Medicare Set-Asides

B. Josh Pettingill, MBA, MS, MSCC

1.  Addressing Medicare’s past interests (resolving conditional payments) is an issue for everyone involved in the lawsuit/settlement process. Don’t forget to get the final demand letter from MSPRC before you disperse funds to your client.

2.  The Medicare future interest issue is a plaintiff issue, not a defense issue. Don’t let the other side convince you otherwise. Take control of the MSP process early on in the negotiations.

3.  A Medicare Set Aside (“MSA”) is not required by any law but it is Medicare’s preferred method  to protect their “future” interests and comply with the Medicare Secondary Payer Act.

4.  The CMS Submission and review process for liability MSAs is completely voluntary, so don’t agree to it as part of the settlement. You do not want to be stuck waiting for months to hear back from them and there is no formal appeal process if Medicare disagrees with the MSA allocation for future medical.

5.  The MSA can be self-administered or professionally administered. Professional administration is the best way to ensure your client is protected.

6.  An MSA can be funded with a lump sum or with an annuity. Annuity funding is cheaper (20-30% discount) than lump sum, which means more cash in your client’s pocket and a happier client.

7.  An MSA utilizes a rated age vs. normal life expectancy for calculating future medicals. Since life expectancy is reduced when a rated age is issued, it means less money has to be set aside because future Medicare covered services is calculated over remaining life expectancy. In turn, this means less money is needed to fund the set aside and more cash is available to your client.

8.  Never put the actual MSA amount in the release. This can potentially limit your client’s ability to deduct medical expenses as an itemized tax deduction.

9.  For “small cases” involving a current Medicare beneficiary, you still need to take into account Medicare’s future interests. There is no “small case” exception or safe harbor.

10.  CMS is going to know about the client’s settlement by way of conditional payment resolution or through the Mandatory Insurer reporting requirement. If your client is a current Medicare beneficiary, they will find out about the settlement

11.  Make sure your file is documented indicating the steps taken to address Medicare’s future interest. If Medicare ever audits your file in the future, you need to show them adequate steps were taken to protect their interests.

12.  There are many CMS Memorandums on WCMSA’s.  There are only 2 of them which pertain to Liability MSAs and only one of those is from CMS headquarters.

13.  The Medicare Secondary Payer Act has been interpreted by CMS as requiring protection of Medicare’s future interests. The MSP is the only law dealing with Medicare as a secondary payer.

14.  “Benoit v. Neustrom” is must read case law on Liability Medicare Set Asides. Click HERE to see our CEO’s blog post on Benoit

15.  Do not agree to overbroad or general language in the release regarding MSAs.

16.  Do not ever make CMS approval of a liability MSA a condition of settlement. Some CMS Regional Offices refuse to review liability Medicare Set Asides.

17.  Do not ever let the defendant put Medicare on the settlement check. You will not be able to cash it and your settlement will be delayed. There is case law to support this position.

18.  The Medicare, Medicaid, SCHIP Extension Act (MMSEA) is simply a reporting requirement for Responsible Reporting Entities settling cases with current Medicare beneficiaries.  It created a means for CMS to track current Medicare beneficiaries and settlements.

19.  If your case is being reported to Medicare, make sure the correct ICD codes are submitted. Otherwise, your client could get treatment cut off that is unrelated to the accident.

20.  A Medicare set aside should only be used to pay for injury related medical expenses ordinarily covered by Medicare.

For all of your MSP compliance and Medicare Set Aside needs, please call us at (877) 242-0022 or visit us at www.synergysettlements.com.

Let Synergy be your knowledgeable and trusted settlement partner giving you peace of mind.   We resolve the most complex settlement related issues for law firms so lawyers can focus on being trial lawyers. Our team of highly skilled professionals includes attorneys, Certified Financial Planners, certified Medicare set aside consultants, subrogation experts, nurse consultants and case managers. We handle the difficult issues such as Medicare Secondary Payer compliance, structured settlements, public benefit preservation, lien resolution and complex settlement planning questions allowing you to concentrate on what you do best.

By Jason D. Lazarus, J.D., LL.M., MSCC, CSSC

On April 17, 2013, the United States District Court for the Western District of Louisiana rendered an unprecedented decision.  In a case where a limited recovery was achieved due to complicated liability issues with the case, the Court reduced a liability Medicare Set Aside allocation by applying a reduction methodology.  This case validates the argument I have made since the passage of the MMSEA brought liability Medicare Set Asides to the forefront.  Because of the fundamental differences between the Workers’ Compensation system and the liability system, you can’t have MSAs in general liability settlements without apportionment.  The court in Benoit v. Neustrom agreed with me.

Benoit filed suit against the Sheriff of Lafayette Parish (Neustrom) and the Warden of the Lafayette Parish Correction center alleging injuries suffered while incarcerated.  The plaintiff alleged he wa allowed to remain in his jail cell without pre-medical evaluation when he was clearly suffering from the effects of alcohol detoxification.  Benoit was found unresponsive his cell and was transported the hospital where he was diagnosed with a hypoxic brain injury secondary to a seizure, followed by cardiac arrest, secondary to alcohol withdrawal and hypoxic encephalopathy.  The resulting injuries included an anoxic brain injury with bladder incontinence, ansomia, short term memory deficit, tremors and behavioral issues.  After in patient care in a nursing home, Mr. Benoit was released to the care of his wife.  Mr. Benoit had his care paid for partially by Medicare and Medicaid.

In October of 2012, the case was settled conditioned upon a full release by Mr. Benoit and his assumption of sole responsibility for “protecting and satisfying the interests of Medicare and Medicaid.”  To that end, a Medicare Set Aside allocation was prepared by an MSA vendor.  The MSA cost projections gave a range of future Medicare covered injury related care of $277,758 to $333,267.  The gross settlement amount was $100,000.00.  Medicaid agreed to waive its lien.  Medicare asserted a reimbursement right for its conditional payments of $2,777.88.  After payment of fees, costs and the Medicare conditional payment, Mr. Benoit was left with net proceeds of $55,707.98.  Mr. Benoit filed a motion for Declaratory Judgment confirming the terms of the settlement agreement, calculating the future potential medical expenses for treatment of his injuries in compliance with the Medicare Secondary Payor Act and representing to the court that the settlement amount was insufficient to provide a set aside totaling 100% of the MSA.

The matter was set for hearing and Medicare was put on notice of the hearing.  Medicare responded with a written letter asserting its demand for repayment of the conditional payment in the amount of $2,777.88 but didn’t address the set aside.  The Medicaid lien was waived prior to the hearing with conditions for creation of a Special Needs Trust to preserve Medicaid eligibility.  At the hearing, the sum of $2,777.88 was established without objection as the amount to be reimbursed to Medicare for the conditional payments made by Medicare.  This left the only issue for the court to address was the question of the future Medicare covered services for Mr. Benoit and the “extent to which the Medicare set-aside trust can or should be reduced to account for the financial hardship to the beneficiary, Michael Benoit.”  During the hearing, MSA allocation was submitted into evidence with a cost considerably larger than the net settlement figure.  A Social Security financial statement was also offered into evidence to demonstrate the financial hardship of Mr. Benoit.  Mrs. Benoit testified about Mr. Benoit’s extensive needs for things the MSA would not pay for and the limited income they received from Social Security.  The defendants provided testimony regarding the liability issues with the case which could have resulted in summary judgment had the case not settled.

Having heard testimony, the court rendered its opinion in April of 2013.  The court began its discussion with a citation and quotation of Sally Stalcup’s Region VI handout regarding set asides.  The quote language addresses the idea of an allocation of the damages.  CMS’s official position is that the only allocation they will respect is when it is by a court after their review on the merits of the case.  The court pointed out that CMS took that same position in the Bradley v. Sebelius case regarding conditional payments and lost.  Language from the Bradley decision was cited which stated that Medicare’s field manual was not entitled to administrative law based deference (under Chevron) and that the requirement of a decision on the merits of a case before respecting an allocation frustrated the long standing public interest in the resolution of lawsuits through settlement.  After discussing those points, the court went on to make its findings of fact and conclusions of law.

The first significant finding of fact was that Benoit’s claims were highly contested on liability and damages with a very real possibility of summary judgment being granted or an adverse liability verdict.  The second significant finding was that given the significant past and future losses suffered by Mr. Benoit offset by the difficult liability issues in the case, the settlement of $100,000 was a reasonable compromise to avoid the uncertainty and expense of a trial.   The fourth significant finding was that the estimate of future medical costs in the MSA allocation was both reasonable and reliable.  The bombshell finding was that the net settlement was 18.2% of the mid-point range of the MSA projection and using that percentage as applied to the net settlement, the sum to be set aside was $10,138 and not $305,512.  The court found that $10,138 adequately protected Medicare’s interests.

In its conclusions of law, the court first found it had jurisdiction to decide the motion because there was “an actual controversy and the parties seek a declaration as to their rights an obligations in order to comply with the MSP and its attendant regulations in the context of a third party settlement for which there is no procedure in place by CMS.”  The court then found that the sum of $10,138 “reasonably and fairly takes Medicare’s interests into account.”  Lastly, the court found that since CMS provides no procedure to determine the adequacy of protecting Medicare’s interests for future medical needs in third party claims and since there is a strong public policy interest in resolving lawsuits through settlement, Medicare’s interests were “adequately protected in this settlement within the meaning of the MSP.”  The court ordered that the MSA be funded out of the settlement proceeds and be deposited into an interest bearing account to be self-administered by Mr. Benoit’s wife.

This opinion is so important because it hits the nail on the head regarding an argument I have been making since the advent of liability MSAs.  As the AAJ pointed out in its commentary to the ANPRM, a liability insurer is not legally obligated to provide medical care in the future whereas Workers’ Compensation carriers are obligated to pay for future medical as long as the injury related conditions persist.  Furthermore, Liability settlements are fundamentally different from Workers’ Compensation settlements in that liability cases are settled for a variety of reasons which do not necessarily include contemplation of future medical treatment.  Even when future medical care is contemplated as part of a settlement, the amount can be very limited when compared to what the ultimate costs may end up being.  So accordingly, if set asides are done in liability settlements without recognition of these differences and with no apportionment of damages, you can conceivably have a situation where a party is setting aside their entire net settlement even though it is made up of non-medical damages.  In effect it can eliminate the recovery of the non-medical portion of the damages by requiring the Medicare beneficiary to set aside all of their net proceeds.  There is nothing in the MSP regulations or statute that requires Medicare to seek one hundred percent reimbursement of future medicals when the injury victim recovers substantially less than his or her full measure of damages.

Prior to the Benoit v. Neustrom opinion, I argued based upon Ahlborn that an MSA should be reduced by using a formula identical to that decision because the situations were analogous.  The argument goes something like as follows.  It does not work to have one hundred percent of a settlement consumed by a Medicare Set Aside that the client can’t touch except to pay for future Medicare covered services. Similarly, a set aside shouldn’t encompass non-medical portions of the recovery. I would argue that this gets to the very root of the issue dealt with in the Ahlborn US Supreme Court decision. The Ahlborn decision forbids recovery by Medicaid state agencies against the non-medical portion of the settlement or judgment. Ahlborn was recently affirmed by the US Supreme Court in WOS v. EMA. While admittedly both the Ahlborn and WOS decisions dealt with Medicaid lien issues and the Medicaid anti-lien statute, the arguments by analogy can be applied in the Medicare set aside context. The Ahlborn holding gets at the fundamental issue of whether a lien can be asserted against the non-medical portion of a personal injury recovery. Justice Stevens, in stating the majority opinion, said “a rule of absolute priority might preclude settlement in a large number of cases, and be unfair to the recipient in others.” Isn’t this so in the Medicare set aside context (which is really a future lien)? How do you settle a case for an injury victim when all of the proceeds would have to go into a set aside? Wouldn’t that force cases to trial where damages could be allocated to different aspects of the claim and a larger recovery might be possible?

In the Benoit case, the plaintiff took the position he was only recovering 10% of his total damages.  Therefore, based upon my Ahlborn analysis, the figures would look like:

The Benoit opinion was even more aggressive in its analysis.  Instead of looking at a ratio of the total case value versus the net, it looked at the ratio of the MSA amount to the net.  The analysis looks like:

Both methodologies get to the correct end result in my opinion.  While the Benoit v. Neustrom case is incredibly important because it is the first recognition of the fundamental problem involved with cases where there is a limited recovery but large future Medicare component, it is only a United States District Court opinion.  It is a trial court’s order on a motion for declaratory judgment.  Unless Medicare somehow intervenes and appeals, we will not see a Circuit Court of Appeals decision that would have precedential value.  Despite the foregoing, the court’s rationale supports applying a reduction methodology where before the Benoit v. Neustrom opinion there was no direct authority for this.  If Medicare ultimately creates regulations related to liability Medicare Set Asides, one can hope they will look very carefully at a workable solution to this type of situation.  The Benoit v. Neustrom decision provides one possible way to address the issue created by limited settlements with big future medicals.

To view the opinion click HERE

By Jason D. Lazarus, J.D., LL.M., MSCC, CSSC

Many have been asking for formal guidance regarding Medicare set asides in liability settlements.  It seemed as though that was never going to happen.  That came to an end in May of this year with the release of a memo from the Region 6 CMS office regarding liability Medicare set asides.  Up until last week there was nothing from the Baltimore headquarters for CMS.  In the first memo coming from CMS HQ regarding Liability Medicare Set Asides (issued 9/29/11), Charlotte Benson, Acting Director Financial Services Group for CMS, gives us an exception to the need to create a set aside in liability cases.  According to the memo, a liability Medicare set aside isn’t necessary when the Medicare beneficiary’s treating physician certifies in writing that all of the care related to the claimed injury has been completed as of the date of the settlement.

The memo says:

“Where the beneficiary’s treating physician certifies in writing that treatment for the alleged injury related to the liability insurance (including self-insurance) “settlement” has been completed as of the date of the “settlement”, and that future medical items and/or services for that injury will not be required, Medicare considers its interest, with respect to future medicals for that particular “settlement”, satisfied. If the beneficiary receives additional “settlements” related to the underlying injury or illness, he/she must obtain a separate physician certification for those additional “settlements.”

When the treating physician makes such a certification, there is no need for the beneficiary to submit the certification or a proposed LMSA amount for review. CMS will not provide the settling parties with confirmation that Medicare’s interest with respect to future medicals for that “settlement” has been satisfied. Instead, the beneficiary and/or their representative are encouraged to maintain the physician’s certification.”

The memo is very important for a number of reasons.  First, it is the first official memorandum from the CMS central office in Baltimore to substantively address liability Medicare set asides.  Second, it provides a mechanism, if the case facts fit the criteria, to avoid the necessity of creating a liability Medicare set aside.  It is a limited exception as the treating doctor must attest in writing that all of the treatment for the released injuries was completed at the time of settlement.  Third, it avoids the need to request CMS review of a proposed “zero” liability Medicare set aside and the parties just need to retain a copy of the doctor’s letter/certification.

Despite the foregoing, every lawyer (plaintiff or defense) should read the Sally Stalcup memo regarding liability Medicare set aside arrangements.  The memo was issued back in May of this year by the Dallas Region 6 CMS office.  The memo, to summarize, indicates that “Medicare’s interests must be protected; however, CMS does not mandate a specific mechanism to protect those interests.”  Furthermore, the law “does not require a ‘set-aside’ in any situation.”  Nevertheless, the law does require “that the Medicare Trust Funds be protected from payment for future services whether it is a Workers’ Compensation or liability case.”  From CMS’s perspective, a set aside is their “method of choice and the agency feels it provides the best protection for the program and the Medicare beneficiary.”

If an injury victim is a Medicare beneficiary or has a reasonable expectation within 30 months of becoming a Medicare beneficiary, a set aside should be considered.  If however a treating physician certifies that all treatment for the released injuries is complete as of the date of settlement, then no set aside is necessary.  Navigating the MSP related issues at settlement can be difficult as well as confusing.  From the lawyer’s perspective, the most important thing is to make sure the injury victim client completely understands the potential impact of settling the case has upon future Medicare coverage of injury related care.

Synergy can make Medicare secondary payer compliance simple by handling these difficult issues for you.  We can prepare the Medicare set aside allocation, provide professional Medicare set aside administration via a Medicare Set Aside trust and resolve Medicare conditional payments.  Synergy does offer a package discount if you take advantage of any combination of these services.  Contact us today to see how can help you.

In the first memo coming from CMS HQ regarding Liability Medicare Set Asides, Charlotte Benson, Acting Director Financial Services Group for CMS, gives us an exception to the need to create a set aside.  According to the memo, a liability Medicare set aside isn’t necessary when the Medicare beneficiary’s treating physician certifies in writing that all of the care related to the claimed injury has been completed as of the date of the settlement.

The memo says:

“Where the beneficiary’s treating physician certifies in writing that treatment for the alleged injury related to the liability insurance (including self-insurance) “settlement” has been completed as of the date of the “settlement”, and that future medical items and/or services for that injury will not be required, Medicare considers its interest, with respect to future medicals for that particular “settlement”, satisfied. If the beneficiary receives additional “settlements” related to the underlying injury or illness, he/she must obtain a separate physician certification for those additional “settlements.”

When the treating physician makes such a certification, there is no need for the beneficiary to submit the certification or a proposed LMSA amount for review. CMS will not provide the settling parties with confirmation that Medicare’s interest with respect to future medicals for that “settlement” has been satisfied. Instead, the beneficiary and/or their representative are encouraged to maintain the physician’s certification.”

The memo is important for a number of reasons.  First, it is the first official memorandum from the CMS central office in Baltimore to substantively address liability Medicare set asides.  Second, it provides a mechanism, if the case facts fit the criteria, to avoid the necessity of creating a liability Medicare set aside.  It is a limited exception as the treating doctor must attest in writing that all of the treatment for the released injuries was completed at the time of settlement.  Third, it avoids the need to request CMS review of a proposed “zero” liability Medicare set aside and the parties just need to retain a copy of the doctor’s letter/certification.

Despite the foregoing, every lawyer (plaintiff or defense) should read the Sally Stalcup memo regarding liability Medicare set aside arrangements.  The memo was issued back in May of this year by the Dallas Region 6 CMS office.  The memo, to summarize, indicates that “Medicare’s interests must be protected; however, CMS does not mandate a specific mechanism to protect those interests.”  Furthermore, the law “does not require a ‘set-aside’ in any situation.”  Nevertheless, the law does require “that the Medicare Trust Funds be protected from payment for future services whether it is a Workers’ Compensation or liability case.”  From CMS’s perspective, a set aside is their “method of choice and the agency feels it provides the best protection for the program and the Medicare beneficiary.”

If an injury victim is a Medicare beneficiary or has a reasonable expectation within 30 months of becoming a Medicare beneficiary, a set aside should be considered.  If however a treating physician certifies that all treatment for the released injuries is complete as of the date of settlement, then no set aside is necessary.  Navigating the MSP related issues at settlement can be difficult as well as confusing.  From the lawyer’s perspective, the most important thing is to make sure the injury victim client completely understands the potential impact of settling the case has upon future Medicare coverage of injury related care.

To view the memo, click HERE

By Jason D. Lazarus, J.D., LL.M., MSCC

Synergy has gotten inquiries regarding a memo issued in May of this year by Sally Stalcup, the MSP Regional Coordinator for CMS (Region 6 – Dallas RO).  The memo addresses Medicare set-asides in liability cases.  While it is informative and gives a glimpse of the thoughts of some at CMS regarding liability Medicare set asides, it isn’t law.  The memo is simply one CMS Regional Coordinator’s viewpoint.  Until CMS issues formal guidance or there is law regarding Medicare set asides, we are left with nothing definitive to hang our hat on in terms of how to deal with Medicare’s “future interest”.  Nevertheless, I will highlight the important portions of the memo below and try to add some clarity.

The memo starts out with an important statement.  Ms. Stalcup indicates that the “information provided is only intended to be a general summary” but it isn’t “intended to take the place of either the written law or regulations.”  While Ms. Stalcup encourages readers to review statutes, regulations and other materials issued by CMS on this subject, that is impossible as there is nothing that specifically addresses liability Medicare set asides.  She limits the applicability of the memo to the states covered by the Region 6 office which are Oklahoma, Texas, New Mexico, Louisiana and Arkansas.

The central premise of the memo is laid out immediately that when settling a case involving a Medicare beneficiary, “Medicare’s interests must be protected; however, CMS does not mandate a specific mechanism to protect those interests.”  While she acknowledges that the law doesn’t require a “set-aside” in any particular situation, she indicates that the Medicare Trust Fund must be protected from payment for future services whether they arise from a Workers’ Compensation settlement or liability settlement because there is no distinction in the MSP.  She goes on to say that a “Set-aside is our method of choice and the agency feels it provides the best protection for the program and the Medicare beneficiary.”

She goes on to identify what she believes is the legal underpinnings of the need to address Medicare’s future interests.  She states that “Section 1862(b)(2)(A)(ii) of the Social Security, Act [42 USC 1395 y(b)(2)], 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.  This also governs Workers’ Compensation.  42 CFR 411.50 defines the term “liability insurance”.  Any time a settlement, judgment or award provides funds for future medical services, it can reasonably be expected that those monies are available to pay for future services related to what was claimed and/or released in the settlement, judgment, or award.  Thus, Medicare should not be billed for future services until those funds are exhausted by payments to providers for services that would otherwise be covered and reimbursable by Medicare.  If the settlement, judgment, award .y [sic] are not funded there is no reasonable expectation that third party funds are available to pay for those services.”

CMS does not have a formal process to review and approve Medicare set asides like they do in Workers’ Compensation cases according to Ms. Stalcup which we already know.  CMS review of proposed liability Medicare set asides is determined on a case by case basis by the appropriate regional office.  For example, the Atlanta Regional office routinely refuses to review liability Medicare set asides we have submitted.  Their typical response is that “[d]ue to resource constraints, CMS Is not providing a review of this proposed liability Medicare set aside arrangement.”  The form letter goes on to say “this does not constitute a release or a safe harbor from any obligations under any Federal law, including the MSP statute.” (Emphasis added).  In bold print the letter warns, “All parties must ensure that Medicare is secondary to any other entity responsible for payment of medical items and services related to the liability settlement, judgment or award.”  Nevertheless, Ms. Stalcup states in her memo that “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” regardless of whether a set aside is reviewed/approved by CMS.

As is the case in Medicare conditional payments obligations, she emphasizes that allocations made in a settlement agreement to different categories of damages is ineffective in terms of getting around the obligation to set funds aside.  The memo states that the “fact that a settlement/judgment/award does not specify payment for future medical services does not mean that they are not funded.”  Further, the “fact that the agreement designates the entire amount for pain and suffering does not mean that future medicals are not funded.”  While Medicare has been challenged and lost in the 11^th Circuit on the issue of its failure to recognize allocations by a court order other than on the merits of the case (see Bradley v. Sebelius), Ms. Stalcup holds the CMS line on this issue and states that 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 on the merits of the case.”  “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.”  The lesson from these statements is that CMS will not stand for attempts to shift damages to non-Medical categories and will not recognize allocations unless via a court order on the merits of the case.  While this may force issues of damages to be tried and clog the court system, CMS continues to take this ridiculous position.

To clarify what is considered future medical portions of a recovery and how to know whether a settlement includes them, the memo gives some examples.  “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.”  An important part of the memo addresses what is “case related” medical expenses.  CMS’s view is that this includes “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.”

The memo does address CMS’s view of plaintiff counsel’s obligations in regard to future Medicare covered services incurred by the client.  “We do however urge counsel to consider this issue when settling a case and recommend that their determination as to whether or not their case provided recovery funds for future medicals be documented in their records.  Should they determine that future services are funded, those dollars must be used to pay for future otherwise Medicare covered case related services.”  CMS will not issue opinion letters or sign off on determinations of whether or not there is a recovery of future medical services triggering the need to protect the Medicare Trust Fund.  The memo puts the determination of these issues in the lap of the attorney handling the claim.  According to Ms. Stalcup, each “attorney is going to have to decide, based on the specific facts of each of their cases, whether or not there is funding for future medicals and if so, a need to protect the Trust Funds.”  “They must decide whether or not there is funding for future medicals. If the answer for plaintiffs counsel is yes, they should to [sic] see to it that those funds are used to pay for otherwise Medicare covered services related to what is claimed/released in the settlement judgment award.”

So what does this all mean?  It means what I have been saying for quite some time.  CMS believes that the obligation to protect Medicare’s future interests is the same in Workers’ Compensation cases as it is in liability settlements. This is despite the fact that no formal guidance exists for liability Medicare set asides and CMS routinely refuses to review/ approve them either.  Nevertheless, counsel is supposed to make sure that funds recovered for future Medicare covered services related to the injury be spent on that care before Medicare ever pays a dime. The question for attorneys representing a Medicare beneficiary is what do I do to comply with what CMS expects?  The answer is, in my opinion; educate the client on the risks of failing to set aside the money for future Medicare covered services.  Mandatory insurer reporting of settlements with Medicare beneficiaries commences on 1/1/12 with reporting going back to settlements occurring on 10/1/11.  Medicare will know every facet of a settlement with a Medicare beneficiary once the reporting goes into effect as the ICD9 codes for all of the care will be reported to Medicare along with a massive amount of information about the claim that is being settled.  This will give Medicare the ability to flag a Medicare beneficiary’s number and refuse to pay for Medicare covered services related to the injury.  Accordingly, the Medicare eligible injury victim must understand that this risk is present when they settle their case.  Your closing statement should be amended to address this issue, you should consider using a waiver if the client refuses and you should develop a comprehensive CYA letter to address these issues with a client when a settlement is reached.

While what I have laid out above is great in theory, the problem is that defendants are routinely including “kitchen sink” language in their releases to address Medicare.  This language frequently shifts the burden of creating a Medicare set aside to the injury victim and counsel or identifies an arbitrary amount to be set aside.  The latter practice is dangerous because those releases typically have the injury victim acknowledge a responsibility to set funds aside while picking an arbitrary (usually small) amount to be set aside.  This is simply bad practice and exposes the injury victim as well as plaintiff counsel since if CMS ever refused to pay for Medicare covered services related to the injury there would be no way to justify the amount of the set aside.  A better practice is to actually do an MSA analysis, which may or may not include getting a formal MSA allocation done.  There are certain instances where an MSA may be unnecessary based upon factors present in the case such as a private primary health insurance policy, Workers’ Compensation coverage for future medical or where there is no future Medicare covered expenses related to the injury.  These should be identified and the release language specifically tailored to that exception but with an indication that Medicare’s future interests where considered with nothing needing be set aside.  If the case requires the full-blown MSA analysis, it should be done and the cost of doing so passed along as a client cost.  Most MSA allocations reports cost approximately $2,000 – $3,000, which is a small price to pay for proper analysis of the client’s exposure.

While I applaud Sally Stalcup’s efforts to clarify things with respect to liability Medicare set asides, application of what she suggests is a little more difficult in the real world.  What happens with the $25,000 policy limits settlement where future Medicare covered services are $200,000?  How do you deal with that situation?  There are ways in my opinion to deal with this situation using a reasonable reduction formula, but CMS does not recognize any type of reduction formula.  How do you deal with a defendant that does not understand the responsibilities under the MSP and confuses issues of Medicare conditional payment reimbursement and Medicare set-asides?  CMS does not offer formal guidance or approvals on these issues so how do you deal with defense counsel or the insurer’s insistence upon unnecessary language or set asides?  As I have written before, we need definitive law, an appellate procedure and protections of all parties’ rights in the MSP process.  While change appears to be coming in the reform of the MSP in relation to Medicare conditional payments, that isn’t the case for Medicare set asides.  Hopefully at some point in the near future, someone will take up the matter with Congress so legislation can be introduced.  Until then, we have to deal with this the best way we can.

To review the memo click HERE