November 22, 2012
Don't Get Washed Away By The Medicare Set-Aside
One scenario is that when CMS/Medicare learns (and they will) it has been paying for work comp-related medical care, it will seek repayment from the claimant. The claimant, having spent the work comp settlement, will be unable to pay. Ultimately, it will be the employer and/or insurance carrier that will be held accountable.
A storm has been brewing since requirements for set asides were established in order to protect Medicare from future medical expenses from work comp and general liability claims. With the mandatory requirement that all work comp and general liability claims be reported in electronic format, CMS has the mechanism to look back and identify if they have ever made any work comp-related medical payments. Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 adds new mandatory reporting requirements for group health plan (GHP) arrangements and for Liability Insurance (including Self-Insurance), No-Fault Insurance, and Workers' Compensation. Failure to comply will subject any company to a fine of $1,000 per day and “double damages.”
While this practice has been required for many years in workers' compensation, the new mandatory reporting application to civil matters has dramatic implications. It should be noted that Medicare's status as a secondary payer under 42 U.S.C. § 1395y (b) creates the right to reimbursement, which has the potential to simultaneously impede settlement and impose a possible risk of future liability against all parties.
In the 1980s, Congress amended the Social Security Act to include the Medicare Secondary Payer Act (“MSP”), which effectively enacted Medicare liens. In 2003, the Government clarified its position that self-insured entities were also included in the Medicare Secondary Payer Act in passing the Medicare Act of 2003. The 2003 revisions altered the Medicare Secondary Payer Act to expressly include self-insured entities as “responsible” parties obligated to reimburse Medicare.
Prior to the Act, Medicare did not have an efficient mechanism to identify or evaluate instances where Medicare's liability should have been secondary to the “responsible” party (or it's insurance carrier), and could only recoup payment from insurance plans to the extent that payment had been made or could “reasonably be expected to be made promptly.”
The 2003 amendments to the MMA, found in Title III, were specifically enacted to overturn court decisions that limited the effectiveness of the Medicare Secondary Payer Act private cause of action. The amendments made it easier for injured Medicare recipients to bring these private actions on Medicare's behalf against an expanded class of entities and individuals with insurance, and they clarified when such entities and individuals must pay the Medicare beneficiary's medical expenses. The Amendments state:
All businesses, trades, and professions are deemed to have insurance, regardless of whether they carry their own risk. Any judgment or payment — including a settlement — conditioned on the recipient's compromise, waiver, or release of claims against the person or entity that commits the wrongful act (whether or not there is a determination or admission of liability) demonstrates a plan's responsibility to reimburse Medicare.
This legislation thereby expanded the possible defendants for the private cause of action to include any person or entity (including a business, trade, or profession without insurance), the entity's insurance company, and the plaintiff's self-insured employer or the third-party administrator. With these amendments it is now crystal clear that Medicare's right of reimbursement applies to almost all settlements in which Medicare payments have been made on a plaintiff's behalf. In addition, Congress applied the amendments retroactively to the original passage of the act in 1980. Court decisions since the 2003 amendments were enacted have consistently allowed the private cause of action to proceed against insurers and similar entities, including employers, who are deemed responsible for injuries. Therefore, responsible parties need to be made aware of the double exposure and how both the 2003 amendments to the Medicare Secondary Payer Act statute and the subsequent court cases expand the class of entities with direct exposure to damages.
The latest update took place very recently. On October 1, 2012, the Supreme Court declined review of a lower court's Medicare Secondary Payer decision. The important facts decided in this case (Hadden vs United States) is the fact the Supreme Court of the United States declined review of a 6th Circuit decision that upheld the government's authority under the Medicare Secondary Payer law to recover all expenses paid on behalf of a Medicare beneficiary when that beneficiary, in turn, recovers from a third party. The ruling helped define “Responsibility” under 42 U.S.C. 1395y (b)(2)(B)(ii), as that term was clarified under the 2003 amendment to the Medicare Secondary Payer Act. In this respect, the court essentially ruled that when there is a settlement, the primary plan demonstrates “responsibility” as defined under the Medicare Secondary Payer Act statute, thereby entitling Medicare to a full recovery of its claimed conditional payment amount — even if the settlement is for a compromised or reduced amount.
How will this affect employers?
One scenario is that when CMS/Medicare learns (and they will) it has been paying for work comp-related medical care, it will seek repayment from the claimant. The claimant, having spent the work comp settlement, will be unable to pay. Ultimately, it will be the employer and/or insurance carrier that will be held accountable. And should CMS have to pursue the employer in court, the amount is doubled. Unbelievably, the insured or employer could pay the future medical cost twice — once to the claimant at settlement and later when Medicare seeks reimbursement of the medical care they paid on behalf of the claimant. Legal attempts to put language in settlement agreements that the claimant agrees to be responsible for the cost of all future medical care has or will likely meet with failure because federal law will trump settlement agreements every time. Claimants, employers, and insurers are still bound by the requirements of the MSA statutes. Another scenario allows for a private cause of action to proceed against insurers and similar entities, in which there is still a potential for double costs.
Going forward, claims adjusters should have systems in place to verify compliance with the MSA requirements of CMS. However, problems may arise when you look backwards; there is no statute of limitations on compliance with the MSA requirements. CMS can review claims that were closed last year, five years ago or more for that matter to check for compliance. If CMS finds medical payments are owed, then you have 10 days to pay to avoid penalties and interest. One potential solution is baseline testing that can establish if there is an injury and if it is related to or aggravated by the date of loss.