Product Liability Advisory Council The Medicare Secondary Payer Statute Thirty Years Later, It’s Time to Pay Attention Frank C. Woodside III, M.D., Esq. Thomas M. Connor, Esq. Dinsmore & Shohl LLP (513) San Antonio, TX April 28-30, 2010

© 2010 Dinsmore & Shohl LLP | 2 Today’s Discussion n History of the Medicare Secondary Payer (“MSP”) Statute n Reimbursement Requirements and Penalties – Reimbursement of past health care costs – Handling of future health care costs – Reporting of payments to beneficiaries n Implications for Products Liability Defendants – Issues presented by enforcement actions and penalties

© 2010 Dinsmore & Shohl LLP | 3 The Harsh Reality n Reimbursement of Medicare is a very big deal – Not an obscure ‘lien’ subject – Penalties are severe – Many, if not most, product liability attorneys, plaintiffs, defendants and insurers are clueless – Payers may already be in trouble – There are more questions than answers

© 2010 Dinsmore & Shohl LLP | 4 n “[T]he MSP statute does not give the government a claim against property.” Instead, “Medicare has a cause of action for damages.” Zinman v. Shalala, 835 F. Supp. 1163, 1171 (N.D. Cal. 1993) n Medicare’s right to reimbursement is statutory and automatic - no intervention or notice required n Much stronger than a mere lien "the United States' right of [Medicare] reimbursement is paramount to any other claim." United States v. Geier, 816 F. Supp. 1332, 1337 (W.D. Wis. 1993) Medicare's “Super-Lien”

© 2010 Dinsmore & Shohl LLP | 5 The Warning Shot n U.S. v. Stricker – Enforcement lawsuit under Medicare Secondary Payer statute n Plaintiff: The United States of America on behalf of the Secretary of Health and Human Services n Defendants: Settling liability insurers, self-insured defendants, and plaintiffs’ counsel n $300 million PCB exposure settlement. n ~907 Medicare beneficiaries n U.S. seeking double damages from insurers and self-insured defendants – Filed December 1, 2009 – U.S. District Court for the Northern District of Alabama, CV-09-PT-2423-ER

© 2010 Dinsmore & Shohl LLP | 6 History of the Medicare Secondary Payer Statute

© 2010 Dinsmore & Shohl LLP | 7 Medicare Basics n Medicare – Enacted in 1965 – Federal program that provides government-sponsored health insurance for the following: n People age 65 or older n People under age 65 who are disabled – Tied to eligibility for Social Security Disability Benefits n People of any age with End-Stage Renal Disease (ESRD) (permanent kidney failure requiring dialysis or a kidney transplant)

© 2010 Dinsmore & Shohl LLP | 8 Medicare Agencies n Administered by The Centers for Medicare & Medicaid Services (“CMS”) – Two contractors do most of the day-to-day MSP work n Coordination of Benefits Contractor n Medicare Secondary Payer Recovery Contractor n Part of the Department of Health and Human Services

© 2010 Dinsmore & Shohl LLP | 9 Medicare as Primary Payer n For the first 15 years Medicare was a ‘primary payer’ – Medicare paid for health care, even if someone else might have been responsible (i.e. tort defendant, liability insurer). – Only exception - worker’s compensation n Medicare a “secondary payer” n Secondary Payer = Medicare only pays after the responsible worker’s compensation plan pays n But Medicare costs quickly exceeded forecasts…

© 2010 Dinsmore & Shohl LLP | 10 The MSP Act of The Beginning of Our Problem n Medicare Secondary Payer (“MSP”) Act – A small, largely unnoticed, piece of a larger deficit reduction bill n Medicare and Medicaid Amendments of The Omnibus Reconciliation Act of 1980 – Codified at 42 U.S.C. §1395y. See also 42 C.F.R. Part 411 n Medicare now a secondary payer in more situations n The Act created MSP reimbursement obligations n Medicare only pays after other payers (including liability insurers) have paid what they are responsible for n Note that the MSP Act does not govern Medicaid liens

© 2010 Dinsmore & Shohl LLP | 11 What About Defendants n After 1980, The MSP expressly applied to liability insurers n But the government targeted Defendants too – Claiming they were self-insurers if they paid settlements or judgments directly (therefore subject to MSP) – The Courts repeatedly disagreed n Thus the 2003 Medicare Modernization Act...

© 2010 Dinsmore & Shohl LLP | Medicare Modernization Act n The scope of the MSP expanded – Defendant pays directly = Self-Insurer subject to the MSP – The mere act of settling creates a reimbursement obligation n No finding or admission of liability necessary n If the Plaintiff “compromised, waived, or released” claims for the injury, then Medicare must be reimbursed n Covers almost any personal injury settlement or judgment with a Medicare beneficiary

© 2010 Dinsmore & Shohl LLP | 13 MMSEA of 2007 n Medicare, Medicaid, and SCHIP 1 Extension Act of 2007 (MMSEA) - Section 111 – Does not alter reimbursement obligations – Adds a reporting requirement for payments made to Medicare beneficiaries n Essentially notifies Medicare of reimbursement opportunities n Burden falls on the Responsible Reporting Entity (“RRE”) – generally the insurer or self-insured defendant n Penalty for failure to report → $1,000 fine per day, per claim. n Has led to largely justifiable paranoia – And a lot of misinformation 1 State Children's Health Insurance Program

© 2010 Dinsmore & Shohl LLP | 14 Requirements and Penalties

© 2010 Dinsmore & Shohl LLP | 15 Medicare Will Pay -- Temporarily n Conditional Payments – Medicare may issue a conditional payment for medical treatment if a primary payer did not pay, or cannot reasonably be expected to issue payment promptly (120 days) n Medicare payments that ultimately become the responsibility of another plan (i.e liability insurer or self-insured Defendant) – Ensures the beneficiary receives needed care (i.e. during litigation) – Medicare expects to be reimbursed – In a product liability case, these are the costs paid by Medicare for treatment of an injury that is the subject of the lawsuit

© 2010 Dinsmore & Shohl LLP | 16 Reimbursement of Past Payments n Settlement or Judgment = Identification of a Primary Payer n Immediate automatic reimbursement obligation – Plaintiff must reimburse within 60 days – If not, the primary payer must reimburse Medicare “ even though it has already reimbursed the beneficiary.” 42 C.F.R. § (i) n If nobody reimburses, the United States may choose its target in an enforcement action – United States not bound by indemnification agreements

© 2010 Dinsmore & Shohl LLP | 17 See, e.g., U.S. v. Stricker Then, if you’re unlucky, you become famous

© 2010 Dinsmore & Shohl LLP | 18 Statute of Limitations n Government has 6 years from time of notice – Underlying litigation in Stricker case settled in 2003 – Government reimbursement action filed Dec – Stricker has nothing to do with the new reporting requirements n You may already be exposed to liability! – Haunted by the ghosts of settlements past

© 2010 Dinsmore & Shohl LLP | 19 Conditional Payment Enforcement n U.S. has flexibility in choosing a target – Primary Payer (liability insurer or self-insuring defendant) n May seek double damages for failure to reimburse (on top of $ already paid to plaintiff) n Plus interest (from the time of CMS’ demand letter) – And/Or "any entity, including a beneficiary, provider, supplier, physician, attorney, State agency or private insurer that has received a primary payment." n This means plaintiffs and their contingency fee lawyer

© 2010 Dinsmore & Shohl LLP | 20 Conditional Payment Enforcement n And may seek the whole settlement – Not bound by apportionment of damages by parties – May seek full reimbursement even though settlement was discounted. Zinman v. Shalala, 67 F.3d 841 (9th Cir. 1995) – Can frustrate Plaintiff’s ability to recover anything n May make allowance for procurement costs – Lawyer still gets paid n There is a waiver process for hardship

© 2010 Dinsmore & Shohl LLP | 21 MSP Private Cause of Action - 42 U.S.C. § 1395y(b)(3) n The private cause of action is often overlooked, seldom used, and little understood – Extra leverage if plaintiff’s bar figures this out – ‘Ripens’ at the time of settlement or judgment – Allows double damages – Defendant can obtain a release in settlement agreement – But a judgment offers no such protection n Need to account for the true liability exposure n Insurer cannot assume that policy limits are the ceiling

© 2010 Dinsmore & Shohl LLP | 22 Future Medicals and MSAs n Medicare Set-Aside (“MSA”) – quantify and segregate funds to pay for future expenses where Medicare is a secondary payer. n Required for personal injury cases? – All the guidance is for Worker’s Compensation, but same statute governs. – If required, it’s a huge mess absent CMS guidance. Need to handle: – Multiple defendants – Preexisting injuries / Multiple causes – was it the smoking or the product exposure? – Comparative fault – Class actions – minimal individualized discovery – Damage caps n Others will provide all the answers shortly

© 2010 Dinsmore & Shohl LLP | 23 MMSEA of 2007 – MSP Reporting n Requirement to electronically report nearly all settlements and judgments with Medicare beneficiaries to CMS n Two Key Issues – CMS visibility to ALL settlements and judgments = Huge implications for increased MSP enforcement – Reporting compliance – It’s complex and confusing

© 2010 Dinsmore & Shohl LLP | 24 Implications For Products Liability Defendants

© 2010 Dinsmore & Shohl LLP | 25 MSP Implications n You may already be in trouble for past cases – Indemnification clauses won't save you n Need to get compliant for pending and future cases – At time of settlement, its too late n Need a separate process for all Medicare plaintiffs n Realize the settlement negotiations may break down – No such thing as a nuisance settlement - need to cover Medicare n Beware the private cause of action

© 2010 Dinsmore & Shohl LLP | 26 What You Must Remember n Reimbursement obligation is automatic – be proactive n Reporting requirement has teeth. When in doubt, report! n Increased reimbursement enforcement is all but guaranteed by MMSEA reporting – The U.S. has 6 years, they may be better at enforcement by then – Easy for politicians to target manufacturers, insurers and lawyers to shore up Medicare n Penalties are severe. Ignore MSP issues at your own peril.

Product Liability Advisory Council Frank C. Woodside III, M.D., Esq. (513) | Dinsmore & Shohl