Beginning July 1, 2009, many employers and insurance companies will be required to report claims for workers’ compensation claimants that are also Medicare beneficiaries to the Centers for Medicare and Medicaid Services (CMS) and become subject to a $1,000 per day per claimant penalty for failure to comply with this mandatory reporting requirement.
At a time when Medicare is massively under-funded, this new reporting requirement will significantly increase Medicare’s ability to identify situations in which Medicare is paying for medical expenses that should be borne by so-called “primary payers,” including workers’ compensation plans. By statute, Medicare is a “secondary payer” with respect to medical expenses associated with workplace injuries. As such, if Medicare pays medical expenses on behalf of a Medicare beneficiary who is injured in a work-related accident, Medicare is entitled to reimbursement from the responsible party or insurance carrier for that expenditure. When Medicare makes such payments, the payments are considered to be conditionally paid expenses subject to recovery.
In order to both reduce the amount of medical expenses paid on behalf of Medicare beneficiaries that are properly payable by an employer or insurance carrier and to more completely recapture conditionally paid expenses via the statutory subrogation claim process, Congress amended the Medicare laws to impose a mandatory reporting obligation on workers’ compensation plans. The amendments leave the procedure for pursuing subrogation claims unchanged.
The MMSEA of 2007
When Congress enacted the Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA), it set a timetable that requires workers’ compensation plan compliance beginning July 1, 2009. The new reporting obligations, contained in Section 111(8)(a) of the Medicare Secondary Payer Statute (MSP), 42 U.S.C. §1395y, are as follows:
(a) This section requires that an applicable plan (i.e., workers’ compensation carrier or self-insured employer) determine whether a claimant (including an individual whose claim is unresolved) is entitled to benefits under the program under this subchapter on any basis and if the claimant is determined to be so entitled, submit the information described in subparagraph (b) with respect to the claimant to the Secretary in a form and manner (including frequency) specified by the Secretary.
(b) The information described in this subparagraph is the identity of the claimant for which the determination under subparagraph (a) was made and such other information as the Secretary shall specify in order to enable the Secretary to make an appropriate determination concerning coordination of benefits, including any applicable recovery claim.
The statute itself simply delegates to the Department of Health and Human Services (HHS) the responsibility for developing the reporting requirements with respect to timing, contents and form. The most striking feature of the amendment is the rather punitive penalty provision:
(e) An applicable plan that fails to comply with the requirements under subparagraph (a) with respect to any claimant shall be subject to a civil money penalty of $1,000 for each day of noncompliance with respect to each claimant.
… A civil money penalty under this clause shall be in addition to any other penalties prescribed by law and in addition to any Medicare secondary payer claim under this subchapter with respect to an individual. (Emphasis added.)
The cost of failing to report one Medicare beneficiary according to this statute is approximately $365,000 on an annualized basis. Failure to report just three Medicare beneficiaries for an entire calendar year has a price tag of more than $1 million. As drafted, the fines are imposed on a strict liability basis and do not presently require any willfulness in the failure to report as a basis for imposition of the same.
Moreover, it seems that the fine may be disproportionate to the per claim cost of medical expenses. As employers and insurers well know, it is not unusual for accidents resulting in soft-tissue injuries, for example, to linger as open cases, accruing only modest medical expenses without any indemnity (i.e., wage loss) claim for permanent injury. It is inevitable that there will be many cases in which Medicare is never called upon to pay any medical expenses, but a company will nonetheless be subjected to huge fines for failing to report a Medicare beneficiary. In such cases, the disproportionate nature of the fine is all the more pronounced. For employers that are self-insured for workers’ compensation purposes, beginning July 1, 2009, this will become a significant source of organizational financial risk. The punitive nature of these fines for noncompliance demonstrates rather convincingly that Congress is highly motivated to bring down the cost of administering Medicare benefits.
Which Claims Must be Reported?
Self-insured employers, insurance carriers and other entities meeting the definition of Responsible Reporting Entity (RRE) are required to submit, on a quarterly basis, information of work-related injury claims involving Medicare beneficiaries. RREs must report all claims that involve a Medicare beneficiary where, on or after July 1, 2009, there is a settlement, judgment, award or other payment that constitutes payment or reimbursement for medical costs. By implication, not every workplace injury involving a Medicare beneficiary needs to be reported.
Indeed there are many reportable workplace accidents that involve very minor injuries that do not require medical treatment beyond first aid and, therefore, do not result in the payment of medical benefits. Furthermore, all claims involving ongoing responsibility for medicals (ORM) where that responsibility will extend beyond July 1, 2009, must be reported without regard to the date that obligation was assumed. However, recognizing that RREs will need additional time to compile data relative to such claims, the Centers for Medicare and Medicaid Services (CMS) has provided an extension of time to report ORM situations until the third quarter (July to October) of calendar year 2010. Moreover, RREs are required to submit a subsequent report indicating ORM termination.
Who is a Medicare Beneficiary?
As part of the new Section 111 reporting process, CMS has included a component known as the Query Process whereby RREs can assess whether or not a claimant is also a Medicare beneficiary. This process acts as an important tool for both the RRE and CMS. By submitting such a file, which includes limited information about the claimant, (Coordination of Benefits Contractor) will determine whether the submitted information matches any records for a Medicare beneficiary. If so, then the RRE will report the required information for that claimant. If the response from COBC indicates the claimant is not a Medicare beneficiary, then no report is required regarding that individual. It remains to be seen whether or not the use of this tool will act as a safe harbor from any fines in the case of mistakes.
The greatest risk faced by an RRE is failing to recognize that it is an RRE. The first and most important step every entity that has not otherwise confirmed its status as an RRE should take is to make that assessment. This is particularly important for those employers carrying co-pays and deductibles administered through a third-party administrator (TPA) as well as for self-insured employers. These entities are particularly vulnerable to compliance failures. If the employer determines that it is not an RRE, it should immediately consult with its workers’ compensation carrier, self-insurance trust or pool, or appropriate state agency to confirm that such other entities understand their reporting obligations. In the case of any question or disagreement about which entity is the RRE, counsel should be sought immediately.
Second, once an entity identifies itself as an RRE, it should develop a reporting plan. If the RRE decides to outsource the reporting requirement to an agent, the RRE’s agreement with the agent should have an enforceable and robust indemnity clause since the RRE maintains the ultimate responsibility for compliance. If the reporting is outsourced, the employer/RRE should develop a compliance program for oversight of the agent’s practices. The potential liabilities are so significant that regular review of the reporting process must be planned.
Third, RREs should develop clear procedures for checking whether a claimant is a Medicare beneficiary and for determining when the RRE must check for such status, such as when any medical expenses are paid or when there is a settlement that arguably could be, even in part, construed as payment for medical expenses.