CLINICAL TRIAL SPONSORS PAYING MEDICAL EXPENSES FOR SUBJECT INJURIES OTHERWISE PAYABLE BY MEDICARE MUST REPORT TO CMS

The Centers for Medicare and Medicaid Services (“CMS”) recently published an alert entitled “Clinical Trials & Liability Insurance (Including Self-Insurance), No-Fault Insurance and Workers’ Compensation.” The alert stated, among other things, that when “payments are made by sponsors of clinical trials for complications or injuries arising out of the trials, such payments are considered to be payments by liability insurance (including self-insurance).” As a result, clinical trial sponsors who compensate any party for medical expenses relating to complications or injuries arising out of the trial are now considered a “plan or policy of insurance” and subject to the reporting requirements under Section 111. Therefore, when making a payment for a complication or injury, sponsors must:

• determine whether a claimant is a Medicare beneficiary, and
• if the claimant is determined to be a Medicare beneficiary, submit to CMS information regarding such claimant's identity and other required information.

Sponsors must also report the date that any injury or complication first arose as the “Date of Incident” and list themselves as the primary party responsible for payment of any medical expenses related to the complications or injuries that arose from the clinical trials.

Sponsors that make such payments and do not report will be subject to a civil money penalty of $1,000 for each day of non-compliance for each claimant.  They may also face potential exposure under the Federal False Claims Act for "causing" the submission of an improper claim by the investigators or clinical trial sites.

Background

Under the Medicare Secondary Payer (“MSP”) Act, Medicare is prohibited from paying for medical expenses where “payment has been made or can reasonably be expected to be made” under a liability insurance or workers’ compensation policy or plan.  The entity that makes or can be expected to make such payment has an “Ongoing Responsibility for Medicals” and Medicare will not pay any such medical expenses.

In an April 13, 2004 letter from the Office of Financial Management of CMS, the Director of the Financial Services Group concluded that when a trial sponsor promises to pay for research-related injuries, the MSP rules render Medicare benefits secondary to benefits payable by the sponsor. As a result, the sponsor agreement constitutes a “plan or policy of insurance under which payment can reasonably be expected to be made” in the event of an injury.  The essence of the MSP rules is that Medicare will be responsible for medical expenses only to the extent certain other payors are not responsible.  The MSP rules preclude payment by Medicare when “payment has been made or can reasonably be expected to be made under a liability insurance policy or plan (including a self-insured plan).”

When Does a Clinical Trial Sponsor’s Obligation to Report Become Effective?

The CMS alert and most recent Section 111 User Guide make it clear that CMS considers payments made pursuant to clinical trial agreements to be payments by liability insurance and, as a result, subject to CMS’ new mandatory reporting requirements.  CMS did not provide further explanation for its position, but this policy clarifies that it is the actual payment—and not the agreement to pay for such medical expenses—that gives rise to clinical trial sponsors’ Section 111 MSP mandatory reporting obligations.  Therefore, if clinical trial sponsors agree to pay for medical expenses that are not otherwise covered and such payments relate to injuries or complications arising from the clinical trials, the sponsors must comply with the new reporting obligations under Section 111 if any payments are made according to that agreement.

What this Means for Clinical Trial Sponsors

While many questions remain about this policy and its implementation, sponsors should be aware that promises to pay for medical expenses arising out of subject injuries or complications cannot be premised on Medicare paying first.  These promises may also lead to substantial regulatory compliance issues if payments are made.

Contact Us

For further discussion of these developments and other matters related to the medical technology industry, clients may contact a member of Oppenheimer's Medical Technology Team.

This alert is a copyrighted publication produced by Oppenheimer Wolff & Donnelly LLP. The information contained in this alert is of a general nature and is subject to change. Readers should not act without further inquiry and/or consultation with legal counsel.