3/13/2017
Not So Fast, CMS!

Not So Fast, CMS!

A district court finds Medicare’s over-inclusive conditional payment practices improper.

By Heather Sanderson

In a case decision in January 2017 out of a California district court, litigation brought by the California Insurance Guarantee Association (CIGA) illustrates the importance of remaining proactive in managing conditional payment liability. As a refresher, conditional payments are essentially Medicare liens; Medicare seeks to recover payments made pre-settlement where a nongroup health plan (NGHP) has liability for the payment. The Centers for Medicare and Medicaid Services (CMS) will pay when a primary plan does not pay promptly, conditioned upon the premise that it will be reimbursed for those payments. Let’s take a look at the new case law as well as other strategies to dispute Medicare’s conditional payment demands.

The CIGA Case

In CIGA v. Burwell, the court found against CMS and ruled that it can seek reimbursement only for those medical items and services related to the workers’ compensation claim in question. While this decision only involved a workers’ compensation claim, it’s also applicable to other NGHPs, such as liability and no-fault insurance. Understanding this case and how it can help in disputing unrelated charges in a conditional payment demand is recommended. 

It’s common for CMS to include unrelated charges in its conditional payment demands. In disputing with CMS on these demands, using the authority decided in a case such as CIGA helps put barriers against CMS’ conditional payment demands that may include those unrelated charges. 

CIGA faced CMS conditional payment demands for three separate workers’ compensation claims that had settled. Included in those demands were treatments (diagnosis codes) clearly unrelated to the accident, and CIGA disputed Medicare’s right to claim the entirety of such treatment. CIGA won, and judgment was entered on Jan. 19, 2017, forcing CMS to remove unrelated and uncovered charges. 

CIGA noted to the court that it is not uncommon in conditional payment letters from CMS for multiple diagnosis codes to appear under a single charge—some relate to a medical condition covered by the primary plan; others do not. In those instances, CMS determines if any one code relates to a covered condition and seeks reimbursement for the full amount of the charge, even if some unsegregated portion of the charge is for medical services not covered by the plan. 

For example, CIGA was paying for medical costs incurred by a worker after he stepped into a hole and injured his left knee, left hip, and spine. Yet CMS sought full reimbursement for charges that also contained codes relating to high blood pressure, bronchitis, tobacco use, and eczema. This is the practice that CIGA sought to challenge. Although CIGA disputed the inclusion of these charges on the basis that the codes were not covered under its policies, CMS issued a formal demand letter for the full amount of each charge.

CMS made several arguments as to why its cross motion for summary judgment and dismissal should be granted. It failed on each of the arguments for the reasons set forth herein.

CMS presented several arguments as to why its interpretation of the Medicare Secondary Payer Act (MSP) should be given deference. However, the court did not find any of it persuasive. The overriding rationale for the court’s decision appears to be CMS’ overreach beyond any clear congressional intent. The discovery secured by CIGA clearly demonstrated that the practice of including unrelated codes was not because it was what the MSP required, but, rather, that it was too complicated or impossible to separate the unrelated charges out. 

CMS defended its position, arguing, “Under the MSP, ‘a primary plan…shall reimburse [Medicare] for any payment made…with respect to an item or service if it is demonstrated that such primary plan has or had a responsibility to make payment with respect to such item or service.’” The critical phrase, “item or service,” is defined by federal regulation, which reads in part: “Any item, device, medical supply, or service provided to a patient (i) which is listed in an itemized claim for program payment or a request for payment….” 

CMS therefore argued that the phrase, “item or service,” refers to whatever (and however many) medical treatments a provider lumps into a single charge and that CIGA has a “responsibility to make payment with respect to such item or service,” if the provider lists one or more diagnosis codes that are covered by the CIGA-administered policy.  

The court found that CMS was wrong on this point. The statutory phrase, “item or service,” clearly does not refer to multiple medical treatments just because they appear under one charge. The singular form of the words “item” and “service” itself suggests that those words are not referring to multiple medical treatments. Moreover, the use of the phrase, “item or service,” elsewhere in the MSP does not support CMS’ interpretation.

CMS then tried to argue that CIGA’s action was moot since CMS had withdrawn the demands in June 2016, after “discussions with CIGA.” CIGA countered that it was not absolutely clear that CMS would never again reopen these claims or reapply the offending practice, which meant that the issue was not moot. The court further cited the Supreme Court in noting that “a defendant cannot automatically moot a case simply by ending its unlawful conduct once sued. Otherwise, a defendant could engage in unlawful conduct, stop when sued to have the case declared moot, then pick up where he left off, repeating this cycle until he achieves all his unlawful ends.”

How the CIGA Case Can Be Utilized

This is a helpful decision that will assist primary plans to defend against unrelated claims for items and services. CMS is entitled only to recoveries that are related to the claim. So long as it can be demonstrated with appropriate evidence that the diagnosis code was not related, the primary payer will prevail. This case helps to establish the importance of state law and its interplay with the MSP. The bottom line is that state law is not preempted by the MSP, but is a necessary underlying factor that establishes CMS’ right of recovery. 

How this case plays out in the long term depends on whether it is appealed. As of this moment, it stands as a district court decision and would be persuasive authority for the 9th U.S. Circuit Court of Appeals and, to a lesser extent, the other circuits. Further complicating the issue is that CMS has established administrative appeal rights for primary plans. As such, under procedural rules, primary plans will have to exhaust administrative rights (a timely and costly process) before going to court. This case is an exception to that rule because it occurred prior to such appeal rules being established.  

Notwithstanding, CMS’ long-standing practice of demanding reimbursement for conditional payments where codes unrelated or uncovered under a policy are lumped into one charge should be questioned. The MSP was designed so that primary payers would not shift costs to Medicare that would otherwise be the responsibility of the primary payer, but it was not designed to shift uncovered and unrelated costs back to the primary plan. This was a correct decision by the court, and it ultimately enforces the plain meaning of the MSP. 

Other Conditional Payment Dispute Strategies

Outside of disputing bundled and unrelated charges, keep in mind that there may be other defenses to CMS’ conditional payment demands. Pursuant to the Strengthening Medicare and Repaying Taxpayers (SMART) Act, CMS has a maximum of three years to recover conditional payments after it has been notified of the settlement. Therefore, if CMS tries to pursue recovery of conditional payments and at least three years have passed since CMS was notified of the settlement, judgment, or award, then CMS must withdraw its demand. 

Additionally, as of Jan., 1, 2017, CMS instituted a new threshold beyond which responsible reporting entities are not responsible to report a claim or reimburse Medicare for conditional payments. The threshold amount for 2017 is $750. Therefore, in workers’ compensation, no-fault, and liability settlements of $750 or less, Medicare will not pursue recovery. 

Lastly, the CIGA case highlights an important undertone: CMS cannot require a payer to be responsible for a conditional payment where it would not otherwise be responsible for the treatment under state law. If you are a primary payer, do not leave your cards on the table and make sure to assert all applicable defenses to conditional payment demands made by Medicare and Medicare Advantage plans.



Heather Sanderson is chief legal officer for Franco Signor, where she provides compliance counseling. She has been a CLM Fellow since 2011 and can be reached at heather.sanderson@francosignor.com, www.francosignor.com.

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