Medicare Realities We Face Now that the Presidential Election is Over
Roy Franco
November 8, 2012

A common question Franco Signor is asked centers around Medicare Secondary Payer (MSP) penalty enforcement.  When Mandatory Insurance Reporting (MIR) became law in 2007, insurance companies, including self insurance, faced penalties of $1,000 for each day a workers’ compensation or liability settlement, judgment, award or other payment was not reported.   It has taken CMS longer than expected to implement MIR, but as of January 1, 2011, Ongoing Responsibility for Medical (ORM) data began flowing into the Coordination of Benefits Contractor (COBC) Common Working File database. Settlements, judgments and awards for certain claims (See Chart 1) followed thereafter as of October 1, 2011.  As of today, CMS has defined compliance (to avoid risk of penalty) as registration to report information, testing and claim submissions.[i]   This passive form of enforcement was a relief for the Industry grappling with IT programming to communicate with CMS systems.   Our expectation is that such passive enforcement will become more active.

The reality for Medicare is that it must control costs to survive.  There is little political appetite to solve the problem through a combination of reduced benefits and increased taxes.   Programs in place to control costs, such as Medicare Secondary Payer, will be scrutinized to increase protection of the Federal Fisc.  Penalties will more than likely be the initial focus of CMS to drive revenue, but revenue generated from enforcement of penalties is small in comparison to what Medicare can recover in conditional payments or by avoiding payments all together.  To put this into perspective here are some Medicare factual realities as taken from U.S. Budget Office and Health and Human Services:

  • Medicare spends about $1 trillion each year to pay for medical items and services billed by Providers.
  • Every business day, Medicare processes 4.5 million claims from 1.5 million Providers
  • Approximately 30,000 enrollment applications are received from suppliers of medical equipment and Providers who want to be part of Medicare are processed.
  • Medicare covers 50 million Medicare beneficiaries and it is involved in every state Medicaid-type program covering more than 50% of the costs.
  • 10,000 people retire every day and the Medicare rolls expect to increase to about 80 million in 15 years.
  • Today, 23% of the U.S. Budget is devoted to Medicare.

Now that the Presidential election is over, the Government’s attention will be directed to the “fiscal cliff” potentially brought about by budget sequestration.  One area certainly to be hit will be Medicare simply because of its size in proportion to the U.S. Budget.  The Government does not have the appetite to allow sequestration cuts to take place, and Majority Speaker has gone on record that a temporary fix will have to be adopted.  With that being said, Congress will no doubt put pressure on the Executive branch to trim cost wherever it can.  A target rich environment for the Executive branch is the area of Medicare Fraud, Waste and Abuse.  The Medicare Secondary Payer Act is one of the obvious tools to reduce unnecessary payments by Medicare and we can expect an increase in enforcement.    Health and Human Services has seen the writing on the wall and we have concluded that stepped-up enforcement is in the near term for the following reasons:

  • Office of Inspector General (OIG) has included in its work plan for 2013 to improve controls for NGHP – both with regard to proper reporting and proper reimbursement;
  • Studies conducted by former CMS Administrator, Donald M. Berwick and Rand Corporation, identifying as much as $98 billion annually in Medicare fraud, waste and abuse to help persuade Congress to increase enforcement rules;
  • Stepped up enforcement of Providers and Suppliers of durable medical equipment both civilly and criminally.  For example, in 2011 OIG charged 1,430 defendants for health care fraud and obtained 743 criminal convictions.  It also launched 977 civil health care fraud investigations and recovered $4.1 billion, the highest recovery in a single year;
  • CMS has informed Providers of its responsibility to properly identify other coverage plans under the MSP law or face $2,000 in penalty assessments for each violation.  Standard forms to identify insurance, including self insurance, have been distributed to Providers to be used in this identification effort;
  • Medicare has recently issued a contract to implement Recovery Audit Contracting for MSP issues this past June.

All of these factors lead to the undeniable conclusion that an insurance company, including self insurance, will be an important target for MSP enforcement.  Managing the conditional payment reimbursement process will be critical to mitigate exposure.  When dealing with a Medicare beneficiary involving either a workers’ compensation or liability claim, it will be important to control every aspect of reimbursement to Medicare.  Contingent liability will result if the Medicare beneficiary or their attorney are left with the responsibility of completing reimbursement of payments to Medicare for conditional payments it made related to the claim.

One way to reduce contingent liability is to properly analyze a Conditional Payment Letter or Demand issued by Medicare and always dispute medical charges that are unrelated.  Medicare beneficiaries generally have other ongoing health concerns either at the time of or following a liability or workers’ compensation accident because of pre-existing vulnerabilities or the aging process.   Our experience has shown that in liability cases, conditional payment letters are on average 39% overstated and for workers’ compensation over 90%.

Contact Franco Signor LLC to help you design a program to mitigate your MSP exposure.  We can assist with all aspects of MSP compliance, including the addition of logic to your existing reporting process and management of conditional payment exposures triggered by Section 111 reporting.   We also provide MSP audit services to correct deficiencies today.  Once you are obligated to make a payment for a settlement, judgment, award or other payment to a Medicare beneficiary claimant, the responsible paying party is a valid source to collect payments to close the budget gap.  Call us today to mitigate this exposure.


[i] CMS Memorandum (2/24/2010) NGHP RRE Compliance:  ALERT for Liability Insurance (Including Self-Insurance), No-Fault Insurance, and Workers’ Compensation.