The Compliance Headache

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:

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.

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.