The Centers for Medicare and Medicaid Services ("CMS") has issued updated rules for compliance with the MMSEA "Section 111" requirements for reporting certain settlements with Medicare beneficiaries. As noted in prior client alerts, entities that resolve certain claims with Medicare beneficiaries must report details of the settlement to the government. Non-compliance can result in $1,000 per claim, per day penalties. This alert briefly summarizes the recent regulatory developments and provides some concrete practical suggestions on how to incorporate these changes into your organization's compliance program.

The new Section 111 User Guide (issued Friday, February 26, 2010) delays reporting deadlines, clarifies which entities must report, and provides guidelines to minimize non-compliance penalties, among other provisions - but leaves significant issues unresolved.

Delayed Reporting Schedule. Settlements finalized after October 1, 2010 must be reported beginning in the first quarter of 2011. Previously, settlements finalized after January 1, 2010 were to be reported beginning April 2010.

Allocation of Reporting Duties. In general, where an insured defendant's settlement share is limited to its deductible, the insurer has the reporting obligation. The insured has the reporting obligation if its settlement share exceeds its deductible, or if it finances the settlement without recourse to insurance. Multiple defendants (or their insurers) that are subject to joint and several liability must each report the full settlement. Alternate rules apply to re-insurance, fronting policies, excess and umbrella insurance, self-insurance pools, and payments by entities in liquidation and bankruptcy.

Compliance Guidelines. Reporting entities will be deemed "in compliance" – and presumably able to minimize non-compliance penalties – if they appropriately register for the Section 111 program and timely complete the testing process and submit reports. Conversely, entities that miss the registration, testing or reporting deadlines (or fail to request alternative timeframes) may not be deemed “in compliance.”

Product Liability "Indicators." Prior versions of the User Guide required reporting entities to report the manufacturer and brand and generic names of products at issue in product liability settlements. The updated User Guide clarifies that this information is not currently required in the reports. Additional guidance on this issue is expected.

Unfortunately, the updated User Guide leaves unresolved several important issues related to Section 111 reporting:

Hospital Write-offs and Clinical Trials. CMS has previously suggested that hospitals must report "write-offs" of bills in certain situations. CMS interprets write-offs to demonstrate a payment responsibility analogous to a settlement. Hospitals write off bills for a variety of reasons, such as good will gestures or to allay patient concerns - frequently before any thought is given to legal action. Similarly, CMS has suggested that reporting obligations may apply to a clinical trial sponsor's agreement to pay for medical expenses related to the trial.

The updated rules note that write-offs and clinical trials do not need to be reported "until forthcoming guidance" is issued. However, the rules cryptically add that such claims or payments should be identified so that they "can be reported as prescribed by the general Section 111 requirements and the further guidance."

Asbestos Dates of Exposure and Mass Torts. CMS leaves unresolved issues related to identifying the date of “exposure" required for reporting asbestos and related exposure settlements. CMS also indicated it will provide additional guidance on reporting mass tort settlements.

Non-Personal Injury Claims. CMS indicated that the reporting obligations are likely to extend beyond settlements of expressly alleged personal injury claims. The User Guide and related informal guidance suggest that any settlement that releases a defendant from potential liability for medical expenses may need to be reported, even if such a claim is not alleged. CMS conceded this issue is “unresolved” and is considering issuing additional guidance; however the timetable for clarification is unclear.

Safe Harbor. CMS has offered model language as a safe harbor to demonstrate compliance when recalcitrant plaintiffs refuse to provide their Social Security number for reporting purposes. The safe harbor is of limited practical use in general, and in particular does not benefit healthcare providers. CMS has repeatedly indicated it will release additional guidance on the safe harbor that may expand its use, but has yet to do so.

Medicare Lien Recovery. Although the reporting process notifies the federal government of settlements which may be subject to "Medicare lien" recovery actions, the Section 111 materials and CMS-hosted teleconferences have carefully avoided substantive analysis of lien-related issues. Nonetheless, recent recovery lawsuits filed by the federal government against settling defendants and the enhanced ability to identify potential recovery circumstances suggest greater enforcement of the government's ability to recover Medicare liens.

What to do now:

Even though reporting is delayed until the first quarter of 2011, defendants and insurers must determine relatively soon if they are subject to the reporting obligations. CMS specifically requires entities that have a "reasonable expectation of having claims to report" to register in enough time to allow full calendar quarter for testing prior to reporting. As noted above, timely registration and testing is a pre-requisite to demonstrating compliance. There are no current exemptions for reporting entities that expect a low number of reportable events each year.

The User Guide instructs reporting entities to "implement a procedure in their claims review process to determine whether an injured party is a Medicare beneficiary and gather the information necessary for Section 111 reporting." More specifically, entities subject to the reporting requirements should take the following steps now to avoid penalties and ensure timely reporting:

  1. Develop processes to determine which settlements are reportable and how the reporting responsibility is allocated between the defendant and its insurer (if any). Several factors determine whether a settlement is subject to Section 111 reporting, including the timing of the allegations, value of settlement, nature of claim and identity of the defendant and plaintiff.
  2. Revise releases and other settlement documents to address the reporting requirements. Defendants should consider developing reporting Fact Sheets to confirm the accuracy of reportable information with plaintiffs. The information to be reported depends on the nature and timing of the alleged and released claims, among other factors.
  3. Update indemnification and confidentiality provisions in the release and other settlement documents to reflect reporting penalties and duties.
  4. Develop a process to utilize the model language safe harbor, which can exempt entities from reporting obligations in certain situations.
  5. Implement policies and procedures to protect data confidentiality and limit the use, access and disclosure of the reportable information, as required by the Data Use Agreement that reporting entities must sign with the federal government when registering for the Section 111 program. The reporting process implicates state and federal privacy and confidentiality issues since a plaintiff's Social Security number and medical information must be collected and reported. The Data Use Agreement references criminal and civil penalties for violation of federal privacy laws, among other obligations.
  6. Review contracts with third party reporting vendors (if any) to allocate responsibility for penalties, duties and Data Use Agreement confidentiality obligations.  

Separate reporting rules not discussed in this alert apply to third party administrators or insurers of Group Health Plans, and to defendants or insurers that assume responsibility for a claimant's on-going medical expenses.