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Medicare Secondary Payer Concerns in 2017: A Perfect Storm Could Be Brewing

May 31, 2017 (11 min read)

Medicare secondary payer (MSP) compliance issues remain a hot topic at insurance industry conferences and the 2017 RIMS Annual Conference did not disappoint those seeking the latest MSP news. As the annual RIMS gathering generally serves as a barometer for issues anticipated in the upcoming year, this year’s indication is that the most problematic MSP issues will be liability Medicare set-asides (LMSAs), Medicare Advantage liens and the rise of yet another governmental secondary payer - Medicaid.

RIMS 2017 Legislative Agenda Includes MSP Issues

Tuesday’s session titled “The Future of Medicare Set-Aside Allocations” started by emphasizing RIMS commitment to MSP legislative reform. Noted as being on the RIMS legislative agenda this year, the SPARC Act (H.R. 1122 -Secondary Payer Advancement, Rationalization and Clarification Act) is a bipartisan effort to clarify how the MSP applies to the Medicare Prescription Drug (Part D) program. Like the SMART Act (Strengthening Medicare and Repaying Taxpayer Act) passed in 2013 did for conditional payment resolutions, also supported by RIMS, SPARC seeks to replace ambiguous and uncertain Part D MSP requirements with "clear and sensible" rules that govern the resolution of insured claims involving Part D insurance plans.

Currently, Medicare Parts C (Medicare Advantage) and D (prescription drug plans) benefits are provided by private entities contracted by the federal government and due to some rather ambiguous language in the Medicare Act and its regulations, suffer from questions surrounding their recovery rights. While they both carry all the same rights the Secretary of Health and Human Services possesses with regard to recovering on behalf of Medicare Parts A and B, the corresponding right to bring a private cause of action is expressly granted to the United States and not the Secretary. As a result, a significant body of case law has emerged since about 2010 in which the courts have creatively worked around the problem and ultimately extended a different private cause of action under the MSP, but without any of the government’s requirements for federal debt recovery. Medicare Part C and D providers are not obligated to refer debt recoveries to Treasury or the Department of Justice and instead can run straight to federal court once a demand goes unanswered.

On the other side of this problem is the fact that while Part C and D plans do have an unquestionable statutory reimbursement right, they are not provided adequate or timely information by CMS to pursue such recoveries. When parties ask CMS if conditional payments exist and the beneficiary is not enrolled in Parts A and B, CMS does not refer the parties to the appropriate Part C or D plan and instead simply states that nothing is owed. As a result, demands on insurers and other primary payers by Part C and D plans are unpredictable and often come long after a claim is closed. And typically demands are made for services and drugs unrelated to the covered injury, provided outside the claim period or have other issues that could easily have been identified had information received by CMS through Section 111 Mandatory Insurer Reporting been shared with its Part C and D contractors. Therefore, one of the most significant factors of SPARC is its attempt to require a timely information exchange between CMS and its Part D contractors to help get the plans reimbursed. But because SPARC only applies to Part D, Medicare Advantage will remain problematic.

The trade-off for the Part D plans in getting more easily repaid is that the Act requires the plans give up their MSP exclusion going forward, regardless of whether compensation for future pharmaceutical needs are provided at settlement. SPARC would require that Medicare Part D become the primary payer for all drugs post-settlement. While this could prevent the need for future drug allocations in many insurance settlements, primary payers with an underlying legal obligation to provide payment for the same will likely not benefit. For example, in workers’ compensation settlements, the primary payer’s legal obligation in most states is dictated by state law and provides lifetime medical benefits related to the industrial injury, which includes pharmaceuticals. Access to such drugs post-settlement will not necessarily alleviate the primary payer’s legal obligation to pay at settlement. Similarly, states with collateral source rules would not allow Medicare Part D coverage to be considered in damage assessment during litigation. So this would essentially allow Medicare beneficiaries a double recovery if SPARC is passed as it would provide drug coverage post-settlement that would not affect the state law issues.

Although a bipartisan effort, SPARC currently has very little support in Congress. Presenters encourages risk management advocates to get involved and support RiskPac, RIMS’ political action committee, in an effort to educate Congress about these problematic Medicare issues.

Liability Medicare Set-Asides

The panel next addressed the concept of liability Medicare set-asides (LMSAs), a concept hard fought by the industry since CMS began enforcing its secondary payer status in 2001. While claiming that LMSAs are a legal fiction, given that the obligation to fund MSAs does not exist, the presenters indicated that they are coming. Starting with a 2011 statement by CMS as to when LMSAs were not necessary with a physician statement that indicated no further treatment was required, the agency has been making moves to legitimize the need for LMSAs. Recently, CMS attempted to codify regulations to govern LMSAs, however, after meeting much public resistance, the NPRM was withdrawn and only workers’ compensation MSAs continued to be governed exclusively by a CMS published User Guide. But in 2016, CMS included in its Workers’ Compensation Review Contractor (WCRC) RFP provisions for its WCRC contractor to review LMSAs starting in summer 2018, an indication that the government finally intends to exercise its secondary payer rights post-settlement in liability settlements.

From an enforcement standpoint, we have also recently seen CMS notify medical providers of two new rejection codes for services that should be covered by alternative primary payers. Since passages of the mandatory insurer reporting requirement in 2007, CMS gathers over 160 pieces of data about any insurance settlement involving a Medicare beneficiary that enable it to properly deny associated billing. It is refreshing to see that after nearly a decade of possessing such information, the agency is finally making moves to utilize the data to coordinate benefits rather than make payments regardless and maybe seek reimbursement later.

But panelists warn that MSAs don’t make as much sense for liability as they do for workers’ compensation and therefore will be problematic for settlements. Comp is essentially a no-fault insurance that generally provides for a lifetime medical benefit, whereas, there are so many legal considerations in liability settlements, such as contributory versus comparative fault, statutory caps and policy limits, just to name a few. This issue complicates settlements, which are hard enough to reach without the MSP issue. Furthermore, CMS won’t understand how liability insurance works, a fact proven over the many years of its failing to acknowledge workers’ compensation law in the WCMSA review process.  

It was clear that the panelists would prefer that LMSAs remain informal, stating that it “behooves us to get claims through the system as fast as possible” and that LMSAs would just “gum up the works.” They expressed concerns that a paper cut could result in a settlement over $750 that would require a set-aside if such policies were adopted. Right now, they are satisfied addressing the issue through release language and self-administered set-asides.  There is no one way, let alone a right way, to deal with the issue, but it was clear that they would prefer it remain up to the parties to the settlement to address the issue rather than establish formal rules.

One last point the panel was clear about was that Medicare secondary payer compliance was definitely a big deal that was not going away.  $1.1 trillion dollars flows through Medicare annually and the Trump Administration has indicated that reducing fraud, waste and abuse is an important component of its budget. Medicare absolutely has the authority to stop making payments, and with improved data collection and a greater coordination of benefits, it can easily turn off benefits. But due to concern about what happens to Medicare beneficiaries when that happens, panelists again promoted RiskPac to get a seat at the table to help establish rules with fairness in mind.

Medicaid Third Party Liability

Lastly, the panel indicated that another emerging issue to watch for in 2017 is Medicaid secondary payer liability.  States are being pressured by CMS to become more efficient in their Medicaid programs in general, but more specifically in their reimbursement efforts. On December 18, 2013, the U.S. Senate passed the Bipartisan Budget Act of 2013 (H.J. Res. 59), declaring that Medicaid also has a priority right of recovery, similar to Medicare. Although, Medicaid has always been a payer of last resort (42 U.S.C. § 1396a(a)(25)), in 2006, the U.S. Supreme Court limited its recoveries to only the medical allocation from insurance settlements. Because the Court stated that the states could not recover from other damages, states were forced to apportion recoveries to cents on the dollar. This new law, with its October 1, 2017 effective date, supersedes this ruling and provides for full reimbursement rights.

Implementation is apparently well underway in some states. Panelists indicated that Rhode Island and Pennsylvania are leading the way with $5,000 fines for not reporting settlements to the state. And states, such as Colorado, California, West Virginia, Wisconsin, Wyoming, and Washington D.C., already have third party liability laws in place. With the Trump Administration changes to Medicaid funding, there will be less money to go around and enhanced recovery efforts will help to make up the deficit. But a statutory right to full reimbursement in insurance situations that do not provide full compensation is problematic. Claims may not settle without enough financial incentive, or possibly not even be brought if there’s nothing to gain. Panelists stated it is a perfect storm brewing. 

Medicare Advantage

In a shorter session in the exhibit hall, problems with recoveries involving Medicare Advantage Organizations were highlighted. Although still Medicare benefits, Medicare Part C is administered by contract with private health insurance companies paid on a capitated risk sharing basis. Due to poorly written statutory and regulatory provisions that give the MAOs the same rights of recovery as the Secretary of Health and Human Services, the courts have been broadening MAO recovery rights since about 2010 through case law. Despite the fact that the United States, and not the Secretary, maintains the right to bring a private cause of action in federal court, the Third Circuit Court of Appeals maintained that MAOs could bring such an action under a similar provision of the MSP statute, and it has been all downhill from there. MAOs can skip all of the federal debt collection protocols that CMS is limited by, such as referrals to Treasury and the DOJ, and can apparently elect to sue just as soon as their demand window goes unanswered. Furthermore, if they file suit at any time prior to payment being made, some courts have granted the double damages portion anyway regardless of the payment. And most recently, the Eleventh Circuit Court of Appeals ruled that the mere existence of an insurance policy is a demonstration of responsibility to pay, sufficient to maintain standing to bring such a suit even if defenses exist as to why payment was not made, thereby causing litigation costs to be endured regardless. In short, demands for reimbursement an MAO should not be taken lightly and certainly not ignored unless and until the courts remedy this precedent or much needed legislative reform takes place.

Workers’ Compensation Settlement Considerations

It is always interesting when Medicare issues arise in unrelated sessions throughout RIMS, but one particular session this year stood out. In a session titled “Comprehensive Workers’ Compensation Settlement Strategies,” attorney Bill Marrow devoted a good portion of his discussion to the concept that Medicare interests in a workers’ compensation settlement are only as great as the underlying state law obligation to make payment. He noted two cases in particular that demonstrate that Medicare has no right to recovery when the state law did not require the employer/insurer to make payment: Caldera v. Ins. Co. of Pa.  (2013 U.S. App. LEXIS 970) and CIGA v. Burwell (2017 U.S. Dist. LEXIS 1681). In fact, the CIGA case ruled demand by CMS for reimbursement of services not covered by state law to be unlawful. As such, focus should be on what the state law requires in the settlement of the claim, not what CMS recommends if it is to approve the future medical allocation. Because CMS approval is completely voluntary and not required by any state or federal law or regulation, understanding of this fact can be crucial when settling workers’ compensation claims as those two calculations can look very different. And there are other ways to protect Medicare liability rather than just with MSAs. Mr. Marrow cautiously reminded attendees that he wasn’t saying not to do MSAs, rather to consider when to use them and how.

Knowledge Is Key

To conclude, Medicare secondary payer issues continue to cause problems for insurers and self-insureds but after years of education, such as that found at RIMS conferences, we are able to more proactively deal with it during the course of our claims management and settlements. Staying in front of the issue helps reduce the exposure and minimize associated expenses, and RIMS elevating emerging issues to the industry’s attention early is crucial to successful MSP compliance programs. We look forward to updates from RiskPac throughout the year to see how successful RIMS is at addressing industry’s MSP concerns. And of course we look forward to what we will learn at RIMS 2018 in San Antonio.

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