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

1. The Medicare Secondary Payer StatuteThirty Years Later, It’s Time to Pay Attention San Antonio, TXApril 28-30, 2010 Frank C. Woodside III, M.D., Esq. Thomas M. Connor, Esq. Dinsmore & Shohl LLP (513) 977-8266 frank.woodside@dinslaw.com

2. 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

3. 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

4. Medicare's “Super-Lien” • “[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)

5. 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

6. History of the Medicare Secondary Payer Statute

7. 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)

8. 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

9. 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…

10. 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

11. 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...

12. 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

13. 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

14. Requirements and Penalties

15. 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

16. 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

17. See, e.g., U.S. v. Stricker Then, if you’re unlucky, you become famous

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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

24. Implications For Products Liability Defendants

25. 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

26. 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.

27. Frank C. Woodside III, M.D., Esq.(513) 977-8266 | Dinsmore & Shohlfrank.woodside@dinslaw.com