Trimming the Fat: The Practical Side of the Medicare Secondary Payor Statute
By Matt Stone and C. Whitfield Caughman


Three years after its enactment, a layer of confusion still exists around the Medicare, Medicaid, and SCHIP Extension Act’s new reporting requirements for liability and self-insurers. Many have taken the Act’s straightforward mandate and driven themselves mad trying to anticipate all of the implied practical requirements of compliance. Part of the puzzlement may stem from the fact that the Act has not been fully implemented. The effective date for the reporting requirements recently moved to January 1, 2012 for liability and self-insurers without an ongoing responsibility to pay the injured party’s medical bills. In the meantime, litigants, insurance professionals, and lawyers must trim the layers of misconception to get to the meat of the matter.

The new requirements flow from existing problems with Medicare. Generally, Medicare is a federally-funded program designed to provide health insurance to elderly and disabled Americans. The problem is that Medicare is extremely expensive. In 2009, the program covered 46.3 million people to the tune of $502 billion in benefits. Like Social Security, taxpayers contribute to Medicare throughout their working lives. As a result, Congress takes the position that Medicare should only be used as a backup plan. Any alternate source of benefits is deemed the primary source. It naturally follows that a Medicare-eligible plaintiff who receives compensation from a tortfeasor or insurer should not be entitled to Medicare benefits for related services.

Lawmakers have long attempted to prevent double recovery at the taxpayers’ expense. Thirty years ago, Congress enacted the Medicare Secondary Payor Statute (MSPS) section of the Social Security Act to force plaintiffs to treat Medicare as a true backup “secondary payor.” Since then, it has created both a right of reimbursement and a cause of action for the Center for Medicare and Medicaid Services (CMS) to recover payments that should have been provided by an alternative source of benefits as the “primary payor.” In fact, CMS may proceed against an insurer or attorney directly. This power includes the right to recover double damages, plus interest.

Under this system, information regarding a primary payor is a valuable commodity. Congress took the simple step of amending the MSPS to require liability insurers and self-insurers (Responsible Reporting Entities or RREs) to submit certain information to identify a plaintiff or claimant. This submission occurs when a claim by a Medicare beneficiary is resolved by settlement, judgment, award, or “other payment”– regardless of a determination or admission of liability. Time is money under this new statute. An RRE faces a penalty of $1,000 per recipient for each day the RRE fails to notify Medicare. These simple provisions seek to ensure that CMS can coordinate benefits and prevent a beneficiary’s over-indulgence.

The actual requirements are very “meat and potatoes.” However, anticipated practical problems have kept some guessing at the Act’s hidden flavors. In response, CMS has sought to facilitate the flow of information in both directions. Specifically, it created a query option that allows RREs to learn whether a plaintiff is Medicare-eligible. Therefore, discovery requests must divulge basic identifiers regarding the plaintiff, including a Social Security number, up front to even initiate the query. An insurer may also want to negotiate a settlement in which it includes Medicare on the settlement check. It may even consider setting aside a portion of the settlement proceeds for future medical treatment, formally through an annuity or informally by designating it as such in the Release. In fact, Medicare Set-Asides (MSAs) have become commonplace in the resolution of Workers’ Compensation claims. While not expressly required, these precautions may become proper etiquette. They are the basic utensils to ensure that the new provisions go down smoothly and that one avoids the unsavory consequences of noncompliance.

For more information, contact Mr. Stone at [email protected] or Ms. Caughman at [email protected].



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