Daniel L. Burkard | Comment
This Comment will review the basics of Protection and Indemnity clubs (P&I clubs) and the Medicare Secondary Payer Act (MSP). More specifically, this Comment will address the question whether P&I clubs are required to report a Medicare set-aside (MSA) to the Centers for Medicare and Medicaid Services (CMS) under the reporting requirements of section 111 of the Medicare, Medicaid, and the State Children’s Health Insurance Program (SCHIP) Extension Act of 2007 (MMSEA) in cases of liability settlements. MMSEA created a duty for specific parties to notify the CMS of a settlement that concerns the interests of Medicare. Failure to comply with this statute results in a fine of $1000 per day. Many P&I clubs alerted their members to the new obligations and disclaimed any reporting responsibility of their own. At first glance, the P&I clubs’ approach would seem to be at odds with the statute, the plain language of which clearly requires all insurers to be responsible reporting entities (RREs).
However, in reviewing the history and policies of P&I clubs, one quickly realizes there are significant differences between traditional insurers and P&I clubs. These differences range from the structure of the entities to the types of coverage each entity guarantees. Arguably the most significant difference between the two institutions is the policy of “pay to be paid,” which establishes the indemnity aspect of P&I clubs. The pay-to-be-paid rule, along with a few other characteristics of P&I clubs, collectively represent a compelling argument for affirming the clubs’ stance with regard to the MMSEA’s reporting requirement. The indemnity practice of P&I clubs similarly plays a determinative role in the analogous situation of direct action statutes. With direct action statutes, courts have generally recognized a difference between maritime indemnity coverage (operating under the pay-to-be-paid rule) and a traditional liability insurance policy. This difference represents the strongest argument for why the liability and the duty to report settlements rest firmly on the club members’ shoulders.
The plain language of the statute offers another argument why P&I clubs should not be responsible reporting entities. The text of the statute names three specific types of entities required to report, none of which precisely encompass P&I clubs. The CMS, the agency governing Medicare, has released a number of guidance documents that purport to better define these three types of entities. This guidance provides further justification for the stance that P&I clubs are not RREs. Moreover, both the text of the guidance and of the statute directly place the obligation of reporting on the club members.
Although the statutory language and case law regarding the pay-to-be-paid rule seem to support the P&I clubs’ stance, there remains a strong group of policy-related arguments that P&I clubs should be RREs. First, the P&I clubs, having a large amount of resources at their disposal, are the best equipped party to handle the reporting responsibility. Second, notions of fair play suggest that, practically speaking, modern P&I clubs operate much like insurance companies and as such should be subject to the same requirements as insurance companies. Third, the purpose of the MSP was for the government to cease payment of Medicare funds to injured individuals who have already been compensated. Although these policy arguments are sound, the statutory construction and case law regarding the pay-to-be-paid rule should trump policy because the goals of the statute can be met without labeling P&I clubs as RREs. Further, the power of P&I club rules in creating contractual obligations on its members must be respected. Otherwise, the club rules would no longer provide predictable outcomes in litigation. It is this predictability that ultimately establishes the club’s dues and operation budget.