On January 1, 2011, certain employers and insurers began being required to report settlements, judgments or awards, where medical expenses were paid to a Medicare-eligible claimant. As a result many employers and insurers are left wondering how this will affect settlements of employment related litigation cases. Below are some brief answers to some of the questions raised by these new reporting requirements.

Why the New MSP Reporting Requirement? – Background and Purpose

Enrolled Medicare beneficiaries, individuals age 65 and over, individuals with certain disabilities, and individuals with end-stage renal disease, are provided healthcare benefits.  Medicare’s obligation to pay for these health care benefits is secondary to that of certain primary payers (group health plans, liability insurance plans, etc.).

A new rule creates Medicare Secondary-Payer Mandatory-Reporting Requirements (MSP Requirements) for certain payments made to Medicare-eligible claimants. Ostensibly, the new rule is meant to help Medicare determine primary versus secondary payment responsibility, and to recover costs of medical expenses where another entity has primary responsibility.

Who Is A Reporting Entity?

The primary payers, responsible for making the report to Medicare, are referred to as the Responsible Reporting Entities (RREs). RREs are broadly defined as liability insurers (including EPLI, D&O, and professional liability carriers), no-fault insurers, workers’ compensation insurers, and self-insureds.  These RREs will be required to report to Medicare’s Centers for Medicare and Medicaid Services (CMS) any payments made to a Medicare beneficiary that include or could potentially include medical payments.

When Does Something Have to Be Reported?

Even if a claim by a Medicare beneficiary does not involve any medical expenses, an RRE must still report the payment to CMS if the release includes claims for medical expenses (e.g., a plaintiff’s claim for pain, suffering, and emotional distress).

The requirements apply even when there is no determination of liability.  They will also apply, even when the parties provide for an allocation through a settlement agreement.  While this will not assist parties in resolving disputes, CMS will typically defer to jury’s allocation.

Failure to comply with the reporting requirements will subject the RRE to a civil penalty of $1,000 per day per incident.  In addition, Medicare can take legal action to recover a payment to which it is entitled, recovering up to twice the amount it is due.

What Are Your Compliance Obligations?

Employers and Insurers who may be RREs must take the following steps:

Use discovery to determine whether the claimant is a Medicare beneficiary

Medicare beneficiaries are typically those age 65 and older and individuals with certain disabilities or end stage renal disease.  During the discovery phase of litigation, ask for the following information:  (1) claimant’s social security number, (2) date of birth, (3) Medicare eligibility, (4) Health Insurance Claim Number (HICN), and (5) authorization to obtain benefit and claims payment information from Medicare. The determination of whether the claimant is a Medicare beneficiary must be done before any settlement is reached or any payment is made.

Figure Out Who Is The RRE For The Reportable Claim

If an employer is self-insured, either fully or partially, and pays a settlement or jury verdict, it will typically be found to be the primary payer, i.e. the RRE.  If the employer has liability insurance (e.g., EPLI, D&O, or professional liability) and the insurance company pays the entire settlement or jury verdict, then the insurer will likely be determined to be the primary payer, i.e. RRE.

What Should My Settlement Agreement with a Medicare Beneficiary Include?

Settlement Agreements must now be modified to include language regarding the MSP Reporting Requirements.  Indemnification language regarding Medicare reimbursement should also be added. If a Medicare lien exists (another fact to ask about during discovery), the RRE can attempt to settle with CMS before paying the settlement or jury verdict to the Medicare beneficiary.

If I have to Report, When and How Do I Register?

The registration (and testing) process with the CMS can take approximately three months. RREs should register as soon as possible if they anticipate resolving any claims after January 1, 2011.  RREs must also install required software and pass a testing process before sending actual claims data to CMS.

What is the Ultimate Effect of This New Requirement?

Initially, this new requirement will make resolution between the parties more difficult and draw out the settlement of cases.  Additional costs in discovery and additional time between the parties agreeing to a settlement and actually being able to dismiss the court case are a certainty.  Defense counsel will also have to educate some Plaintiff’s counsel about why certain allocations must be made in order to get approved by CMS.  Employers and their insurers will want to make sure their counsel is familiar with these new rules well before any actual litigation or mediation.