Medicare Secondary Payer In Action Recent Developments and Practical Tips. Eli Poliakoff, Esq. Gregory M. Fliszar, Esq.

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1 Medicare Secondary Payer In Action Recent Developments and Practical Tips Eli Poliakoff, Esq. Gregory M. Fliszar, Esq. I. Relevant Authorities and Resources The MSP program is a wide-ranging collection of statutes, regulations, administrative guidance, and contractor protocols. Identifying the guiding authorities is a crucial step in understanding the MSP program's application. A. The Medicare Secondary Payer Act is the statutory authority underpinning the program. 42 U.S.C. 1395y(b)(2) B. Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 ("MMSEA") amended the MSP Act to impose the so-called "Medicare reporting" obligations. 42 U.S.C. 1395y(b)(7)-(8) C. The corresponding MSP provisions in the Code of Federal Regulations are at 42 C.F.R. Part 411. The comments to the regulatory provisions, as amended, provide additional insight. D. The CMS MSP Manual provides additional detail regarding MSP data flow, billing requirements, and contractor duties. Publication , available at E. The Section 111 Medicare Reporting Program relies on an informal User Guide that is periodically updated, often without notice. It is available on the CMS website at: F. The MSP Recovery Contractor administers the MSP recovery process. The website contains various instructions for resolving "Medicare liens" and corresponding with the contactor regarding reimbursement issues. See Page 1 of 21

2 II. Recent Developments A. MMSEA Section 111 Reporting and Contractor Consolidation 1 Beginning in 2003, a rapid series of changes both regulatory and structural strengthened the MSP program within CMS by expanding the data gathering, collection, and organizational capacities. First, a series of high-profile federal court decisions in 2003 resulted in conflicting interpretations of the MSP Act regarding settling defendants exposure under the MSP program. 2 As a result, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) clarified that an entity that finances all or part of a settlement/payment without recourse to insurance is an insurer for purposes of the MSP program. 3 The MMA further clarified that such self-insured plans can demonstrate responsibility under the MSP regime by virtue of a settlement, payment, release or other means - regardless of litigation claims or traditional notions of tort liability. 4 These changes extended MSP s reach to a wide range of parties, most significantly, defendants settling tort or product liability claims. Yet even with these changes, the process for notifying the COBC of the existence of a self-insured plan was nebulous at best, and many settling parties faced challenges with determining Medicare recovery exposure, which significantly impacted the structuring of settlements. Recognizing the data gap, in Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA), Congress amended the MSP Statute to impose reporting requirements on insurers (including self-insured plans ) for certain settlements with or payments to, Medicare beneficiaries, beginning in a staged rollout in Section II(A) of this outline is excerpted in part from: Eli Poliakoff and Barry Alexander, "Big Data Hits Healthcare: Medicare Secondary Payer in the Information Age," AHLA Connections, March See United States v. Baxter Int l, 345 F.3d 866 (11th Cir. 2003); Thompson v. Goetzmann, 337 F. 3d 489 5th Cir. (2003) USC 1395y(b)(2)(A)(ii) U.S.C. 1395y(b)(2)(B)(ii) U.S.C. 1395y(b)(8). Section 111 also includes reporting requirements by group health plan insurers or third-party administrators that provide coverage to Medicare beneficiaries (GHP Reporting), which Page 2 of 21

3 Section 111 reporting is an electronic data exchange process to confirm whether an individual is a Medicare beneficiary, and, if so confirmed, requires electronic submission of over 100 data points regarding the individual, the settlement/payment, and the insurer/self-insured. CMS explicitly notes that Section 111 data will be used in claims processing. 6 The Section 111 reporting requirements are broad. Reportable incidents to CMS extend beyond traditional litigation settlements, and include certain actions/payments even outside of litigation; for instance, where a reporting entity has the responsibility to pay a Medicare beneficiary s ongoing medical expenses associated with a specific injury or illness (i.e., ongoing responsibility for medicals or ORM). This category generally applies when an entity or insurer is legally or contractually obligated to cover such expenses; but can include a self-insured plan or provider/supplier s voluntary decision to cover the costs or provide such services at no charge. CMS has informally advised that ORM applies if it is clear that the entity is assuming on an ongoing basis the obligation to directly take care of future medicals relating to a specific injury; 7 however, the guidance is of limited utility for many complicated risk management programs. ORM can also include a clinical trial sponsor s payment for complications or injuries arising out of the trial. 8 ORM reporting has a significant impact on claims processing, as it specifically implies that an entity other than Medicare has assumed responsibility for such expenses; and in fact many stakeholders have raised concerns of inappropriate Medicare claims denials due to the first stages of ORM reporting. 9 A separate Section 111 category addresses payments/actions intended to minimize liability by fostering goodwill with claimants or prospective claimants. Such payments (including gifts) can be reportable if they seek to lessen the probability of a liability claim serves a similar MSP identification purpose. Reporting obligations for GHPs are in the form of an ongoing data exchange with the government to identify which individuals with GHP coverage are Medicare beneficiaries. In contrast, reporting of settlements and other payments/actions are classified as Non-Group Health Plan (NGHP) reporting. 6 MMSEA Section 111 NGHP User Guide v.3.4, Ch. 1, 4, at p.7. 7 Section 111 Teleconference, Apr. 24, 2012, transcript at MMSEA Section 111 NGHP User Guide v.3.4, Ch. III, 6.5.1, at Section 111 Teleconference, Feb. 23, 2012, transcript at Page 3 of 21

4 or to facilitate customer goodwill, when there is a reasonable expectation that the individual has or will seek medical treatment as a consequence of the underlying incident giving rise to the risk. 10 Section 111 also instructs provider billing requirements. To the extent a provider or supplier reduces or writes off a charge to a Medicare beneficiary as a risk management tool, it is expected to reflect that reduction as self-insurance in the claims submission process. 11 CMS instructs that Medicare s interest with respect to the write-off is addressed through the claim submission, rather than a separate Section 111 report. The interplay between these reporting sub-categories is an evolving and sensitive area fraught with significant consequences and implementation challenges, especially when the purpose of a specific payment or action could meet more than one category. Reporting entities must be cognizant of the MSP consequences from a billing and recovery standpoint, as well as the $1, per day penalty for non-compliance with Section 111 reporting. Dovetailing on these regulatory changes are administrative developments at CMS and on the contractor level to organize, analyze, and process the data collected as a result of expanded MSP information gathering. Within CMS, the newly reconstituted Division of MSP Program Operation, within the Office of Financial Management-Financial Services Group, acts as the conduit between the agency and the multiple contractors responsible for MSP operations. This newly enhanced division also serves as the introductory gatekeeper regarding MSP issues within complex products liability and mass tort circumstances. At the contractor level, the COBC currently acts as the data intake and analysis filter, while the separate Medicare Secondary Payer Recovery Contractor (MSPRC) administers 10 MMSEA Section 111 NGHP User Guide v.3.4, Ch. III, 6.5.1, at 41; Section 111 Teleconference, May 27, 2010, transcript at MMSEA Section 111 NGHP User Guide v.3.4, Ch. III, 6.5.1, at 41 Page 4 of 21

5 the MSP recovery process. In September 2012, CMS awarded a $300,000,000 contract for reorganization and consolidation of these and other functions into a single Coordination of Benefits and Recovery Business Program Operations Center. 12 As described by CMS, this new entity will centralize and consolidate activities related to the collection, management, and reporting of other insurance coverage of Medicare beneficiaries, and the recovery of conditional payments or mistaken primary payments under the MSP program. The MSPRC also launched an electronic access portal to directly obtain and submit MSP information in July B. The Strengthening Medicare and Repaying Taxpayers Act of 2012 (SMART Act). 14 On January 10, 2013, President Obama signed into law H.R. 1845, which includes the Strengthening Medicare and Repaying Taxpayers Act of 2012 (the SMART Act ). 15 The SMART Act amends several portions of the MSP Act that apply to non-group health plans, such as liability (including self-insurance) and no-fault insurance and workers compensation plans (together, NGHPs ). Although the SMART Act makes significant substantive and procedural amendments to the MSP Act, many practical issues will continue to frustrate parties who are trying to settle a personal injury claim. Under the MSP Act, Medicare does not pay for health care items and services to the extent that payment has been made or can reasonably be expected to be made by certain types of other insurance, including a group health plan or a NGHP (together, Primary Payers). 16 However, Medicare can make conditional payments for those items and services if a Primary Payer does not pay promptly. 17 When the Medicare beneficiary 12 Award Notice, Solicitation Number RFP CMS (Sept. 27, 2012). 13 See 14 Sections II B and C of this outline were excerpted in part from Cozen O Connor Health Law Alerts drafted by Gregory M. Fliszar and Judy Wang Mayer. Section II D was excerpted from a Cozen O Connor Health Law Alert drafted by Gregory M. Fliszar 15 The SMART Act consists of two separate bills the Medicare IVIG Access Act (H.R. 1845) and the Strengthening Medicare and Repaying Taxpayers Act of 2012 (H.R. 1063). The two bills were combined for passage U.S.C. 1395y(b) U.S.C. 1395y(b)(2)(B)(i). Page 5 of 21

6 receives a settlement or other payment with respect to the injury for which Medicare paid conditional benefits, the MSP Act requires the settling parties to repay Medicare before any funds are given to the Medicare beneficiary. 18 To strengthen the ability of CMS to enforce and recover conditional payments, the MSP Act was amended in 2007 as part of the MMSEA so that insurers are required submit to CMS mandatory quarterly reports of every settlement, judgment, award or other payment made to a Medicare beneficiary. 19 Unfortunately, under CMS current procedures, parties are unable to obtain the final conditional payment amount from CMS until after the claim settles. The uncertainty over the final conditional payment amount can unnecessarily delay settlement of claims involving Medicare beneficiaries as parties are often forced to settle with an estimate of the final conditional payment amount and then wait months to obtain the actual amount before settlement funds are ultimately disbursed. As a result, efforts to satisfy the MSP Act s obligations often result in settlement negotiations becoming acrimonious and protracted as settling parties struggle to protect their interests without having complete information. The SMART Act was an attempt to address these concerns. Title II of the SMART Act consists of five sections, each of which is intended to streamline the settlement process: 1. Section 201 Web Portal. The SMART Act requires CMS to establish and maintain a password-protected website through which Medicare beneficiaries and insurers can access updated conditional payment information so settling parties can determine how much is owed to CMS throughout the settlement process U.S.C. 1395y(b)(2)(B)(ii). 19 Pub. L (approved Dec. 29, 2007). 20 Codified at 42 U.S.C. 1395y(b)(2)(B)(vii). Page 6 of 21

7 Expedited Repayment. The SMART Act outlines a process by which settling parties may obtain the final conditional payment amount before settlement. 21 If the parties provide CMS notice within 120 days of an expected date of settlement, CMS has 65 days (which can be extended for another 30 days at CMS s discretion) to provide the final conditional payment amount. After the 65-day or 95-day period, whichever is applicable, the parties can download from the website a statement of the final conditional payment amount owed to CMS. The parties may rely on the amount set forth on the statement if settlement occurs within 120 days of the notice, the statement was downloaded within three business days of the settlement, and the statement was the last one downloaded from the website. Resolution of Discrepancies. If a Medicare beneficiary believes there is a discrepancy with a statement, he or she may contest the disputed conditional payments by providing documentation and a proposal to resolve the discrepancy to CMS. 22 CMS then has 11 business days after receipt of the documentation to determine whether to include or remove the payments on the statement. If CMS does not make a determination within this time frame, the Medicare beneficiary s proposal will be deemed accepted. Right of Appeal. The Act also requires CMS to promulgate regulations establishing a right of appeal and a timely appeals process under which an insurer may appeal determinations by Medicare of its entitlement to conditional payment repayment. 23 The insurer s right to appeal can be taken without the Medicare 21 Codified at 42 U.S.C. 1395y(b)(2)(B)(vii)(I) and (III). 22 Codified at 42 U.S.C. 1395y(b)(2)(B)(vii)(IV). 23 Codified at 42 U.S.C. 1395y(b)(2)(B)(viii). Page 7 of 21

8 beneficiary s consent although the insurer is required to notify the beneficiary of its intent to appeal. 2. Section 202 Threshold Amount. Beginning in 2014, if a settlement, judgment, award or other payment falls below the annual minimum threshold set by CMS, then a liability or a self-insurer will not be required to repay Medicare or report the settlement under 42 U.S.C. 1395y(b)(8). 24 The threshold, however, will not apply to claims involving ingestion, implantation or exposure. The Smart Act also requires CMS to set thresholds for workers compensation and no-fault cases. Section 202 codifies CMS s current practice as CMS published a minimum recovery amount of $300 in early It is unlikely that the threshold will rise significantly, if at all. 3. Section 203 Mandatory Reporting Penalties. The Act makes the MMSEA s mandatory civil monetary penalty of $1,000 per day per claim for noncompliance discretionary and changes to penalty of up to $1,000 per day. 25 Section 203 of the Act also requires CMS to promulgate regulations specifying situations where the penalty will not be imposed Section 204 Identifying Information. Section 204 of the Act directs CMS to modify the MMSEA s existing reporting requirements so that an NGHP is permitted but not required to access or report a Medicare beneficiary s social security number or 24 Codified at 42 U.S.C. 1395y(b)(9). 25 Section 203(1), codified at 42 U.S.C. 1395y(b)(8)(E)(i). 26 Codified at 42 U.S.C. 1395y(b)(8)(I). Page 8 of 21

9 health care identification number. 27 This change is a major concession by CMS to continuing pushback from Medicare beneficiaries at being required to provide their social security number. 5. Section 205 Statute of Limitations. The Smart Act establishes a three-year statute of limitations for conditional payment recovery actions brought by the government against an insurer or other third party. 28 The three-year limitation period begins to run from the date CMS receives notice of a settlement, judgment, award or other payment under the MMSEA reporting process. Takeaways The SMART Act provides several welcome amendments to the MSP Act that should provide some comfort to NGHPs and others that have been struggling to satisfy the MSP Act s requirements when settling claims involving Medicare beneficiaries. Settling parties should now have a clearer understanding of the amount of conditional payments that will have to be returned to Medicare, a less rigid penalty structure for violations of the MMSEA reporting requirements, and a more clearly defined statute of limitations. However, the SMART Act leaves unresolved issues such as the obligation to address payment for the medical care of post-settlement incident-related injuries or illnesses ( future medicals ), and the treatment of plaintiffs who are not Medicare beneficiaries at the time of settlement, but may become beneficiaries shortly thereafter. It is possible that those questions may be answered on the regulatory level when CMS issues its final rule on future medicals. 27 Codified at 42 U.S.C. 1395y(b)(8)(B)(ii). 28 Codified at 42 U.S.C. 1395y(b)(2)(B)(iii). Page 9 of 21

10 C. Future Medical Expenses/Set Asides 1. Medicare s Future Interests The MSP Act provides that Medicare is to be secondary when payment can be reasonably be expected to be made under an automobile or liability insurance policy or plan (including a self-insured plan) or under no fault insurance. 29 Thus, because a Medicare beneficiary could claim entitlement to Medicare benefits for future health care expenses, Medicare s future interests must be considered when a claimant receives a lump sum settlement, and the burden of future Medicare-covered incident-related medical expenses may not be shifted to Medicare. Medicare arguably will not pay for a beneficiary s incident-related medical services if the beneficiary s third-party liability settlement includes funds for future incident-related medical care or closes out liability for future incident-related medical care. In such situations, Medicare may be able to deny payments for future benefits until the entire payment for future medical expenses from the settlement (or the entire settlement) is exhausted on that care. Although the current laws do not specifically require settling parties to consider post-settlement interests by utilizing a Medicare Set-Aside ( MSA ), 30 they do require the parties to reasonably consider Medicare s interests when a primary payer exists. Yet, Medicare has not formally defined how parties adequately must consider Medicare s future interests in the third-party liability context, and this lack of guidance has created overwhelming uncertainty for those attempting to settle such claims involving a Medicare beneficiary. Nevertheless, to help enforce the MSP Act, Congress enacted the Medicare, Medicaid and SCHIP Extension Act of 2007 (the MMSEA ). Section 111 of the U.S.C. 1395y(b)(2)(A)(ii) (Emphasis added.) 30 When the term MSA is used, it refers to the formal process of utilizing an allocation report, submitting it to CMS for approval, obtaining Medicare s approval, and funding and setting up the MSA to either be self-administered or vendor-administered. Page 10 of 21

11 MMSEA imposed new mandatory reporting requirements about claims where the injured party is a Medicare beneficiary. Thus, despite the lack of clarity in regard to satisfying the MSP Act s requirements in liability settlements, Section 111 has dramatically impacted the consideration that must be given by settling parties to Medicare s interests because Medicare will now have sufficient information to determine primary plan responsibility. 2. The MSP Act and Regulations It is important to note that the use of an MSA is not one imposed by statute. In fact, neither the MSP Act nor its regulations impose an MSA obligation on settling parties. The only law that approaches the set-aside concept is 42 C.F.R , which provides that Medicare will generally pay for future incident-related medical care when a lump-sum compromise settlement bars the possibility of future payment of workers compensation benefits except in instances where a portion of the settlement agreement allocates certain amounts to future medical expenses. 31 Even so, 42 C.F.R is a workers compensation regulation; therefore, it is not applicable in the third-party liability context. A similar regulation does not exist in the third-party liability context. Further, there is no specific statutory or regulatory basis for requiring MSAs in the workers compensation context (not even 42 C.F.R ), but they are expected and required by Medicare in large workers compensation settlements. This leads to the question of whether MSAs or even simple set-asides 32 will, nonetheless, be required in third-party liability cases. 3. CMS Guidance 31 In those situations, Medicare will not pay for future incident-related medical care until those allocated amounts have been exhausted. 32 The terms set-asides or set-aside arrangements refer to arrangements other than MSAs that involve setting aside a portion of the settlement for future Medicare-covered incident-related expenses. Page 11 of 21

12 CMS first introduced the MSA concept through various memoranda. In 2001, CMS expressed its preference for practitioners to use MSAs as the suggested means for considering Medicare s future interest in workers compensation settlements as a part of the Patel Memorandum. 33 In subsequent memoranda, CMS further elaborated on the proper application of MSAs in workers compensation settlements. For the last decade, it has been CMS practice to issue guidance on MSAs through memoranda and Q&A s in the workers compensation context. Through this guidance, CMS has formally encouraged the use of MSAs for all workers compensation claims involving either an award of future medical expenses or a release of the workers compensation carrier s future responsibility for medical benefits. Further, through this guidance process, CMS has established a mechanism for reviewing and approving MSA proposals in workers compensation settlements. CMS will review MSA proposals in two situations: (i) the plaintiff is a Medicare beneficiary at the time of settlement and the total settlement amount is greater than $25,000; and (ii) the plaintiff is not a Medicare beneficiary at the time of the settlement but has a reasonable expectation of Medicare entitlement within 30 months of the settlement and the total settlement amount is greater than $250,000. This is significant because Medicare approval is the only way, short of allocating the entire settlement, to eliminate the risk of future denial of benefits and to obtain assurance that Medicare s interests have been reasonably considered. No such protection exists for liability insurers. The MSP Regional Coordinator for CMS Regional Office in Dallas revealed its position in regard to future medical expenses in liability settlements in a widely circulated response to an attorney s question regarding set-asides. In the , the 33 Medicare Set Aside Arrangements Transmittal (July 23, 2001). Page 12 of 21

13 Regional Coordinator stated that Medicare should not be billed for future services until those funds [allocated for future medical services from a settlement, judgment or awards] are exhausted by payments to providers for services that would otherwise be covered by Medicare. 34 The Regional Coordinator further stated that [a]nytime a settlement, judgment or award provides funds for future medical services, it can reasonably be expected that those funds are available to pay for future services related to what was claimed and/or related in the settlement, judgment, or award. She also noted that CMS does expect the funds to be exhausted on otherwise Medicare covered services related to what was claimed/released before Medicare is ever billed and the fact that a settlement/judgment/award does not specify payment for future medical services does not mean that they are not funded. She urged counsel to consider [how to protect the Medicare Trust Fund] when settling a case and recommend[s] that their determination as to whether or not their case provided recovery funds for future medicals be documented in their records. Should the parties to a liability settlement determine that future services are funded, those dollars must be used to pay for future otherwise Medicare covered case related services. 4. Other Guidance On June 22, 2011, the United States Government Accountability Office ( GAO ) released a study titled: Medicare Secondary Payer, Process for Situations Involving Non-Group Health Plans (GAO T). 35 In discussing the issue of future medical expenses in relation to non-group health plans ( NGHPs ) such as liability plans, the GAO study stated the following: 34 from Sally J. Stalcup to Mark Popolizio regarding Medicare Liability & Future Meds (Oct. 16, :22 PM). 35 A copy of the GAO study can be found at Page 13 of 21

14 Additionally, to help Medicare prevent making any future payments related to MSP situations involving NGHPs, when a beneficiary is expected to have future medical expenses related to their accident, injury, or illness, CMS states that all parties involved in negotiating a resolution of those situations have responsibilities to protect Medicare s interests. CMS does not require that this be done in any specific way, but one way to accomplish this is through a Medicare set-aside arrangement a voluntary arrangement where a portion of the proceeds from a settlement are set aside to pay for all related future medical expenses that would otherwise be reimbursable by Medicare. In cases where a Medicare set-aside arrangement is created, Medicare will not make payments for medical expenses related to the MSP situation until the Medicare set-aside arrangement is exhausted. Id. at 5 (footnote omitted). Thus, in liability settlements where future medical expenses related to the incident or injury at issue will be required, the Government states that all parties have responsibilities to protect Medicare s interests in addressing future injuryrelated medical expenses and specifically identified an MSA as being one way to satisfy those obligations. 5. The Proposed Rule on Future Medicals On June 14, 2012, CMS released an Advance Notice of Proposed Rulemaking (the Proposed Rule ) soliciting comments on a proposal to clarify how Medicare beneficiaries and their representatives can protect Medicare s interests and satisfy their obligations under the Medicare Secondary Payer ( MSP ) Act when future medical care is claimed or the settlement, judgment, award, or other payment releases claims for future medical care. 36 The Proposed Rule represents a major development in the MSP world because it is the first significant regulatory guidance from CMS on this issue. In it, CMS proposes seven options for handling future medical care in cases involving Fed. Reg (June 15, 2012). CMS proposes to define future medical care as Medicare covered and otherwise reimbursable items and services that the individual/beneficiary received after the Date of Settlement. Page 14 of 21

15 automobile and liability insurance (including self-insurance), no-fault insurance, and workers compensation. In addition to the seven options for facilitating compliance with the MSP provisions, CMS proposes the general rule that if an individual or Medicare beneficiary obtains a settlement and has received, reasonably anticipates receiving, or should have reasonably anticipated receiving Medicare covered and otherwise reimbursable items and services after the date of settlement, he or she is required to satisfy Medicare s interest with respect to future medicals related to his or her settlement using one of the proposed options. 37 In addition, CMS provides that Medicare can recover for conditional payments related to the settlement, regardless of when the items and services are provided, under its rights of subrogation and direct right of action. 38 There has been much controversy regarding whether liability insurers must reimburse Medicare for a beneficiary s future medical care and whether CMS has a right to recover those payments from such insurers. The Proposed Rule makes clear that settling parties must consider future medical care and that CMS deems payments for future medical care to be conditional payments, which implies that Medicare has a direct cause of action against insurers that fail to take into account future medical care in settlements. For example, assume Claimant A is a Medicare beneficiary who suffers a closed head injury that leaves him in a wheelchair. As a result of a lawsuit, Claimant A receives $5 million in exchange for a release of all claims for past and future medical care. From the Date of Incident ( DOI ) 39 to the date of settlement, Medicare paid $500,000 for Fed. Reg. at Id. 39 Date of Incident for an automobile or other discreet accident is the date of the accident. For claims involving exposure, the Date of Incident is the date of first exposure. For claims involving ingestion, it is Page 15 of 21

16 items and services related to Claimant A s closed head injury. Claimant A s treating physician indicates that Claimant A will continue to need medical care for his closed head injury. Under the MSP Act, the parties understand that they must reimburse Medicare for the $500,000 conditional payment. However, until now, it was unclear how the parties were required to handle Claimant A s future medical care in order to satisfy their obligations under the MSP Act. The Seven Proposed Options The Proposed Rule sets forth seven options for addressing future medical care for Medicare beneficiaries, the first four of which also would be available to those individuals who are not yet Medicare eligible or enrolled. These options do not appear to be mutually exclusive. CMS also is seeking proposals for additional options. The seven proposed options provide as follows: 40 Self-Funding. The Medicare beneficiary or individual pays for and documents all related future medical care and expenses until the settlement proceeds are exhausted. Defined Settlement Exemption. Medicare would not pursue recovery of future medicals if nine conditions are met for defined liability settlements, including that the accident or illness occurred at least a year before the settlement, the underlying claim does not involve chronic illness or major trauma, the beneficiary does not receive additional settlements, and the claim does not involve a corresponding workers compensation or no-fault insurance claim. Physician Attestation. If the Medicare beneficiary or individual receives an attestation regarding the Date of Care Completion from a treating physician, Medicare s recovery claim would be limited to payments it made for items and services provided from the DOI through and including the Date of Care Completion. 41 This holds true regardless of the settlement date. the date of first ingestion. For claims involving implants, it is the date of the implant (or date of the first implant if there are multiple implants) Fed. Reg. at CMS proposes to define Date of Care Completion as the date the individual/beneficiary completed treatment related to his or her settlement. Page 16 of 21

17 Medicare Set-Aside ( MSA ). Medicare would not pursue future medicals if the Medicare beneficiary or individual submits a proposed liability MSA for CMS s review and obtains approval. Medicare has established processes to review and approve MSAs in the workers compensation context, but not for liability settlements. CMS requests input on how an MSA review and approval process should be structured in the liability context. Current regulations do not require MSAs for non-workers compensation settlements; however, MSAs and the MSA approval process have proved useful in helping parties ensure that they are adequately considering Medicare s interests when structuring settlements. Low Threshold Reimbursement Options. The Medicare beneficiary participates in one of three currently available recovery options for low-dollar liability settlements, which include: $300 Threshold - Medicare generally will not pursue recovery of conditional payments if the settlement amount for a trauma-based injury is $300 or less. Fixed Payment Option In general, if the settlement amount is $5,000 or less, a Medicare beneficiary may elect to resolve Medicare's recovery claim by paying a percentage of the gross settlement amount to Medicare, regardless of the amount of conditional payments Medicare has actually made on the beneficiary's behalf. Self-Calculated Conditional Payment Option - When a Medicare beneficiary anticipates obtaining a settlement of $25,000 or less for a trauma-based injury that occurred at least six months prior to the election of this option, and for which all care has been completed, the Medicare beneficiary may self-calculate Medicare s recovery claim, subject to Medicare s review and approval. Upfront Payment. The Medicare beneficiary makes an upfront payment to compensate Medicare for future medical expenses by either (1) obtaining CMS approval of a proposed payment amount in settlements involving ongoing responsibility for medicals or (2) paying a specified percentage of net beneficiary proceeds in settlements that do not involve ongoing responsibility for medicals. Waiver. No future obligations in cases where CMS granted compromise or waiver of recovery. Conclusion Overall, the take-away from the Proposed Rule is that future medical care must be considered by all of the settling parties, including the insurers, and that an MSA is not required in every situation. Until a final rule is issued, the settling parties should Page 17 of 21

18 continue to take into account Medicare s interests during the settlement process by determining what option is appropriate in light of the particular facts and circumstances, and ensuring that the selected option both properly reimburses Medicare for conditional payments and addresses payment for future medical care. D. Medicare Advantage Plans On June 28, 2012, the United States Court of Appeals for the Third Circuit held that the Medicare Secondary Payer Act (the MSP Act ) provides Medicare Advantage (MA) plans the same right as the federal government to bring recovery actions against primary payers (i.e., liability insurers, no-fault insures, self-insured entities). In re Avandia Marketing, Sales Practices and Products Liability Litigation, 685 F.3d 353 (3d Cir. 2012) ( Avandia ). In Avandia two Humana Part C Medicare Advantage plans ( MA plans ) brought suit against GlaxoSmithKline ( GSK ), alleging GSK was obligated to reimburse Humana for the costs of medical expenses Humana incurred in treating its insureds for conditions related to GSK s Avandia, a diabetes drug that has been linked to increased risk of heart attack and stroke. As part of the Avandia settlement process, GSK had set aside reserves to reimburse Medicare for the cost of treating claimants Avandia-related injuries. However, MA plans were not reimbursed under the settlement. The district court dismissed Humana s action. It found that the statute creating the MA program, which contains its own secondary payer provision, does not grant MA plans a private right of action. In addition, the court concluded that the MSP Act s recovery provisions do not apply to MA plans because the MA secondary payer provisions do not reference or expressly incorporate the enforcement rights available to the government under section 1395y(b)(2)(B)(iii) of the MSP Act or the MSP Act s Page 18 of 21

19 private right of action provision under section 1395y(b)(3) In Re: Avandia Marketing Sales Practices and Products Liability Litigation; Humana v. GlaxoSmithKline, 2011 U.S. Dost. LEXIS 63544, *15 (E.D. Pa. June 13, 2011). Thus, the district court found that MA plans had no private right of action against primary plans under the Medicare Act, but could instead bring claims in state court against their enrollees. Id. at *16. The Third Circuit reversed. In doing so, it shifted the focus from the MA secondary payer provisions to the MSP Act s private right of action under 42 U.S.C. 1395y(b)(3)(A). That section provides, [t]here is established a private cause of action for damages (which shall be in an amount double the amount otherwise provided) in the case of a primary plan which fails to provide for primary payment (or appropriate reimbursement). The Third Circuit found this provision broad and unambiguous, placing no limitations upon which private (i.e., non-governmental) actors can bring suit for double damages when a primary plan fails to appropriately reimburse any secondary payer. Avandia at 359. Thus, it held that the MSP Act s private right of action unambiguously provides MA plans with a private right of action. 42 In addition, and contrary to the district court, the Third Circuit found nothing in the Medicare Advantage statute s secondary payer provision that evidenced a congressional intent to deny MA plans access to the MSP Act s private right of action. On policy grounds the Third Circuit concluded that denying MA plans the same rights to recover medical expenses from primary payers as congress provided to traditional fee-for-service Medicare would undermine the very purpose of the MA program. Id. at *363. The Court also stated that ensuring that MA plans could recover 42 The Court also held that even if it were to find the text of the MSP Act s private cause of action to be ambiguous, Chevron deference to the CMS MA regulations, which provide MA plans with the same rights of recovery available to traditional Medicare under the MSP Act, required it to reach the same conclusion. Avandia at Page 19 of 21

20 from primary payers by using the private right of action for double damages helped to advance the goals of the MA program. Id. at *365 In its conclusion, the Third Circuit firmly stated that [t]he language of the MSP private cause of action is broad and unrestricted and therefore allows any private plaintiff with standing to bring an action - which includes MA plans Avandia at 367. Thus, MA plans have a private right of action for double damages to sue primary payers to recover payments for medical treatment of injuries/illness for which the primary payer is responsible. The Avandia decision is critically important to insurers who defend and settle personal injury suits in which the plaintiff/claimant is a Medicare beneficiary. Beyond having to ensure only that Medicare s interests in a settlement have been met (i.e., satisfying Medicare s conditional payments and interest in future medical treatment), insurers subject to suit within the Third Circuit are now on notice that they must also deal with any MA plans through which a plaintiff/claimant receives Medicare benefits. Additionally, as this is the first federal Court of Appeals to directly address this issues, those outside the Third Circuit may also want to consider the Avandia holding when settling claims involving claimants who are MA plan enrollees. Of note is that on December 5, 2012, GlaxoSmithKline filed a petition for a writ of certiorari in the United States Supreme Court (Docket No ). GSK frames the issue a as whether the MSP Act establishes a cause of action for private insurers operating Medicare Advantage plans to sue tortfeasors for double damages. GSK also argues that there is a Circuit conflict as to the scope of the MSP Act s private right of action. Page 20 of 21

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