Practice Tip: Medicare Secondary Payer Reporting Requirements Complicate Settlement

Since 1980, Medicare has been entitled to recoup funds it has paid conditionally to cover Medicare recipients' health care, where those recipients make claims that are subsequently settled or result in a damage award at trial. 42 U.S.C. ' 1395y(b). Because this statutory entitlement has been largely “honored in the breach,” in 2007 Congress enacted new reporting requirements for entities primarily responsible for the health care costs of injured parties, and imposed hefty civil fines for those who fail to report. 42 U.S.C. ' 1395y(b)(7), (b)(8) (the “Medicare, Medicaid and SCHIP Extension Act of 2007″ or “MMSEA”). This reporting requirement has generated a detailed and cumbersome set of regulations, rules and new requirements for designated Responsible Reporting Entities (“RREs”).

This article explores some of the practical impacts of the
MMSEA on settlement of product liability cases. It does not address the reimbursement process vis-'-vis judgments or claims involving ongoing or future medical treatment, although some of the same principles and procedures apply. The processes described below continue to evolve, as do Medicare's procedures and communications. As a result, and because of its brevity, this outline is necessarily incomplete. Fortunately, guides to handling MMSEA's requirements have been prepared by various bar organizations. A users' manual and computer-based training programs also are available from one of Medicare's Coordination of Benefits Contractors (“COBC”), the Centers for Medicare & Medicaid Services (“CMS”) at www.cms.gov.

RREs Must Register with a Medicare Coordination of Benefits Contractor (COBC)

By Oct. 1, 2010, entities Medicare considers RREs must have registered with a COBC. An RRE is any entity that is or can be expected in the future to be the primary payer for a claimant's health care costs conditionally paid by Medicare. In insured product liability cases involving Medicare recipients or Medicare-eligible plaintiffs, the insurer will be the RRE. However, self-insured product manufacturers are also RREs if they pay settlements or judgments to Medicare claimants.

A reference guide to the registration process can be found at http://www.cms.gov/MandatoryInsRep/MIR/itemdetail.asp?filterType=none&filterByDID=-99&sortByDID=4&sortOrder=ascending&itemID=CMS1230334&intNumPerPage=10. (Last visited Sept. 9, 2010.) Once an RRE registers with a Coordination of Benefits Contractor, the contractor creates an electronic reporting link which the RRE must use thereafter to report claims or payments made to Medicare recipients or Medicare-eligible claimants.

RREs originally had 60 days to report a payment to a Medicare recipient. This has been lengthened to 90 days. However, the best practice is to report claims involving Medicare recipients or Medicare-eligible persons at the next quarterly reporting opportunity after they are received, to speed up the subsequent process and minimize the risk of liability for non-reporting.

RREs Must Determine if a Plaintiff Is or Will Be a Medicare Recipient When Payments Are Made

RREs are obligated to protect Medicare's interest in settlement or judgment funds that could be used to reimburse Medicare's past costs or Medicare's liability for future health care costs. It is vital, therefore, that RREs determine whether their claimants are Medicare recipients or Medicare-eligible as early as possible. At the time it disburses settlement or judgment funds, an RRE becomes responsible for reimbursing Medicare for any payments Medicare has made as a secondary payer. It would be prudent to check a claimant's Medicare status before any settlement agreement is finalized or any payment is made.

Defendants' interrogatories should specifically ask about the plaintiff's Medicare status. Defendants should also request the claimant's Health Insurance Claim Number (HICN) or Social Security Number (SSN) and date of birth, which will allow them to determine the claimant's Medicare status independently, using CMS's Query link. At the same time, defendants should ask plaintiffs to execute a Consent to Release of their confidential medical information by Medicare, so that defense counsel will be able to negotiate with Medicare later.

The rub is that plaintiffs are under no statutory obligation to provide their Medicare status to defendants and many are hesitant to turn over their Social Security number or HICN to anyone. Where a plaintiff refuses to provide this information, defense counsel must be prepared to educate the court about why this information is relevant and material.

RREs Should Report Claims Well Before Any Payment Is Contemplated

Oct. 1, 2010 was the deadline Medicare set for registering as an RRE. The MMSEA requires that, once registration is complete, RREs must report any payments of claims made to Medicare recipients or Medicare-eligible claimants ' whether or not suit has been filed and whether or not Medicare has actually paid any of the claimant's health care costs. In practice, however, RREs cannot wait until a settlement or judgment is paid to make their initial report. The process of determining what amount must be reimbursed to Medicare is a lengthy one that will necessarily impact settlement negotiations. It is best to make an initial report to Medicare as soon as a claim is received and the Medicare status of the claimant has been established.

In cases involving insured product manufacturers, the insurer will be required to report a claim. Defense counsel should arrange to receive a copy of the report to Medicare, as well as any of Medicare's responses. If the RRE is a self-insured manufacturer, it will have to submit the report and its counsel will need to be able to help the RRE collect the necessary information for this purpose. This, in and of itself, a formidable task, as the report involves over 125 information fields including some data not ordinarily collected in litigation. Review of the reporting form is advisable before discovery is propounded.

Once a report is filed, the COBC notifies the Medicare Secondary Payer Recovery Center (MSPRC) of the pending claim. The MSPRC issues a “Rights and Responsibilities” letter to the injured party or his/her attorney, with a copy to the potential primary payer, asserting Medicare's reimbursement rights. Sixty-five days after the date of the “Rights and Responsibilities” letter, defense counsel may request that the MSPRC provide a “Conditional Payment Letter” that identifies the payments Medicare believes it has made as of that date and for which it will seek reimbursement.

“Conditional Payment Letters” may identify all Medicare payments made on behalf of the claimant associated with a particular diagnostic code, whether or not those payments arise from the incident giving rise to the pending litigation. It is in the parties' best interests to work together to weed out unrelated charges so that Medicare is not over-reimbursed. Once the parties agree on which charges are “unrelated” and therefore should not be reimbursed, they should provide Medicare with a detailed explanation of their position. Medicare may revise the Conditional Payment Letter to reflect some or all of the parties' proposed changes. When the parties and Medicare can agree on the reimbursable amounts owed to Medicare, the parties have a basis to begin negotiating settlement.

Medicare will issue a “Final Payment Letter” only after it has received an executed Settlement Agreement and Release or a Judgment. The RRE may end up being responsible for reimbursing Medicare for the amount shown in the Final Payment Letter, which may exceed Medicare's earlier conditional calculations. The inherently unfair nature of this process is being challenged as a violation of due process. See Haro v. Sebelius, No. CV 09-134 TUC DCB, 2009 WL 4497456 (D. Ariz. Nov. 30, 2009).

It is clear that this process will delay potential settlements as the parties attempt to negotiate an accurate “Conditional Payment Letter.”

Parties Must Structure Settlements to Avoid
Additional Risk

The MMSEA allows Medicare to recover reimbursement from anyone who receives a payment from a primary payer ' including the parties' respective counsel, health care providers, and Medicare beneficiaries themselves. Medicare has already successfully recouped claimants' attorneys' contingent fees as reimbursement. U.S. v. Harris, No. Civ.A.5:08CV102, 2009 WL 891931 (N.D. W.Va. Mar. 26, 2009). In U.S. v. Stricker, No. CV-09-PT-2423-ER (N.D. Ala. 2009), the United States now seeks reimbursement from settling liability insurers and self-insureds, as well as plaintiffs' counsel. In other cases, Medicare has “reimbursed” itself by ceasing to provide benefits to Medicare recipients who have not themselves reimbursed Medicare-paid health care costs. It is, therefore, in the best interests of everyone involved with a claim to ensure that Medicare is properly reimbursed. In every case where Medicare reimbursement may be necessary, the settlement must be reported and implementation of settlement should be expressly conditioned on full reimbursement to Medicare. An agreed-upon procedure for processing the reimbursement must be set out in the settlement agreement.

Analysis

The simplest settlement scenario illustrates the ways in which the MMSEA discourages reasonable settlements and the care that must be taken in crafting settlement procedures and documents. In a single-plaintiff, single-defendant case where no ongoing or future damages are involved, the parties have several options for managing the payment of settlement funds. The primary payer can issue a settlement check to plaintiff, less the amount Medicare claimed it was owed in its latest Conditional Payment letter, in exchange for a settlement agreement in which the plaintiff indemnifies the primary payer for any further amounts Medicare claims in its Final Payment Letter. Alternatively, the parties can agree to deposit the settlement check in an escrow account until the Final Payment Letter issues, at which time separate checks can be cut for Medicare and the claimant. A third method is to include Medicare as a payee on the settlement check (assuming the state's Fair Claims Handling laws permit). Medicare will require the plaintiff to have the funds placed into an escrow account, from which Medicare can withdraw the amount reflected in its Final Payment letter and release the remainder to the plaintiff. Yet another option is to pay the settlement amount in two (or more) lumps, one or more of which is held back by the defendant until Medicare is reimbursed from the initial payment to plaintiff.

Conclusion

Many other issues must be considered before a settlement is actually paid. Just a few include whether the plaintiff will seek a waiver of reimbursement from Medicare based on financial hardship or will seek to appeal Medicare's Final Payment Letter; how the defendant will be protected if the Final Payment Letter reveals more is owed to Medicare than expected or exceeds the agreed settlement amount; and whether Medicare will provide a release of its reimbursement claims upon receipt of payment. This is just the tip of the proverbial iceberg. A thorough review and understanding of all of Medicare's regulations concerning reimbursement is an absolute necessity before any settlement or judgment is paid. Until these new regulations and processes become routine, these and other issues will complicate and delay settlement of product liability claims involving Medicare recipients and Medicare-eligible plaintiffs.

Sarah (“Sally”) L. Olson, a member of this newsletter's Board of Editors, is a partner in the Litigation Department of Wildman, Harrold, Allen & Dixon, LLP, in Chicago, where she is a Litigation Practice Group Leader, and the Chair of the firm's Diversity Committee. Ms. Olson represents manufacturing companies and, through trade associations, industries facing litigation, legislative change, or regulatory action in relation to the design, manufacture, marketing, and distribution of their products.

Since 1980, Medicare has been entitled to recoup funds it has paid conditionally to cover Medicare recipients' health care, where those recipients make claims that are subsequently settled or result in a damage award at trial. 42 U.S.C. ' 1395y(b). Because this statutory entitlement has been largely “honored in the breach,” in 2007 Congress enacted new reporting requirements for entities primarily responsible for the health care costs of injured parties, and imposed hefty civil fines for those who fail to report. 42 U.S.C. ' 1395y(b)(7), (b)(8) (the “Medicare, Medicaid and SCHIP Extension Act of 2007″ or “MMSEA”). This reporting requirement has generated a detailed and cumbersome set of regulations, rules and new requirements for designated Responsible Reporting Entities (“RREs”).

This article explores some of the practical impacts of the
MMSEA on settlement of product liability cases. It does not address the reimbursement process vis-'-vis judgments or claims involving ongoing or future medical treatment, although some of the same principles and procedures apply. The processes described below continue to evolve, as do Medicare's procedures and communications. As a result, and because of its brevity, this outline is necessarily incomplete. Fortunately, guides to handling MMSEA's requirements have been prepared by various bar organizations. A users' manual and computer-based training programs also are available from one of Medicare's Coordination of Benefits Contractors (“COBC”), the Centers for Medicare & Medicaid Services (“CMS”) at www.cms.gov.

RREs Must Register with a Medicare Coordination of Benefits Contractor (COBC)

By Oct. 1, 2010, entities Medicare considers RREs must have registered with a COBC. An RRE is any entity that is or can be expected in the future to be the primary payer for a claimant's health care costs conditionally paid by Medicare. In insured product liability cases involving Medicare recipients or Medicare-eligible plaintiffs, the insurer will be the RRE. However, self-insured product manufacturers are also RREs if they pay settlements or judgments to Medicare claimants.

A reference guide to the registration process can be found at http://www.cms.gov/MandatoryInsRep/MIR/itemdetail.asp?filterType=none&filterByDID=-99&sortByDID=4&sortOrder=ascending&itemID=CMS1230334&intNumPerPage=10. (Last visited Sept. 9, 2010.) Once an RRE registers with a Coordination of Benefits Contractor, the contractor creates an electronic reporting link which the RRE must use thereafter to report claims or payments made to Medicare recipients or Medicare-eligible claimants.

RREs originally had 60 days to report a payment to a Medicare recipient. This has been lengthened to 90 days. However, the best practice is to report claims involving Medicare recipients or Medicare-eligible persons at the next quarterly reporting opportunity after they are received, to speed up the subsequent process and minimize the risk of liability for non-reporting.

RREs Must Determine if a Plaintiff Is or Will Be a Medicare Recipient When Payments Are Made

RREs are obligated to protect Medicare's interest in settlement or judgment funds that could be used to reimburse Medicare's past costs or Medicare's liability for future health care costs. It is vital, therefore, that RREs determine whether their claimants are Medicare recipients or Medicare-eligible as early as possible. At the time it disburses settlement or judgment funds, an RRE becomes responsible for reimbursing Medicare for any payments Medicare has made as a secondary payer. It would be prudent to check a claimant's Medicare status before any settlement agreement is finalized or any payment is made.

Defendants' interrogatories should specifically ask about the plaintiff's Medicare status. Defendants should also request the claimant's Health Insurance Claim Number (HICN) or Social Security Number (SSN) and date of birth, which will allow them to determine the claimant's Medicare status independently, using CMS's Query link. At the same time, defendants should ask plaintiffs to execute a Consent to Release of their confidential medical information by Medicare, so that defense counsel will be able to negotiate with Medicare later.

The rub is that plaintiffs are under no statutory obligation to provide their Medicare status to defendants and many are hesitant to turn over their Social Security number or HICN to anyone. Where a plaintiff refuses to provide this information, defense counsel must be prepared to educate the court about why this information is relevant and material.

RREs Should Report Claims Well Before Any Payment Is Contemplated

Oct. 1, 2010 was the deadline Medicare set for registering as an RRE. The MMSEA requires that, once registration is complete, RREs must report any payments of claims made to Medicare recipients or Medicare-eligible claimants ' whether or not suit has been filed and whether or not Medicare has actually paid any of the claimant's health care costs. In practice, however, RREs cannot wait until a settlement or judgment is paid to make their initial report. The process of determining what amount must be reimbursed to Medicare is a lengthy one that will necessarily impact settlement negotiations. It is best to make an initial report to Medicare as soon as a claim is received and the Medicare status of the claimant has been established.

In cases involving insured product manufacturers, the insurer will be required to report a claim. Defense counsel should arrange to receive a copy of the report to Medicare, as well as any of Medicare's responses. If the RRE is a self-insured manufacturer, it will have to submit the report and its counsel will need to be able to help the RRE collect the necessary information for this purpose. This, in and of itself, a formidable task, as the report involves over 125 information fields including some data not ordinarily collected in litigation. Review of the reporting form is advisable before discovery is propounded.

Once a report is filed, the COBC notifies the Medicare Secondary Payer Recovery Center (MSPRC) of the pending claim. The MSPRC issues a “Rights and Responsibilities” letter to the injured party or his/her attorney, with a copy to the potential primary payer, asserting Medicare's reimbursement rights. Sixty-five days after the date of the “Rights and Responsibilities” letter, defense counsel may request that the MSPRC provide a “Conditional Payment Letter” that identifies the payments Medicare believes it has made as of that date and for which it will seek reimbursement.

“Conditional Payment Letters” may identify all Medicare payments made on behalf of the claimant associated with a particular diagnostic code, whether or not those payments arise from the incident giving rise to the pending litigation. It is in the parties' best interests to work together to weed out unrelated charges so that Medicare is not over-reimbursed. Once the parties agree on which charges are “unrelated” and therefore should not be reimbursed, they should provide Medicare with a detailed explanation of their position. Medicare may revise the Conditional Payment Letter to reflect some or all of the parties' proposed changes. When the parties and Medicare can agree on the reimbursable amounts owed to Medicare, the parties have a basis to begin negotiating settlement.

Medicare will issue a “Final Payment Letter” only after it has received an executed Settlement Agreement and Release or a Judgment. The RRE may end up being responsible for reimbursing Medicare for the amount shown in the Final Payment Letter, which may exceed Medicare's earlier conditional calculations. The inherently unfair nature of this process is being challenged as a violation of due process. See Haro v. Sebelius, No. CV 09-134 TUC DCB, 2009 WL 4497456 (D. Ariz. Nov. 30, 2009).

It is clear that this process will delay potential settlements as the parties attempt to negotiate an accurate “Conditional Payment Letter.”

Parties Must Structure Settlements to Avoid
Additional Risk

The MMSEA allows Medicare to recover reimbursement from anyone who receives a payment from a primary payer ' including the parties' respective counsel, health care providers, and Medicare beneficiaries themselves. Medicare has already successfully recouped claimants' attorneys' contingent fees as reimbursement. U.S. v. Harris, No. Civ.A.5:08CV102, 2009 WL 891931 (N.D. W.Va. Mar. 26, 2009). In U.S. v. Stricker, No. CV-09-PT-2423-ER (N.D. Ala. 2009), the United States now seeks reimbursement from settling liability insurers and self-insureds, as well as plaintiffs' counsel. In other cases, Medicare has “reimbursed” itself by ceasing to provide benefits to Medicare recipients who have not themselves reimbursed Medicare-paid health care costs. It is, therefore, in the best interests of everyone involved with a claim to ensure that Medicare is properly reimbursed. In every case where Medicare reimbursement may be necessary, the settlement must be reported and implementation of settlement should be expressly conditioned on full reimbursement to Medicare. An agreed-upon procedure for processing the reimbursement must be set out in the settlement agreement.

Analysis

The simplest settlement scenario illustrates the ways in which the MMSEA discourages reasonable settlements and the care that must be taken in crafting settlement procedures and documents. In a single-plaintiff, single-defendant case where no ongoing or future damages are involved, the parties have several options for managing the payment of settlement funds. The primary payer can issue a settlement check to plaintiff, less the amount Medicare claimed it was owed in its latest Conditional Payment letter, in exchange for a settlement agreement in which the plaintiff indemnifies the primary payer for any further amounts Medicare claims in its Final Payment Letter. Alternatively, the parties can agree to deposit the settlement check in an escrow account until the Final Payment Letter issues, at which time separate checks can be cut for Medicare and the claimant. A third method is to include Medicare as a payee on the settlement check (assuming the state's Fair Claims Handling laws permit). Medicare will require the plaintiff to have the funds placed into an escrow account, from which Medicare can withdraw the amount reflected in its Final Payment letter and release the remainder to the plaintiff. Yet another option is to pay the settlement amount in two (or more) lumps, one or more of which is held back by the defendant until Medicare is reimbursed from the initial payment to plaintiff.

Conclusion

Many other issues must be considered before a settlement is actually paid. Just a few include whether the plaintiff will seek a waiver of reimbursement from Medicare based on financial hardship or will seek to appeal Medicare's Final Payment Letter; how the defendant will be protected if the Final Payment Letter reveals more is owed to Medicare than expected or exceeds the agreed settlement amount; and whether Medicare will provide a release of its reimbursement claims upon receipt of payment. This is just the tip of the proverbial iceberg. A thorough review and understanding of all of Medicare's regulations concerning reimbursement is an absolute necessity before any settlement or judgment is paid. Until these new regulations and processes become routine, these and other issues will complicate and delay settlement of product liability claims involving Medicare recipients and Medicare-eligible plaintiffs.

Sarah (“Sally”) L. Olson, a member of this newsletter's Board of Editors, is a partner in the Litigation Department of Wildman, Harrold, Allen & Dixon, LLP, in Chicago, where she is a Litigation Practice Group Leader, and the Chair of the firm's Diversity Committee. Ms. Olson represents manufacturing companies and, through trade associations, industries facing litigation, legislative change, or regulatory action in relation to the design, manufacture, marketing, and distribution of their products.