The Strengthening Medicare and RepayingTaxpayers (SMART) Act
S.1718/H.R. 1063

Background

In December 2007 Congress enacted Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA) which required any entity making a payment to a beneficiary to report that payment to the Centers for Medicare and Medicaid Services (CMS). "Section 111" created a new and significant enforcement tool for the CMS Agency to pursue MSP claims through both a new reporting regime and a shift in compliance responsibilities upon the regulated community of group health plans, workers compensation plans and insurers, liability insurers, self-insureds, others.

Given the greater scrutiny that the government will soon devote to MSP issues, as well as the significant reporting obligations and potential penalties, all parties to liability and workers compensation cases are reluctant to settle cases or pay funds without first resolving any Medicare liabilities. However, to do so the settlement parties must have the "conditional payment" amount - the amount that Medicare previously paid in health care expense for the claim at issue, and which Medicare claims is owed to the Medicare Trust Fund. Today, however, this information is rarely available before a settlement takes place, which harms beneficiaries, the Trust Fund, and settling parties. As a consequence, many settlements are lost, and even for those than can be reached payment is delayed and distributions stalled waiting for CMS to provide the demand/recovery calculation letter. The current process harms beneficiaries, settling parties, and even the Medicare Trust fund, in that, at best, it postpones for months or years beneficiaries receiving their recoveries and Trust Fund reimbursement for amounts due. Experts have predicted that lawyers soon may stop taking cases on behalf of beneficiaries’ altogether.

Medicare's ever increasing role in MSP creates a critical and challenging environment for Medicare beneficiaries and the entities that might be responsible for their claims. Future MSP liability presents a significant obstacle for beneficiaries to initiate claims, and for all parties to reach settlements on liability claims involving Medicare beneficiaries. In addition, the “Section 111” MSP reporting requirement has become a national issue affecting the Medicare beneficiary's ability to obtain legal representation.

An Illustration of the Problem

Existing Medicare Secondary Payer (MSP) rules unnecessarily delay repayments to the Medicare Trust Fund by deterring timely settlement of claims. The following hypothetical scenario illustrates the current challenges:

Mrs. Smith – 76-year-old Medicare Beneficiary

Imagine Mrs. Smith, a 76-year-old beneficiary, is struck by an Acme truck while crossing a street, and is hospitalized with $54,321 in health care costs. Medicare pays for her treatment. Two years later Mrs. Smith sues Acme, who is insured by Choice Insurance. Choice and Acme deny Acme was responsible, but want to settle the case, and Mrs. Smith, on the advice of her lawyer, is prepared to accept $120,000 on her $1 million claim. Once the settlement is paid, however, existing MSP law will turn Medicare’s $54,321 payment into a “conditional payment” and the Medicare Trust Fund, now the “secondary payer,” is entitled to reimbursement from Mrs. Smith, or directly from Choice or Acme (even though they have already paid).
Due to the risk of having to pay twice, Acme and Choice are unwilling to actually settle with Smith without resolving the MSP issue first. Further complicating the situation, neither Smith, Acme nor Choice can determine exactly how much the Trust Fund is owed, because there is no mechanism for Medicare to provide that information before settlement. And even if they could determine the amount (as is sometimes the case), they have no way to repay the funds to the Trust Fund at the time of settlement. Given the uncertainty, the settlement falls through and Mrs. Smith is forced to a trial where she risks an uncertain recovery.

Solution – The SMART Act

The SMART Act would solve these challenges by creating a pathway for CMS to calculate and provide to settling parties the MSP repayment amount before settlement so parties are aware of their MSP obligation and can quickly reimburse the Trust Fund when they settle. This pathway, which does not exist today, eliminates uncertainty, allows a beneficiary to settle sooner, lets industry resolve claims, and ensures that the Trust Fund will be reimbursed quicker. A statutory clarification is needed to accomplish this goal and achieve a positive outcome for everyone, including beneficiaries and taxpayers.

Why is The SMART Act Needed Now?
The MSP laws were poorly understood and rarely enforced for many years. However, a new law (“Section 111”) requires insurers to report to CMS every settlement or other payment made to a beneficiary. Workers compensation and no-fault insurers begin reporting on January 1, 2011 and liability insurers, including self-insurers, begin reporting on January 1, 2012. A penalty of $1,000 per day per claim applies for failure to report. This severe penalty has focused the entire regulated community (plaintiffs, defendants, beneficiaries and everyone in between) on MSP compliance. Because the reporting and Trust Fund reimbursement obligations are so complicated, however, cases involving beneficiaries are difficult if not impossible to settle. Already, plaintiffs are backing away from bringing these cases, and defendants are refusing to settle them. Absent a settlement, there is no money for the Trust Fund to recover.

The SMART Act Legislative Summary

Section 1:

The SMART Act Improves Efficiency by Informing Settling Parties of their MSP Amount Before Settlement.

Many claims involving Medicare beneficiaries today cannot settle because the parties cannot determine their respective obligations to reimburse the Medicare Trust Fund. The result is a lose-lose-lose for the beneficiary, the defendant, and the Medicare Trust Fund – all because under current law, Medicare has no pathway to provide the amount due the Trust Fund for ‘conditional payments’ – those payments previously made by Medicare for the injury that will be covered by the settlement.

The SMART Act will fix this problem by creating a process for Medicare to advise parties in the process of settling, before settlement, of how much is owed, so that the parties can appropriately allocate and resolve their Medicare obligations during settlement. By requiring Medicare to provide the amount due within 65 days of a request, the settling parties will know how much money has to be set aside for Medicare, and factor that amount into their final settlement. This simple change will eliminate uncertainty and help parties settle these claims much faster so that Medicare and the beneficiary can be reimbursed more quickly. The SMART Act will also provide all settling parties with a right of appeal if they disagree with Medicare’s repayment request, or if they believe Medicare has made a mistake.

Section 2:

The SMART Act Increases Medicare’s Efficiency by Ensuring that the Government Does Not Spend More Money Pursuing a MSP Claim Than it will Actually Recover from That Claim.

Many claims settled with Medicare beneficiaries involve very small total payments. For example, a company may offer a beneficiary $100 in gift cards or even just $20 because it is the right thing to do when a customer or worker has had a bad experience. No matter how small the amount, the MSP system still applies, and Medicare seeks to collect the claims. There is a point, however, at which Medicare will pay more in costs than it will ever collect. For example, if it costs Medicare $350 in contractor and staff_ time to collect any single claim, Medicare should exempt from the law every case likely to yield $350 or less in MSP collections. Yet, Medicare is pursing cases for $1.59!

Medicare should not waste taxpayer money pursuing MSP claims when the amount recovered will not even pay for postage required to request the repayment. The SMART Act will bring common sense to the MSP system and introduce a threshold below which MSP will not apply. The threshold will be set (annually by the CMS Actuary) at the amount of settlement likely to yield an MSP collection at or below the government’s recovery cost. This will not only save the government money, but will allow Medicare beneficiaries to settle small value cases without being subjected to extensive and costly MSP reporting requirements. Most importantly, this change will allow the MSP system to maximize its returns without wasting the resources of taxpayers, Medicare beneficiaries, or stakeholders.

Section 3:

The SMART Act Will Protect Stakeholders That Make Good Faith Efforts to Comply with Medicare’s Complex MSP Reporting Requirements.

The current MSP system requires companies to report extensive amounts of information any time they settle a claim involving a Medicare beneficiary. The reporting process is technologically complex; because the system is still very new, CMS is still experiencing many problems and Medicare’s computer systems shut down or reject claims for even minor errors. Unfortunately, the MSP statute does not provide any leeway for companies that make good faith efforts to report but experience problems during the process, and instead poses a $1,000 per day per claim penalty for late reporting.

The SMART Act will correct this inequity by creating enforcement discretion of up to $1,000 per day per claim in penalties, and directing the Department of Health and Human Services (HHS) to establish safe harbors that will provide companies with protection for good faith compliance efforts. With input from stakeholders, the HHS Office of Inspector General will have the ability to define situations that do not merit penalties, thereby providing companies the protection they need to work with Medicare to get the reporting system right.

Section 4:

The SMART Act Protects Medicare Beneficiary’s Social Security Numbers and Medicare Numbers

In order to comply with reporting requirements, companies must obtain the social security numbers (SSNs) or Health Insurance Claims Numbers (HICNs, also known as the “Medicare Number”) of beneficiaries with whom they settle claims. Beneficiaries are understandably very resistant to providing this sensitive personal information, and companies do not want to be forced to collect and maintain these numbers. With ever increasing concerns about identity theft and Medicare fraud, the government should not require individuals to disclose this information to everyone that they settle a claim with.

This legislation will protect Medicare beneficiaries’ sensitive personal information by directing Medicare to identify an alternative method of identifying individuals (such as the last four digits of an SSN) for the purpose of MSP reporting.

Section 5:

The SMART Act Will Provide Medicare Beneficiaries and Stakeholders Certainty and Finality By Establishing a Statute Of Limitations for All MSP Claims.

The current language of the MSP statute provides a statute of limitations to some types of MSP claims, but not for all claims. Statutes of limitations are a core principle in the American justice system, and provide much needed certainty and finality after a reasonable amount of time has passed since a claim has been settled. Numerous court cases have addressed this question, with inconsistent answers. The legislation will clarify that the three-year MSP statute of limitations (measured from the date of reporting) covers all MSP claims

The Strengthening Medicare and RepayingTaxpayers (SMART) Act S.1718/H.R. 1063