Impact of Medicare Secondary Payer Law on Employment and Other Claims

February 4, 2010

New requirements under the federal Medicare Secondary Payer law could create new reporting obligations and compliance risks for employers.

  • Where claims against an employer by a Medicare-eligible employee involve any compensation for medical treatment or assumption of ongoing responsibility for medical payments, the new reporting obligations may be triggered.
  • Where the employer is fully insured against loss for the claim, the reporting obligations and compliance risks may rest with the insurance plan itself.
  • Where the employer is self-insured or where the employer settles or pays the claim out-of-pocket, the reporting obligations and compliance risks may rest with the employer.

What Is the Genesis of These New Requirements?

Medicare is a federal program that provides healthcare benefits to certain U.S. citizens. Beneficiaries include those age 65 and over, those under age 65 with certain disabilities, and anyone with end stage renal disease. As everyone knows, Medicare (overseen by the Centers for Medicare and Medicaid Services (CMS)) has become an extremely costly program, and the government is looking high and low for ways to cut its costs. That effort may now have an impact on how companies are expected to handle certain employment discrimination claims.

Many Medicare beneficiaries have health insurance through private plans other than their Medicare benefits. Since 1980, Medicare has been entitled to reimbursement of monies it has paid on behalf of beneficiaries whenever any other payer is obligated to bear the costs of those medical expenses. This principle is codified in the Medicare Secondary Payer (MSP) law, 42 U.S.C. § 1395y(b)(2)(A). Under the MSP law, Medicare’s obligation to pay for healthcare services is secondary to that of certain primary payors such as group health plans, liability insurance plans (a broad term that includes self-insurance, even for deductibles), and state workers’ compensation plans (referred to as “primary plans”).

As a secondary payer, the federal government has broad recovery rights and can sue a primary plan to recover any “conditional payments” to providers of healthcare items and services made by Medicare on behalf of the primary plan. 42 U.S.C. § 1395(b)(2)(B)(i). If the government is successful in such a suit, it can recover double damages from the primary plan (i.e., two times the amount of the conditional payments).

Until recently, the MSP law was largely overlooked by many primary plans. With enactment of Section 111 of the Medicare, Medicaid and SCHIP (State Children’s Health Insurance Program) Enforcement Act of 2007 (MMSEA), 42 U.S.C. § 1395y(b)(8), that is changing.

  • MMSEA Section 111 requires primary plans to report to Medicare any loss payment that is made to a Medicare beneficiary that “does” or “could” include any compensation for medical treatment and every assumption of ongoing responsibility for medical payments.
  • A failure to report as required places the primary plan at risk for imposition of fines of $1,000 per day per incident.
  • By requiring reporting of such obligations, CMS hopes to administer and enforce the MSP law more effectively through recovery of conditional payments by Medicare and by prevention of payment by Medicare when a primary plan has responsibility.

Who Is Affected by MMSEA?

Primary plans include group health plans, liability insurance plans (fully and partially self-insured), no-fault insurance plans, and state workers’ compensation plans. Companies regularly sued for personal injury and wrongful death are often relatively well-informed about the MSP law and MMSEA Section 111 reporting requirements. Companies that seldom face such claims, however, may not be. So long as a claim by a Medicare-eligible plaintiff “does” or “could” include any compensation for medical treatment or assumption of ongoing responsibility for medical payments, the MSP law and MMSEA Section 111 reporting requirements apply, regardless of what type of claim may have been brought.

In that subset of labor and employment claims in which personal injury and related medical expense are alleged, the MSP law and MMSEA Section 111 reporting requirements could apply, even if in the settlement documents the defendant expressly denies liability, and even if the plaintiff or the court subsequently states there are no medical damages. Such claims may include suits for discrimination, harassment, intentional infliction of emotional distress, assault, battery, and other common actions where the plaintiff asserts he or she has suffered physical or emotional injuries arising out of defendants’ behavior.

What Does MMSEA Require?

MMSEA requires primary plans to report to CMS any loss payment that is made to a Medicare beneficiary that “does” or “could” include any compensation for medical treatment and every assumption of ongoing responsibility for medical payments, whether in the form of a settlement, judgment, or award.

The primary plan is the entity responsible for reporting under MMSEA Section 111 (referred to as a “Responsible Reporting Entity” or RRE). To report, RREs must first register online with the Medicare Coordination of Benefits Contractor (COBC).

  • The deadline to register was Sept. 30, 2009, but registration is still permitted, and indeed required, for RREs that missed the deadline.
  • A foreign entity with no U.S. tax identification number must register by Apr. 1, 2010.
  • Each RRE must name an “authorized representative” to assume responsibility for reporting.
  • A company that wishes to hire an agent to handle reporting chores is at liberty to do so, but is still liable for any failure to report.
  • In the first quarter of 2010, RREs are expected to test-file data.
  • The first “live” claim input files will be required in the second quarter of 2010.

In most instances, where the employer with liability insurance is fully insured and the claim judgment, award or settlement amount is paid entirely by the insurer, the insurance plan — not the employer — is the primary plan and will be the RRE. However:

  1. Where the employer is self-insured, either fully or partially, and pays the judgment, award or settlement amount, it may be regarded as the primary plan and will be the RRE.
  2. Payment of deductibles under liability insurance plans (except where the insurer pays on the covered entity’s behalf), or payment of claims out-of-pocket by an employer, may be deemed to be liability insurance, such that the employer would be regarded as the primary plan and will be the RRE.

It is important to understand that the definitions and terms used by CMS in implementing MMSEA Section 111 differ from common usage in the insurance industry. Accordingly, current CMS guidance should be carefully reviewed in determining whether a reporting obligation exists, and if so, who the RRE is.

What Must Be Reported?

On and after Jan. 1, 2010, RREs must report the identity of Medicare beneficiaries and substantial information related to settlements, judgments, awards or other payments that defray all or part of the cost of healthcare as a one-time “Total Payment Obligation to Claimant” or “TPOC”. Since July 1, 2009, RREs have been required to report the identity of Medicare beneficiaries for whom they have ongoing responsibility for medical payments (“Ongoing Responsibility for Medicals” or ORM), regardless of initial date of acceptance of payment responsibility.

This reporting obligation is retroactive. Thus, although actual reporting will not begin until the second quarter of 2010, RREs are required to identify any TPOCs or ORMs in existence as of the effective dates above. More than 100 fields of information need to be uploaded to CMS for each reported claim.

What Should Employers Do Now?

  • Primary plans that are or can anticipate becoming RREs should register now, train their personnel, and begin testing their reporting mechanisms.
  • Even if your company does not anticipate becoming an RRE, it should keep the new MMSEA Section 111 requirements in mind in the event a potential claim arises that may involve medical expenses.
  • In all pending claims where medical damages are alleged, a defendant company should discover the claimant’s SSN, Medicare eligibility, and Health Insurance Claim Number (HICN) and seek releases from claimants to procure benefit and claims payment information from Medicare. Defendant companies should also update that discovery from time to time, because a claimant ineligible for Medicare at the outset may become eligible before the case is resolved.
  • Companies should also develop practices for identifying any conditional payments that may have already been made by Medicare for a claimant and what steps are necessary to protect Medicare’s interests in recovery.
  • Lastly, companies should understand that the rules create no safe harbor for good faith incorrect determinations about whether a claim is reportable. If, in reliance on faulty information, an RRE fails to report, the company is liable – even if the information is derived from the sworn testimony of the plaintiff, and even if it comes from erroneous information from CMS itself.

Should you have any questions about the new Medicare Secondary Payer reporting requirements, please contact any member of McGuireWoods’ MMSEA Section 111 team (see authors) or a member of McGuireWoods’ Labor & Employment Group for assistance.