U.S. federal law provides that, under certain circumstances, Medicare is a secondary payor to commercial insurance and self-insurance. The Medicare Secondary Payor (MSP) rules describe the specific circumstances where Medicare does not have primary responsibility for paying the medical expenses of a Medicare beneficiary. In brief, Medicare’s obligation to cover medical costs is secondary to certain group health plans (GHPs), i.e., employer-sponsored health plans, and to liability insurance (including self-insurance), no-fault insurance (e.g., automobile insurance) and workers’ compensation. For example, if a Medicare beneficiary is injured in an automobile accident, Medicare pays secondary to any available automobile liability or no-fault insurance payments for the Medicare-covered medical costs incurred. Similarly, if a patient is injured (or alleges injury) by a health care provider, Medicare pays secondary to any payment for Medicare-covered services made pursuant to a judgment or settlement by the health care provider’s professional liability insurer or by the health care provider itself. Any payment to the Medicare beneficiary by the health care provider is considered to be self-insurance under the MSP rules. In such case, under the MSP rules, if the provider’s settlement with a beneficiary includes payment of Medicare-covered medical expenses, Medicare is legally allowed to recoup prior payments and to avoid any payment for future medical expenses that are covered by the settlement.
In order to permit the Centers for Medicare and Medicaid Services (CMS) to better enforce the MSP rules, Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA) added new mandatory reporting requirements for insurers. The new MMSEA requirements do not change existing rules that determine whether Medicare or another payor is the primary or secondary payor with respect to a beneficiary. Rather, the purpose of these new rules is to enable CMS to ensure that it has the necessary information to determine when Medicare’s financial responsibility is secondary, and therefore Medicare payments may be reduced or, if already paid, recouped.
The reporting requirements for GHPs became effective January 1, 2009. The reporting requirements for liability insurance (including self-insurance), no-fault insurance and workers’ compensation become effective July 1, 2009. Health care providers that self-insure their professional liability risks or own a captive insurer that funds their professional liability risks will be subject to the same reporting requirements as commercial professional liability insurers. Therefore, it is important for self-insurers and captive insurers to become familiar with the reporting requirements and to prepare for compliance well before the July 1, 2009, effective date. A few key elements of the MMSEA reporting requirements are summarized below:
- Responsible Reporting Entity. The Responsible Reporting Entity (RRE) is the entity that makes payment to the claimant or representative of the claimant, regardless of whether a third party (e.g., captive insurer) reimburses the self-insured entity. For example, if a hospital makes payments to professional liability claimants and is then reimbursed by its self-insurance trust or captive insurer, the hospital is the RRE. Captive insurance policies written by hospital-owned or hospital-system-owned captives, particularly those written by offshore captives, typically provide that the captive indemnifies the hospital for payments previously made to a claimant. Therefore, many hospitals or their parent companies will be RREs. Few (if any) single parent captives or offshore captives will be RREs. However, group captives such as risk retention groups (RRGs) that cover the professional liability risks of RRG members likely will be RREs. An RRE may not limit or transfer the MMSEA reporting responsibilities, but may contract with an unrelated third party, such as a third party administrator, to prepare and file reports to CMS as its agent.
- Registration. RREs must register online with the Medicare Coordination of Benefits Contractor between May 1, 2009, and June 30, 2009. The registration process is further described on the CMS website.
- Reporting. RREs must report on a quarterly basis, in an electronic format designated by CMS, any settlement, judgment award or other payment made on or after July 1, 2009, with respect to a Medicare beneficiary, regardless of whether there has been an admission or determination of liability. In the case of professional liability settlements, even if the settlement agreement provides that the payment is limited to lost income or other non-medical expenses, if medical expenses are claimed by the claimant or are released by the claimant, the payment still must be reported. CMS is not bound by an allocation of medical expenses made by the parties.
- CMS Registration and Reporting Forms and Other Information. CMS has established a dedicated portion of the CMS website that currently includes extensive information about registration and reporting requirements, and eventually will include a complete “User Guide” for liability insurers
In closing, it should be mentioned that these new MSP requirements apply to both for-profit (i.e., taxable) and not-for-profit (i.e., tax exempt) health care providers.