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Note that while Medicares reimbursement rights arise from the MSP, it is underlying state laws which give rise to the primary payer liability for medical expenses. Thus, Medicare would be the primary payer if there were no state liability laws for it to rely upon. When a Medicare beneficiary pursues a recovery action for accident related medical expenses, including services relating to an exacerbation of an underlying condition, the total amount of Medicares payments is used to calculate the amount Medicare is entitled to recover as conditional payments. Medicare may make conditional payments while a claim is pending but is entitled to repayment. A primary plan, and an entity that receives payment from a primary plan is required to reimburse Medicare for any conditional payments. A beneficiary's death does not affect Medicares reimbursement rights. Any conditional payments made for the beneficiary give rise to claims against the estate. Medicare sends a Medicare Secondary Payor Rights and Responsibility Letter and an MSPRC brochure after the coordination of benefits contractor receives notice of possible conditional payments. Health care providers are required to notify the COBC promptly if an attorney or insurance company requests a copy of a medical record or bill concerning a Medicare patient. Medicares right to reimbursement is statutory, not equitable, and thus CMS will reduce Medicares recovery where comparative negligence reduces the medical expenses, or take into account other factors which limited a settlement, judgment, or award or other payment, such as insufficient insurance coverage or other theories that may be applied to limit recovery of medical expenses. A beneficiarys only relief from CMS asserting a claim for full reimbursement in a settlement which provides less than the full measure of damages for a beneficiary is the procurement offset and applying for a waiver, both discussed infra at section E.



Under 42 U.S.C. 1395y(b)(2)(A) Medicare is barred from making conditional payments if payment has been made or is reasonably expected to be made by a workers' compensation plan, liability insurance, no-fault insurance, or a group health plan. This same statute also requires that a primary payer and any entity, including the beneficiary, provider, supplier, physician, attorney, State agency or insurer, which receives a payment from a primary payer is required to reimburse Medicare for any conditional payment where it is demonstrated that such primary payer has or had responsibility to make the payment initially. This means that Medicare's right of recovery for past medical services and prescription drug charges which it paid extends to all those medical services and prescription drug charges related to what was claimed and/or released in the settlement, judgment or award. Medicare's payment for those past services and charges are therefore recoverable and payment for those services and charges is not permitted except as conditional payments under 42 U.S.C. 1395y(b)(2)(B)(ii). CMS therefore has a direct priority right of recovery against any entity including a beneficiary, provider, supplier, physician, attorney, state agency, or private insurer that has paid or received any portion of the settlement proceeds whether directly or indirectly. CMS also has a subrogation right with respect to any such third party payment. Therefore, in the event a provider receives a payment from a third-party payor which is a duplicate of a payment Medicare has made, the provider must reimburse Medicare. The reimbursement deadline is 60 days from the date the duplicate payment is received. Medicare enjoys an independent right of recovery against any entity that is responsible for payment of, or that has received payment for, Medicare-related items or services, even against the beneficiary to the extent the beneficiary has received proceeds from any settlement, judgment, award, or other payment, including supplemental insurance. The limitations to the right to reimbursement are: (1) Medicare may only recover for conditional payments, that is, payments for medical expenses that arise from the injury(ies), including exacerbation of any prior condition. Medicare looks to entitys with primary payer responsibility, and then to any settlement, judgment, or award (or



other payment) to the beneficiary. (2) Medicare may not recover more than the settlement, judgment, award, or other payment (such as payments by primary insurance) from the beneficiary. Thus, Medicare may not pursue recovery from a beneficiary or the beneficiarys representative(s) or attorney(s) unless it pursues proceeds they received as a result of the injury up to the amount of the conditional payments. Medicare may, however, recover up to the full amount of the conditional payments from an entity which has primary liability to pay, and double the amount of the conditional payments from a non-compliant entity with primary payer responsibility. (3) Medicare must reduce its recovery if procurement costs are incurred as the result of a disputed claim. The Medicare reduction is made in accordance with 42 C.F.R. 411.37, which provides for an allocation of the procurement costs. Remember, Medicare also acquires the right to collect interest on reimbursements not paid within the 60-day deadline, even if the amount of the reimbursement is in dispute. 42 C.F.R. 411.24. In a dispute, interest accrues on the amount of reimbursement Medicare is ultimately determined to be entitled to receive.


Included as Appendix D is a table CMS publishes indicating who pays for a beneficiarys medical expenses Pursuant to 42 U.S.C. 1395y(b)(2)(B)(iii), CMS may bring an action against any or all entities that are or were required or responsible (directly, as an insurer or selfinsurer, as a third-party administrator, as an employer that sponsors or contributes to a group health plan, or large group health plan, or otherwise) to make payment with respect to the same item or service (or any portion thereof) under a primary plan. CMS may also, in accordance with paragraph (3)(A) collect double damages against any such entity. CMS may also recover under this clause from any entity which has received a payment from a primary plan or from the proceeds of a primary plan's payment to any entity.



Under the MSP, Medicare can pursue any number of parties for conditional payment reimbursement. Medicare can pursue parties who make primary payment (i.e. primary payers); as well as parties who receive primary payment, which may include a beneficiary, provider, supplier, physician, attorney, state agency, or private insurer. If Medicare does not need to take legal action, its recoverable conditional payment amount is the lesser of either (i) the amount of the Medicare primary payment (e.g. Medicare's conditional payment amount) or (ii) the full primary payment that the primary payer is obligated to pay (e.g. the settlement amount). This amount may then be reduced by procurement costs. On the other hand, if Medicare must take legal action to obtain its reimbursement it may then seek twice the conditional payment amount (double damages) against the primary payer.

Primary Payers

A primary payers risk is nil unless and until Medicare makes a conditional payment. If Medicare makes a conditional payment, a primary payer is at risk for more than the primary payers obligation to or for the beneficiary because CMS has priority rights. Primary payers must therefore diligently follow a case and protect themselves accordingly if a conditional payment is reported. A primary payer continues to be exposed to a claim for reimbursement from CMS even after the primary payer has reimbursed a beneficiary or other party the amount for which the primary payer is liable. CMS may pursue the primary payer for reimbursement if the beneficiary or other party refuses to reimburse CMS within 60 days of receiving the payment from the primary payer. 42 C.F.R. 411.24. For this reason, the common defense practice of placing responsibility for conditional payments on the beneficiary in a settlement agreement, together with hold harmless and indemnity provisions will not protect the primary payer against possible liability because CMS enjoys independent and priority rights under the MSP, and therefore is not bound by the terms of the settlement agreement. CMS has the right to recover double damages against an alleged primary payer entity



in a suit to recover for conditional payments if CMS is able to prove the entity was noncompliant and Medicare paid medical expenses the non-compliant entity should have paid. Double damages may only be imposed in a private cause of action in federal court which would only occur after a Medicare appeal has progressed through the five steps, redetermination, reconsideration by the Qualified Independent Contractor, an ALJ hearing, a Medicare Appeals Council review, and the ultimate adjudication by the U.S. courts. The primary payer is thus afforded a lengthy time in which to resolve nonpayments and avoid a double damages award.


Beneficiaries who fail to repay Medicare after the beneficiary has received proceeds from a settlement, judgment, award, or other payment are at risk. CMS may recover an unreimbursed conditional payment from a beneficiary who has received proceeds through deductions from the beneficiary's Social Security benefits, Railroad Retirement Benefits, or other U.S. Treasury payments to which the beneficiary is entitled. Medicare may also recoup from these sources for anyone else who has received proceeds from the settlement, including the beneficiarys attorney, providers, and others. Thus, a beneficiary who does not have a release of claims from a third party who receives proceeds from a settlement, judgment, award, or other payment.


While the purpose of the MSP is to remove risk from the Medicare trust fund, plaintiffs attorneys are obligated first to their clients. The attorneys obligation is to fully consider Medicares interests to protect the clients interests, and a beneficiary who receives proceeds from a settlement, judgment, award, or other payment ultimately retains repayment obligations to Medicare. Thus, the beneficiarys attorney must fully inform the beneficiary of the Medicare repayment obligations, including the possibility that a beneficiarys failure to reimburse Medicare for conditional payments may subject



the beneficiary to collection actions or interruption of beneficiary's Social Security Disability or Medicare benefits until Medicares conditional payment claims are repaid. An attorney would not be carrying the issue too far by memorializing the clients understanding of the obligations and responsibilities in an Informed Consent type document. Attorneys nonetheless assume risk if the beneficiary who receives proceeds is unable to reimburse Medicare. The attorney remains at risk if the attorney permits disbursement of the full settlement proceeds prior to their receipt of the Final Demand Letter and before the attorney has received a release from the MSPRC indicating all claims for recovery have been reconciled and all appeals resolved. Disbursing the full amount of a settlement, judgment, award, or other payment based upon the Final Demand Letter because the attorney may be liable for conditional payments unresolved or undisclosed at the time of the settlement if the beneficiary is unable to pay. Attorneys thus assume risk if they provide guarantees or assurances as to the amount of the final conditional payments at the time of settlement.

Responsible Reporting Entities

Medicare is secondary to all types of liability insurance, no-fault insurance, or workers compensation. For liability insurance, this includes self-insurance which is defined by statute as follows: An entity that engages in a business, trade, or profession shall be deemed to have a self-insured plan if it carries its own risk (whether by a failure to obtain insurance, or otherwise) in whole or in part. RREs have the risks of primary payers vis--vis conditional payments. The applicable plan is an RRE. 42 U.S.C. 1395y(b)(8). RREs also have reporting responsibilities under which they are required to report Total Payment Obligations exceeding $300. Liability insurance, including self-insurance, no-fault insurance, and worker's compensation are all RREs. TPAs which pay and adjudicate claims may, under certain circumstances, be deemed to be RREs, but RREs



may not contract out or otherwise limit their reporting responsibilities through a TPA or other contractor to avoid applicable plan responsibilities, and they are prohibited from shifting their responsibilities to other RREs. RREs are required to report the entire amount of any settlement, judgment, award, or other payment if it provides for joint and several liability. RREs and probable RREs should consult Medicare's Non-Group Health Plan ("NGHP") User Guide. Otherwise, the risks attendant the failure to register or report are beyond the scope of the conditional payment risk discussion.

Providers of medical services/care

When a Medicare provider of services learns that a beneficiary received services that may be payable by a payer primary to Medicare, the provider is required to pursue payment from the primary payer for a period of 120 days following the date of treatment. The provider may thereafter choose to bill Medicare or continue to wait for payment from a future insurance settlement. If the provider chooses to bill Medicare, then it becomes the Medicare Secondary Payer Recovery Contractors responsibility to recover Medicares payment if a settlement occurs at some point in the future. A provider may not be forced to accept Medicare conditional payments. Providers have the right to choose between accepting a Medicare conditional payment at the Medicare fee schedule, typically the lowest rate accepted, or may hold out for their full fees and charges, and may assert a lien under state law against any insurance proceeds. The provider has one year to make the decision whether to bill Medicare, after which its only recovery will be against insurance proceeds. The provider risks recovering nothing if there ultimately is no insurance payment or no settlement, judgment, or award. The decision whether to bill Medicare is up to the provider. The Medicare beneficiary has no say in the matter. Providers are required to ask Medicare beneficiaries, or their representatives, at admission or start of care, if the services are for treatment of an injury for which the beneficiary holds another party responsible. The provider is expected to bill any entity



the provider believes is a third party insurer or primary payer. Under no circumstances should the provider bill prior to billing a primary payer. If the provider chooses to bill Medicare, it must withdraw claims against the liability insurer or the lien placed on the beneficiary's settlement.