Medicare Secondary Payer: Additional Steps Are Needed to Improve Program Effectiveness for Non-Group Health Plans
Released: 2012-04-03T00:00:00

Letter

Background

Medicare’s payments in MSP situations can vary depending on the circumstances of the situation. CMS oversees all MSP activities and administers the MSP program, with contractors performing most of CMS’s administrative activities within the process for MSP situations involving NGHPs. The process for MSP situations that involve NGHPs generally includes five basic components—notification, negotiation, resolution, mandatory reporting, and recovery.

Medicare Payments in MSP Situations Involving NGHPs

Medicare payments can vary in different MSP situations. In most MSP situations involving NGHPs, Medicare will pay initially for medical treatment related to the incident and later seek to recover those payments. When CMS is notified that an MSP situation exists in which an NGHP has accepted primary responsibility for ongoing medical services, Medicare will start denying the related claims. However, more commonly, CMS is notified about a potential MSP situation that is not yet resolved, and Medicare continues to make payments until the situation is resolved and there is a settlement, judgment, award, or other payment. Medicare does this to ensure that the beneficiary has access to needed medical services in a timely manner. CMS refers to any payments made by Medicare for services where another payer has primary responsibility for payment as conditional payments. Once a resolution is reached between the beneficiary and the NGHP, Medicare will seek to recover any conditional payments made.

To help prevent Medicare from making future payments related to MSP situations involving NGHPs, when an individual is expected to have future medical expenses (including Medicare-covered drug expenses) related to his/her accident, injury, or illness, CMS states that all parties involved in negotiating a resolution of those situations are responsible for protecting Medicare’s interests. One way to accomplish this is through a Medicare set-aside arrangement (MSA)—a voluntary arrangement where a portion of the proceeds from a settlement are set aside to pay for all related future medical expenses that would otherwise be reimbursable by Medicare if Medicare were the primary payer.payments for medical expenses related to the MSP situation until the MSA funds are exhausted. While MSAs can be used in liability or no-fault situations, they are most common for workers’ compensation situations, where they are known as Workers’ Compensation Medicare Set-Aside Arrangements (WCMSA).

Roles of CMS and CMS Contractors in MSP Activities

CMS oversees all MSP activities and administers the MSP program, through activities such as developing program policy and guidance. In addition, CMS communicates to stakeholders—including NGHPs, beneficiaries, providers, and attorneys—about the MSP process, policies, and guidance. For example, CMS maintains websites related to parts of the MSP process, from which NGHPs and beneficiaries can obtain information about their respective responsibilities in MSP situations involving NGHPs. GAO has established guidelines on internal control that are relevant for federal agencies such as CMS. Internal control includes the components of an organization’s management that provide reasonable assurance that certain objectives are being achieved, including effective communication with external stakeholders.

Since 2006, CMS has had three contractors to perform most of its administrative activities within the MSP process: the Coordination of Benefits Contractor (COBC), the Medicare Secondary Payer Recovery Contractor (MSPRC), and the Workers’ Compensation Review Contractor (WCRC). Current contractor responsibilities are as follows:

COBC: The COBC collects, manages, and maintains information in the CMS data systems about other health insurance coverage for Medicare beneficiaries and initiates MSP claims investigations. The information the COBC collects is available to other CMS contractors.

MSPRC: The MSPRC uses information updated by the COBC as well as information from CMS’s data systems to identify and recover Medicare payments that should have been paid by another entity as primary payer. Once a resolution has been reached between the beneficiary, or other individuals authorized by the beneficiary, and the NGHP, the MSPRC calculates the final amount owed to Medicare and issues a demand letter to the beneficiary or other individual authorized by the beneficiary.

WCRC: The WCRC evaluates proposed WCMSA amounts and projects future medical expenses related to workers’ compensation accident, injury, or illness situations that would otherwise be payable by Medicare. The WCRC generally only reviews proposed WCMSA amounts for current Medicare beneficiaries within certain thresholds, referred to as CMS workload review thresholds. WCRC- recommended WCMSA amounts are forwarded to one of six CMS regional offices for final approval.

Process for MSP Situations Involving NGHPs

The process for MSP situations that involve NGHPs generally includes five basic components—notification, negotiation, resolution, mandatory reporting, and recovery. However, the details of the process, and the administrative tasks that must be conducted, can vary depending on when in the process notification occurs, the type of insurance involved (liability, no-fault, or workers’ compensation), and the type of resolution reached.may vary, in general, the process contains the following components: While the details vary by situation and the timing of notification

Notification: The COBC is notified that a beneficiary’s accident, injury, or illness is an MSP situation and creates a record. Notification can come from various sources—including the beneficiary, an attorney, a physician, or the NGHP—and can occur at various times during the process for MSP situations involving NGHPs. While mandatory reporting requires NGHPs to report MSP resolutions to the COBC, NGHPs or other involved parties may also provide voluntary notification earlier in the process. For example, a beneficiary’s attorney could provide notification of an MSP situation involving an NGHP shortly after an accident occurs. After notification of the MSP situation, Medicare usually continues to make conditional payments although it may begin denying claims. Once the record for an MSP situation is created by the COBC, the MSPRC issues an MSP rights and responsibilities letter to the beneficiary or the beneficiary’s representative, such as an attorney, which explains the applicable MSP law and how MSP recovery works.

Negotiation: Negotiation occurs between the NGHP and the injured beneficiary or the beneficiary’s representative. The point in the process at which notification of a potential MSP situation is made can affect the number and amount of conditional payments made by Medicare as well as whether, and the extent to which, information on conditional payments is available during the negotiation. For example, if CMS is notified about a potential MSP situation early in the process, the MSPRC can provide information about what it has identified as any related claims that have been paid by Medicare. This information may then be used during the negotiations. This information is provided in writing through a conditional payment letter. For workers’ compensation situations that involve future medical expenses, the WCRC may be involved in reviewing proposed WCMSA amounts.

Resolution: Resolution is reached between the beneficiary or the beneficiary’s attorney and the NGHP. The type of resolution varies and can include the NGHP assuming ongoing responsibility for payment of medical claims related to the injury or illness, a lump sum payment, a Medicare set-aside arrangement, or a combination of any of these. The beneficiary or the beneficiary’s representative submits the resolution information to the MSPRC. For resolutions that include a WCMSA, no payments are made by Medicare for medical expenses related to the workers’ compensation injury or illness until the set- aside is exhausted. The administrator of the WCMSA, typically the beneficiary or the beneficiary’s representative, must submit an annual accounting of the set-aside funds to the MSPRC.

Mandatory reporting: The NGHP reports the resolution to the COBC.

Regardless of whether notification of the MSP situation occurred earlier in the process, after a resolution is reached in which the Medicare beneficiary or someone on the beneficiary’s behalf receives a settlement, judgment, award, or other payment from the NGHP, the NGHP is required to report information about the MSP situation and its resolution to the COBC under mandatory reporting. The data NGHPs are required to submit include information to identify the beneficiary; diagnosis codes for the injury, accident, or illness; information concerning the policy or insurer; information about the injured party’s representative or attorney; and settlement or payment information.

Recovery: The MSPRC seeks to recover Medicare’s conditional payments that have been made. The MSPRC calculates the total amount owed to Medicare and issues a demand for payment— referred to as a demand letter. This letter is typically issued to the beneficiary or the beneficiary’s representative. The MSPRC compares the resolution data reported by the NGHP under mandatory reporting to any resolution data submitted by the beneficiary, or the beneficiary’s representative, to ensure that the resolution data match. Either payment is received and the case closed or a response is received challenging all or part of the demand. If no response is received, debt delinquent more than 180 days is referred to the Department of the Treasury for collection action. The beneficiary has the right to question, appeal, or request a waiver of recovery of the amount demanded.

Figures 2, 3, and 4 illustrate how the process could work for MSP situations that involve an auto liability insurer, a no-fault insurer, and a workers’ compensation plan, respectively. In each case, the timing of notification and the parties involved in each step can vary.

MSP Contractor Workloads, Payments, and Medicare Savings Increased during the Initial Implementation of Mandatory Reporting for NGHPs

During the initial implementation of mandatory reporting for NGHPs, the workloads of and CMS payments to MSP contractors, and Medicare savings, all increased. For example, since fiscal year 2008, CMS payments to the MSP contractors have increased by about $21 million while Medicare savings from NGHP MSP situations—including savings from claims denials and conditional payment recoveries—have increased by about $124 million. However, because mandatory reporting is still being phased in, particularly for most liability settlements, it is too soon to determine the full impact of its implementation.

MSP Contractors’ NGHP Workload Increased during the Initial Implementation of Mandatory Reporting for NGHPs

CMS MSP contractors’ NGHP workloads increased during the initial implementation of mandatory reporting, and workloads are expected to continue to increase as mandatory reporting is phased in. The NGHP workloads of all three MSP contractors increased to varying degrees during the initial implementation of mandatory reporting. For example, from fiscal year 2008 through fiscal year 2011, the number of MSP situations involving NGHPs that were voluntarily reported to the COBC increased by 176 percent and the number of WCMSAs submitted to the WCRC increased by 42 percent (see table 1). Although mandatory reporting for NGHPs did not begin to be phased in until January 1, 2011, CMS officials told us that the effects of the mandate began earlier as the voluntary reporting of MSP situations (by NGHPs, attorneys, or beneficiaries) increased after the law’s passage in December 2007.

CMS officials told us they expect that the COBC’s and MSPRC’s workloads will continue to increase once mandatory reporting is phased in for most liability MSP situations. CMS officials and an NGHP stakeholder group both told us that many liability MSP situations were not reported to CMS prior to mandatory reporting. CMS officials could not estimate the extent of future increases because CMS has no reliable estimates on the actual number of liability cases that include MSP situations.

The increased number of WCMSA proposals submitted to the WCRC during the past 4 years may be due, in part, to the NGHP industry’s increased submission of ineligible and $0 WCMSA proposals in reaction to mandatory reporting. While the number of WCMSA submissions increased by 42 percent from fiscal year 2008 through fiscal year 2011, some of these submissions were not eligible for WCRC review—for example, they did not meet the minimum reporting thresholds—and the number of ineligible WCMSA submissions has grown rapidly. Ineligible submissions increased by about 148 percent from 2008 through 2011, growing from about 4,500 ineligible submissions in 2008 to about 11,200 ineligible submissions in 2011. Although mandatory reporting did not add any new WCMSA requirements, a CMS official told us the NGHP industry may be submitting more WCMSA proposals that are not eligible for WCRC review because it wants documentation from CMS stating that a WCMSA did not meet CMS’s review thresholds.

Similarly, although not directly related to any reporting requirements, WCRC officials said that they have also seen an increase in $0 WCMSA proposals. A workers’ compensation plan may submit these proposals when a settlement amount meets the minimum thresholds and is eligible for WCRC review, but the plan is asserting that it does not have responsibility for paying the beneficiary’s future medical expenses. WCRC officials told us that when an NGHP submits a $0 WCMSA proposal, it may be seeking CMS confirmation that it does not have responsibility for paying the beneficiary’s future medical expenses.

CMS’s Payments to MSP Contractors Increased during the Initial Implementation of Mandatory Reporting

The total amount of CMS payments to the MSP contractors increased during the initial implementation of mandatory reporting. Total CMS payments to the MSP contractors in fiscal year 2011 were about $21 million higher than payments in fiscal year 2008 (see table 2). Payments for the MSPRC’s services increased by the greatest amount over this period—increasing about $16 million from 2008 through 2011. While CMS’s overall contractor payments increased during this time period, the percentage increases in payments to the COBC and MSPRC were substantially lower than the increases in their workloads (see table 3).

In order to control costs and contractor workloads, CMS is taking steps to improve the overall efficiency of the MSP program. CMS officials told us that they intend to move the MSP program to more of a “self-service” model. In this model, NGHPs, attorneys, and beneficiaries could obtain or submit required information through contractor websites or contractor automated phone lines, rather than submitting information via mail or fax, or waiting to speak to a customer service representative, as has traditionally been the process. This may result in increased efficiencies in the MSP process, for example, by allowing both NGHP stakeholders and MSP contractors to receive necessary information more quickly. Officials estimated that these steps will be able to reduce the workload performed per case by the MSP contractors.

Medicare Savings Increased during the Initial Implementation of Mandatory Reporting, but the Total Impact on Savings Could Take Years to Determine

Medicare savings increased during the initial implementation of mandatory reporting for NGHPs, but an accurate estimate of savings could take years to determine because of the lag time between initial notification of MSP situations and recovery, the fact that not all reported situations result in recoveries, and the fact that mandatory reporting is still being phased in. MSP savings from known NGHP situations that CMS is able to track—including savings from claims denials and conditional payment recoveries—increased by about $124 million from fiscal year 2008 through fiscal year 2011. Savings attributable to liability insurance increased by the greatest amount during this time period, growing from about $342 million in fiscal year 2008 to about $448 million in fiscal year 2011. In addition to these savings, Medicare also avoids costs as a result of the use of MSAs. CMS only tracks cost-avoided savings attributable to approved WCMSA proposals, not other types of MSAs, and accounts for the savings by reporting the total WCMSA amounts approved each fiscal year. These numbers therefore represent the maximum cost-avoided savings that could potentially be realized through these WCMSAs in the future. See table 4 for the total amount of MSP savings from NGHP situations and WCMSAs approved from fiscal year 2008 through fiscal year 2011. Because of a change in CMS policy implemented in 2009, it is unclear to what extent the increases in approved WCMSA amounts can be attributed to mandatory reporting.

While Medicare savings attributable to NGHP MSP situations have been increasing overall, it is too soon to determine the total impact that mandatory reporting will have on NGHP Medicare savings. Savings amounts have not increased as quickly as the overall increase in NGHP MSP situations reported to CMS. There are two reasons why this may be occurring. CMS officials told us that because it can take several years for a case involving an NGHP MSP situation to be resolved, there is a delay between when increases are seen in the number of new situations reported and when increases are seen in the amounts of demands and recoveries. Additionally, since there is not necessarily a recovery demand issued for every NGHP situation reported, an increase in the number of reported cases will not necessarily result in a corresponding increase in recoveries. These MSP situations represent cost-avoided savings, but CMS officials told us that to the extent that these situations are working appropriately and CMS is not receiving claims, they have no way of knowing the savings associated with these situations.

CMS Is Addressing Some but Not All of the Key Challenges We Identified within the Process for MSP Situations Involving NGHPs

Within the process for MSP situations involving NGHPs, we identified key challenges related to contractor performance, demand amounts, aspects of mandatory reporting, and CMS guidance and communication. CMS has addressed, or is taking steps to address some, but not all, of these challenges.

CMS Is Taking Steps to Address Challenges Related to MSPRC and WCRC Timeliness

Challenges related to the timeliness of the MSPRC and WCRC were identified, including recent significant increases in the time required to complete certain processes or tasks, and CMS reported taking steps to address the challenges with each of these contractors’ performance.

Problems related to the timeliness of the MSPRC have been identified, and several actions have been taken or are under way by CMS to address these problems. NGHPs and beneficiary advocates have cited performance problems with the MSPRC that include the length of time taken to answer phone calls and to issue demand letters after resolutions for an MSP situation were provided to the MSPRC. MSPRC data show that from fiscal year 2008 through fiscal year 2011 the average wait time for NGHP callers has increased from an average of less than 3 minutes to an average of more than 38 minutes. During that same period, the number of NGHP-related calls handled by the MSPRC’s customer service representatives increased from about 550,000 in fiscal year 2008 to about 630,000 in fiscal year 2011, and the number of calls abandoned after 31 seconds or more increased from about 30,000 in fiscal year 2008 to about 220,000 in fiscal year 2011. CMS officials told us that while the MSPRC did not have a specific performance standard for average call wait times in its contract, they found the current average wait time of over 38 minutes for NGHP-related phone calls unacceptable.

In fiscal year 2011, the MSPRC averaged about 76 days to issue a demand letter when notice of settlement was the initial notification of the MSP situation to the MSPRC. If the MSPRC was aware of the MSP situation prior to receiving the notice of settlement, it averaged about 48 days to issue a demand letter. Delays in issuing demand letters could result in delays in distributing funds from MSP situation resolutions to beneficiaries. CMS officials stated that the agency has a performance standard stating that the issuance of a demand letter within 20 days is timely if the case was established prior to settlement and the initial conditional payment letter was issued.

CMS and MSPRC officials attributed some of the MSPRC’s performance challenges to higher-than-expected workloads. MSPRC officials attributed their inability to keep up with increased call volumes to a lack of resources, stating that since the contract’s inception they have not been adequately funded by CMS for their workloads. They stated that CMS has consistently underestimated the annual volume of calls the MSPRC would receive. CMS officials acknowledged that when the contract started in 2006, at which time the MSP recovery tasks were transitioned from CMS claims contractors to the MSPRC, CMS underestimated the MSPRC workload. Officials said that just when the MSPRC was close to catching up from that transition, mandatory reporting was announced, which created a new, additional workload.

CMS reported that the agency was taking several steps intended to address MSPRC performance challenges. For example, CMS did not renew the contract with the entity that served as the MSPRC since October 1, 2006, and is planning to make a significant change to its current MSP contracting structure by combining the functions of the current COBC and MSPRC. CMS intends to streamline the MSP data and debt collection processes for Medicare stakeholders by establishing a centralized coordination of benefits and MSP recovery organization. CMS reports that this approach will allow the agency to minimize duplicative activities that were previously performed by both the COBC and MSPRC, provide a single point of contact for internal and external stakeholders, and consolidate MSP responsibility under one umbrella. CMS is also working to develop a web-based MSPRC portal, which will enable beneficiaires and beneficiaries’ representatives to, among other things, obtain information about their Medicare claim payments. Table 5 presents the steps CMS is taking to address MSPRC performance challenges and the anticipated results of taking these steps. Most of these steps were either implemented only recently or have not yet been implemented, therefore it is too soon to tell to what extent these functions currently performed by the MSPRC will improve as a result of these actions.

The average processing time for the WCRC to review WCMSA proposals has increased significantly over the past year and a half, resulting in delays in the resolution of MSP cases, and several actions have been taken or are under way by CMS that are intended to reduce processing time. According to WCRC data, the average processing time for all cases increased from 22 days in April 2010 to 95 days in September 2011 (see fig. 5). While the current WCRC contract does not include a performance standard related to the length of time for the WCRC to review submitted WCMSA proposals, WCRC officials told us they would like WCMSA reviews to be completed within 45 days. CMS and WCRC officials report that a number of factors contributed to the WCRC’s review process taking longer, including increased workload. For example, while in fiscal year 2011 the WCRC contract estimated that the WCRC would review 1,700 WCMSA proposals each month, the WCRC received an average of about 2,400 WCMSA proposals per month and was able to review an average of about 2,100 per month. As a result, a backlog grew. According to WCRC data, over the past several years, an increasing number of submitted WCMSA proposals were determined by the WCRC to be ineligible for review, meaning that more of the WCRC’s time has been spent responding to ineligible proposals. Also, CMS reported that a change made to the data system used by the WCRC to process WCMSAs resulted in a decrease in system performance, which significantly increased review time from September 2010 through January 2011, adding to the backlog of WCMSA proposals to be reviewed.

Several actions have been taken or are under way by CMS to reduce the average processing time for WCMSA proposal review. For example, in fiscal year 2011 CMS provided the WCRC with additional funding that enabled the WCRC to authorize overtime for its employees to attempt to decrease the existing backlog of submitted WCMSA proposals. CMS is also currently in the process of awarding a new WCRC contract. According to CMS officials, the new contract provides for an increased estimated number of monthly WCMSA proposal reviews—increasing the number from 1,700 a month to from 2,000 to 2,500 a month. Additionally, CMS implemented a web-based portal—the WCMSA Portal (WCMSAP)—which is intended to improve the efficiency of the WCMSA submission process. The WCMSAP allows registered users, such as beneficiaries, attorneys, and insurance companies, to directly enter WCMSA case information electronically, upload documentation, and receive up-to-date case status information electronically. CMS conducted a pilot test with 10 WCMSA submitters that according to COBC officials, collectively represented 80 percent of all WCMSA submissions. We contacted the 10 WCMSA submitters that participated in the WCMSAP pilot, and they told us that the WCMSAP could improve the overall The WCMSAP became WCMSA submission and review process.available for use by all WCMSA submitters on November 29, 2011. Finally, CMS hired a contractor to conduct an assessment of its WCMSA process, which could result in recommendations to address related policies and procedures, such as the average processing time. CMS officials told us that they expected to receive a draft of the contractor’s report in March 2012, with a final report in June 2012.

CMS Is Taking Steps to Address Some of the Key Demand and Recovery Challenges We Identified

We identified three key challenges related to demand and recovery of MSP amounts. They include challenges related to the timing of the final demand amounts, the cost-effectiveness in recovery efforts, and the amounts demanded in liability settlements. CMS officials reported that the agency was taking steps to address some, but not all, of these challenges.

Stakeholders, such as attorneys and NGHPs, reported that because CMS does not provide a final demand amount prior to a settlement, they have difficulty determining an appropriate settlement amount, which delays settlements. CMS is taking several steps to address this challenge. NGHP stakeholders reported that it would be helpful if CMS could calculate a final demand amount that can be provided to concerned parties prior to settlement, rather than after settlement. CMS officials stated, however, that they do not know what the final demand amount will be because Medicare continues to make conditional payments up to the settlement date.negotiations, beneficiaries can view all their claims paid to date by Medicare on the MyMedicare.gov website.

CMS officials also noted that during settlement CMS is taking steps that may improve NGHP stakeholders’ ability to obtain or estimate Medicare’s demand amount prior to settlement. For example, as of September 30, 2011, beneficiaries can obtain the latest issued Medicare conditional payment amounts through an automated, self-service feature of the MSPRC phone line. In November 2011, CMS implemented an option for beneficiaries to pay Medicare a fixed 25 percent of their settlement amount for certain liability situations involving a physical-trauma-based injury with settlement amounts of $5,000 or less. In December 2011, CMS announced an option for beneficiaries, beginning in February 2012, to self-calculate conditional payment amounts for liability insurance MSP situations with settlement amounts of $25,000 or less that involve physical-trauma-based injuries.MSPRC will review the proposed self-calculated conditional payment amount and, if it finds the amount accurate, will respond with Medicare’s final conditional payment amount within 60 days.

CMS has sometimes spent more in administrative costs attempting to recover certain conditional payment amounts than the demands are actually worth, but has recently implemented two initial recovery thresholds and may consider additional thresholds once it has had an opportunity to review 2012 data. NGHP stakeholders provided an example of a demand letter issued by the MSPRC for an amount of $1.59; one NGHP stakeholder noted seeing numerous examples of demand letters for amounts less than $5.00. MSPRC officials confirmed that they have traditionally pursued any recoveries the MSPRC was made aware of, regardless of the administrative costs to recover them. In 2004 we noted the importance of improving the cost-effectiveness of the MSP recovery process, and CMS concurred with our recommendations. The cost-effectiveness of recovery has improved greatly. In 2004, we reported that CMS recovered only 38 cents for every dollar spent on recovery activities in fiscal year 2003, but in June 2011 CMS reported that MSP activities have provided an average rate of return on recoveries of $9.32 for each dollar spent since fiscal year 2008. NGHP stakeholders suggested that CMS should take an additional step to improve cost- effectiveness by setting a recovery threshold based on the settlement amount that would likely yield a recovery amount at or above CMS’s cost to recover that money.

Among other things, the Federal Claims Collection Act permits the Secretary of Health and Human Services to end collection actions on certain claims when the cost of collecting such claims is likely to be more than the amount recovered. 31 U.S.C. § 3711(a)(3). See also, 31 C.F.R. §§ 903.1-903.5. Additionally, the MSP statutory provision provides for the waiver of conditional payment requirements, including repayment, when the Secretary determines that such a waiver is in the best interests of Medicare. 42 U.S.C. § 1395y(b)(2)(B)(v). $200.additional recovery thresholds for certain NGHP situations once officials have had a chance to review 2012 data, which will include information on some liability MSP situations.

NGHP stakeholders suggested that because CMS does not recognize the concept of proportionality in liability settlement situations a disproportionate share of liability settlement amounts may be paid to Medicare; however, CMS has a process that may sometimes address this challenge. The concept of proportionality in liability settlement amounts is relevant in situations when individuals and liability insurers agree to settle for less than the full amount of incurred expenses associated with the alleged incident, and therefore the amount of medical expenses to be reimbursed to an individual’s health plan is proportionally reduced. NGHP stakeholders said that CMS does not recognize this concept for MSP situations and instead wants 100 percent reimbursement of claims it paid. They assert that CMS should recognize proportionality in these situations and likewise proportionally reduce Medicare’s demand amount in these cases. NGHP stakeholders stated that if CMS does not proportionally reduce Medicare’s demand amount in these situations, it could leave beneficiaries without any compensation for issues such as pain and suffering or lost wages. However, CMS officials said that the concept of proportionality is in conflict with MSP provisions granting CMS a priority right of recovery, which entitles Medicare to full recovery for the expenses it paid up to the settlement amount. Nonetheless, CMS officials said that Medicare beneficiaries may contact the appropriate CMS regional office prior to settling a case to request a pre-demand compromise in the event that the demand amount would consume the entire settlement. CMS officials told us that they do not, however, advertise the availability of this option and do not keep data on how often compromises are requested or granted. Limited MSPRC data on those compromise requests of which the MSPRC is made aware suggest that about two out of every three compromise requests are approved by the reviewing CMS regional office.

CMS Is Taking Steps to Address Some Key Challenges We Identified with Aspects of Mandatory Reporting

We identified three key challenges related to aspects of mandatory reporting for NGHPs: determining whether individuals are Medicare beneficiaries, supplying diagnostic codes related to individuals’ injuries, and reporting all settlement amounts. CMS reported that it is taking steps to address some, but not all, of these challenges.

NGHP stakeholders reported difficulty in determining whether individuals are Medicare beneficiaries for the purposes of mandatory reporting, and CMS has taken a step to address the challenge and is considering another. NGHP stakeholders have reported difficulty obtaining the information needed from individuals involved in NGHP situations in order to determine whether an individual is a Medicare beneficiary, and whether the NGHP is therefore required to report the situation. In order to verify an individual’s Medicare eligibility, an NGHP either needs the person’s Medicare Health Insurance Claim Number (HICN) or the person’s Social Security number, first initial of the first name and last six characters of the last name, date of birth, and gender. NGHP stakeholders report that individuals are reluctant to surrender sensitive information, such as Social Security numbers, to NGHPs—particularly as there may be an adversarial relationship between the individual and the NGHP (i.e., that individual is suing the insurer or self-insured company). Without this information, the NGHP cannot verify whether the individual is a Medicare beneficiary and cannot submit the mandatory reporting record. Therefore, NGHP stakeholders also reported concerns that they could be subject to mandatory reporting noncompliance fines if not being able to obtain this information led to being unable to submit a mandatory reporting record.

To assist NGHPs with this challenge, CMS has provided them with model language that they can use to document their unsuccessful attempts to obtain individuals’ HICNs or Social Security numbers. This model language is a sample statement to be signed by the individual indicating whether the individual is a Medicare beneficiary for use in cases when the NGHPs cannot otherwise determine the individual’s Medicare status. CMS has stated that if an individual refuses to furnish a HICN or Social Security number, and the NGHP reporting entity chooses to use this model language, CMS will generally consider the reporting entity compliant for purposes of mandatory reporting.officials stated that CMS and a number of other federal agencies are currently conducting internal studies to evaluate possible alternatives that could be used in lieu of Social Security numbers.

ICD-9 codes are used by the Medicare claims contractors to determine whether specific Medicare claims should be denied or paid. NGHPs submitting incorrect ICD-9 codes could result in beneficiaries’ claims that are actually unrelated to their MSP situations being incorrectly denied. created within the CMS data systems. Therefore, CMS would already have had access to the related codes.

Some NGHP stakeholders assert that they should not have to report all liability settlements, as CMS may be able to recover very little from certain settlements, and CMS is evaluating data to determine if appropriate reporting thresholds could be established. An official of an organization representing NGHPs has stated that liability settlements of less than $25,000 include a small portion of annual settlement payments but constitute a large number of individual claims. Therefore, the official suggested that liability NGHPs should not have to report these settlements to CMS as it would just increase the reporting burden on NGHPs while yielding small recovery amounts. However, recovery data show that for fiscal year 2011, the MSPRC issued almost 57,000 demands for liability settlements under $25,000. These demands related to these settlements totaled almost $71 million, with an average demand amount of about $1,250.

Nonetheless, CMS is evaluating its data and the agency is considering implementing reporting thresholds, if appropriate. However, CMS officials expressed concern that setting reporting thresholds could have unintended consequences. If thresholds were set at, for example, $25,000, then the NGHP industry might begin settling many cases at amounts just under $25,000 in order to avoid mandatory reporting. CMS officials reported that any determination of reporting thresholds should wait until liability reporting data are available so the data can be analyzed and an appropriate threshold set. CMS officials also note that the establishment of any mandatory reporting thresholds would not eliminate CMS’s recovery rights for settlements below the threshold.

CMS Has Taken Few Steps to Address Challenges Related to Insufficient and Confusing CMS Guidance and Communication about NGHP MSP Situations

We identified key challenges related to CMS guidance and communication of information on the MSP process, guidance on MSAs, and beneficiary rights and responsibilities related to MSP recoveries, resulting in communication of information that does not meet GAO standards for internal control. CMS has taken few steps to address these challenges.

The overall presentation and organization of MSP process guidance for situations involving NGHPs on the CMS website does not ensure that pertinent information can be identified by external stakeholders, including NGHPs. For example, there is no main web page for the MSP program. Instead, information relevant to the MSP process for situations involving NGHPs is categorized on the main Medicare home page in two separate sections—some MSP process information falls under “Coordination of Benefits” and other process information falls under “Medicare Secondary Payer Recovery.” This makes it difficult to find any recent developments or changes to the MSP process as a whole, as an individual has to check multiple web pages to locate recent news. Additionally, while CMS has created an MSP manual, there is no direct link to the manual under the Coordination of Benefits or Medicare Secondary Payer Recovery headings on the Medicare home page. Also, because CMS regularly updates its MSP policies and process by issuing memos or “alerts,” it is difficult to determine what the current policy is or what may have changed in the process.

CMS has issued guidance regarding WCMSAs, but finding current, official WCMSA guidance can be challenging, and CMS has issued little other MSA guidance. While CMS has a policy manual for describing the MSP process in general, no similar manual, or chapter in the MSP process policy manual, describes WCMSA policy. Further, while guidance in the form of memorandums related to WCMSAs exists, no manual or similar document currently exists to organize this guidance. The WCMSA-related memorandums are accessible on the CMS website, but are poorly organized, making it difficult to find memorandums on particular topics. As a result, NGHP stakeholders have reported that it is difficult to find updated WCMSA policies. However, CMS officials told us in January 2012 that the agency was developing a WCMSA user manual that would be available through the CMS website. Stakeholders also said that the WCMSA review and approval criteria are not clear, and expressed a desire for CMS to make this information more transparent. Furthermore, CMS has established an e-mail address to accept questions regarding WCMSA submission policy, but the actual e-mail address is not well publicized and is difficult to find.

Additionally, while guidance exists for WCMSAs, CMS has issued very little guidance related to liability MSAs and NGHP stakeholders reported inconsistent handling of liability MSAs. CMS issued its first formal memorandum related to MSA for liability situations on September 29, 2011, detailing when it would consider Medicare’s interests satisfied with respect to future medical expenses in liability settlements. But this is the only formal memorandum related to liability MSAs that CMS has provided. And unlike for WCMSAs, CMS does not have a formal review and approval process for liability or no-fault MSA arrangements. Upon request, some CMS regional offices will review liability or no-fault MSAs, but this is at the regional office’s discretion. NGHP stakeholders report variation in regional office response, including which regional offices will review liability MSAs, policies (such as setting thresholds for review), and regional office responsiveness. Regarding developing policies and procedures for liability MSAs, CMS officials report that the agency is working to operationalize policy regarding the reporting of future medical expenses in liability insurance situations, including an option to allow for an immediate payment to Medicare for future medical costs. This would provide an additional option for taking Medicare’s interests into account rather than the option of establishing an MSA. CMS officials did not report that they were taking any steps to address regional office variation in liability MSA review.

CMS communications with beneficiaries regarding their rights and responsibilities in the MSP recovery process are not always sufficient or clear and CMS has taken few steps to address this challenge. Specifically, two letters sent to beneficiaries are not sufficient or clear with regard to the beneficiary’s rights to dispute unrelated claims. The rights and responsibilities letter, which is sent to beneficiaries by the MSPRC after it is notified of an MSP situation, does not make beneficiaries’ rights and responsibilities clear regarding their ability to dispute the conditional payments that the MSPRC identifies. While the letter notes that the beneficiary should expect to receive a letter detailing the conditional payments Medicare has made to date, it does not explain that this letter may contain some unrelated claims and the beneficiary should review the document carefully. Furthermore, it does not explain that the beneficiary has the right to dispute any claims unrelated to the MSP situation. While CMS revised the rights and responsibilities letter in 2011, the revisions did not address these issues.

Beneficiaries also receive a conditional payment letter, which CMS regards as a first step in determining conditional payments, but that is not made clear to the beneficiaries. Beneficiary advocates report that these letters often include charges for unrelated medical services. As a consequence, according to an attorney who represents Medicare beneficiaries, beneficiaries are often asked to return too great a portion of their settlements to Medicare. CMS officials stated that they consider the conditional payment letter the first attempt at determining the conditional payments based on the information the MSPRC has, and that they want the beneficiary and beneficiary’s attorney to help clarify which claims are related. They told us that the beneficiary is in the best position to clarify which claims are related, and that the MSPRC will work with the beneficiary and the beneficiary’s attorney prior to issuing the demand letter. However, while the conditional payment letter states that the beneficiary should inform the MSPRC if any of the identified conditional payments are inaccurate or incomplete, the language used in the conditional payment letter does not convey that the MSPRC will work with the beneficiary and the beneficiary’s attorney prior to issuing the demand letter. Additionally, the letter does not include that CMS may be willing to compromise its demand amount if it appears the conditional payments will consume the beneficiary’s entire settlement. The letter also does not include the beneficiary’s rights to appeal the amount of the MSP claim, as well as to seek a waiver of recovery, once the demand letter is issued. CMS did not report any plans to revise the language used in the conditional payment letter.

Conclusions

CMS has a responsibility to protect the Medicare Trust Funds by ensuring that funds owed the program are recovered. Mandatory reporting should increase CMS’s awareness of MSP situations and therefore increase recoveries and MSP savings. Thus far, the initial implementation of mandatory reporting for NGHPs has greatly increased the number of MSP NGHP situations reported to CMS. MSP savings have also shown increases and should continue to increase as mandatory reporting is fully implemented. However, the volume of liability settlements that have yet to be reported to CMS is unknown; therefore, the extent to which workloads, recoveries, and savings will increase is also unknown.

As a result of mandatory reporting, some NGHPs, particularly liability insurers, are interacting with CMS for the first time. Some of these NGHPs and NGHP stakeholder groups have raised concerns about long- standing MSP process and policies. Additionally, mandatory reporting increased the MSP contractors’ workloads, leading to performance delays. CMS has been responsive to some of the concerns expressed by NGHPs, in particular by continuing to delay the start of mandatory reporting for various types of liability settlements. CMS has also evaluated and modified some of its long-standing MSP policies and procedures, and is in the process of considering additional changes and program improvements. However, because these changes are new or still being implemented, it is too soon to tell the effect that they will have on improving the MSP process. Additionally, there are several areas related to the MSP program and process that still need improvement.

In order to maximize its ability to protect the Medicare Trust Funds, CMS’s efforts to recover conditional payments when Medicare should not have been the primary payer need to be cost-effective. CMS recently implemented two recovery thresholds—a low, across-the-board threshold based in part on provisions in the Federal Claims Collection Act and a higher threshold that applies to certain liability MSP situations. CMS officials said the agency will consider setting additional recovery thresholds for certain NGHP situations once the agency has had a chance to review 2012 data. If recovery thresholds need to later be adjusted based on 2012 data, then CMS could make adjustments as appropriate. CMS could also improve program effectiveness by aligning mandatory reporting thresholds with recovery thresholds, once they are set.

Additionally, CMS has opportunities to improve the MSP program by reducing specific reporting requirements for NGHPs and improving communication with stakeholders. While CMS’s main goal with mandatory reporting should be to obtain necessary information to pursue MSP recoveries, CMS could take steps to lessen the burden on NGHPs, without substantially increasing the burden on CMS or its contractors. Communication between CMS and various NGHP stakeholders, including beneficiaries, also needs improvement. Ensuring that these stakeholders have current, complete information so that they can understand the MSP process and policies, and their roles and responsibilities in the process, is essential for ensuring the overall effectiveness of the program.

Recommendations for Executive Action

We are making five recommendations to CMS to improve the effectiveness of the MSP program and process for NGHPs.

To ensure cost-effectiveness in the agency’s NGHP recovery process, we recommend that the Acting Administrator of CMS review recovery thresholds periodically for appropriateness to ensure that the agency’s recovery efforts are being conducted in the most cost-effective manner possible, and not require NGHPs to report on cases for which the agency will not seek any recovery.

To potentially decrease the administrative burden of mandatory reporting for NGHPs, we recommend that the Acting Administrator of CMS consider making the submission of ICD-9 codes an optional component of reporting for liability NGHPs.

To improve the agency’s communication regarding the MSP process for situations involving NGHPs. we recommend that the Acting Administrator of CMS take the following three actions: develop a centralized MSP program website, to include links to information about the various parts of the MSP process; develop guidance regarding liability and no-fault set-aside review and revise the correspondence with beneficiaries, such as letters sent during the recovery process, to ensure that beneficiary rights and responsibilities are more clearly communicated.

Agency Comments

We received written comments on a draft of this report from the Department of Health and Human Services on behalf of CMS. These comments are reprinted in appendix I.

CMS agreed with our recommendation to review recovery thresholds periodically for appropriateness and our three recommendations to improve the agency’s communication regarding the MSP process for situations involving NGHPs. CMS also agreed to consider our recommendation on potentially making the submission of ICD-9 codes an optional component of reporting for liability NGHPs. However, the agency also noted that about 95 percent of NGHPs reporting data to CMS have provided the required ICD-9 codes, and provided reasons why allowing text descriptions rather than ICD-9 codes could increase the burden on parties such as beneficiaries.

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If you or your staff have any questions about this report, please contact me at (202) 512-7114 or kingk@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix II.

Appendix I: Comments from the Department of Health and Human Services

Appendix II: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the contact named above, key contributors to this report were Gerardine Brennan, Assistant Director; Christina Ritchie; and Lisa Rogers. Laurie Pachter; Jessica C. Smith; and Jennifer Whitworth also provided valuable assistance.