On December 29, 2007, President Bush signed the Medicare, Medicaid, and SCHIP Extension Act of 2007 (the Act). Among other provisions, the Act amends the Medicare secondary payer (MSP) statute to require certain “plans” of insurance to report to the Secretary of Health and Human Services the identity of any claimants under the plan that are entitled to receive Medicare benefits. This legislation may raise the stakes for sponsors of clinical trials that promise to pay for services related to injuries that occur as a result of participation in the trial. Clinical trial sponsors providing such guarantees may be obligated to comply with the new reporting requirements beginning July 2009, unless stakeholders can persuade Congress or the Centers for Medicare and Medicaid Services (CMS) to change the position stated in a 2004 CMS letter regarding whether an agreement to pay for these services constitutes a “plan” under the MSP statute.


Under CMS’s current clinical trial policy, Medicare covers routine patient care costs in qualifying clinical trials, including items and services for the treatment of complications. However, because private payors generally do not cover such costs, and because providers and patients may be anxious that there may be obstacles to receiving payment even under Medicare, some clinical trial agreements include provisions under which the sponsor agrees to pay for costs associated with injury or illness stemming from a study subject’s participation in the clinical trial, if such costs are not covered by insurance.

Although Medicare coverage of such injuries or illness is not in question, there is an issue of whether Medicare’s payment obligation should be secondary to that of the trial sponsor that makes such an agreement. Under the MSP statute, Medicare will not pay for an item or service to the extent that “payment has been made or can reasonably be expected to be made” under certain other sources of coverage, including an employer group health plan, workers compensation law, or a “liability insurance policy or plan (including a self-insured plan).” This means that if payment is available for a health care service under a liability insurance policy or plan (including a self-insured plan), Medicare does not have the primary responsibility to pay for that service. The MSP statute authorizes the government to bring an action against any entity required or responsible to make payment and permits the collection of double damages against that entity.

In an April 2004 letter, the Director of the Financial Services Group of the Office of Financial Management at CMS took the position that a clinical trial sponsor’s agreement to pay for services related to injuries participants may receive during a clinical trial effectively makes the trial sponsor the primary payer under the MSP statute and regulations because the promise to pay “constitutes a plan or policy of insurance under which payment can reasonably be expected to be made.” CMS based this conclusion on the provisions in the MSP statute precluding payment by Medicare when “payment has been made or can reasonably be expected to be made under a liability insurance policy or plan (including a self-insured plan).” In the situation prompting the letter, the clinical trial sponsor indicated in its informed consent documentation that it would “pay for medically necessary services related to injuries received as a result of participation in this trial, provided that these services are not otherwise covered by another payor.”

CMS’s 2004 letter lacks the force of statute or regulation, and there is certainly a question of whether the clinical trial sponsor’s promise constitutes a “policy or plan of insurance.” Nonetheless, the CMS letter has been widely viewed in the health care industry as stating a Medicare policy. As a result, a clinical trial sponsor that agrees to pay for costs associated with injuries resulting from participation in the trial may be viewed by Medicare as the primary insurer for such costs, and the sponsor, or a provider that has received Medicare payment, may be obligated to reimburse Medicare for the amount for which the sponsor is primarily liable.

This has prompted some clinical trial sponsors to reexamine their clinical trial agreements with study sites to determine the risk of liability under the MSP requirements in the event of participation by Medicare beneficiaries. However, up to now the MSP statute and regulations have placed the burden of reporting MSP situations entirely on the health care providers, such as clinical sites and investigators.

New Legislation Imposes Affirmative MSP Reporting Obligations on “Applicable Plans” This will change under the new law. Among other provisions, the Act will require “applicable plans” to report to the Secretary the identity of any claimants that the plan has determined to be entitled to receive Medicare benefits, along with any other information the Secretary specifies for purposes of coordination of benefits, including any applicable recovery claims. An “applicable plan” is defined to include “[l]iability insurance (including self-insurance).” Applicable plans must submit this information on and after the first day of the first calendar quarter beginning after the date that is 18 months after enactment, or July 1, 2009. Plans that fail to report may be subject to a civil money penalty of $1,000 for each day of noncompliance with respect to each claimant, and may also face potential liability under the federal False Claims Act for “causing” improper claims to be submitted by clinical sites and investigators.

This change does not create any immediate obligations for stakeholders; however, in the long-term, companies that are considered to be “liability insurance” plans must be prepared to comply with the new reporting requirements or face potential liability. Unless industry stakeholders are successful in persuading Congress to address the position set forth in CMS’s April 2004 letter, it will be necessary for companies to consider whether or not they meet the current definition of a “liability insurance” plan under the MSP laws and regulations.