The Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA or the Act) has caused considerable confusion in resolving liability claims since its passage. Product liability litigants have struggled to comply with the Medicare reporting obligations to avoid sanctions of $1,000 per day under the MMSEA, as well as the double damages allowed by the Medicare Secondary Payer Act (MSP). These onerous sanctions combined with the logistical issues arising from implementing the extensive MMSEA requirements have forced an open dialogue between litigants and their counsel and the Centers for Medicare and Medicaid Services (CMS). Although confusion surrounding the Act has caused CMS to extend the deadline for reporting liability settlements several times – the most recent being a one-year extension – practitioners should not expect additional reprieve.  

Over the last several months, the dialogue with the Government has continued. CMS has held town hall meetings to hear industry feedback and issued several guidance documents for navigating the reporting rules. Because the scope of the MMSEA is broad and applies to many types of businesses including group health plans, workers compensation plans and liability insurers, the documentation generated by CMS regarding the implementation of the Act has been voluminous and overwhelming to many.

This article will focus on Medicare reporting issues involved in product liability litigation. It will discuss current reporting deadlines for the resolution of claims, monetary thresholds for reportable payments, recent developments for companies who resolve a small number of claims per year, recent developments for companies involved in mass torts, and Medicare set-asides in liability settlements.  

Background

Before discussing the most recent issues addressed by CMS, a brief overview of the controlling law is provided. The MSP establishes the duty to reimburse Medicare and the duty to notify Medicare of settlements with its beneficiaries. These MSP duties apply to both plaintiffs and defendants. The MMSEA does not affect these MSP duties, rather it sets forth detailed reporting requirements and explains how and when payments to Medicare beneficiaries must be reported. The MMSEA reporting requirements only apply to defendants.

The MSP, enacted in 1980, makes Medicare’s payments for medical treatment secondary to any entity deemed primarily responsible for those payments. If another source is primarily liable for the beneficiary’s medical expenses, then Medicare has a substantive right of reimbursement from that “primary payer.” Primary payers under the MSP are: (1) group health plans; (2) workers compensation plans; (3) no fault insurers; and (4) liability insurers (including self-insureds). 42 U.S.C. § 1395y(b)(2)(A)(ii). Product manufacturers who pay settlements, judgments or awards to Medicare beneficiaries will almost always fall within the fourth type of primary payers because they use insurance funds or their own funds to make these payments. Under the MSP alone, it was difficult for the Government to discover where it had a right of reimbursement, unless or until the parties notified it of such rights.

In the face of budgetary concerns and dwindling Medicare trust assets, the MMSEA was enacted in 2007 to provide the Government with enhanced MSP policing power to enforce its reimbursement rights. Section 111 of MMSEA imposes detailed reporting requirements on the primary payers to identify payments made to any Medicare beneficiary (regardless of the reasons for Medicare’s coverage) so that the Government can decide for itself when it has a right of reimbursement.  

Numerous fields of data must be reported on each claimant under the MMSEA. Primary payers (deemed “Responsible Reporting Entities” under the Act) are required to register with CMS and affirmatively query the CMS database for the Medicare beneficiaries within their respective claimant/ plaintiff pool. Reporting under the MMSEA is exclusively electronic, format-specific and conducted quarterly within a seven-day assigned window. Given the scope of the Act, the magnitude of reportable information and severity of the penalties, it is no surprise that policy and technical issues quickly developed requiring guidance from CMS.  

Reporting Deadlines

On November 9, 2010, CMS once again extended the time frames for the reporting of liability payments under the MMSEA. Most product liability settlements, judgments, awards or other payments occurring on or after October 1, 2011, will need to be reported following MMSEA requirements beginning in January 2012. See Nov. 9, 2010, CMS Alert.  

TPOC Dates Trigger Reporting Deadlines

Under the MMSEA, reporting deadlines are triggered when the obligation to pay a claimant is established. A total payment obligation to a claimant (TPOC) is a one time, lump-sum payment to resolve a claim and is the type of payment typically made in products liability cases.4 In a single claimant case, the TPOC date is not the date payment is made but the date the settlement agreement is signed by the parties, or the date the settlement is approved by the court if required. To determine whether the TPOC falls before or after October 1, 2011 for purposes of MMSEA reporting, practitioners should focus on the date the payment obligation is created.

CMS has issued an alert addressing the ambiguity in determining the timeliness of reporting TPOC lump-sum settlements involving multiple claimants. See Oct. 14, 2010, CMS Alert. Such settlements are common in mass torts, often resolve the claims of unidentified claimants, and typically establish a claims program to determine how much each of the participants will ultimately receive from the lump sum defendants have agreed to pay. In its Alert, CMS clarified that such settlements involving Medicare beneficiaries are reportable once two criteria are met: (1) the beneficiary has been identified; and (2) the specific settlement amount allocated to that beneficiary has been determined.

Practitioners should therefore ensure that future lump-sum settlement agreements require claimants’ counsel to provide prompt notice to defendants of the amounts allocated to each settlement participant, or at least as to the Medicare beneficiaries, under the claims program so that defendants can meet their MMSEA reporting obligations. If the agreement does not specify how the lump sum is to be apportioned among settlement participants, CMS has stated that the entire settlement amount must be reported for each plaintiff and CMS will determine the reimbursement amount for the medical expenses paid on behalf of all settlement participants. (Oct. 14, 2010 CMS NGHP Town Hall Teleconference, p. 10-12).  

The MMSEA and the CMS Alert from October 14, 2010, in particular require a more global assessment and adjustment of settlement strategies for defendants using lump-sum settlements involving Medicare beneficiaries. Gone are the days where defendants can turn over a sum of money and have no further involvement in the settlement process in reliance on contractual requirements that plaintiffs discharge all liens. The parties must build mechanisms into their settlement agreements to ensure Medicare beneficiaries are identified, that defendants are made aware of the amounts allocated to Medicare beneficiaries, and that Medicare is reimbursed for any funds expended for the injury prior to any distribution of settlement funds to the beneficiaries. These developments essentially require a settlement structure for negotiating Medicare’s rights on a plaintiff-by-plaintiff basis. Depending on the number of claimants involved, this may create logistical problems requiring significant expenditures by both parties and thereby undermine the value of settling altogether. In addition, it may not be feasible for the Government to process, manage and act on the extensive amount of information submitted in connection with mass tort settlements. CMS could arguably get “more bang for its buck” and increase the amount of Medicare’s total reimbursement across litigations if it would engage in global settlement discussions with the parties in particularly large litigations to specially resolve Medicare’s reimbursement rights. Unfortunately, however, there is no requirement for CMS to come to the negotiation table, and until there is, the parties must navigate the murky MMSEA waters as best they can. Considerable strategic planning must occur to resolve these claims in an efficient manner as CMS continues to evolve and refine the implementation of MMSEA requirements in the mass tort context.

Reporting Thresholds

CMS also extended the monetary thresholds under the MMSEA for reporting product liability settlements with Medicare beneficiaries. See Nov. 9, 2010 CMS Alert.  

  1. Settlements of $5,000 or less need not be reported if the TOPC date is prior to January 1, 2013.  
  2. Settlements of $2,000 or less need not be reported if the TOPC date is January 1, 2013 through December 31, 2013.  
  3. Settlements of $600 or less need not be reported if the TOPC date is January 1, 2014 through December 31, 2014.  
  4. No threshold applies for settlements with TPOC dates past January 1, 2015.  

Small Reporters

On February 14, 2011, CMS announced a new Direct Data Entry (DDE) option for reporting under the MMSEA. See Feb. 14, 2011 CMS Alert. The DDE option is available for “Small Reporters,” which is defined as reporting parties who submit 500 or fewer claims per calendar year. Small Reporters will be able to access a secure website to manually enter and submit the claims individually. (See Section 111 Coordination of Benefits Secure Website (COBSW) at www.section111.coms.hhs.gov.) The other file transmission method is much more complicated in that it requires, among other things, submission of a separate electronic file with multiple claims during specifically assigned windows of time, and requires the reporting parties to undergo a period of testing prior to their deadlines. Such claims-filing procedures often overwhelmed smaller defendants. Product liability clients who fall within the definition of a Small Reporter may begin using the DDE option on July 11, 2011, and are currently able to register for DDE as a reporting option.  

“Mass Tort” Working Group

Last year, CMS announced it was putting together a working group to address MMSEAreporting issues specific to mass torts. Although a group was assembled, there were no meetings until April 14, 2011. The call addressed a wide variety of topics relevant to all product manufacturers involved in such suits.  

In particular, CMS continued a discussion addressed last fall over the reporting of claims where the ingestion, implantation or exposure occurred prior to December 5, 1980, the effective date of the MSP. CMS hopes to expedite guidance on the issue with the goal that responsible reporting parties need not report payment of claims if the evidence shows a lack of exposure after December 5, 1980. The parties would need to keep the lack of exposure of evidence on file should an issue arise regarding Medicare’s reimbursement rights, and CMS expressed its position that the burden of proving this lack of exposure would fall on the claimant, not the defendant.  

Other topics discussed included: (1) date of first exposure triggering the reporting obligations; (2) reporting of claims where the injury alleged is the risk of future bodily injury rather than actual physical injury and the associated generation of medical expenses; (3) due diligence issues for responsible reporting parties; and (4) reporting of claims paid in mass torts involving multiple defendants with joint and several liability.  

CMS requested industry comments by April 22, 2011 on many of the issues addressed during the call. It hopes to release an updated draft of the proposed guidance documents in June or July 2011.

“Date of Injury” for Cumulative Injuries

Under the MMSEA, defendants are to provide the date of injury (DOI) of the settling Medicare beneficiaries. Confusion arose over the date to use when cumulative injuries were alleged. CMS has now defined the DOI for cumulative injuries as the earlier of: (1) the date that treatment for any manifestation of the cumulative injury began when such treatment preceded formal diagnosis; or (2) the first date that formal diagnosis was made by any medical practitioner. See Oct. 14, 2010 CMS Alert.  

If your product liability litigation involves allegations of injuries that are cumulative in nature, you should consider structuring discovery requests or other information obligations using the above definition to capture the specific dates of treatment and diagnosis. This will allow the reporting party to quickly identify the DOI, avoid the need for supplemental discovery, and avoid delay in settlement processing or reporting at the tail end of the litigation. As this definition is tied to medical treatment, however, an open question is the date to use when no medical treatment was sought for the alleged injury.  

Medicare Set-Asides

Medicare has a right of recovery for both past and future medical care costs. Although there has been considerable debate on the issue,5 as recently as April 6, 2011, CMS somewhat reluctantly confirmed that it has not yet mandated the use of Medicare setaside agreements (MSAs) with respect to liability payments. (April 6, 2011, CMS NGHP Town Hall Teleconference, p. 27-28). The purpose of an MSA is to set aside funds to pay for future injury-related care which would otherwise be covered by Medicare. There has been considerable CMS guidance on the MSA issue in the context of workers compensation (WC) cases mainly because every workers compensation settlement has a future cost of care damages allocation. This is not the case with personal injury liability payments since issues of comparative fault and non-economic damages, among other things, factor into the damages calculus. The complexity of the damages calculus in liability payments does not allow for the easy translation and application of CMS guidance on MSAs from the workers compensation context.  

For now, it does not appear that CMS has expanded its MSA guidance to include liability settlements. That is not to say that such expansion will not occur in the future, and several prior statements by CMS suggest that MSAs will likely be required in future liability payments. Should your settlements include a specific allocation of future medical care costs for Medicare beneficiaries, however, prudence requires a thorough review of current guidance and legal authority on MSAs before deciding whether an MSA is required or recommended.