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December 2009 |
Schiff Hardin Product Liability Client Alert In December 2007, the Medicare, Medicaid and SCHIP Extension Act of 2007 ("MMSEA") was signed into law.1 Section 111 of the Act adds new mandatory reporting obligations to the Medicare Secondary Payer Act ("MSPA") requiring group health plans, liability insurers and self-insurers to provide detailed information regarding all liability settlements or open claims with ongoing responsibility for medical treatment with Medicare beneficiaries to the Centers for Medicare and Medicaid Services ("CMS"). Section 111 does not replace or eliminate any existing obligations, but the new reporting requirements are onerous. Moreover, with the addition of penalties of $1,000 per day, per claim, for failure to comply, the MMSEA will change the way liability settlements with Medicare recipients are reported and handled. Although many group health plans and liability insurers have long been preparing for the new reporting requirements, some defendants who routinely make liability settlement payments to Medicare beneficiaries remain unaware that Section 111 requires them to determine whether a claimant is a Medicare beneficiary and report on settlement payments to CMS. The registration and testing procedures for liability and self-insurers are currently underway and the first claim forms must be submitted beginning April 1, 2010. Accordingly, it is important for settling defendants to act now to ensure compliance and begin factoring Medicare reimbursements into future settlements. In 1965, Medicare was enacted to make the federal government the primary insurer for individuals who lost insurance coverage because they stopped working due to retirement or certain disabilities. As originally enacted, Medicare paid for medical treatment regardless of whether the beneficiary was covered by other insurance. The MSPA was passed in 1980, in part, to change this system and ensure that Medicare would become the "secondary" payer when a claimant was covered by other forms of "primary" insurance (i.e., a claimant would not be entitled to Medicare payments if also covered by statutory or liability insurance or settlements from a tortfeasor). Under the MSPA, Medicare continued to make conditional secondary payments for medical treatment in situations where payment from primary sources was unlikely, but retained a right to reimbursement. Medicare beneficiaries who later received a liability settlement, judgment or award, along with the primary payer, were required to inform Medicare of its potential right to reimbursement. Although the MSPA provided for penalties, interest and double damages if Medicare had to file suit to collect payment, there were no provisions to ensure that primary settlement payments were actually reported to Medicare. As a result, settling parties frequently failed to report settlements and rarely considered Medicare's reimbursement right when structuring settlements. The MMSEA was designed to correct this lack of compliance. The information collected pursuant to Section 111 is intended to make it easier for CMS to identify the existence of primary settlement payments and seek reimbursement for treatment billed to Medicare. The new reporting requirements affect all parties involved in payment of a settlement, judgment or award with a Medicare beneficiary (or one who is reasonably expected to become a Medicare beneficiary within 30 months of settlement) after January 1, 2010. Although Medicare beneficiaries who receive such payments are required to reimburse Medicare, any defendant that funds or pays, in whole or in part, any settlement, judgment or award with a Medicare beneficiary also must report the settlement to CMS. If the beneficiary fails to reimburse Medicare, Medicare may seek reimbursement from the defendant or its insurer, even though it has already paid the beneficiary and even if liability is expressly denied. Furthermore, the MSPA provides for a private cause of action against an eligible defendant that fails to reimburse Medicare.2 Entities that must provide Section 111 reporting information are referred to by CMS as "Responsible Reporting Entities" or "RREs." RREs include group health plans, liability insurers, no-fault insurers, workers' compensation insurers and individuals or entities engaged in a business which are self-insured, are responsible for deductibles or otherwise make direct payments for settlements.3 RREs must report applicable settlements, judgments, awards or other payments regardless of whether liability is admitted or determined. If damages for medical care are claimed or released, reports must be made notwithstanding any allocation made by the parties. RREs are generally not required to report payments to Medicare beneficiaries where the Date of Incident ("DOI") is prior to December 5, 1980. CMS defines the DOI differently depending on the nature of the injury. For claims involving a discrete event or accident (for example, a car crash), the DOI is the date of the event or accident. However, for claims involving exposure (for example, exposure to asbestos) or "ingestion" (for example, ingestion of a defective drug), the DOI is effectively the date of last exposure or last ingestion. Thus, for cases involving continuing exposure or ingestion, reports must be made where any of the exposure or ingestion occurred on or after December 5, 1980. However, RREs are not required to report payments of less than $5,000 and are not required to report payments for claims releasing only property damage.4 In addition to payments pursuant to judgments, settlements or awards, RREs must report those claims for which they have assumed an ongoing responsibility for medical treatment ("ORM") for a Medicare beneficiary. Indeed, ORM reporting may be required even if a RRE is not required to report the actual settlement. Although ORMs often arise in no-fault or workers' compensation claims, it is not uncommon for other settlements to include an allocation for future medical costs. ORM reporting is required for claims on which ORM exists as of July 1, 2009 and is required even if payment for future treatment has not yet been made and regardless of whether there has been a separate settlement, payment or award. Failure to comply with the new reporting requirements carries a penalty of $1000 per day, per claim for eligible claims.5 RREs are required to submit information to CMS electronically, through forms and software developed by CMS. Liability insurers including self-insured entities are currently required to submit information in more than 100 data fields including the total settlement amount regardless of any allocations. Other required information includes the Medicare beneficiary's name, date of birth, gender, Social Security number, Medicare Health Insurance Claim Number ("HICN"), and DOI, as well as information about the incident(s) that led to the claim, identification of claimant's attorney and any applicable insurance policy. The MMSEA obligates the RRE to determine whether a claimant is a Medicare beneficiary and CMS has stated that the RRE cannot simply rely on the representation of a claimant or their attorney. CMS has developed a query function which allows RREs to submit identifying information to find out if a claimant is a Medicare beneficiary. However, the RRE must first obtain the claimant's Social Security number or HICN. Medicare beneficiary status should be determined before the settlement is reached. Section 111 reporting requirements apply to settlements, judgments, awards or other payments made on or after January 1, 2010. ORM reporting is also required for claims on which ORM exists as of July 1, 2009. The first reports must be made beginning April 1, 2010. Testing of electronic claims reporting is currently scheduled to occur between January 1 and March 31, 2010. The Web site for reporting claims or for determining a claimant's Medicare beneficiary status is http://www.Section111.cms.hhs.gov. RREs must register before accessing this Web site. Every settlement with a Medicare beneficiary (or one who is reasonably expected to become a Medicare beneficiary within 30 months of settlement) now requires each of the parties to
Medicare's reimbursement must be satisfied prior to the claims of other parties, including the claimant and the claimant's attorney.6 RREs may wish to include language, including an indemnity provision,7 in the settlement agreement directly addressing any conditional or future payment issues. Alternatively, the RRE may wish to consider issuing settlement checks payable to both the claimant and CMS. If the total settlement is less than or equal to Medicare's payments, Medicare may recover up to the total settlement (minus procurement costs).8 CMS advises that it alone will determine the amount allocated to medical treatment and that it will not be bound by any allocation made by the settling parties. Accordingly, the entire settlement may be consumed by Medicare, even if a beneficiary settles only for pain and suffering, loss of consortium, or other special damages. The new reporting requirements will likely lead to increased efforts by CMS to recover conditional Medicare payments under the MSPA. Penalties relating to failures to reimburse conditional payments under the MSPA are separate from the new MMSEA penalties and are not limited to the "primary" payers. Under the MSPA, CMS may recover from anyone receiving payment, including the claimant's attorney. Plaintiffs' attorneys may be increasingly reluctant to bring claims where the potential damages are less than the amount owed to Medicare. When claims are brought, "nuisance value" settlements will likely be more difficult to obtain as plaintiffs will insist that any such settlement exceed the amount owed Medicare's subrogation right. Furthermore, settling parties must proactively determine whether Medicare benefits are likely to be incurred in the future (i.e., for future medical care). The issue of future medical costs should be addressed in any settlement agreement. In claims where the claimant is expressly seeking a set-aside for future medical care, it is advisable for all parties to seek approval for the set aside from CMS. However, since these funds only benefit Medicare, there is little benefit to claimants demanding higher amounts for future medical care. Applicable statutory provisions may be found at 42 U.S.C. ý 1395y(b)(7) and (8). Currently there are no formal federal regulations that apply to the reporting program. However, CMS has established a Web site dedicated to the new Section 111 reporting requirements here. The Web site includes information regarding available computer-based training courses offered by CMS. Additional information may be found here. CMS has also published a "User Guide" to assist in compliance. The current Section 111 "User Guide" may be found here. CMS has been hosting a series of "town hall" teleconferences to detail new developments and answer questions. Transcripts of prior conferences and details of upcoming conferences may be found here. 1 Pub. L. No. 110-173, 42 U.S.C. ý 1395y(b)(7) and (8); http://www.ssa.gov/OP_Home/comp2/F110-173.html 3 42 U.S.C. ý 1395y(b)(2)(A); 42 C.F.R. ý 411.50. 4 The $5,000 reporting threshold is scheduled to decrease in subsequent years. The reporting threshold does not act as an exception or safe harbor to obligations existing under the MSPA. 7 Note though that indemnity from the claimant will not insulate a settling defendant from applicable Medicare penalties, but may provide an avenue of recourse against the claimant if the claimant fails to reimburse Medicare. - - - - - Schiff Hardin LLP has a national product liability practice representing a diverse group of clients who confront mass tort, class action and catastrophic injury litigation. Our strengths are the trial, appeal and settlement of such cases; client counseling in the area of product liability risk management; compliance with government and industry standards; and product recalls and reporting obligations. We have extensive experience helping clients to anticipate and avoid product liability litigation, and we handle the cases they do receive, in a cost-effective manner through the use of computerized case management and budgeting systems. Our Product Liability Group has the scale and geographic reach necessary to handle the largest, most complex cases. We have more than 40 lawyers with extensive experience in the field. More than a dozen of them have first chair jury trial experience. We have experienced product liability attorneys in our offices coast to coast. For more information, contact:
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