In recent years, amendments to the Medicare Secondary Payer Act made it risky — and sometimes, impossible — for litigants to settle personal injury cases involving plaintiffs whose medical bills had been paid by Medicare. The need to fundamentally change the manner in which Medicare seeks reimbursement from tort recoveries has been one of the few issues on which the plaintiffs bar and the liability insurance industry find common ground.

On January 10, President Obama signed the Strengthening Medicare and Repaying Taxpayers Act of 2011 — dubbed the “SMART Act” — to improve and clarify the federal government’s otherwise unmanageable ability to seek reimbursement for health care expenses paid by Medicare and arising from a compensable tort. While the SMART Act does not cure all the ills in the Medicare Secondary Payer Act, the new law creates a procedure for litigants to learn how much Medicare believes its right of reimbursement is before the parties enter into a settlement or proceed through judgment. It also requires creation of a practical process by which to appeal Medicare’s demand for reimbursement.

Principally funded by payroll taxes, Medicare is the federal government’s health insurance program for over 43 million beneficiaries, most of whom are seniors or recipients of Social Security disability benefits. Overseen by the U.S. Department of Health and Human Services, the Centers for Medicare and Medicaid Services (CMS) and its contractors administer Medicare and seek reimbursement from tort recoveries. Medicare is a no-fault program; beneficiaries are entitled to the enumerated benefits regardless of what — or who — caused the need for medical care.

From its inception in 1965, Medicare was legally obligated to be the first-in-line payer, except for workers’ compensation benefits. In 1980, Congress decided that for medical expenses caused by torts, the tortfeasor’s liability insurer should be first in line, with Medicare stepping back to the “secondary” payer. Still, noting that most tort liabilities take months or years to determine, Congress authorized Medicare to pay medical expenses up front, then later seek reimbursement from the beneficiary/plaintiff, the plaintiff’s attorney, or the liability insurer. For decades, however, administrative, technological and bureaucratic barriers prevented Medicare from obtaining much in the way of reimbursement, so in 2007, Congress amended the law. It passed the Medicare, Medicaid and State Children’s Health Insurance Program (SCHIP) Extension Act (MMSEA) to increase Medicare’s ability to recover reimbursement. Those amendments required insurers to identify Medicare beneficiaries and report settlements and judgments.

Although well-intentioned, significant inadequacies in the amended Medicare Secondary Payer Act continually vexed courts and litigants. One problem was that although litigants always want to know the amount of any lien or right of reimbursement that could affect the subtle dynamics of settlement, Medicare would not declare its reimbursement figure until after a judgment or settlement. Likewise, Medicare demanded full reimbursement, up to and including the totality of the settlement, without regard to the compromises of fault and causation that are inherent in tort cases. In cases of alleged medical malpractice (in which there is almost always some medical care that is unrelated to the alleged tort), Medicare sometimes demanded reimbursement for all medical expenses, even in the absence of a link between the care and the alleged tort. The process of appealing those determinations and demands was obscure and expensive.

The SMART Act now permits litigants to learn the amount that Medicare will seek before the parties settle or go to judgment. Subject to certain timing provisions and exceptions, CMS will provide a specific amount that CMS will seek. Parties will be able to obtain that information by submitting a request through an electronic portal within 120 days of a “reasonably expected” settlement or judgment. CMS is obligated to provide a specific amount within 65 days of the request. The information posted through the portal must also meet requirements for specificity and reliability.

Prior to the SMART Act, the process for appealing Medicare’s unilateral assessment of the reimbursement amount was obscure, expensive and funneled all challenges through an administrative process that has only limited review by Washington, D.C.’s federal courts. The SMART Act requires CMS to adopt regulations that establish a fair and reasonable appeal avenue. Although the process of drafting, vetting, publishing and eventually adopting valid, enforceable regulations takes considerable time, the SMART Act lets litigants know that help is on the way.

The SMART Act also remediates one of the more onerous aspects of the Medicare Secondary Payer Act for insurers. The act injects a previously non-existent measure of reasonableness and discretion into the determination of whether a liability insurer will be fined $1,000 per day per claimant for noncompliance with the law’s complex electronic reporting scheme. The act also requires CMS to solicit proposals for regulations that would exempt insurers from punishment where they had made good-faith efforts to identify a beneficiary.

The SMART Act requires that beginning November 15, 2014, the secretary of the U.S. Department of Health and Human Services must annually publish a minimum amount for settlements or judgments below which it will not seek reimbursement. The act also sets three years as the time in which the government can bring an action arising from its right of reimbursement.

Like most remedial legislation borne of political compromise, the SMART Act does not solve all of the prior law’s problems. It does not address CMS’s ability to compromise based on legal or factual issues. It does not address reimbursement claims arising from joint tortfeasor settlements. Still, in an era of profound political polarization, the SMART Act is a modest triumph of bipartisanship that provides some meaningful relief and clarification of a previously unreasonable law.

Bill Kennedy is a trial partner with White and Williams who defends professional and general liability matters. For more assistance with issues associated with the Medicare Secondary Payer Act, contact Kennedy at kennedyw@whiteandwilliams.com or 215-864-6816.