Traps for the Unwary

Medical malpractice liability insurers and self-insured entities that ignore the new Medicare reporting requirements do so at their peril. Not only do they face substantial penalties for non-compliance, but if the plaintiff does not reimburse Medicare from the proceeds of a settlement or judgment, the defendant and/or its insurer may be compelled to do so even if payment has already been made to the plaintiff! In such a case, double damages with interest may potentially be imposed.

Accordingly, it is no longer sufficient for defense counsel in a medical malpractice action to be knowledgeable regarding the medical issues in the case, the intricacies of HIPAA and the particular judge's rules in order to provide adequate representation to his or her client. Defense counsel must now assume the added burden of ensuring that timely and accurate reports are made to Medicare when a case is settled or a judgment is entered, and that adequate provision is made for reimbursement to Medicare.

A separate but related issue concerns Medicare “set-asides” and whether funds should be held, withheld or placed in trust to fund future medical payments. The tasks involved are intimidating; since the applicable statutes and regulations are complex, there is little case law interpreting them to date, and even the “alphabet soup” of acronyms is daunting. The challenges posed, however, are not insurmountable. This article provides an overview of some of the basic reporting requirements, offers suggestions for complying with them, and addresses the issue of set-asides.

Sources of the Obligation

The reporting obligation was imposed by the Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA), and is applicable to liability insurers and self-insured entities as of January 2011. MMSEA does not change the recovery procedures under the Medicare Secondary Payer statute (42 U.S.C. 1395y(b)), but strengthens the statute and reinforces Medicare's status as a payer of last resort by requiring that defendants and their insurers take the lead in determining and reporting a plaintiff's potential status as a Medicare recipient to the Center for Medicare and Medicaid Services (CMS) within the Department of Health and Human Services. (An overview of the reporting requirements may be found at http://www.cms.hhs.gov/MandatoryInsRep/.)

'Secondary Payer'

Medicare's status as a “secondary payer” means that its obligation is secondary to that of a defendant or a defendant's liability insurer. The reporting requirements, set forth in ' 111 of the Act, are designed to ensure that Medicare will be able to recover any “conditional payments” it previously made from the date of injury that should have been made by a “primary payer,” including a self-insured defendant or a defendant's liability insurer. 42 U.S.C. 1395y(b)(7), (8). MMSEA imposes a draconian penalty of $1,000 a day per claimant for non-compliance. 42 U.S.C. 1395y(b)(8)(E).

New Positions

The legislation also created the positions of Coordination of Benefits Contractor and Medicare Secondary Payment Recovery Contractor (MSPRC). Essentially, these entities are independent contractors responsible for coordinating the reporting of claims to Medicare, and facilitating the recovery of benefits paid by Medicare. The coordination of benefits process identifies primary payers to Medicare for health benefits available to a Medicare beneficiary and coordinates the payment process to prevent mistakes or the unnecessary conditional payment of Medicare benefits. The MSPRC is responsible for determining and recovering the amounts due to Medicare from personal injury claim settlements and judgments.

Reporting Entities

The defendant's liability insurer, along with any self-insured entity such as a hospital with a self-insured retention, is considered a Responsible Reporting Entity (RRE) under the statute. (Captive insurance programs, risk retention groups and other entities that may be or become responsible for a primary payment to an injured plaintiff would also likely be considered RREs. A third-party administrator would probably not be considered an RRE based solely on its status as a TPA, but could make a report on behalf of an RRE such as a hospital. See Drinker Biddle, Medicare Alert, April 2009, “New Mandatory Medicare Secondary Payer Reporting Rules Imminent.” It should be borne in mind, however, that even if responsibility for making a report is delegated to a TPA, it is the hospital or other RRE that remains responsible for compliance with the reporting requirements and the accuracy of the information submitted, and that will face penalties in the event of non-compliance.)

An RRE must report a claim when it accepts ongoing responsibility for medical payments ' meaning a continuing future obligation to pay medical expenses of a Medicare beneficiary ' or when there is a settlement, judgment or other payment involving a claimant who is entitled to Medicare. Reporting is required if the plaintiff is a Medicare beneficiary at the time of the claim or, where future medical expenses are involved, if the plaintiff will become eligible for Medicare within 30 months.

While the reporting obligation is prompted by a settlement or judgment, defense counsel should not wait until that time to determine whether the plaintiff is a Medicare beneficiary. One of defense counsel's first tasks upon receipt of a summons and complaint should be to determine whether the plaintiff is or may become eligible for Medicare ' i.e., is the plaintiff over 65, or if under 65: 1) has the plaintiff received Social Security Disability for two years; 2) does the plaintiff suffer from end-stage renal disease, i.e., permanent kidney failure requiring dialysis or a kidney transplant; or 3) does the plaintiff suffer from amyotrophic lateral sclerosis? CMS User Guide, Version 3.1, ' 4, p. 13.

If the plaintiff falls into any of these categories, it should be assumed that he or she is a potential Medicare beneficiary. That, however, is not the end of the inquiry. The plaintiff may also be a potential Medicare beneficiary if, for example, the he or she was denied Social Security Disability but is appealing the denial. At the same time, defense counsel should not make the mistake of reporting every claim, and leaving it to CMS to sort out who is and is not a Medicare beneficiary. This in itself could constitute noncompliance and lead to penalties. See Wood, Ris & Hames P.C., Recent News, Medicare Claimants and Section 111 Reporting Requirements.

In next month's newsletter, we will continue our discussion of Medicare set-asides, including information about what must be reported, what to do at settlement and how to determine interest.

John L.A. Lyddane is a senior partner and trial attorney at Martin Clearwater & Bell, New York. Barbara D. Goldberg, a member of this newsletter's Board of Editors, is a partner at the firm and head of its appellate department. This article also appeared in the New York Law Journal, an ALM sister publication of this newsletter.

Medical malpractice liability insurers and self-insured entities that ignore the new Medicare reporting requirements do so at their peril. Not only do they face substantial penalties for non-compliance, but if the plaintiff does not reimburse Medicare from the proceeds of a settlement or judgment, the defendant and/or its insurer may be compelled to do so even if payment has already been made to the plaintiff! In such a case, double damages with interest may potentially be imposed.

Accordingly, it is no longer sufficient for defense counsel in a medical malpractice action to be knowledgeable regarding the medical issues in the case, the intricacies of HIPAA and the particular judge's rules in order to provide adequate representation to his or her client. Defense counsel must now assume the added burden of ensuring that timely and accurate reports are made to Medicare when a case is settled or a judgment is entered, and that adequate provision is made for reimbursement to Medicare.

A separate but related issue concerns Medicare “set-asides” and whether funds should be held, withheld or placed in trust to fund future medical payments. The tasks involved are intimidating; since the applicable statutes and regulations are complex, there is little case law interpreting them to date, and even the “alphabet soup” of acronyms is daunting. The challenges posed, however, are not insurmountable. This article provides an overview of some of the basic reporting requirements, offers suggestions for complying with them, and addresses the issue of set-asides.

Sources of the Obligation

The reporting obligation was imposed by the Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA), and is applicable to liability insurers and self-insured entities as of January 2011. MMSEA does not change the recovery procedures under the Medicare Secondary Payer statute (42 U.S.C. 1395y(b)), but strengthens the statute and reinforces Medicare's status as a payer of last resort by requiring that defendants and their insurers take the lead in determining and reporting a plaintiff's potential status as a Medicare recipient to the Center for Medicare and Medicaid Services (CMS) within the Department of Health and Human Services. (An overview of the reporting requirements may be found at http://www.cms.hhs.gov/MandatoryInsRep/.)

'Secondary Payer'

Medicare's status as a “secondary payer” means that its obligation is secondary to that of a defendant or a defendant's liability insurer. The reporting requirements, set forth in ' 111 of the Act, are designed to ensure that Medicare will be able to recover any “conditional payments” it previously made from the date of injury that should have been made by a “primary payer,” including a self-insured defendant or a defendant's liability insurer. 42 U.S.C. 1395y(b)(7), (8). MMSEA imposes a draconian penalty of $1,000 a day per claimant for non-compliance. 42 U.S.C. 1395y(b)(8)(E).

New Positions

The legislation also created the positions of Coordination of Benefits Contractor and Medicare Secondary Payment Recovery Contractor (MSPRC). Essentially, these entities are independent contractors responsible for coordinating the reporting of claims to Medicare, and facilitating the recovery of benefits paid by Medicare. The coordination of benefits process identifies primary payers to Medicare for health benefits available to a Medicare beneficiary and coordinates the payment process to prevent mistakes or the unnecessary conditional payment of Medicare benefits. The MSPRC is responsible for determining and recovering the amounts due to Medicare from personal injury claim settlements and judgments.

Reporting Entities

The defendant's liability insurer, along with any self-insured entity such as a hospital with a self-insured retention, is considered a Responsible Reporting Entity (RRE) under the statute. (Captive insurance programs, risk retention groups and other entities that may be or become responsible for a primary payment to an injured plaintiff would also likely be considered RREs. A third-party administrator would probably not be considered an RRE based solely on its status as a TPA, but could make a report on behalf of an RRE such as a hospital. See Drinker Biddle, Medicare Alert, April 2009, “New Mandatory Medicare Secondary Payer Reporting Rules Imminent.” It should be borne in mind, however, that even if responsibility for making a report is delegated to a TPA, it is the hospital or other RRE that remains responsible for compliance with the reporting requirements and the accuracy of the information submitted, and that will face penalties in the event of non-compliance.)

An RRE must report a claim when it accepts ongoing responsibility for medical payments ' meaning a continuing future obligation to pay medical expenses of a Medicare beneficiary ' or when there is a settlement, judgment or other payment involving a claimant who is entitled to Medicare. Reporting is required if the plaintiff is a Medicare beneficiary at the time of the claim or, where future medical expenses are involved, if the plaintiff will become eligible for Medicare within 30 months.

While the reporting obligation is prompted by a settlement or judgment, defense counsel should not wait until that time to determine whether the plaintiff is a Medicare beneficiary. One of defense counsel's first tasks upon receipt of a summons and complaint should be to determine whether the plaintiff is or may become eligible for Medicare ' i.e., is the plaintiff over 65, or if under 65: 1) has the plaintiff received Social Security Disability for two years; 2) does the plaintiff suffer from end-stage renal disease, i.e., permanent kidney failure requiring dialysis or a kidney transplant; or 3) does the plaintiff suffer from amyotrophic lateral sclerosis? CMS User Guide, Version 3.1, ' 4, p. 13.

If the plaintiff falls into any of these categories, it should be assumed that he or she is a potential Medicare beneficiary. That, however, is not the end of the inquiry. The plaintiff may also be a potential Medicare beneficiary if, for example, the he or she was denied Social Security Disability but is appealing the denial. At the same time, defense counsel should not make the mistake of reporting every claim, and leaving it to CMS to sort out who is and is not a Medicare beneficiary. This in itself could constitute noncompliance and lead to penalties. See Wood, Ris & Hames P.C., Recent News, Medicare Claimants and Section 111 Reporting Requirements.

In next month's newsletter, we will continue our discussion of Medicare set-asides, including information about what must be reported, what to do at settlement and how to determine interest.

John L.A. Lyddane is a senior partner and trial attorney at Martin Clearwater & Bell, New York. Barbara D. Goldberg, a member of this newsletter's Board of Editors, is a partner at the firm and head of its appellate department. This article also appeared in the New York Law Journal, an ALM sister publication of this newsletter.