4. Reimbursement

4(c) Amount of Reimbursement

In the context of primary payers who are GHPs and employers who provide GHP benefits, the amount is directly tied to the amount of the benefit erroneously paid by Medicare. FN 1. The issues relating to the amount of recovery most often relate to NGHP primary payers, and usually involve workers' compensation or liability settlements. However, according to the regulations the recovery calculation rules apply to any settlement or judgment arising from a disputed claim. FN 2.

Recovery Against Person Who Received Payment

Where the right of reimbursement is asserted against a person who received a primary payment, the amount of the reimbursement will be reduced by the cost of procuring the settlement if 1) the procurement cost was incurred because the payment was disputed and 2) the procurement cost was incurred by the person from whom reimbursement is sought. The regulation provides for a different calculation if CMS must file suit to recovery because the target opposed the claim. In that event, CMS is entitled to recovery of the lower of 1) the payment or 2) the total judgment minus the total procurement cost. FN 3.

Recovery Against A Primary Payer

Where recovery is sought against a primary payer, the regulation sets out three scenarios and posits that the recovery no greater to the one that applies. The first applies where the amount of the conditional payment is less than the award. The recovery amount is calculated by taking the ratio of the procurement costs and judgment amount and multiply the amount of the conditional payment, and then the product is then subtracted from the amount of the conditional payment. The second applies where the conditional payment equals or exceeds the amount of the judgment. In that scenario, the recovery is the total judgment less total procurement costs. The third applies where CMS must file suit to recover because the primary payer opposed recovery, in which case the recovery will be the lower of 1) the amount of the conditional payment, or 2) the total judgment less total procurement costs. FN 4.

What Are Procurement Costs

There is little guidance as to what constitutes procurement costs, other than language in the manual that described them as "costs incurred in obtaining the settlement". FN 5. It does list court costs and attorney fees as examples. While costs can have a much more limited definition than expenses, the regulation makes little sense if litigation expenses, including court costs, are not included in procurement costs. It appears that the amount of attorney fees are defined by the contract the attorney had with the beneficiary, and includes contingency contracts. CMS contractor will request the attorney and compare the written request to prevailing rates. If the contractor feels the costs charged are excessive, it will request an itemization or a copy of the contingency contract. The Manual advises that if the request costs are documented they will be allowed. The CMS has been silent on whether it will challenge fees thought to be excessive even though properly documented. A worksheet will be provided on request or can be found in the Manual. FN 6.

What Does Disputed Mean

There is no guidance on what is meant by disputed. The regulation and Manual language envisions a tort proceeding which is litigated and resolved by settlement or judgment. As noted above, this can also be a first party contract. If the benefits are actively litigated, then there should be no issue of a procurement cost reduction. But what if the claim is never denied. In many no-fault, uninsured and underinsured claims, the recovery may be part of fee arrangement even though the claim is never really denied. The attorney may perform service in connection with proving the claim and perhaps even negotiate a settlement value. Where the CMS will draw this line, or whether they will challenge the issue at all, remains to be seen. In the meantime, all fees incurred should be advocated as a basis for reduction, even if the claim was not disputed in the most literal sense of the word.

FN 1. See 42 C.F.R. §411.33. Medicare Secondary Payer Manual Ch. 7, §20, which provides in part: "May recover or take legal action to recover erroneous primary benefits paid from any entity that has been paid by an employer, WC carrier or any GHP."

FN 2. This conclusion results by the reference to 42 C.F.R § 411.24(i) in 42 C.F.R. § 411.37(b). In a sense, this fact refutes the contention by CMS and some courts that the determination language of 24 U.S.C. § 1395y(b)(2)(B)(ii) does not apply to Group Health Plans.

FN 3. 42 C.F.R. § 411.37(a).

FN 4. 42 C.F.R. § 411.37(b).

FN 5. MSP Manual, Chapter 7, § 50.5.2.2.

FN 6. MSP Manual, Chapter 7, § 50.5.2.2 (B) of Exhibit 1 (if you download the copy of the MSP Manual Chapter 7 available on the resources page of this site, go to page 108-09).