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Workers' Compensation

Medicare Secondary Payer: The Shape of Things to Come

 By Jennifer C. Jordan, Esq., General Counsel, MEDVAL, LLC

2013 is shaping up to be a big year for MSP change. The question is whether that change will be good or bad. Last summer we were hopeful the new WCRC contractor would bring about positive change on the WCMSA front, but after several months, have found more of the same subjective and irrational determinations we endured with the old contractor but without the familiarity and predictability. So with new law to implement and additional personnel and contractor changes anticipated at CMS this year, the uncertainty of what this year holds in store for us is greatly compounded. Guess we can only wait and see. Meanwhile, here is what you have been missing since we went to press for the 2012 edition of The Complete Guide to Medicare Secondary Payer Compliance (LexisNexis).

IMPORTANT NOTE TO CALIFORNIA WORKERS' COMPENSATION JUDGES: All California workers’ compensation judges have access to the online version of The Complete Guide to Medicare Secondary Payer Compliance, which includes Robert Rassp’s legal analysis of California WCMSAs. Click here for access. (Be sure you're logged onto your account.)

1. Public Law No: 112-242 – The Medicare IVIG Access and Strengthening Medicare and Repaying Taxpayers Act of 2012

a. Background

H.R. 1063, the Strengthening Medicare and Repaying Taxpayers (SMART) Act, had gained a significant amount of bipartisan support in both the House and Senate; however, with the election pending, the outlook seemed bleak that it would be passed by the 112th Congress. Well, on September 13, 2012, the Energy and Commerce Subcommittee on Health met in an open markup session and made certain adjustments to the bill to implement more automated functions to the conditional payment recovery process. The committee met again on September 20, 2012, and again made minor adjustments to the bill, then favorably forwarded it to the full committee and sent it back to the CBO for scoring. There was no further indication of progress until on December 19, 2012, a lesser version of the SMART Act emerged as Title II of the Medicare IVIG Access Act [H.R. 1845]. H.R. 1845 proposed a $45 million dollar demonstration project to study providing Medicare coverage for in-home administration of intravenous immune globulin (IVIG) to patients suffering from primary immune deficiency disease. Despite the sympathetic appeal of helping the bubble boy, H.R. 1845 needed to be off-set by a bill such as the SMART Act, which proposed to coincidentally save Medicare $45 million dollars over ten years, and the match was made. The new combined bill was nearly unanimously passed by the House on December 20, 2012, and passed by the Senate on December 21, 2012. On January 10, 2013, President Barack Obama signed the legislation, making it Public Law No. 112-242.

The benefits of the SMART Act were always limited to only certain conditional payment and mandatory insurer reporting issues. The new law contains no provisions addressing future medical obligations, meaning that uncertainties regarding Medicare Set-Asides remain unresolved. Unlike earlier versions of the bill, the version as passed does not require that the government walk away from legitimate debt quite as easily for lack of responsiveness, providing only for default acceptance of conditional payment challenges if the government fails to timely respond. Given that the major complaint with the CMS recovery process was the timeliness of the agency’s responses, causing the agency to waive debt for not being able to respond faster without providing it any additional funding to improve its operation seems unrealistic. Lastly, other provisions were far less aggressive than originally proposed, which perhaps helped facilitate the passage of the bill—that and, of course, tying it to a sympathetic cause such as primary immune deficiency disease. A quick summary of the provisions of the new law is set forth below. [For detailed analysis and commentary on the SMART Act, see Jennifer C. Jordan on Strengthening Medicare and Repaying Taxpayers Act (SMART Act), 2013 Emerging Issues 6924 (LexisNexis) (additional fees may apply to subscribers). All others can purchase the article online at the LexisNexis Store.]

b. Conditional Payment Reimbursement Determinations

i. Overview

Beginning no later than October 2013, CMS will have to implement new procedures to expedite and ease the burden of conditional payment reimbursements. Due to the technicality that MSP obligations in liability settlements do not rise by operation of law until a settlement, judgment, award or other payment, CMS would not make a reimbursement demand until after that event had occurred, leaving much uncertainty with the settling parties. Then, once that event did occur, it could still take several months to resolve the matter. The new law provides a means to take advantage of new technology to remedy many of the problems encountered in the past.

ii. Notification

Beginning 120 days prior to the reasonably expected date of settlement, judgment, award or other payment, a claimant or applicable plan may notify the Secretary that a payment is reasonably expected and of the expected date of that payment. Said notification is not mandatory; however, notification will be necessary to trigger the protected period to participate in the electronic conditional payment reimbursement determinations made available through this new legislation.

iii. Web Portal

The Medicare Secondary Payer Recovery Portal (MSPRP), which was made available for public use in July 2012, is now mandated by law. Section 201(II) tasks the Secretary to maintain and make available to the public the website (or any successor technology). All information about claims and payments must be input by Medicare no later than 15 days after payment is made, be as complete as possible, and accurately identify that payments are related to the insurance claim. The system must provide for secure electronic communications, include an official time and date stamp, and permit a statement download of reimbursement amounts. For more information about how to register and use the MSPRP, please visit:

iv. Determining Final Conditional Payment Amount

The last statement of reimbursement amount downloaded from the MSPRP during the protected period and within three days before settlement, judgment, award or other payment shall serve as the final conditional payment recovery amount. Parties no longer need to reach out to the MSPRC months prior to settlement, so long as they are willing to make payment. Waiver and compromise requests will likely still require considerable lead-time as the new law applies only to determinations made via the website.

v. Disputing Information Obtained From the Website

If there are items identified in the conditional payment recovery amount that do not appear to be related to the proposed insurance settlement, the beneficiary or representative must provide documentation to CMS explaining the discrepancy and propose how to resolve the same. Within 11 business days of receipt of this documentation, CMS shall determine if there is a reasonable basis to include or remove the items. If no such determination is made in 11 days, it shall be accepted as proposed. If the proposal is rejected, CMS must respond in a timely manner with documentation as to why it does not agree and establish an alternative discrepancy resolution. This is not to be treated as an appeal; the law does not establish a right to appeal the Secretary’s determinations made under this process.

vi. Creation of an Appeal for NGHPs

The Secretary is tasked with promulgating regulations establishing a right of appeal and an appeal process for NGHPs. No timeline for the Federal Register process was outlined as it was for rules regarding reporting fines in Section 203. However, the regulations to carry out the entire clause must be promulgated no later than October 10, 2013. Prior to the passage of this law, insurance carriers and other RREs did not have a right to appeal such issues directly to CMS despite carrying payment responsibility.

c. MSP Reimbursement Exemptions

In June 2011, the Energy and Commerce Subcommittee on Health conducted a hearing in which many of the costly inefficiencies of the CMS MSP recovery program were called into question. These were situations in which the postage to send demand letters exceeded the recovery. In September 2011, CMS voluntary instituted a threshold below which the agency would waive MSP reimbursement obligations. In the interest of “fiscal efficiency and revenue neutrality,” Section 202 of the new law statutorily mandates that exception starting in 2014, also providing rules for how the threshold amount must be determined annually.

The new law provides that claims constituting a total payment obligation to a claimant (TPOC) of less than the determined annual threshold shall be exempted from reimbursement obligations stemming from settlement, judgment, awards or other payments for obligations arising out of liability insurance (including self-insurance) and for alleged physical based trauma, excluding ingestion, implantation and exposure. The annual threshold shall equal the estimated cost of collection incurred by the federal government and be calculated by CMS annually no later than November 15th of each year. The amount shall be reviewed by the Comptroller General of the United States and reported to Congress no later than November 15th each year. For purposes of this calculation, only costs associated with medical payments already made are considered and not costs associated with ongoing responsibility for medical expenses (ORM).

d. Mandatory Insurer Reporting (MIR) Fines

Since the passage of the Medicare, Medicare and SCHIP Extension Act of 2007 (MMSEA), insurers have lived in fear of the mandatory daily statutory penalty expressly provided for reporting noncompliance. The statute tasked the Secretary to implement the requirement by program instruction or otherwise, but the quarterly electronic reporting program that resulted did not take into consideration the daily penalty creating extreme fines regardless of intent. Section 203 of the new law makes the fine much less onerous and mandates that CMS finally create official rules no later than October 2013.

The statute calls for the wording of 42 U.S.C.S. § 1395y(b)(8) to be amended to strike the phrase beginning “shall be subject…” and replacing it with “may be subject to a civil money penalty of up to $1,000 for each day of noncompliance with respect to each claimant.” The legislation also requires that CMS begin the regulatory process to establish official rules by soliciting proposals through the Federal Register within 60 days of enactment. Proposals shall be accepted for 60 days, considered by CMS, then published in the Federal Register for a 60-day comment period. Upon final consideration of the public comments, the Secretary shall issue final rules for penalties associated with MIR violations.

e. Social Security Numbers

As stated above, the Secretary was tasked in the MMSEA with the creation of the reporting program mandated by the statute; therefore, there is no statutory support for certain elements of the program created. One source of turmoil for insurers has been the use of social security numbers in reporting and querying. While in workers’ compensation claims, employers always have access to the social security number for tax purposes, liability insurers are not afforded that luxury, particularly because personal injury settlements are not taxable. While Medicare actively tells its beneficiaries to protect their personal information, when it comes to reporting, Medicare expects insurers to be able to obtain voluntary disclosures from those same people told not to disclose. In light of the penalty, insurers have been demanding an alternative. What they received is a promise for CMS to try to come up with something different.

The Secretary has 18 months to propose an alternative method to the use of social security numbers for purposes of mandatory insurer reporting. This period may be extended by one or more periods of up to a year if the Secretary notifies Congress that absent such an extension that patient privacy or integrity of the MSP program is threatened. Until such a time as a viable alternative is established, RREs shall continue to use social security or health insurance claim numbers (HICNs) in their quarterly reporting.

f. Statute of Limitations

The exposure for MSP debt has remained a great mystery for some time. While the MSP has always provided the United States with the right to pursue recovery for certain claims for three years from the date of service, courts have routinely utilized the statute of limitations from other federal debt collection laws, such as the Federal Claims Collection Act and the Federal False Claims Act. In the most recent case, U.S. v. Stricker, the FCCA was used; however, the judge in that case stated that the analysis was based upon it only because both parties stipulated to its use, not necessarily whether it was appropriate or not.

Beginning July 2013, for private causes of action made by the United States for recovery of non-group health plan (NGHP) debt filed pursuant to 42 U.S.C.S. § 1395y(b)(2)(B)(iii) only, a complaint must be filed no later than three years after reported to the Secretary by the RRE pursuant to NGHP MIR obligations. It is unclear which statute of limitations will apply to private causes of action brought under 42 U.S.C.S. § 1395y(b)(3) or for claims reported by group health plans pursuant to paragraph (7). It is assumed that all other potential causes of action by the United States for federal debt recovery are still governed by their respective statute of limitations.

2. Cert Denied in Hadden

On October 1, 2012, the Supreme Court denied the writ of certiorari petition in Hadden v. United States. You may recall that the case involved an insurance settlement of $110,000, from which Medicare refused to compromise any part of its nearly $70,000 reimbursement demand. Both the district and appellate court ruled in favor of the government, which Hadden argued was in conflict with the Eleventh Circuit decision in Bradley v. Sebelius, as well as in violation of public policy supporting the concept of settlement. With this, Medicare’s right to full priority reimbursement stands, and the battle continues for equitable apportionment in insurance situations with less than full value of the damages available.

There is much speculation as to why the high court found the MSP issue unworthy of its attention, particularly since it did agree to hear essentially the same issue as exists under the ERISA laws in McCutchen v. US Airways. Unlike the six circuits in conflict in McCutchen, there are exactly two appellate opinions in conflict on this MSP issue and even those cases can be distinguished from one another. Bradley involved a state probate court’s distribution of a wrongful death settlement among the estate, surviving children and Medicare. While the Eleventh Circuit Court of Appeals provided extensive dicta in support of why the probate court distribution was the equitable outcome, the fact was that the court made its ruling based upon its determination that the probate court had jurisdiction under Florida law to decide how to divide the settlement proceeds. Hadden, on the other hand, was a judicial review of the outcome of the Medicare appeal process challenging the denial of a waiver request to reduce the reimbursement demand. The court involved there upheld Medicare’s right to the reimbursement it demanded. While both cases had to do with Medicare reducing its recovery, the basis for the two was completely different and therefore the rulings were not technically in conflict with one another.

Now the outcome in McCutchen is still worth watching for, even though it will not impact MSP reimbursements. The primary question there is whether the ERISA plan has a right to full reimbursement regardless of the amount of the third party recovery. It will be interesting to see what the Supreme Court has to say about the distribution. However, during oral arguments before the Supreme Court on November 27, 2012, the focus seemed to be on the distinction between reimbursement and subrogation rights and the implications of how equity plays in each. Reimbursement implies that the plan simply made payments on the promise of repayment, meaning that equity is not in play. Subrogation means that the plan has the right to stand in the shoes of the beneficiary and endure its own associated costs. Under the MSP, Medicare incidentally possesses both rights so that outcome would be irrelevant. And unlike ERISA, the MSP reduces Medicare’s recovery by procurement costs, while attorney’s fees are at the heart of McCutchen’s unjust enrichment arguments. But with this decision, that will mean that the Supreme Court will have decided the apportionment issue for Medicaid, ERISA and veterans’ benefits. Medicare must be next.

3. WCMSA Backlog Cleared

The most positive thing to report from the end of 2012 is that the WCRC backlog was finally cleared. Cases dating back to October 2011 through the assumption of the WCRC contract by Provider Resources, Inc. during the summer of 2012, estimated to have consisted of between eight and ten thousand cases, were all magically processed in December 2012. While it is assumed that a rubber-stamp was involved, all MSA vendors reported that a small number of cases were countered with alternative approved amounts. Because none of those cases were returned with the usual explanation to support the counter proposal and the rational for the new numbers are not evident, the rubber stamp still seems the most plausible answer. Regardless of how it happened, the cases were approved and whatever settlements remained were able to finally move on.

4. Changes at CMS

a. Background

To begin, there has been a major change in department leadership. Frank Johnson is no longer handling MSP issues at the CMS home office. There has been no word as to a direct placement or intent to hire into that position. Frank is noted as the person to call with questions at the bottom of most of the WCMSA memos so his presence will be missed. Additionally, we will say goodbye to long time Coordination of Benefits Contractor (COBC), Group Health, Inc. (GHI). GHI has served as the COBC since 1999. In 2011, when CMS elected to allow the Chickasaw Nation Industries’ Medicare Secondary Payer Recovery Contractor (MSPRC) contract to expire without renewal, GHI seamlessly stepped in and performed both functions while CMS prepared to combine the functions of the COBC and the MSPRC into a new Coordination of Benefits & Recovery (COB&R) matrix program and put new contracts out to bid. GHI clearly bid on the new contract given that it protested the award, but was unsuccessful. So as of February 2013, we can expect all new people on the other end of our MSP calls. The following are short summaries of the new contract awards:

b. Medicare Secondary Payer Integration Contractor (MSPIC)    

Awarded to StrategicHealthSolutions, LLC on April 17, 2012 via GSA competitive-small business set-aside, the MSPIC is responsible for ensuring that all components supporting the COB&R contract function are in concert. Responsibilities include project management oversight, business analysis, program document management, quality assurance oversight, outreach and education and security oversight. Subcontractor Neil Hoosier and Associates is disclosed as a participant and possesses extensive MSP experience through prior work with COB, QICs, MSPRC, Section 111 reporting and various data matching projects.

c. Medicare Secondary Payer Business Program Operations Center (BPOC)

Awarded to Integriguard, LLC, d/b/a HMS Federal on September 28, 2012, the BPOC contract is for one year with four renewals, worth a total of almost $300 million over five years. A bid protest was filed with the GAO on October 17, 2012 by GHI; however, it was subsequently dismissed by the GAO on November 13, 2012. It is assumed that the BPOC will assume its duties upon the expiration of GHI’s contract in February 2013.

The BPOC is expected to perform functions such as: call center operations; mail room/imaging operations; MSP assessment and debt determination; waivers and appeals; finance administration; outreach and education activities; debt collections; data collection activities (i.e., IEQ, Data Match, COBA, Section 111, etc.); electronic data interchange (EDI) support; and special projects.

d. Medicare Secondary Payer Systems Contractor (MSPSC)

In September 2007, CMS awarded Hewlett Packard the CMS Enterprise System Development (ESD) contract. The ESD is a multiple-award indefinite delivery/indefinite quantity (IDIQ) performance-based contract worth up to $4 billion that supports CMS’ integrated IT investment and system life cycle framework, a systematic and uniform methodology and approach for information systems development, and the CMS Information Technology (IT) Modernization Program and initiatives through September 2017 []. On June 12, 2012, CMS awarded a task order for MSP related systems maintenance and development through this existing IDIQ contract.

On October 19, 2012, General Dynamics IT reported that it had been awarded a task order under the CMS EDS contract worth nearly $100 million over five years, if all options are exercised. General Dynamics will provide a variety of information technology services for the MSP program, including hosting, software development and production operations. They will also maintain, enhance and consolidate more than 20 existing applications utilized within the MSP program.

e. MSP Recovery Audit Contractor (RAC)

Although awarded on June 20, 2012, the issuance of the contract is only known due to statements in the six-month extension for the MSPRC JOFC dated September 12, 2012. The name of the contractor remains unknown. The RAC functions would include the identification and development of Group Health Plan (GHP) MSP recovery, Non-GHP recovery cases in which ongoing responsibility for medical care exists, and all associated recovery activities. The visual representation of the COB&R matrix organization attached as Appendix 5 to the MSP BPOC statement of work showed that there will be a separate RAC for GHP and for ORM.

5. Medicare Set-Aside Rules and Legislation

We continue to wait for CMS to create and publish final rules regarding Medicare Set-Asides, particularly as they apply in liability insurance situations. The public comment period for CMS-6047-ANPRM closed on August 14, 2012, and yet we continue to wait. Because there is no fixed timeline that CMS must comply, it is assumed that rules mandated by the SMART Act for MMSEA Section 111 mandatory insurer reporting penalties that must begin within 60 days of enactment, and rules governing the conditional payer appeal process for primary payers that must be instituted by October, will take priority. It could be some time before CMS has time to devote to MSA rules.

Legislatively it is unclear if the MSP industry will be able to springboard off of the recent success of the SMART Act and reform MSA problems. Prior to the vote on H.R. 1845, Congressman Reichert was noted in the Congressional Record for reminding his colleagues that the SMART Act was not the only set of MSP issues in need of redress [H7307]. His bill, H.R. 5284, the Medicare Secondary Payer and Workers’ Compensation Settlement Agreement Act, which also has bipartisan support, aims to resolve delays by CMS in reviewing WCMSAs. Unfortunately, it still makes little sense to legislate changes to a voluntary program with no governing rules. Perhaps with the SMART Act momentum, new legislation can be introduced this term that can bring along a little more progress beneficial to all types of insurance.

6. What Else to Look for in 2013

There is an increasing amount of cases being reported that deal with Medicare debt being pursued under federal statutes other than the MSP. Additionally, cases brought under 42 U.S.C.S. § 1395y(b)(3) are providing entirely new risk exposures and should be watched closely. Continue to look at the federal government’s rights under the False Claims act in particular as those have been the most interesting. There are rumors of insurance products becoming available this year that may make carrier and attorneys more comfortable making alternative MSP decisions. But, for the most part, plan on a year of transition as we implement new rules and adjust to new contractors.

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