The Centers for Medicare and Medicaid, CMS, held a meeting on the 28th of July 2011 with two of the largest US pharmaceutical companies to discuss issues surrounding the reporting of claims of ongoing responsibility for medical care arising out of a clinical trial under the Section 111 Mandatory Insurer Reporting as promulgated under the MMSEA, Medicare Medicaid and SCHIP Extension Act of 2007.

Although the pharmaceutical companies requested the meeting to discuss the difficulties surrounding the collection of privacy act and HIPAA information from clinical trial sites, CMS took the opportunity to investigate what steps pharmaceutical companies have taken to ensure that Medicare has not been inappropriately billed for services that should have been paid by them as the trial sponsor.  CMS took the additional and unusual step of inviting three attorneys from Health and Human Services (HHS) Office of General Council (OGC) to a Mandatory Insurer Reporting meeting to hear the answers.

There were two questions and one interpretation that particularly warrant consideration by the pharmaceutical industry.  They are paraphrased from Piatt Consulting meeting notes as below:
  • What mechanisms are in place to distinguish between when Medicare can be billed and when the sponsor should be billed?
  • What mechanisms are in place to pay any chronic problem that go beyond the completion of the trial?
  • It doesn't matter whether or not the subject was taking a placebo or not, the point is whether or not they paid to treat.
Each of these key points is discussed in greater detail in the remainder of this article.

What mechanisms are in place to distinguish between when Medicare can be billed and when the clinical trial sponsor should be billed?

CMS briefly touched on the substance of a June 2000, Presidential Memorandum stating that Medicare would pay for appropriate standard of care for the underlying ailment for those beneficiaries enrolled in clinical trials; then asked how the clinical trial sponsor distinguished between a standard of care and clinical trial related billing event.  As an example CMS offered that if x-rays where part of the trial protocol, Medicare could be billed for the x-rays as long as the number of x-rays did not exceed the beneficiary’s appropriate standard of care.  If the beneficiary required more x-rays, then the clinical trial sponsor would have to pay for them.

Clinical trial sponsors generally contract with clinical trial sites to administer and monitor the efficacy of the drug or device being studied.  As part of the competitive bidding process, candidate trial sites review the trial protocol and develop proposals based on the tests, procedures, medications and the length of the study.  A proposal generally includes regular visits with the research staff (usually medical doctors and/or nurses) to monitor the test subjects health and to determine the safety and effectiveness of the treatment(s) they are receiving.  The clinical trial site has to gauge the costs it will incur to implement the trial protocol and submit a proposal to the trial sponsor that is competitive and yet still meets that profit goal of the site as a business entity.  It is important to note, that inherent in a trial is the potential for the adverse events, some of which may be anticipated based on earlier phases of testing while others may arise during the trial. The payment to a clinical site for medical treatment by the trial sponsor clearly establishes the clinical trial as a “plan” under Medicare Secondary Payer (MSP) statute and is at the heart of Medicare’s question.  If the clinical trial sponsor views the testing as having been completely outsourced through a fixed price contract payment, the sponsor may not have a lot of detail about how the funds are expended. 

Interestingly, it is the agreement with the trial subject to pay for medical claims arising out the trial, not the contract with the clinical trial site, that identifies the clinical sponsor as ultimately responsible to reimburse Medicare for any inappropriately billed medical claims.  It establishes them as the Responsible Reporting Entity (RRE) under Mandatory Insurer Reporting and as a potential future defendant under Medicare Secondary Payer statutes.  How the trial sponsor writes and manages the contract with their clinical trial sites becomes even more critical.

The sponsor is responsible for a clinical trial site’s billing oversights.

Submitting Section 111 reports can stop improper billing at the site.

What mechanisms are in place to pay any chronic problem that go beyond the completion of the trial?

As a follow up to probing about how a clinical trial sponsor ensures they are paying for treatment during a trial; CMS asked if someone ended up with a chronic problem, how is it paid for?

Any attorney with experience with Medicare and Workers’ Compensation will recognize this as a question about how the trial sponsor has “Considered Medicare’s Interest” in future medical costs.

Unlike Workers’ Compensation law or perhaps liability tort actions, the answer to that question lies in content of the trial sponsor’s consent agreement.  If the agreement (e.g., contract) limits their financial liability to the period of the trial, then they have no further obligation to the beneficiary, and hence Medicare, for any continued coverage after the trial for treating their affliction.

It doesn't matter whether or not the subject was taking a placebo or not, the point is whether or not they paid to treat.  CMS stifled any debate that might have occurred on the subject of whether or not a beneficiary that participated in the trial was administered a placebo when they said the trigger for reporting was a payment.

Tort or Contract?
Contract.  The legal basis for enforcing Medicare Secondary Payer statutes arising from clinical trials is one of contract, not tort.  It is their consent form in which they agree to pay for any injuries arising out the trial that forms the legal basis for a civil action.  Whether or not the beneficiary is taking a placebo is not germane to the fact there is a contract to treat a beneficiary.

To further illustrate the point that it is a matter of contract, consider the following argument.

In 42 U.S.C. 1395y(b)(2)(A) “An entity that engages in a business, trade, or profession shall be deemed to have a self-insured plan if it carries its own risk (whether by a failure to obtain insurance, or otherwise) in whole or in part...”

In 42 C.F.R § 411.21  “Plan means any arrangement, oral or written, by one or more entities, to provide health benefits or medical care or assume legal liability for injury or illness,” clearly encompasses the written consent form as an assumption of legal liability.

In 42 C.F.R  § 411.50   General provisions. “Liability insurance means insurance (including a self-insured plan) that provides payment based on legal liability for injury or illness or damage to property,” this regulation provides CMS the opportunity to use payment as prima facie evidence of an insurance plan regardless whether or not a written agreement is in place.

Unfortunately, many attorneys involved in analyzing whether or not they should recommend reporting to Medicare believe they are only responsible for reporting when they make a payment in excess of the payment they made to the clinical trial site to conduct the trial and assume these payment will be a tort  -- compensation in lieu of treatment or a settlement for negligence in conducting the trial.  Hopefully, we have demonstrated that is these are not situations of ongoing responsibility for medical coverage, rather represent one-time monetary awards that should be reported as “Total Payment Obligation to Claimant” or TPOC.


CMS heard the concerns of two major pharmaceutical companies about their difficulties in collecting data and heard a request that they contact someone within their parent organization, HHS, and CMS’s sister organization the FDA that could help streamline the reporting.  CMS took under consideration as to whether these difficulties warranted some relief in reporting deadlines, but was not forthcoming.

CMS demonstrated a sincere interest in learning how a pharmaceutical company managed billing. CMS may have left with some sense of the scope of the savings to be gained by reporting to enforce proper billing.  The HHS OGC may have left with a sense of the size of an award they could win via their right to file an action for double damages with a Federal Court on behalf of their beneficiaries to recover conditional payments going as far back as December 05, 1980, not to mention $1,000 per day per beneficiary.

Medicare is only aware of two companies that are actively reporting or in the process of preparing to report.  If your firm is not on that list and you are reporting, our advice is to alert CMS to the fact as soon as possible.

Disclaimer: The author is not an attorney and opinions expressed in this article should not be taken as legal advice, or the views CMS. The opinions expressed in this article and on this web site are those of author based on his experience as the Former MSP Program Director, consulting with RREs and attorneys.