The Social Security Act of 1965 that created Medicare was a federally funded health insurance program initially designed to address the limited availability and high cost of health care for U.S. citizens age 65 and above. From 1965 to 1980, with few exceptions, Medicare was the primary payer of health care services provided to Medicare beneficiaries. As the primary payer, even when a Medicare beneficiary already had existing health care insurance coverage, Medicare paid first. In essence, Medicare was funding the rapidly increasing health care costs of the majority of Americans 65 years of age and over, plus a significant percentage of chronically ill individuals under age 65.
Medicare Became A Secondary Payer
In the 1970s it became increasingly apparent that Medicare had limited resources for a seemingly unlimited and accelerating demand. Changes in the law were inevitable in order for Medicare to survive. In 1980, Congress passed the Medicare Secondary Payer Act (MSP). The MSP Act was enacted to protect the Medicare Trust Fund and preserve Medicare’s viability by ensuring that Medicare does not pay for medical care for which other insurance coverage exists and therefore has primary responsibility. A secondary payer pays only to the extent that full payment has not been made by the primary payer.
The MSP Act has no impact on Medicare beneficiaries whose only health care insurance is Medicare, because in those cases there is only one insurer, Medicare. The balance of this summary applies only to situations where a Medicare beneficiary has private health care insurance, in addition to Medicare, in which case Medicare functions only as a back-up provider or a secondary payer.
Conditional Payments (CPs)
Frequently, there are extended delays between a Medicare beneficiary’s injury and a payment decision by the primary payer. To avoid imposing a hardship on health care providers, payments for such care may be made during that period by Medicare, through what is known as a Conditional Payment (CP). The condition on which a CP is made is that the primary payer will reimburse Medicare upon claim closure or settlement.
When an insurer makes any type of payment for a personal injury claim, they become the primary payer and Medicare is moved to secondary payer position and its recovery rights are immediately triggered. If Conditional Payments (or so-called “liens”) owed to Medicare are not promptly reimbursed upon claim settlement, Medicare can (and does) refer the debt to the Department of Justice or the Treasury Department, which have the authority to litigate for reimbursement, including double damages plus interest penalties.
Medicare can seek recovery of a Conditional Payment from any party that makes or receives a payment as a result of a settlement involving a Medicare beneficiary, and their Recovery strategy is generally to go after the “deep pockets” of the insurer. Federal law takes precedence over state law and private contracts in these instances. Even if an insurer somehow believes it is a secondary payer to Medicare based on state law or the contents of its insurance policy, the federal MSP Act provisions have priority.
Conditional Payments Recovery
- The Honor System
The 1980 MSP Act is still the law. Although it established a route for recovery of Conditional Payments, it did not require primary payer transparency so there was no means of reimbursement enforcement for Medicare. For 30 years (1980 – 2010), Medicare had no practical means of knowing if a primary payer was involved, who the primary payer was, if a settlement had occurred, and if so, how much money changed hands. This “honor system” for insurers’ reimbursement of Medicare’s Conditional Payments failed. The result has been significant potential exposure for many P&C carriers, a major factor in Medicare’s current economic crisis, including the publicly disclosed risk of insolvency.
- Mandatory Disclosure (Section 111 Reporting)
The Medicare, Medicaid, and SCHIP Extension Act (MMSEA) was signed into law in 2007, and became effective in 2011 as a means of enforcing the 1980 MSP recovery laws. Section 111 of the MMSEA mandates that Responsible Reporting Entities (RREs), including insurance companies, self-insurers and public entities, report all settlements, judgments, awards or other payments made to a Medicare beneficiary as a result of a personal injury claim, to Medicare. This includes:
o the parties involved in the settlement
o the dates payments were made, and
o the amount of money that changed hands.
Non-compliance with Section 111 Reporting, by an insurer (RRE), can subject them to civil monetary penalties up to $1,000 per day of non-compliance for each Medicare beneficiary claim that should have been reported.
Section 111 Reporting provides Medicare with the necessary information to enforce the MSP recovery laws and secure the reimbursement of Medicare’s Conditional Payments, where a primary payer exists. With the recent appointment of a Recovery Audit Contractor (RAC), Medicare has both the identity of the primary payer that should have reimbursed Medicare for Conditional Payments, plus the means and authority to audit and enforce the collection of unpaid funds.
MSP – Amendments
Regulations related to the MSP Act are frequently amended and expanded. Continuously monitoring changes in the law, and assessing the impact of the changes, is essential. Compliance with the MSP Act is increasingly important as Medicare has expanded its enforcement efforts by retaining the RAC to assist in identifying RREs that are not in compliance with current regulations. Primary payer reimbursement of Conditional Payments is a Medicare survival requirement, and Medicare’s increasing aggressiveness in enforcing the Section 111 Reporting and MSP Recovery obligations is evidence of the determination to ensure Medicare’s on-going viability
- Ghostbusters (11/1/2019) - In 1984, Ivy League trained parapsychologists Venkman, Stantz, and Spengler started a ghost-catching business in New York City, despite implausible research, and eventually were welcomed as heroes by saving the city from the paranormal disguised as giant marshmallow man Stay Puft. Only in the movies! But, we can use this ghoulish time of the year to serve as a reminder: Don’t let MSP enforcement claims by Medicare Part C Advantage Plans sneak up to shock and detract your standard claims operating procedures. Identifying and resolving these repayment claims may be just as important a part to your overall MSP compliance strategy as similar claims by traditional Medicare Parts A and B.
- How far is too far when negotiating Medicare release terms? (10/7/2019) - At the recent NAMSAP Educational Conference in Baltimore, during a breakout panel discussion on “Leveraging Settlement with Medicare Set-Asides in Mediation”, a rather strident concern was raised with respect to the reasonable scope of terms in a settlement release irrespective of the type of primary plan covering the loss. Specifically, attendees questioned whether Medicare eligible individuals could or to what extent may release their claim or claims in the future to these public health and welfare insurance benefits while negotiating compromise settlement provisions under liability, no-fault or workers compensation plan.
- Treasury Trove (9/17/2019) - Medicare is paid for through two Trust Fund accounts—Hospital Insurance and Supplementary Medical Insurance—held by the United States Department of Treasury, How Is Medicare Funded. In 2018, over 60 million people were covered by Medicare with over $731 billion in total expenditures from the Trust Funds Facts on Medicare Spending and Financing. Further, CMS reports validating $493.68 million in recoverable mistaken conditional payments, while returning $98.68 million dollars to the Medicare Trust Funds in 2018 as a direct result of its recovery program activities, on top of $131.78 million in 2017, MSPRC Commercial Repayment Center in Fiscal Year 2018. Collection activity by the United States Department of Treasury (DOT) on Medicare conditional payments is reportedly increasing in 2019, plus, over the past 15 months, the United States Department of Justice reached six-figure settlements with two Plaintiff’s law firms for failure to repay Medicare conditional payments.