President Obama Signs the SMART Act to Provide Relief Under the Medicare Secondary Payer Act

White and Williams Healthcare Alert | January 11, 2013
by: Bill Kennedy

INTRODUCTION

Over the past several years, amendments to the 1980 Medicare Secondary Payer Act greatly complicated – and in some instances, prevented – the resolution of claims and cases involving millions of Medicare beneficiaries. On January 10, 2013, however, President Obama signed the Strengthening Medicare and Repaying Taxpayers Act of 2011 – dubbed the SMART Act – to improve and clarify the federal government’s otherwise unmanageable ability to seek reimbursement for healthcare expenses paid by Medicare and arising from a compensable tort. While the SMART Act does not cure all the many ills in the Medicare Secondary Payer Act, the new law tries to alleviate some problematic flaws (1) by creating a procedure for litigants to learn how much Medicare believes its right of reimbursement is before the parties enter into a settlement or proceed through judgment, and (2) by revising the process by which one can appeal Medicare’s demand for reimbursement.

BACKGROUND

Medicare is the federal government’s health insurance program for over 43 million seniors, recipients of Social Security Disability benefits, and a few other categories of beneficiaries.[1] Overseen by the U.S. Department of Health and Human Services, the Centers for Medicare and Medicaid Services (CMS) and its contractors administer Medicare and seek  reimbursement of previously paid benefits. Medicare is principally funded by payroll taxes.  Like all health coverage, Medicare is no-fault insurance; beneficiaries are entitled to the enumerated benefits regardless of what – or who – caused them to need medical care.

From its inception in 1965, Medicare was legally obligated to be the first-in-line payor (except for benefits that would also be covered by a state worker’s compensation program). In 1980, in light of funding concerns, the Medicare Secondary Payer Act made Medicare second-in-line to pay for beneficiaries’ health expenses that were caused by insured tortfeasors (i.e., liability insurance), as well as those expenses that could be covered by private, no-fault insurance programs (and eventually, self-insurance programs).[2]

For decades, administrative, legal, and bureaucratic barriers made it rare for Medicare to actually receive any reimbursement. Thus in 2007, Congress passed the Medicare, Medicaid and SCHIP[3] Extension Act (MMSEA) to increase Medicare’s ability to determine whether a civil plaintiff or claimant was a Medicare beneficiary such that Medicare might be entitled to reimbursement. It also improved Medicare’s ability to obtain reimbursement for its payment of health expenses where there was a subsequent tort recovery.[4]

Although perhaps well-intentioned, the gross inadequacies and unfairness embodied in the Medicare Secondary Payer Act, as amended by MMSEA, constantly vexed personal injury advocates, the liability insurance industry, judges, and arbitrators. For example, Medicare had been given a statutory right of recovery triggered by settlements and judgments, and yet there was no accurate mechanism for litigants to learn the amount that Medicare would claim until after the parties had concluded their case or claim. Likewise, the law seemed to allow Medicare to seek recovery of all health care expenses it had paid, without regard to the compromises of relative fault and causation that are inherent in tort cases. In cases of alleged medical malpractice, Medicare sometimes claimed the right to be reimbursed not merely for expenses caused by the allegedly tortious conduct, but instead for all amounts it had paid – including expenses incurred by the patient for medical care unrelated to the particular act of alleged malpractice. The obscure and expensive process by which someone could appeal Medicare’s reimbursement demands made these problems even more difficult.

SMART ACT IMPROVEMENTS

Learning the Amount

The SMART Act permits litigants to learn the amount that Medicare claims it should be reimbursed before the parties settle or proceed to judgment. Under the Act, and subject to certain timing provisions and exceptions, most parties in tort actions will be able to use CMS’ new conditional payment portal to get from CMS a specific statement of the amount to which CMS contends it is entitled. CMS is now required to update the information available through that portal within specified timeframes after it pays what are often ongoing medical expenses. The information posted through the portal must also meet requirements for specificity and reliability.

Appeals

The SMART Act lays an as-yet unpaved roadbed for challenges to Medicare’s determination of the reimbursement amount. CMS must create regulations to create an appeal process for those from whom CMS can seek recovery. Personal injury advocates and representatives of the liability insurance industry hope that the forthcoming regulations include a recognition of the issues of relative fault and causation that are intrinsic to almost all tort cases. Although the process of drafting, vetting, publishing, and eventually adopting valid, enforceable regulations takes considerable time, the SMART Act lets litigants know that in this regard, help is on the way. 

Fines for Noncompliance

The SMART Act also remediates one of the more onerous aspects of the Medicare Secondary Payer Act for insurers. The Act injects a previously non-existent measure of reasonableness and discretion into the determination of whether a liability insurer will be fined $1,000 per day per claimant for noncompliance with the law’s complex reporting scheme. The Act also requires the government to solicit proposals for regulations that would exempt insurers from punishment where they had made good faith efforts to identify a beneficiary.

Other Improvements

The SMART Act requires that beginning November 15, 2014, the government must annually publish a minimum settlement or judgment dollar threshold below which it will not seek reimbursement. Also, clarifying a prior omission that had troubled courts around the country, the SMART Act sets three years as the time in which the government can bring an action arising from its right of reimbursement.

STILL AHEAD

Like most remedial legislation born of political compromise, the SMART Act does not solve all of the prior law’s problems. Still, in an era of profound political polarization, the SMART Act is a modest triumph of bipartisanship that provides meaningful relief and clarification of a previously unreasonable body of law. Advocates for the necessary regulatory improvements required under the Act still need to be active, reasonable, and vigilant, but in the meantime, the SMART Act provides some relief from the most burdensome problems with the Medicare Secondary Payer Act.

Bill Kennedy is a trial partner who defends professional and general liability matters. For more assistance with issues associated with the Medicare Secondary Payer Act, please contact Bill at kennedyw@whiteandwilliams.com or 215-864-6816.


[1] Medicare also provides health insurance for recipients of Railroad Retirement Board disability, for those who receive continuing dialysis for end-stage renal disease or are in need of a kidney transplant, and for those who have amyotrophic lateral sclerosis (ALS-Lou Gehrig's disease).

[2] The Medicare Secondary Payer Act is codified at 42 U.S. § 1395y(b) et seq.

[3] SCHIP refers to the State Children’s Health Insurance Program, a program that provides matching funds to states for health insurance to families with uninsured children in families with incomes that are modest but too high to qualify for Medicaid.

[4] The Act defines the responsibility of a liability insurer or self-insurer “for such [reimbursement] may be demonstrated by a judgment, a payment conditioned upon the recipient's compromise, waiver, or release (whether or not there is a determination or admission of liability) of payment for items or services included in a claim against the primary plan or the primary plan's insured, or by other means.” 42 U.S. § 1395y(b)(2)(B)(ii).

This correspondence should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult a lawyer concerning your own situation with any specific legal question you may have.