June 25, 2010

Section 111 and Write-Offs

MMSEA Section 111 Update: CMS Focuses on Certain Business Practices of Physicians, Providers and Other Suppliers

As the Centers for Medicare & Medicaid Services (CMS) continues to refine the compliance guidelines related to Section 111 of the Medicare, Medicaid and SCHIP Extension Act of 2007, physicians, providers, suppliers and non-provider supplier entities should pay attention. Section 111 of MMSEA imposes mandatory registration and reporting requirements on insurers and self-insurers for settlements with Medicare beneficiaries that occur on or after October 1, 2010. In a recently released CMS alert, CMS established that for purposes of Section 111, risk management write-offs (including a reduction in the amount due as a risk management tool) constitute liability self-insurance for purposes of the Medicare Secondary Payer provisions. The CMS alert provides that if a physician, provider, supplier or non-provider supplier entity reduces the amount due for items and services (a write-off) or provides something of value (e.g., cash, gift card, paid hotel room, etc.) as a risk management tool to lessen the probability of a liability claim against it and/or to facilitate or enhance customer good-will, such actions may give rise to a Section 111 reporting obligation.

Risk Management Write-Offs vs. Providing Items of Value: What does Section 111 Require?

Where a physician, provider, or other supplier has reduced its charges or written off some portion of a charge to a Medicare beneficiary as a risk management tool, the entity is expected to submit a claim to Medicare reflecting the unreduced permissible charges and showing the amount of the reduction or write-off as a payment from liability insurance. Under these circumstances, CMS advises in the CMS alert that Medicare's interests with respect to the payment have been protected through the billing procedure; therefore the physician, provider or other supplier has not implicated any Section 111 reporting obligation.

In contrast, where a physician, provider or other supplier has provided property of value to a Medicare beneficiary as a risk management tool when there is evidence, or a reasonable expectation, that the individual has sought or may seek medical treatment as a consequence of the incident giving rise to the risk, the responsible reporting entity must report the write-off or value of the property provided as a settlement from liability insurance (including self-insurance). Similar requirements are applicable to other non-provider supplier entities.

By way of example, albeit an unfortunate one, if a surgical tool or other foreign object has been left inside a patient during a surgical operation, the patient will require follow-up surgery to remove the foreign object and there is a significant risk of malpractice liability. If, as a risk management tool, the physician or provider provides the patient with free accommodations at a hotel, or cash or vouchers for expenses incurred while the patient arranges for and attends the second procedure, this property of value must be reported as a settlement from liability insurance (including self-insurance) so long as it exceeds the relevant reporting threshold. In addition, these types of activities by physicians and providers must also be considered in the context of the Federal Anti-kickback law.

The information in this Alert is provided by CMS in an attempt to help physicians, providers, suppliers and non-provider supplier entities determine whether or not their business practices are considered liability self-insurance subject to the Section 111 requirements. Baker & Daniels assists clients determine their reporting obligations under Section 111 of the MMSEA and compliance with the Federal Anti-kickback law.
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