Medicare reporting a bitter pill for lawyers, insurers 

Posted: 1:00 am Mon, November 2, 2009
By Barbara L. Jones

A new Medicare reporting requirement that goes into effect on Jan. 1 could be a prescription for delays in personal-injury settlements and in processing other insurance-related claims, according to both lawyers and insurers.

The requirement — which is part of the Medicare, Medicaid and SCHIP Extension Act — provides that insurers and other third-party liability payers must report to Medicare when an individual receives a settlement, judgment, award or other amounts that constitute payment or reimbursement of medical costs.

While Medicare has always had the ability to place a lien on personal-injury settlements and similar payouts to recoup the value of any Medicare benefits received, the new law shifts to the insurer providing liability, workers’ comp and no-fault insurance payments the responsibility to report the claim to the U.S. Department of Health and Human Services. Insurers must register electronically with department’s Centers for Medicare and Medicaid Services and report all settlement claims for the purpose of providing the center with sufficient information to enable it to recover medical expenses related to the reported claims.

The penalty for failure to comply with the reporting requirements is a fine of $1,000 per day. That means failure to report one Medicare beneficiary for one quarter will cost $90,000. Commentators note that this penalty has the potential to replenish Medicare’s coffers in a hurry.

In light of the heavy penalties, some insurance companies are likely to include Medicare as a payee on a settlement draft.

Minneapolis defense attorney Richard Thomas said he is advising clients to issue two drafts — one to the claimant and another to the claimant and Medicare for amounts subject to the subrogation.

While Thomas has no issue with the idea of Medicare satisfying its lien, he is concerned about the prospect of forcing insurers to become entwined in the Medicare bureaucracy when they are trying to pay out claims.

“It is going to be a major problem,” he warned. “They are not effective in telling us what the liens are.”

The law also does not require Medicare to pay any portion of the attorney fees or other collection costs before it satisfies its lien. Thomas posited a hypothetical verdict of $50,000, with $40,000 in Medicare costs and $10,000 and pain and suffering, and a plaintiff who was 50 percent at fault. The end result would be $25,000 recovery, and Medicare would take it all, he said.

“Medicare recipients will have a much tougher time finding lawyers to represent them,” Thomas said.

There are a variety of situations that will become more complex when the law takes effect, said Thomas. For example, the insurance company is required to report certain identity information, including Social Security numbers, to CMS. But the law is silent on what will happen if the company is unable to get the information from the claimant.

CMS says there is a safe harbor because the claimant can sign a letter saying he or she won’t report the information, but that’s untenable because a claimant who won’t provide information is also unlikely to sign such a letter, Thomas said. A claimant could have become incapacitated or have died, he noted. In a wrongful death case, the subrogor is the insured, but the plaintiff is the trustee, who didn’t grant any subrogation rights, Thomas pointed out. “This is going to bollox up the whole industry,” he said.

Thomas also observed that it appears that forgiving a medical bill will trigger a reporting obligation. That means that providers will not forgive bills, which in turn means that more medical-malpractice claims will ensue, he predicted.

Insurers and plaintiffs’ lawyers

Another unanswered question is whether CMS has a right of reimbursement from a legal malpractice claim that derives from an injury claim.

Minnesota Lawyers Mutual, the state’s biggest malpractice insurer, is trying to figure that out right now, according to MLM vice president Tim Gephart. In the meantime, MLM has registered itself with CMS as a third-party payor, he said.

St. Cloud attorney Michael Bryant, president of the Minnesota Association for Justice, isn’t anticipating a catastrophe from the reporting requirement, but does have some concerns.

One is simply about giving out client’s identity information and Social Security number.

Another is the length of time that the requirements will add to the process, either because Medicare information is not forthcoming from the government or because the defense uses the reporting requirement as a delay tactic. He estimates the process will add 100 days to a settlement.

Bryant is also concerned about the communications clients receive from Medicare. He said even though his clients are represented by counsel, they are receiving letters directly telling them about the government’s interest in their cases. These letters scare them silly, Bryant said. Clients are understandably worried about anything that would jeopardize their future Medicare eligibility, he explained.

There also is a question about Medicare set asides, Bryant said. A Medicare set aside is created to reserve funds for future medical expenses for which Medicare may be responsible. The law does not appear to establish set asides in all liability cases, and the American Association for Justice has stated that CMS does not require set-asides for all liability claims. However, the situation is uncertain and that uncertainty is causing delays, he said.

If there are to be future set-asides, then the lawyers need to know what that figure is, Bryant said. “Do we need to try a case to get a number for future set-asides?” he asked.

Bryant advised in a recent post on injuryboard.com that looking at the Medicare situation as soon as possible is critical.

“Early recognition of the claim and making sure all of the reporting is done right will make the biggest difference,” he wrote. “Experienced attorneys are getting through the system as fast as possible, and will make a difference to clients who need to know their future Medicare coverage will not be put in jeopardy.”