Construction claims present unique and complicated Medicare Secondary Payer statute (“MSP”) issues. Often such claims involve multiple defendants – each of whom may have different levels of involvement and responsibility for underlying claims. Each claim may follow a different timeline, with some claims settling early and others lingering for years. Not to mention that each claim may be resolved for vastly different amounts depending on liability, causation, policy limits and statutory damage caps. Most importantly for purposes of how MSP issues are addressed, construction claims may involve both workers’ compensation and liability claims. This article is intended to highlight where MSP issues may arise in construction claims and provide best practices for addressing.
In many construction claims, there may be both workers’ compensation and liability considerations depending on the nature of the relationship between the claimant and the defendant – employer/carrier or liability carrier. In a wrap-up policy, both exposures may exist for the same carrier. To add more complexity, it is not uncommon for questions to arise as to whose employee is involved (general contractors or subcontractors) or whether the status of an injured party is that of an employee or an independent contractor. There are a number of scenarios that can complicate the aspects of MSP compliance, whether it be mandatory insurer report, lien resolution or addressing future medical exposure.
The seemingly simplest scenario is where an employee is injured and there is no third party involved. If the employer or carrier is identified and acknowledges the employment relationship, the case is straight forward and the employer, and its carrier, depending on the employee’s Medicare status, are responsible for mandatory insurer reporting, lien resolution and addressing the future exposure. Nevertheless, some possible problem areas may still exist or arise. For example, the workers’ compensation coverage may have lapsed, usually due to non-payment. This scenario may now involve another party, e.g. the general contractor, or it may allow the employee to assert a liability claim against the employer.
It is not uncommon for a party to represent themselves as an independent contractor for whatever reason, e.g. to avoid having to secure workers’ coverage. Further that independent contractor on the jobsite may involve other workers, which further compounds the issue. Despite safeguards as to notification to parties when a policy is lapsed or about to, it does not always work as intended. The end result is that another party may be forced to assume a risk they were not aware existed.
The next common situation is when an employee is injured where a potential third party exists that may be responsible. A key principle here is that if the workers’ compensation matter remains open, i.e. no settlement of the medical aspect occurs, the primary responsibility as to Medicare remains with the employer/carrier; thus, the third party (e.g. another contractor, product manufacturer, etc. ) should have no responsibility to Medicare for liens or future exposures. They may, however, still have an obligation to report under mandatory insurer reporting requirements if payments are made to a Medicare beneficiary.
Employers/carriers have decisions to make when a viable third party exists. Most workers’ compensation jurisdictions have regulations that address the employers’ rights when a third party is involved. They have rights both as to payments made as well as payments that may be made. For example, as to payments made, a “Holiday” (a respite from ongoing payments until the lien amount is satisfied) may be available; or in many jurisdictions, a partial Holiday in which the claimant must fund their medical care in order to gain the recovery.
The decision to enforce the lien and the Holiday instead of settling the matter is one that should be given considerable thought as each approach has potential benefits and downsides. Negotiating a settlement in conjunction with the third party settlement is often the choice made. Depending on the strength of the liability claim and the coverage limits available, a compromise of the lien and future credit is usually the result. This approach allows certainty for the employer. Claimants do not usually want to reimburse cash but are usually more willing to agree to larger amounts on the Holiday.
For employers that insist on lien reimbursement (total or partial depending on the regulations) and then enforcing the Holiday, there is the danger the claimant will use up the Holiday prematurely and the employer will be back in the claim. The employer does not generally have any cost containment control in those circumstances. There are other circumstances where the recovery amount is also applied to the ongoing payments where the employee is responsible for 66 2/3% of the bills and the employer 33 1/3 %. In that situation, the employer may wish to control the payments and apply fee schedules and/or cost containment to extend the Holiday as long as possible.
In addition to Holiday issues, construction cases often involve multiple parties, both on the employment issue but more often as to the defendants in a liability claim. It is common for the injured party to involve all contractors on the job to ensure they do not leave a responsible party out. Multiple parties complicate the matter as some are let out early, others contribute smaller amounts and still others litigate. Figuring out lien recovery for these parties is complex. Further, in the course of these claims assessing who is responsible to Medicare for how much and how that amount is determined, responsibilities may vary depending on who the party is, i.e. employer, carrier, third party, etc.
It is generally accepted that upon settlement, the MSP requires the parties to a workers’ compensation or liability settlement to reimburse the Centers for Medicare & Medicaid Services (“CMS”) for any conditional payments made by Medicare. In addition, the primary plan must report any ongoing responsibility for medical (“ORM”) and any total payment obligations to claimant (“TPOC”) to CMS. The MSP prohibits the parties to a settlement from unreasonably shifting the burden of future medical care to Medicare. That means the portion of the settlement that is reasonably allocated to future medical care must be used first for that injury-related care before Medicare pays. In this regard, it is well settled in workers’ compensation claims that a Medicare set-aside or other allocation of settlement proceeds is necessary to protect Medicare’s interests and the claimant’s Medicare benefits. On the other hand, it is rather unsettled how and when it is necessary to establish a Medicare set-aside or other allocation of settlement proceeds., frequently touching on all of the foregoing.
The best interpretation of the MSP is that all parties to a settlement have a duty to reasonably consider Medicare’s interests. This means that the funds representing the settlement of the future medical care related to the claimed injury (and otherwise covered by Medicare) must be considered a primary payment to Medicare. Since these funds are a primary payment, Medicare is secondary to the funds allocated for future medical. This interpretation complies with all aspects for the MSP law and fits within the purpose of the MSP.
The MSP is designed to prevent parties from unreasonably shifting the burden of the future health costs to Medicare. This can be done by the allocation of the settlement into medical, economic or other damages categories and in some cases, an MSA is also the appropriate consideration of Medicare’s interests. Currently, best practices suggest that a third party prepare or audit the MSA (or medical cost projection for an allocation) as this third party adds credibility, expertise and objectiveness to the MSA or the settlement allocation.
The following is an outline of the various steps that should be taken in reviewing a claim for Medicare’s potential interest.
- Determine whether the claim involves a Medicare beneficiary (or a potential Medicare beneficiary).
This information may be obtained in several ways. A claimant may be asked upfront about his Medicare beneficiary status, or an inquiry can be made to the Social Security Administration Agency. An adjuster may also look for “red flags” that indicate that Medicare may be involved. If the claimant is not on Medicare at the time of the initial investigation, the information should be periodically updated.
- If the claimant is currently a Medicare beneficiary, investigate/negotiate the conditional payments in the claim.
In a liability claim, a payment by Medicare does not become “conditional” until the liability claim settles, or an award is entered. These events turn the insurance carrier into a primary payer and Medicare into a secondary payer. Although a final conditional payment demand will not always be available prior to settlement, the parties may estimate the amount of Medicare’s payments during the life of the claim. This estimate may be based on information found in the medical records, billing statements, or in a settlement demand. The claimant may also access conditional payment information by registering with www.mymedicare.gov. MSA vendors are also able to aid with the conditional payment search, as well as with reviewing and analyzing the payments made.
- Address the conditional payment reimbursement issue in the terms of the settlement agreement.
Identify the party responsible for the conditional payment reimbursement to Medicare. Although a claimant may assume responsibility for the conditional payments, Medicare will still have a cause of action against the primary payer if reimbursement is not made by the claimant. Double damages may be sought if the U.S. Government brings suit to collect the conditional payments. The suit may be filed against “any entity, beneficiary, provider, supplier, physician, attorney, State agency or private insurer that has received a primary payment” prior to Medicare’s reimbursement.
- Determine whether the nature of the injury claimed is likely to involve future Medicare‐covered care.
The MSP prohibits the parties to a settlement from unreasonably shifting the burden of future medical care to Medicare. In light of this, the claims handler should review the nature of the injury being alleged and the likelihood that future medical care will be involved. Catastrophic injuries, as well as more significant orthopedic or neurological injuries, are more likely to result in future care than the more minor soft tissue types of injuries. The likelihood of future medical care may be based on a review of the treating physician’s opinions, the standard of care guidelines for the type of injury sustained, as well as the type of prior treatment provided in the claim.
If future medical care is likely to occur, a WCMSA, LMSA or other allocation provides a method for avoiding a shift of future injury‐related medical care to Medicare. The parties may elect to fund a commutation WCMSA or LMSA that fully funds all of the future injury-related Medicare-covered treatment or a compromise allocation that apportions funds from the net settlement for future injury-related Medicare-covered treatment.
As demonstrated, construction claims are very complex and may implicate MSP issues in a variety of ways. It is important for all parties to carefully analyze the claim to ensure MSP compliance. More importantly, parties should continually reevaluate through the life of each claim as MSP issues are sure to evolve.