Article

Secondary payer statute:
Safeguarding Medicare’s interests

Reprinted from the New Jersey Lawyer
Volume 12, Number 40
October 13, 2003
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When settling a workers compensation claim and closing future medical benefits, a practitioner must ensure Medicare has been properly considered. The Medicare Secondary Payer statute (MSP) provides that the Center of Medicare and Medicaid Services (CMS) may pursue damages against any entity that attempts to shift the burden of medical costs to Medicare. MSP’s purpose is to ensure Medicare is secondarily responsible for payment of medical expenses for Medicare beneficiaries also covered by another type of insurance.

MSP (42 U.S.C. § 1395y(b)) stipulates that Medicare does not pay for any services for which payment has been made or can reasonably be expected to be made promptly “under a workrnen’s compensation law or plan of the United States or a state or tinder an automobile or liability insurance policy or plan (including a self-insured plan) or under no-fault insurance.” Therefore, the workers compensation provider is considered the primary plan and Medicare the secondary plan for paying injury-related medical expenses.

CMS has the right to seek reimbursement of expenses paid by Medicare that a workers compensation carrier should have made. Additionally, MSP provides for a private cause of action for double damages against the workers compensation carrier for failure to provide primary payment or appropriate reimbursement.

This has become an increasingly important issue as CMS has stepped up its identification and enforcement procedures. CMS is undertaking a widespread effort to collect money owed to Medicare for past overpayments and to prevent shifting of future medical expenses from the primary payer to Medicare. This policy is evident in CMS memos dated July 23, 2001 and this past April 22 and May 23. It is clear CMS has made a policy decision to protect Medicare’s rights and to vigorously pursue parties that do not make adequate and reasonable provisions for Medicare’s interest in their settlements.

Consideration should be given to Medicare’s interest whenever future medical benefits are being closed and either of the following applies:

• The petitioner is Medicare-eligible regardless of the amount. Those who are eligible are 65 years or older, on Social Security Disability 24 months or longer, or are suffering from an end-stage renal disorder (ESRD).
• The petitioner has a “reasonable expectation” of becoming a Medicare beneficiary within 30 months of the date of settlement and the anticipated amount of the settlement, including indemnity, is expected to be greater than $250,000.

Those qualifying for the “reasonable expectation” factors have: applied for Social Security Disability benefits, have been denied SSD but anticipate appealing that decision, are in the process of appealing and/or re-filing for SSD, are at least age 62 years and 6 months, or have an ESRD condition but do not yet qualify for Medicare based on ESRD.

Deciding whether to obtain CMS approval before resolving any workers compensation claim should be made on a case-by-case basis and after consultation with an attorney familiar with MSP and the CMS approval process. Failure to properly consider Medicare’s interest or proceeding to resolve a claim without approval from CMS subjects all involved to future exposure.

If the proposed settlement falls within any of the above criteria, lawyers must consider both future and past injury-related Medicare payments.

Regarding future payments, I believe the only way to ensure compliance and avoid an MSP claim is to obtain CMS approval prior to settling any claim that falls within any of the above criteria. In many cases, CMS approval will require establishing a Medicare set-aside arrangement designed to earmark a portion of the settlement for future medical expenses.

Approved set-aside

The expenses must be related to the workers compensation injury and must be of the type typically covered by Medicare. An approved set-aside is the preferred method to close future medical benefits for the carrier and still preserve petitioner’s rights under Medicare for future medical treatment. The set-aside may be professionally or self-administered and may be funded with either a lump sum or an annuity. These decisions are made on a case-by-case basis. Once the fund is depleted, the beneficiary becomes eligible for Medicare. CMS has stated that “once CMS agrees to a Medicare set-aside amount, the individual can be certain that Medicare’s interests have been appropriately considered.”

For CMS to approve the arrangement and the amount, it must receive all relevant information about the claim and anticipated future expenses. There is no form agreement or formula to be used in obtaining CMS approval. In many cases, experts are hired to perform a thorough medical review, analysis and cost projection. The process involves numerous factors including advocacy and negotiation on behalf of the attorney seeking approval.

Payments made by Medicare prior to settlement - commonly called conditional payments - also must be considered when resolving a claim impacted by MSP. Medicare has a statutory right of recovery for these payments. Under 42 U.S.C. 1395y(b)(2) and 42 C.F.R. 411.24, Medicare is precluded from paying for a claimant’s medical expenses when payment should be made by another provider. However, Medicare may pay for a claimant’s covered medical expenses conditional on reimbursement. These conditional payments may occur in a denied workers compensation claim or a compensable claim where the carrier declines to pay for certain medical services (i.e., unauthorized treatment or palliative care).

CMS may initiate recovery of these conditional payments as soon as it learns payment has been made or could be made under workers compensation, any liability or no-fault insurance, or any employer group health plan. If necessary for CMS to take legal action to recover from the primary payer, CMS may recover twice the amount specified. Furthermore, interest may accrue from the date CMS received notice and is charged until reimbursement is made.

CMS has emphasized the point of reimbursement for conditional payments. Its April 22 memorandum says “if Medicare made any conditional payments for work-related services furnished prior to settlement, then Medicare would require recovery of those payments.” In the July 2001 memorandum, CMS noted, “If Medicare has paid any amounts, they must be recovered.” Therefore, Medicare must be contacted to determine whether any conditional payments were made. Resolving this issue involves notification, investigation and negotiation.

Failure to properly address MSP may result in any of these actions: I) the beneficiary may receive a notice terminating future Medicare coverage; 2) Social Security may offset disability benefits on a dollar-for-dollar basis until the MSP claim, including interest, has been satisfied; 3) the Office of General Counsel may make demand or bring suit against the attorney for the Medicare beneficiary for recovery of the full amount of the MSP claim; or 4) the Office of General Counsel may make demand or sue for double the amount of the MSP claim against the carrier that distributed the settlement proceeds or damage award without first paying CMS.

In any of these scenarios it is foreseeable that a legal malpractice claim could be brought against the attorney(s) handling the claim. There is a professional and ethical obligation on behalf of the attorney to ensure that work product does not negatively impact other potential benefits.

Attorneys must be very careful when considering Medicare’s interest. It is important to know: 1) the cases that require CMS approval; 2) the cases that require a set-aside agreement; 3) the procedure for negotiating conditional payments; 4) the cases that require a professionally administered trust; 5)the cases that require a structured settlement or annuity; and 6) the procedure for drafting submission documents and negotiating with CMS.

Failure to properly evaluate and handle these complicated claims may result in significant exposure to everyone involved in the settlement and/or an extensive delay in settling the claim.

Robert T. Lewis, an attorney at Capehart Scatchard in Mount Laurel, represents employers, self-insured companies and insurance carriers in workers compensation defense matters. He is a frequent writer and speaker before business, legal and trade groups.