Point A: Settlement is on the horizon

The need to protect Medicare’s future exposure in a liability setting has been the subject of on‐going controversy for years. In some cases these discussions can slow the settlement process to a grinding halt. Furthermore, there is ongoing debate as to whether a Medicare Set‐Aside (MSA) is the required method to protect Medicare’s future exposure. These issues must be examined from three viewpoints: plaintiff, defendant/carrier and Medicare. The following gives us insight into Medicare’s position and how the plaintiff attorney can navigate the sometimes bumpy road.

CMS’ position that Medicare’s future interest must be protected in a liability settlement is based upon language in the MSP statute that has been in effect since 1980. The MSP statute at 42 U.S.C. §1395y(b)(2)(A) states:

Payment under this subchapter may not be made…with respect to any item or service to the extent that…

(ii) payment has been made, or can reasonably be expected to be made under a workmen’s compensation law or plan of the United States or a State or under an automobile or liability insurance policy or plan (including a self‐insured plan) or under no fault insurance. (emphasis added)

There are a few additional points to consider. Regulation 42 C.F.R. §411.46 states that Medicare must be considered in any Workers’ Compensation (WC) settlement when the client might rely on Medicare to cover any future medical costs related to the covered work injury. The regulation does not mention liability settlements. There is not a CFR that states when Medicare’s future exposure must be protected in a Liability claim. Furthermore there is not a statute that mandates Medicare Set‐ Asides. An MSA is Medicare’s preferred method of a having their future interest protected in Workers’ Compensation cases.

Point B: Navigating the path

We have some guidance through this ever‐changing journey in the settlement process. CMS has published memorandum in Workers’ Compensation cases.

Since 2001 CMS has published and continues to publish memorandum on how to best protect their future interest in WC settlements: however, there are no similar memorandum for liability claims. In WC, a Medicare Set‐Aside is clearly Medicare’s preferred method to protect the agency’s future exposure. A CMS memo dated April 22, 2003 states the following:

A workers’ compensation Medicare set‐aside needs to be considered in a settlement or award, and submitted to CMS for their review and approval when resolution of the dispute includes a commutation aspect where the primary payer is seeking to close out future medical benefits, and 1) the injured individual is currently a Medicare beneficiary and the case settles for more than $25,000.00, or 2) the injured individual is “reasonably expected” to be a Medicare recipient within 30 months of the date of settlement and the anticipated total settlement amount for future medical expenses and disability/lost wages over the life or duration of the settlement agreement is greater than $250,000. Reasonable expectation means that the individual: 1) has applied for SSDI or has been denied SSDI benefits and anticipates or is in the process of appealing or reapplying for benefits, 2) is 62.5 years old, or 3) has kidney failure but has not yet qualified for Medicare. Calculation of the total settlement amount will include, but is not limited to, wages, attorney fees, all future medical expenses, repayment of any Medicare conditional payments, and any previously settled portion of a claim.

Although CMS does not state it, the above guidelines have been generally accepted as an industry standard as to when Medicare’s future exposure must be considered in a WC claim.

The CMS does not have published guidelines on how to protect Medicare future exposure in liability claims as they do for WC cases. Each of the 10 CMS Regional Coordinators who have juridiction over these matters may determine their own policy on how Medicare’s future exposure must be treated. Regional Coordinators will tell us that Medicare’s future exposure must be protected. The Region 6 Coordinator (AR, LA, OK, NM, TX), Sally Stalcup, states the following for liability claims:

Medicare’s interest must be protected; however CMS does not designate a specific mechanism to protect those interests. The law does not require a “set aside” in any situation. The law requires that the Medicare Trust Fund be protected from payment for future services whether it is a Workers’ Compensation or liability case. There is no distinction in the law.

She goes on to say:

There is no formal CMS review process in the liability arena as there is for Workers’ Compensation. However, CMS does expect the funds to be exhausted on otherwise Medicare covered and otherwise reimbursable services related to what was claimed and/or released before Medicare is ever billed. CMS review is decided on a case by case basis.

The Region 9 Coordinator, Tom Bosserman, (AZ, CA, HI, NV, GU, MP, AS, FM, MH, PW) agrees that Medicare future exposure must be protected but has a differing view on CMS review:

The Centers for Medicare & Medicaid Services (CMS) has no current plans for a formal process for reviewing and approving Liability Medicare Set‐aside Arrangements. However, even though no formal process exists, there is an obligation to inform CMS when future medicals were a consideration in reaching the Liability settlement, judgment, or award as well as any instances

where a Liability settlement, judgment, or award specifically provides for medicals in general or future medicals.

It appears that in spite of the fact that there is no CFR that defines when to protect Medicare’s future exposure in liability as it does in WC, Medicare’s position is that their interest must be considered. What can a plaintiff attorney do?

Point C: The fork in the road

As a plaintiff attorney the above leaves you with a few options that include the following. First, you can tell the defense that because there is no CFR in liability like there is in WC you are not required to protect Medicare’s future exposure. You may, or may not, have an arguable position. The defense will either agree or tell you that they will not fund unless Medicare’s future exposure has been considered. They may also tell you that you will need to fully indemnify the defendant and carrier. There are eleven states where indemnification can be considered unethical.

Point D: The light at the end of the tunnel

If you decide to “consider” Medicare’s exposure then you should first determine if the client is still treating, including taking prescription medications for the related injuries. If the client is not treating then Medicare has no future exposure. You may want to document that fact in your files or the settlement agreement. If the client is treating then you can move forward and determine what Medicare’s future exposure is through an MSA allocation, re‐pricing the life care plan to only include Medicare’s future related exposure, or negotiate or stipulate future medicals with the defense. The CMS Regional Coordinator from Region 6 has a definite opinion on the last approach, stating:

The fact that a settlement/judgment/award does not specify payment for future medical services does not mean that they are not funded. The fact that the agreement designates the entire amount for pain and suffering does not mean that future medicals are not funded. The only situation in which Medicare recognizes allocations of liability payments to nonmedical losses is when payment is based on a court of competent jurisdiction’s order after their review of the merits of the case. A review of the merits of the case is a review of the facts of the case to determine whether there are future medicals – not to determine the proper allocation of funds. If the court of competent jurisdiction has reviewed the facts of the case and determined that there are no future medical services, Medicare will accept the Court’s designation.

While it is Medicare’s position that counsel should know whether or not their recovery provides for future medicals, simply recovers policy limits, etc., we are frequently asked how one would ‘know’. Consider the following examples as a guide for determining whether or not settlement funds must be used to protect Medicare’s interest on any Medicare covered otherwise reimbursable, case related, future medical services. Does the case involve a catastrophic injury

or illness? Is there a Life Care Plan or similar document? Does the case involve any aspect of Workers’ Compensation? This list is by no means all inclusive.

We use the phrase “case related” because we consider more than just services related to the actual injury/illness which is the basis of the case. Because the law precludes Medicare payment for services to the extent that payment has been made or can reasonably be expected to be made promptly under liability insurance, Medicare’s right of recovery, and the prohibition from billing Medicare for future services, extends to all those services related to what was claimed and/or released in the settlement, judgment , or award. Medicare’s payment for those same past services is recoverable and payment for those future services is precluded by Section 1862(b)(2)(A)(ii) of the Social Security Act.

“Otherwise covered” means that the funds must be used to pay for only those services Medicare would cover so there is a savings to the Medicare trust funds. For example, Medicare does not pay for bathroom grab bars, handicapped vans, garage door openers, or spas so use of the funds for those items is inappropriate. We include the designation of “otherwise reimbursable” because Medicare does not pay for services that are not medically necessary even if the specific service is designated as a covered service and Medicare does not pay primary when Group Health Plan insurance has been determined to be the primary payer.

Point E: The Finish Line

When considering Medicare future exposure you may also consider some methods for reducing Medicare’s future exposure for legal reasons such as offsetting for fees and expenses, apportionment, etc.

In Hinsinger v Showboat Atlantic, 2011 N.J. Super.LEXIS 96, the Superior Court of New Jersey opines that claimants can reduce their liability MSA for attorney fees and expenses. In May 2008, Hinsinger was declared fully disabled by the Social Security Administration and started receiving Medicare in November 2009. The parties settled the matter for $600,000 in August 2010. In this case the plaintiff attorney petitioned the court to withdraw his fees from the Medicare Set Aside account. The MSA was calculated to be $180,600. Procurement costs totaled 32.77% of the gross settlement. The court allowed the MSA to be reduced by $59,196.67 or 32.77% of the MSA.

In its decision the court relied heavily upon 42 C.F.R. §411.37 which states that Medicare is not entitled to recover attorney fees and expenses for a past payment. The court decided that since the regulation falls under Part 411 entitled “EXCLUSIONS FROM MEDICARE AND LIMITATIONS ON MEDICARE PAYMENT,” and Subpart B, which is entitled “INSURANCE COVERAGE THAT LIMITS MEDICARE PAYMENT: GENERAL PROVISIONS”, reducing an MSA funds for future payment would apply.

The court also commented on a 2004 memo from CMS that stated a Workers’ Compensation MSA cannot be reduced by fees and expenses. The court feels like the memo specifically addresses the cost

of establishing the MSA account itself, not funding the MSA. Therefore the attorney cannot reduce the cost of establishing the account (allocation report, submission to CMS, etc.) by fees and expenses, but the MSA itself can be reduced by fees and expenses.

There are no clear rules on when and how to protect Medicare’s future exposure in a liability claim. Charting your own course on a case by case basis is the safest and most efficient path. Liability settlements are quite different from WC settlements. For example, there are policy limits, statutory caps, comparative fault issues and other issues with recovery that prevent a plaintiff from recovering the full value of his or her claim. Additionally, a liability settlement is for various types of damages, including non‐medical damages. How is one to deal with these issues in a liability setting, i.e., limiting Medicare’s future interest to what was actually recovered for future medicals?

Because of the many variables in a liability case versus workers’ compensation, and because CMS has not provided any guidance on how/when to protect Medicare’s future interest in a liability case, we propose the application of a pro‐rata loss sharing method to reduce the MSA allocation when there is not enough money or when the MSA is eating up money intended to compensate the plaintiff for non‐medical injuries.

It was exactly this equitable resolution recognized in Bradley v. Sebelius, 621 F.3d 1330 (11th Cir. 2010) and Arkansas Dept. of Health & Human Services v. Ahlborn, 126 S. Ct. 1752 (2006).

In Bradley v. Sebelius, a policy limits case, the Court held that Medicare was entitled to $787.50, which was only 2% of its claim of $38,875.08, because the $52,000 settlement was 2% of the full value of the case, which was found to be $2,538,875. The $787.50 number represented what was actually recovered for medical expenses.

The U.S. Supreme Court in Ahlborn held that Medicaid’s reimbursement was limited to only 1/6 of the state’s payment for medical bills where the insured collected only 1/6 of her total damages. The Court held that “The statute does not sanction an assignment of rights to payment for anything other than medical expenses—not lost wages, not pain and suffering….”

This type of reduction may look like the following:

MSA Allocation x Plaintiff’s Net Recovery / Total value of Injury, or,

$100,000 x $200,000 / $1,000,000 = $20,000

This figure of $20,000 is the actual amount of future Medicare‐allowable medical expenses that were actually recovered under plaintiff’s settlement.

While it is unknown whether or not CMS would approve of either method of reduction, we feel that these are reasonable methods and absence any guidance from Medicare the burden is on them to prove otherwise. The only guidance we have from CMS is two‐fold: 1) adequately consider Medicare’s future exposure and 2) document your file that you have done so. In essence it is a reasonableness standard. It is highly unlikely Medicare could/would ever argue that either method of reduction is unreasonable

when they have chosen to remain silent after many inquiries on how/when to protect Medicare’s future interest in a liability setting. Since submission to CMS is voluntary in a liability setting, a decision not to submit may be the best one as it keeps the burden on Medicare to later show that what you did was unreasonable.

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