We’re a little more than half way through 2012 and thus far we have seen some significant changes in the Mandatory Insurer Reporting landscape.

The Center for Medicare and Medicaid Services (CMS) made long awaited updates to the Medicare Medicaid SCHIP Extension Act (MMSEA) User Guide for Non-Group Health Plans (NGHP).  These may have been the result of CMS listening to Town Hall teleconference attendees, fielding Section 111 e-mail submitter questions  and interacting with industry committees.

The latest version of the User Guide introduced new formatting with sections separated into functional categories. The new NGHP User Guide also includes additional charts and tables affording readers a better understanding of context and work flow.

CMS announced during a recent Town Hall teleconference the merging of functionalities between the Coordination of Benefits Contractor and the Medicare Secondary Payer Contractor. The industry will benefit from the increased efficiency in processing of MIR data and Medicare Secondary Payer identification and handling conditional payment liens.

While some changes have been beneficial, others have not been as effective.

Earlier this year, the Department of Health and Human Services (DHS) issued a Medicare Learning Center ‘News Flash’ advising Medicare fee for service providers on proper procedures for identifying primary payers and making correct and timely billing submissions to Medicare. Despite this notification and training of CMS contractors, there remain widespread reports of injured parties contacting insurers or their agents seeking remedy for affected Medicare treatment and services disrupted by NGHP Section 111 reporting. Along with the administrative burden on the industry, there is frustration over the inability to affect resolution.

The annual Responsible Reporting Entity (RRE) Profile Report confirmation and recertification process has proven to be an arduous task. Many legitimate RRE’s are in a discontinued status and have  become non-compliant. Clearly, improvements to communication and workflow are needed prior to January 2013 to prevent recurrence of the administrative log jam.

Lastly, there are issues which remain unaddressed, such as the reconvening of the Mass Tort group and creation of policy and guidance regarding NGHP Section 111 reporting.

In two quarters, we’ve witnessed increased organizational efficiencies with CMS contractors and much improved documentation.  There has been progress but many significant issues remain unresolved and will likely remain so for the foreseeable future.

(NGHP) User Guide Version 3.4

About the Author: John Miano is the Manager of Reporting Services for Gould & Lamb, LLC. His primary responsibility is directing the implementation of CMS Section 111 reporting programs for our clients. He has over 20 years experience in the Property and Casualty Insurance Industry and is currently an active committee member of the International Association of Industrial Accident Board Committees (IAIABC). He is also a former Executive Board Member of the Association of Workers Compensation Claim Professionals (WCCP) and is a Board Certified Workers Compensation claim adjuster (CWC).

Gould & Lamb is a global leader of MSA/MSP Compliance Services in the country, serving domestic and international insurance companies, third-party administrators and self-insured entities.

On November 21, 2011, the US 6^th Circuit Court of Appeals rendered its much anticipated ruling on Hadden v. United States, finding that despite receiving only a percentage of his damages, the Medicare Secondary Payer Act required Hadden to reimburse Medicare to the full extent that the government had requested and therefore affirmed the judgment of the District Court, which had previously ruled that Hadden owed $62,338.07 in conditional payments out of the $125,000 settlement he had received from the tortfeasor.

On March 30, 2012, Hadden filed his Petition for Writ of Certiorari with the United States Supreme Court. Hadden challenges the government’s argument that Medicare is entitled to 100% of its outlay, regardless of whether the beneficiary receives a reduced recovery by settling his tort claim for only a portion of his undifferentiated damages, is legally incorrect. Therefore the question presented for the Court whether the government is entitled to full reimbursement under the Act when a beneficiary compromises a tort or other claim and recovers a reduced amount, as the 6^th Circuit Court of Appeals held, or whether the government, like its beneficiary, is entitled to only a proportionate recovery, as the 11th Circuit Court has held.

Hadden argues that the Court should grant the petition and hear the case as there are now conflicting Medicare Secondary Payer Act (MSPA) Circuit opinions, Bradley v. Sebelius, out of the 11^th Circuit, and Hadden v. United States, out of the 6^th Circuit.

Bradley v. Sebelius

On September 29, 2010, the 11^th Circuit Court published its opinion on Bradley v. Sebelius, concluding that the district court erred in upholding the decision of the Secretary because it was unsupported by substantial evidence in the record taken as a whole. It therefore reversed, finding Medicare entitled to the sum of $787.50, as determined by the allocations of the state probate court.

In Bradley, the Secretary refused to accept the probate court’s determination that Medicare should only recover $787.50. Therefore, the estate paid Medicare under protest, perfected its administrative appeal, and exhausted its administrative remedies. The case proceeded as an appeal to the district court from a final decision of the Secretary, wherein the surviving children filed their brief in opposition to the Secretary’s decision, the Secretary filed her brief in support of her final decision, and the case became ripe for district court review.

The district court, adopting the report and recommendation of the magistrate judge, held that the Secretary’s interpretation of the MSP, 42 U.S.C. § 1395y(b)(2)(B)(ii)(2006), and its attending regulations, 42 C.F.R. §§ 411.37(c)(1), (c)(2), (c)(3)(2004), was reasonable. Accordingly, the district court held that Medicare was entitled to reimbursement in the amount of $22,480.89, not $787.50, for conditional medical expense payments paid on behalf of the Decedent. Burke then appealed to the 11^th Circuit.

The 11^th Circuit Court concluded however that the Secretary’s position was unsupported by the statutory language of the MSP and its attending regulations. The Secretary’s ipse dixit contained in the field manual does not control the law. The district court also erred in relying upon the advisory language contained in a field manual as the rationale for its opinion upholding the actions of the Secretary.

Hadden v. United States

In comparison, on November 21, 2011, the US 6^th Circuit Court of Appeals rendered its ruling on Hadden v. United States, finding that the Medicare statute required Hadden to reimburse Medicare to the full extent and therefore affirmed the judgment of the District Court, which had previously ruled that Hadden owed $62,338.07 in conditional payments out of the $125,000 settlement he had received from the tortfeasor.

In Hadden, an administrative law judge found that the plain language of the Medicare statute required Hadden to reimburse Medicare the full amount that Medicare had demanded. The ALJ also found that the reimbursement was not against “equity and good conscience.” The Medicare Appeals Council agreed with each of those findings. Hadden appealed that decision to the district court, which remanded the case back to the Appeals Council. The Appeals Council issued an amended decision in which it again agreed with the ALJ’s findings. The district court agreed with them as well, resulting in Hadden’s appeal to the 6^th Circuit Court.

In its opinion, the 6^th Circuit Court made it clear that it is undisputed that defendant is a “primary plan” and that Hadden is an “entity that received payment from a primary plan” within the meaning of 42 U.S.C. § 1395y. It is also undisputed that Medicare paid for $82,036.17 of medical services rendered to Hadden. Thus, Hadden “shall reimburse” Medicare to the same extent that defendant “had a responsibility to make payment” with respect to those services.

The court pointed out that in 2003, Congress amended § 1395y(b)(2)(B)(ii), making it clear that 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. As a result, a beneficiary cannot claim that a third party is responsible for all of his medical expenses on the one hand, and later argue to Medicare that the same party was responsible for only 10% of them, on the other. In his claim against defendant, Hadden did not demand that it pay for only 10% of the medical expenses that he incurred as a result of his accident; he demanded that it pay for all of them. That choice, the court said, has consequences—one of which is that Hadden must reimburse Medicare for those same expenses.

Hadden’s Arguments

In his Petition for Writ of Certiorari, Hadden argues the 6^th Circuit Court of Appeals decision is erroneous on several counts, as it essentially rewrites the MSPA leading to absurd results. Hadden further argues that the majority’s holding contravenes the legislative history and the government’s interpretation of the MSPA. Hadden also argues the Court of Appeals made reversible error by attempting to avoid Ahlborn, the US Supreme Court’s landmark decision limiting a state’s right to reimbursement when claiming a Medicaid lien, by manufacturing a distinction between responsibility and liability. In addition, Hadden further argues that the Court of Appeals’ holding ignores the well-established policy of favoring settlement of disputes, as compared to prolonged and protracted litigation. Last, Hadden argues the MSP Manual is not entitled to deference, as it is not statutory law or regulatory provisions.

In addition to these arguments, Hadden points out that the question presented is one of exceptional importance and therefore one that the Court must hear. Because of the split in the 6^th and 11^th Circuits, Medicare, a uniform federal program, is now being implemented disparately. As a result, Hadden argues the Court must intervene to provide consistency for all Circuits to appropriately administer such reimbursement claims. In addition, Hadden argues that given the number of baby boomers coming into the Medicare program over the next several years, this question will recur frequently. Consequently, this case will provide the Court with an opportunity to clarify the erroneous public policy Court of Appeals’ decision.

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About the Author: Rafael Gonzalez is Director of Medicare Compliance & Post-Settlement Administration. He brings over 20 years of experience in the Workers’ Compensation and Liability insurance industries with a specific focus on Medicare Compliance. Rafael has been responsible for all areas of Medicare Set Aside Allocations (MSAs) including the preparation of MSAs and their approval by the Center for Medicare & Medicaid Services.  At Gould & Lamb, Rafael’s duties include assisting clients with Medicare Compliance issues, specifically on Post-Settlement Administration and client education.

Gould & Lamb is a global leader of MSA/MSP Compliance Services in the country, serving domestic and international insurance companies, third-party administrators and self-insured entities.

The United States Court of Appeals for the Sixth Circuit published its ruling in Vernon Hadden v. United States of America on November 21, 2011.  The long awaited decision regarding the extent of Medicare’s reimbursement rights to conditional payments made on behalf of an injured beneficiary was eagerly anticipated.  For the Medicare compliance industry, tort litigants and beneficiaries, the Hadden case brings at least one court’s interpretation of the Medicare Secondary Payer Act and the seeming incongruity between Medicare’s broad right of recovery and the reality of tort settlements and awards.

Hadden, injured in a 2004 accident when he was struck by a vehicle, argued that he had recovered only 10% of the total damages in his case (the remaining 90% were the fault of an unidentified motorist).  Of the $125,000.00 settlement paid by the insured tortfeasor, Medicare claimed a reimbursement right to $62,338.07.  Hadden took the position that Medicare’s reimbursement rights should be reduced as a result of his failure to recover the lion’s share of the damages that resulted from the accident.

Hadden Argued Four Points

Hadden essentially argued four points on appeal from the United States District Court for the Western District of Kentucky at Bowling Green. First, he said, his obligation to reimburse Medicare should be limited to a pro-rata share of the portion of his recovery that represented medical expenses.  Second, he argued that Medicare reimbursement cases should be handled pursuant to other federal and state statutes including the Medical Care Recovery Act, 42 U.S.C. §2651(a) and the Medicaid statute.  He cited the Supreme Court’s decision in Arkansas Department of Health and Human Services v. Ahlborn, 547 U.S. 282 (2006) as authority.  Third he argued that, technically, Medicare’s right to reimbursement as set forth in 42 U.S.C. 1395y(b)(2)(B) was only enforceable pursuant to section iv of the statute when an action was specifically brought. Accordingly, principles of subrogation would preclude action against Mr. Hadden directly.  Last, Hadden said that Medicare should have waived the reimbursement obligation in his case as their recovery was “against equity and good conscience.”

Court’s Findings

The court in affirming the District Court’s order denying the relief Mr. Hadden sought, addressed each argument in turn.

With regard to the position that Medicare should have waived the lien based upon the circumstances of the claim and the amount of settlement, the court found that the Appeals Council and the Administrative Law Judge that reviewed the case had “little to no evidence” that the reimbursement amount would have caused a hardship to the plaintiff. Specifically, Mr. Hadden retained almost $44,000.00 after reimbursing Medicare.

As to the argument that the Medicare Secondary Payer Act can only be enforced by bringing action under 42 U.S.C. 1395y(b)(2)(B)(iv), the court reasoned that 42 U.S.C. 1395y(b)(2)(B)(iii) allows the United States to recover against any entity that receives payment from a primary plan which would include Mr. Hadden. Thus, the Medicare Secondary Payer Act is broad enough to include all parties to a settlement, judgment or award.

The more significant findings were made regarding Hadden’s first two arguments. As to the position taken by the plaintiff that the Medicare Secondary Payer Act and Medicare’s reimbursement rights should specifically recognize the extent to which tort recoveries are reduced by facts including failure to recover the full measure of damages, the court was unsympathetic. Because the Medicare Secondary Payer Act does not, like the state Medicaid decision in Ahlborn, limit recovery to the extent that there is legal liability to pay for care, seeking to engraft the same type of standard whereby the parties legal obligations wherein proportionate fault as is analyzed (as in a Medicaid reimbursement case) is simply not contemplated by 42 U.S.C. 1395y(b)(2).

Perhaps most importantly, the court found that Medicare’s reimbursement rights, as set out in 42 U.S.C. 1395y(b)(2)(B)(ii), includes the “responsibility” to reimburse Medicare from both the beneficiary and a primary plan. Citing the portion of the statute that establishes Medicare’s right to reimbursement despite a determination or admission of liability, the court found that when a beneficiary demands medical expenses from a primary plan to their full extent, he cannot then argue that Medicare should receive only 10% of the total. In short, the court determined that the scope of the responsibility to reimburse Medicare is determined by what has been requested of the third party.  Here, because Mr. Hadden’s arguments were not restricted to a pro rata share of the medical expenses incurred, the court determined that he is then bound by the position taken at the time of the settlement.

Dissenting Opinion

A dissenting opinion was also filed by one of the Judges calling into question the majority’s definition of “responsibility” and arguing that, in reality the majority’s reading of the Medicare Secondary Payer Act is both too broad and impractical in the world of tort litigation.

For the Medicare Compliance industry and Medicare beneficiary tort litigants, the Hadden case seems to suggest that Medicare will not be inclined to consider arguments including a reduced tort award as a means to compromise conditional payment liens. However, the case also appears to suggest that compromise and waiver arguments are still considered viable avenues to reduce Medicare’s ultimate recovery, if properly presented. Whether the case triggers any internal policy or procedural change within Medicare should be known shortly.

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About the Author: Russell S. Whittle, Esq., is the Vice President of MSP Compliance for Gould & Lamb, LLC. In his twenty plus years of practice prior to joining Gould & Lamb, LLC, Mr. Whittle practiced primarily in the area of insurance defense, representing the interests of large insurers and employers in both workers’ compensation and general automobile liability matters.

Medicare Secondary Payer Act Sways  PA Superior Court Ruling

The Superior Court of Pennsylvania recently upheld a ruling in the Court of Common Pleas which has created somewhat of a stir in the Medicare Compliance industry in recent days. Those familiar with the Medicare Secondary Payer (MSP) Act, however, are not surprised by what the court made plain: MSP Compliance must not be merely an afterthought in tort litigation. MSP issues must be dealt with before the case goes to trial and, indeed, before settlement negotiations begin. The mere suggestion of a potential conditional payment lien is not enough, the court concluded, to hold off enforcement of a verdict. Further, the court found that a defendant cannot pursue lien rights that belong to the United States alone.

In Zaleppa v. Seiwell, defendant Seiwell backed her automobile into a vehicle occupied by plaintiff Zaleppa, causing personal injury. At the time of the accident, Zaleppa was sixty nine years of age and a Medicare beneficiary. A jury awarded Zaleppa $15,000.00, $10,000.00 of which was compensation for physical pain and suffering, mental anguish, etc.

After the verdict, Seiwell argued that the Medicare Secondary Payer Act required Medicare’s interests to be taken into account where conditional payments may have been made. On that basis, Seiwell requested that the court allow her (and her liability carrier) to include the plaintiff, her attorney and Medicare as a payee on the draft in satisfaction of the verdict or to pay the verdict into the court until Medicare notified the court that any lien was satisfied.

The trial court denied the motion, essentially finding that the defendant’s inaction regarding Medicare’s interests did not operate to stave off the enforcement of the verdict. On appeal, the Superior court nicely analyzed the MSP Act in addressing the core question: Can a private entity (Seiwell) assert the rights of the United States government regarding potential Medicare reimbursement?

Court Rules that Obligation to Reimburse was Triggered Before Tort Litigation Established

Seiwell, quite correctly, argued that as the “primary plan” she and her liability carrier were responsible for conditional payments made to Zapella, if any. What Seiwell failed to establish, however, was the existence of a Medicare lien. The court specifically recognized that if a lien existed, MSP required the primary plan to reimburse Medicare. Significantly, the court found that a recovery demand letter, issued by Medicare, triggers the primary plan’s duty to reimburse Medicare yet also acknowledged that payment to the plaintiff triggers reimbursement rights. Despite the fact that liability is established upon payment of a judgment, the mere fact of liability for MSP does not entitle a party to post trial relief until the obligation to reimburse has been triggered.

In its analysis of the MSP, the court found that there is a fundamental difference between Medicare’s right of reimbursement and the obligation of a primary plan. Nothing in the MSP, they reasoned, authorizes a primary plan to assert Medicare’s rights as a method to guard against their own liability. Only the U.S. government is authorized to pursue its own right of reimbursement.

The Pennsylvania court also added its “two cents” to the body of case law on conditional payments. Where Medicare’s interests are raised, the primary plan must show both the existence of a lien by affirmative evidence (a Medicare lien letter) but are not empowered to pursue Medicare’s interests under the private cause of action until they are actually damaged.

PA Court’s Decision Illustrates That Ignorance or Neglect of Medicare’s Interests Carries Consequences

The Pennsylvania decision again illustrates the fact that ignorance or neglect of Medicare’s interests has dire consequences. In the Seiwell case, had the primary plan taken the simple step of requesting and receiving a lien amount from Medicare, the interests of the U.S. government would have been placed at issue and addressed in the verdict phase. Instead of seeking to limit liability by raising Medicare’s interests until after a verdict is entered, parties must be aware that Medicare reimbursement must be addressed in every case. The Seiwell case is yet another example of what is becoming an increasingly clear message: Medicare’s interests must be identified and dealt with as early as possible and to ensure compliance and avoid penalties.