Lachenmeier, Enloe & Rall - February, 2004 Publication

AN INTRODUCTION TO THE MEDICARE SECONDARY PAYER ACT

Medicare is a federally managed program designed to provide medical coverage for individuals at least 65 years old, or who have certain disabilities or end-stage renal failure. To assure that the program remains cost-effective, Congress enacted the Medicare Secondary Payer Act (MSPA) as part of the Omnibus Budget Reconciliation Act of 1980, which states that Medicare will bear the cost of medical expenses only when other applicable insurance is exhausted.

The MSPA states, in part, that Medicare may not make payment, when “payment has been made, or can reasonably be expected to be made under a workmen’s compensation law or plan of the United States or a State or under an automobile or liability insurance policy or plan (including a self-insured plan) or under no fault insurance.” 42 U.S.C. § 1395y (b)(2)(A) (2006). In the context of automobile insurance, Medicare (the secondary payer) generally only needs to pay for benefits after liability or no-fault insurance (the primary payer) benefits are exhausted. For the purposes of the MSPA, liability insurance includes uninsured and underinsured motorist insurance. 42 C.F.R. § 411.50 (b) (2006).

Under the MSPA and federal regulations, Medicare (the secondary payer) may make payment for benefits before liability or no-fault insurance (the primary payer) makes payment for benefit. Medicare may make such a “conditional” payment when it is determined that a liability or no-fault insurer will not pay promptly. 42 U.S.C. § 1395 (b)(2)(A); 42 C.F.R. § 411.52 & 411.53. “Promptly” is defined as within 120 days of the date the claim is filed or service is furnished, whichever occurs earlier. 42 C.F.R. § 411.50 (b). Under such circumstances, the payment is “conditioned” on reimbursement. 42 C.F.R. § 411.52 (b) & 411.53 (b).

Medicare’s Reimbursement Powers are Broad

Medicare has very broad powers of reimbursement. And although a beneficiary should generally alert Medicare to a primary payer, if a primary payer learns that Medicare has made a primary payment, it must notify Medicare. 42 C.F.R. § 411.25.

The Centers for Medicare and Medicaid Services (CMS) has been placed in charge of reimbursement under the MSPA. CMS has, in turn, contracted with a Medicare Secondary Payer Recovery Contractor to pursue post-payment recoveries. CMS, through its contractor, may recover directly against a primary payer, and CMS does not need to comply with the claims filing requirements of an insurance policy. 42 C.F.R. § 411.24 (e) & (f). Federal regulations specifically state that CMS may seek reimbursement against the beneficiary or another party who receives payment, but if the beneficiary or recipient does not reimburse Medicare within 60 days, then the responsible no-fault insurer must reimburse Medicare, even if the applicable no-fault insurer has already made payment to the beneficiary or recipient. This same rule applies to other primary payers who should be aware that Medicare made a primary payment. 42 C.F.R. § 411.24 (i). The CMS is entitled to double damages when it brings an action to recover payment against a primary payer. 42 U.S.C. § 1395y (b)(2)(A)(iii). Therefore, it is possible that a primary payer who violates the MSPA may actually pay damages three times over.

Additionally, federal regulations provide that Medicare may become subrogated to any person or entity entitled to payment by a primary payer (who has not yet paid benefits), to the extent that Medicare has paid for benefits. 42 C.F.R. § 411.26 (a). Medicare may also recover against any person or entity which has received a primary payment, including beneficiaries, attorneys, providers, suppliers, or other insurers. 42 C.F.R. § 411.24 (g). Essentially, if Medicare should have paid on a secondary basis, CMS can recover the “conditional” payment from just about any involved entity.

Federal Law Preempts State Law

Most importantly, remember that the MSPA is federal law, and it will trump state law or private agreements based on the Supremacy Clause of the United States Constitution. For example, Oregon’s PIP statute states that coverage for pedestrians may be excess to governmental benefits. ORS 742.526 (1)(e). However, federal law dictates that PIP benefits must not be excess to Medicare benefits, so state law would be superseded. Federal regulations state that Medicare is the secondary payer even if state law or the primary payer assert otherwise. 42 C.F.R. § 411.32. It would never be good idea to rely on state law when faced with an agency operating under federal law.

Reimbursement may be Aggressively Pursued

The MSPA has received a lot of attention recently because of the aggressiveness with which the reimbursement provisions have been pursued. For example, before the MSPA was recently amended, the government argued aggressively, but with little success, that business tortfeasors who paid settlements out of pocket should be treated as “self-insurers” and primary payers under the MSPA. Thompson v. Goetzman, 315 F.3d 437 (5th Cir. 2002).

CMS has begun demanding that certain workers’ compensation settlements be reviewed by CMS to assure that Medicare’s interests are protected, although this is not specifically provided for in federal statutes or regulations. This has resulted in significant confusion and concern regarding claims which have already been settled and has caused delays in workers compensation programs throughout the country. In response, a variety of insurers and plaintiff’s attorneys are supporting a legislative clarification to these issues. Workers’ Compensation Settlements and Medicare “Set-Asides,” ABA Press Release, April 2007. So far, it seems this degree of scrutiny has not spread to the settlement of first party or third party automobile claims. However, insurance carriers should consider the reimbursement rights under the MSPA in resolving claims where Medicare benefits may be available to the injured party.

If you have any questions, please feel free to contact the authors: Martin M. Rall (marty@lerlaw.com) and Flavio A. Ortiz (alex@lerlaw.com) at at 503-768-9600.