Tag Archives: Compliance

Claim Reviews Empower Better Decisions By Putting Critical Information In Hand

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Are making blind decisions the way to go?

Insurance is as much about having the right information at the right time as anything. Whether it’s an underwriting choice to price a risk correctly or a claim decision to when to pay a claim, having the best data available can make or break an organization. Despite this fact, many organizations fail to take advantage of tools and rights available to them prior to making critical business decisions (see our previous post “The Importance of the Pre Bind Claims Review in the Reinsurance Context“).

A reinsurance company looking to bind a new risk, or an excess carrier following the fortunes of a primary, should not leave decision making to what is found on a loss run or in an application.  Loss runs can be misleading without an understanding of what is behind them. At Lanzko we recently found an audit where the underlying carrier failed to reserve for expense in what was a well run claims department.  In that particular company, expense reserves were handled by actuarial. Our client had not been aware of this and was able to adjust pricing accordingly, avoiding a significant underpricing of the risk.

It is important to understand that most reinsurance or excess contracts allow companies to inspect the organizations they underwrite.  If this right is available then why not take advantage of it to learn more information? Data runs can give you a basic overview of a firm’s existing losses, but they will do little to give you an understanding of the underlying organization that created those numbers.  To get a complete picture of how a claims department functions one has to go beyond the numbers and conduct a claims department and file review.

Resources, Resources, Resources

Not every account can be reviewed.  Whether you in-source or outsource claims reviews, the costs can add up. There are also other things that come to mind when determining when a review is cost effective.  If you conduct reviews using claims staff focused on handling claims there is a risk that the time out of the office is not as valuable as the time spent on existing file management. It should also be noted that in-house claims staff may not be properly equipped to understand other parts of the operation they are reviewing.

If you outsource, it may increase your costs and your vendor may not provide enough value for the report they provide. Unfortunately, many companies do not even budget for a review program. It was suggested to me that if you had a $100 million book of business and set a budget of  0.0025% of premium you would be able to conduct an outsourced reviews of your top 15 accounts.

Is 0.0025% of premium a reasonable cost to pay to get better information about the risks you underwrite?

8 reasons when a claims review becomes critical

Whether it’s a resource allocation issue, or just simply enough time, getting to conduct reviews regularly may be difficult. Nonetheless, there are times when a review must be done and should seriously be considered in these situations:

  1. Account Renewal
  2. Late, inadequate or infrequent claim reports
  3. Significant management changes or turnover
  4. Financial problems with Cedent or Primary
  5. Loss results are too good to be true
  6. Unexpected claims in lines of business
  7. Historically volatile product lines
  8. Change in company participation

A successful review means going beyond the claims files

Reviewing the highest exposure claims is certainly of value, however it will not give you a complete picture of the organization and their ability to consistently manage claims. High exposure claims are almost always reviewed by various layers of management and are usually well worked up. Despite this, many organizations only choose to review those files that may impact their layer.  What about the files that don’t make it to the senior level?

Understanding the process for how claims move through the system is critical to ensuring they are properly reserved and manged. Consistent claims handling comes from an organization that has good process, strong systems, good technical results and an oversight program. When looking at a claims department you need to look at the whole operation to learn more about:

  • Organizational overview and structure
  • Authority levels
  • Systems
  • Management/Staff Experience
  • Reserve Management and Expense Control
  • Quality, Controls and Compliance
  • Best practices
  • Spend management (vendors and counsel)

Doing a claims review is not just smart business, it is becoming a requirement

In Europe, new risk management standards are being implemented as part of sweeping regulatory changes contained in Solvency II. As part of these new regulations, companies that rely on others for their claims are going to be more responsible to ensure those third parties are operating effectively. This will effect everyone from reinsurance companies to cover holders to those who outsource claims to third-party administrators. The United Kingdom’s Financial Services Authority (FSA) described it best in a proposed CEO letter about reserve adequacy when they wrote:

[W]e expect firms to take a considered and proportionate approach to the reserve-setting process, and have robust processes in place which adequately capture the risks associated with an increasingly challenging claims environment. We expect such processes to include, as a minimum, the monitoring and assessment of:

  • The adequacy of individual case reserves;
  • Underlying claims processes;
  • The adequacy of data quality; and,
  • The reserve projection and selection process.

Claim reviews, if not already being done, will be a requirement in order to truly understand the “underlying claims process” as well as the “adequacy of individual case reserves.”  If you are not able to answer these questions you may be subjecting yourself to significant regulatory scrutiny.

Create a process around your process

The importance of these reviews cannot be overstated. But having accepted the fact that you need to do more reviews, make sure you are managing that process properly.  Develop a “best practices” guideline for claims reviews which should include:

  • When reviews are done and what are triggering events for the reviews (see examples above)
  • How are files selected for claim reviews
  • Outline different types of reviews with standard objectives
  • What department criteria will be reviewed and what claim file criteria will be examined
  • Understand who will be doing the reviews (claim handlers may be good at reviewing a claim file but may lack in experience when it comes to other operational aspects of a department)
  • Have a standard understandable rating system
  • Manage your claim reviews in a central location
  • Document the process to be able to respond to inquires from interested parties (regulators and stakeholders)

Even if you decide to outsource your claim reviews, it is important that you ensure your vendors have a documented process to provide consistent reviews and can maintain appropriate records.

When managed correctly, a proper claims review program can save the company from making bad decisions. Given that the costs, relative to the risk, are relatively minor, along with changes in regulation and oversight requirements, failing to make claims reviews a regular part of your organization could be a critical mistake.

Here We Go Again! CMS Postpones Deadline For P&C Mandatory Reporting Until January 1, 2012

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For The Second Time, The Department Of Health And Human Services Centers Gives Carriers More Time To Comply

In an alert dated November 9, 2010, The Department of Health and Human Services Centers for Medicare and Medicaid Services (CMS) announced that it will delay the implementation of the Medicare Secondary Payer (MSP) mandatory reporting requirements for property & casualty insurers until January  2012 for liability claims that do not involve on-going medical responsibility.

As expected, this is welcome news to the insurance industry as reported in the Insurance Journal:

“We are pleased that CMS decided to push back the reporting deadline again until more specific guidelines can be provided on several outstanding issues,” said Peter Foley, American Insurance Association’s vice president for claims administration and chair of AIA’s MSP Task Force. “The insurance industry will comply with the requirements, but complete and correct information is needed so that the industry’s data can be assembled in the most useful way possible for CMS.”

New Insurance Coverage to deal with potential reporting liability

Over the past year there as been much discussion about both the complexity and issues surrounding the implementation of mandatory reporting requirements. As The Claims SPOT previously reported on corrective legislation in Medicare Secondary Payer Enhancement Act Being Introduced in Congress Could Address Many Concerns of Section 111 Reporting, there are many legal concerns relating to reporting requirements (the bill currently remains in committee). In response to the risks for improper reporting, which include extensive fines, IronHealth (a division of Ironshore) created two new products called the Medicare Reporting & Secondary Payer Act Liability (MRSPAL) policy and the Government Billing E&O policy. These policies are designed to  protect companies handling claims and billing against liabilities that may arise for a failure to comply with these requirements.

As was reported in MyNewMarkets.com (Powered by the Insurance Journal), Josh Stein, chief underwriting officer for IronHealth stated  “the fines and penalties can add up…It’s got people very worried right now because it continues to evolve with how they put the meat on the bones of the legislation.” Uncertainty in how the government will enforce the rules, and the extent of potential fines, makes this new offering a welcome way to protect against potential risks.  What is known is the government has been testing the waters of enforcement in the past few years (see Warning – Medicare Secondary Payer (MSP): Government sends strong message and goes after non-compliance) and the risks are real.

Regardless of whether you feel coverage is needed, the rules are changing and it is important to remain up-to-date.  Help yourself and sign up for email notifications from CMS (sign up here) and stay informed.

Stay tuned as it’s all still evolving!

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Some background on the Medicare Secondary Payer Act and New Reporting Requirements

The Medicare Secondary Payer Act has been in place since the early 1980’s. The act allowed Medicare to seek reimbursement for money an insurance company or self insured pays on behalf of a Medicare beneficiary. MSP covers all carriers, self-insureds, no fault insurance, and workers’ compensation insurance.  In the past, Medicare’s ability to track and enforce these claims was limited. With the passage of the SCHIP Extension Act of 2007, Medicare was given new tools to track payments. The passage alone marked the start of new steps to increase enforcement by the Federal Government to collect on the Secondary Payer provisions. As part of the Act, the Responsible Reporting Entity (carrier or self-insured) must advise Medicare when a claim is received involving a Medicare beneficiary recipient. Responsible Reporting Entities now have an ongoing requirement to determine from time to time whether a claimant is a Medicare eligible recipient.

For more extensive information about the Medicare Secondary Payer Act and the new reporting requirements, please look to these valuable links:

There Is No Such Thing As A Pro Forma Signature On A Document – If You Sign It You Own It

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Don’t let doing something for the sake of doing something come back to bite you

I have written a number of articles on the importance of avoiding processes that have no added value to an operation. For example, I spoke of how making a “check” in the process is no assurance that things are being done right in the posting In Claims Don’t Let The Process “Thing” Get In The Way Of Doing The “Right” Thing.  Making sure that a process is adding value is essential in claims to avoid the “we have to just say we did it” way of doing things. The putting a note in the file that adds nothing to the file just because it is part of the process does nothing to increase value to the claim process and should be scrutinized. In “What’s The Point” Claims Process And How To Avoid Them I raised the issues that to be truly successful in claims it is important to focus on what’s truly important.

Mortgage foreclosures all in doubt because of a process for the sake of process

Doing things for the sake of doing things can have significant adverse consequences for an organization. It is important to realize that one day you may have to answer for every action you take on a claim file. The concept of how doing a pro forma task can come back to bite you is being highlighted as a yet another fallout of the mortgage crisis. Thousands of foreclosures are in doubt because a mortgage bank executive did not verify the documents used to justify home seizures. Tens of thousands of foreclosures are being halted because of a process in place where an individual just signed hundreds of documents without ensuring the information contained on the documents were correct.

In one of those cases an executive at JP Morgan Chase & Co. testified that her review was more or less signing the documents unless it was questionable and someone else told her there was a problem. She was among 8 others who signed over 18,000 documents a month (see JPMorgan Based Foreclosures on Faulty Documents, Lawyers Claim, Bloomberg 9/27/2010). At another bank, Wells Fargo, it was reported in the New York Times that an executive only verified the dates on up to 150 foreclosure documents signed daily (see Bank Exec Checked Only Date on Foreclosure Docs, NYT 10/3/2010).  The complete fallout from these events is still being sorted out, however it will certainly expose the banks, their attorneys and title companies to possible liability.

Claims organizations are often subjected to a variety of sign offs and controls that are instituted to prevent fraud and protect company assets. Given the volume in a typical claims organization, signatures for the sake of signatures are a possibility. Regardless, as seen in the mortgage situation, such a process can have significant implications.

Suggestion to avoid the process trap

Clearly, doing something for the sake of doing something can really have negative consequences for the organization. How many signatures do you put on documents in a given day? Do you really know why your signature is needed? Are you taking the appropriate steps to verify what you are signing? If you do not have an answer to these questions then you should be asking one more – what will happen if something goes wrong with the document that I just signed?

I believe strongly in supporting process and controls that are adding value. For example, it is clearly a good idea to have a second set of eyes prior to settling claims over a certain dollar amount to ensure company assets are being spent wisely. As a claim handler you would not want a settlement of a million dollars to go out the door without a manager’s approval and as a manager you would never want that check sent unless you were fully aware of the circumstances of the loss and the reasons for the settlement. It is this type of clear common sense that needs to be used on all processes where you are being asked to sign something.

Prior to signing a document make sure to ask yourself the following:

  • Why am I being asked to sign this and for what purpose?
  • Is my signature needed to control something, or am I just putting it down because there is a signature line?
  • Do I understand what went into preparing the documents that are asking for my signature?
  • What are the consequences if the document turns out to be faulty?
  • Do I tend to sign everything put in front of me without review?

It cannot be an excuse that “it’s just a process and it has always been done that way”.  If you had to testify about signing the documents would saying you just “signed everything unless someone told you it was a problem” sound like a reasonable response? Don’t read me wrong, controls and signatures are required for good reasons on many documents. Nonetheless, if you are the one asked to sign – make sure there is a good reason for your signature and know what your signing before you put your name down. If not, stop and ask the questions and revisit the whole process.

Quick SPOT: 6 Security Tips To Keep Portable Technology Safe For Claims

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Protect that claims data with common sense tips

If you are like me you keep everything on your laptop and cell phone. Numbers, corporate information, claims data, and even some of the dreaded non-private personal information of others. Claims data is filled with information that if lost or stolen could be detrimental to both the company and the individual. Many companies today issue corporate cell phones and blackberry devices as well as laptop computes in place of desktops. It’s a modern world and we are all expected to be connected. Partial work at home arrangements also mean this information is traveling from location to location which can increase the risk that things may be lost or stolen.

Recently I read in the Sophisticated Litigation Support Blog about 6 Security Steps To Take With Laptops, Smartphones, and Flash Drives.  As they noted according to William Quick, a sole practitioner in Clayton, MO who teaches and lectures on technology topics, “Identity theft is a mushrooming problem that Congress and the states have been trying to deal with any way they can.”

6 basic steps to prevent a loss

Sophisticated Litigation support suggested these 6 steps to help lower your risks:

  1. Be careful not to lose the device in the first place. Pay close attention to where your equipment is.
  2. Have a written plan that details your firm’s action if a data breach should happen.
  3. Only keep what you need. Decide what information has to be saved and then back up your data to a secure location on a regular basis.
  4. Lock your computer when you are away.
  5. Encrypt all devices – most statues don’t require you to inform your clients of encrypted data breach.
  6. Invest in back-up-plan software. Some software allows you to protect your data security after the fact.

But what happens if you loose the equipment anyway?

I had a manager that no matter how hard he tried would loose something all the time.  In one year I believe he lost 3 cell phones and a laptop. He actually almost lost another when he left it in the seat pocket in front of him.  Loosing equipment should be avoided at all costs, but if you do loose it, the Sophisticated Litigation Support Blog notes:

If you lose your equipment and someone obtains this information, you need to alert potentially affected parties of the loss – and that’s a lot easier said than done. It may also land you in some hot legal water (at several hundred bucks an hour, there really is no other water temperature in the legal world), because 46 states have data breach laws. So there could be some liability issues that come up.

Clearly having to explain to customers and claimants how you lost their information would not be a good thing. So discuss these issues with your group and incorporate some of the security tips to avoid a problem later.

Tell us your “I lost my equipment” story

Medicare Secondary Payer Allows Direct Data Entry For Small Reporters Of Claims

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Good news: CMS allows reporting without the need to submit electronic files

In an alert posted to the Centers for Medicare & Medicaid Services (CMS) website, the government announced a new Direct Data Entry option for Liability Insurers, Self Insureds, No-Fault and Workers’ Compensation carriers. This should be welcome news to those companies struggling to meet data feed requirements mandated by the Medicare Secondary Payer Mandatory Reporting Provisions in Section 111 of the Medicare, Medicaid and SCHIP Extension Act of 2007.

With this new option, a carrier or self-insured need not develop, test and manage claim reports through a data feed. While not without its limitations, the ability to enter single reports will be an applauded method for those entities with minimal reporting.

As I previously wrote about in Important Update: Medicare Secondary Payer changes production date to January 1, 2011, CMS changed the production date for reporting to January 1, 2011.  Given the complex nature of the new reporting guidelines there has also been a recent bill submitted in congress to amend the statute (see Medicare Secondary Payer Enhancement Act). It seems clear that as the new reporting requirements have been put to the test, the government is making an effort to improve the process.

Who can use the Direct Data Entry

Those Responsible Reporting Entities (RRE) that are considered “Small Reporters” may utilize the Direct Data Entry method for compliance with the Section 111 requirements. The CMS Alert defines a Small Reporter as one who would submit 500 or fewer Non Group Health Plan (NGHP) claim reports per year. It is important to note that claim reports resulting in a “no beneficiary” match will still count against the 500 claim limit.

Direct Data Entry Option Considerations

  • Those Small Reporters wishing to use this method for reporting will be able to register for the new option beginning on October 1, 2010
  • Reports can begin to be filled using the Direct Data Entry method beginning January 3, 2011
  • Injured party information will be matched in real-time as entered. Once the basic injured party information is entered if a match is not found then no further data elements will be required (this will however still count toward the 500 limit)
  • There are no changes to the number of data elements required to be reported
  • All RRE responsibility and accountability to report remains the same when using the Direct Data Entry option

Eliminating the need to create and submit electronic reports should alleviate issues for the Small Reporters and make compliance easier.

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Some background on the Medicare Secondary Payer Act and New Reporting Requirements

The Medicare Secondary Payer Act has been in place since the early 1980’s. The act allowed Medicare to seek reimbursement for money an insurance company or self insured pays on behalf of a Medicare beneficiary. MSP covers all carriers, self-insureds, no fault insurance, and workers’ compensation insurance.  In the past, Medicare’s ability to track and enforce these claims was limited. With the passage of the SCHIP Extension Act of 2007, Medicare was given new tools to track payments. The passage alone marked the start of new steps to increase enforcement by the Federal Government to collect on the Secondary Payer provisions.

As part of the Act, the Responsible Reporting Entity (carrier or self-insured) must advise Medicare when a claim is received involving a Medicare beneficiary recipient. Responsible Reporting Entities now have an ongoing requirement to determine from time to time whether a claimant is a Medicare eligible recipient.

For more extensive information about the Medicare Secondary Payer Act and the new reporting requirements, please look to these valuable links:

Medicare Secondary Payer Enhancement Act Being Introduced in Congress Could Address Many Concerns of Section 111 Reporting

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Dealing with MSP Can Feel Like Walking Into a Maze

The Medicare Secondary Payer Enhancement Act of 2010 (HR 4796) is a new piece of bi-partisan legislation introduced on March 9, 2010. It is designed to streamline Medicare Secondary Payer reporting and provide some finality for insurers required to reimburse Medicare for “conditional payments” of medical expenses. This legislation would address many concerns raised by reporting requirements, as well as from recent lawsuits filled by the government seeking recovery.

Section 111 reporting requirements are complex and, if not done correctly, can result in significant fines. I previously addressed how serious the government was in seeking recovery in my posting  Warning – Medicare Secondary Payer (MSP): Government sends strong message and goes after non-compliance. In that article, I discussed a case where the government went after all the parties (attorneys and insurance companies) for not reimbursing medicare following a 2003 class action. Several issues were raised in that case that clearly sent a message to carriers about the government’s intentions and raising significant concerns around other issues. The process has been so confusing, and created so many questions,  that the production date for reporting was again postponed till January 2011 (see Important Update: Medicare Secondary Payer changes production date to January 1, 2011).

The Medicare Advocacy Recovery Coalition (MARC) was formed in 2008 to advocate for the improvement of Medicare Secondary Payer requirements. “The current Medicare Secondary Payer (MSP) process places considerable impediments upon the flow of needed information, beneficiaries’ ability to settle claims, and everyone’s ability to promptly reimburse the Medicare trust fund,” said Roy Franco, co-chairperson of MARC and director of risk management services for Safeway Inc. “These roadblocks discourage settlement, slow down the return of trust fund dollars, and ultimately rendering many cases involving Medicare beneficiaries unsettlable.” (see MARC Coalition Supports Medicare Secondary Payer Enhancement Act (MSPEA)/H.R. 4796)

Potential Changes to MSP Would Streamline Reporting and Address Many Concerns

HR 4796 is an attempt to address some of the problems with the reporting requirements by:

  • Allowing the government discretion in determining when to impose penalties for rules violations;
  • Establishing a 3 year statute of limitations, limiting the government’s time to sue companies for failing to comply with the rules;
  • Limit Medicare Secondary Payer recovery to claims of $5,000 or more which would prevent CMS from seeking recovery for less than that amount;
  • Eliminate the requirement that claim notifications to CMS contain the claimant’s Social Security numbers, helping to reduce fears that securing social security numbers in liability settlements would expose reporting to possible exposure should the information be misused;
  • Call for CMS to provide to claimants and insurers the amount of a “conditional payment” the agency will demand, within a certain time frame, before parties settle a claim; and
  • amend the current penalty assessed an applicable plan that fails to report claims payments under Section 111 from $1,000 a day to “up to” $1,000 a day based upon the “intentional nature of the violation”

Providing the limitations noted above would go along way to answering many of the questions that have been raised over the last several month.

Some related articles:

These proposed changes would be a significant improvement, and the progress of this legislation needs to be watched closely.

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Some background on the Medicare Secondary Payer Act and New Reporting Requirements

The Medicare Secondary Payer Act has been in place since the early 1980’s. The act allowed Medicare to seek reimbursement for money an insurance company or self insured pays on behalf of a Medicare beneficiary. MSP covers all carriers, self-insureds, no fault insurance, and workers’ compensation insurance.  In the past, Medicare’s ability to track and enforce these claims was limited. With the passage of the SCHIP Extension Act of 2007, Medicare was given new tools to track payments. The passage alone marked the start of new steps to increase enforcement by the Federal Government to collect on the Secondary Payer provisions. As part of the Act, the Responsible Reporting Entity (carrier or self-insured) must advise Medicare when a claim is received involving a Medicare beneficiary recipient. Responsible Reporting Entities now have an ongoing requirement to determine from time to time whether a claimant is a Medicare eligible recipient.

For more extensive information about the Medicare Secondary Payer Act and the new reporting requirements, please look to these valuable links:

7 Considerations When Drafting Claims Guidelines

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I recently wrote about bad faith concerns with reinsurance companies when a cedent company fails to have written procedures in my post Absence of procedures to notify reinsurance is a basis for bad faith. In the post I also raised issues around having written procedural guidelines. As expected, I received some comments and support from those who want to use those guidelines against the company. In addition, some pointed out claim guideline requirements of some state insurance departments for some lines of business. Before drafting guidelines there are a few things that should be considered. Our friend Phil Loree, Jr. of the Loree Insurance and Arbitration Law Forum suggested 7 things a company should consider when drafting claims guidelines.

Continue reading →

Important Update: Medicare Secondary Payer changes production date to January 1, 2011

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The Centers for Medicare/Medicaid Services (CMS) have announced the following:

CMS advises all NGHP RREs that the date for first production NGHP Input Files is changed from April 1, 2010 to January 1, 2011, effective immediately.

Read the complete announcement at the CMS website in “What’s New.”

This is clearly a welcome change and one that has been been sought by various industry organizations including the American Insurance Association. As Peter Foley, AIA’s VP for claims stated in a Business Insurance article released February 17, 2010 – “Pushing back the deadline is the right move, and I commend CMS for making this decision,”

The Medicare Advocacy Recovery Coalition (MARC) also applauded the decision to defer the reporting deadline for Section 111 as reported by the PR Newswire.

“The industry has been working diligently to build in infrastructure to supply data to CMS, investing millions of dollars to ensure compliance with the data share regulation.” said Roy Franco, co-chairperson of MARC and director of risk management services for Safeway Inc.  “Unfortunately, there have been unforeseen difficulties and unanswered questions regarding the reporting process, and everyone’s ability to get the job done by April 1.”

While there is still much to do, and questions to be answered, the additional time will hopefully allow those entities to get their processes in place.

This is by no means a reason to delay action as the fines for non-compliance are great.

(see my prior post: Warning – Medicare Secondary Payer (MSP): Government sends strong message and goes after non-compliance).

5 Claims issues cited for non-compliance on market conduct exams & 3 tools to avoid them

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Insurance Market Conduct examinations are a regular part of the insurance business. Besides the stress of the exam itself, being cited for violations can result in costly fines. Regardless, many citations can be avoided.

Every year, insurance compliance solutions provider Walters Kluwer releases its annual study of top ten reasons insurance companies are found to be out of compliance in state market conduct examinations. In the most recent 2008 study, five of the ten issues of non-compliance were claims related.

If you look at the Walters Kluwer studies performed in 2007 and 2006, you will see similar results around claims. As in the past, documentation and customer service issues are the primary culprit for claims non-compliance.

5 Claims issues found as non-compliant

  1. Failure to acknowledge, pay or deny claims within specified time frames
  2. Failure to pay claims properly (sales, tax, loss of use)
  3. Improper documentation of claim files
  4. Failure to communicate a delay in the settlement of claims in writing
  5. Use of unlicensed claims adjusters or appraisers

All of these findings could have been avoided with enforcement of best practices and an internal review process. With some basic actions, a company can  minimize or eliminate their risk of being out of compliance.

3 Simple tools to avoid costly fines

There are very simple tools that should be employed to help prevent negative claims findings on market conduct reviews. Here are some basic preventative steps to eliminate or mitigate against being cited in a review:

  1. Manage to best practices – Establish and manage claims departments to meet industry best practice standards. Set guidelines and educate staff as to the importance of proper file documentation and notification requirements.
  2. Self audit –  Regularly reinforce good handling practices and customer service expectations through internal audits. A self-audit program should be designed to look for deficiencies and establish plans of action to correct any issues promptly. These compliance audits of staff should be done at least annually.
  3. Vendor management program – Set up a standard vetting process to make sure vendors are appropriately licensed and will comply with company guidelines. Where appropriate, audit these vendors as well to ensure information originally supplied during the application process remains current.

So many of the 5 issues cited above are avoidable. Setting standards and monitoring for compliance will minimize your risks in a market conduct examination. As an added benefit your files will be in better shape and your customers will be happier for it.

Warning – Medicare Secondary Payer (MSP): Government sends strong message and goes after non-compliance

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The Feds get serious about seeking Medicare recoveries

If you are an insurance company or self-insured, and make payments on liability or workers’ compensation claims, be aware that the Federal Government has filed a lawsuit signaling their intent to be aggressive in seeking reimbursement. As reported in Business Insurance, this “case breaks new ground because CMS simultaneously named insurers, settlement beneficiaries and plaintiffs attorneys all in one lawsuit.”  This case should alert all that if you make a payment on an injury claim, and fail to let the Government know about money they should be collecting, they will come after you.

Implications abound for attorneys and insurance companies in this first of its kind lawsuit

The lawsuit, brought in U.S. District Court for the Northern District of Alabama (U.S. v. Stricker, et al), seeks money and injunctive relief as result of a $300 million 2003 settlement of case involving injuries caused by PCB exposure (Abernathy v. Monsanto Co., et al.). The complaint names the defendants in the underlying case, the insurance companies (Travelers and AIG), the actual plaintiffs who received the settlement, and their various attorneys. The government alleged that over 900 of the plaintiffs that received compensation for medical expenses were also Medicare beneficiaries that had received medical payments. As part of the damages, the Government is seeking double the amount of Medicare payments plus interest (see Medicare Lien and Set-Aside Blog).

The crux of the government’s damage claim is to seek double the amount of payments made by Medicare as well as an injunction to force the defendants to reimburse Medicare prior to making any future settlement dollars to the claimants. As required by the Medicare Secondary Payer Act, the government’s complaint also alleges that the insurance providers failed to determine whether any of the settling plaintiffs were Medicare beneficiaries nor did they reimburse Medicare for payments that had been made to those beneficiaries. In addition to the insurance companies, the suit alleges plaintiff’s attorneys received $129 million of the settlement funds for claimants that they knew or should have known were Medicare eligible.

Implications and issues to be concerned about

  • Attorneys (and their Professional E&O Carriers) beware: By naming the attorneys, the Government is clearly signaling that they will be seeking recovery and fines from those that fail to follow the law. A plaintiff’s attorney that fails to make payments to Medicare on behalf of their clients, or fails to properly provide information to the defense, could be significantly exposed.
  • Costs to insurers will go up: The process to establish and update the reporting information will be costly. Those carriers with good claims systems will be ahead of the game and can lower their expenses, however, resources will need to be allocated to maintain the requirements.
  • Older cases may need to be revisited: While many believed that Medicare would only be going after future liability settlements, this case involves a claim that was settled in 2003. It is not clear how this aspect of the case will be resolved, however, it could be exceptionally expensive if carriers or self-insureds have to review closed matters from 7 years back.
  • Indemnity reserves may need to be adjusted: It is possible that plaintiff’s attorneys will be seeking higher amounts in cases where Medicare liens would significantly impact settlement amounts. If this trend takes hold then reserves on existing claims involving bodily injury may need to be adjusted to deal with increased claim exposures.
  • It’s time to get those systems in order: Given the potential risks, it is important to fully understand the rules and requirements established by the recent SCHIP Extension Act of 2007. There has been a push by insurance companies to ensure they are in compliance with these new notification rules, including new procedures and claims system modifications.  Failing to comply could be a costly mistake.

Clearly this case is a warning of things to come!

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Some background on the Medicare Secondary Payer Act and New Reporting Requirements

The Medicare Secondary Payer Act has been in place since the early 1980’s. The act allowed Medicare to seek reimbursement for money an insurance company or self insured pays on behalf of a Medicare beneficiary. MSP covers all carriers, self-insureds, no fault insurance, and workers’ compensation insurance.  In the past, Medicare’s ability to track and enforce these claims was limited. With the passage of the SCHIP Extension Act of 2007, Medicare was given new tools to track payments. The passage alone marked the start of new steps to increase enforcement by the Federal Government to collect on the Secondary Payer provisions. As part of the Act, the Responsible Reporting Entity (carrier or self-insured) must advise Medicare when a claim is received involving a Medicare beneficiary recipient. Responsible Reporting Entities now have an ongoing requirement to determine from time to time whether a claimant is a Medicare eligible recipient.

For more extensive information about the Medicare Secondary Payer Act and the new reporting requirements, please look to these valuable links:

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