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Health Headlines – December 23, 2013

23 Dec 2013

Medicaid Secondary Payer Provision in Bipartisan Budget Act of 2013 Undercuts Supreme Court Decisions on Allocation of Medicaid Secondary Payer Recoveries – On December 18, 2013, the U.S. Senate passed the Bipartisan Budget Act of 2013 (H.J. Res. 59), which includes a provision that will fundamentally alter the way Medicaid Secondary Payer claims are resolved.  Under the new legislation, Medicaid recovery of funds from a Medicaid beneficiary’s settlement or judgment will no longer be limited to that portion of the award that was intended to cover health care items or services.

The Medicaid Secondary Payer statute (42 U.S.C. § 1396a(a)(25)) generally provides that Medicaid is a payer of last resort for a Medicaid beneficiary’s medical costs, so that if another primary payer with responsibility for a medical bill exists, that other payer is billed before Medicaid is billed.  The Medicaid Secondary Payer law allows the proceeds of a settlement or judgment to be considered a “primary payer,” and prior to the recent passage of the budget deal, it limited Medicaid recoveries to the portion of the settlement or judgment that was for “health care items or services.”  Moreover, the U.S. Supreme Court has twice held that the Medicaid Secondary Payer statute limited state Medicaid programs to recovering only their allotted share of medical costs, but the recent budget deal undercuts the Supreme Court’s decisions.

In Arkansas Department of Health and Human Services et al. v. Ahlborn (2006), a Medicaid beneficiary was involved in a car accident and sought damages against her tortfeasors for past medical costs and for other items including pain and suffering, loss of earnings and working time, and permanent impairment of her future earning ability.  The case was settled for an amount that was not allocated between categories of damages.  The Arkansas Department of Health Services (ADHS) asserted a lien against the settlement proceeds for the full amount it had paid for the beneficiary’s care.  The Supreme Court held that ADHS was only entitled to the portion of the beneficiary’s settlement that represented medical expenses, and could not claim any rights to payment for other expenses, such as lost wages and other non-medical costs.  Likewise, in Wos v. E.M.A. (2013), the Supreme Court recently struck down a North Carolina statute that required up to one-third of any damages recovered by a beneficiary for a tortious injury be paid to the state to reimburse it for payments it made for medical treatment on account of the injury.  The Supreme Court found that the state’s statutory presumption that one-third of a tort recovery is attributable to medical expenses was preempted by the Medicaid Secondary Payer statute and also could not be reconciled with Ahlborn.

However, the recently passed Bipartisan Budget Act of 2013 includes a provision, section 202(b), that effectively negates the requirement that Medicaid recoveries be limited to the medical portion of a settlement or judgment.  The legislation amends the language of the statute to strike the phrase “payment by any other party for such health care items or services” and to insert “any payments by such third party.”  This amendment greatly expands the Medicaid Secondary Payer statute to allow Medicaid to recover funds from a judgment or settlement beyond the costs of medical items or services, such as lost wages and non-economic damages, so that Medicaid is essentially allowed first dollar recovery off the top of any undifferentiated settlement with a Medicaid beneficiary.  The Congressional Budget Office estimates the provision in the budget deal will save the federal government $1.4 billion over the next ten years.

The amendment to the Medicaid Secondary Payer statute will take effect on October 1, 2014, and it will significantly complicate settlements involving Medicaid beneficiaries, including by making them more expensive to settle or by disrupting settlements altogether.  It is often the case that Medicaid beneficiaries may be partially responsible for an injury, and it is on the basis of those comparative fault principles that beneficiaries settle their claims.  The legislation, however, bars settlement of the Medicaid component of any claim, in that Medicaid can now recover 100% of its payment “off the top” of any settlement proceeds, which unfairly reduces the beneficiaries’ recoveries for non-medical expenses and creates barriers to settling cases in the first instance.  Ironically, the provision may be self-defeating in that the legislation may lead to fewer Medicaid beneficiary settlements, leaving less funds available from which Medicaid programs can recover.

Section 202(b) of the Bipartisan Budget Act is available here.

Reporters, David Farber, Washington, D.C., + 1 202 626 2941,, and Jennifer S. Lewin, Atlanta, + 1 404 572 3569,

OIG Recommends that CMS Scrutinize Clinicians with High Cumulative Payments – Focusing on clinicians who receive high cumulative payments under Medicare Part B could be a useful means of identifying possible improper payments, according to a recent report issued by the Office of Inspector General of the Department of Health and Human Services (OIG). 

OIG reached this conclusion after determining that out of 303 clinicians—defined as physicians, nurse practitioners, and physician’s assistants—who each furnished more than $3 million in Part B services during CY 2009, Medicare Administrative Contractors (MACs) and Zone Program Integrity Contractors (ZPICs) identified 104 of these clinicians (34 percent) for improper payment reviews.  As of December 31, 2011, the MACs and ZPICs had completed reviews of 80 of these 104 clinicians and had identified $34 million in overpayments.

Based on these findings, OIG made two recommendations to CMS.  First, OIG recommended that CMS establish a cumulative payment threshold—taking into consideration costs and potential program integrity benefits—above which a clinician’s claims would be selected for review.  Second, OIG recommended that CMS implement a procedure for timely identification and review of clinicians’ claims that exceed the cumulative payment threshold.

In response to OIG’s first recommendation, CMS stated that it would work with its contractors to research and develop an appropriate cumulative payment threshold that considers costs and potential benefits when determining which claims and providers should be selected for review. CMS also stated that in developing any thresholds, it would consider other factors, including service type and provider specialty, to “inform the appropriate threshold levels.” In response to OIG’s second recommendation, CMS stated that it would develop a procedure for the timely identification and review of clinicians’ claims that exceeded the cumulative payment threshold on the basis of the results of its research and OIG’s review.  CMS acknowledged that reviewing claims from providers with high cumulative payments could be a valuable screening tool and that it is one of many factors MACs consider when deciding to place a provider or supplier on manual medical review.

Review OIG’s report by clicking here

Reporter, Ramsey Prather, Atlanta, + 1 404 572 462,

Medicare Contractors Receive CMS Direction Regarding Recalcitrant Providers – CMS recently issued a transmittal providing guidance to Medicare program contractors on when and how to refer certain “recalcitrant providers” to CMS for potential sanctions under the Office of Inspector General’s (OIG) civil monetary penalty and exclusion authorities.  CMS instructs contractors that believe they have a recalcitrant provider case to contact their CMS regional office as well as the Center for Program Integrity’s Fraud and Abuse Sanctions and Suspensions (FASS) team.

The transmittal revises parts of Chapter 4 of the Medicare Program Integrity Manual—effective January 15, 2014—to clarify the referral process for recalcitrant providers.  CMS defines “recalcitrant providers” as providers that are “are abusing the [Medicare] program and not changing inappropriate behavior even after extensive education by Medicare contractors to address these behaviors.”  Monitoring such providers through prepayment medical review, CMS notes, diverts resources away from other valuable contractor oversight activity.  According to the transmittal, a contractor should refer a provider case under the following circumstances:

  • The provider is not under an active OIG fraud investigation or under investigation by a Program Safeguard Contractor/Zone Program Integrity Contractor;

  • The provider is already on prepayment medical review and has continued to demonstrate a “pattern of inappropriate behavior” despite having received education to address the behavior;

  • The contractor can specify the administrative cost of claims being manually reviewed and denied;

  • The appeal history of the provider’s denied claims reflects a low reversal rate; and

  • The medical director concurs with the medical review determinations and understands that he or she may be called as a witness in the provider’s case.

The transmittal also provides criteria for CMS’s approval or disapproval of a recalcitrant provider referral and sets out the formatting contractors are to use when making a referral.

To view CMS’s transmittal, click here.

Reporter, Greg Sicilian, Atlanta, +1 404 572 2810,

Justice Department Announces $3.8 Billion in False Claims Act Recoveries in FY 2013 – On December 20, 2013, the Justice Department announced a total of $3.8 billion dollars in settlements and judgments from civil cases involving the False Claims Act for Fiscal Year (FY) 2013. Total recoveries under the False Claims Act since January 2009 have reached $17 billion.

The largest recoveries in FY 2013 related to health care fraud, which totaled $2.6 billion. Of this amount, $1.8 billion was from alleged false claims for drugs and medical devices under federally insured health programs. Many of these settlements involved allegations that pharmaceutical manufactures promoted their drugs improperly for uses not approved by the Food and Drug Administration.

Recoveries in qui tam cases during FY 2013 totaled $2.9 billion, with whistleblowers recovering $345 million. The number of qui tam suits filed in FY 2013 increased to 752. The Federal Government also announced an additional $443 million in recoveries for state Medicaid programs.

To read the Justice Department press release, click here.

Reporter, Lauren E. Slive, Atlanta, + 1 404 572 3592,  

MedPAC Issues Draft Recommendations for 2015 Medicare Payments – The Medicare Payment Advisory Commission (MedPAC)  met on December 12-13, 2013, to discuss draft recommendations regarding 2015 payment updates for Medicare providers.  MedPAC, which is responsible for issuing an annual report to Congress on Medicare payment policy every March, will reconvene in January to vote on final recommendations for 2015.  As with last year’s draft recommendations, MedPAC did not consider the impact of sequestration on the payment rates.

Most notably, MedPAC’s draft recommendations include an increase of 3.2% in the payment rates for acute care hospital inpatient and outpatient prospective payment systems (PPS).  In light of the cuts provided for by the Patient Protection and Affordable Care Act to disproportionate share hospital payments, MedPAC determined that a 3.2% increase would bring the overall update for fiscal year 2015 to 0.3%.  Under current law, the overall update would be -1.3%.

In addition to increasing PPS payments, MedPAC recommended a reduction or elimination in the differences in payment rates for outpatient departments and physician offices for certain ambulatory payment classifications.  MedPAC also proposed to equalize the long-term acute care hospital payment rate to the inpatient PPS rate for non-chronically critically ill cases.  The savings would then be redistributed to create additional outlier payments for chronically critically ill cases in inpatient PPS hospitals. 

Finally, MedPAC recommended eliminating payment updates for skilled nursing facilities, inpatient rehabilitation facilities, long-term care hospitals, and hospice agencies.  These providers are projected to have positive margins in fiscal year 2015 based on the current law.  MedPAC did not address physician payment rates, but rather reinstated its proposal to repeal and replace the sustainable growth rate formula.

Reporter, Paige Fillingame, Houston, +1 713 615 7632,

CMS Issues Refunds for Collections Made on Incorrectly Identified Incarcerated Beneficiary Overpayments – Medicare does not cover supplies or services for persons who are incarcerated at the time the services are rendered.  However, Medicare had purportedly paid providers in error for many such claims and sought to recover those overpayments.  Subsequently the overpayments were reversed when CMS identified a number of claims that were erroneously denied.  Reprocessing of such claims should be completed by the Medicare Administrative Contractors by late December 2013 and erroneously recouped amounts restored.

Effective April 1, 2013, CMS created an Informational Unsolicited Response (IUR) process to identify and perform retroactive adjustments on any previously paid claims that may have been processed and paid erroneously during periods when the beneficiary data in the Medicare Enrollment Database did not reflect the fact that the beneficiary was incarcerated for the date of service.  On July 31, 2013, CMS updated its Frequently Asked Questions (FAQs) for all fee-for-service providers related to incarcerated beneficiary claim denials. 

Following the implementation of the IUR process, CMS identified a significant number of alleged overpayments, issued demand letters, and automatically recovered the alleged overpayments.  Subsequently, however, CMS has determined that certain of the incarcerated beneficiary claims may have been denied in error, because the information related to the period of incarceration for certain beneficiaries was not completely accurate.  As a result, CMS reviewed the data and worked to identify claims that resulted in recent recovery actions and to correct any inappropriate overpayment recoveries. 

CMS recently published a release stating that providers impacted by the erroneous overpayments could anticipate a refund check postmarked by December 12, 2013.  Providers are encouraged to appeal any claims that have been recouped in error and not yet repaid, to preserve their rights to payment even if CMS is expected to reprocess the claims.  

CMS’s webpage regarding incarcerated beneficiaries and recent claim denials (including a sample letter and spreadsheet of claims detail needed to reconcile the claims) is available here, and more background information related to this topic is available at the Health Headlines published here.

Reporter, Juliet M. McBride, Houston, +1 713 276 7448,

We will not be publishing Health Headlines on December 30, 2013.  Our next edition will come out on January 6, 2013.  Happy Holidays!

This bulletin provides a general summary of recent legal developments. It is not intended to be and should not be relied upon as legal advice.

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