UPDATE REGARDING THE SMART ACT

Pursuant to Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA) (P.L.110-173) liability, no fault and workers’ compensation insurers, and self-insured entities are required to report any and all settlements, judgments, awards or other payments where the injured party is a Medicare beneficiary.  See 42 U.S.C. 1395y(b)(7) & (8).  Mandatory reporting ensures that Medicare will be made aware of all payments made to beneficiaries and provides Medicare with an opportunity to seek reimbursement of conditional medical payments Medicare made on behalf of a beneficiary.  Under the Medicare Secondary Payer Act (MSP Act),  42 U.S.C. § 1395y(b) et seq., if Medicare makes a payment for which a primary plan is responsible, then Medicare may seek reimbursement against any entity that is required to make the payment or against anyone that has received payment from the responsible entity (i.e., the beneficiary). 42 U.S.C. § 1395y(b)(2)(B)(ii), (iii).

On January 10, 2013, President Obama signed the Strengthening Medicare and Repaying Taxpayers Act (SMART Act) into law, which reforms the Medicare Secondary Payer program to make it more efficient.  One of the main advantages of the new legislation is that it requires The Centers for Medicare & Medicaid Services (CMS) to respond to counsel inquiries as to Medicare liens in personal injury cases within a certain timeframe, which allows litigants to determine the Medicare reimbursement amount before they enter into a settlement.  This is expected to greatly enhance settlement negotiations.

By September 10, 2013, U.S. Department of Health and Human Services (HHS) must issue final regulations that establish a process by which parties notify Medicare of a reasonably expected settlement and request and receive a demand letter from Medicare setting forth the total reimbursement amount due to Medicare. HHS is also required to maintain a website that allows Medicare beneficiaries to access information about claims and services paid by Medicare.  Parties are required to provide CMS with 120 days’ notice before a reasonably expected settlement.  HHS will have 65 days from the receipt of this notice to provide the Medicare reimbursement amount, a period which can be extended by 30 days by HHS. After this time has expired, the parties can use the reimbursement amount obtained from the website and rely on it as long as the settlement occurs within 120 days of the notice and 3 business days from the last download of the reimbursement amount from the website.

The new regulations will help to facilitate settlements involving Medicare beneficiaries because the settling parties will have an idea of the reimbursement amount during settlement negotiations and will know the final reimbursement amount before any  settlement is paid.  Ideally, this means that defendants will no longer have to delay paying settlements while waiting to receive the final reimbursement amount and risking civil penalties, or in the case of an insurer, bad faith damages.  The payment of the reimbursement amount is due within 60 days of the beneficiary’s receipt of settlement proceeds from primary plan.  42 C.F.R. § 411.24(h).

The SMART act requires HHS to create regulations for  challenging Medicare’s determination of the reimbursement amount.   Even though parties will know the Medicare reimbursement amount prior to entering into a settlement, the beneficiary may dispute that amount.  While the SMART Act does not address such situations, one possible resolution is for insurers to pay the settlement amount minus the full amount owed to Medicare.  It would also be a good practice to insure that the undisputed portion, if any, of Medicare’s reimbursement amount is paid.  With regard to the disputed portion, the insurer should put that amount in escrow pending a final decision by Medicare.  Insurers may also want to include language in the release acknowledging that Medicare must be paid within 60 days of receipt of the settlement proceeds and that if Medicare does not issue a revised reimbursement amount within 45 days of receipt of the settlement funds, then the undersigned authorizes the defendant insurer to forward a draft in the full amount of the Medicare lien made payable to Medicare.

Pursuant to the SMART Act, within 18 months, HHS must implement a reporting process so that responsible reporting entities do not have to access or report social security numbers or health identification claim numbers (HICN).  Effective immediately, the civil penalties for non-compliance with mandatory insurance reporting requirements would be discretionary and “up to” $1,000.00 for each day of non-compliance with respect to each claimant.  Previously, the civil penalties in the amount of $1,000.00 per day were mandatory.

Pursuant to the SMART Act, by March 11, 2013, HHS must solicit proposals for safe harbor situations (practices for which sanctions will not be imposed) where good faith efforts are made to identify a Medicare beneficiary in order to comply with the mandatory reporting requirements.  Currently, where an individual refuses to furnish either an HICN or SSN, CMS will consider the reporting entity compliant for purposes of its next Section 111 file submission if the insurer obtains a signed copy of the model language (even if the individual is later discovered to be a Medicare beneficiary) and the individual re-signs and dates the model language at least once every 12 months in cases where ongoing responsibility for medicals (ORM) applies. The model language provided by CMS can be obtained here.  The implementation of additional safe harbor practices will further protect insurers from the risk of a recovery action from Medicare.

Effective January 1, 2014, certain liability claims will be exempt from reporting and reimbursement if the claim fails below the annual threshold as calculated by HHS.  Currently, there is a $300 threshold for certain liability insurance settlements where Medicare will not seek reimbursement.  This threshold covers a situation where a Medicare beneficiary slips and falls in a store and is compensated with a small payment or gift card to the store.  It is likely that the annual threshold will be higher than the current $300 threshold.

The SMART Act does not address the issue of Medicare set asides in liability settlements.  While parties have an obligation to protect Medicare’s future interest where the beneficiary may require future medical care, CMS does not review individual settlements to determine (1) whether a Medicare set aside is necessary; and, if necessary, (2) whether the parties’ proposed set aside sufficiently protects Medicare’s future interest.

Fineman Krekstein & Harris, P.C. will continue to monitor the implementation of the SMART Act by HHS and CMS and will provide updates on such developments.  Please check out the firm’s Medicare Secondary Payer blog at http://themedicarespa.com.  If you have any questions regarding the SMART Act or this update, please contact Mike Needleman, Jay Barry Harris, or Jennifer Root.