Medicare is the U.S. government health insurance program that primarily covers U.S. citizens aged 65 and over. Under the Medicare Secondary Payer (MSP) statute, it is well settled that Medicare almost always bears secondary liability for Medicare beneficiaries’ medical claims, while private group health plans, liability insurers (including self-insured plans), no-fault insurers and workers’ compensation insurers carry primary liability. In other words, Medicare can insist that such insurers pay first for medical expenses where coverage overlaps and thus limit Medicare ‘s obligation to any shortfall.
Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA) put in place a new reporting system to help the Centers for Medicare & Medicaid Services (CMS), the federal agency that administers Medicare, recover from Medicare beneficiaries and insurers when Medicare erroneously pays primary or when a beneficiary receives payment from both Medicare and an insurer for the same injury. Section 111 requires insurers to electronically report substantial claims information to CMS if they are liable for the medical expenses of an injured Medicare beneficiary, whether due to a court judgment or settlement. These insurers must begin testing “dummy” claims submissions in the fall of 2009 and then report live claims data in the second quarter of 2010, or risk incurring steep monetary penalties. Failure to comply with Section 111 could subject insurers to civil money penalties of $1,000 for each day of noncompliance for each claimant whose information they did not report.
42 U.S.C.A. § 1395y:
(2) Medicare secondary payer (B) Conditional payment (i) Authority to make conditional payment: The Secretary may make payment under this subchapter with respect to an item or service if a primary plan described in subparagraph (A)(ii) has not made or cannot reasonably be expected to make payment with respect to such item or service promptly (as determined in accordance with regulations). Any such payment by the Secretary shall be conditioned on reimbursement to the appropriate Trust Fund in accordance with the succeeding provisions of this subsection.
1(ii) Repayment required: A primary plan, and an entity that receives payment from a primary plan, shall reimburse the appropriate Trust Fund for any payment made by the Secretary under this subchapter with respect to an item or service if it is demonstrated that such primary plan has or had a responsibility to make payment with respect to such item or service. A primary plan’s responsibility for such payment may be demonstrated by a judgment, a payment conditioned upon the recipient’s compromise, waiver, or release (whether or not there is a determination or admission of liability) of payment for items or services included in a claim against the primary plan or the primary plan’s insured, or by other means. If reimbursement is not made to the appropriate Trust Fund before the expiration of the 60-day period that begins on the date notice of, or information related to, a primary plan’s responsibility for such payment or other information is received, the Secretary may charge interest (beginning with the date on which the notice or other information is received) on the amount of the reimbursement until reimbursement is made (at a rate determined by the Secretary in accordance with regulations of the Secretary of the Treasury applicable to charges for late payments).
(iii) Action by United States: In order to recover payment made under this subchapter for an item or service, the United States may bring an action against any or all entities that are or were required or responsible (directly, as an insurer or self-insurer, as a third-party administrator, as an employer that sponsors or contributes to a group health plan, or large group health plan, or otherwise) to make payment with respect to the same item or service (or any portion thereof) under a primary plan. The United States may, in accordance with paragraph (3)(A) collect double damages against any such entity. In addition, the United States may recover under this clause from any entity that has received payment from a primary plan or from the proceeds of a primary plan’s payment to any entity. The United States may not recover from a third-party administrator under this clause in cases where the third-party administrator would not be able to recover the amount at issue from the employer or group health plan and is not employed by or under contract with the employer or group health plan at the time the action for recovery is initiated by the United States or for whom it provides administrative services due to the insolvency or bankruptcy of the employer or plan.
(iv) Subrogation rights: The United States shall be subrogated (to the extent of payment made under this subchapter for such an item or service) to any right under this subsection of an individual or any other entity to payment with respect to such item or service under a primary plan.
(v) Waiver of rights: The Secretary may waive (in whole or in part) the provisions of this subparagraph in the case of an individual claim if the Secretary determines that the waiver is in the best interests of the program established under this subchapter. (vi) Claims-filing period: Notwithstanding any other time limits that may exist for filing a claim under an employer group health plan, the United States may seek to recover conditional payments in accordance with this subparagraph where the request for payment is submitted to the entity required or responsible under this subsection to pay with respect to the item or service (or any portion thereof) under a primary plan within the 3-year period beginning on the date on which the item or service was furnished.
Section 411.37 Amount of Medicare recovery when a primary payment is made as a result of a judgment or settlement:
(a) Recovery against the party that received payment–
(1) General rule. Medicare reduces its recovery to take account of the cost of procuring the judgment or settlement, as provided in this section, if–
(i) Procurement costs are incurred because the claim is disputed; and (ii) Those costs are borne by the party against which CMS seeks to recover.
(2) Special rule. If CMS must file suit because the party that received payment opposes CMS’s recovery, the recovery amount is as set forth in paragraph (e) of this section.
(b) Recovery against the primary payer. If CMS seeks recovery from the primary payer, in accordance with § 411.24(i), the recovery amount will be no greater than the amount determined under paragraph (c) or (d) or (e) of this section.
(c) Medicare payments are less than the judgment or settlement amount. If Medicare payments are less than the judgment or settlement amount, the recovery is computed as follows:
(1) Determine the ratio of the procurement costs to the total judgment or settlement payment.
(2) Apply the ratio to the Medicare payment. The product is the Medicare share of procurement costs.
(3) Subtract the Medicare share of procurement costs from the Medicare payments. The remainder is the Medicare recovery amount.
(d) Medicare payments equal or exceed the judgment or settlement amount. If Medicare payments equal or exceed the judgment or settlement amount, the recovery amount is the total judgment or settlement payment minus the total procurement costs.
(e) CMS incurs procurement costs because of opposition to its recovery. If CMS must bring suit against the party that received payment because that party opposes CMS’s recovery, the recovery amount is the lower of the following:
(1) Medicare payment.
(2) The total judgment or settlement amount, minus the party’s total procurement cost.
What this means for overseas insurers is unclear. The MMSEA statute is silent as to its application to overseas insurers, but CMS has stated informally that the reporting requirements apply to overseas insurers when they pay the bodily injury claims of Medicare beneficiaries. There are, however, serious questions as to whether CMS can lawfully extend its regulatory authority over non-U.S. companies in all circumstances.
The Foreign Commerce Clause of the U.S. Constitution, the presumption against extraterritorial application of federal statutes and potential conflicts with privacy laws of other countries provide some of the strongest arguments against application of Section 111 to overseas insurers. The viability of each argument is dependent upon the factual circumstances of each claims transaction. Relevant factors include the type of insurance coverage involved, the insurer’s U.S. contacts, the identity and location of the insured and how and where payment to the claimant is made.
Special thanks to Georgia Stagias for her contributions to this post.