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The Compliance Headache

Claims compliance standards are getting stickier with the addition of the Medicare, Medicaid and SCHIP Extension Act.

July 28, 2009 Photo
Is the federal government intentionally trying to sabotage the prompt settlement of property and casualty (P&C) claims when the injured party is Medicare-entitled? Here are the facts:
  • The Medicare Secondary Payer (MSP) law—embedded in the Omnibus Budget Reconciliation Act of 1980—was passed by Congress with the intent to protect Medicare as a secondary payer when a primary payer (workers’ compensation, liability and auto no-fault) exists.
  • In December 2007, Congress passed the Medicare, Medicaid and SCHIP Extension Act (MMSEA) requiring quarterly P&C industry reporting to the federal government of claims involving Medicare-entitled people.
These laws not only protect Medicare from making unnecessary payments but, by identifying primary payers, allow Medicare to pursue its statutory right of recovery when it has made conditional payments that were a third party’s responsibility. In addition, Medicare’s interest is to be taken into consideration under the following circumstances: when settlements are being formulated that involve irrevocable closure of future medical benefits; when the injured party is Medicare-entitled at the time of resolution; and when the injured party has potential Medicare entitlement within 30 months of the date of settlement.

So what’s the beef?

Two Laws, One Giant Headache
Under the 1980 law, the methodology of protecting Medicare was a financial vehicle called a Medicare Set-Aside Allocation (MSA). MSA requires the primary payer to set aside a certain amount of funds at settlement in an account that is meant to protect Medicare from making any future medical payments related to the condition or injury for which the primary payer settled a claim.

The need for MSAs, some of which were to be submitted to the Centers for Medicare and Medicaid Services (CMS) for review of adequacy prior to settlement, added a whole new layer of costs on claims involving Medicare-entitled claimants and potentially Medicare-entitled beneficiaries. First, a “cottage industry” sprang up to provide MSAs to primary payers at an average cost of $2,500 of allocated expense per MSA. Second, the settlement of the claims was delayed while awaiting CMS review of the MSA amount. This resulted in workers’ compensation primary payers spending more on indemnity and medical benefits while they were waiting for CMS to respond on the acceptability of the dollar amount to be set aside to protect Medicare in the MSA at the time of resolution.

To further complicate matters, the Code of Federal Regulations (Title 42, Section 411.20) stipulates that the three primary payers in the P&C industry are workers’ compensation, liability and no-fault auto. Yet the CMS procedural memoranda dealt only with procedures for workers’ compensation claims.

In December 2007, the MMSEA was passed, requiring reporting of workers’ compensation, liability and no-fault auto claims involving Medicare beneficiaries to the Secretary of the Department of Health and Human Services (who promptly designated CMS to oversee the program). The law contains staggering civil monetary penalties of $1,000 per day per file for each day of non-compliance (with no cap) when cases are reported late. The effective date of the law by legislation is July 1, 2009; however, CMS issued an Alert on May 11 altering the date of implementation to Jan. 1, 2010. The first 90 days will be a testing period, so actual reporting now incepts on Apr. 1, 2010. Although that provides the industry (as well as CMS) with more breathing room, the train is still coming down the track.

The legislative intent of the MMSEA was primarily two fold: (1) to allow Medicare to identify primary payers and cease payments to beneficiaries for conditions attributable to an accident or medical condition for which a primary exists; and (2) to provide Medicare with a “target rich environment” to pursue its statutory right of recovery under the Medicare Secondary Payer law against a primary when Medicare has previously made “conditional payments.”

What’s Going On Here?
The property and casualty industry is now struggling with pending MMSEA compliance. For each claim involving a Medicare beneficiary where a loss payment is made, the case must be reported by the responsible reporting entity (RRE). Although there are myriad questions as to what constitutes an RRE, the key answer is that the entity funding the loss payments is the RRE. That can be an insurance carrier or a self-insured company but not a third party administrator (TPA).

The MMSEA reports require more than 100 data elements for each claim reported. Many of these data elements are in the process of being added by every claims handling entity in the country. The technology costs are significant. Now the industry must bear the costs of the MSP and the additional costs of electronically reporting claims under the MMSEA. Additionally, settlements will be delayed as primary payers attempt to quantify what, if any, Medicare conditional payment recovery is owed. No primary payer wants to settle a claim only to reopen it when Medicare asserts a statutory right of recovery or, possibly, files a suit to perfect recovery and seek double damages.

The laws in place to protect Medicare are burdensome, adherence is expensive, and non-compliance is not a viable option. There is no defense for not obeying the law.

This is a complex subject. The more you familiarize yourself with the MSP and MMSEA laws, the better you will be equipped to understand what you must do to be compliant. Your association with an organization, such as MARC, will allow you to keep current on the developing procedures associated with these laws, as well as provide a platform for lobbying efforts.

A qualified TPA can play a central role in helping you meet the challenges of the new MMSEA legislation. As part of your preparations, make sure your vendor or consultant has access to current Social Security Administration data and that updates are immediately uploaded to the claims system. Remember, while there are many vendors marketing their services, you should take a close look at what they can offer and what they will cost. Analyze the costs of insourcing and outsourcing, as well as consulting fees. Factor in elements such as the time required for training internal staff and other expenses. Then look for vendors that offer their SCHIP expertise as a part of the services they already provide. Be wary of MSA vendors that offer “free training”—some may be promoting this as a strategy to market other services.

What You Must Do for MMSEA Compliance
There is much for RREs to do. Although the registration period has been extended to Sept. 30, 2009, the sooner an RRE registers, the better.
  1. Start by going to the CMS Web site (www.cms.hhs.gov/MandatoryInsRep) and reviewing the data.
  2. Call into the CMS Town Conference calls on the MMSEA that are held monthly. They normally last two hours and allow questions to be asked by a limited number of attendees.
  3. Download the 180-page CMS MMSEA User Guide (published on Mar. 16, 2009).
  4. Download the three-page CMS Alert memo released on Mar. 20, 2009, and the subsequent Alert released on May 11, 2009. The first establishes financial thresholds for reporting workers’ compensation and non-workers’ compensation claims. The second pushes the reporting implementation back to Jan. 1, 2010, with the first 90 days being a test period and actual reporting starting on Apr. 1, 2010.
  5. Determine if you are an RRE under the MMSEA. If so, review pages 18-26 in the CMS User Guide. This outlines the registration process for RREs. Register at www.Section111.cms.hhs.gov. Registration began on May 1, 2009, so you need to address this process without appreciable delay. Make sure you know who will act as your authorized representative, account designee, and account manager.
  6. If you have a TPA handling your claims, make sure their claims system is capturing all of the data elements required in the MMSEA reporting.
  7. If you are self-insured and self-administered for claims, your IT department must review the data format in the User Guide and make sure compliance is reached by Jan. 1, 2010, when RRE test reporting will commence.
  8. Join the Medicare Recovery Advocacy Coalition (MARC). This is a group of employers, insurance carriers, TPAs, and others who have banded together to attempt to influence the federal government in removing barriers inherent in the MSP and MMSEA. MARC has been instrumental in convincing CMS to establish reporting thresholds for the MMSEA and extending the reporting testing period from three to six months. To join, visit their Web site at www.marccoalition.com and go to Membership Information.

As a final point, note that this article has touched on only the major points of the MSP and MMSEA. It is a general overview to help you understand the issues. It is up to each organization and every executive responsible for claims to conduct further research and ensure that your company is in full compliance with the law. While the next few months will be demanding for the P&C industry, with knowledge and the right partners we will all meet the challenges.
John D’Alusio is the executive vice president of claims at Avizent, one of the fastest-growing national risk management providers.

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About The Authors
John D’Alusio

John D'Alusio has over 30 years experience in the property/casualty insurance industry. This includes positions as a senior claims and operations officer for AIG, Zenith Insurance Company, and Avizent, a national third party administrator. He is currently an EVP with MEDVAL, a national MSA provider. A well-known speaker and author on the MSP/MMSEA topics, he holds two professional insurance designations (ARM and SCLA), as well as BA and MA degrees. He may be reached at  jdalusio@medval.com

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