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MSP Rest Stop: What Is a “Conditional Payment?”

Posted on: 3/5/2013
John Cattie, Garretson Resolution Group
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I. Introduction – Why all the fuss?

The words "Conditional Payment Reimbursement" strike fear in the trucking industry. OK, scratch that. Maybe not fear, but the issue induces insomnia for some. Everyone knows Medicare may collect double damages plus interest from parties when conditional payments are not reimbursed. But does this priority right of recovery apply evenly to past medical expenses as well as to future medical expenses? Does this priority right of recovery apply evenly to defendants as well as plaintiffs?

The purpose of this article is to clarify the term "conditional payment." At the heart of the confusion surrounding Medicare compliance is who is liable to Medicare on the issue of future medical expenses. In short, so long as a defendant has:1) ensured that any Medicare conditional payments which accrued from date of loss to date of settlement have been verified/resolved; and 2) addressed the future medicals issue at the time of settlement, then future medicals become the sole concern of the claimant, and a defendant or insurance carrier has no further liability or exposure to Medicare on the issue of future medicals.

  1. Statutory Obligation.

Medicare's rights of recovery under the Medicare Secondary Payer ("MSP") Act extend both to the past and the future. 42 U.S.C. §1395y(b)(2). Therefore, MSP compliance from the recovery/resolution perspective includes two separate and distinct moving parts. On the one hand, Medicare may have made past payments which are reimbursable. These are known as "conditional payments", and the MSP Act provides that Medicare must be reimbursed for any conditional payments it makes for a Medicare beneficiary. 42 U.S.C. §1395y(b)(2)(B)(ii).On the other hand, the MSP Act provides Medicare with a right to not pay for certain medical expenses anticipated to be incurred by a beneficiary in the future where funds were allocated to pay for such future expenses. Both past and future medical payments made, or to be made, by Medicare become a factor in resolving claims to ensure MSP compliance.

Medicare's recovery rights ripen as of the date that a primary plan or payer ("Payer")demonstrates responsibility (but not necessarily liability) for a beneficiary's medical expenses. Responsibility is demonstrated by a judgment or a payment conditioned upon a waiver, compromise or release. 42 U.S.C. §1395y(b)(2)(B)(ii). If a Payer's responsibility is demonstrated, then the Payer (and any entity who has received payment from a Payer) must reimburse Medicare for any conditional payments made. Id. Beyond that amount, the Payer has not accepted responsibility for, and cannot be liable to, Medicare for anyadditional funds since Medicare's recovery rights, outside that settlement amount for which the Payer has accepted responsibility, have not ripened. Thus, as a general rule, a Payer's liability to Medicare for conditional payments made to a beneficiary with whom the Payer has resolved a claim is capped at the amount of the gross settlement, judgment or other payment amount.

One exception to this general rule exists. If the Federal government files suit against an entity that has either made or received a payment pursuant to the MSP Act in order to recover any conditional payments made, then Medicare may recover up to double the amount of conditional payments paid on behalf of a beneficiary for which a Payer has accepted responsibility. 42 U.S.C. §1395y(b)(2)(B)(iii). For example, in the case of United States v. Stricker, the United States sought double damages from plaintiffs and defendants for a pharmaceutical litigation involving thousands of claimants, 907 of whom were determined to be Medicare enrolled as of the date of settlement. United States v, Stricker, 2010 WL 6599489 (N.D. Ala. Sep. 30, 2010). Despite the untimely nature of its filings, the United States asserted its recovery rights under the MSP Act, and as such, valued its recovery based on the amount of conditional payments made by Medicare and the defendants' acceptance of responsibility as evidenced by the aggregate settlement agreement. The Court dismissed the action based on statute of limitation grounds, and the Federal government has appealed to the 11th Circuit Court of Appeals (such appeal is pending as of the date of this article).

For example, a $50,000 settlement involving a Medicare beneficiary where Medicare made conditional payments totaling $15,000 and the parties failed to properly repay Medicare, Medicare could file an action seeking at least $30,000. Notably, any reduction for attorney fees and expenses that could have served to reduce the conditional payment amount (pursuant to 42 C.F.R. §411.37)would be lost where Medicare is forced to "pay and chase." Moreover, once a 60-day period for reimbursement post-resolution has lapsed, the Federal government is entitled to collect any interest that has accrued to its benefit (at a rate to be determined by the Secretary, but totals approximately 12% as of the date of this article).42 U.S.C. §1395y(b)(2)(B)(ii).

For this exception to apply, the following must occur: 1) a claim must have been asserted; 2) Medicare must have made a conditional payment, as defined under 42 C.F.R. §411.21; 3) a Payer must have accepted responsibility for medical expenses; 4) that responsibility must have been evidenced in a judgment or a payment conditioned upon a waiver, compromise or release; 5) the parties failed to properly reimburse Medicare for any conditional payments made; and 6) the Federal government must file an action seeking double damages plus interest to recover any conditional payments made for which a Payer accepted responsibility. Under that fact pattern, the Federal government may be able to recover against the Payer. Absent this specific fact pattern, Medicare may not recover from a Payer.

  1. Conditional Payments According to Medicare's Own Rules.

Regulations currently enacted in support of the MSP Act clarify the statutory obligation to repay Medicare. The relevant regulations promulgated by Medicare pursuant to the MSP Actadvise that if: 1) a Payer accepts responsibility for a claimant's medical expenses; and 2) that responsibility is evidenced by a settlement, judgment or award, only THEN do Medicare's rights of recovery ripen under Federal law. 42 C.F.R. §411.22. A "conditional payment" is exactly that; a payment Medicare may make on behalf of a Medicare beneficiary where repayment is conditioned on the subsequent act of a Payer accepting responsibility for those medical expenses and such responsibility being evidenced by a settlement, judgment or award.

The prudent defense attorney advises her client to verify/resolve conditional payments when resolving every claim, regardless of whether that claim is a workers' compensation("WC") or liability claim. Having a clear understanding of what those "conditional payments" include prior to resolution and having the ability to dispute any unrelated items Medicare included prior to actually resolving a claim is one of the secrets to handling this conditional payment issue more efficiently.

Until now, we have been laying the foundation for "conditional payment" reimbursement. Now comes the confusing part: what rights of recovery does Medicare have regarding future medicals and, more importantly, what parties have exposure to Medicare if those rights of recovery for future medicals are not addressed compliantly? Specifically, would payments made by Medicare for a claimant's future injury-related care be "conditional payments" as defined by Medicare under the regulations? Though widely perceived that Medicare makes future "conditional payments" regularly, exposing the insurance industry to Medicare for failure to repay such payments (as in the pre-settlement context), the truth is that this happens rarely, and would only happen due to the negligence of the parties to ensure that "conditional payments" were addressed at the time of settlement.

Remember that a "conditional payment" is a payment that Medicare makes for services for which another payer is responsible, but has not yet accepted responsibility. 42 C.F.R. §411.21. So, would a payment made by Medicare post-settlement (after a Payer has accepted responsibility) when no additional claims are pending be deemed to be a "conditional payment?" Probably not, and the Payer is in complete control to ensure the answer is a resounding "no." The reason that such a payment cannot be defined to be a "conditional payment" is that when Medicare makes that payment, there is not another Payer who has yet to accept responsibility (since no additional claims are pending as of the date of that payment). As such, if a Payer is verifying and resolving conditional payments as of the date of settlement, it has no exposure or liability to Medicare for future medical expenses because Medicare would not be making any conditional payments post-settlement.

This conclusion is fully supported by the recent Advanced Notice of Proposed Rulemaking ("ANPRM") issued by Medicare on June 15, 2012. Understanding that no rules or regulations currently exist in addressing future medicals and liability settlements, Medicare has proposed a general rule which states:

"If an individual or Medicare beneficiary obtains a "settlement" and has received, reasonably anticipates receiving, or should have reasonably anticipated receiving Medicare covered and otherwise reimbursable items and services after the date of "settlement", he or she is required to satisfy Medicare's interest with respect to "future medicals" related to his or her "settlement" using any one of the following options."

This proposed general rule does not classify future medicals as "conditional payments" nor does it impose liability on Payers. If promulgated in this form, it would clearly be a plaintiff-focused obligation whereby a Payer could not be deemed liable for failure to address compliantly. DRI, through its MSP Task Force, of which I have the honor to serve as its Vice Chair, noted this in its comments to Medicare. http://www.regulations.gov/#!documentDetail;D=CMS-2012-0073-0062; see also http://www.dri.org/News/MSP (last visited September 20, 2012). Other defense associations such as the American Insurance Association ("AIA") noted the same:

"We understand that the proposed options do not seek to place any obligations on an insurer or self-insured with respect to "future medicals," as there is no statutory authority permitting CMS to impose any such obligation or granting it a right of recovery against an insurer or self-insured with regard to "future medicals." CMS' lack of authority with respect to insurers and self-insureds regarding "future medicals" underscores the importance of properly focusing the seven options solely on beneficiaries." http://www.regulations.gov/#!documentDetail;D=CMS-2012-0073-0059 (last visited September 20, 2012).

Clearly, defense associations like DRI and the AIA agree that future medicals are a plaintiff problem and plaintiffs alone have exposure to Medicare on that issue (which begs the question as to why the insurance industry spends millions of dollars each year in the WC context to address future medicals when it agrees that, at least in the liability context, defense has no exposure to Medicare on the issue). The danger for an insurance carrier lies when Medicare's repayment issues are not addressed at settlement. Medicare is willing to pursue recovery of "conditional payments" post-settlement based on a theory that "conditional payments" have not been reimbursed when parties ignore MSP reimbursement obligations at the time of settlement. US v. Stricker, Case 09-cv-02423 (N.D. Ala. August 12, 2011). Absent such a fact pattern, it is impossible for Medicare to make a "conditional payment" post-settlement. Having verified and resolved, through its formalized approach, any "conditional payments" made by Medicare from date of alleged loss to date of settlement, an insurance carrier can comfortably close a file knowing that it will remain closed.

  1. Conclusion.

In order to protect yourself and your client from Medicare seeking post-settlement reimbursement of "conditional payments", a Payer should take two steps when resolving any claim (WC, liability or no-fault): 1) verify and resolve "conditional payments" made by Medicare from date of loss to date of settlement; and 2) address the issue of future medicals by determining if an MSA is appropriate based on the case-specific facts and then document the file with your notification to the claimant of your determination. To ensure MSP compliance, a formalized approach should be employed on every claim. A formalized approach yields compliant results. When such a formalized approach is applied in every single claim, a Payer will never need to worry about Medicare knocking on its door seeking post-settlement reimbursement for a claimant's medical expenses (past or future).

John Cattie heads the Future Cost of Care practice at Garretson Resolution Group. In his role, John counsels attorneys nationwide with respect to Medicare compliance under the Medicare Secondary Payer Act. In particular, he advises attorneys on the applicability and use of Medicare Set-Aside Arrangements (MSAs) as a part of workers' compensation, liability and no-fault settlements.



John received his BA in International Studies from the University of North Carolina at Chapel Hill in 1997, and his JD/MBA from Villanova University in 2003. Licensed to practice law in North Carolina and South Carolina, John is a member of the Mecklenburg County Bar, the North Carolina Bar Association, the South Carolina Bar Association and the American Bar Association. Serving as a neutral third party with respect to Medicare compliance, John is a member of DRI, WILG, AAJ and NAMSAP. Within DRI, John serves as the Vice Chair of the DRI Medicare Secondary Payer Task Force and on the Young Lawyers Steering Committee as Corporate Counsel Chair. He is a frequent speaker at continuing education events nationwide on the subject of Medicare Secondary Payer compliance.

 

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