Skip to main content

Payment Demands from Military Hospitals

We hope Plans & TPAs and local military hospitals can use this memo to focus together on facts and come to solutions based on facts and law, not wishful thinking. (It should be noted that the military & CHAMPUS have enjoyed a very cooperative and efficient relationship with private benefit plans in situations in which payments may be due for services. So, the intent of this memo is to continue that excellent professionalism.)

One (and reportedly more) SPBA member TPA has received a letter on local Department of Defense (DOD) stationery on behalf of a Department of the Army medical facility. The letter is a demand for payment, and (based on the wording in the letter) refuses to accept an apparent plan language limitation of payment by a Plan TPA on the basis of the Medicare Secondary Payor (MSP) law.

The DOD letter seems to describe a common scenario and dilemma for government providers of medical care. Since it is important to understand this kind of scenario, let's review it. The MSP law is clear that if a retired age-eligible Medicare recipient also happens to have retiree employment-based health coverage of some sort, MEDICARE is primary payor. Any liability or role for the private retiree plan is not triggered until the maximum allowable payment under Medicare has been considered (as if paid).

The problem arises because of Congress. We don't claim to know all the details of this internal government policy or law, but the key point is that one government agency is not allowed to bill or pay another. So, when a military hospital wants to collect from Medicare, it can not happen because of this internal government law or policy. So, the key fact is that Medicare does not cover items incurred while in a federal or state government facility.

This is when some misinformed creativity arises. Making the misassumption that Medicare and the private retiree plan have the same legal standing as cosignors of a bank loan, the military medical provider sometimes mistakenly expects to receive the full total payment from the private retiree plan. This forgets that the retiree plan is designed and funded with limitations & conditions specifically to ensure that the plan remains viable for all plan participants.

This is NOT like a bank cosignor arrangement in which if the first does not pay, the second is liable for the total amount. Instead, just as government health payment plans such as Medicare & Medicaid have various strict rules about when payment may be made and for what amounts, private employee benefit plans also have such rules. Everyone with discretionary powers over the plan is subject to federal law to follow those prescribed rules precisely. That law is ERISA fiduciary duty. To be too generous is as bad as short-changing, because ERISA demands that that the amount and security of plan assets be protected and only disbursed according to the rules set forth in the plan language.

ERISA fiduciary duty: Private employee benefits (and those who administer them) are governed by a very strict fiduciary duty federal law. Plan assets can only be expended when there is a legitimate purpose (as defined by the plan language and any applicable laws or liability), and only for amounts that would be "prudent" for the service or purpose. So, if a private plan (or its hired TPA) were to follow the idea of paying the government provider primary…even if there were some hope of getting money back from Medicare (far from certain)…the plan and TPA would have broken a serious federal law and trust. So, this is NOT a matter of the plan or TPA being cheapskates or obstructionist. It is federal law that governs every function of the plan (including how much TPAs charge the plan for their own services). So, TPAs are not doing to government medical providers anything that they do not have to apply to themselves and every other function of the plan.

As noted earlier, most types of insurance and coverage by government or private sector have conditions and limitations. Sometimes it is financial, such as deductibles, co-pays, secondary-payor, etc. However, conditions often include things like injuries in the line of work (which would not be paid by the employee benefit plan, but presumably by Workers Compensation) and even limitations such as if the medical condition was acquired while breaking the law (such as a person shot while robbing a bank). Employee benefit plans often have direct or indirect input from the particular group of workers covered, so every plan tends to be unique, and this uniqueness must be considered and those conditions obeyed when envisioning if and how much payment to expect from the plan.

OK, with that scenario and federal legal fiduciary responsibility firmly in mind, let's return to the recent DOD letter. The conundrum caused by Congress would seem to bring this issue to a situation in which the military hospital and the plan would need to agree on what would have been the maximum Medicare payment towards the bill (if there were no retiree coverage). Then, deduct that amount from the bill, and the apply whatever the plan language limitations (conditions, deductibles, etc.) might apply. The result of that multi-step formula is what the private retiree plan would pay. (Example: If the bill is $1,000, and Medicare would have paid $800, and the retiree plan requires a $50 deductible, then the private retiree plan would only owe the military hospital $150. $1,000 - $800 - $50 = $150.)

However, this particular DOD letter invented a view that since the military hospital is not a "Medicare-approved" provider, then (the letter contended) Medicare and the Medicare Secondary Payor law does not exist for military hospitals/clinics….so the private health plan should pay as if Medicare did not exist. This is incorrect.

First of all, the Medicare Secondary Payor law & rules make no mention or reference to if a provider is Medicare-approved. In fact, if a Medicare person were injured someplace and treated by the closest doctor or hospital…who did not happen to be Medicare-approved…Medicare would still honor that claim. So, the DOD letter's "Medicare-approved " argument lacks basis. Medicare officials confirm that the "Medicare-approved" is not a relevant factor in this issue.

Second of all, discussions with the headquarters officials of CHAMPUS (under which these military provider situations would fall) say that the logic expressed by the local DOD letter is wrong, and they plan to examine if further education is needed down their chain of command.

So, in a nutshell, the key facts are:

(1). Whatever limits there are within the government about billing & payment among agencies is an internal government problem and barrier. The law prohibits it. So, if a government provider cannot bill Medicare, that does not pass the buck (excuse the pun) for what Medicare would have paid to the private retiree plan.

(2). The relationship of Medicare and the private retiree plan is NOT like the fall-back go-after-the-cosignor for the total amount status of bank loans. Anyway, private plans have limitations & conditions for what conditions trigger plan assets being allowed to be disbursed, and only "prudent" amounts may be paid. So, even if the military and Medicare can not bill and exchange money, the military biller must take into account (deduct) what Medicare would have paid (if allowed), deductibles and co-pays, plus any conditions or limitations of the plan.

(3). The fact that military hospitals & doctors are not "Medicare approved" is irrelevant to these situations, and does not remove or pre-empt the Medicare Secondary Payor law & roles from the calculation.

(4). ERISA plans, and everyone involved in the decisions & payments is subject to strict federal fiduciary law not to use or risk or over-pay plan assets unless it meets tough evaluation of being "prudent use" and within the various limits and allowances of the plan language and laws. So, this is in no way an issue of "cheapskates" refusing to pay. Just as government programs have eligibility & limit factors that must be met….so do private health plans.

We hope that this explanation can be a worksheet to solve about 90% of the misunderstandings that seem to have arisen recently from military medical providers and private employee benefit plans. Our goal remains to maintain the smooth and cooperative relations that have existed between military medical providers and private health employee benefit plans.