Medicare Indemnity and Defense by Federal Mandate?

Medicare Indemnity and Defense by Federal Mandate? Christian R. Johnson Ebanks Horne Rota Moos LLP 1301 McKinney, Suite 2700 Houston, TX 77010 (713) 333-4500 (713) 333-4600 [fax] cjohnson@ethlaw.com www.ethlaw.com

Christian R. Johnson is a litigation associate at Ebanks Horne Rota Moos LLP in Houston, Texas. Ms. Johnson received her J.D. from South Texas College of Law in 2008. She is a member of the State Bar of Texas and is admitted to practice before the U.S. District Courts for the Northern, Eastern, Western, and Southern Districts of Texas. Ms. Johnson specializes in Medicare compliance issues related to the Medicare, Medicaid and SCHIP Extension Act of 2007. During law school, she was National Champion and received the Excellent Advocate Award in the Georgetown White Collar Crime Competition. She was also a finalist in many other mock trial and moot court competitions. Ms. Johnson is a member of DRI, the National Achievement Academy, Texas Bluebonnet Girl s State, American Bar Association, Houston Bar Association, Houston Young Lawyers Association, Texas Young Lawyers Association, Greater Houston Society for Healthcare Risk Management, and the Texas Association of Defense Counsel.

Medicare Indemnity and Defense by Federal Mandate? Table of Contents I. Introduction...311 II. What Is the MMSEA and Why Should I Care?...311 A. Section 111 Reporting...312 B. Mandatory Secondary Payer Statute (MSP)...312 III. Balancing Interests...312 IV. Can We Settle?...313 A. Steps to implement prior to suit and/or during the course of litigation which evidence reasonable compliance efforts...313 B. What do I include in the release?...313 V. Conclusion...314 Attachment...315 Medicare Indemnity and Defense by Federal Mandate? Johnson 309

Medicare Indemnity and Defense by Federal Mandate? The laws, regulations, guidelines and practices governing the Medicare, Medicaid and SCHIP Extension Act of 2007, Section 111 Reporting, and the Mandatory Secondary Payer Statute are dynamic and rapidly evolving. The information outlined in this paper should not be substituted for legal research or consultation with competent legal counsel on specific matters. I. Introduction As lawyers, we face complex issues on a daily basis. As young lawyers, we are typically the ones that are required to conduct countless hours of legal research, synthesize the law and offer a workable framework and/or potential resolution for our employer and/or client to consider. The Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA) presents a myriad of problems and legal issues which carry severe ramifications for our clients, their insurers, our law firms, and individual attorneys. While we could spend countless hours addressing the problems with this legislation or its political and social implications, the reality is that personal injury product liability claims cannot be resolved without first considering Medicare s interest in recovering its conditional payments. Right or wrong, when our clients are sued for personal injuries it is essentially our burden to represent Medicare s interest and make sure it is reimbursed for its conditional payments. To the extent we fail to adequately represent and/or defend Medicare s interests and report back to Medicare, we (our clients, their insurers, our firms, and/or individual attorneys) may be forced to indemnify plaintiff for his/her failure to reimburse Medicare by virtue of the Mandatory Secondary Payer Statute. Additionally, our clients and/or their insurers may be faced with severe statutory penalties for failing to properly complete Section 111 Reporting. In the face of this legislation which affects each and every personal injury product liability claim - what do we do as young lawyers to offer our clients and/or employers a workable framework and/or resolution to the problem that is MMSEA? II. What Is the MMSEA and Why Should I Care? The MMSEA imposes affirmative reporting duties on what are commonly referred to as Responsible Reporting Entities (RRE). In the context of personal injury products liability claims, mandatory insurer reporting typically extends to liability insurance (including self-insurance), no fault insurance and workers compensation plans. In short, our clients and their insurers may each have reporting obligations with regard to all personal injury claims. As such, this legislation creates significant exposures. The risk areas can be broken down into two major categories: Section 111 Reporting and the Mandatory Secondary Payer Statute. While the Centers for Medicare & Medicaid Services (CMS) has had the power to recover Medicare conditional payments since the 1980s, they did not have a method to identify the primary party responsible for payment until Section 111 Reporting was incorporated into the MMSEA. The key to enforcement of Medicare s subrogation rights under the Medicare Secondary Payer Statute (MSP) is CMS ability to identify the primary party responsible for payment. Under Section 111, a Responsible Reporting Entity (RRE) which fails to comply with CMS expanded reporting requirements may be fined as much as $1,000 per day for each instance of noncompliance. See 42 U.S.C. 1395(y)(b)(8)(E). In harmony with the Congressional intent of reducing Medicare costs, any penalties assessed go directly to the underfunded Medicare Hospital Insurance Trust Fund which is projected to be completely exhausted by 2017. See 1395(y)(b)(8)(E)(ii). Medicare Indemnity and Defense by Federal Mandate? Johnson 311

The MSP was originally codified to reduce Medicare costs by shifting them to the primary insurer. See U.S. v. Baxter Int l, Inc., 345 F.3d 866, 875 (11th Cir. 2003)(discussing the historical purpose and current state of the MSP). Over the past three decades, Congress has continually expanded the power of recoupment under the MSP. Id. Today, primary payers include anyone who has received payment from a primary plan. See 1395y(b)(2)(B)(ii). In practice, this means our clients that are involved in litigation with Medicare beneficiaries retain exposure under the MSP regardless of settlement or judgment unless Medicare has been paid or chooses to intervene. This is important because the MSP private cause of action permits double recovery of the amount of damages owed which exposes our clients to treble damages. See 1395y(b)(3)(A). In addition, attorneys are exposed when we accept payment for our services out of a settlement or judgment. See United States v. Harris, No. 5:08CV102; 2009 WL 891931 (N.D.W.Va March 26, 2009) (holding Medicare was entitled to recover from the Plaintiff s attorney in a personal injury action). If all Section 111 reporting requirements are met, the exposure may be reduced but it will not be eliminated due to the potential for a future private cause of action under the MSP. A. Section 111 Reporting CMS has the authority to assess a $1,000.00 per day civil penalty for each instance it finds a Responsibility Reporting Entity (RRE) is not in compliance with its reporting requirements. Reporting occurs upon settlement, judgment or award if, and only if, the claimant was a Medicare beneficiary that received conditional payments as a result of the incident forming the basis of suit. RREs have a designated seven day reporting window once per quarter. During this reporting window, it must report all settlements, judgments or awards involving Medicare beneficiaries that occurred during the preceding ninety (90) day period (noting that CMS offers a grace period for claims resolved within 45 days of the commencement of the seven day window to be reported in the subsequent quarter). Because RREs are only permitted to report once per quarter, each individual reporting error may result in a $90,000 civil penalty (90 days at $1,000 per day). B. Medicare Secondary Payer Statute (MSP) In addition to the ability to sanction, Section 111 reporting is designed to arm Medicare with the knowledge it needs to institute Secondary Payer Recovery actions against deep pockets to recover its conditional payments. The MSP provides a private cause of action for double recovery of the underlying damages and interest. By way of illustration, if your client settles a personal injury claim in which Medicare expended $10,000 in conditional payments as a result of the incident but plaintiff fails to reimburse the $10,000 to Medicare out of his/her settlement proceeds, then a private cause of action may be brought against anyone that received payment from those settlement funds for double recovery without regard to the amount previously paid to plaintiff. III. Balancing Interests In light of the risks, it is imperative that we make reasonable efforts to keep our clients and their insurers informed. There are a number of interests that must be addressed in each personal injury claim due to the MMSEA. First and foremost, the client must be made aware of the legislation and its implications at the outset of every personal injury claim. It is essential that the client understands protecting Medicare s interests is an integral part in protecting the client s own interests and will reduce exposure to future damages. If the client is not wholly self-insured, it is important to notify the client s insurer of its potential reporting obligations as well as potential future exposures. The insurer must understand that the claim cannot be resolved without obtaining the information necessary to meet Section 111 Reporting requirements and ensuring that 312 Product Liability Conference April 2012

any and all conditional payments have been or will be reimbursed by the plaintiff and/or beneficiary. In addition, Medicare s interests must be balanced with the interest of the client in reaching a favorable resolution to the outstanding claim. Finally, our professional responsibilities as lawyers must be carefully balanced. The MMSEA exposes our firms and individual attorneys to damages along with the client and their insurer. With the number of interests which must be represented to adequately address MMSEA exposures, there is potential for a conflict of interest to develop. As such, a careful balance must be struck in order to reasonably reduce risk under the MMSEA. IV. Can We Settle? This is by far the question I am asked most frequently regarding the MMSEA. The answer varies with every case depending upon its unique facts. However, implementing standard procedures to obtain Medicare information as soon as possible in every personal injury claim will facilitate settlement. Whether you implement firm protocols or standard operating procedures for a corporate client, a consistent method should be used in every personal injury matter to reduce exposures. A. Steps to implement prior to suit and/or during the course of litigation which evidence reasonable compliance efforts At the outset of every personal injury claim, Medicare should be considered. Inclusion of Medicare related questions should be standard practice when propounding discovery requests. Section 111 Reporting requires a multitude of information that may not be obtained if the data required is not considered at the outset of every claim. At a minimum, your initial Requests for Production should include a request for the CMS Form attached hereto to be executed and returned. CMS has indicated that use of the form will be viewed favorably when it considers filing a private cause of action pursuant to the MSP. Furthermore, the form will provide the key data points needed to run a query on CMS system which is a tool used to help determine if the person is a Medicare beneficiary. I typically also include an authorization for plaintiff and/or the claimant to execute which grants us access to obtain records directly from the Medicare Secondary Payer Recovery Contractor. In short, discovery should be conducted with reporting requirements in mind and should force plaintiff and/or the claimant to provide updated interim conditional payment summaries issued by the Mandatory Secondary Payer Recovery Contractor. Additionally, correspondence is an invaluable tool which will evidence compliance efforts. Notice letters should be sent to opposing counsel (and/or the claimant if unrepresented or suit has not been filed) regarding potential implication of Section 111 Reporting requirements and Medicare s right to recover its conditional payments. Prior to engaging in alternative dispute resolution, correspondence should be sent reaffirming that the most recent Interim Conditional Payment Summary must be provided before the date of the ADR. In addition to notifying opposing counsel and/or the claimant, it is essential to document our efforts to inform our clients of the potential reporting requirements and exposures related to the MMSEA. Creating a paper trail of due diligence and reasonable compliance efforts will help reduce future exposures under the MSP and will facilitate proper and timely reporting under Section 111 when necessary. B. What do I include in the release? The most important factor for consideration regarding a release is the law of the jurisdiction related to enforceability and interpretation of settlement agreements. In particular, whether or not indemnity provisions will be upheld is critical to structuring the settlement. Medicare Indemnity and Defense by Federal Mandate? Johnson 313

If ongoing medicals are not a factor and there is no need for a Medicare Set Aside, the key to settlement is obtaining the Interim Conditional Payment Summary and then incorporating reasonable settlement terms in the release to ensure that Medicare s interests are represented and it will recover its conditional payments. Indemnity provisions are critical as Medicare will not issue its final demand until after settlement. Shifting the risk of a higher final demand to the plaintiff and/or claimant is a non-negotiable settlement term in light of MSP exposures. If indemnity provisions are not a viable option in the applicable jurisdiction, settlement should be structured in a way that will permit issuance of payment directly to Medicare. The MMSEA has far reaching ramifications in the event of non-compliance; however, settlement is a viable option so long as reasonable steps are implemented to obtain the requisite information and settlement terms are incorporated which shift future risk back to the Medicare beneficiary where it belongs. V. Conclusion The MMSEA is costly legislation, but we can and should take steps to reduce its costs from a compliance standpoint. Implementing reasonable protocols that provide documentary evidence of compliance efforts provides some protection against a future MSP cause of action. Additionally, requesting Medicare related information at the outset of each personal injury matter begins the process of elimination and/or identification of claims which must be reported. Settlement is still a viable resolution to outstanding claims with incorporation of appropriate terms. While there is not a clear cut and simple resolution the problems created by the MMSEA, we can offer our employers and clients a framework to manage the risk and shift exposures. 314 Product Liability Conference April 2012

Attachment Medicare Indemnity and Defense by Federal Mandate? Johnson 315

316 Product Liability Conference April 2012