CMS Rules on Settlement Reporting May Sting Insurers and Claimants Both

For years, the federal agency that runs Medicare has been building a trap to snag any settlements that would force taxpayers to pick up the for tab for medical care that should have been paid by others.

The Centers for Medicare and Medicaid Services is now on the verge of setting the snare. Claims managers who are caught unaware could cause a claimant to lose access to health care, or worse, bring hefty penalties against their employers.

On March 1, the Office of Information and Regulatory Affairs received rules proposed by CMS that would establish civil monetary penalties of more than $1,000 per day against individuals or organizations that fail to report settlements with Medicare beneficiaries that set aside money for future medical care, as required by the Medicare Secondary Payer Act. The office’s approval is the final step before final adoption of the rules, which CMS first proposed more than two years ago.

But penalties are only one part of CMS’ enforcement stratagem.

A CMS spokesman confirmed a report by settlement administrator Tower MSA Partners that the agency is placing markers in the common working files of Medicare beneficiaries when it receives notices of settlement agreements that weren’t transmitted through the CMS reporting process. The agency then sends letters warning the beneficiary that it may deny payment for treatment of the injury until the entire settlement agreement is exhausted.

And if there was any doubt that the government will follow through with that threat, a study by Ametros found CMS has been denying payment for care to Medicare beneficiaries when it believes that the money should have come out of settlement funds. Based on a random sample, Ametros estimated there were more than 100,000 such denials from 2018 to 2020.

“This is a wake-up call for everyone involved in settlements to make sure that Medicare’s interests are considered and that the injured person receives professional administration support with their annual MSA reporting to Medicare after settlement,” stated Ametros Chief Executive Officer Porter Leslie in a press release.

Section 111 of the Medicare Secondary Payer Act, adopted in 2007, requires insurers and other entities that enter into settlement agreements with Medicare beneficiaries to notify CMS if the amount is more than $25,000. Notice is also required if the claimant will become eligible for Medicare within 30 months (age 62 1/2) and the amount of the settlement is more than $250,000.

The agency also encourages workers’ compensation insurers to submit proposed future-medical settlements to its contractor for review to ensure the amount is sufficient. That process is voluntary, but CMS can sue to recover funds from insurers and even the attorneys involved in a settlement if the set-aside is exhausted and a claimant turns to the Medicare program to care for the injury.

In January, CMS gave notice through an update to its guidelines that claimants whose settlements were not voluntarily submitted for review will be expected to spend the entire amount of their settlement — not just the amount allocated for medical care — before seeking reimbursement from Medicare.

While CMS said that has been its policy all along, the agency raised alarm bells by putting it into writing. Numerous consulting firms have been crafting “non-submit” or “evidence-based” Medicare set-asides that are not submitted for review, but deemed by experts to be sufficient to protect Medicare’s interests and avoid future litigation.

Dan Anders, chief compliance officer for Tower MSA Partners, said the policy provides ample reason not to notify CMS of any information that isn’t required to be reported. He said there is no up side for the claimant. Giving notice will alert CMS and give the agency an opportunity to deny care until the entire settlement amount is spent.

Nonetheless, Anders said non-mandatory submittals are common in his industry. Often, settlement fund administrators will notify CMS of the settlement amount, even though the law only requires them to give notice that there has been a settlement. Anders said sometimes administrators even send CMS a copy of the settlement agreement.

Anders obtained a copy of a Jan. 13 letter from CMS to a workers’ compensation claimant that shows what can happen when voluntary notice is given. The letter explains that Medicare will not pay for treatment of the claimant’s work-related condition until the “net settlement proceeds” are exhausted. The letter explains that “net” means the entire settlement amount minus attorney fees and any funds already repaid to Medicare.

Anders said he would not give CMS notice of a settlement agreement when not required by law without assurance from the agency that the amount set aside is sufficient.

“I believe it is a mistake to provide CMS the non-submit or evidence-based MSA amount,” Anders said. “The only one that benefits from this is CMS who, know aware of an MSA, will deny medical care.”

A spokesman for CMS confirmed when asked by the Claims Journal that the agency places markers in the files of Medicare beneficiaries when it receives notice of workers’ compensation settlement agreements. The agency is prohibited by law from making payments for medical care when money has been set aside for that purpose, said a CMS spokesperson, who asked not to be identified by name.

Curiously, CMS does not place similar markers in beneficiaries’ files when it receives the mandatory notices of settlement agreements. The spokesperson said those notices say only that a settlement exists but don’t necessarily disclose that money has been set aside for future medical care.

“CMS may explore expanding the application of similar markers where a WC settlement has only been reported via S111 reporting,” the spokesperson said.

Even though the Section 111 reporting requirement has been in law for nearly 15 years, there is as yet no enforcement mechanism. That may change soon if the Office of Information and Regulatory Affairs, a division of the White House, approves the CMS’ proposed penalty rules.

As originally written, the law called for penalties of $1,000 for each day an applicable settlement was not reported. Congress amended the law in 2013 to require penalties of up to $1,000 and required CMS to adopt formal rules before issuing any civil monetary penalties.

The law requires annual adjustments for inflation, so the maximum penalty is now $1,247, according to the CMS rulemaking notice.

Most of the infractions included in CMS’ rule notice call for the maximum penalty, which currently amounts to $575,685 a year for a failure to report violation. CMS has proposed a “tiered” penalty structure for violations that involve submitting more errors than the agency’s tolerance level, currently set at more than 20% of the items submitted. Those penalties start at 25% of the maximum penalty amount and increase incrementally to 100% for subsequent violations.

CMS is proposing a five-year statute of limitations in the rule, meaning any mistakes made more than five years ago won’t be used against the violating insurer.

In a blog posted earlier this month, NuQuest Vice President Bridget Smith said now is the time for claims organizations to review the process they use to report settlement agreements to CMS.

“Do not assume that because you are not getting any errors on submission, or because you utilize a reporting agent, that the information being reported is accurate,” Smith wrote. “Education, training, and assessment of your current process is an essential part of a healthy reporting program.”