Section 111: Applying Reasonable Standards to MSP Recovery

In December of 2007, Congress enacted Section 111 of the Medicare, Medicaid & SCHIP Extension Act, which mandates that insurers and self-insureds participate in an automated exchange of medical claims and settlement data. The provision provides Medicare with all the data needed to enforce compliance not only with Section 111 but also with the Medicare Secondary Payer (MSP) statute, a law requiring that Medicare not pay for medical treatment when another primary payer is available.

Now, more than four years later, the Centers for Medicare & Medicaid Services (CMS) has nearly finished implementing the mandatory reporting in stages. Workers' Comp and no-fault claims started reporting in January 2011. In January 2012, CMS began to require that all liability settlements involving Medicare beneficiaries also be reported, subject to certain thresholds.

The provision has prompted insurers, third-party administrators and self-insureds to alter claims-handling protocols, invest in technology to facilitate compliance with the law and fulfill their risk-management due diligence. CMS sees three primary benefits of Section 111 data: civil money penalties; coordination of benefits; and recovery.

But as the dust settles on the reporting issues, the key question remains: How will CMS use the data to enforce the MSP?

Civil Money Penalties

Claims must be appropriately reported by Section 111 Responsible Reporting Entities (RREs), which are either P&C insurers or self-insureds. Failure to report applicable information “shall be subject to a civil money penalty of $1,000 for each day of noncompliance with respect to each claimant.” Thus, the consequences for missed reporting events can be severe—even for smaller self-insureds who may not believe they have any claims to report.

To date, Medicare has published no guidance surrounding the applicability of civil money penalties. In the absence of official guidelines, responsible parties should be aware that Medicare could enact penalties against RREs that have not taken the necessary steps to report all claims as well as RREs that have reported inaccurately. A single unreported claim can conceivably cost a reporting entity $365,000 in a single year. A claim that is reported and rejected because of insufficient or missing data could be subject to the same penalties as a claim that was never submitted at all.

Given the availability of potentially staggering penalties, enforcement of the statutory reporting requirement could yield dramatic results. Still, RREs need to pay attention to the way Medicare will actually use the data, in addition to how it will enforce the requirement.

Coordination of Benefits

Section 111 data includes all the information to enable Medicare to determine the circumstances under which it should pay for a beneficiary's medical treatment. In Workers' Comp and no-fault claims, an insurer or self-insured typically pays for treatment following an accident. Section 111 data allows Medicare to identify such situations and to prevent payments from being made while still ensuring continuity of coverage for Medicare beneficiaries.

Section 111 requires insurers to provide necessary ICD-9 medical-diagnosis codes to allow Medicare to coordinate benefits. In the absence of medical bills, this has presented a challenge for some entities, particularly in casualty lines, in selecting the most accurate ICD-9 code. To further complicate matters, Medicare has eliminated particular ICD-9 codes from Section 111 reporting because they do not assist Medicare in either coordinating benefits or recovering mistaken payments. The rejection of otherwise valid ICD-9 codes is a major source of erroneous reporting and a potential compliance problem for reporting entities. In addition, misreported ICD-9 codes have been known to complicate a Medicare beneficiary's ability to obtain Medicare coverage—even in circumstances where Medicare is clearly primary.

Recovery

In addition to reporting, MSP compliance involves recovery of payments made by Medicare and setting aside funds for future medical treatment. Section 111 provides Medicare with a view into the recovery of past payments (conditional payments) and the future medical component (Medicare Set Asides).

When Medicare pays for treatment that could be attributed to a liable third party, its payment is conditioned upon later reimbursement to Medicare. The MSP allows Medicare to seek recovery from the beneficiary, his or her attorney, providers, insurers and self-insureds. Until Section 111, Medicare relied on voluntary notification of primary payments—i.e., settlements. Section 111 requires RREs to provide this information, exponentially increasing the volume of Medicare's recoveries.

Post-settlement, Medicare established policies to demonstrate compliance with the MSP. For Medicare beneficiaries who are Workers' Comp claimants with settlements of more than $25,000, Medicare recommends obtaining a Medicare Set Aside and submitting a proposal for Medicare's review and approval. Where individuals have a “reasonable expectation” of Medicare enrollment within 30 months, Medicare will review and approve set-aside proposals where the total settlement exceeds $250,000. Section 111's data flow will allow Medicare to effectively determine compliance with its voluntary review process.

Streamlining the Process

According to testimony provided by Medicare CFO Deborah Taylor in a congressional hearing on the MSP-recovery process, there are more than 413,000 open MSP-recovery claims.

Many inefficiencies exist in the MSP-recovery process—not the least of which is the way Medicare attempts recovery in even the smallest of cases. A recent study by RAND Corp. argues that Medicare could achieve significant savings for both RREs and the government by adopting a permanent minimum threshold for recovery. The study estimates that a permanent $5,000 Section 111 reporting threshold would reduce the total number of reported claims by 43 percent while only reducing recovery to Medicare by 2.4 percent.

Over the last several months, CMS has provided modifications to assist carriers and Medicare beneficiaries. Medicare announced a process for reporting liability claims that exempts settlements under $100,000 through the end of first-quarter 2012. Over the following three quarters, the minimum reporting threshold drops to $50,000, then to $25,000 and finally to $5,000.

Medicare also announced prepayment and pre-settlement determination options for conditional payment recoveries. Under the current framework, the parties often wait months after a settlement to learn the final amount owed for conditional payments. Medicare has altered that timeline for some cases involving settlements under $5,000, allowing a Medicare beneficiary to elect to concurrently pay Medicare 25 percent of the settlement amount in full and final satisfaction of conditional payments. As the RAND study suggests, that amount may be more than enough to satisfy the obligation to Medicare.

Given the volume of open claims, the inefficiency of the recovery process and the need to recover more dollars, Section 111 data presents a tremendous opportunity for Medicare to appropriately apply reasonable standards to the entire recovery process. It is expected that Medicare will examine the data not only to evaluate the MSP compliance of beneficiaries, insurers, self-insureds and other participants but also to establish compliance procedures and sound risk-management practices that maximize Medicare's recovery while minimizing the effect on the community involved.