United States: SMART Act Brings Increased Discipline And Rationality To Government’s Medicare Secondary Payer Recovery Process

Last Updated: January 9 2013
Article by Ramy Fayed, Mark Hamelburg and Janice Ziegler

To usher in the New Year, Congress passed H.R. 1845, which contains, in part, the bipartisan Strengthening Medicare and Repaying Taxpayers ("SMART") Act. The SMART Act, as adopted, amends several portions of the Medicare Secondary Payer ("MSP") statute and aims to simplify and soften portions of the statute that have been burdensome to beneficiaries and industry stakeholders. This legislation is expected to be signed into law in the coming days. Notably, the beneficial provisions of the SMART Act apply only to non-group health plans (i.e., workers' compensation, no-fault and liability insurance (including self-insurance) plans) and not to employer group health plans.

The SMART Act contains several key components, as outlined below:

Determination of Conditional Medicare Payment Amounts

"Conditional" payments occur where Medicare pays for items or services that are later determined to be the financial responsibility of a group health plan or non-group health plan (each a "primary plan"). In the non-group health plan context, the Centers for Medicare & Medicaid Services ("CMS") can seek to recover medical costs associated with the illness, injury or incident giving rise to the claim from the non-group health plan or from Medicare beneficiaries or others who receive settlement proceeds. In practice, most demand letters associated with liability settlements are sent to Medicare beneficiaries.

Under current CMS policy, CMS does not issue a "final" conditional payment determination amount until after settlement. Although preliminary information concerning conditional Medicare payments can be obtained prior to settlement, the dispute resolution process post-settlement regarding the appropriate amount can be lengthy and complicated. This has been a source of considerable frustration for Medicare beneficiaries. Further, CMS' refusal to provide a final conditional payment amount prior to settlement creates additional risk for non-group health plans because CMS can recover Medicare conditional payments from a primary plan for injury related medical care notwithstanding the fact that the plan has already paid the claim and obtained a release for such medical care. Not knowing the final conditional payment amount prior to settlement impedes the non-group health plan's ability to directly satisfy Medicare's interests (e.g., by sending one check to Medicare and another to the claimant) because payment of settlement proceeds must generally be made promptly after settlement. This has lead liability insurance and other plans to seek work around release provisions designed to ensure that Medicare's interests are, in fact, satisfied, adding to the complexities (and timeframes) for settlement.

The SMART Act addresses these concerns by requiring that CMS make a "statement of reimbursement" available to the Medicare beneficiary, his or her authorized representatives, and/or the non-group health plan with the beneficiary consent's on a secure website prior to settlement of a non-group health plan claim. The settling parties can rely upon the statement as the final agency determination of Medicare conditional payments where certain conditions are met. This will allow the parties to factor the final "lien" amount into their settlement negotiations and allow primary plans to implement more direct and effective strategies for ensuring satisfaction of Medicare's recovery rights (such as issuing separate checks to the beneficiary and Medicare). The statute imposes specific procedures around the statement of reimbursement process, including timelines for notice to the government in advance of an expected settlement and timelines for CMS' response. CMS must promulgate final regulations to implement this process within nine months after the SMART Act enactment.

Process for Beneficiaries to Contest Claims Included in Medicare Conditional Payment Amounts

Many stakeholders have expressed concern over the slow and cumbersome process available for beneficiaries who wish to dispute costs that a CMS contractor identifies as Medicare conditional payments on the basis that such costs are not related to the illness, injury or incident at issue. The SMART Act requires that the Secretary provide Medicare beneficiaries and their authorized representatives a "timely process to resolve the discrepancy." Specifically, if the individual or representative provides documentation explaining the discrepancy and offering a proposal to resolve it, CMS must, in turn, determine whether there is a reasonable basis to include or exclude the claims at issue in the Medicare conditional payment amount within 11 business days after receipt of the document. Additional processes for resolution are specified. The statute does not allow any administrative or judicial review of the Secretary's determinations under this new process. However, Medicare beneficiaries still would retain the ability, as under current law, to exercise formal administrative or judicial appeals to contest final conditional payment demands from CMS. The Secretary also must promulgate implementing regulations concerning these processes within nine months of enactment.

Formal Appeal Rights for Non-Group Health Plans

While the United States is authorized to sue to recover Medicare conditional payments, most such amounts are collected through an administrative process under the Debt Collection Improvement Act of 1996, as amended. This process allows for open-ended recovery rights through administrative offset. Currently, the MSP laws allow Medicare beneficiaries (but not primary plans) to file an administrative appeal or federal court action to challenge Medicare conditional payment demand amounts. Under the SMART Act, the Secretary must promulgate regulations establishing a right of appeal and an appeal process for non-group health plans (and their attorney, agents, or third party administrators) to appeal Medicare conditional payment determinations for which CMS seeks to recover from such plans. No specific deadline applies to promulgation of such regulations. This appeal right does not apply to group health plans.

Three Year Statute of Limitations

Currently, the Social Security Act is silent regarding the statute of limitations for MSP recovery actions by the United States. As a result, the applicable statute of limitations is unclear. The court in U.S. v. Stricker, 2010 WL 6599489 (N.D. Ala. 2010) determined that the Federal Claims Collection Act, which contains both a three and six year statute of limitations, applies to MSP recovery actions brought by the United States, with differing statutes of limitation for liability insurers and plaintiffs' attorneys based on an analysis of whether the underlying action arose in tort or contract. The SMART Act amends the MSP law to require that CMS file suit for recovery of Medicare conditional payments in the non-group health plan context within three years after the date CMS receives notice of a settlement, judgment, award, or other payment from a non-group health plan. However, it is unclear whether CMS might attempt to pursue collection efforts via administrative offset, notwithstanding the statute of limitations. The amendment applies to "actions brought and penalties sought" on or after six months after the date of the enactment of the SMART Act.

Small Claims Exception

Until recently, CMS had no process in place in the non-group health plan context to make MSP recovery claims under a certain dollar threshold exempt from recovery activities. (By contrast, a dollar threshold amount has traditionally applied in the group health plan context by program instruction to the CMS contractors). CMS recently implemented a recovery threshold of $300 on certain liability settlements. However, the SMART Act amends the MSP laws to require by statute that the Secretary annually calculate and publish a single threshold amount for settlements, judgments, awards, or other payments arising from liability insurance (including self-insurance) and for alleged physical trauma-based incidents (excluding alleged ingestion, implantation, or exposure cases), which will generally serve as the threshold for MSP recovery (and reporting) purposes in such context. Separate rules will apply to liability cases involving ongoing responsibility for medicals. The amendments made by this subsection, including annual publication of thresholds, shall apply to years beginning with 2014.

Monetary Penalty Modification and Regulation

Under current MSP law, "Responsible Reporting Entities" are required to determine whether a claimant is a Medicare beneficiary and, if so, submit certain detailed information to CMS. An RRE that fails to report the claimant's information, as required, "shall be subject to a civil monetary penalty of $1,000 for each day of non-compliance with respect to each claimant," with no exception for good faith efforts to obtain the information. While CMS has yet to publish implementing regulations or, to our knowledge, impose any such penalty, the potential financial risk to RREs is substantial. The SMART Act modifies the statutory language to provide that an RRE "may be subject to a civil money penalty of up to $1,000 for each day of noncompliance" per claimant. Moreover, and equally important, the SMART Act requires the Secretary to publish notice within sixty days of enactment soliciting proposals on practices that will and will not be subject to sanctions for non-reporting, including not imposing sanctions for good faith efforts to identify beneficiaries, and thereafter issue final rules regarding such practices.

Use of Social Security Numbers and Other Identifying Information

RREs often find it difficult to obtain a Medicare beneficiary's Medicare health insurance claim number ("HICN") or Social Security number ("SSN"), but, without this information, CMS will not accept a mandatory data report for the relevant Medicare beneficiary. The SMART Act requires, no later than 18 months after the date of enactment, that the Secretary modify the reporting requirements for non-group health plans so that such plans are permitted, but not required, to report to CMS Medicare beneficiary SSNs or HICNs. The statute allows for extensions of the deadline if the Secretary notifies the relevant Congressional committees that without such extension implementation would threaten patient privacy or the integrity of the MSP program.

Conclusions

The Congressional Budget Office has projected that H.R. 1063 (a predecessor to the SMART Act, as adopted) would reduce Medicare spending by $45 million over the 2013-2022 period by making it easier for other payers to repay Medicare, thus reducing program costs. If signed into law, the SMART Act will remedy some of the most burdensome portions of the MSP law for non-group health plans. While issues regarding the treatment of settlements releasing future medical costs still remain, the SMART Act represents one of the most significant changes in the MSP recovery process since implementation of the MSP laws in the non-group health plan context. However, the "devil will be in the detail," as CMS promulgates additional regulations interpreting and implementing the law and takes steps to operationalize the website and processes called for in the SMART Act.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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