Volume XXV, No. 2, January 22, 2013        


From the Law Offices of Garan Lucow Miller, P.C.

From the Co-Editors

James L. Borin & Simeon R. Orlowski









The Strengthening Medicare and Repaying Taxpayers (SMART) Act was passed by Congress in December and was signed into law on January 10, 2013. It brings some needed reforms to the process of obtaining reimbursement of conditional payments from insurers and other primary payers under the Medicare Secondary Payer Act.

Section 201 adds a major new procedure for obtaining a binding repayment figure from CMS in advance of a known settlement date, by access to a web site where this information is to be updated. This will allow the parties to settle a case with a known and certain Medicare reimbursement figure. Details on this section are provided below. The section also requires that CMS establish, for the first time, regulations to allow a primary payer to appeal a reimbursement determination. Up to this point, the MSPRC has been remarkably unwilling to deal with anyone other than the Medicare beneficiary and his attorney on reimbursement issues.

CMS has been given nine months to adopt final regulations to carry out these provisions.

Section 202 will do away with reimbursement requirements when settling small cases. It calls for CMS to establish and publish a “single threshold amount” that will apply to settlements and judgments for bodily injury claims, excluding exposure claims, based on CMS’s calculation of the cost of collection. CMS will not pursue reimbursement when the total settlement is below the single threshold amount. The figure will be recalculated each year. This takes effect in 2014.

Section 203 requires CMS to establish regulations within 60 days to create “safe harbors,” described in the Act as “practices for which sanctions will and will not be imposed” under the MMSEA reporting statute. It also replaces the penalty of $1,000 per day for noncompliance on reporting with a penalty of “up to” $1,000 per day.

Section 204 directs CMS, within 18 months, to modify MMSEA reporting requirements so that the use of social security numbers or health identification claim numbers will be optional rather than mandatory.

Section 205 adopts a new three-year statute of limitations applicable to legal actions by the United States for reimbursement from any party liable to pay reimbursement. It becomes effective for lawsuits filed by the United States after July 2013. The language adopted is quite simple, but the issues that it raises are very complex. They are also discussed further below.

Settlement of cases

Section 201 of the SMART Act introduces a new procedure under which both the plaintiff and the defendant may obtain a binding reimbursement amount to assist with the settlement process. CMS is to adopt final regulations on this topic within nine months.

By contrast with previous practice, under which CMS would not provide a binding reimbursement figure until after the case was settled and the money was in the hands of the plaintiff, the new provisions call for the following:

  1. The parties are to identify a “reasonably expected date” for a settlement, judgment, or other payment.
  2. Not more than 120 days before that date, CMS is notified of the fact that a payment is expected and the expected payment date. (The Act does not require that the settlement amount be reported.)
  3. CMS is to make available to plaintiffs and their attorneys, through a password protected website, updated information on conditional payments that have been made, and is to update this website no later than 15 days after making a new conditional payment.
  4. The updated amount of conditional payments, as posted on the website within three business days before the settlement date that was identified by the parties, is binding as the “final conditional amount” for reimbursement purposes.

Thus, if the final conditional amount is used for purposes of the settlement and agreements as to reimbursement to CMS, no additional conditional payments may be included in the reimbursement amount. Under the SMART Act, the risk of non-inclusion is now on the Medicare program and not on the plaintiff or his attorney.

The Act provides, further, that CMS shall develop regulations to provide a “timely process” to resolve with the Medicare beneficiary any disputes or discrepancies as to a particular conditional payment. The process is to include:

  1. The beneficiary or his representative provides documentation to explain the discrepancy and a proposal for resolution.
  2. CMS must respond within 11 days.
  3. If it does not respond within that time, then the individual’s proposal to resolve the discrepancy is deemed accepted.
  4. If CMS rejects the notice and the proposal by means of a determination “that there is not a reasonable basis to include or remove claims on the statement of reimbursement”, the proposal is deemed rejected.
  5. If CMS determines that there is a reasonable basis to conclude that there is a discrepancy, it must respond “in a timely manner” by either agreeing to the proposal or providing documentation to demonstrate good cause for not agreeing to the proposal, and “establishing an alternate discrepancy resolution.”

The statute specifies that this process is not regarded as an appeal process, and that there is no administrative or judicial review of the secretary’s determinations under this provision.

The reference to “establishing an alternate discrepancy resolution” at the end of this subsection, as listed in item 5 above, appears to require CMS to develop regulations that would establish some form of a mediation or other alternative dispute resolution process to resolve the beneficiary’s position as to the discrepancies.

Lastly, the Act directs CMS to develop regulations (again within nine months) to provide, for the first time, a procedure for a primary payer, its attorney, or a third-party administrator to appeal the MSPRC’s reimbursement determination. Thus, if the parties intend to settle and the final reimbursement figure as provided on the website includes items that should not have been included, either or both of the following may be used:

  • The plaintiff seeks a resolution of the discrepancy using the CMS “non-appeal” resolution process
  • The primary payer pays the reimbursement amount, then seeks relief under the new appeal process

New limitations period

Section 205 of the SMART Act adds a new statute of limitations to the Medicare Secondary Payer Act, 42 USC §1395y(b)(2).  It is a simply worded provision, but that simplicity is deceptive.

Because most of CMS’s post-settlement reimbursement efforts are directed at the plaintiff and his attorney, this provision will not have much direct effect on no-fault insurers, liability insurers, and other primary payers. They should still be familiar with what it does – and what it does not do.

A new sentence is added to §2(B)(iii) of the MSPA as follows:

“An action may not be brought by the United States under this clause with respect to payment owed unless the Complaint is filed not later than three years after the date of the receipt of notice of a settlement, judgment, award, or other payment made pursuant to paragraph (8) relating to such payment owed.”

Subsection 2(B)(iii) is entitled “Action by United States.” It governs the initiation of legal action by the United States to recover conditional payments from a primary payer, including liability insurance, workers’ compensation insurance, and no-fault insurance. (Recall that that provision also allows the United States to recover double damages in such a lawsuit.)

Paragraph 8 of the Act is the section which requires reporting to CMS of settlements and judgments, often referred to as MMSEA reporting.

Up to now, there had never been a specific statutory limitations period imposed on legal action by the United States to recover conditional payments under Medicare. Such lawsuits were subject to the general six-year limitations period for contract-based obligations prescribed under 28 USC 2415(a). They were also – and still are – subject to another time limit, discussed in more detail below.

In cases where the Medicare beneficiary has initiated litigation against a third party or against a no-fault auto carrier, a separate limitations period applying to legal action by the United States against the primary payer has almost no relevance. Because CMS’s right of reimbursement is characterized as both an independent right of action under §2(B)(iii) and a right of subrogation under §2(B)(iv), a lawsuit filed by the individual insured, if timely filed, would permit the United States to recover its subrogated interest from the monetary recovery secured by the plaintiff. (The only exception covers the medical expenses incurred more than one year before the date the plaintiff files his lawsuit in a first-party PIP case. Although CMS is not bound by Michigan’s one-year-back rule, the PIP claimant is.)

The new three-year statute of limitations would theoretically apply to the right of CMS to recover from the plaintiff and his attorney on its subrogation claim. In virtually all cases, however, the reimbursement demand will be resolved long before that new deadline. Recall that the post-settlement recovery efforts by CMS are focused on the plaintiff and his attorney. So long as the insurer has followed our recommendations regarding holdbacks, it will not likely be involved at this stage. (Please contact the author for more information, if desired.)

Importantly, the SMART Act does not repeal or change the separate time limit on claim presentment that is found under §2(B)(vi) of the MSP Act. That subsection imposes a three-year requirement on the submission of a “request for payment” by the United States, acting through the MSPRC. That is a separate requirement that CMS must follow. We who are familiar with the no-fault system in Michigan can fairly characterize this requirement as a Federal 3-year-back rule, similar to the 1-year-back rule under the Michigan no-fault automobile insurance law.

Of interest, none of the MSP web sites and weblogs that have discussed the  provisions of the SMART Act and its new limitations period have made any mention of this separate requirement.

The three-year-back period under §2(B)(vi) starts with the date of the medical service in question (not from the date that Medicare pays the item) and ends with the reimbursement demand letter (not the conditional payment letter), since that is the “request for payment.” For any date of service, if more than three years have passed, the item does not need to be paid and can properly be rejected.

Recall from our previous discussions that the procedure that is followed by the MSPRC is as follows:

After the MSPRC learns of the involvement of a primary payer, whether by a report by plaintiff’s counsel of the filing of a lawsuit or by other means, a conditional payments letter will be sent. This is simply a notice letter, not a demand for payment, and it is typically accompanied by a listing of the conditional payments that have been made. The primary payer is invited to respond. Following best practices, it should review the items and submit a written response identifying any disagreement that it has with listed items, based either on the fact that the items are not related to the accident in question or that they are untimely under the “3-year-back” rule.

The pending lawsuit is settled. Following the settlement, and after payment of the funds, the insurer or other primary payer submits a report to the appropriate agency under the MMSEA reporting program. Assume that that report is submitted on March 25, 2013.

Thereafter, MSPRC submits its final reimbursement demand letter, usually directed to the individual claimant and to his attorney. This demand letter may or may not be copied to the insurer as primary payer. Assume that it is dated May 5, 2013.

Based on these assumed dates:

  • CMS will only be able to recover the money it has paid within 3 years before the demand letter – only those treatments after May 5, 2010.
  • Under this new provision, CMS would have to file a lawsuit to recover its money within 3 years after the reporting date – by March 25, 2016 – if the repayment is not made.

For what CMS calls ORM (ongoing responsibility for medical expenses), a no-fault carrier may make several reports. There may be some uncertainty as to whether the new three-year period will be calculated from the first report only, or calculated separately from each report and for the items for which the report includes.  Our recommendation is to use the latter interpretation, as it appears more consistent with the intent of the statute.

As a recapitulation:

  • In first-party cases where the insured has not filed his own legal action, the 3-year claim submission limit (3-year-back rule) applies to CMS’s submission of a demand for reimbursement.
  • Both the 3-year-back rule and the new three-year statute of limitations must be met if the United States pursues litigation.
  • In first-party cases where the insured has filed legal action, and in tort cases filed by a claimant, neither the 3-year claims presentment limitation nor the new 3-year statute of limitations will be of immediate concern to the insurer. The plaintiff can recover any medical (subject in PIP cases to the state 1-year back rule), and is required to repay to the MSPRC any medical expenses paid by Medicare which fall within the Federal 3-year back rule.

There is one additional possibility. The United States is authorized under the MSP Act to file its own lawsuit, based on a Medicare beneficiary’s tort claim, if the beneficiary has not done so. Up to now, the United States has never filed such a case, and it may be unlikely that it ever will do so.

For no-fault and liability carriers, the new three-year limitations period will have one salutary effect: it will allow them to consider their obligations finally closed out once the three-year period has expired – so long as the claimant is not receiving further accident- related medical treatment that is being paid under Medicare.




The Grand Rapids office of Garan Lucow Miller is pleased to present its Breakfast Seminar on Thursday, April 18, 2013 at the Frederik Meijer Gardens & Sculpture Park, located at 1000 East Beltline Avenue NE in Grand Rapids, Michigan.  Please reserve this date on your calendar and plan to join us!  Further details, including the course schedule, will follow in upcoming issues of LawFax.  To register please contact Lynn Beatty at  or 616-742-5500.