Posted on: 9/11/2012
John V. Cattie, Garretson Resolution Group
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Why All the Fuss?
The words “Conditional Payment Reimbursement” strike fear in the trucking industry. OK, scratch that. Maybe not fear, but the issue does induce insomnia for some. Everyone knows Medicare may collect double damages plus interest from parties when conditional payments are not reimbursed. But does this priority right of reimbursement apply evenly to past medical expenses, as well as to future medical expenses? Does this priority right of reimbursement apply evenly to defendants as well as plaintiffs?
The purpose of this article is to clarify the term “conditional payment.” At the heart of the confusion surrounding Medicare compliance is the question of who is liable to Medicare for ensuring that it is reimbursed appropriately for future medical expenses. In short, so long as a defendant has (1) ensured that any Medicare conditional payments that accrued from date of loss to date of settlement have been verified/resolved; and (2) addressed the future medicals issue at the time of settlement, then future medicals become the sole concern of the claimant, and a defendant or insurance carrier has no further liability or exposure to Medicare on the issue of future medicals.
Medicare’s rights of recovery under the Medicare Secondary Payer (MSP) Act extend both to the past and the future. 42 U.S.C. §1395y(b)(2). Therefore, MSP compliance from the reimbursement perspective includes two separate and distinct moving parts. On the one hand, Medicare may have made past payments that are reimbursable. These are known as “conditional payments,” and the MSP Act provides that Medicare must be reimbursed for any conditional payments it makes for a Medicare beneficiary. 42 U.S.C. §1395y(b)(2)(B)(ii).On the other hand, Medicare also has an incentive to not pay for future medical expenses where funds were allocated to pay for such future expenses. Both past and future medical payments made, or to be made, by Medicare become a factor in resolving claims to ensure MSP compliance.
According to the MSP Act, Medicare’s rights of reimbursement ripen as of the date that a primary plan or payer (Payer) accepts responsibility (but not necessarily liability) for medical expenses and that responsibility is demonstrated by a settlement/judgment/award. 42 U.S.C. §1395y(b)(2)(B)(ii). If a Payer’s responsibility for a payment is demonstrated, then the Payer (and any entity who has received payment from a Payer) must reimburse Medicare for any conditional payments made by Medicare. Beyond that amount, the Payer has not accepted responsibility for, and cannot be liable to, Medicare for any reimbursement since Medicare’s reimbursement rights, outside that amount for which the Payer has accepted responsibility, have not ripened. Thus, as a general rule, a Payer’s liability to Medicare for conditional payments made to a claimant with whom the Payer has resolved a liability claim is capped at the amount of the gross settlement, judgment or other payment amount.
One exception to this general rule exists. If the federal government is forced to file an action against an entity that has either made or received a payment pursuant to the MSP Act, then Medicare may recover up to double the amount of conditional payments paid on behalf of a beneficiary for which a Payer has accepted responsibility. 42 U.S.C. §1395y(b)(2)(B)(iii). For this exception to apply, the following must occur: (1) a claim must have been asserted; (2) Medicare must have made a conditional payment, as defined under 42 C.F.R. §411.21; (3) a Payer must have accepted responsibility for the Medicare entitled beneficiary’s medical expenses; (4) that responsibility must have been evidenced in a judgment or a payment conditioned upon a waiver, compromise or release; (5) the parties must have failed to properly reimburse Medicare for any conditional payments made; and 6) the federal government must file an action seeking double damages plus interest to recover any conditional payments made for which a Payer accepted responsibility. Under that fact pattern, the federal government may be able to recover double damages against the Payer. Absent this specific fact pattern, Medicare may not recover double damages plus interest from a Payer.
Conditional Payments According to Medicare’s Own Rules
Regulations currently enacted in support of the MSP Act clarify the statutory obligation to reimburse Medicare. Medicare defines a “conditional payment” as “a Medicare payment for services for which another payer is responsible …”42 C.F.R. §411.21. The reimbursement process under the MSP Act is further explained in the relevant regulations promulgated by Medicare pursuant to the MSP Act. 42 C.F.R. §411.24. Medicare’s own rules advise that if (1) a primary payer accepts responsibility for a claimant’s medical expenses; and (2) that responsibility is evidenced by a settlement, judgment or award, only then does Medicare’s rights of reimbursement ripen under federal law. A “conditional payment” is just exactly that—a payment Medicare may make on behalf of a Medicare-enrolled beneficiary whose reimbursement is conditioned on the subsequent act of a Payer accepting responsibility for those medical expenses and such responsibility being evidenced by a settlement, judgment or award.
Consequently, Medicare’s regulations track the MSP framework legislated by Congress. If Medicare can recover payments made without filing action against the Payer, then it recovers the lesser of the amount of either the Medicare primary payment or the amount the Payer is obligated to pay to the beneficiary. Conversely, if Medicare must seek reimbursement via the judiciary, Medicare can recover double the amount of the Medicare primary payment. Statutory interest is added to double damages where payment is not made within 60 days of final demand. 42 C.F.R. §411.24(h). However, the double damages plus interest provisions under the MSP Act is only triggered when Medicare is not reimbursed within the 60-day statutory period and Medicare files action to recover.
The prudent defense attorney advises her client to verify/resolve conditional payments when resolving every claim, regardless of whether that claim is a workers’ compensation (WC) or liability claim. Having a clear understanding of what those “conditional payments” look like prior to resolving a claim and having the ability to dispute certain unrelated items on a conditional payment listing prior to resolving a claim is one of the secrets to handling the Medicare conditional payment issue in a more efficient manner.
Until now, we have been laying the foundation for “conditional payment” reimbursement. Now comes the controversial part: what rights of recovery does Medicare have with regard to future medicals and, more importantly, what parties have exposure to Medicare if those rights of recovery for future medicals are not addressed compliantly? Specifically, would payments made by Medicare for a claimant’s future injury-related care be “conditional payments” as defined by Medicare under the regulations. Though widely perceived that Medicare makes future “conditional payments” regularly, exposing the insurance industry to Medicare for failure to reimburse such payments, the truth is that this happens rarely, and would only happen due to the negligence of the parties to ensure that conditional payments were addressed at the time of settlement.
Conditional Payment Reimbursement in Action: An Example
Here’s a hypothetical (though routine) fact pattern. Cristiano Rooney is involved in a motor vehicle accident when an 18-wheeler rear ends Mr. Rooney’s car at a stop sign on July 24, 2009. He suffers severe trauma-based injuries to his back and head. Mr. Rooney applies for and begins receiving Social Security Disability Income (SSDI) benefits, and becomes a Medicare beneficiary as of November 1, 2011. Mr. Rooney has been seeing specialists to treat his injuries, including multiple surgeries for his back. The service providers have been submitting bills to Medicare and Medicare has been making payment. The parties discuss and agree to settle Mr. Rooney’s claim as of August 5, 2012. While Mr. Rooney’s attorney valued Mr. Rooney’s full value of damages sustained to be $500,000, the parties settled for the policy limits of $100,000. Mr. Rooney has not finished treatment; he will continue to require injury-related care going forward and Medicare is the only payment option to pay those future bills. The parties, in settling the case, have verified and resolved any conditional payments made by Medicare from the date of injury (July 24, 2009) until date of settlement (August 5, 2012). The parties also addressed the issue of future medicals at the time of settlement, determining that no Medicare Set-Aside was needed, since there was no allocation for future medicals contained within the settlement proceeds. On January 19, 2013, Mr. Rooney undergoes another back surgery. Those bills are submitted to Medicare, and Medicare makes payment. Would this payment be defined as a “conditional payment” by Medicare or is this payment something else?
To answer that question, let me first pose another question. In making payment for the back surgery on January 19, 2013, was there a Payer somewhere who has not yet accepted responsibility for Mr. Rooney’s medical expenses? No, there were no pending or existing claims at that time. Further, the parties had compliantly addressed the conditional payment reimbursement obligation at the time of settlement, as well as addressed the MSA question. Did Medicare make a “conditional payment” for the back surgery on January 19, 2013? Did a Payer subsequently accept responsibility for Mr. Rooney’s medical expenses and then have that responsibility evidenced in a settlement/judgment/award? The answer is "no." The payment that Medicare made on January 19, 2013, cannot possibly be deemed to be a “conditional payment” because there was no Payer who would subsequently accept responsibility for Mr. Rooney’s medicals. Responsibility was accepted on August 5, 2012. That payment by Medicare for the January 19, 2013, surgery is simply a payment made on behalf of a Medicare-enrolled individual who is entitled under federal law to have the Medicare Trust Fund make payment on his behalf. There is no statutory right of reimbursement that arises from that future payment because the parties were compliant in addressing all MSP reimbursement issues at the time of settlement.
The potential danger for an insurance carrier lies when those MSP reimbursement issues are not addressed at the time of settlement. Medicare is willing to pursue reimbursement post-settlement based on a theory that “conditional payments” have not been reimbursed when parties ignore MSP reimbursement obligations at the time of settlement. United States v. Stricker, Case 09-cv-02423 (N.D. Ala. August 12, 2011. Absent such a fact pattern, it is impossible for Medicare to make a “conditional payment” post-settlement.
In order to protect yourself and your client from Medicare seeking post-settlement reimbursement of conditional payments, a defendant should take two steps when resolving any claim (WC, liability or no-fault): (1) verify and resolve conditional payments made from date of loss to date of settlement; and (2) address the issue of future medicals by determining if a MSA is appropriate based on the case-specific facts and then document the file. To ensure MSP compliance, a formalized approach should be employed on every claim. A formalized approach yields compliant results. When such a formalized approach is applied in every single claim, an insurance carrier will never need to worry about Medicare seeking post-settlement reimbursement for a claimant’s medical expenses (past or future).
John V. Cattie
Garretson Resolution Group
Charlottte, North Carolina