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Medicare Secondary Payer

Medicare Secondary Payer Lawsuit

Medicare is one of the most important federal programs in the United States. With over 15 percent of the population enrolled as beneficiaries, Medicare accounts for around 15 percent of the country’s annual budget, roughly $683 billion based on the most recent estimate.

Approximately 19 million Medicare beneficiaries elect to receive their benefits through Medicare Part C, which allows people to receive their benefits from authorized organizations called Medicare Advantage Organizations (“MAOs”). MAOs, although private organizations, effectively operate like the Centers for Medicare and Medicaid Services (CMS) and are incentivized to protect taxpayer money through efficient administration of Medicare benefits.

Helpful Key Terms

  • No Fault Insurance – Any insurance policy under which insureds are indemnified for losses by their own insurance company, regardless of fault in the incident generating losses.
  • Insureds– Individuals covered by an insurance policy
  • Providers – Health care providers such as hospitals.
  • Beneficiaries – Individuals covered by Medicare.
  • Double Damages – Damages that are twice the amount of the actual damages sustained. Double damages are intended to cover any circumstances of aggravation.

With so much money invested in the system, Medicare is the victim of fraud and abuse to the tune of hundreds of millions each year. But as Medicare has evolved, so too has the government’s ability to combat fraud and waste. One of the most potent weapons to combat Medicare waste is the Medicare Secondary Payer (MSP) Act, which has allowed for the recovery of billions in taxpayer funds.

The MSP requires Medicare and MAOs to function as the secondary payer when a primary payer is responsible for covering the costs of health care. In practical terms, this means that if there is another insurance policy or contractual agreement covering a medical expense, i.e., a separate auto insurance policy or a settlement agreement, that other source of payment is considered the primary plan and must pay first.

For example, if a Medicare beneficiary gets into a car accident and suffers medical injuries, they typically submit their Medicare insurance card to the medical provider. That bill gets submitted to Medicare and either CMS or an MAO pays the bill. Many individuals, however, are also covered by a no-fault auto insurance policy issued by an insurance company that obligates the insurer to pay for medical expenses, regardless of fault, up to a policy limit.

Under the MSP Act, that auto insurance company is required to pay for those medical expenses first or, if payment was made already, make a reimbursement. The problem, however, is that the auto insurance companies rarely make those payments, which results in Medicare and MAOs (and ultimately taxpayers) never getting reimbursed for medical expenses that should have been covered by an auto insurance company in the first place.

The Medicare Secondary Payer Act specifically allows Medicare and MAOs to recover from auto insurance companies and other liability insurance companies that fail to cover medical costs when their insureds also happen to be Medicare beneficiaries. Under the MSP Act, Medicare and MAOs can recover double damages against any entity considered responsible for payment under the Medicare Secondary Payer Act.

Dozens of auto insurance companies have been named in various MSP class actions filed by class representatives who represent MAOs. These MSP class action lawsuits allege that the auto insurance companies failed to pay for medical services as required under the MSP.

Recovering lost tax dollars to help keep escalating medical costs in check is an important public health issue. Our firm is committed to holding these companies responsible for, in essence, stealing needed funds from Medicare and increasing the costs of the Medicare system.

What is the Medicare Secondary Payer Act?

President Lyndon Johnson signed the Social Security Amendments of 1965 establishing Medicare, a federally-funded health insurance program for the elderly and disabled. In the 1980s, Congress made changes to the Social Security Amendments by creating the MSP Act, which was designed to curb fraud, waste, and abuse that had plagued the federal program since its inception.

The Medicare Secondary Payer Act mandates that Medicare is the “secondary” payer in circumstances where a primary plan exists. The intended purpose was to shift costs away from Medicare to applicable primary plans for paying health care costs.

What are these primary plans?

  • Workers’ Compensation Plans
  • Automobile Policies or Plans (self-insurance included)
  • Liability Insurance Policies or Plans (self-insurance included)
  • No-Fault Insurance Plans (also referred to as “NGHPs”)
  • Group Health Plans (in specific circumstances)

*Liability insurance includes (but is not limited to) uninsured motorist insurance, underinsured motorist insurance, homeowners’ liability insurance, malpractice insurance, product liability insurance, and general casualty insurance.

Under the MSP Act, Medicare is required to be the secondary payer if a workers’ compensation, no-fault or liability policy has an obligation to cover a beneficiary’s medical care costs. To ensure that beneficiaries receive timely care and treatment, the MSP allows the Centers for Medicare and Medicaid Services (CMS) to make “conditional payments” to providers with the condition being that CMS will seek reimbursement from the primary payer.

The MSP laws facilitate the condition by giving Medicare subrogation rights or an alternative double damages remedy against any entity considered responsible for payment, as well as “any entity that has received payment from a primary plan or from the proceeds of a primary plan’s payment to any entity.”

Medicare Part C and the Creation of Medicare Advantage Organizations

In 1997, Congress amended the Medicare Act by adding Medicare Part C, which outlines the Medicare Advantage program. Enacted to harness the power of private sector competition to create a more efficient and less expensive Medicare system, Part C gives Medicare beneficiaries the option of receiving Medicare benefits through private insurers known as Medicare Advantage Organizations (MAOs).

MAOs enter into a contract with CMS to administer and provide the same benefits that beneficiaries receive under Medicare. MAOs receive a fixed payment from CMS per enrollee and, under a statutory framework, pay health care providers directly for the care received by Part C enrollees.

Beneficiaries who receive their benefits through the traditional Medicare system and those who choose to receive benefits through MAOs are all considered Medicare beneficiaries. Thus, provisions of the Medicare Secondary Payer Act apply with equal force to MAOs as they do to traditional Medicare.

Reporting Requirements for the MSP Act

For many years, the MSP existed on paper, but lacked the mechanisms necessary for evaluating and enforcing situations where Medicare (or MAOs) should serve as secondary payers to the responsible party.

That changed in 2007 when Congress created new reporting requirements under the Medicare, Medicaid, and SCHIP Extension Act (MMSEA). The provisions of Section 111 of MMSEA imposed new data collection and mandatory reporting requirements on providers to give the CMS greater tools to enforce the Medicare Secondary Payer Act. Section 111 also added civil monetary penalties for noncompliance with the new reporting requirements.

An insurance company’s failure to comply with reporting requirements results in a civil penalty of up to $1,000 for each day of noncompliance per claimant. Compliance with reporting requirements does not absolve primary payers of their obligation to pay first; reporting requirements are separate and apart from their obligation to pay first under MSP provisions.

Reporting compliance allows providers to steer clear of civil penalties, but it does not provide safe harbor from paying first or reimbursing Medicare or MAOs.

Common Examples of Primary Plans Failing to Recognize Medicare as Secondary Payer

CMS instructs providers to determine if individuals have an additional policy outside of Medicare before a health care claim is filed. Providers are supposed to supply beneficiaries with an MSP questionnaire covering the reason for their claims (injuries, for example) and whether or not they have additional coverage, including liability insurance.

Once it is determined that a beneficiary has liability insurance covering the incident or accident that triggered the claims, the following five scenarios are most common:

  1. The liability insurance policy pays the health care provider as the primary payer for their insured’s medical services.
    In paying for services, the policy fulfilled its primary payer obligation.
  1. The liability insurance policy agrees to a settlement with the insured to pay for their health care services.
    In agreeing to the settlement with the insured, the policy is obligated to make primary payment for medical services required by their insured. If the policy does not offer payment and Medicare provides a conditional payment to cover medical costs, the policy is required to inform Medicare that it is the primary payer and Medicare is the secondary payer, then reimburse Medicare for the medical costs.
  1. The liability insurance policy pays their insured to cover their medical costs.
    If a liability insurer pays someone other than Medicare for the cost of the health care coverage (i.e. the insured), the party receiving the funds must repay Medicare within 60 days of Medicare’s final demand for repayment of the conditional payments (less procurement costs).
  1. The liability insurance policy and Medicare both pay the provider to cover the insured’s medical costs.
    The MSP requires that the liability insurance policy notify Medicare if it learns that Medicare made a conditional payment for services that the primary payer should have made. Medicare can also recover the conditional payment made to the provider if the provider fails to file a claim with the insurance policy, and Medicare is unable to recover payment from the insurance policy.
  1. The liability insurance policy does not pay for the insured’s medical costs and Medicare makes a conditional payment to cover costs.
    The liability insurance policy is required to pay Medicare back for the conditional payment. Failure to do so could result in double-damage recovery and fines.

doctor showing a patient x-rays

For a better understanding of how these scenarios play out in the real world, check out the examples below:

A 70-year-old woman is stopped at a traffic light when a box truck viciously rear-ends her vehicle. Under the woman’s auto insurance policy, she has Personal Injury Protection (PIP) coverage. At age 70, she also receives Medicare benefits as an enrollee in a Medicare Advantage Organization.

In this example, the woman’s medical expenses related to the accident should be covered by her auto insurance policy up to its limit. The auto insurance policy is the primary payer and Medicare is the secondary payer.

A 67-year-old man falls off a ladder working a construction job and is hospitalized. The hospital determines that the man has coverage outside of Medicare through a Workers’ Comp policy.

Generally speaking, a Workers’ Comp policy would be the primary payer on the beneficiary’s health care claim for the work injury with Medicare as a secondary payer.

MSP Act Allows for Double Recovery

As we have seen, there are circumstances in which the primary payer fails to pay providers and Medicare is forced to submit conditional payments to ensure that the injured beneficiary receives the appropriate care. When insurance policies fail to inform Medicare that it will serve as the primary payer and fails to pay for the care, Medicare can recover twice the amount of conditional payments made, plus interest, if forced to take legal action to compel a primary payer to reimburse Medicare.

Medicare Secondary Payer Class Action Lawsuits

Several class action lawsuits filed across the country on behalf of Medicare Advantage Organizations accuse auto insurance companies of failing to reimburse Medicare for injury claims arising from auto accidents.

According to the MSP class actions, the auto insurance companies derived substantial profits by forcing MAOs to cover medical treatments and failing to reimburse Medicare for the costs, as stated in the Medicare Secondary Payer Act. The lawsuits seek double damages plus statutory damages of $1,000 per day of noncompliance.

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