MSP REFORM

History

In 1980, the Medicare Secondary Payer (MSP) law was added to the 1965 Medicare statute. The MSP provisions were enacted to prevent the burden of payment for medical expenses being improperly transferred to Medicare from a responsible "independent third party." Despite its passage in 1980, the MSP was seldom enforced by the Center for Medicare and Medicaid Services (CMS) against entities other than group health plans. Indeed, even today most companies are unaware of the statute. CMS' enforcement has been restricted primarily to certain categories of workers' compensation cases and Group Health Plans.

The Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA), signed into law by President George Bush on December 29, 2007, put teeth into enforcement of the existing regulations.  The MMSEA expands the scope of enforcement of MSP.   Creating a new reporting regime and shifting significant compliance responsibilities upon the regulated community of group health plans, workers compensation plans and insurers, liability insurers, self-insureds, an others.  The  new  statute requires a "responsible reporting entity" - normally a defendant in a liability claim or their insurer - to report each and every settlement or other payment to a plaintiff beneficiary.  Failure to report triggers a $1,000 per day per claim penalty.  Beyond the massive penalty provisions, the impending reporting requirements will, for the first time, provide the federal government with an understanding of where the settlements and judgments have occurred, allowing the Center for Medicare and  Medicaid Services (CMS), an agency of the U.S. Department of Health and Human Services, to seek recovery from settlement payments from beneficiaries or insurers, self-insured, and others. 

Given the greater scrutiny that the government will soon devote to this issue,  as well as the significant reporting obligations and potential penalties, , beneficiaries and those settling claims with beneficiaries are becoming be far more cautious about settling cases or paying funds without first resolving the Medicare liability issue.  However, to do so the settlement parties must have the "conditional payment" amount - the amount that Medicare claims is owed to the  M edicare Trust Fund.  Yet, while this information is needed during the settlement process, it is not today available, which in turn harms beneficiaries and frustrates settlements.    If the parties were to settle, they do so at a risk that the "interim" conditional payment amount may change, and responsibility for paying that difference needs to be addressed before settlement proceeds may be distributed.  Since CMS is able to collect conditional payments from the "applicable plan" even if it has already paid the settlement proceeds to the Medicare beneficiary; the insurer or self insurer must be certain that the Medicare beneficiary is able to make good on his or her promise to reimburse CMS. 

In most cases this is difficult to do, and as a consequence, settlements  either cannot be concluded or distributions are stalled waiting for CMS to provide the demand/recovery calculation letter.    This could take years, resulting in increased claim expense.  Additionally, there are multiple other contingent liabilities (penalties, trustee liability, privacy  considerations , etc.)  associated with the MSP and MMSEA process that causes parties to pause when dealing with a Medicare beneficiary because rules are unclear. 

Medicare's ever increasing enforcement of MSP creates a critical and challenging environment for all parties and their counsel.  The requirement to protect Medicare's interests poses an extremely high risk of future liability and presents significant obstacles to reaching settlements on liability claims for Medicare beneficiaries.  In addition, the MSP reporting requirement mandated by Section 111 is fast becoming a national issue affecting the Medicare beneficiary's ability to obtain legal representation.

Current MSP Issues Unresolved - The Problem 

• The current Medicare Secondary Payer (MSP) process places considerable impediments upon the flow of needed information, parties' ability to settle claims, and a Responsible Reporting Entity's ability to promptly pay claims to beneficiaries and reimburse the Medicare trust fund.  These roadblocks:
• discourage settlement;
• slow down the return of Trust Fund dollars;
• cause more cases to go to trial;
• consume scarce judicial resources; and
• ultimately render many cases involving Medicare beneficiaries "unsettlable" 

Although MARC focused its initial advocacy efforts on Section 111 reporting issues, the organization has always been dedicated to the  larger  issues implicated by the complex MSP regime on behalf of the Medicare beneficiary.  

Broader MSP Reform - The Solution

MARC has developed five core principles to address many of the major concerns about the current MSP regime.

The Core MSP Reform Principles are:

1. Ability to self-calculate the "conditional payment" and submit payment to CMS to terminate MSP liability;
2. Process to seek Medicare final demand for conditional payment before settlement and process for self-payment if CMS fails to respond within 60 days;
3. Setting a minimum threshold for MSP claims;
4. Rationalizing the penalty scheme and creating a set of safe harbors to shield from Section 111 penalties; and
5. MSP statute of limitations (3 years).