November 3, 2009

Employers providing workers' compensation insurance through self-insured pools, as well as medical providers that self-insure professional liability risk, may now have to inform the Centers for Medicare and Medicaid Services (CMS) when they settle or lose a claim or lawsuit under a new federal law: Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007.

The Rationale Behind the New Reporting Requirements

The reason underlying the new CMS reporting requirement is simple: CMS wants to recoup money it uses to pay bills for an injured person if that individual later receives a settlement from or verdict against the employer or health care provider responsible for causing those injuries. Otherwise, the injured person will have received two payments for the same medical bill, one from CMS and another from the settlement or verdict involving the individual's employer or health care provider.

The new Section 111 Rules usually require conventional workers' comp insurers and health care malpractice insurers to complete these new settlement or verdict reports. Employers and health care providers that self-insure these liabilities, however, may be required to complete the new reports themselves or face serious financial penalties of up to $1,000 for each day after the report should have been filed.

Workers' Comp. CMS sometimes pays the medical bills incurred by employees injured on the job before the employee receives a workers' comp settlement or verdict. If that employee later receives a workers' comp settlement or verdict, then Medicare has a lien in the amount of its payments against the settlement or verdict that the employee receives. The new Section 111 Rules require some employers who provide workers' comp coverage through self-insurance pools to report such settlements or verdicts to CMS so that Medicare can impose a lien on the money received by the injured worker.

Medical Malpractice. Similarly, CMS sometimes pays part of the medical bills for a patient who claims that a health care provider committed malpractice. If the injured person receives a settlement from or a verdict against the medical provider, then Medicare has a lien in the amount of its payments against the settlement or verdict that the injured person receives. The new Section 111 Rules require self-insured health care providers to report such settlements or verdicts to CMS so that Medicare can impose a lien on the money received by the injured person.

Which Employers Are Subject to the New Reporting Requirements?

If you are an employer that purchases workers' comp coverage from a conventional insurer, then you are not subject to the new reporting requirements. Instead, it is the responsibility of your workers' comp insurer to file the new report with CMS. Employers that provide workers' comp coverage through a self-insurance pool, or that self-insure this type of risk in states where self-insurance is allowed, however, may be subject to the new Section 111 Rules.

If you are a member of a workers' comp self-insurance pool, and (1) the pool is a separate legal entity from any of the employer-members; (2) the pool has full responsibility to resolve and pay workers' comp claims using pool funds; and (3) the pool does not require the employer-member's involvement to settle a claim, then the pool, not the employer-member of the pool, must report any settlements or verdicts related to injuries already partially paid by CMS. All three of these criteria must be met for the pool to be responsible for filing the report.

If, however, you provide workers' comp insurance through a pool, but any of the above criteria are not met, then you (as the employer) must file the Medicare report. Similarly, in states where employers can self-insure workers' comp coverage themselves, rather than through a pool, the employer is also required to file the new Medicare reports.

What about Health Care Providers?

Health care providers that self-insure their professional liability risk must report settlements or verdicts paid to patients whose injuries resulting from alleged malpractice were previously paid for, in part, by CMS.

The rules are different, however, when the professional liability risk is self-insured through a pool. Under those circumstances, providers need not complete the Medicare report if (1) the pool is a separate legal entity from any covered member; (2) the pool has full responsibility to resolve and pay claims; and (3) the pool can resolve and pay claims without involvement of the covered pool member. If any of these three conditions are not met, then the health care provider must file the Medicare report.

Lastly, when a health care provider buys professional liability insurance from a traditional insurance company, it becomes the responsibility of the insurance company, not the provider, to complete the Medicare report.

The Take-Away Lesson

What do employers and health care providers need to remember when it comes to the new Section 111 Rules? If you settle a workers' comp or health care liability claim, and you insure such risks through a pool, then make sure that your pool files the required Medicare report. If you self-insure such risks on your own, then you are responsible for filing the Medicare reports yourself. If you insure such risks through conventional insurance, then it is up to your insurer to file the Medicare reports.

This article contains material of general interest and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. Under applicable rules of professional conduct, this content may be regarded as attorney advertising.