President Obama Signs the Smart Act: Medicare Reforms Regarding Conditional Payments, Settlements, and Section 111 Reporting Processes Are on the Way!

January 11, 2013

Over the last two years, we have been keeping you up to date regarding the status of various versions of the SMART Act, proposed federal legislation designed to ease Medicare Secondary Payer (MSP) Act compliance. We are happy to report that, finally, some legislative help has arrived. In December, H.R. 1845 was approved in a unanimous consent vote by the Senate. The House of Representatives had earlier passed H.R. 1845 by a 401-3 vote. President Obama signed H.R. 1845 on January 10, 2013.

H.R. 1845 contains some, but not all, portions of H.R. 1063, the SMART Act ("Strengthening Medicare and Repaying Taxpayers Act"), which was introduced in 2011. H.R. 1063 was folded into H.R. 1845 (the "Medicare IVIG Access Act," which concerns access to intravenous immunoglobulin for Medicare beneficiaries). H.R. 1845 as passed and signed is titled: "Medicare IVIG Access and Strengthening Medicare and Repaying Taxpayers Act of 2012." A copy of H.R. 1845 is available by clicking DOWNLOAD FILE above.

The "Strengthening Medical and Repaying Taxpayers Act" provisions of H.R. 1845 result in statutory changes concerning both the MSP conditional payments reimbursement and Section 111 mandatory reporting processes.

The following is a summary of the changes resulting from these new statutory provisions. However, although H.R. 1845 became effective January 10, 2013, these changes do not go into effective immediately.

Section 201 - Pre-Potential Payment Reporting and Use of a Website to Resolve Reimbursement of Conditional Payments Claims

Section 201 is designed to improve efficiency in the conditional payments process. It allows the settling parties to notify Medicare of an anticipated settlement, judgment, award or other payment and then resolve any Medicare claim for reimbursement of conditional payments made to the Medicare beneficiary by using a website to download information. Section 201 provides:

  • A claimant or "applicable plan" (insurer or self-insured) may at any time beginning 120 days before the reasonably expected date of a potential settlement, judgment, award, or other payment, notify the Secretary of Health and Human Services ("Secretary") that a payment is reasonably expected and the expected date of such payment.
  • The Secretary must provide current conditional payments information through a website and must update the information posted on the website no later than 15 days after a Medicare conditional payment is made. Up-to-date claims records on the website are required so that downloadable versions of Statements of Reimbursement will be available. If certain conditions specified in Section 201 are met, the last Statement of Reimbursement downloaded from the website can be considered the final demand by Medicare for reimbursement of conditional payments made to the Medicare beneficiary.
  • The general rule will be: If notification of the potential settlement, judgment, award or other payment occurs within 120 days of the potential payment, Medicare will have up to 95 days to respond.
  • If there is a dispute over the conditional payments amount, the Secretary must respond/resolve the dispute within 11 business days or the proposed resolution by the claimant/"applicable plan" will be deemed accepted by Medicare.
  • The Secretary is required to issue regulations establishing a right of appeal and appeals process regarding secondary payer determinations relating to liability insurance, no fault insurance and workers' compensation.
  • These changes do not go into effect immediately because regulations are required to implement them. The Secretary has up to 9 months from the January 10, 2013, effective date of H.R. 1845 to issue final regulations to put Section 201 into operation.

What This Means To You!

These changes are of major help to insurers/self-insureds because: (1) there will be a much speedier process, one that is expressly defined by both statute and regulations, which can be used to resolve a Medicare reimbursement claim and any dispute over the conditional payments amount, (2) CMS has to facilitate this process by posting up-to-date, downloadable information on the newly required website, and (3) if any dispute remains after this process is followed, the new right of appeal/appeals process will be available.

Section 202 - Threshold for Reporting and Conditional Payments Reimbursement

Section 202 provides that the Secretary must create a threshold for MSP compliance which will reflect the current amount it would cost the federal government to recover conditional payments made to a Medicare beneficiary. A settlement, judgment, award or other payment in an amount that is lower than this threshold will not trigger any reporting or conditional payments reimbursement obligations under the MSP Act.

  • This threshold (which should prove to be extremely low) will only apply to "alleged physical trauma-based incidents." It will not apply to "alleged ingestion, implantation, or exposure cases."
  • By November 15th each year, the Secretary must publish the threshold that will apply during the following year. Publication of a threshold is not required until the year 2014.

What This Means To You!

The threshold is not likely to be of much help to insurers and self-insureds because the threshold amount is expected to be extremely low. Reportedly, theGovernment's cost to recover conditional payments made to a Medicare beneficiary is, as of this date, only around $350. In addition, the low threshold will only apply where an "alleged physical trauma-based incident" is the source of the injury.

Section 203 – Section 111 Reporting Penalties will be Discretionary

Section 203 will change the current mandatory $1,000 per day penalty for failure to comply with the Section 111 reporting requirements to a discretionary penalty which would be "up to $1,000 a day." Section 203 provides:

  • The Secretary must immediately solicit proposals concerning what criteria should be used when applying this discretionary penalty. Within 60 days of the January 10, 2013 passage of H.R. 1845, CMS must seek, by way of the Federal Register, proposed comments on what the guidelines should be regarding when and when not this discretionary penalty should be imposed.
  • The change from mandatory to discretionary penalty will not be effective until final regulations regarding the discretionary penalty are prepared and become effective.

What This Means To You!

Obviously, the change from a mandatory penalty to a discretionary penalty for violation of Section 111 reporting requirements is wonderful news for insurers and self-insureds. It can be expected that insurance industry representatives will be providing CMS with lots of comments regarding why a penalty should never be imposed so long as there has been a good faith effort at compliance with the Section 111 reporting requirements.

Section 204 – The Use of SSNs and HICNs will be Optional

Eventually, the Responsible Reporting Entity will no longer be required to use Social Security numbers and/or Health Identification Claim numbers when reporting under the Section 111 mandatory reporting program. Section 204 provides:

  • Within 18 months of the January 10, 2013 effective date of H.R. 1845, the Secretary must modify the Section 111 mandatory reporting rules to permit, but not require, the use of SSNs and HICNs when reporting to Medicare. However, the Secretary has to first identify a way to report without having to use either type of number. As a result, the deadline for this modification of the rules can be extended for one or more periods of up to 1 year.

What This Means To You!

This change would be very helpful in situations where the insurer or self-insured finds it impossible to obtain claimant's SSN or HICN. However, you have to wonder what alternative reporting tool the Secretary could come up with.

Section 205 - 3 Year Statute of Limitations for Conditional Payments Recovery Actions

Pursuant to Section 205, the statute of limitations applicable to a conditional payments recovery action brought by the United States under the MSP Act will be 3 years after the date of receipt of notice of a potential settlement, judgment, award or other payment.

What This Means To You!

This is a great change as it means that the insurer or self-insured can finally calculate the date as of which the insurer or self-insured will no longer face the possibility of a future Medicare conditional payments recovery action.

None of the H.R. 1845 changes will go into effect right away. CMS now has 60 days to start the regulation-making process regarding the "discretionary" penalty criteria. The three year statute of limitations regarding recovery actions does not go into effect until July 10, 2013. CMS has until October 2013 to issue the new regulations required to make the changes regarding the pre-potential payment reporting/use of a website to resolve reimbursement claims changes operational. A threshold regarding reporting and conditional payments reimbursement where "alleged physical trauma-based incidents" are involved will not published until 2014. The current requirement that SSNs and HICNs be used in reporting under the Section 111 program is expected to remain in effect for a long time.