Medicare Compliance In Liability Settlements: It’s Important For Both Sides

By Cheryl Montgomery
(615) 499-5129
cmontgomery@shuttleworthwilliams.com

If Medicare compliance in liability settlements is not a concern for Defense counsel, it should be, because non-compliance can put clients and their attorneys at risk.  Medicare has an absolute right of reimbursement with regard to conditional payments, which means that it can recover from the Plaintiff, Plaintiff’s counsel, Defendants, and Defense counsel.  In addition, a client’s failure to report to Medicare a settlement, judgment, award, or other payment can subject it to large monetary fines.

Thus, Medicare is no longer a subject that only concerns the Plaintiff and his or her attorneys; it should be discussed by both sides and dealt with in the best way to protect all interests.  Below is a brief summary of information about Medicare compliance and strategies that Defense counsel, in particular, should be aware of when taking steps to protect their clients and their firm.

Early in the case, Plaintiff’s counsel should call the Medicare COBC (coordination of benefits contractor)-(800) 999-1118 and provide them with information regarding the alleged incident and injury in order to obtain a conditional payment letter.  A Conditional Payment Letter (“CPL”) provides information on items or services the Medicare Secondary Payment Recovery Contractor (MSPRC) has identified as being related to the pending Non-Group Health Plan (NGHP) claim. The conditional payment amount is an interim amount, and Medicare may continue to make conditional payments while a matter is pending. Consequently, the MSPRC cannot provide a final conditional payment amount until there is a settlement or other resolution. Once the case is established with the COBC, the Plaintiff’s counsel should receive a “Rights and Responsibilities Letter.”  An initial CPL does not need to be requested because it will be generated automatically within 65 days of the “Rights and Responsibilities Letter.”

There are two instances where a Conditional Payment Notice (“CPN”) will be sent out instead of a CPL:

  1.If the MSPRC is notified of a settlement, judgment, award, or other payment through Section 111 reporting rather than from the beneficiary or their representative; and

2. If the MSPRC has been alerted to a settlement, judgment, award, or other payment by the beneficiary or their representative before the usual Conditional Payment Letter (CPL) has been issued.

A CPN provides conditional payment information and states what actions must be taken because the MSPRC has been notified of a settlement, judgment, award or other payment.  Medicare allows 30 days for a response to the CPN before issuing a demand automatically requesting all conditional payments related to the case without a proportionate reduction for fees or costs.  Conditional payments are payments that Medicare has made in the past, prior to the date of settlement, for medical treatment related to the injuries at issue that must be reimbursed as a part of the settlement.  The conditional payment claims should be reimbursed within 60 days from the date of the formal demand letter.  Medicare should not be reimbursed before the formal demand is generated because the amount of such claims is subject to change until that time. If Medicare is not reimbursed within the 60-day timeframe, interest and penalties will begin to accrue.

Defense counsel should be aware of the Section 111 Reporting Requirements as established by 42 U.S.C.S. §1395(y)(b)(8).  The reporting requirements only apply to liability insurance carriers (including self-insured entities), no-fault insurance carriers, and workers’ compensation insurance carriers dubbed “RRE’s” or Responsible Reporting Entities.  Medicare has set up a process by which an RRE can send an early “query” file to determine beneficiary status.  The query file needs nothing more than the identity of the claimant-name, DOB, SSN, and gender.  If the Plaintiff is a Medicare beneficiary, the statutory duty to report is triggered after a settlement, judgment, award or other payment regardless of whether a determination of fault was made.  Failure of an RRE to report makes them subject to a penalty of $1,000.00 per day for each act of non-compliance.  For example, if an insurance carrier had 1,000 claims by Medicare beneficiaries, it could face a $1,000,000.00 a day fine for failure to report.

In summary, Defense counsel should discuss Medicare prior to and at mediation to make sure the Plaintiff’s counsel knows that without at least a conditional lien letter or letter from CMS stating there is no lien, the Defendant will not release the check without putting Medicare’s name on the check or obtaining a Consent to Release and waiting to get information from Medicare. The Consent to Release authorizes CMS to disclose conditional payment information, but it does not give the individual or entity the authority to act on behalf of the beneficiary or the right to further release that information.  In addition, Defense counsel should notify Plaintiff’s counsel that the Defendant will be reporting the settlement to Medicare to fulfill the Section 111 Reporting Requirements.  It is important to note that Medicare may not be made a party and is not bound to any agreement between parties and should the claimant fail to repay the conditional payment claims, Medicare may legally seek reimbursement from almost any party to the action, including the Defendant and/or the attorneys.

Defense counsel may also find it necessary to contact an outside Medicare Compliance Group to review the file and complete a Medicare Set-Aside Allocation Report to show that Medicare’s interests were protected in the Settlement Release in the following situations:

1.  If the claimant is currently a Medicare beneficiary and the total settlement amount is greater than $25,000; or

2. The claimant has a “reasonable expectation” of Medicare enrollment within 30 months of the settlement date and the anticipated total settlement amount for future medical expenses and disability/lost wages over the life or duration of the settlement agreement is expected to be greater than $250,000.

 A Medicare Set-aside (“MSA”) is money that is set aside for future medical expenses that would otherwise be covered by Medicare. MSAs are not required by law in any case. Rather, the Medicare Secondary Payer Act (MSPA) requires that the burden to pay for future medical expenses not be shifted to Medicare when another entity is primarily responsible for future medical treatment.  If Medicare is billed for treatment related to the alleged injuries in the future, it may refuse to pay for the treatment or may pay and then seek reimbursement.  If Medicare pays for treatment, it can seek reimbursement from almost any party to the action.  This absolute right of reimbursement is only one of the reasons; Medicare compliance is a hot topic among attorneys and their clients at this time.

As always, parties should consult with an attorney prior to entering into any settlement agreement which may involve Medicare’s rights.