To usher in the New Year, Congress passed H.R. 1845, which contains, in part, the bipartisan Strengthening Medicare and Repaying Taxpayers (“SMART”) Act. The SMART Act, as adopted, amends several portions of the Medicare Secondary Payer (“MSP”) statute and aims to simplify and soften portions of the statute that have been burdensome to beneficiaries and industry stakeholders. This legislation has now been signed into law by President Obama. Notably, the beneficial provisions of the SMART Act apply only to non-group health plans (i.e., workers’ compensation, no-fault and liability insurance (including self-insurance) plans) and not to employer group health plans.

According to a summary prepared by the Association Corporate Counsel, “conditional” payments occur where Medicare pays for items or services that are later determined to be the financial responsibility of a group health plan or non-group health plan (each a “primary plan”). In the non-group health plan context, the Centers for Medicare and Medicaid Services (“CMS”) can seek to recover medical costs associated with the illness, injury or incident giving rise to the claim from the non-group health plan or from Medicare beneficiaries or others who receive settlement proceeds. In practice, most demand letters associated with liability settlements are sent to Medicare beneficiaries.

Under current CMS policy, CMS does not issue a “final” conditional payment determination amount until after settlement. Although preliminary information concerning conditional Medicare payments can be obtained prior to settlement, the dispute resolution process post-settlement regarding the appropriate amount can be lengthy and complicated. This has been a source of considerable frustration for Medicare beneficiaries. Further, CMS’ refusal to provide a final conditional payment amount prior to settlement creates additional risk for non-group health plans because CMS can recover Medicare conditional payments from a primary plan for injury related medical care notwithstanding the fact that the plan has already paid the claim and obtained a release for such medical care. Not knowing the final conditional payment amount prior to settlement impedes the non-group health plan’s ability to directly satisfy Medicare’s interests (e.g., by sending one check to Medicare and another to the claimant) because payment of settlement proceeds must generally be made promptly after settlement. This has lead liability insurance and other plans to seek work around release provisions designed to ensure that Medicare’s interests are, in fact, satisfied, adding to the complexities (and timeframes) for settlement.

The SMART Act addresses these concerns by requiring that CMS make a “statement of reimbursement” available to the Medicare beneficiary, his or her authorized representatives, and/or the non-group health plan with the beneficiary consent’s on a secure website prior to settlement of a non-group health plan claim. The settling parties can rely upon the statement as the final agency determination of Medicare conditional payments where certain conditions are met. This will allow the parties to factor the final “lien” amount into their settlement negotiations and allow primary plans to implement more direct and effective strategies for ensuring satisfaction of Medicare’s recovery rights (such as issuing separate checks to the beneficiary and Medicare). The statute imposes specific procedures around the statement of reimbursement process, including timelines for notice to the government in advance of an expected settlement and timelines for CMS’ response. CMS must promulgate final regulations to implement this process within nine months after the SMART Act enactment.

Many stakeholders have expressed concern over the slow and cumbersome process available for beneficiaries who wish to dispute costs that a CMS contractor identifies as Medicare conditional payments on the basis that such costs are not related to the illness, injury or incident at issue. The SMART Act requires that the Secretary provide Medicare beneficiaries and their authorized representatives a “timely process to resolve the discrepancy.” Specifically, if the individual or representative provides documentation explaining the discrepancy and offering a proposal to resolve it, CMS must, in turn, determine whether there is a reasonable basis to include or exclude the claims at issue in the Medicare conditional payment amount within 11 business days after receipt of the document. Additional processes for resolution are specified. The statute does not allow any administrative or judicial review of the Secretary’s determinations under this new process. However, Medicare beneficiaries still would retain the ability, as under current law, to exercise formal administrative or judicial appeals to contest final conditional payment demands from CMS. The Secretary also must promulgate implementing regulations concerning these processes within nine months of enactment.

Under current MSP law, “Responsible Reporting Entities” are required to determine whether a claimant is a Medicare beneficiary and, if so, submit certain detailed information to CMS. An RRE that fails to report the claimant’s information, as required, “shall be subject to a civil monetary penalty of $1,000 for each day of non-compliance with respect to each claimant,” with no exception for good faith efforts to obtain the information. While CMS has yet to publish implementing regulations or, to our knowledge, impose any such penalty, the potential financial risk to RREs is substantial. The SMART Act modifies the statutory language to provide that an RRE “may be subject to a civil money penalty of up to $1,000 for each day of noncompliance” per claimant. Moreover, and equally important, the SMART Act requires the Secretary to publish notice within sixty days of enactment soliciting proposals on practices that will and will not be subject to sanctions for non-reporting, including not imposing sanctions for good faith efforts to identify beneficiaries, and thereafter issue final rules regarding such practices.