The Medicare program was enacted in 1965 as part of the Social Security Act (“SSA”). In the 1980s the program’s payment structure changed significantly when Congress enacted the Medicare Secondary Payer (“MSP”) provisions. These provisions were an effort to control costs and combat the fraud, waste, and abuse that have plagued the program since its inception. The MSP provisions look increasingly to the private sector as an alternative to the federally administered portion of the program.
Ordinarily, when an individual or entity has one or more private insurance policies and files a claim of some sort, the insurer utilizes a “Coordination of Benefits” (“COB”) plan or program to determine who pays first, second, and so on. This is true of most types of insurance plans, including health insurance. Medicare’s MSP program is the federal analog to a private health insurance coordination of benefits program. When a Medicare beneficiary has one or more other sources that could pay medical bills, any available private benefits will be exhausted first, with Medicare stepping in second, last, or not at all, depending on the amount of private coverage and the cost of the claims.
The MSP statute also creates a system by which the federal government will make “conditional” payments to beneficiaries on behalf of third party private insurers when payment is not expected to be “prompt.” The MSP statute provides a method for collecting information to ensure that the government is reimbursed. It also creates specific collection powers, including subrogation rights as well as a right of action against third parties, known as a “super lien.” Lastly, Medicare engages in significant information collection activities in order to ensure reimbursement and compliance.
Reforms made in the last decade have sought to control costs by not only allowing CMS to pursue primary insurance payers, but other parties as well, including physicians, state agencies, and attorneys. This enforcement scheme has left many third parties on the hook for payment to Medicare even when they have already fully fulfilled their obligations to other parties. Furthermore, onerous new reporting requirements for primary payers is forcing defendants and defense counsel to determine whether a plaintiff is a Medicare beneficiary or risk liability to CMS for a $1000 per day penalty for failure to report the case and the plaintiff’s claim to CMS, even before liability has been assessed by the court.
In 2012, the Searle Civil Justice Institute commissioned a project, which attempts to determine the effect, if any, the MSP reimbursement program has on private parties’ behavior with respect to settlement and other characteristics of the primary payer-beneficiary relationship. Ultimately this should provide some insight as to whether Medicare’s particular rules regarding reporting, reimbursement, and liability are producing unintended consequences, which negatively impact beneficiaries, and imply a net negative social welfare outcome. The intent of this report is to inform policymakers as they consider reforms to the program to improve its effectiveness, lessen the impact on primary payers, and improve outcomes for beneficiaries.
Principal investigators include:
- Eric Helland, Professor of Economics, Claremont McKenna College
- Jonathan Klick, Professor of Law, University of Pennsylvania Law School