Medicare Subrogation Rules
Article Date: Tuesday, March 13, 2012
If the Medicare program has paid a plaintiff’s medical expenses related to a personal injury action, it is critical to address the Medicare subrogation requirements. The subrogation rules for the Medicare program are based upon federal statutes and regulations.
This article addresses the subrogation requirements applicable to the Medicare program, but not the Medicaid program. The Medicaid and Medicare programs sound similar, and attorneys and their clients often confuse one for the other. In fact, the programs are very different with different requirements for resolving subrogation claims. Many nursing home residents may be what are called “dual eligibles.” Their primary health insurance is with the Medicare program, but their nursing home care is paid by the Medicaid program. We will not be addressing North Carolina Medicaid third-party liability claims in this article.
Who Is Eligible for Medicare? If the plaintiff is 65 or older, there is a good chance his or her primary health insurance is Medicare. Medicare is a federal health insurance program, primarily for people who are receiving Social Security Retirement Income (SSRI), Civil Service Retirement or Railroad Retirement benefits. People who start receiving retirement income before age 65 are not eligible for Medicare until age 65.
In addition to retirees 65 years of age or older, some people under the age of 65 have Medicare as their primary health insurance if they are disabled and have enough work quarters to qualify for Social Security disability benefits (SSDI). For these individuals, Medicare does not begin until 29 months from the onset of the disability. For that reason many plaintiffs, disabled by an injury, are not insured by Medicare at the time of the injury because they are still within the 29-month waiting period. If the plaintiff was already disabled at the time of the tort injury, Medicare may be the primary health insurer. If it takes more that 29 months from the initial injury to settle a claim, it is possible the plaintiff was not receiving Medicare when the case started, but began receiving Medicare before the case was resolved and some treatment for accident related injuries paid by the Medicare program. Children of persons receiving Medicare may be eligible as well if they are drawing Social Security based on their deceased or disabled parent’s work history and become disabled before age 22.
Who Administers the Medicare Program? The Medicare program is administered by the Centers for Medicare and Medicaid Services or CMS. North Carolina is in Region IV of CMS with regional headquarters in Atlanta, Georgia. The Medicare statutes are at 42 U.S.C. §1395 et seq. and the regulations are at 42 C.F.R. 405 et seq. As discussed below, there is a specific entity contracted by CMS to deal with subrogation claims. This entity is the Medicare Secondary Payer Recovery Contractor or MSPRC.
There are two types of subrogation claims. Most claims, including third-party liability claims, workers compensation claims and self-insured claims are referred to as “non-group health plans or NGHP. This reference to group health plans is not referring to a health maintenance organization (HMO) like Group Health or Kaiser Permanente. A “group health plan” or GHP refers to Medicare beneficiaries whose primary health insurance is paid by their employer or a spouse’s employer and Medicare is the secondary insurer.
What Does Medicare Cover? There are four parts to the Medicare program and all are subject to the Medicare subrogation rules:
1. Hospital Insurance (Part A) covers inpatient hospital care, home health care, hospice care, and up to 100 days of inpatient care in a skilled nursing facility following a hospital stay. In cases involving nursing home litigation it is possible that Medicare would pay for up to 100 days of nursing home care under this benefit.
2. Supplementary Medical Insurance (Part B) covers doctors' services, outpatient hospital services, durable medical equipment, home health care and a number of other medical services and supplies that are not covered by the hospital insurance part of Medicare.
3. Medicare + Choice (Part C) is an alternative to regular Medicare (Parts A and B) and is a managed health care program like Kaiser or Group Health.
4. Prescription Drug Insurance (Part D) covers prescription drug expenses.
Medicare Subrogation Rules. For any medical services paid by Medicare, CMS can assert a subrogation claim to seek reimbursement from a responsible primary party. This recovery right is referred to as Medicare Secondary Payer or MSP. Medicare subrogation can apply in three contexts:
• When there is liability insurance, no-fault insurance or self insurance covering an injury to a Medicare beneficiary;
• When there is Workers Compensation coverage for on-the-job injuries (e.g., Labor & Industries or Harbor Workers & Longshoremen’s Act) to a Medicare beneficiary;
• When there is an employer’s group health plan (GHP) that is covering a person also insured by Medicare. The GHP is primary and Medicare the secondary insurer for individuals who have both GHP health insurance and Medicare.
In cases where there is the potential of third-party liability, Medicare may pay the medical bills if the claim is contested or if there will be a delay in payment by the insurer, but Medicare considers its payment to be a “conditional payment,” conditioned on reimbursement through subrogation. Medicare’s right of recovery is superior to all other insurers, including Medicaid, self-insurance plans, liability insurance, no-fault insurance, and uninsured or underinsured motorist insurance.
With a few exceptions discussed below, the Medicare subrogation rules provide for full recovery to the Medicare program, even if there is a discounted settlement or deficient insurance limits, and the injured party is not fully compensated for damages. If there is an insurance allocation to several plaintiffs, Medicare’s claim would only apply to that portion allocated to the Medicare beneficiary.
Procedure for Resolving Medicare Subrogation Claims. The SCHIP Extension Act of 2007 requires all insurance plans to report to CMS information about potential recipients of Medicaid or Medicare benefits who potentially may receive a personal injury settlement. While the insurers have a duty to notify CMS of payouts on claims by Medicare beneficiaries, it is the beneficiary’s attorney who will need to negotiate subrogation matters if medical services were conditionally paid by the Medicare program.
All Medicare subrogation claims are handled through a central clearinghouse. The first step is to report the claim to the Coordination of Benefits Contractor (COBC). The contact number is 1-800-999-1118. The attorney must provide proof of representation of the Medicare beneficiary. This proof of representation is different from a consent to release information form. Medicare’s web site, www.msprc.info includes model language that should be included in the proof of representation submitted to the MSPRC.
After notifying COBC of the claim, the MSPRC will send the Medicare beneficiary and the beneficiary’s attorney a “rights and responsibilities” letter. This letter explains the subrogation process and what additional information is needed. The MSPRC must be notified when there is a final settlement or judgment. As a result of a 2011 federal district court decision from Arizona, Haro v. Sebelius, 2011 WL 2040219 (D.Ariz May 9, 2011), the rights and responsibilities letter makes it clear that Medicare will not take any collection action if an appeal or waiver request is pending.
Within 65 days of issuing the rights and responsibilities letter, the MSPRC will gather medical claims related to the case and issue a “conditional payment letter” or CPL. This letter is no longer a demand for payment, but is intended to put the beneficiary and the attorney on notice of the medical claims paid by Medicare that the MSPRC believes are related to the accident. The letter will include a ledger with the medical bills the MSPRC believes are subject to subrogation claims.
It is no longer necessary to request the conditional payment letter as it is now automatically generated 65 days after the rights and responsibilities letter is issued. The MSPRC will update the conditional payment letter every 90 days. Medicare beneficiaries can also update conditional payments by going to www.MyMedicare.gov. The Medicare beneficiary’s attorney can access this information through the beneficiary’s profile on the website with a user name and password issued to the beneficiary in order to get the information.
Before the case is resolved, the ledger that accompanies the conditional payments letter should be audited to ensure that only claim-related charges are included. If the ledger contains charges which are not related to the claim, an immediate response should be sent to the MSPRC, along with supporting documentation refuting the unrelated charges. Given the slow response times from the MSPRC, this process should begin as soon as the ledger is received, in order to be ready with a corrected ledger at the time the case is resolved.
Once you have reached a resolution to your client’s claim, a Final Settlement Detail form should be completed and sent to the MSPRC. The Final Settlement Detail form contains the final amount of the gross recovery, total procurement cost (fee and costs), total amount of non-Medicare benefits paid on the claim, and a resolution date. A sample Final Settlement Detail can be obtained from the MSPRC web site. This form is sent to the MSPRC, which will then issue a Final Demand Letter. The Final Demand Letter will include the amount owed to Medicare, and reflects a pro rata share reduction for fees and costs.
A request to waive Medicare’s claim can only be requested once a Final Demand Letter has been issued. The demand letter will now state that no recovery action will be taken by Medicare while an appeal or waiver request is pending. If there is no appeal or waiver request, payment is due within 60 days of the MSPRC issuing its demand letter. Interest accrues on the demand amount beginning with day 61 and interest accrues even if an appeal or waiver request is pending, but interest charges will not be charged on any amount the beneficiary ultimately demonstrates is not owed if the appeal is successful. If the Medicare claim is not paid and no appeal or waiver request is pending, the claim will be referred to the U.S. Treasury Department for collection. Collection can include an offset of social security income payments due to the beneficiary.
The mailing addresses for the MSPRC for most subrogation matters is: MSPRC- NGHP, P.O. Box 138832, Oklahoma City, OK 73113. For claims where the Medicare beneficiary is covered by an employer’s plan and Medicare is the secondary insurer, the contact address is MSPRC - GHP, P.O. Box 138856, Oklahoma City, OK 73113.
How Much Can Medicare Recover? As a general rule, Medicare is entitled to recover an amount equal to the Medicare payments for the injuries covered by the liability insurance, up to the full amount payable under the insurance. 42 C.F.R. §411.37. Medicare will not limit its recovery request to the portion of the settlement considered to be for medical care unless a judge or jury specifically allocated a set amount for medical expenses. In cases which do not settle and are resolved at trial, it is important to have judicial or jury findings of the amount allocated to medical expenses if it is important to try and limit the Medicare subrogation claims.
The Medicare subrogation claim will be reduced by the procurement costs incurred by plaintiff’s attorney if the claim is disputed and litigation costs were incurred by the beneficiary. The formula for taking into account the costs of litigation are as follows:
• If the Medicare claim is less than the judgment or settlement amount, determine the ratio of the procurement costs to the total judgment. Apply this ratio to the Medicare payments. Subtract this amount from the Medicare payments, and this is the amount Medicare can recover. For example, if the judgment is $100,000, the attorneys fees and costs are $25,000 or 25 percent of the judgment, and Medicare paid $40,000 in medical bills, Medicare’s claim of $40,000 would be reduced by 25 percent or $10,000. Of the $100,000 judgment, $30,000 would be owed to Medicare.
• If the Medicare claim is greater than the judgment or settlement amount, the total procurement costs can be deducted from the Medicare recovery amount. Using the above example, but assuming that the Medicare payments were $150,000, the $25,000 in attorneys fees can be deducted from the settlement amount but the balance would have to be repaid to Medicare, leaving no proceeds for the plaintiff.
• There is an option in many cases where the gross settlement is less than $5,000 to pay a fixed percentage claim to Medicare of 25 percent of the gross settlement, regardless of the actually amount paid by Medicare. This option must be elected before the MSPRC issues its demand letter. Beginning in February 2012, Medicare will offer a similar option for cases where the gross settlement is less that $25,000 and there is no further expected treatment for the beneficiary’s injuries involved in the case. This fixed percentage option is not available in Workers Compensation cases or cases that do not involve physical injury.
Waiver or Compromise of Medicare Claims
Federal law gives CMS authority to waive, compromise, terminate or suspend its right of recovery of MSP claims. 42 U.S.C. § 1395y. Regulations at 42 C.F.R. § 405.376 authorize CMS to compromise a claim, after considering the following factors:
• The age and health of the debtor;
• Present and potential income of the debtor; and
• Whether assets have been concealed or improperly transferred by the debtor.
• The claim must be less than $100,000.
Waiver or compromise requests must be submitted to the MSPRC and should only be submitted after receiving the Final Demand Letter discussed above. The section of the CMS manual addressing waivers, Chapter 7 of the CMS Medicare Secondary Payer (MSP) Manual, is currently under review and is not available at the CMS web site. This review and presumed revision was the result of the Haro decision in May of 2011.
Conclusion. With the SCHIP Extension Act of 2007, the duty of the defense attorney is to be sure the liability insurer reports information to CMS of potential Medicare recipients. For the plaintiff’s attorney, it is critical to know if there are potential Medicare claims and how resolving those claims will affect the ultimate amount the Medicare beneficiary is likely to receive. •
Credit to Barbara A. Isenhour of Isenhour Bleck, PLLC.
Views and opinions expressed in articles published herein are the authors' only and are not to be attributed to this newsletter, the section, or the NCBA unless expressly stated. Authors are responsible for the accuracy of all citations and quotations.