The Medicare Secondary Payer Act has been in place for more than two decades. During that time, much has been written regarding the requirements to comply with Medicare. Third-party administrators and self-insureds are particularly vulnerable to changes in Medicare regulations—most recently, and in particular, the State Children Health Insurance Program Extension Act. This article traces the evolution of Medicare secondary payer compliance, and provides recommendations on how to manage and potentially reduce Medicare loss costs.

Reviewing History: A Strained Medicare System
In 1980, 42 USC 1395y and 42 CFR 411 became law. The intent of the legislation was for Medicare to serve as a secondary payer whenever a primary payer exists. During the early stages of the Medicare Secondary Payer (MSP) Act, enforcement was difficult. However, in the late 1990s the Secretary of Health and Human Services created the Center for Medicare and Medicaid Services (CMS), an administrative agency. This action paved the way for true enforcement of the MSP Act, which began on July 23, 2001 when CMS released the first in a series of memoranda related to the MSP Act.

The first memo outlined the review and approval process for certain types of workers’ compensation claims. If a case exceeded “workload review thresholds,” i.e. any case where the total value of the settlement was over $10,000 and the claimant was a current Medicare recipient, CMS was to review and approve the dollars allocated to the future medical benefits. This oversight role, to be played by CMS, was designed to protect the interests of Medicare.

After just nine months, CMS’ workload became overwhelming due to the new policy, and the agency raised the threshold from $10,000 to $25,000. The low threshold of $10,000 had resulted in a bottleneck effect that caused significant delays (up to several months) in generating approvals.

Upon further evolution of CMS and its oversight authority, the agency decided to add pharmacy benefits to its purview. Therefore, the Medicare system was broadened to include Part D prescription drug costs, as were the calculations of the Medicare Set-Aside (MSA) allocation reports.