Www.dinslaw.com Product Liability Advisory Council The Medicare Secondary Payer Statute Thirty Years Later, It’s Time to Pay Attention Frank C. Woodside

www.dinslaw.com

Product Liability Advisory Council

The Medicare Secondary Payer StatuteThirty Years Later, It’s Time to Pay Attention

Frank C. Woodside III, M.D., Esq.Thomas M. Connor, Esq.

Dinsmore & Shohl LLP(513) 977-8266

[email protected]

San Antonio, TXApril 28-30, 2010

© 2010 Dinsmore & Shohl LLP | www.dinslaw.com

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Today’s Discussion

History of the Medicare Secondary Payer (“MSP”) Statute

Reimbursement Requirements and Penalties

– Reimbursement of past health care costs

– Handling of future health care costs

– Reporting of payments to beneficiaries

Implications for Products Liability Defendants

– Issues presented by enforcement actions and penalties


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The Harsh Reality

Reimbursement of Medicare is a very big deal

– Not an obscure ‘lien’ subject

– Penalties are severe

– Many, if not most, product liability attorneys, plaintiffs, defendants and insurers are clueless

– Payers may already be in trouble

– There are more questions than answers


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“[T]he MSP statute does not give the government a claim against property.” Instead, “Medicare has a cause of action for damages.” Zinman v. Shalala, 835 F. Supp. 1163, 1171 (N.D. Cal. 1993)

Medicare’s right to reimbursement is statutory and automatic - no intervention or notice required

Much stronger than a mere lien

"the United States' right of [Medicare] reimbursement is paramount to any other claim." United States v. Geier, 816 F. Supp. 1332, 1337 (W.D. Wis. 1993)

Medicare's “Super-Lien”


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The Warning Shot

U.S. v. Stricker

– Enforcement lawsuit under Medicare Secondary Payer statute Plaintiff: The United States of America on behalf of the Secretary of

Health and Human Services Defendants: Settling liability insurers, self-insured defendants, and

plaintiffs’ counsel $300 million PCB exposure settlement. ~907 Medicare beneficiaries U.S. seeking double damages from insurers and self-insured defendants

– Filed December 1, 2009– U.S. District Court for the Northern District of Alabama, CV-09-PT-2423-ER


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History of the Medicare Secondary Payer Statute


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Medicare Basics

Medicare

– Enacted in 1965

– Federal program that provides government-sponsored health insurance for the following:

People age 65 or older

People under age 65 who are disabled– Tied to eligibility for Social Security Disability Benefits

People of any age with End-Stage Renal Disease (ESRD) (permanent kidney failure requiring dialysis or a kidney transplant)


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Medicare Agencies

Administered by The Centers for Medicare & Medicaid Services (“CMS”)

– Two contractors do most of the day-to-day MSP work Coordination of Benefits Contractor

Medicare Secondary Payer Recovery Contractor

Part of the Department of Health and Human Services


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Medicare as Primary Payer

For the first 15 years Medicare was a ‘primary payer’

– Medicare paid for health care, even if someone else might have been responsible (i.e. tort defendant, liability insurer).

– Only exception - worker’s compensation Medicare a “secondary payer”

Secondary Payer = Medicare only pays after the responsible worker’s compensation plan pays

But Medicare costs quickly exceeded forecasts…


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The MSP Act of 1980 - The Beginning of Our Problem

Medicare Secondary Payer (“MSP”) Act - 1980– A small, largely unnoticed, piece of a larger deficit reduction bill

Medicare and Medicaid Amendments of The Omnibus Reconciliation Act of 1980

– Codified at 42 U.S.C. §1395y. See also 42 C.F.R. Part 411 Medicare now a secondary payer in more situations

The Act created MSP reimbursement obligations Medicare only pays after other payers (including liability insurers)

have paid what they are responsible for

Note that the MSP Act does not govern Medicaid liens


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What About Defendants

After 1980, The MSP expressly applied to liability insurers

But the government targeted Defendants too

– Claiming they were self-insurers if they paid settlements or judgments directly (therefore subject to MSP)

– The Courts repeatedly disagreed

Thus the 2003 Medicare Modernization Act...


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2003 Medicare Modernization Act

The scope of the MSP expanded

– Defendant pays directly = Self-Insurer subject to the MSP

– The mere act of settling creates a reimbursement obligation No finding or admission of liability necessary

If the Plaintiff “compromised, waived, or released” claims for the injury, then Medicare must be reimbursed

Covers almost any personal injury settlement or judgment with a Medicare beneficiary


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MMSEA of 2007

Medicare, Medicaid, and SCHIP1 Extension Act of 2007 (MMSEA) - Section 111

– Does not alter reimbursement obligations

– Adds a reporting requirement for payments made to Medicare beneficiaries

Essentially notifies Medicare of reimbursement opportunities

Burden falls on the Responsible Reporting Entity (“RRE”) – generally the insurer or self-insured defendant

Penalty for failure to report → $1,000 fine per day, per claim.

Has led to largely justifiable paranoia

– And a lot of misinformation

1 State Children's Health Insurance Program


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Requirements and Penalties


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Medicare Will Pay -- Temporarily

Conditional Payments

– Medicare may issue a conditional payment for medical treatment if a primary payer did not pay, or cannot reasonably be expected to issue payment promptly (120 days)

Medicare payments that ultimately become the responsibility of another plan (i.e liability insurer or self-insured Defendant)

– Ensures the beneficiary receives needed care (i.e. during litigation)

– Medicare expects to be reimbursed

– In a product liability case, these are the costs paid by Medicare for treatment of an injury that is the subject of the lawsuit


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Reimbursement of Past Payments

Settlement or Judgment = Identification of a Primary Payer

Immediate automatic reimbursement obligation

– Plaintiff must reimburse within 60 days

– If not, the primary payer must reimburse Medicare “even though it has already reimbursed the beneficiary.” 42 C.F.R. § 411.24(i)

If nobody reimburses, the United States may choose its target in an enforcement action

– United States not bound by indemnification agreements


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See, e.g., U.S. v. Stricker

Then, if you’re unlucky, you become famous


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Statute of Limitations

Government has 6 years from time of notice

– Underlying litigation in Stricker case settled in 2003

– Government reimbursement action filed Dec. 2009

– Stricker has nothing to do with the new reporting requirements

You may already be exposed to liability!

– Haunted by the ghosts of settlements past


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Conditional Payment Enforcement

U.S. has flexibility in choosing a target

– Primary Payer (liability insurer or self-insuring defendant) May seek double damages for failure to reimburse (on top of $

already paid to plaintiff)

Plus interest (from the time of CMS’ demand letter)

– And/Or "any entity, including a beneficiary, provider, supplier, physician, attorney, State agency or private insurer that has received a primary payment."

This means plaintiffs and their contingency fee lawyer


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Conditional Payment Enforcement

And may seek the whole settlement

– Not bound by apportionment of damages by parties– May seek full reimbursement even though settlement was

discounted. Zinman v. Shalala, 67 F.3d 841 (9th Cir. 1995)

– Can frustrate Plaintiff’s ability to recover anything May make allowance for procurement costs

– Lawyer still gets paid

There is a waiver process for hardship


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MSP Private Cause of Action - 42 U.S.C. § 1395y(b)(3)

The private cause of action is often overlooked, seldom used, and little understood

– Extra leverage if plaintiff’s bar figures this out – ‘Ripens’ at the time of settlement or judgment– Allows double damages– Defendant can obtain a release in settlement agreement– But a judgment offers no such protection

Need to account for the true liability exposure Insurer cannot assume that policy limits are the ceiling


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Future Medicals and MSAs

Medicare Set-Aside (“MSA”) – quantify and segregate funds to pay for future expenses where Medicare is a secondary payer.

Required for personal injury cases?

– All the guidance is for Worker’s Compensation, but same statute governs.– If required, it’s a huge mess absent CMS guidance. Need to handle:

– Multiple defendants– Preexisting injuries / Multiple causes – was it the smoking or the product

exposure?– Comparative fault– Class actions – minimal individualized discovery– Damage caps

Others will provide all the answers shortly


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MMSEA of 2007 – MSP Reporting

Requirement to electronically report nearly all settlements and judgments with Medicare beneficiaries to CMS

Two Key Issues– CMS visibility to ALL settlements and judgments = Huge

implications for increased MSP enforcement – Reporting compliance – It’s complex and confusing


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Implications For Products Liability Defendants


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MSP Implications

You may already be in trouble for past cases

– Indemnification clauses won't save you

Need to get compliant for pending and future cases

– At time of settlement, its too late

Need a separate process for all Medicare plaintiffs

Realize the settlement negotiations may break down

– No such thing as a nuisance settlement - need to cover Medicare

Beware the private cause of action


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What You Must Remember

Reimbursement obligation is automatic – be proactive

Reporting requirement has teeth. When in doubt, report!

Increased reimbursement enforcement is all but guaranteed by MMSEA reporting

– The U.S. has 6 years, they may be better at enforcement by then

– Easy for politicians to target manufacturers, insurers and lawyers to shore up Medicare

Penalties are severe. Ignore MSP issues at your own peril.

www.dinslaw.com

Product Liability Advisory Council

Frank C. Woodside III, M.D., Esq.(513) 977-8266 | Dinsmore & Shohl

[email protected]

Documents

Www.dinslaw.com Product Liability Advisory Council The Medicare Secondary Payer Statute Thirty Years Later, It’s Time to Pay Attention Frank C. Woodside