By: Vicki M. Smith
Medicare law creates pitfalls for claimants, lawyers, and insurers handling claims involving personal injuries. Those pitfalls may turn into liability for significant fines if the parties fail to follow the Medicare requirements. Beginning January 1, 2011, personal injury claims from Medicare-eligible claimants are required to be reported to Medicare. Further, Medicare is entitled to 100% recovery of the benefits it paid during treatment for the injury and will seek reimbursement from any settlement or payment for the claim. Failure to comply with the reporting or reimbursement requirements can result in a $1,000 daily fine per claimant, interest, and double damages. This article discusses the new Medicare law, its role in personal injury litigation, and Bodyfelt Mount LLP’s plan to assist our clients and insurers to comply with the law. For further information, see 42 U.S.C. 1395y, 42 CFR § 411.21 et seq. (2009), and the webpage for the Centers for Medicare and Medicaid Services (CMS), the federal agency that oversees Medicare, at http://www.cms.hhs.gov/MandatoryInsRep/.
What claims must be reported?
The Medicare law affects only claims by those who are Medicare-eligible or reasonably expected to be Medicare-eligible within 30 months. It is important to verify whether a claimant received benefits from Medicare beyond just looking at the claimant’s age because age is not the only factor to determine whether a claimant is Medicare-eligible. Individuals who are at least 65 years old are eligible for Medicare. An individual who is reasonably expected to be eligible, within the meaning of the reporting requirements, may be 62½ years old. Also eligible are people with certain disabilities who qualify for Social Security Disability Insurance benefits, who have permanent kidney failure and require kidney dialysis or transplant, or who have Amyotrophic Lateral Sclerosis (Lou Gehrig’s disease). A claimant must also be a citizen of the United States or a legal permanent resident in order to be eligible for Medicare.
To determine whether a claimant is a Medicare beneficiary, a reporting entity should submit a query to the Centers for Medicare and Medicaid Services through its website. The query must include the claimant’s name, social security number, date of birth, Medicare Health Insurance Claim Number, and gender. The CMS has 14 days to respond to the query.
Only claims involving personal injury must be reported to Medicare. Those claims may arise in personal injury actions, toxic tort actions, or employment claims involving medical expenses. There are limited exceptions to the types of claims that must be reported. Claims arising out of exposure to a substance that occurred and ended before December 5, 1980 are excluded from the reporting requirement. Also, there are minimum reporting thresholds that must be met before payments to a claimant need be reported. The thresholds decrease with time. In 2011, the total amount of payments to a claimant of $5,000 or more must be reported. In 2012, all payments totaling at least $2,000 must be reported, and that limit drops to $600 in 2013. In 2014, all total payments to a claimant must be reported.
While the first settlement reporting date is January 1, 2011, reporting entities will be required to report settlements that occur on and after October 1, 2010, as well as cases that are initiated on or after January 1, 2010 where the reporting entity assumes ongoing responsibility to pay medical expenses (these latter cases generally involve workers’ compensation claims).
Who must report?
Any entity that makes a payment to a Medicare beneficiary on a settlement, judgment, award, or of items or services included in a personal injury claim must report the claim and may be liable for Medicare’s reimbursement. These entities may include insurers, self-insured entities, certain categories of insured entities, and employers administrating workers’ compensation plans. The Medicare law’s definition of a self-insured entity differs from the definition that is commonly used in litigation. Medicare considers any “entity that engages in a business, trade or profession shall be deemed to have a self-insured plan if it carries its own risk (whether by a failure to obtain insurance, or otherwise) in whole or in part.” 42 U.S.C. 1395y(b)(2)(A).
What to report and when?
If a claimant is entitled to Medicare benefits, the reporting entity must report information about the claim and claimant to Medicare once the claim is resolved. The parties have 60 days after the claim is resolved to reimburse Medicare. There are many categories of information about a claimant that needs to be reported to Medicare. A reporting entity should visit the CMS website to complete the report and electronically submit it to the CMS. Failure to report can result in a $1,000 per day fine per claimant.
If payment is made to a claimant and Medicare is not reimbursed, Medicare can bring a legal action against the claimant and the reporting entity. The reporting entity may be held liable to reimburse Medicare even though it has already paid the claimant for the same expenses that Medicare seeks reimbursement.
Reporting is required even if there is no admission of liability, as is the case with most settlement releases. A disclaimer of liability in a release signed by the claimant does not satisfy the reporting requirement. The law requires reporting if medical expenses are claimed or released. Therefore, the parties must still fulfill the reporting requirements even if they agree that a settlement or payment does not include paying medical expenses.
How does the law affect handling and settling claims?
Changes to the law place the burden of determining whether a claimant is Medicare-eligible on the reporting entity. Although the reporting entity can ask the claimant directly, the reporting entity cannot rely on the claimant’s response. To avoid fines and damages, a reporting entity should verify with the CMS whether a claimant is a Medicare beneficiary and continue to check the claimant’s status with Medicare. The reporting entity has an ongoing duty to ensure that a claimant does not become a Medicare beneficiary before resolving a claim and a reporting entity can resubmit the claimant’s information to CMS once a month. When a claimant is a Medicare beneficiary, the reporting entity should report payments promptly to Medicare.
Settling cases with Medicare beneficiaries will be more difficult. Medicare is looking for 100% reimbursement of the benefits it paid, regardless of a claimant’s comparative fault. That puts the claimant in a difficult position because the claimant cannot expect to recover all damages due to his comparative fault and yet the claimant will seek a settlement amount that will fully reimburse Medicare, pay attorney fees, and leave some amount for the claimant.
Also, Medicare will generally not issue a final demand letter to a claimant setting forth the claimant’s payment responsibility until it receives notice that the claim is resolved. However, the claimant can learn an approximation for Medicare’s lien on the CMS website. Another pitfall for the claimant is when he asserts that some of the Medicare benefits paid do not relate to the injury for which the claimant received payment from the reporting entity. Negotiating with Medicare will take time.
To finalize the settlement and to protect itself, the reporting entity needs to know precisely how the settlement funds will be disbursed and ensure Medicare’s reimbursement. It is imperative that these discussions take place during settlement negotiations and are memorialized in settlement documents. A reporting entity may try to negotiate that the settlement check be issued with Medicare as a co-payee along with the claimant and the claimant’s attorney. Claimant’s counsel will likely object to this because, again, negotiating and dealing with Medicare can take a significant amount of time. Alternatively, the parties may agree to enter into an enforceable settlement, report that settlement to Medicare, and defer payment on the settlement until the claimant receives Medicare’s final demand letter. Then, the reporting entity can issue a check to Medicare directly to satisfy its reimbursement and a separate check to the claimant and the claimant’s attorney.
A third option is to set aside funds sufficient to satisfy Medicare’s reimbursement in an escrow account. Once the claimant receives the final demand letter, the escrow account will pay Medicare and provide any remaining funds to the claimant. The settlement documents should specifically state who is responsible to satisfy any amount of the Medicare lien that is not satisfied by insufficient funds in the escrow account. The reporting entity needs to ensure it is entitled to a copy of the escrow’s payment to Medicare and a copy of the letter from Medicare confirming its lien has been satisfied.