Current Medicare Reform Efforts:
How the SMART Act Would Change MSP Compliance

By Mark Popolizio

The Strengthening Medicare and Repaying Taxpayers (SMART) Act of 2011 currently pending in Congress proposes major amendments to the Medicare Secondary Payer (MSP) statute pertaining to nongroup health claims. This bipartisan bill targets key compliance aspects related to MMSEA Section 111 reporting, Medicare conditional payments, and other important MSP components. Here is a general overview of the SMART Act.

Background
The SMART Act is largely credited to the direct efforts of the Medicare Advocacy Recovery Coalition (MARC). The MARC ­coa­lition comprises a wide range of industry interests dedicated to addressing MSP compliance issues affecting claims practice.

The SMART Act was introduced in the House of Representatives in March 2011 as H.R. 1063. In October 2011, the bill was introduced in the Senate as S. 1718.

Since its introduction, the SMART Act has garnered significant congressional and industry support. At the time this article was drafted, the bill had bipartisan cosponsors in both the House and Senate. The bill has been referred to several congressional committees including House Ways and Means, House Energy and Commerce, and Senate Finance. Numerous and diverse industry stakeholders have endorsed the proposed reforms.

MMSEA Section 111 Reporting
Under Section 111, the law requires parties defined as "responsible reporting entities" (RRE) to report certain claims involving Medicare beneficiaries to the Centers for Medicare and Medicaid Services (CMS). RREs are subject to a penalty of $1,000 per day per claim for noncompliance with Section 111's reporting mandates.

As part of the Section 111 process, RREs must determine an individual's Medicare status. While RREs are under a statutory duty to determine Medicare status, the statute does not provide a specific process to follow. Furthermore, the statute does not afford any protection from liability in situations where the RRE is unable to make this determination.

To assist RREs, CMS developed an electronic "Query Process" system whereby RREs may submit requests to determine an individual's Medicare status. To use the Query Process, an RRE must provide an individual's Social Security number (SSN) or health identification number (HIN). However, in some instances, RREs have difficulty obtaining the required data elements, as individuals are often reluctant to release — or outright refuse to provide — the information because of privacy and other concerns. Given that Section 111 does not mandate that an individual provide this information, RREs may be unable to determine their compliance obligations.

To rectify the problem, the SMART Act would provide a specific "safe harbor" protecting RREs from liability in situations where the RRE makes a "good-faith effort" to determine an individual's Medicare status but is unable to do so. Furthermore, the SMART Act calls for the elimination of the required use of SSNs and HINs for MSP purposes.

SMART Act:
Projected Primary Payer Impact

If enacted into law, the SMART Act could affect primary payers in the following ways:

  • ability to determine conditional payment exposure before settlement
  • extended appeal rights to challenge CMS determinations
  • elimination of required use of Social Security and health identification numbers
  • Section 111 reporting "safe harbor" when plaintiffs refuse to produce their SSN
  • low-dollar MSP compliance threshold exemption
  • three-year statute of limitations for all MSP claims
  • modification of Section 111's $1,000 a day per claim

The SMART Act also proposes to modify Section 111's strict penalty provision. As currently enacted, the Section 111 statute states that RREs "shall" be subject to a penalty of $1,000 per day per claim. Use of the word "shall" has raised concerns that the provision will be interpreted as requiring mandatory imposition of the penalty without due consideration of mitigating factors, such as potential CMS error, an RRE's inability to comply with Section 111 for reasons beyond its control, and other legitimate defenses an RRE may have.

To address those concerns, the SMART Act would eliminate the word "shall" and replace it with the phrase "may be subject to," which would provide a discretionary characteristic to the penalty provision. Likewise, the bill introduces a discretionary element regarding the monetary fine because it would revise the statutory text to state that the RRE may be subject to a penalty "of up to" $1,000 per day. Furthermore, the severity of the penalty would be based on the "knowing, willful, and repeated nature of the violation."

Conditional Payment Reimbursement
Under the current CMS procedures, Medicare's final conditional payment amount generally cannot be obtained until after the claim settles and the CMS contractor receives the executed settlement agreement. In essence, the parties are forced to settle with only an interim estimate of what their potential conditional payment exposure may be. Additionally, contractors may take several months to provide CMS's final figure, which often leads to delays in disbursing the settlement funds.

The SMART Act would change the process by allowing the parties to obtain CMS's final reimbursable conditional payment figure before a settlement, judgment, award, or other payment. The provision is particularly popular because obtaining this figure in advance will provide certainty regarding reimbursement obligations, which in turn will enable release of the settlement funds in a timely manner.

The bill also proposes to expand appeal rights to challenge MSP claims, which would have direct applicability to conditional payments. Currently, CMS takes the position that only the plaintiff may file an administrative appeal or federal court action to challenge the CMS conditional payment claim. The SMART Act would extend those same rights to primary payers and other parties.

General MSP Matters
In addition, the SMART Act would set an annual MSP compliance threshold amount calculated by the CMS chief actuary. Any settlement, judgment, award, or other payment below that figure would exempt the claim from MSP obligations pertaining to Section 111 reporting and conditional payment reimbursement.

The bill outlines certain criteria to be used in setting the threshold amount and requires the chief actuary to publish the figure by November 15 each year. The proposal seeks to facilitate resolution of smaller claims and "nuisance value" settlements. Furthermore, proponents contend that a compliance threshold would ensure a more efficient use of administrative resources and taxpayer money in relation to CMS recovery efforts.

The SMART Act would also clarify the statute of limitations governing MSP claims. Currently, much uncertainty and confusion remain regarding the applicable limitations period during which Medicare may file suit under the MSP rules. The SMART Act proposes a three-year statute of limitations from the date Medicare receives notice of a settlement, judgment, award, or other payment under the Section 111 reporting process.

Conclusion
If enacted, the SMART Act would make significant substantive and procedural amendments to the MSP statute and current CMS procedures. On the whole, the bill aims to clarify important compliance requirements, streamline current processes, and make MSP compliance in general more equitable and practical. With the SMART Act continuing to gather support in Congress and throughout the claims industry, insurers need to keep a watchful eye on SMART reform efforts as they progress through the legislative process.

Mark Popolizio is Section 111 senior legal counsel for Crowe Paradis Services Corporation, a leading national provider of services that help insurers, administrators, and employers with legal requirements related to Medicare.