By ROY A. FRANCO, a principal of Franco Signor LLC, a liability Medicare secondary payer compliance group; and MARK NOONAN, managing principal and the senior knowledge manager for workers' compensation for the Casualty Practice within Integro Insurance Brokers
Congress passed the Medicare & Medicaid SCHIP Extension Act of 2007 (MMSEA) to require electronic reporting of workers' compensation, no-fault and liability claims to Medicare. Those claims that involve a settlement, judgment, award or other payment to a Medicare beneficiary claimant were to be reported starting January 1, 2011. Three years after the law took effect, the reporting deadline was recently changed for certain lines of business Data challenges to process information required the Centers for Medicare & Medicaid Services (CMS) to modify the timeline. A collective sigh of relief was felt by the industry, but yet at the same time a feeling of uncertainty loomed on the horizon. What now is compliance with the Medicare Secondary Payer Act?
The Medicare Secondary Payer Act (MSPA) is a game changer for anyone involved in the resolution of a claim with a Medicare beneficiary claimant. When the MSPA was amended by the MMSEA to include the new electronic reporting provision, the metamorphous of the law was complete and certainly caught the industry by surprise. Initial reaction by most focused on penalties surrounding the new reporting requirements, but it soon became evident to some that, with the volume of data to be sent to Medicare, other aspects of the MSPA would create contingent liability if not properly addressed.
Compliance therefore became more than being certain the data submission to Medicare was right. It became about being comprehensive enough to include making certain conditional payments owed Medicare be repaid and Medicare's interests protected.
There are three parts to complete MSPA compliance. Once the law is triggered, each piece must be independently analyzed, and if all aspects of it are not properly addressed, there is exposure to MSPA liability. A comprehensive approach is necessary to manage all of these elements.
Primary plans are insurance carriers and employers that self-insure for workers' compensation, liability and no-fault claims involving a Medicare beneficiary claimant. As a primary plan, they face three MSPA obligations: conditional payment reimbursement, reporting to Medicare and protecting Medicare's interests. It is easier to understand it as a past, present and future responsibility owed Medicare.
If Medicare pays, it does so on the expectation that it be reimbursed for those medical items and services related to the claim. Payments made by Medicare in these situations are called conditional payments. Responsibility to repay Medicare occurs 60 days after a final demand is made by Medicare. As the final demand from Medicare occurs subsequent to a settlement, award, judgment or other payment, a primary plan is exposed.
Under MSPA, the primary plan is responsible to pay Medicare, even if payment has already been made to the Medicare beneficiary. Compliance here requires a proactive approach with the Medicare beneficiary before the obligation to pay is incurred to avoid contingent exposure to Medicare.
Should the Medicare beneficiary not complete this obligation, Medicare will refer the conditional payment debt to the Department of Treasury for collection. At this point, the matter is now a debt under the Federal Claims Collection Act and the Treasury department is authorized to levy any funds in its possession to satisfy this debt. Anyone that has received payment from the primary plan, and the primary plan itself, are potential targets. However, because of its deep pockets, the primary plan is likely to be the choice for the government to pursue in its efforts to be made whole.
In the past, it was difficult for Medicare to identify the primary plan, but once Section 111 reporting is a reality, that roadblock will no longer exist.
Initial reaction to this potential problem by primary plans was to add Medicare as a payee on a settlement check or require Medicare beneficiary's counsel to personally indemnify the primary plan. These so-called solutions do not work. First, this process cannot be applied to awards and judgments, leaving an incomplete solution. Furthermore, adding Medicare as a payee only works if the Medicare beneficiary agrees to it. Primary plans cannot accomplish this unilaterally. Finally, requiring indemnification from a Medicare beneficiary's attorney presents ethical challenges in most jurisdictions.
The most logical approach to MSPA compliance for past obligations owed Medicare is for the primary plan and Medicare beneficiary to cooperate. Medicare will not present a demand until after a case is resolved. This aspect of the MSPA is a challenge, because Medicare does not compromise on its demand and has the authority to take the entire amount if the resolution is less than what it is owed. The parties can obtain an estimate from Medicare however. While not perfect, it is a better guideline than no information at all. Furthermore, once the approximate number is known, the parties can also agree on how it will be satisfied before the claim is resolved.
This aspect of MSPA compliance can be most confusing in light of the recent announcements by CMS. However, the general rule today is that, when a primary plan incurs an obligation to pay a Medicare beneficiary claimant, it also becomes responsible at the same time to report it to Medicare. The confusion exists because a primary plan is subject to two separate and distinct reporting obligations under the MSPA and MMSEA Section 111.
Under MSPA, the primary plan is charged with notification to Medicare (in writing) when it has made or should have made primary payment for services when it is "demonstrated" to be a primary payer. The term "demonstrated" is defined within the MSPA as "a judgment (or) a payment conditioned upon the recipient's compromise, waiver or release (whether or not there is a determination or admission of liability)."
In other words, if a primary plan intends to settle a claim, it must notify Medicare about it as soon as practical. This has been law for over 20 years, but no one has known about it, let alone complied with it.
Once Medicare is aware of a claim on its own or through other means, it will react. First it will deny payment of any pending claims on behalf of the beneficiary for a period of 120 days while it investigates if other insurance or self-insurance is responsible. Second, it will identify any payments it may have made related to the claim and demand reimbursement.
Compliance with this aspect of the MSPA requires reporting today. It does not have anything to do with Section 111 electronic reporting and is a legal obligation that has existed since 1989. There is no penalty for noncompliance, but Medicare has processes in place to become self-aware of the claim. When it does, the primary plan has long resolved the claim and may be the only entity with deep pockets to pay Medicare. To avoid this potential MSPA liability requires attention to Medicare obligations before a claim is resolved and not after.
When Section 111 reporting takes effect, certain primary plans will be required to report claims data to Medicare. These reporting primary plans are called Responsible Reporting Entities (RRE). Whether or not a primary plan is also an RRE depends on CMS guidelines.
In general, the insurance company is the RRE and its insured is not. The size of the deductible or whether the insured has control over claims administration is of no consequence in that determination.
CMS redefined the RRE around policies of insurance in an effort to limit the number of reporting entities. Originally, insureds were allowed to register as the RRE in situations where it paid its deductible directly to the Medicare beneficiary. This made sense, as CMS considered a deductible an equivalent to self-insurance. However, data processing challenges created by the unexpected large number of RREs being registered caused CMS to change to the present policy. Section 111 penalties apply only to RREs, but primary plans that are not RREs still have MSPA responsibility. That being said, it is important for primary plans to make certain Section 111 compliance is achieved.
A challenge for RREs compliance is the new reporting timelines issued by CMS. Workers' compensation, no-fault and other claims involving ongoing responsibility for medical will be reported, as scheduled, starting January 1, 2011. However, liability claims reporting will be delayed.
WORKERS' COMPENSATION AND NO-FAULT SECTION 111 REPORTING
There are two types of reporting--settlements, awards and judgments releasing medicals, or claims involving medical that are not pending resolution. The former has been defined by CMS as Total Payment Obligation to Claimants (TPOC), while the latter is defined as Ongoing Responsibility for Medical (ORM).
A TPOC situation is created when there is a settlement, award or judgment releasing medicals. If the obligation took place on or after October 1, 2010, the RRE is obligated to report that situation electronically to Medicare in the following quarter.
The ORM reporting situation is more of a challenge. The RRE is required to identify all open claims as of January 1, 2010, involving a Medicare beneficiary where it has responsibility for medical. Thereafter, any new or reopened claims must be analyzed for this responsibility and where appropriate identified for reporting. Finally, any open claim previously not identified as involving a Medicare beneficiary needs to be monitored ongoing for Medicare beneficiary status. If there is any change in status, that claim is also subject to reporting.
The collected information is then reported next year, and once every quarter thereafter.
No matter what the line of business, if the RRE assumes responsibility for medical expenses, then it must report that responsibility under Section 111. There is no data field for the "start date" as it is assumed to be the date of the accident. Medicare makes this presumption to increase its reimbursement claim. During the period that the RRE assumes ORM, Medicare will not pay for medical items and services related to the claim, and if it did or does, it will want to be paid back. Medicare will only reassume responsibility as a primary payer when the RRE reports that its ORM has ended and includes a date.
ORM reporting will result in compliance challenges for workers' compensation primary plans. Typically, workers' compensation primary plans do not involve Medicare unless there is a potential that a claim be resolved. In those situations, the claims professionals usually deal with Medicare on a prospective basis to protect Medicare's interest with regard to future medical. However, ORM reported data will now identify conditional payments. Moreover, it will be on those claims that are not being resolved. The primary plan will need to adjust its process to handle Medicare issues on workers' compensation claims that remain pending.
Conditional Payment Notices must be responded to within 30 days. The RRE has no right of appeal, but should be able to contest relatedness, if it acts quickly. If not, this will be a huge cost driver for the worker's compensation line of business that may be saddled with payments that may not be covered under the state compensation system. The workers' compensation primary plan will need to be prepared for it. Workers' compensation examiners will need to be familiar with these new notices as the notices will need to be responded to within the allotted time or it will be assigned to the U.S. Department of Treasury for collections.
CONSEQUENCES AND THE RECOMMENDED PROCESS
Compliance of this future obligation owed Medicare is clearer for the workers' compensation claim. The Workers' Compensation Medicare Set-aside Arrangement (WCMSA) is the accepted method by the industry. Although it is a "recommended" process, there is a threat that a settlement could be invalidated unless previously approved by CMS. Thus, the WCMSA is an accepted method to avoid contingent liability.
The recommended rules for the workers' compensation claim can be found at the CMS website. These guidelines recommend a WCMSA be reviewed by CMS in two situations. If the settlement is for $25,000 or more and involves a Medicare beneficiary, then the WCMSA must be reviewed and approved by CMS. Where the settlement does not involve a Medicare beneficiary but the claimant is expected to be a Medicare beneficiary within 30 months of the settlement, then those matters involving $250,000 or more must be reviewed and approved by CMS. For these situations, the primary plan is relieved of contingent liability for this future obligation.
For all other workers' compensation settlements, compliance is unclear. The guidelines issued by CMS for approval were designed based on budget and workload restrictions for CMS staff. Still, these limitations are not a safe harbor for the workers' compensation primary plan. Medicare has the authority to invalidate any settlement where the future obligation is not properly resolved at the time of settlement.
Compliance with the MSPA will not be easy. It is a law that is 30 years in the making and presents to the primary plan contingent liability over past, present and future obligations owed Medicare.
Although specifics of compliance are not clear, the primary plan can reduce its exposure if it understands how the obligations work.
The obligation that has most occupied the industry's attention is preparation for reporting information about claims to Medicare. Recent changes by CMS on primary plan's reporting responsibilities has presented some relief, but at the same time, what will occur around workers' compensation and no-fault claim information reporting remains uncertain.
Nonetheless, it has caused the industry to work on improving its MSPA awareness, and as with anything new, it will take a period of time for the process to settle down. To avoid contingent liability, the primary plan must cooperate with all sides involved in the claim. Short of this, not many options exist, as the MSPA is designed to make Medicare whole. The act creates the authority for Medicare to seek reimbursement from anyone connected with the claim. As a consequence of the primary plan's deep pockets, the plan is probably the most desirable target. The MSPA is justifiable in that the primary plan, after it has reimbursed Medicare, has the right to seek recovery from the Medicare beneficiary or any other entity that it has previously paid money to connected with the loss.
All aspects of the MSPA must be considered--past, present and future obligations that are owed Medicare. Compliance is complete when each are satisfied. The obligation is owed, and the primary plan cannot effectively transfer its MSPA risk by terms of the release agreement. Finality is only achieved if the obligations are managed before the resolution of the claim. Anything short of early intervention and cooperation increases the risk that contingent liability could turn into a reimbursement claim 60 days after the Medicare final demand is issued.
MSPA is a new reality for primary plans. Although it has existed for more than 30 years, only recent reporting amendments have caught the attention of the industry. Now that the primary plans will present data to Medicare, it is important that the information not be used to create additional liability beyond the claims settlement. Primary plans should review their MSPA compliance protocols to effectively manage the processes.
January 1, 2011
Copyright 2011© LRP Publications