The Medicare Secondary Payer Act Continues COMPlications for the Medicare Beneficiary Who Settles a Case

NOTE: This is a guest article written by Paul H. Sighinolfi Esq., Senior Managing Director at Ametros. Paul
was previously the Executive Director and Chairman of the Maine Workers’ Compensation Board and a partner at Rudman & Winchell where he represented both plaintiffs and defendants. He is also one of the Deans, alongside Abbie Hudgens and Albert Betts, of the Regulatory / Legislative school for WorkCompCollege. Abbie Hudgens tapped into his deep and broad experience to discuss the ever-changing subject of MSP compliance.

I was asked if I would be willing to contribute to the “It’s Complicated” series on the topic of the complexities of the Medicare Secondary Payer Act. Knowing that workers’ compensation and the Medicare Secondary Payer Act (MSP) are both perceived to be complicated, I readily agreed to contribute.

Medicare, a part of the Social Security Act, is our nation’s health insurance program and is designed to provide coverage for Social Security beneficiaries over the age of 65 and others with certain disabilities. Medicare was enacted in 1965 during the Johnson administration. Originally it was a primary payer, except when workers’ compensation coverage was available. In that case, workers’ compensation is
primary. Workers’ compensation as a primary payer for workers’ compensation beneficiaries is, therefore, not a new obligation.

Congress misjudged the cost of Medicare. How surprising is that? Costs to the Medicare trust fund significantly exceeded projections. As time passed, solutions were proposed to limit the fund’s exposure and in 1980 Congress further amended the Social Security Act to include the Medicare Secondary Payer Act (MSP). As its name suggests, this legislation establishes Medicare’s status as a secondary rather than a primary payer if other insurances are available. The Act does allow for payment of medical bills if there is a question about the availability of a primary payer. This arises when there’s a contested workers’ compensation or liability claim. Medicare therefore should only pay when other coverage is unavailable to prevent cost shifting.

The policy underlying the Medicare Secondary Payer Act is simple. Since Medicare is funded from tax revenue, the public interest is best served by having those legally responsible for the payment of medical care pay for that care. In the case of a tort claim it is the tortfeasor or in the case of a workers’ compensation claim it is the employer or employer’s insurance carrier.

Seldom is legislation ever as simple as initially envisioned. Such is the case with the Medicare Secondary Payer Act.

Where are the COMPlications?

1.       Conditional Payments.

Under MSP, if Medicare makes a payment because it is not clear there is a responsible primary payer, those payments are considered conditional. These situations may arise because a case is contested and thus the responsible party has yet to be identified. Sometimes they arise when the medical provider inadvertently bills Medicare, knowing the patient is a Medicare beneficiary and not realizing other coverage should pay. Once compensability is determined or the inadvertent billing has been identified, Medicare is entitled to reimbursement. The obligation is a “conditional payment obligation.” Medicare has
collection rights against the Medicare beneficiary, a medical provider, or a beneficiary’s attorney. This reimbursement right belongs to Medicare and private insurers providing Advantage or Supplemental Medicare coverage.

2.      Medicare, Medicaid, and SCHIP Extension Act.

In 2007 and again in 2009, Congress added more layers to the Social Security / Medicare statutory scheme. Legislation was enacted creating mandatory reporting requirements on carriers when a workers’ compensation or liability claim involved a Medicare beneficiary. Under Section 111, a Responsible Reporting Entity is required to report the claim and provide identifying data, payment amounts and use ICD10 codes to describe the nature and scope of injuries sustained. Failure to follow the reporting requirements can and in the future may lead to significant penalties. These reports will include additional data points beginning April 2025.

3.      Medicare Set-Aside Arrangements.

Medicare Set-Aside Arrangements (MSAs) are probably the best-known by-product of the Medicare Secondary Payer Act.

Although the Act was passed in 1980, it is fair to say it was ignored by those to whom it applied. In 2001, the Centers for Medicare & Medicaid Services (CMS) published a memo prepared by one of its business staff, Parasher Patel. In the memo, Mr. Patel addresses CMS’ concerns; there was little to no compliance with the Secondary Payer Act, trust funds are expended on beneficiaries when they should not be, and a Medicare Secondary Payer Trust is needed to solve the problem. It appears Mr. Patel, because he was not an attorney, did not realize calling the device a trust had legal significance. He was really suggesting the creation of a Medicare Set-Aside account. The memo caused a stir in the workers’ compensation community. Authors of legal literature, continuing legal education programs, and the national bar did all they could to learn how to comply with the Act and the specific MSP obligations. In addition, CMS followed up on Mr. Patel’s work, issuing a series of memoranda offering compliance guidance.

In 2013 CMS produced a Reference Guide. The Guide informed us its contents superseded all prior guidance. In addition, it provided a road map on how a party settling a workers’ compensation claim with future medical exposure involving a Medicare beneficiary can secure CMS approval of settlement proceeds, administer the funds, and comply with MSP obligations. There are options on securing approval and administration. A settling party can self-administer the account or retain the services of a
professional administrator.

In principle the administrative obligations appear manageable. In practice they are COMPlex. There are six administrative requirements.

1.      Funds must be put into a separate interest-bearing account. This is usually an interest-bearing account from which you can write checks. Problems arise with this requirement when a beneficiary acts as a self-administrator and tries to put a substantial sum into an account of this nature. It is not unusual for bank officers to try to talk the self-administrator into other more attractive investment options. The problem is these options run the risk of losing money as well as making money. Professional administrators know how to comply with this obligation and do so without risking the funds. Professional administration is recommended by CMS but is not required.

2.      Funds can only be used for treatment related to the injury. This sometimes leads to complications because it is not always clear whether the needed medical care is causally related and necessitated by the work injury. Making that decision is oftentimes difficult for the non-medically trained.

3.      Funds can only be used for Medicare covered expenses. Medicare annually publishes a booklet, Medicare & You. This booklet provides some guidance on what Medicare covers. The Medicare website provides additional guidance. Neither, however, are definitive resources for determining what Medicare will and will not cover. It is no easy task for someone who does not work directly with Medicare on a regular basis to make this determination. In addition, what Medicare will and will not cover can and does change. Tracking this is a challenge.

4.      Payment of bills must be consistent with the appropriate states’ medical fee schedule. Forty-six states have medical fee schedules. Some states require users to purchase a publication that contains the fee schedule. Other states have their fee schedule on state websites. All are updated with some regularity. All use the American Medical Association CPT codes. Some introduce complexities that require medical education to fully understand the fee schedule. Once the administrator determines what the fee schedule allows, the larger problem is negotiating with the medical provider or medical institution for a payment amount less than the bill as insurance companies would do. Having the leverage to be able to negotiate is virtually impossible for an individual, but much easier for a professional administrator who negotiates bills regularly.

5.      Someone must prepare and submit an annual report to CMS. This requirement is one where CMS tracks the spending in beneficiaries’ medical set aside accounts. The form is straightforward. It requires reporting on funds available at the beginning of the year, the funds expended for medical and pharmaceutical expenditures over the course of the year, and the resulting balance. This form must be filed annually and is another administrative challenge.

6.      Someone must maintain line-item detail for all payments made from the Medicare set aside account. This requirement has the administrator tracking all payments made from the account for as long as there are funds in the account. It is clear the purpose of this requirement is to demonstrate what payments were made and when they were made and to whom they were made so that if there is an audit the expenditures from the account can demonstrate the beneficiary is in compliance with the Act. To require the untrained to comply with this requirement is a daunting task.

The forgoing demonstrates administering a Medicare Set Aside account has requirements that can be, and often are, difficult for the average Medicare beneficiary. Opening an account is not difficult unless someone at the institution where you are parking the funds thinks they have a better idea of how to invest that money and this is not an unknown occurrence. Determining whether medical treatment is associated with the injury can be a simple judgment call, but not always. There can be a legitimate question of whether the treatment is the logical medical sequelae to the injury or is it necessitated by some other cause. Paying bills consistent with a fee schedule can be difficult even for those who have a working knowledge of CPT codes and know where to find the appropriate fee schedule. For others this will be much more difficult. One of the more problematic aspects is getting medical providers to accept
payment consistent with a fee schedule. This requires negotiating skills the average patient simply does not have. The annual reporting is not a problem if you don’t mind filling out forms, making sure they are correct, and have the skills needed for this task. Finally maintaining records over an extended period is again not a big ask for some but for others it could be more than they have the patience, skill, and/or willingness to do.

From the taxpayer’s perspective, the Medicare Secondary Payer Act is a good piece of legislation. It is designed to help preserve the funds Medicare has available to pay for Medicare beneficiaries’ medical needs. It can, however, pose problems when a Medicare beneficiary settles a workers’ compensation claim with funds intended to pay for future medicals for work related injuries. The Act places obligations and expectations on the untrained beneficiary that are COMPlicated.