In the late 1970s, Congress began looking at the efficiency andcosts of the Medicare program.

It found a significant number of instances when Medicare waspaying for medical costs that were actually the responsibility ofanother entity.

As a result, Congress passed the Medicare Secondary Payer Act(MSP) in 1980. It makes Medicare the secondary payerof medical costs when another entity, oras the statute refers to them, "primary plans," have made paymentor can reasonably be expected to make payment.

According to the law, primary plans include workers' compensation, automobile and liabilityinsurance policies, or plans including self-insurance and no-faultinsurance, which are referred to as non-group health plans, as wellas traditional group health plans.

There are situations, however, in which a primary plan may notbe able to immediately pay medical costs, such asa car accident or a work-relatedinjury because the fault isn't apparent, requiring aninvestigation or litigation to determine who is responsible for themedical costs. In these situations, Medicare is authorized to makeconditional payments. However, these payments must be reimbursed bythe responsible primary plan, and failure to do so could result ina severe penalty. The MSP established a direct priority right ofaction that allows Medicare or the Center for Medicare and MedicaidServices (CMS) to recover not only the unreimbursed medical costsbut also damages.

How it works

Imagine that your child goes on a field trip to a museum andaccidentally breaks something on display. You're clearly liable for the damage, but theschool pays for the damage without telling you. Months later theschool sues you for failing to reimburse it for the damage. Thejudge rules in favor of the school, explaining that the law doesn'trequire the school to notify you about the obligation, but becauseyou didn't pay the obligation you were unaware of, you now have owedouble damages.

This is essentially how Medicare Advantage recovery liens workand what insurance companies are facing on a more regularbasis.

Dealing with CMS

For a better understanding, here's an example. Driver A is responsible for an accident in whichDriver B is injured and requires medical attention. BecauseDriver A is responsible for the accident, Driver A's insurancecompany should rightfully pay the medical costs. However, Driver Bis a Medicare beneficiary. Upon arriving at the hospital, Driver Bexplains he is covered under Medicare. The hospital then billsMedicare, and Medicare pays the medical costs. Under the MSP, theinsurance company is required to reimburse Medicare. In thissituation, the insurance company would check the CMS database todetermine the beneficiary status of Driver B and report anysettlement involving a Medicare beneficiary to CMS.

If this was how the MSP always worked, few people, if any, wouldhave serious concerns about it. Unfortunately, this is only how itworks when dealing with CMS directly. When insurancecompanies aredealing with Medicare Advantage organizations the process can bevery different.

Enter the MAO

Medicare Advantage organizations (MAOs) are healthcare companies that contractwith CMS to administer Medicare benefits and at the same time offeradded benefits for additional premiums.

MAOs are governed by many of the same CMS regulations and havebeen extended a private right of action regarding MSP conditionalpayments, which allows them to collect double damages for failureto reimburse conditional payments. Because MAOs are administratingMedicare using tax dollars, one would expect they would have thesame ability to recover medical costs that should have been paid bysomeone else. So, what's the problem?

Simply put, it's almost impossible for an insurer to determinewhether it has a financial obligation to an MAO. There is nodatabase for the insurance companies to check for beneficiarystatus of those enrolled in Medicare through MAOs, and, as a resultof privacy laws, it's often difficult for insurance companies toget beneficiary status even when directly contacting MAOs.

Claimants also often try to hide beneficiary status frominsurance companies, believing that because Medicare has alreadypaid medical costs they may be able to keep the money included in asettlement meant to pay those medical costs.

And here's the kicker: Even if an insurance company had no knowledgeof an obligation and no method to determine whether there was anobligation, MAOs still can and do file suit and pursue doubledamages. Not only can they pursue this litigation without notifyinginsurance companies of the obligation, but they can also transferthe lien to another entity, extending that other, non-Medicareentity the same private right of action to pursue double damages.That other entity is typically a law firm, and after the lien istransferred the law firm usually pursues litigation — sometimes inthe form of a class action suit — but not before giving theinsurance company the proverbial "offer they can't refuse." Theoffer usually goes something like this: "We can settle now for 150%in damages and avoid legal fees, or we can go to court where wewill get double damages and you will incur exorbitant legalfees."

I can't imagine anyone could see this situation as fair, butmost of the time the insurer has no choice but to take the offerand pay more than it was required to, even if it would have fullyreimbursed the costs had it but known they existed.

These legal actions distort the intent ofthe Medicare secondary system and abuse the privacy rights ofAmericans solely for profit. It is clearly time for a change to theMedicare Secondary Payer Act to include Medicare Advantageorganizations in the CMS database or establish a process by whichcompanies can be sure they'll have the opportunity to pay what isowed, without having to line a few pockets as well.

Quincy Enoch ([email protected]) is federal affairs director for theNational Association of Mutual Insurance Companies.

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