Settlements With Medicare Beneficiaries Must Be Reported Directly to Medicare to Avoid Penalties

Recent amendments to the Medicare Secondary Payer Statute (MSP) have increased the reporting obligations of parties entering into settlements with a Medicare beneficiary that include medical expenses.

Under these requirements, responsible reporting entities (RREs)—such as liability insurers, (including self insurers), no fault insurers, and workers compensation insurers who pay settlements, awards, judgments, or other payments to Medicare beneficiaries—must determine whether a claimant is Medicare eligible and report every case where payment is made to a Medicare beneficiary to the Centers for Medicare and Medicaid Services (CMS).

Failure to comply with these requirements carries stiff penalties of $1,000 per day per claimant, making it very important for litigants to exercise diligence in dealing with claimants who are Medicare beneficiaries.

Background on New Requirements

Although the MSP historically required settling parties to notify Medicare of liability settlements with beneficiaries, Congress formalized reporting obligations under Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007. Section 111 of the MSP requires RREs to report any payment obligation to a Medicare beneficiary when the obligation results from a claim potentially involving past or future medical expenses.

When a party settles with a Medicare beneficiary claimant, it is considered the primary payer regardless of any admission or denial of liability. Medicare requires the claimant to use the funds received to pay for treatment of accident-related injuries, and/or to reimburse Medicare for accident-related claims paid by Medicare on a conditional basis. The MSP further requires settling parties to notify Medicare of any personal injury settlements with Medicare beneficiaries.

Key Tasks to Help Avoid Penalties

To help ensure compliance with new MSP requirements, RREs should keep three key tasks in mind when settling with a Medicare beneficiary claimant:

• Report all payments made to eligible claimants/plaintiffs to CMS
• Determine whether there have been past payments for medical expenses for which Medicare should be reimbursed
• Assess whether any future Medicare-covered medical expenses may be incurred

RREs should also work with attorneys to obtain an estimate of future medical expenses, clearly identify settlement funds allocated for these expenses, and draft all settlement documents to indicate that Medicare's interests have been protected.

The CMS MMSEA Section 111 Medicare Secondary Payer Mandatory Reporting User Guide, also provides detailed instructions on the reporting process.

Determining Whether Injured Party Is a Medicare Beneficiary

RREs must implement a procedure in their claims review process to determine whether an injured party is a Medicare beneficiary. To find out if a claimant is a Medicare beneficiary, the RRE may submit a query to CMS' Coordination of Benefits Coordinator. To do this, the RRE must submit the claimant's Medicare health insurance claim number or Social Security number, name, date of birth, and gender.

What Must Be Reported

For claims involving settlements, awards, judgments, or other payments to claimants entitled to Medicare benefits, Section 111 requires RREs to report the identity of the claimant; and submit "such other information as the Secretary shall specify to enable the Secretary to make an appropriate determination concerning coordination of benefits, including any applicable recovery claim." 42 U.S.C. § 1395y(b)(8).

To comply with this requirement, RREs must supply the claimant's HICN and/or SSN to the COBC as well as the first six letters of the Medicare beneficiary's name, his or her date of birth, and gender. Claimants should be required to provide this information as a condition of settlement.

Other relevant information may include the nature and extent of injury or illness, the facts of the incident giving rise to the injury or illness, information sufficient to assess the value of reimbursement, and information sufficient to assess the value of future medical expenses. RREs must report applicable settlements, judgments, awards, or other payments regardless of whether there is admission or determination of liability.

Electronic Reporting Process

The reporting process is electronic and completed on a quarterly basis via the Section 111 coordination of benefits secure Web site at www.section111.cms.hhs.gov. RREs are required to register in order to notify the COBC of their intent to report data in compliance with Section 111.

Once registered, the RRE must either submit a report once per quarter according to a schedule issued by the COBC or indicate that it has nothing to report. RREs may contract with an agent for reporting purposes. Registration and testing are now in progress, and reporting begins on January 1, 2011.

Timing for Reporting Claim Information

RREs report information relating to a particular claimant after assuming ongoing responsibility for medicals (ORM) or paying the total payment obligation to the claimant (TPOC) in the form of a settlement, judgment, award, or other payment.

RREs must report information pertaining to claims resolved through a TPOC settlement, judgment, award or other payment on or after October 1, 2010, that meet certain thresholds described in the CMS User Guide.

Information for any claim for which the RRE has assumed ORM as of January 1, 2010, onwards must be reported, even if the assumption of responsibility occurred prior to January 1, 2010. An ORM in effect on or after January 1, 2010, must be reported even if it is terminated before the RRE makes its initial report.

Initial reports must include retroactive reporting according to the dates specified above for TPOC amounts and ORM.

Exception—Date of Incident Prior to December 5, 1980

RREs do not have to report liability insurance, self-insurance, and no-fault insurance settlements, judgments, awards, or other payments where the date of incident, as defined by CMS, was prior to December 5, 1980 unless the claim involves toxic exposure continuing on or after December 5, 1980.

Practical Considerations and Penalties

RREs can face $1,000 per day per claimant for failing to properly report applicable payments to Medicare beneficiaries. CMS also has subrogation rights and the right to bring an independent cause of action to recover its conditional payment from "any or all entities that are or were required . . . to make payment."

Conditional Payments

Medicare beneficiaries who receive a liability settlement, judgment, award, or other payment must reimburse any conditional payments paid by Medicare within 60 days of receipt of such funds. Requiring claimants' compliance with the MSP should be a condition of settlement. If a Medicare beneficiary fails to do so, Medicare may pursue the settling entity (RRE) as primary payer for reimbursement, even though the settling entity has already paid the claimant.

The government is entitled to seek double damages if it brings an independent cause of action.

If Medicare's conditional payments exceed the settlement amount, CMS will seek the total judgment or settlement amount minus the procurement costs.

CMS Reimbursement Actions

It is important to note that CMS has the right to reject settlement agreements that do not protect Medicare's interests. Indemnity clauses will not provide protection against reimbursement actions by Medicare because it has a super lien as a governmental entity. However, RREs and their attorneys can include clauses requiring claimants to indemnify the RRE for any payments made to Medicare as a result of a claimant's failure to meet reimbursement obligations arising under the MSP statute.

Collection of Claimant Information

CMS issued an alert on June 23, 2008, that collection of certain information is appropriate for purpose of complying with Section 111. CMS also provides an optional form that RREs may use to collect this information from beneficiaries.

 RREs should require that claimants provide information used to comply with Section 111 requirements as a condition of settlement. Claimants should also be made aware of the risks of not complying with Section 111, which includes termination of all benefits.

Conclusion

Potentially affected entities should determine immediately whether they are an RRE under the MSP. RREs should then register promptly with CMS—and implement procedures to ensure proper reporting of all payment obligations to Medicare beneficiaries established after the applicable dates. At the beginning of any litigation or claim, RREs should also determine whether the claimant is a Medicare beneficiary or if he or she anticipates receiving Medicare benefits in the future.

By following these protocols, RREs can manage risk and promote compliance with the MSP. Working with an attorney to draft settlement documents can further mitigate risk by requiring claimants compliance with the MSP and demonstrating Medicare's interests have been protected.