“Hurry up and wait” seems to be a recurring theme for those insurers and self-insured entities attempting to comply with the Mandatory Insurer Reporting requirements under Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA). Just weeks before the January 1, 2011 deadline to submit initial reports, the Centers for Medicare and Medicaid Services (CMS) recently announced another one-year extension of the deadline for liability insurers and self-insureds to report payments made to Medicare beneficiaries as a result of verdicts or settlements resolving liability claims.

Background on the Reporting Requirement

Section 111 of the MMSEA amended the Medicare Secondary Payer Act (MSP) to impose mandatory data reporting requirements on liability insurers (including self-insured entities), no-fault insurers and workers’ compensation insurers. The purpose behind the MMSEA reporting requirement is to provide CMS with a treasure map to recover conditional payments made on behalf of a Medicare beneficiary for which other entities, such as liability defendants, are primarily responsible. Insurers and self-insured liability defendants are required to register with CMS as Responsible Reporting Entities (RREs) and to develop internal systems to comply with MMSEA’s requirements. To comply with MMSEA, RREs must independently verify whether a particular liability claimant is Medicare eligible, and if so, must report detailed information upon resolution of a claim directly to CMS. All reporting must be done electronically using a prescribed electronic layout that includes more than 100 elements or pieces of information. The penalties for non-compliance with the MMSEA mandatory reporting requirements are steep, currently up to $1,000 per day per claimant.

The Extension

Prior to CMS issuing its November 9, 2010 Alert, an RRE was required to report all settlements or judgments with a Total Payment Obligation to Claimant (TPOC) date on or after October 1, 2010 within the RRE’s specified reporting window in the first calendar quarter of 2011. Now, settlements or judgments with a TPOC date on or after October1, 2011 must be reported in the first calendar quarter of 2012. The TPOC date is generally understood to be the date the settlement agreement is signed or court approval is obtained, if court approval is required. CMS has made it clear that, although the deadline has been extended, reporting claims with TPOC dates prior to October 1, 2011 is welcomed and encouraged.

This deadline extension only applies to liability insurer and self-insured reporting. The deadlines applicable to worker’s compensation and no-fault insurers have not been changed. Further, the extension does not apply to promises to pay for or provide future medical care (referred to as “ongoing responsibility for medicals” or “ORM”). ORMs that were in place on January 1, 2010 or later must still be reported during the first calendar quarter of 2011.

In addition, the interim dollar reporting thresholds previously set by CMS for both liability insurers (including self-insureds) and workers’ compensation have also been extended by one calendar year. Claims with a TPOC date prior to January 1, 2013 with a TPOC amount of $5,000 or less are exempt from the reporting requirement. The threshold amount is lowered to $2,000 or less for claims with TPOC dates in 2013. Claims with TPOC amounts of $600 or less are exempt from reporting in 2014. All claims with a TPOC date on or after January 1, 2015, regardless of the amount, must be reported to CMS.

Importantly, the MMSEA reporting delay does not impact Medicare’s rights under the MSP to recover conditional payments made on behalf of a Medicare beneficiary for which other entities are primarily responsible. If Medicare is not timely reimbursed and legal action is necessary, Medicare is entitled to collect double damages and interest from any interested party, including plaintiffs’ counsel, liability defendants, and/or their insurers. In other words, liability defendants and insurers who do not make reasonable efforts to protect Medicare’s interests could essentially be required to pay triple damages for those past conditional payments.

Liability Defendants Must Still Protect Medicare’s Interests

During the past year, Medicare signaled its intention to more aggressively assert its rights under the MSP in US v. Stricker (E.D. N.D. Ala. 2009) (No. 1:09-cv-02423-KOB). In Stricker, Medicare filed suit against plaintiffs’ attorneys, defendants and their insurers claiming that plaintiffs’ counsel and defendants were liable under the MSP for all medical expenses that Medicare conditionally paid on behalf of 907 class action tort plaintiffs who were Medicare beneficiaries. Although the Stricker case was recently dismissed because it was filed more than six years after the underlying $300 million settlement was essentially paid and approved by the court, it underscores the need for liability defendants to be mindful of their obligations under the MSP.

Even if the recent CMS Alert eliminates the need to report a particular settlement or verdict involving a Medicare beneficiary in 2011, liability defendants must still make reasonable efforts to protect Medicare’s interests with respect to past conditional payments and must not shift to Medicare the responsibility to pay for future medical expenses for liability-related injuries. If they do not protect Medicare, liability defendants risk continued post-settlement exposure and a potential lawsuit to enforce Medicare’s MSP rights. Although the MSP is silent on a deadline to assert its rights and the Stricker court did not need to reach a conclusion on the issue, the court suggested the Federal Claims Collection Act’s three-year statute of limitations for tort actions would be appropriate for MSP claims against liability defendants and their insurers.

Not surprisingly, there has been considerable disagreement among plaintiffs’ attorneys and defense counsel on how to reasonably protect Medicare’s interests in liability settlements, particularly whether a Medicare Set Aside Trust or similar arrangement to estimate and segregate future Medicare-covered expenses is necessary. Also not surprisingly, there has been virtually no guidance from CMS on this issue, leaving liability insurers and self-insured entities with a host of outstanding questions and concerns. The opinions on how to manage these concerns vary and depend largely upon the potential for significant future Medicare-related expenses, the risk tolerance of the particular liability defendant, and the cooperation of the plaintiff and plaintiff’s counsel.

The Bottom Line for Liability Defendants

Due to the potential risks to parties who fail to protect Medicare’s interests, it is recommended that liability defendants review their MSP compliance protocols, apply these protocols consistently going forward, and ensure that their settlement agreements and files adequately document their compliance efforts. Liability defendants may also wish to consult with legal counsel knowledgeable in Medicare law or a Medicare Set Aside allocation consultant before disbursing settlement funds to a Medicare beneficiary, particularly in cases involving significant future medical expenses.

It is hoped that by the time liability insurers and self-insured entities are required to submit their initial MMSEA reports in 2012, some of these lingering questions and concerns regarding how to reasonably protect Medicare’s interests will be answered. Until then, it is important to keep MSP compliance in mind for all cases going forward.