[Federal Register Volume 73, Number 36 (Friday, February 22, 2008)]
[Rules and Regulations]
[Pages 9679-9685]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-2938]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 411 and 489

[CMS-6272-F]
RIN 0938-AN27


Medicare Program; Medicare Secondary Payer (MSP) Amendments

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rule.

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SUMMARY: On February 24, 2006, we published an interim final rule with 
comment period in the Federal Register that implemented amendments to 
the Medicare Secondary Payer (MSP) provisions under Title III of the 
Medicare Prescription Drug, Improvement, and Modernization Act of 2003 
(MMA). The MMA clarified the MSP provisions regarding the obligations 
of primary plans and primary payers, the nature of the insurance 
arrangements subject to the MSP rules, the circumstances under which 
Medicare may make conditional payments, and the obligations of primary 
payers to reimburse Medicare.
    In this final rule, we are finalizing several clarifications made 
to the MSP provisions. In addition, we are responding to public 
comments on the February 24, 2006 interim final rule with comment 
period that pertain to these MSP provisions.

DATES: Effective Date: These regulations are effective on March 24, 
2008.

FOR FURTHER INFORMATION CONTACT: Suzanne Lewis, (410) 786-0970.

SUPPLEMENTARY INFORMATION:

I. Background

A. Statutory Background

    Beginning in 1980, the Congress enacted a series of amendments to 
section 1862(b) of the Social Security Act (the Act) (hereafter 
referred to as the Medicare Secondary Payer (MSP) provisions) to 
protect the financial integrity of the Medicare program by making 
Medicare a secondary payer, rather than a primary payer of health care 
services, when certain types of other health care coverage are 
available. (Workers' compensation had already been primary to Medicare 
since the implementation of the original Medicare statute.) In enacting 
the MSP provisions, the Congress intended that the MSP provisions be 
construed to make Medicare a secondary payer to the maximum extent 
possible. These statutory provisions are set forth in regulations at 42 
CFR part 411, Exclusions From Medicare and Limitations on Medicare 
Payment.
    On December 8, 2003, the Congress enacted the Medicare Prescription 
Drug, Improvement, and Modernization Act (MMA) of 2003 (Pub. L. 108-
173). The Congress passed section 301 under Title III of the MMA to 
address several interpretations of the MSP provisions being pressed by 
various parties that would, if ultimately accepted, severely limit the 
applicability of the MSP provisions at considerable expense to the 
Medicare program. As discussed in the February 24, 2006 interim final 
rule with comment period (71 FR 9466) many of these interpretations 
were presented in the context of Federal court litigation over the 
meaning of various MSP provisions. The Congress rejected these attempts 
to incorrectly limit the application and scope of the MSP statute.
    In the MMA, the Congress clarified its original intent regarding 
the MSP provisions under section 1862(b) of the Act, thereby indicating 
that these interpretations were incorrect and that the Secretary's 
interpretations were accurate. These clarifications were effective as 
if enacted on the date of the original legislation.
    Section 301(a) of the MMA amended section 1862(b)(2)(A)(ii) of the 
Act to remove the term ``promptly.'' This amendment establishes that 
various parties were incorrect in their interpretation that section 
1862(b)(2)(A)(ii) of the Act applied only if the workers' compensation 
law or plan, liability insurance, or no-fault insurance has paid or 
could reasonably be expected to pay for services ``promptly.'' This 
amendment also added language to section 1862(b)(2)(B) of the Act to 
clarify that the Secretary may make payment subject to reimbursement if 
the workers' compensation law or plan, liability insurance, or no-fault 
insurance has not paid or could not reasonably be expected to pay for 
services ``promptly.''
    Section 301(b)(1) of the MMA amended section 1862(b)(2)(A) of the 
Act to clarify the application of the term ``self-insured plan.'' It 
establishes that ``an entity that engages in a business, trade, or 
profession shall be deemed to have a self-insured plan if it carries 
its own risk (whether by a failure to obtain insurance, or otherwise) 
in whole or in part.''
    Section 301(b)(2)(A) of the MMA amended section 1862(b)(2)(B) of 
the Act to specify that a primary plan, and an entity that receives 
payment from a primary plan, shall reimburse the appropriate Trust Fund 
for any payment that the Secretary makes with respect to an item or 
service if it is demonstrated that the primary plan has or had a 
responsibility to make payment with respect to the item or service. It 
added language establishing that a primary plan's responsibility for 
this payment ``may be demonstrated by a judgment, a payment conditioned 
upon the recipient's compromise, waiver, or release (whether or not 
there is a determination or admission of liability) of payment for 
items or services included in a claim against the primary plan or the 
primary plan's insured, or by other means.''
    Section 301(b)(3) of the MMA amended section 1862(b)(2) of the Act 
to

[[Page 9680]]

further delineate those entities (that is, ``primary payers'') from 
which the United States may seek reimbursement. It amended language 
specifying that the United States may bring an action against ``all 
entities that are or were required or responsible (directly, as an 
insurer or self-insurer, as a third-party administrator, as an employer 
that sponsors or contributes to a group health plan, or large group 
health plan, or otherwise) to make payment with respect to the same 
item or service (or any portion thereof) under a primary plan.'' This 
amendment specified that the United States may recover double damages 
against these entities. Also, it amended language clarifying that the 
United States may recover payment from ``any entity that has received 
payment from a primary plan or from the proceeds of a primary plan's 
payment to any entity.''
    Under section 301(d) of the MMA, these provisions are effective as 
if enacted on the date of the original legislation to reflect the 
original MSP provisions and Congressional intent at issue. This final 
rule amends 42 CFR part 411 and Sec.  489.20(i)(2)(ii) of our 
regulations to implement these MSP provisions.

B. Requirements for Issuance of Regulations

    Section 902 of the MMA amended section 1871(a) of the Act and 
requires the Secretary, in consultation with the Director of the Office 
of Management and Budget, to establish and publish timelines for the 
publication of Medicare final regulations based on the previous 
publication of a Medicare proposed or interim final regulation. Section 
902 of the MMA also states that the timelines for these regulations may 
vary but shall not exceed 3 years after publication of the preceding 
proposed or interim final regulation except under exceptional 
circumstances.
    This final rule finalizes provisions set forth in the February 2006 
interim final regulations. In addition, this final rule has been 
published within the 3-year time limit imposed by section 902 of the 
MMA. Therefore, we believe that the final rule is in accordance with 
the Congress' intent to ensure timely publication of final regulations.

II. Provisions of the Interim Final Regulations

    As is the case with group health plan and large group health plan 
insurance, Medicare may not make payment if payment with respect to the 
same item or service has been made or can reasonably be expected to be 
made under workers' compensation, no-fault, or liability insurance. 
However, Medicare may make a payment conditioned on reimbursement when 
the workers' compensation, no-fault, or liability insurance plan 
(including a self-insured plan) has not made or cannot reasonably be 
expected to make payment with respect to this item or service promptly. 
As discussed in the February 2006 interim final rule, in accordance 
with section 301(a) of the MMA, we removed the word ``promptly'' from 
Sec.  411.20(a)(2), Sec.  411.40(b)(1)(i), and Sec.  411.50(c)(1) and 
(c)(2) to clarify that these Medicare payments are conditional and must 
be reimbursed whenever a primary payer's responsibility to make payment 
is demonstrated.
    In Sec.  411.21, we removed the definitions for ``third party 
payer'' and ``third party payment'' and replaced them with definitions 
for ``primary payer'' and ``primary payment.'' We also provided a 
definition for ``primary plan.'' We made these changes to conform to 
the statutory language under the MMA. Consistent with these changes, we 
made nomenclature changes to replace the terms ``third party payer,'' 
``third party payment,'' and ``third party plan'' with ``primary 
payer,'' ``primary payment,'' or ``primary plan,'' respectively, under 
part 411 throughout subparts B through H. In Sec.  411.33(f)(4), we 
replaced the term ``third party'' with ``primary payer.'' We also 
amended Sec.  489.20(i)(2)(ii) to replace ``third party payment'' with 
``primary payment.''
    In the February 2006 interim final rule with comment period, we 
also added language to the definition of ``self-insured'' plan in Sec.  
411.50(b) in accordance with section 301(b)(1) of the MMA. We clarified 
that an entity that engages in a business, trade, or profession is 
deemed to have a ``self-insured'' plan for liability insurance if it 
carries its own risk, in whole or in part. Any such entity's self-
insured status may be demonstrated, among other ways, by the failure to 
obtain insurance.
    In accordance with section 301(b)(2)(A) of the MMA, we added a new 
Sec.  411.22 to clarify that a primary payer, and an entity that 
receives payment from a primary payer, become obligated to reimburse 
CMS if and when it is demonstrated that the primary payer has or had 
primary payment responsibility. This responsibility may be demonstrated 
by a judgment, a payment conditioned upon the recipient's compromise, 
waiver, or release (whether or not there is a determination or 
admission of liability) of payment for items and services included in a 
claim against the primary payer, or by other means, including but not 
limited to a settlement, award, or contractual obligation. This means 
that a primary payer may not extinguish its obligations under the MSP 
provisions by paying the wrong party--for example, by paying the 
Medicare beneficiary or the provider when it should have reimbursed the 
Medicare program. Primary payers are expected to reimburse CMS when it 
is demonstrated that they have or had payment responsibility.
    In accordance with section 301(b)(3) of the MMA, in Sec.  411.21, 
Sec.  411.22, and Sec.  411.24(e) also clarified that the Medicare 
program may seek reimbursement from a primary payer, or any or all the 
entities responsible or required to make payment as a primary payer. 
With respect to debts where a group health plan or large group health 
plan is the primary plan, the amendments make clear that all employers 
that sponsor or contribute to the group health plan or large group 
health plan are primary payers required to reimburse Medicare 
regardless of whether the group health plan or large group health plan 
was an insured plan (that is, the employer or other plan sponsor 
purchased insurance) or was self-insured by the employer or other plan 
sponsor. Medicare may also seek reimbursement from any entity that has 
received payment from a primary payer. Entities that receive payment 
include, but are not limited to, beneficiaries, attorneys, and 
providers or suppliers (including physicians).
    Furthermore, in the February 2006 interim final rule with comment 
period, we revised Sec.  411.24(e) by adding language pertaining to 
Medicare's authority to recover conditional payments. Specifically, in 
accordance with section 301(b)(3) of the MMA, we specified at Sec.  
411.24(e) that CMS has a direct right of action to recover from any 
primary payer. We made a technical revision at Sec.  411.24(f)(2) to 
replace the words ``is primary'' with ``is a primary plan.''
    Consistent with section 301(b)(2)(A) of the MMA, the February 2006 
interim rule with comment period clarified at Sec.  411.24(i)(1) that, 
like liability insurance and disputed claims under group health plans 
and no-fault insurance, workers' compensation insurance and plans must 
also reimburse Medicare, although it paid some other entity, if it knew 
or should have known that the claimant was a Medicare beneficiary. 
Where Medicare has already recovered payment from the entity, 
reimbursement to Medicare by the workers' compensation insurance or 
plan is not required. However, nothing

[[Page 9681]]

in the February 2006 interim final rule with comment period will be 
construed to require us to first pursue the entity which receives 
payment before it can pursue the primary payer. Also consistent with 
section 301(b)(2)(A) of the MMA, we added language to Sec.  411.45, 
Sec.  411.52, and Sec.  411.53 to specify that any conditional payment 
that Medicare makes is based upon the recovery rules under subpart B of 
part 411. In addition, at Sec.  411.52, we clarified the basis for 
which Medicare makes payment in liability cases. We revised Sec.  
411.53 by removing the phrase ``, or the provider or supplier,'' in the 
existing paragraph (a) to clarify that it is the beneficiary's 
responsibility to file a claim for no-fault benefits.

III. Analysis of and Responses to Public Comments

    We received five comments from the public on the February 2006 
interim final rule with comment period. The comments received and our 
responses to those comments are discussed below.
    A. General Comments
    Comment: A commenter stated that the February 2006 interim final 
rule with comment period would ``refrain'' CMS from making conditional 
payments where there is no anticipation of reimbursement ``promptly'' 
while broadening CMS' recovery scope for reimbursement of conditional 
payments. The commenter also stated concern that the consequences of 
this would be enormous for injured employees in the State of Indiana.
    Response: We recognize the commenter's concerns and note that we 
will continue to be permitted to make conditional payments when 
liability insurance, no-fault insurance, or workers compensation do not 
pay promptly. In addition, we will continue to recover any conditional 
payments made. Furthermore, we will continue to not make conditional 
payments when the ``injured employee'' also has group health plan 
coverage that is primary to Medicare. The group health plan is expected 
to fulfill its responsibilities under the statute.
    Comment: A commenter believes that CMS' waiver of proposed 
rulemaking is not justified. The commenter stated that conforming 
regulatory language to statutory amendments does not justify waiving 
proposed rulemaking nor does it render a ``notice-and-comment 
procedure'' ``impracticable, unnecessary, or contrary to the public 
interest.'' The commenter suggested that CMS recharacterize and 
republish the February 2006 interim final rule with comment period as a 
proposed rule with appropriate time for public comments.
    Response: We recognize the commenter's concerns. However, it is 
unnecessary to undertake notice and comment rulemaking because we are 
merely conforming existing regulations to the statutory changes 
affected by section 301 of the MMA.
    Comment: The commenter also believes that CMS' adoption of a 
comment due date as the effective date for the regulation is 
inappropriate and renders any comments moot. The commenter suggested 
that CMS adopt an effective date for the revised regulations that is on 
or after the date of Federal Register publication of a final rule, not 
before its promulgation.
    Response: In the February 2006 interim final rule (71 FR 9466), 
``MMA Amendments to the Medicare Secondary payer (MSP) Provisions,'' we 
explained that the clarifications regarding the Congress's original 
intent in implementing the MSP provisions under section 1862(b) of the 
Social Security Act made by section 301 of the MMA were effective as if 
enacted on the date of the original legislation. In the February 2006 
interim final rule (71 FR 9468), we explained that because the interim 
final rule merely conformed part 411 and Sec.  489.20(i)(2)(ii) of the 
regulations to statutory changes affected by section 301 of the MMA, we 
found good cause to waive the notice of proposed rulemaking and issue 
the rule on an interim basis. We published the February 2006 interim 
final rule with a 60-day public comment period, providing the public 
adequate time to comment on the rule. In addition, there was a 60-day 
delay in the effective date of that rule. Although the effective date 
and the date of the close of the public comment period coincided, we 
believe the public comments are not moot because we are required to 
publish a subsequent final rule in which we consider and address all 
timely public comments on the preceding interim final rule. We have 
addressed the timely public comments in section III of this final rule, 
``Analysis of and Responses to Public Comments.'' Based on our 
consideration of the public comments, Sec.  411.22 and Sec.  411.25 
have been amended to further clarify the reimbursement obligations and 
notice requirements of primary payers. Section 411.45 has been amended 
to replace the word ``capacity'' with ``incapacity'' so that there is 
consistency between the language used in Sec.  411.45 and Sec.  411.53
    This final rule will be effective 30 days after date of 
publication.
    Comment: A commenter expressed the view that only beneficiaries and 
not beneficiaries, providers, and other entities should be responsible 
and have the burden of updating the Coordination of Benefits (COB) 
files.
    Response: This comment is outside of the scope of the February 2006 
interim final rule. Please note that beneficiaries, providers, 
physicians, other suppliers, and other entities all have appropriate 
obligations to ensure our COB records are updated.
    Comment: A commenter believes that the February 2006 interim final 
rule with comment period should require that ``when a payer other than 
Medicare is determined to be the primary payer, the payer should be 
required to pay at least the Medicare payment amount for the service.'' 
The commenter also believes that CMS should address ``the undue 
administrative burden'' created when a payer is determined to be 
primary and makes payment to a physician at a rate that is different 
than the Medicare amount that has already been paid to the physician.
    Response: This comment is outside of the scope of the February 2006 
interim final rule. However, we note that the MSP statute prohibits a 
group health plan from ``taking Medicare entitlement into account'' 
when Medicare is the secondary payer. The group health plan must make 
the same primary payment it makes for non-Medicare entitled 
individuals. We recognize the commenter's concerns. Providers, 
physicians, and other suppliers are required by the MSP statute at 42 
U.S.C. 1395 y(6)(b) to identify payers primary to Medicare and to bill 
them before billing Medicare. Regulations at Sec.  411.24(h) require 
entities that receive duplicate primary payment to reimburse Medicare 
within 60 days. It is reasonable to expect providers, physicians, and 
other suppliers to reconcile payments received for services to Medicare 
beneficiaries and to comply with these requirements.

B. Definitions

    In the February 2006 interim final rule, to conform to the 
statutory language under the MMA, we removed the definitions for 
``third party payer'' and ``third party payment'' and replaced them 
with ``primary payer'' and ``primary payment.'' We also added a new 
definition for ``primary plan.''
    Comment: A commenter believes that the definition of ``third party 
payer'' and ``third party payment'' in the previous version of the 
regulation excluded the application of the MSP provisions to 
individuals if they are Medicare beneficiaries; are engaged in a 
business, trade, or profession; and are self-insured for purposes of 
liability insurance.
    Response: The MMA clarifies that all entities (including sole 
proprietorships

[[Page 9682]]

and partnerships) that engage in a business, trade, or profession are 
deemed to be self-insured to the extent that they do not purchase 
liability insurance. This does not constitute a change in the way we 
have administered the MSP provisions.
    In the February 2006 interim final rule, to implement the statutory 
amendment to section 1862(b)(2)(A) of the Act, we added language to the 
current definition of ``self-insured plan'' to read as follows: ``Self-
insured plan means a plan under which an individual, or a private or 
governmental entity, carries its own risk instead of taking out 
insurance with a carrier. This term includes a plan of an individual or 
other entity engaged in a business, trade, or profession, a plan of a 
non-profit organization such as a social, fraternal, labor, 
educational, religious, or professional organization, and the plan 
established by the Federal government to pay liability claims under the 
Federal Tort Claims Act. An entity that engages in a business, trade, 
or profession is deemed to have a self-insured plan for purposes of 
liability insurance if it carries its own risk (whether by a failure to 
obtain insurance, or otherwise) in whole or in part.''
    Comment: A commenter questioned whether any individual engaged in a 
business trade or profession may be personally liable to the extent a 
claim is asserted against the individual and the claim is satisfied 
through a settlement, judgment, or award from the personal assets of 
the individual or otherwise.
    Response: The commenter is correct that an individual who is 
engaged in a business, trade, or profession is deemed to be self-
insured for purposes of the MSP liability provisions to the extent that 
he or she does not purchase liability insurance. An individual not 
engaged in a business, trade, or profession is not deemed to be self-
insured.
    Comment: A commenter expressed concern that the definition of self-
insured plan would not only include a legally separate business entity 
owned by a Medicare beneficiary, but it would encompass business 
entities such as a sole proprietorship and partnership, through which 
the beneficiary retains personal legal liability and where the 
beneficiary is either uninsured or under-insured. The commenter also 
stated that the Medicare beneficiary's business could be construed as 
having a self-insured plan obligated to repay benefits, but the 
beneficiary would still be personally liable, in effect.
    Response: The commenter is correct that an individual engaged in a 
business, trade, or profession is personally liable in a liability 
insurance situation to the extent that he or she does not purchase 
liability insurance.

B. Reimbursement Obligations of Primary Payers and Entities That 
Received Payment From Primary Payers

    In the February 2006 interim final rule, to implement one of the 
statutory amendments to section 1862(b)(2)(B) of the Act, we added a 
new Sec.  411.22 to state that a primary payer, and an entity that 
receives payment from a primary payer, must reimburse us for any 
payment if it is demonstrated that the primary payer has or had 
responsibility to make payment. A primary plan's responsibility for 
payment may be demonstrated by a judgment; a payment conditioned upon 
the recipient's compromise, waiver, or release (whether or not there is 
a determination or admission of liability) of payment for items or 
services included in a claim against the primary payer or the primary 
payer's insured; or by other means, including but not limited to a 
settlement, award, or contractual obligation.
    Comment: A commenter stated that Sec.  411.22 should clarify that 
``if a judgment or other legal proceeding determines that a payer 
(other than Medicare) is the primary payer, and the payer mistakenly 
reimburses the physician rather than Medicare (which has already 
provided reimbursement to the physician for the service), then it is 
the payer and/or Medicare's responsibility to notify the physician.'' 
The same commenter is concerned that the ``double damage'' language of 
Sec.  411.24(c)(2) can be interpreted to apply to physicians.
    Response: We disagree. It is reasonable to expect providers, 
physicians, and other suppliers to realize that they have received 
duplicate primary payments and to reimburse Medicare as required by 
Sec.  411.24(h). Section 411.24(c)(2) specifically says we may ``* * * 
recover from the primary payer * * *'' As defined in Sec.  411.21, a 
``primary payer'' is ``* * * any entity that is or was required or 
responsible to make payment with respect to an item or service (or any 
portion thereof) under a primary plan. These entities include, but are 
not limited to, insurers or self-insurers, third party administrators, 
and all employers that sponsor or contribute to group health plans or 
large group plans.'' ``Physicians'' in their capacity as ``physicians'' 
clearly do not fall within the definition of ``primary payer.'' 
However, a physician as an employer which sponsors or contributes to a 
group health plan, including a self-insured group health plan, may be a 
``primary payer.''
    Comment: A commenter believes that Sec.  411.22 could be 
interpreted to allow Medicare to seek reimbursement from the provider 
first, before going to the primary payer. The commenter suggested that 
CMS further clarify Sec.  411.22 by including language stating that 
Medicare will pursue reimbursement from the primary payer first; and 
that Medicare will not seek payment from providers that have not been 
paid by the primary payer for the claim in question.
    Response: Section 1862(b)(2)(B)(iii) of the Act gives Medicare the 
authority to recover from the party responsible for making primary 
payment; any entity that has received a primary payment from Medicare 
and a primary plan; and from providers, physicians, and other suppliers 
who fail to file a proper claim. Accordingly, it would be inappropriate 
to limit Medicare's recovery options.
    Comment: A commenter stated that Sec.  411.22 suggests that CMS 
anticipates that primary payers will reimburse Medicare immediately and 
directly upon a ``demonstration'' that a given payer has or had primary 
payment responsibility, thereby relieving CMS and its contractors of 
the requirement to issue a demand letter. The commenter asked for 
direction as to whom and in what form the reimbursement is to be made 
and, as well, the nature of the supporting information to be provided. 
The commenter also requested clarification as to whether entities that 
receive ``payment from a primary payer'' are required to notify 
Medicare of mistaken or conditional payments. Specifically, the 
commenter asked whether the notice requirements in Sec.  411.25 (which 
states that if a primary payer learns that CMS has made a Medicare 
primary payment for services for which the primary payer has made or 
should have made primary payment, it must give notice to that effect to 
the Medicare intermediary or carrier that paid the claim) extend to 
both primary payers and entities that receive ``payment from a primary 
payer.''
    Response: We have modified Sec.  411.22 and Sec.  411.25 to address 
this comment in part. In addition, we will provide notice as to where 
and in what format the repayment should be made. Section 411.25 applies 
only to primary payers.
    Comment: A commenter is questioned how a ``contractual obligation'' 
can of itself ``demonstrate'' an obligation to make a primary payment 
for a particular claim because a contractual obligation is a generic 
statement of responsibility applicable to all claims. The commenter 
believes the contract itself cannot

[[Page 9683]]

``demonstrate'' that a particular claim meets its criteria for 
responsibility to make payment. The commenter stated that some other 
step must be taken to apply the contract terms to the facts and 
circumstances of a particular case, for example, analysis and 
conclusions evidenced by judgments, formal written settlements, awards, 
etc. The commenter noted that in the group health plan context, issues 
of primary responsibility to pay are usually not resolved by judgments, 
settlements, or awards, etc. The commenter requested clarification 
regarding how ``responsibility for payment'' would be demonstrated in 
these circumstances.
    Response: A contract can establish that a primary plan is obligated 
to make primary payment for designated covered items and services under 
the plan. A primary payer has the obligation upon learning that 
Medicare has paid for certain items and services provided to an 
individual for which it has primary payment responsibility to determine 
if it is the proper primary payer for those items and services. This 
determination constitutes a demonstration of primary payment 
responsibility for those items and services and the consequential 
obligation to repay Medicare.
    Comment: A commenter stated that, in the context of Sec.  411.25, 
CMS has consistently taken the position that ``learns'' means ``is, or 
should be, aware.'' The commenter would like CMS to clarify whether the 
obligation to reimburse CMS arises only when responsibility to pay is 
``demonstrated'' in accordance with the terms of Sec.  411.22 or 
whether it also arises when the primary payer ``learns'' of the 
existence of a conditional payment under Sec.  411.25. The commenter 
requested that CMS clarify whether the notice requirements of Sec.  
411.25 and the reimbursement requirements of Sec.  411.22 must be 
satisfied at the same time or whether they are separate obligations 
that must be satisfied separately.
    Response: Section 1862(b)(2)(B)(ii) of the Act specifically states 
that the obligation to repay Medicare arises when primary payment 
responsibility is demonstrated. Thus, the primary payer is obligated to 
repay Medicare whenever it learns in any manner or form that it has 
primary payment responsibility. We have modified Sec.  411.22 and Sec.  
411.25 to address this comment.

C. Conditional Payments and Mental Incapacity

    In the February 2006 interim final rule with comment period, we 
added language to Sec.  411.45, Sec.  411.52, and Sec.  411.53 to 
specify that any conditional payment that Medicare makes is based upon 
the recovery rules under subpart B of part 411.
    Comment: A commenter expressed concern with the inconsistency in 
the language used when we state that conditional payment may be made 
where a beneficiary ``because of physical or mental capacity failed to 
file a proper claim'' (Sec.  411.45) or ``because of physical or mental 
incapacity failed to meet a claim-filing requirement (Sec.  411.53). 
The commenter suggested that CMS use either the term ``capacity'' or 
``incapacity'' for consistency of application and evidentiary 
requirements. The commenter also suggested that CMS define what a 
beneficiary must do to establish ``capacity'' or ``incapacity.''
    Response: We agree and will use the term ``incapacity.'' However, 
we do not believe it is necessary to define what a beneficiary must do 
to establish ``incapacity.'' ``Incapacity'' is determined on a case-
specific basis. A provider, physician, or other supplier is responsible 
for demonstrating on a claim-specific basis that the beneficiary was 
physically or mentally incapable of providing the information necessary 
for the provider, physician, or other supplier to submit a proper 
claim.

IV. Provisions of the Final Regulations

    For the most part, this final rule incorporates the provisions of 
the February 2006 interim final rule with comment period. Those 
provisions of this final rule that differ from the February 2006 
interim final rule are as follows:
     Section 411.22 and Sec.  411.25 have been amended to 
further clarify the reimbursement obligations and notice requirements 
of primary payers.
     Section 411.45 has been amended to replace the word 
``capacity'' with ``incapacity'' so that there is consistency between 
the language used in Sec.  411.45 and Sec.  411.53.

V. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 30-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    Therefore, we are soliciting public comment on each of these issues 
for the following sections of this document that contain information 
collection requirements. Section 411.25 primary payer's notice of 
primary payment responsibility.
    Section 411.25(a) requires a primary payer to provide information 
about primary payment responsibility and the information about Medicare 
Secondary Payer situation to the entity or entities designated by CMS 
to receive the information. Primary payers must provide this 
information upon demonstration that CMS made a Medicare primary payment 
for services for which the primary payer has made or should have made 
primary payment. As stated earlier in the preamble of this document, a 
demonstration of the primary payers responsibility includes a judgment, 
a payment conditioned upon the recipients compromise, waiver, or 
release (whether or not there is a determination of admission or 
liability of payment for items or services included in a claim against 
the primary plan or the primary plan's insured, or by other means).
    Section 411.25(c) states that the primary payer must provide 
additional information to the designated entity or entities as needed. 
The information may be required for the entity or entities to update 
CMS' system of records.
    The burden associated with the requirements in Sec.  411.25 is the 
time and effort associated with a primary payer gathering and providing 
of information about primary payer responsibilities, Medicare secondary 
payer situations, and additional information used to update the CMS' 
system of records. While these requirements are subject to the PRA, the 
associated burden is approved under OMB control number 0938-0214, with 
an expiration date of May 31, 2009.
    As required by section 3504(h) of the Paperwork Reduction Act of 
1995, we have submitted a copy of this document to the Office of 
Management and Budget (OMB) for its review of these information 
collection requirements.

VI. Regulatory Impact Statement

    We have examined the impacts of this final rule as required by 
Executive Order 12866 (September 1993, Regulatory Planning and Review), 
the

[[Page 9684]]

Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), 
section 1102(b) of the Social Security Act, the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.
    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). A regulatory impact 
analysis (RIA) must be prepared for major rules with economically 
significant effects ($100 million or more in any 1 year). We have 
determined that the effect of this final rule on the economy and the 
Medicare program is not economically significant, since it merely 
clarifies certain MSP provisions to reflect original congressional 
intent and ratifies the manner in which we have implemented/
administered the MSP provisions. If the technical and clarifying 
amendments had not been enacted, ``savings'' reflected in the table 
below would have been lost and Medicare expenditures would have 
increased. The table reflects the potential impact of a Fifth Circuit 
Court decision that held that the MSP liability provision did not apply 
when there was no liability insurance purchased or no formal plan of 
self-insurance recognized under the Internal Revenue Code. This placed 
a small portion of future MSP liability savings at risk. It was assumed 
that over time, some U.S. Circuit Courts could have reached a similar 
conclusion so that the potential losses of future MSP liability savings 
would increase slowly over time in addition to the projected growth of 
Medicare benefits. It was further assumed that some individuals who 
repaid Medicare before 2003 would sue for refunds and that favorable 
decisions would be rendered in some, but not all, cases. It was also 
assumed that the refunds of past MSP liability savings would peak about 
2007. Lastly, it was assumed that MSP liability collections represent 
approximately 70 percent Part A claims payments and 30 percent Part B 
claims payments (which are based on historic MSP liability savings).

                        Medicare Savings Retained
                  [Rounded to the nearest $10 million]
------------------------------------------------------------------------
                  Part A                     Part B     Total     Year
------------------------------------------------------------------------
2003......................................        $0        $0        $0
2004......................................        10         0        10
2005......................................        10         0        10
2006......................................        10         0        10
2007......................................        20         0        20
2008......................................        10         0        10
2009......................................        20         0        20
2010......................................        20        10        30
2011......................................        20        10        30
2012......................................        20        10        30
2013......................................        20        10        30
2014......................................        20        10        30
2015......................................        20        10        30
------------------------------------------------------------------------

    Therefore, this final rule is not a major rule as defined in Title 
5, United States Code, section 804(2) and is not an economically 
significant rule under Executive Order 12866.
    The RFA requires agencies to analyze options for regulatory relief 
of small entities. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and small governmental 
jurisdictions. Most hospitals and most other providers and suppliers 
are small entities, either by nonprofit status or by having revenues of 
$6 million to $29 million in any 1 year. Individuals and States are not 
included in the definition of a small entity. We have determined and we 
certify that this final rule will not have a significant economic 
impact on a substantial number of small entities because there is and 
will be no change in the administration of the MSP provisions. 
Therefore, we are not preparing an analysis for the RFA.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule or notice having the effect of a 
rule may have a significant impact on the operations of a substantial 
number of small rural hospitals. This analysis must conform to the 
provisions of section 604 of the RFA. For purposes of section 1102(b) 
of the Act, we define a small rural hospital as a hospital that is 
located outside of a Core-Based Statistical Area and has fewer than 100 
beds. We have determined that this final rule will not have a 
significant effect on the operations of a substantial number of small 
rural hospitals because there is and will be no change in the 
administration of the MSP provisions. Therefore, we are not preparing 
an analysis for section 1102(b) of the Act.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule or notice having the effect of a rule whose mandates 
require spending in any 1 year of $100 million in 1995 dollars, updated 
annually for inflation. That threshold level is currently approximately 
$120 million. This final rule has no consequential effect on State, 
local, or tribal governments or on the private sector because there is 
and will be no change in the administration of the MSP provisions.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. Since this final rule does not impose any costs on State 
or local governments, the requirements of E.O. 13132 are not 
applicable.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects

42 CFR Part 411

    Kidney diseases, Medicare, Reporting and recordkeeping 
requirements.

42 CFR Part 489

    Health facilities, Medicare, Reporting and recordkeeping 
requirements.

0
Accordingly, the interim final rule amending 42 CFR Chapter IV, which 
was published on February 2006 (71 FR 9466), is adopted as a final rule 
with the following changes:

PART 411--EXCLUSIONS FROM MEDICARE AND LIMITATIONS ON MEDICARE 
PAYMENT

0
1. The authority citation for part 411 continues to read as follows:

    Authority: Sections 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).


0
2. Section 411.22 is amended by adding a paragraph (c) as follows:


Sec.  411.22  Reimbursement obligations of primary payers and entities 
that received payment from primary payers.

* * * * *
    (c) The primary payer must make payment to either of the following:
    (1) To the entity designated to receive repayments if the 
demonstration of primary payer responsibilities is other than receipt 
of a recovery demand letter from CMS or designated contractor.
    (2) As directed in a recovery demand letter.

0
3. Section 411.25 is amended by--
    A. Revising the section heading.
0
B. Revising paragraphs (a) and (c).
    The revisions read as follows:

[[Page 9685]]

Sec.  411.25  Primary payer's notice of primary payment responsibility.

    (a) If it is demonstrated to a primary payer that CMS has made a 
Medicare primary payment for services for which the primary payer has 
made or should have made primary payment, it must provide notice about 
primary payment responsibility and information about the underlying MSP 
situation to the entity or entities designated by CMS to receive and 
process that information.
* * * * *
    (c) The primary payer must provide additional information to the 
designated entity or entities as the designated entity or entities may 
require this information to update CMS' system of records.


Sec.  411.45  [Amended]

0
4. Section 411.45(a)(2) is amended by removing the word ``capacity'' 
and adding the word ``incapacity'' in its place.

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: September 4, 2007.
Herb B. Kuhn,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: October 19, 2007.
Michael O. Leavitt,
Secretary.

    Editorial Note: This document was received at the Office of the 
Federal Register on February 12, 2008.

[FR Doc. E8-2938 Filed 2-21-08; 8:45 am]
BILLING CODE 4120-01-P