Medicare’s Billion-Dollar Headache, and a Possible Solution


It may be unlikely that any piece of legislation, no matter how popular, can pass both houses of Congress in an election year. But when the Chamber of Commerce and the trial lawyers associations both agree on a proposed law it’s hard to think of an excuse not to pass it.

The law involved is the SMART Act — the Strengthening Medicare and Repaying Taxpayers Act. The purpose of the act is to address a situation that has developed over the past several years, in which Medicare’s arcane processes are making it difficult to settle personal injury cases in a timely fashion. This situation is hard on accident victims, on insurance companies, and on corporate defendants. Plus, it take almost forever for Medicare to recover money that is owed to them. The lawyers are perfectly willing to pay Medicare, but we can’t get a straight answer as to how much we owe them.

Politico ran an excellent article on the Medicare problem recently. Here are excerpts:

Basically, all concerned agree that when an insurer other than Medicare — think auto insurance or liability — is responsible for medical bills, they should pay them. But Medicare’s clumsy system for calculating and obtaining those payments is driving everyone nuts and often drags out attempts to reach settlements and avoid courtroom clashes.

“We hope that the bills get passed and that this is the year,” said David Farber, an attorney with Patton Boggs whose client, the Medicare Advocacy Recovery Coalition, has pushed for the overhaul. ”We have deep congressional interest in this issue.”

Medicare, in almost every instance, is the primary payer for medical services for people 65 and older and some of the disabled. But in some cases, such as auto accidents, on-the-job injuries or slip-and-fall accidents, Medicare becomes the secondary payer. It may be billed first and pay for the immediate care — but the medical costs are really somebody else’s primary responsibility. So Medicare has the right to recoup them from the responsible party.

For instance, if a senior is injured in a car accident, the hospital bills Medicare. But if there’s a settlement, or if the case goes to court and a person is awarded damages, Medicare has a right to recoup at least some of what it paid. The settlement also must take into account future Medicare costs that could arise from the condition or injury.

And it’s at this point, Farber and others say, that the process breaks down, leaving attorneys, Medicare beneficiaries and businesses in the lurch. Legal settlements stall.

And the disconnect costs Medicare money — always a good way of stirring congressional interest. The Congressional Budget Office estimates that Medicare loses around $1.1 billion every decade largely because of the lax or complicated reporting procedures. Not a huge item within Medicare, but still a billion is a billion. And some who track this issue believe the real number is even higher.

One core problem is that Medicare is woefully unprepared to track down or manage such claims, Farber said. Until 2007, the outside parties didn’t even have to tell Medicare whether a claim had been settled. So the model for the Center for Medicare & Medicaid Services was “pay and chase.” But it was more commonly “pay and don’t chase,” because the chasing process was just too cumbersome.

The situation began to change when Congress approved new mandatory reporting requirements for some health plans in 2007. But implementation was delayed, so the provisions only recently took hold. And according to the groups behind the SMART bill, the 2007 fixes didn’t, well, fix it. The whole process is still very slow.

“Everybody is frozen in place,” Farber said. “The CMS model is wrong on this. The CMS has to figure out how much it owes, and then it has to notify the parties.” And it needs to do so within a reasonable time period — which he said hasn’t been happening.

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