Prepared by Whitney L. Teel, Esq.

New Medicare Notice And Reporting Regulations: A Discussion On How To Settle Cases Without Exposing Clients To Penalties Under The Medicare Secondary Payer Act Prepared by Whitney L. Teel, Esq. I. Introduction No-fault, workers compensation and liability insurers (including self-insurers) must be in compliance with Medicare s new notice and reporting requirements 1 no later than July 1, 2010. 2 While the new reporting laws do not change the existing legal obligations for liability, no-fault and workers compensation matters, the new provisions will have a significant impact on claims handling and settlements. In order to understand the impact of the new notice and reporting provisions of the Medicare Secondary Payer Act (MSP), it is necessary to understand how the new notice and reporting provisions work within the existing framework of the MSP, and primary payers 3 obligation to protect Medicare s interests in claims handling and settlements. This article reviews primary payers obligations under MSP and the new notice and reporting provision, and then discusses what procedures are available for dealing with Medicare s interest through the litigation and settlement process. II. Medicare Requirements In Settling Personal Injury Claims A. Evolution Of Medicare Secondary Payer Act: A Brief Overview As originally enacted in 1965, Medicare was the primary insurer, and thus the primary payer, for medical services provided to Medicare beneficiaries, with the exception of workers compensation. 4 The cost of Medicare skyrocketed by 1980: in 2005 dollars, Medicare spent $976.50 per enrollee in 1967; by 1980 it spent $3,090.97 per enrollee. 5 In response to escalating costs, Congress made 1 On December 29, 2007, then-president Bush signed into law the Medicare, Medicaid and SCHIP Extension Act (MMSEA). Section 111 of the MMSEA amended the notice and reporting under the MSP. 2 While July 1, 2010 is the deadline for all insurers to comply with reporting; insurers will submitting their first claims files 4/1/2010-6/30/2010 and have already started the registration process with CMS. CMS continues to revise the timeline for implementation. For most up-to-date timeline see http://www.cms.hhs.gov/mandatoryinsrep/03_liability_self_no_fault_insurance_and_workers_compensation.asp# TopOfPage 3 Primary payers include liability, no-fault and workers compensation insurers. 4 Blue Cross and Blue Shield Ass n v. Sullivan, 794 F. Supp. 1166, 1168 (D.D.C. 1992). Workers compensation has always been primary to Medicare. 5 Rick Swedloff, Can t Settle, Can t Sue: How Congress Stole Tort Remedies from Medicare Beneficiaries, 41 AKRON L. REV. 557, 573 (2008). Page 1

Medicare s liability secondary to automobile, liability 6 (including self-insured) and no-fault insurance by enacting the Medicare Secondary Payer Act (MSP) in 1980. 7 In 2003, Congress added a definition of self-insured plan to the MSP, which declared an entity was a self-insured plan if it carries its own risk (whether by a failure to obtain insurance or otherwise) in whole or in part. 8 The MSP not only establishes that Medicare is a secondary payer, but also that Medicare has a priority right of recovery over any other entity to the proceeds of any settlement. Primary payers, and any entities which receive payment from a primary payer, are obligated to reimburse Medicare when it is demonstrated that such the primary plan has or had a responsibility to make payment with respect to such item or service. 9 A primary payer s responsibility for such payment may be demonstrated by a judgment or payment conditioned upon a recipient s compromise, waiver and release. 10 Obligations to reimburse apply whether or not there is a determination or admission of liability. 11 Medicare then has broad enforcement rights against several different parties, including recovery from the primary payer as well as from parties in receipt of primary payer payments, such as a beneficiary, provider, supplier, physician, attorney 12, state agency or private insurer. 13 If a beneficiary or other party receives a primary payment the beneficiary or other party must reimburse Medicare within 60 days, however, if Medicare is not reimbursed within 60 days, the primary payer must reimburse Medicare even though it already reimbursed the beneficiary or other party. 14 If Center for Medicare and Medicaid Services (CMS) has to take legal action to recover from the primary payer, CMS may recover twice the amount of the Medicare primary payment. 15 The MSP grants 6 Liability insurance includes homeowners, automobile, product liability, malpractice, uninsured motorist and underinsured motorist insurance. 24 C.F.R. 411.50. 7 The statutory provisions under 42 U.S.C. 1395y, combined with supporting provisions under the Code of Federal Regulations, including 42 C.F.R. 411.20, et. seq., and 42 C.F.R. 411.40, et. seq., are collectively referred to as the MSP. 8 Medicare Prescription Drug, Improvement and Modernization Act of 2003, Pub. L. No. 108-173, 301(b)(1) (codified at 42 U.S.C. 1395y (b)(2)(b)(ii)(2008)). Prior to the 2003 amendments, CMS attempted numerous times to have the courts define self-insured plan as it was in the 2003 laws. Most courts failed to side with CMS. See e.g. Mason v. Am. Tobacco Co., 346 F.3d 36, 43 (2 nd Cir. 2003), but see United States v. Baxter Int l, 345 F.3d 866, 886 (11 th Cir. 2003). With the 2003 amendments, any entity engaging in a business, trade or profession would be deemed as having a self-insured plan if it carried its own risk. Failure to obtain insurance would be evidence of carrying risk. 42 U.S.C. 1395y (2)(A). 9 42 U.S.C. 1395y(b)(2)(B)(ii). 10 42 U.S.C. 1395y(b)(2)(B)(ii). A settlement or contractual obligation is further evidence of responsibility under the MSP. 42 C.F.R. 411.22 (b)(3). 11 42 U.S.C. 1395y (b)(2)(b)(ii). 12 See e.g. U.S. v. Harris, Civ. action No. 5:08CV102 (N.D. W.Va. Nov. 13, 2008). 13 42 C.F.R. 411.24(g). 14 42 C.F.R. 411.24(h) and (i). 15 42 C.F.R. 411.24(c)(2). CMS collection procedures are governed by 42 C.F.R. 405.376 and 42 C.F.R. 401 subpart F. Those provisions also discuss when CMS will compromise its lien based on Page 2

CMS subrogation rights, and rights of joinder and intervention in order to protect Medicare s interests in personal injury claims. 16 B. The New Reporting And Notice Obligations The MSP requires primary payers to place Medicare on notice regarding certain cases involving Medicare beneficiaries. The new notice/reporting requirements (also referred to as Section 111 of the MSP) require workers compensation, liability (including self-insured), and no-fault carriers to report certain information whenever there is a settlement, judgment, award or other payment involving a current Medicare beneficiary. CMS is implementing Section 111 requirements in phases. CMS will continue to issue revised versions of Section 111 user guide. The most recent version at the time of this article is 1.0 dated March 16, 2009. The current user guide is 180 pages at can be found at http://www.cms.hhs.gov/mandatoryinsrep/. Section 11 was enacted to strengthen primary payer compliance under the MSP by implementing more stringent notice and reporting requirements as discussed below. 17 Parties cannot agree that a settlement is for pain and suffering only (not medical) to avoid their obligation to report; CMS will not agree to such language in settlement documents and will reserve its priority right of recovery regardless of settlement language. 18 1. Who Must Report under Section 111? Liability insurers (including the MSP s broad definition of self-insureds), no-fault insurers and workers compensation insurers per 42 U.S.C. 1395y (b)(8). 2. What Triggers Obligation to Report? Primary payers are only to report when they have made a payment (including settlement, judgment, award or other payment) on or after January 1, 2010, on behalf of a current Medicare beneficiary or if they inability to pay and litigative probabilities. See 42 C.F.R. 401.613. 42 C.F.R. 411.24(e) provides CMS with a direct right of action to recover from any primary payer. 16 42 C.F.R. 411.26. CMS also may charge interest within the parameters of 42 C.F.R. 411.24(m). 17 See Transcript of January 28, 2009 Town Hall Teleconference of CMS re: Section 111, page 37, found at http://www.cms.hhs.gov/mandatoryinsrep/07_nghp_transcripts.asp#topofpage. Other policy reasons behind Section 111 include providing information up front to CMS so CMS can deny claims where there is a primary payer (thus CMS avoiding need to intervene in litigation). Id. 18 Transcript of February 25, 2009 Town Hall Teleconference of CMS re: Section 111, page 49, found at http://www.cms.hhs.gov/mandatoryinsrep/07_nghp_transcripts.asp#topofpage. If the claim is for property damage only, and the release signed does not mention medical nor medical was never claimed, then that does not need to be reported. Id. Page 3

assumed an ongoing responsibility for medical on or after July 1, 2009 (i.e. admitted workers compensation claims and no-fault claims) on behalf of a current Medicare beneficiary. Where there is a settlement, judgment, award or other payment with no establishment/acceptance of responsibility for ongoing medicals, there is no obligation to report if the individual is not a Medicare beneficiary as of the date the reporting obligation is triggered (i.e., date payment is made). If the insurer accepted responsibility for ongoing medical prior to July 1, 2009, and that responsibility continues as of July 1, 2009, those claims must comply with Section 111 (CMS is permitting the delay in reporting for these claims under this third calendar quarter of 2010 (July-October) in order for insurers to review past claims to determine the Medicare status of individuals for whom there is a pre-existing ongoing payment responsibility which continues as of July 1, 2009). If, however, the ongoing responsibility for medical assumed prior to July 1, 2009, and the claim was actively closed or removed from current claims records before January 1, 2009, the insurer is not required to identify and report that claim unless it is later reopened. 19 3. Penalties for Non-Compliance Under Section 111 Exact timelines for reporting have not been issued as of the date of this article. The responsible reporting entities will be reporting quarterly and there will be a 45 day grace period. 20 The penalties for late reporting are high: $1,000.00 a day. It will be imperative that defense attorneys and claims handlers know whether a claimant is a Medicare beneficiary before there is a settlement, judgment, award or payment made. 4. Are There Any De Minimus Dollar Thresholds for Reporting? On March 20, 2009, CMS issued an ALERT for Liability Insurance (Including Self-Insured), No-fault Insurance, and Workers Compensation, discussing reporting thresholds. 21 If a claim has an ongoing responsibility for medical on or after July 1, 2009, there is no de minimus dollar threshold for no-fault or liability insurance. If workers compensation s ongoing responsibility for medical is due to a claim that is medical only, no lost time more than seven days, all 19 MMSEA Section 111 Medicare Secondary Payer Mandatory reporting: Liability Insurance (Including Self-Insurance), No-Fault Insurance, and Workers Compensation USER GUIDE, Version 1.0, March 16, 2009, page 52, found at http://www.cms.hhs.gov/mandatoryinsrep/downloads/nghpuserguide031609.pdf 20 See Transcript of February 25, 2009 Town Hall Teleconference of CMS re: Section 111, page 29 and 45, found at http://www.cms.hhs.gov/mandatoryinsrep/07_nghp_transcripts.asp#topofpage 21 See CMS March 20, 2009 ALERT for Liability Insurance (Including Self-Insured), No-fault Insurance, and Workers Compensation, found at http://www.cms.hhs.gov/mandatoryinsrep/downloads/allert_userguidesupp_ NGHP.pdf Page 4

payments made directly to medical provider, and total payment does not exceed $600.00, then that claim is excluded from reporting. 22 There are thresholds for no-fault, liability, and workers compensation for total payment obligation to claimants (TPOC) 23 From July 1, 2009 through December 31, 2010, TPOC amounts of $0.00-$5,000.00 are exempt from reporting. 24 These workload thresholds are interim thresholds while CMS continues to implement Section 111 reporting process. These thresholds are not safe harbor thresholds. CMS reserves the right to modify thresholds in the future. Representatives from CMS indicate they are hopeful to increase thresholds in the future. 25 III. Suggestions On How To Work With Medicare And Still Settle Claims Settlement in a tort or a workers compensation case require Medicare considerations if the settlement involves the payment of any past or future medical bills. There are two circumstances that trigger Medicare approval. The first circumstance arises when the injured party has been Medicare-eligible since the time of injury and at the time of settlement. These cases also require compliance with Section 111 reporting and notice provisions described above. The second circumstance occurs when a gross settlement exceeds $250,000.00 26, the claimant is not presently on Medicare, but the claimant has a reasonable expectation of being Medicare-eligible within 30 months of settlement. 27 The later circumstances do not require compliance with Section 111 reporting and notice provisions, as the claimant is not Medicare-eligible on the date of settlement. Nonetheless, Medicare s interest, still must be taken into consideration. A. Workers Compensation Since July 2001, CMS has published numerous policy memorandums developing and defining its policies and the use of Medicare Set-Aside arrangements in workers compensation matters. To date, Medicare has not published any official policy or procedure regarding liability settlements, but a review of the workers compensation procedures can provide insight as to CMS s future procedures for liability claims. 22 Id. This is an interim threshold for claims with ongoing responsibility for medical, and exclusion only applies through December 31, 2009. 23 Total obligation payment includes all payments made to claimant, to medical providers on behalf of claimant, or any other entity on behalf of claimant for claim. 24 Id. See Alert for combined TPOC and deductibles. 25 See Transcript of April 9, 2009, Town Hall Teleconference of CMS re: Section 111, page 23, found at http://www.cms.hhs.gov/mandatoryinsrep/07_nghp_transcripts.asp#topofpage 26 When calculating the $250,000.00 all payments ever made on behalf of the beneficiary need to be considered, not just the settlement amount. 27 The CMS memorandums discussing the $250,000 threshold apply to workers compensation only. CMS has not yet issued any work-load thresholds for liability/no-fault. Page 5

28 1. The Medicare Set-Aside. Workers compensation attorneys are familiar with the Medicare Set-Aside (or Medicare Waiver) 28 in settling workers compensation claims where there is a closure of future medical expenses. A Medicare Set-Aside or waiver is necessary in cases closing out future medical when: 1. The injured worker is a Medicare beneficiary at the time of settlement and the total settlement is greater than $25,000.00 29 ; or 2. The individual is not a Medicare beneficiary at the time of settlement, and the total settlement is over $250,000 30 and there is a reasonable expectation of Medicare entitlement within 30 months of the settlement date. Reasonable expectation of Medicare enrollment include the following: 1. Individual has applied for Social Security Disability Insurance benefits; 2. Individual has been denied Social Security Disability Insurance benefits but anticipates appealing the adverse decisions; 3. Individual is in the process of appealing/refiling for Social Security Disability Insurance benefits; 4. Individual is age 62 years and six months (may be eligible for Medicare based on age within 30 months); or 5. Individual has end stage renal disease, but has not yet qualified for Medicare. Medicare Set-Aside is a trust for future medical approved by CMS. Workers compensation practitioners also use a Medicare Waiver, where the allocator requests CMS to waive its right of recovery for future medical in certain cases. 29 If the total settlement amount is $25,000.00 or less, CMS will not review Medicare Set-Aside proposals. This is only a workload threshold and not a safe harbor threshold. See CMS Policy Memorandum, April 25, 2006. The memorandum establishing this work-load threshold is directed to workers compensation only. No policy memorandums address liability/no-fault at this time. 30 The following should be considered in calculating the MSA required threshold: 1) money paid as a part of the previous settlement of any portion of a claim, such as prior indemnity settlement; 2) amounts paid at the current time to settle benefits, such as future medicals, indemnity or vocational benefits; 3) attorney fees paid in the settlement; 4) costs/expenses paid in the settlement; 5) payment of any Medicare conditional payments/lien claims; and 6) if any annuity is being used in the settlement, then the amount of the expected payout must be included instead of the cost to purchase the annuity. See CMS Policy Memorandum, July 23, 2001. Page 6

Where work-thresholds are reached, workers compensation procedures dictate undergoing Medicare Set-Aside or waiver if the parties desire to foreclose future medical as part of settlement. The procedures to obtain a Medicare Set-Aside have been discussed in numerous other articles and will not be repeated here. 2. Other Mechanisms to Protect Clients from MSP Penalties in Workers Compensation A second option workers compensation attorneys have is to settle indemnity and leave medical open. If additional medical expenses arise, those expenses can always be litigated. If the compensation judge finds after indemnity settlement that the medical is no longer related to the work injury, then the Findings and Order have potential collateral estoppel, taking effect 31 against any future Medicare claim (as long as parties provided Medicare adequate notice). Medicare s interest would no longer need to be considered as there is a court decision finding that the work injury was no longer a substantial contributing factor to the employee s medical treatment. 3. Minnesota Statute Section 176.301 This section of the Workers Compensation Act provides when workers compensation issues arise in a district court action, 32 the district court has concurrent jurisdiction. Therefore, the parties could agree to a settlement of an employee s workers compensation claims, and if MSP issues are present, the parties could commence an interpleader action 33 and petition the district court to allocate the funds between the employee and Medicare, similar to an allocation of subrogable and non-subrogable claims as long afforded in Henning v. Wineman, 306 N.W.2d 550 (Minn. 1981). See also, Tyroll v. Private Label Chemicals, Inc., 505 N.W.2d 54 (Minn. 1995). B. Liability (Including Self-Insurance) And No-Fault Insurance There are no established CMS guidelines for liability settlements as there are in workers compensation. Liability attorneys can look towards the workers compensation colleagues for Medicare settlement strategies, but liability attorneys have additional tools at their disposal not currently available in the workers compensation courts. Policy limits on liability claims also pose difficulties in settlement that do not exist in a workers compensation claim. 31 See generally, Brix v. Gen. Accident & Assurance Corp., 93 N.W.2d 542, 545-46 (Minn. 1958). 32 For example, at the time of the workers compensation dispute, there may be a subrogation claim or collateral employment claim. 33 See infra, Section III(B)(2)(c). Page 7

1. Willing to Pay Policy Limits If the insurer is willing to pay the policy limits under a liability policy, civil procedure rules allow the insurer to deposit the policy limits with the Clerk of Court. Minnesota Rule of Civil Procedure 67 allows the insurer, whether or not an action is actually commenced, to place the money in the custody of the court. The person depositing the money with the Court will provide the court with the names and places of residence of all known interested parties of such monies. Medicare would be served with the petition. Then, the insurer could be dismissed from the action while the claimant and Medicare battle for the policy proceeds. Insurers used this procedural mechanism successfully in Myers v. Central Insurance Cos., No. 1:08-CV-96 (N.D. Ind. Jan. 8, 2009). The insurer deposited its policy proceeds with the Court and then was dismissed. The claimant and Medicare filed motions for summary judgment for the monies deposited. The court in Myers noted that Medicare is entitled to priority over all other claimants for reimbursement of its conditional payments. The court in Myers ordered all parties requesting entitlement to the monies to provide the court with a proposed distribution of funds. When the insurer is willing to pay policy limits on a claim, depositing the monies with the Court under Minn.R.Civ.P. 67 and then requesting a dismissal is an efficient and cost-effective means to comply with the MSP while avoiding liability for penalties. Notably, the insurer s obligation to report under Section 111 would trigger on the date of the deposit. 2. Not Willing to Pay Policy Limits Of course, in many liability claims the insurer is not willing to pay its policy limits, either due to high policy limits, or its analysis that the claim is not worth the policy limits because of weak liability or otherwise. These cases prove more centrally problematic when dealing with a Medicare beneficiary or a claimant who has a reasonable expectation of becoming a Medicare beneficiary within 30 months of settlement. a. Nuisance Value Claims CMS has not issued workload thresholds for liability claims. For workers compensation CMS s workload threshold is $25,000.00 if the claimant is a Medicare beneficiary. Again, this is simply a workload threshold and not a safe harbor threshold. As of the date of this article, there is no workload threshold issued from CMS for liability attorneys. Page 8

b. Medicare Set-Aside If the settlement exceeds the workload thresholds, the parties can apply for a formal Medicare Set-Aside or waiver. This would obviously occur in situations where policy limits are high, but the claim is not worth the policy limits. Using a Medicare Set-Aside (or in some instances a waiver) would still allow attorneys to settle cases while protecting their clients from MSP s severe penalty provisions. c. Interpleader Actions Attorneys may also find help in the interpleader action. 34 The interpleader permits a plaintiff or defendant to resolve the claims of multiple conflicting claimants in one action. The party does not have to admit liability to use the interpleader in order to eliminate the risk of multiple liabilities. In a scenario where the claimant is Medicare-eligible, the insurer could commence an interpleader action, serving Medicare and the plaintiff as stakeholders. d. Arbitration If the parties seek to avoid the expense and time of a jury trial, they could submit to ADR arbitration, per Gen. Rule Practice 114.02(a)(1). Medicare would be provided notice to intervene in any arbitration. Then, after a dollar amount is awarded, within the policy limits, the arbitrator s decision would be entered as a judgment per Gen. Rule Practice 114.09(e). The court would then allocate the assets between the claimant and Medicare. The court allocation would be necessary to protect the parties from the penalty provisions of MSP. See Henning and Tyroll, supra. e. Joinder and Offer of Judgment Other procedural rules can assist attorneys with MSP compliance. First, Rule 20 allows parties to join Medicare to an action. Once Medicare is a party to a civil lawsuit, the parties can use other procedural rules to assist their clients in dealing with Medicare. For example, the parties can make an offer of judgment on the claimant and Medicare under Minnesota Rules of Civil Procedure 68. 34 Interpleader is provided in federal courts via 28 U.S.C. 1335 or Fed. R. Civ. P. 22. State court interpleader rule see Minn. R. Civ. P. 22. Page 9

IV. Conclusion This article is, of course, not an exhaustive review of all remedies available when Medicare is an issue in settlement. Rather, it is meant to facilitate a discussion of ideas amongst the defense bar to assist our respective clients. All attorneys need to understand MSP s enforcement and new reporting rules to adequately protect our clients. The penalties under MSP are severe, for both failure to consider Medicare s interest in settlement and also for failure to timely report claims under Section 111. Defense counsel should be consulting with their clients regarding Section 111 reporting and notice provisions, and that if any claims are able to be settled there are realistic options when the injured party is a Medicare beneficiary. Certainly, in some instances, when the claimant is a Medicare beneficiary, there will not be a way to foreclose future medical cases, and in the context of liability cases, there may not be a way to settle at all. Defense attorneys and their clients need to discuss whether or not trying the case would be a better option than settling in certain instances. Defense attorneys, however, need to continue to think of new and inventive ways for their clients to effectively handle claims while avoiding Medicare penalty provisions. The workers compensation attorneys have a head start in MSP compliance. However, civil procedural rules not otherwise available in workers compensation matters will assist in a successful resolution of liability claims. Staying abreast of CMS s ongoing announcements is imperative for all legal practitioners. A complete understanding of the new Section 111 reporting and notice provisions will be required to assure that all necessary measures are taken to protect Medicare s interest as a part of competent representation through the settlement process. 1283573 Page 10