Settler Beware: Navigating the Amendments to the Medicare Secondary Payer Act, by John P. Morgenstern, Esq.

For those of us representing governmental entities in personal injury actions, the landscape of case resolutions has changed.  On July 1, 2009, amendments to the Medicare Secondary Payer Act (“MSP Act”), 42 U.S.C. § 1395y and 42 C.F.R. § 411, took effect, adding another level of red tape and potential exposure to attorneys and insurance carriers.  

On December 29, 2007, President George W. Bush signed the Medicare, Medicaid, and SCHIP Extension Act of 2007, which amended the MSP Act to impose new reporting requirements on primary payers, such as Group Health Plans (“GHPs”), Workers Compensation plans, liability insurers (including self-insured entities), and no-fault insurers.  The payers are to (1) determine whether a plaintiff or claimant is eligible for Medicare benefits and (2) provide the Centers for Medicare and Medicaid Services (“CMS”) with the identity of the plaintiff or claimant and any other information the Secretary of Health and Human Services may require within a time specified by the Secretary.  The Act took effect on January 1, 2009, for (“GHPs”) and is scheduled to take effect as to non-GHP primary payers on July 1, 2009.

Purpose of the MSP Act

Congress created Medicare in 1965 to provide federally funded health insurance to qualified recipients, including anyone (1) over 65 years of age, (2) in receipt of Social Security Disability Benefits for at least 24 months (regardless of age), or (3) who suffers from End Stage Renal Disease regardless of age.

In an effort to keep a lid on spending, Congress subsequently enacted the MSP Act.  The Act requires Medicare's interests to be considered and protected in Workers’ Compensation and personal injury cases where a primary insurer other than Medicare is responsible for future medical expenses, but Medicare has the role of secondary payer because the claimant is a qualified beneficiary.   

If Medicare's interests are ignored in a settlement, and future secondary payments for treatments related to the injury are required, the CMS has a right of recovery against primary payers and the attorneys involved.  They may also deny future Medicare benefits to the claimant and even impose penalties.  Furthermore, CMS is subrogated to any individual, provider, supplier, physician, insurer, state agency, attorney, or any other entity entitled to payment from the settlement.

The recommended method of protecting all interested parties from such actions is to create a Medicare Set-aside Arrangement (“MSA”), which allocates a portion of a settlement to an interest-bearing account to be used to pay for future medical expenses.  In many cases, the arrangement can and should be submitted for review to CMS to receive an adequacy evaluation and approval that binds CMS and protects against Medicare liens.

Applicability of the MSP Act

Pursuant to 42 C.F.R. § 411.40 and succeeding sections, the MSP Act applies to cases involving Workers’ Compensation laws, the Federal Employees' Compensation Act, the U.S. Longshoreman's and Harbor Workers' Compensation Act, and to cases involving accidental injury policies, automobile insurance policies, self-insurers for accident victims, and other personal injury policies.  More specifically, it applies when future medical expenses are at issue and the claimant or plaintiff is a qualified Medicare beneficiary or has a reasonable expectation of Medicare enrollment within 30 months of settlement.

Medicare beneficiaries are (1) 65 or older, (2) in receipt of Social Security Disability Benefits for at least 24 months, or (3) suffering from End Stage Renal Disease. A reasonable expectation of enrollment exists for claimants who (1) are between 62.5 and 65 years of age, (2) have applied for Social Security Disability Benefits (or are appealing a denial of benefits), or (3) suffer from non-End Stage Renal Disease. 

In applicable cases, parties should establish a MSA to account for Medicare’s interest in avoiding payment of future medical expenses related to the injury or illness.  A MSA is not required for cases in which (1) only past medical expenses are at issue, (2) no evidence exists that a claimant is attempting to maximize portions of a settlement such as lost wages to Medicare's detriment, and (3) a claimant's treating physician provides in writing that he or she reasonably concludes that no future Medicare-covered treatment relating to the injury will be necessary.

Recommended Course of Action: Establish a MSA

In cases involving future medical expenses for Medicare beneficiaries, CMS recommends a MSA, an arrangement now commonly established by many private companies. Such an arrangement involves setting aside a portion of the settlement or judgment into an interest-bearing account to be used exclusively for those future medical expenses. 

In most cases, the parties can submit a MSA proposal to CMS for an adequacy review and an approval process that will bind CMS and protect against Medicare liens.  Proposals should be submitted to CMS for approval if one of the following thresholds is met: (1) the claimant is an eligible Medicare beneficiary and the total amount of the settlement or judgment is greater than $25,000, or (2) the claimant has a reasonable expectation of Medicare enrollment within 30 months of the settlement date and the total amount of payments for future medical expenses, disability, and lost wages over the life or duration of the settlement agreement is expected to exceed $250,000. 

The total settlement amount includes but is not limited to wages, attorney fees, future medical expenses, and repayment of Medicare conditional payments.  The payment total for annuities is the value of the expected payments throughout the life of the agreement, not the cost or present value.

Parties may proceed with a settlement before CMS actually reviews a MSA proposal. However, in order to form a MSA that binds CMS, the agency must receive documentation that the arrangement has been funded to the full amount required at the end of the CMS approval process.

If a MSA Is Not Established

It is important to note that ignoring Medicare's interests regarding future medical expenses can be costly.  Medicare may initiate a private right of action against primary payers and even seek double damages to recover any payments issued pursuant to 42 C.F.R. § 411.24.  Furthermore, pursuant to 42 C.F.R. § 411.26, Medicare is subrogated to any individual, provider, supplier, physician, insurer, state agency, attorney, or any other entity entitled to payment under a settlement.  Therefore, it is in the best interests of all parties to a suit, not just the claimants or plaintiffs, to look out for Medicare’s interests.

Submitting a Proposal

To submit a MSA proposal, contact the CMS Coordination of Benefits contractor at 1-800-999-1118 or visit www.cms.hhs.gov/COBGeneralInformation/03_contactingtheCOBContractor.asp. 

Specifically for Workers’ Compensation cases, CMS recommends creating a CD-Rom including a Submitter Letter, Consent Form, Rated Age Information or Life Expectancy, Life Care Plan, proposed Settlement Agreement or Court Order, Set-Aside Arrangement Administrator or Copy of the Agreement, Medical Records, Payment History, Future Treatment Plan, and Supplemental or Additional Information.  The disc must be sent to:

CMS
c/o Coordination of Benefits Contractor
P.O. Box 33849
Detroit, MI 48232
Attn: WCMSA Proposal

For more information regarding a model proposal for a Workers Compensation Medicare Set-aside Arrangement (WCMSA), visit www.cms.hhs.gov/WorkersCompAgencyServices/
05_wcmsasubmission.asp
Administering a MSA
A MSA may be administered by a claimant or by a representative or professional, subject to state law.  Many private companies now provide MSA administration services.  Fees and expenses for the administration of a MSA and/or attorney fees associated with establishing a MSA may not be charged to the arrangement.  Taxes on interest earned by an arrangement may be paid out of the MSA.  Annual accounting documentation must be provided to the CMS Medicare contractor assigned to the case. 

If after five years a claimant's condition has improved significantly, he or she may submit a proposal to the Medicare contractor to release a portion of the MSA to the claimant. The proposal must be for at least 25% of the funds.  If a claimant dies prior to the exhaustion of a MSA, the amount may be disbursed pursuant to state law.

Information pertaining to the administration of a model WCMSA can be found
at www.cms.hhs.gov/WorkersCompAgencyServices/07_administeringwcmsas.asp.

Reporting Requirements
In addition to reporting cases involving Medicare recipients, primary payers will be expected to report on cases where the claimant has a reasonable expectation of becoming eligible for Medicare within 30 months.  A reasonable expectation exists for a claimant who (1) is between 62.5 and 65 years of age, (2) has applied for Social Security Disability Benefits (or has been denied and is appealing), or (3) suffers from non-End Stage Renal Disease.

An online reporting system is expected soon.  The online reporting requirement for primary payers has been extended through December 2009.  However, primary payers are well advised to begin the testing process with CMS as soon as possible.  More information on the testing process can be found online at https://www.cms.hhs.gov/MandatoryInsRep/Downloads/Allert_UserGuideSupp_NGHP.pdf.

In the meantime, to report a case involving a Medicare beneficiary, a party may contact the Medicare Coordination of Benefits Contractor at 1-800-999-1118 or by visiting www.cms.hhs.gov/COBgeneralinformation/02_HotTopics.asp.

The following information is required under a model workers compensation report, which may eventually apply to all MSP reports: (1) the claimant's name, (2) the claimant's Medicare Health Insurance Claim Number or Social Security Number, (3) the date of the incident, (4) the nature of the illness or injury, (5) the name and address of the insurer, (6) the name and address of the legal representatives involved, (7) the name of the insured, and (8) the policy or claim number.

More detailed information is available at www.cms.hhs.gov/WorkersCompAgencyServices/07_administeringwcmsas.asp.

Once the report is submitted, a contractor’s agent will be assigned to the case.  The agent will inform the claimant of the applicability of the Medicare Secondary Payer program and of any Medicare recovery rights.

Responsibilities of Attorneys and Primary Payers

It is important to note that attorneys are expected to inform the Coordination of Benefits Contractor about a potential liability lawsuit immediately upon taking a case involving a Medicare Beneficiary.  GHPs are required to report to the Coordination of Benefits Contractor if CMS has made a primary payment when Medicare should have the role of secondary payer. Non-GHPs must report to the Coordination of Benefits Contractor as soon as possible when the insured claimant is a Medicare Beneficiary.  More detailed information is available at www.cms.hhs.gov/MEDICARESECONDPAYERANDYOU/.

If reports are not filed within a time frame set by the Secretary of Human Services after a settlement is reached, a civil penalty of $1,000 per claim per day may be imposed.  More information is available at www.cms.hhs.gov/MandatoryInsRep.

Conclusion: Information To Collect and Things to Remember

When insurers and attorneys take on workers’ compensation or personal injury cases involving current or potential Medicare beneficiaries, a flag should go up.  In light of the MSPA as amended, they should immediately gather certain information that will be helpful when it comes time to propose MSAs or submit MSP reports to Medicare. 

For a MSA proposal, it is helpful to have (1) a Submitter Letter, (2) a Consent Form, (3) Rated Age Information or Life Expectancy, (4) a Life Care Plan, (5) a copy of a proposed Settlement or Court Order, (6) a Set-aside Arrangement Administrator or a Copy of an Agreement, (7) Medical Records, (8) Payment History, (9) Future Treatment Plans, (10) and Supplemental or Additional Information.

For a MSP report, attorneys and payers should have (1) a claimant’s name, (2) his or her Medicare Health Insurance Claim Number or Social Security Number, (3) the date of the incident, (4) the nature of the injury or illness, (5) the name and address of the insurer, (6) the name and address of the legal representatives involved, and (7) the policy or claim number.

MSAs and MSP reports are critical for avoiding Medicare liens and civil penalties.  For any questions that arise and for submission information, contact the Medicare Coordination of Benefits contractor at 1-800-999-1118.

John P. Morgenstern, Esq. is a partner at Deasey, Mahoney & Valentini Ltd. in Philadelphia.  He can be reached at (215) 587-9400 or via email at jpmorgenstern@dmvlawfirm.com.  Brian R. Morgenstern, a student at Columbia Law School in New York City, contributed to this article.