Understanding the Differences Between Medicare’s “No Legal Obligation to Pay” Rule and the Secondary Payer Rule

The Medicare Secondary Payer rule (“MSP”) amended the Social Security Act (Section 1862(b)) to define circumstances when Medicare has an obligation to pay only after a primary payer has paid, or can reasonably be expected to pay for a billable item or service. The intention was to shift costs from government-payer coverage to private, third-party insurance, if an individual has dual coverage. MSP outlines how these dual benefits are coordinated, but how is this applied in the context of clinical research?

MSP comes into play in the “subject injury” provision, located in the body of the clinical trial contract, as well as the informed consent document. Sponsors often incorporate language indicating that a patient’s insurance will be billed first for medical treatment in the event of a study-related injury. However, this can cause MSP non-compliance if a patient is only covered by Medicare and there is no third-party, private insurance to bill first. Medicare cannot be billed first, and this language would obligate the research institution to do so. To circumvent this, sponsors will often try to carve-out “government payers” from this language, as there are no laws prohibiting institutions from billing private insurance first. While this would ensure that government payers aren’t being billed first, and therefore would be compliant with MSP, this raises another concern: the sponsor would then be treating patients without insurance, and those with government-payer coverage, like Medicare, better than those with private insurance. 

This is because a patient with his/her own insurance would be on the hook for paying their private policy’s deductibles, coinsurance and copays, while a patient with Medicare or without insurance would have their treatment paid for by the sponsor without any out-of-pocket costs to them. So, a patient with their own private insurance policy would be penalized in the sense that they may incur more out-of-pocket costs than a patient without coverage (or with government payer coverage).

Therefore, the best practice to avoid non-compliance with MSP and to ensure that all patients are treated equally in the case of a research-related injury is to strike any language within the contract and consent documents indicating anything other than the sponsor paying for all costs for the treatment of research-related injuries, for every patient, regardless of insured status.

Sometimes, sponsors also include similar language in the budget that states they will only pay for a specific budget item if it is denied by insurance. While this appears to be a violation of the MSP rules discussed above, this type of language in the budget technically relates to a different policy discussed in NCD 310.1, since MSP only applies to subject injury in the context of a clinical trial.

NCD 310.1, Medicare’s Clinical Trial Policy, states that they will not cover “items and services customarily provided by the research sponsors free-of-charge for any enrollee in the trial.” This coverage policy stems from Medicare’s No Legal Obligation to Pay Rules found in Medicare Benefit Policy Manual Chapter 16.

In the context of a clinical trial, this means that if a clinical trial sponsor covers the cost of a denied item for one patient, then Medicare does not have to cover that same item for any of their patients. In order to avoid potential compliance issues with these rules, it is a best practice to remove language from the budget or payment terms that state the sponsor will cover items denied by insurance. If an insurance company denies coverage for a protocol required item, the normal denials process should be followed.

Interested in more resources from PFS Clinical? Visit our resources page here, or check out our blog page for more info.