance with paragraph (3)(A) collect double damages against any such entity. In addition, the United States may recover under this clause from any entity that has received payment from a primary plan or from the proceeds of a primary plan's payment to any entity.
Unfortunately, this paragraph has been applied to plaintiff attorneys.  Recently, in U.S versus Paul J. Harris, an attorney was fined under this law for receiving the settlement funds and challenging Medicare's right to recovery through estoppal -- he disbursed the funds to the beneficiary, though he knew them to be due to Medicare.  In Haro vs Sebelius, the court found that plaintiff attorneys are not liable from reimbursement; however, the court did not consider statute that states anyone in receipt of payment is liable for repayment (see Haro vs Sebelius).

Summary

In summary, the new MSP processes do not include pursuing insurers or self-insured for conditional payments arising from liability suits.  Like a workers' compensation lump sum settlement, the beneficiary is held liable.  They do not explicitly require that insurers and self-insured protect Medicare’s interest, but it is probably in the best interest of the insurers and Medicare if the insurers take some steps to alert the beneficiary to any outstanding over payments.
Direct recovery from the liability insurer and double damages are allow by the statute and may be applied through the courts in unusual circumstances -- they are NOT part of the normal MSP processes.