The Medicare Act has been described by the Courts as “one of the most completely impenetrable texts within human experience.” Cooper Univ Hosp v Sebelius, 636 F.3d44,45 (3d Cir.2010) This article will help decipher it through a review of the key provisions of the Medicare Secondary Payer Act (MSP Act), corresponding Federal Regulations and the Centers for Medicare and Medicaid Services (CMS) guidance. Various options for providing Medicare with “reasonable consideration” when settling out future injury related medical rights will also be reviewed. Although a detailed discussion of Section 111 reporting obligations and conditional payment reimbursements is beyond the scope of this article, these must be addressed when settling claims involving Medicare beneficiaries.
Medicare is a federal health insurance program that was created in 1965 to provide insurance benefits for the elderly and disabled. An individual may generally become entitled to Medicare benefits if they have appropriately paid into the program and are: age 65 or older; entitled to Social Security Disability benefits for 30 months or longer; or those with End Stage Renal Disease. There are four parts to Medicare: Part A (hospital insurance), Part B (medical insurance), Part C (Medicare Advantage Plans) and Part D (prescription drug coverage). In the past, settling parties would often close out future injury related medical rights in their workers’ compensation or personal injury settlements and then submit their post settlement injury related treatment bills to Medicare for payment.
The MSP Act was enacted into law in 1980 in an effort to reduce the amount of payments to be made by Medicare and preserve it for the future. The Act specifically states that Medicare may not make a payment with respect to any item or service to the extent that “payment has been made or can reasonably be expected to be made under a workers compensation law or plan of the United States or a State or under an automobile or liability insurance policy or plan (including a self-insured plan) or under no fault insurance.” The exception to this is when the non-group health plan (NGHP) has not made or cannot reasonably be expected to make payment with respect to an item or service. This would typically occur when the NGHP has disputed the claim or the medical provider inadvertently bills Medicare directly.
Any payment made by Medicare is conditioned upon the reimbursement of the payment to the Medicare Trust Fund. In order to encourage the reimbursement, the MSP Act gives Medicare a direct right of action against the primary payer, a subrogation right against settlement funds and also has the possibility of obtaining penalties, interest and double damages. The conditional payment reimbursement obligation is imposed on a primary plan or entity that receives payment from a primary plan, where it is demonstrated that the primary plan has or had a responsibility for the item or service. 42 U.S.C. §1395y (b)(2)(B)(ii). “A primary plan’s responsibility for such payment may be demonstrated by a judgment, a payment conditioned upon the recipient’s compromise, waiver or release (whether or not there is a determination or admission of liability) of payment for items or services included in a claim against the primary plan, or the primary plan’s insured or by other means.” Id.
Chapter 42 of the Code of Federal Regulations provides additional detail regarding Medicare’s interpretation of the MSP Act. Section §411.24 notes that CMS may begin conditional payment recovery once it learns payment has been made or could be made by a primary payer. The establishment of Section 111 reporting requirements enhance this right. If CMS can recover payments without taking legal action, repayment is the smaller amount of either the Medicare primary payment or the amount the primary payer is obligated to pay. Id. If CMS files suit to take legal action, CMS may recover twice the amount of the payments made by Medicare. Id. If a primary payment is made, the beneficiary or other party receiving the primary payment, must reimburse Medicare within 60 days. In liability settlements and disputed employer group health plans, workers’ compensation insurance or plan and no fault insurance, if the primary payer reimbursed the beneficiary or other party and they do not reimburse Medicare, the primary payer must still reimburse Medicare. 42 C.F.R. §411.24(i).
Regulations 42 C.F.R. §411.40 through § 411.47 specifically discuss workers’ compensation claims. 42 C.F.R. § 411.47(a)(1) details Medicare’s recovery when there is a lump-sum compromise settlement of a workers’ compensation claim and the settlement allocates a portion of the payment for medical expenses and also provides a reasonable income replacement element. If there is not reasonable consideration of both medical and income replacement, a ratio between the amount awarded (minus reasonable procurement costs) and the total exposure is applied to the total medical expenses incurred as a result of the claim up to the date of settlement. The product is the amount to be considered as the reasonable payment of medical expenses from the settlement.
Given Medicare’s status as a secondary payer, settlements that close out future medical rights should give Medicare’s interests reasonable consideration in order to prevent a cost shift of the future medical expenses to Medicare. If appropriate, this may be accomplished by the establishment of a future medical allocation or Medicare Set-Aside (MSA) that is funded at time of settlement. This allocation reduces the probability of Medicare making future conditional payments in the claim.
CMS has issued memoranda to guide parties in assessing adequate consideration of Medicare’s interests in a settlement. The content of the memoranda, CMS’ policies and review procedures have been consolidated in several WCMSA Reference Guides. The most recent WCMSA Reference Guide, Version 2.5 was released on April 4, 2016. Sections 1 and 8 state the following: “There are no statutory or regulatory provisions requiring that you submit a WCMSA amount proposal to CMS for review.” If however, you choose to use the WCMSA review process, compliance with CMS’ established policies and procedures is expected.
CMS review of proposed WCMSA proposals is available when CMS’ internal workload review thresholds are met. The review threshold for a current Medicare beneficiary is a projected settlement that exceeds $25,000. If the claimant has a reasonable expectation of Medicare enrollment within 30 months of the settlement date, the projected settlement must exceed $250,000. The Guide further states the establishment of these workload review thresholds does not mean that claimants “may settle below the threshold with impunity.” Rather, settlements must consider Medicare’s interests in order to prevent a cost shift of WC injury related expenses to Medicare. If CMS review and approval is secured, Medicare will become the primary payer for future injury related Medicare covered treatment upon proper exhaustion of the MSA funds.
Medicare has also advised in its WCMSA Reference Guide (Version 2.5, April 4, 2016) that it has no interest in workers’ compensation claims when: (a) the facts of the case demonstrate that the individual is only being compensated for past medical expenses; (b) there is no evidence that the individual is attempting to maximize other aspects of the claim (disproportionate permanency or lost wages); and (c) the claimant’s treating physicians conclude (in writing) that to a reasonable degree of medical certainty the claimant no longer requires any Medicare-covered treatments related to the claim. Section 4.2, RG 2.5.
No court has determined that the MSP or the Code of Federal Regulations requires that workers’ compensation settlements use a specific method to project reasonably expected Medicare benefits, or that CMS should review the settlement. Medicare has clearly stated that there are no statutory or regulatory requirements that a WCMSA be submitted to CMS for review. In light of this, Medicare’s interests in a workers’ compensation or liability settlement may be given reasonable consideration in a variety of ways. These may include, but are not limited to: under threshold commutation MSAs that are not submitted to CMS for review; above threshold MSAs that may or may not be submitted to CMS for review; a compromise MSA funded from the net settlement; commutation and waiver MSAs; zero future treatment MSAs; zero waiver requests that are submitted to CMS for review; or a certified MSA. The selection of the best method for providing reasonable consideration of Medicare’s interests in a particular settlement should be done on a case by case basis.
Although the Medicare Act may be a convoluted text, its essence boils down to the fact that Medicare is a secondary payer when a primary payer is available. This means that settlements should consider Medicare’s interests in the particular claim and avoid cost shifting future injury related treatment expenses to it. Parties should also address reimbursement of Medicare’s conditional payments and those of any Medicare Part C plans in connection with their settlements.
Rasa Fumagalli, J.D, MSCC is the Director of Compliance at NuQuest, where Patrick Czuprynski J.D., MSCC, serves as an MSP Compliance Attorney.