Medicare Set-Asides

B. Josh Pettingill, MBA, MS, MSCC

Introduction

A vital step to navigating the MSP statute is understanding the dynamics between the Section 111 Reporting Requirement and the potential interplay for a Liability Medicare Set Aside (LMSA). The MSP statute precludes Medicare from paying for any item or service when payment has been made by a liability insurance policy, self-insured or no-fault plan^[1]. The MSP statute gives CMS the authority to deny making payments for accident-related care when there is a primary payer involved. Additionally, if CMS inadvertently makes payments when they should not, they can seek reimbursement for those erroneous payments. The MSP statute may be the authority for CMS to deny making payments when there is a primary payer, but the Mandatory Insurer Requirement is the catalyst for CMS to identify cases for potential recovery or denials.

The Medicare, Medicaid SCHIP Extension Act (MMSEA), specifically, the Mandatory Insurer Requirement (MIR) created a mechanism for CMS to collect data about Medicare beneficiaries who receive liability, workers’ compensation or no-fault liability settlements, judgments or awards. The Section 111 Reporting Requirement gave CMS the ability to track Medicare beneficiaries electronically. There is a tremendous amount of data that gets reported every day for settlements of $750.00 or greater, involving a Medicare beneficiary. John Albert, Acting Director of the Office of Financial Management’s Division of Medicare Coordination[2], estimated that 97% of the information CMS has on file comes directly from the data that is reported by the insurance carriers (responsible reporting entities or RREs for short) at settlement.

Section 111 Reporting: The Purpose

The purpose of Section 111 Reporting “is to enable CMS to pay appropriately for Medicare-covered items and services furnished to Medicare beneficiaries. Section 111 Reporting is used as a tool for CMS to determine when other insurance coverage is primary to Medicare, meaning that it should pay for the items and services first before Medicare considers its payment responsibilities[3].” To unbundle this, Medicare does not want to pay for accident-related care if they know the plaintiff has received a portion of settlement proceeds to cover future, accident-related care. They also want to make certain they are reimbursed for any conditional payments. The reporting notification lets them know the case has resolved.

Data Reported to CMS

CMS has created a Reference Guide to document the reporting requirements[4]. Specifically, the guide includes the “What, Why, and How” of reporting. According to the reference guide, the following are required reporting data fields:

• The identity of the claimant (their Medicare Health Insurance Claim Number [HICN] or Social Security Number [SSN];
• The first letter of their first name; the first six letters of their last name;
• Date of birth and gender;
• Other information related to the claimant, such as the International Classification of Diseases 9th (or 10th) Revision (ICD-9 or ICD-10) diagnosis codes.

Below is an actual screenshot from an educational training program sponsored by CMS on reporting. One of the very first points of data that must be reported are the ICD Codes.

There is no policy or regulation that requires the defense to share with the plaintiff the information or ICD codes being reported via Section 111. The RRE’s (the insurance carriers) obtain the information that gets reported by asking the plaintiff attorneys. According to CMS, the defendant should simply “ask the individual” (plaintiff)[5]. Insurance companies will frequently include as part of a release, a separate Medicare reporting addendum and affidavit for the plaintiff to acknowledge and sign. The plaintiff has no obligation to provide that information but defendants are now making this a condition of the terms of any settlement agreement. In exchange for a full release and settlement check, the plaintiff must provide the personal information required to report to CMS.  Since the defendant must report ICD codes and the system will not allow reporting without the ICD codes, it is incumbent on plaintiff attorneys to provide the correct codes to be reported.  Plaintiff’s counsel must be proactive in communications with the defendant to insist on accurate reporting. When in doubt, the ICD codes should be included in the settlement agreement and release. To take this a step further, the settlement parties could also agree to include the ICD codes in the mediation agreement. That way, there can never be a dispute as to what was reported.  This avoids the problems which can arise from improper codes being reported or unrelated care being included in the data provided to CMS.

Release Language, Reporting & Liability Medicare Set-Asides

Many insurance carriers demand the reporting information and require the plaintiff to do a Liability MSA in return to payment of the settlement monies. Since the insurance carrier is cutting the check to resolve the case, it gives them leverage to dictate the terms of the settlement. Some plaintiff attorneys may be more apt to agree to (or overlook) Medicare secondary payer release provisions in an effort to expedite the exchange of settlement funds. These MSP provisions demanded by the defendants are sometimes inaccurate; they may not be applicable or they may restrict the plaintiff in terms of future benefits. In many instances, the plaintiffs are not yet eligible for Medicare benefits, nor may they ever be entitled to receive Medicare benefits which makes it inappropriate to include any MSP language at all in the release.

There are defendants who still request the Section 111 MIR reporting information from plaintiffs who are not yet eligible for Medicare or may never be eligible for Medicare benefits. They sometimes also insist the plaintiff establish a Liability MSA even when they aren’t a current Medicare beneficiary. The MIR Section 111 User Guide discusses what claims are reportable[6]:

Per 6.5.1 of the CMS Section 111 NGHP User Guide:

Information is to be reported for claims related to liability insurance (including self-insurance), no-fault insurance, and workers’ compensation where the injured party is a Medicare beneficiary and medicals are claimed and/or released or the settlement, judgment, award, or other payment has the effect of releasing medicals.

It is clear from the Section 111 user guide when the plaintiff is a current Medicare beneficiary, the case should be reported[7]. It is not possible to report a claim for someone who does not yet have a Medicare number.

Medicare Common Working File

After the data gets reported to CMS, CMS will update (or establish) what is known as the “common working file” for that Medicare beneficiary. This file is automatically created by the federal government when an individual enrolls in Medicare. This common working file (CWF) is a tool used by CMS to track national Medicare records for individual beneficiaries enrolled in the program. The CWF is used to determine eligibility and to monitor the appropriate use of Medicare benefits[8]. If Medicare receives a bill from any treating physician (or another provider) which matches the ICD codes in the common working file, then benefits could be denied. CMS recently announced that any LMSA will also be tracked to the CWF[9]. That is important because it enables the provider to observe that an LSMA was established and potentially seek payment from the LMSA first before billing Medicare.

Conclusion

Plaintiff attorneys need to proceed with caution with regard to the reporting data but also the Medicare set aside release language. Inappropriate provisions in the release could constrain their client’s options relative to receiving public benefits and have adverse tax implications, which could result in a legal malpractice claim. Below are several examples of Medicare language commonly used by insurance carriers and included in the release or in an addendum to the release that is either not accurate or taken out of context as it relates to MSP compliance:

• I (plaintiff) understand that should future medical treatment related to the “Accident” be required, the expense associated with that treatment will be paid solely from the proceeds of this settlement.
• I am aware that no further medical expense or prescription drug expense related to the treatment I have received or will receive in the future related to the “Accident” will be submitted to Medicare for payment.
• I understand that if Medicare is not protected as set forth in the Extension Act, Medicare may cease all benefits otherwise available to me.
• I understand and agree that I will not make an application for Social Security Disability benefits.

Inclusion in the release of the above language may be detrimental to the plaintiff’s ability to receive future benefits for accident-related care.  An MSA is never required by any law or statute even in workers’ compensation cases; however, it is the preferred method for considering Medicare’s future interests when settling cases involving a Medicare beneficiary who requires future medical care. The risk still exists for the plaintiff to lose their Medicare coverage if Medicare’s future interests are not adequately considered and accounted for. Given the current inner workings of Medicare, the risk for denial of benefits is extremely low, but it still is a risk nonetheless.

Plaintiff’s counsel should be proactively dealing with the defense counsel in terms of what they report, as inaccurate reporting can cause problems with conditional payments as well as eligibility for future benefits.  For example, if a case involves neck and back injuries, but the defense takes the position that the neck is pre-existing and settles for payments exclusively for the back but reports the ICD codes for the neck and back, this is problematic.  Another problematic issue is reporting the wrong date of the accident which could trigger Medicare to issue a new final demand for conditional payments.

Synergy has observed firsthand examples of all of these occurrences. In a recent liability case, there was an MSA done but Medicare sent the plaintiff a bill post-settlement for a surgery that was not related to the liability claim. It was a coordination of benefits nightmare to resolve this issue. On another case, a defendant failed to report the case in a timely manner. It had been over a year since the resolution. The plaintiff received a letter from CMS indicating they were recently made aware of a settlement and for the plaintiff to provide CMS all of the case details to determine whether or not there were conditional payments owed.

Currently, there is no “one size fits all” approach to MSP compliance for liability cases. All parties must make their best effort to consider Medicare’s interests. Section 111 Reporting has given CMS the ability to track current Medicare beneficiaries settling claims but the reality is CMS handles every liability case differently. The importance of correct data reporting can’t be overstated.  Not only can the wrong body parts potentially be denied due to improper reporting but the information that gets reported is forever linked to the plaintiff’s common working file.  ICD codes that are reported can trigger future denials of care.  Therefore, until CMS provides formal guidance on LMSAs, the plaintiff’s bar and the insurance carriers must consult with competent MSP compliance experts, advise their respective clients on what the potential implications are for not properly taking into account Medicare’s interests, and document the file regarding what was done, in order to protect Medicare’s interests.

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[1] The MSP is a series of statutory provisions enacted in 1981 as part of the Omnibus Reconciliation Act with the goal of reducing federal health care costs. The MSP provides that if a primary payer exists, Medicare only pays for medical treatment relating to an injury to the extent that the primary payer does not pay. CFR Title 42, Part 411, Subpart B, Section 411.20 (2) provides “[s]ection 1862(b)(2)(A)(ii) of the Act precludes Medicare payments for services to the extent that payment has been made or can reasonably be expected to be made promptly under any of the following” (i) Workers’ compensation; (ii) Liability insurance; (iii) No-fault insurance. The one exception is conditional payments pre-settlement.

[2] (https://www.cms.gov/About-CMS/Leadership/ofm/Office-of-Financial-Management-.html)

[3] https://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/Mandatory-Insurer-Reporting-For-Non-Group-Health-Plans/Overview.html

[4] https://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/Mandatory-Insurer-Reporting-For-Non-Group-Health-Plans/Downloads/New-Downloads/NGHPQuickRef.pdf

[5] Section 3-2 of the MIR Reference Guide

[6] https://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/Mandatory-Insurer-Reporting-For-Non-Group-Health-Plans/Downloads/New-Downloads/NGHPUserGuideVer52Ch3Policy.pdf

[7] Past Medicare beneficiaries can be also be reported. It is possible to lose Medicare eligibility but the plaintiff may still have a Medicare number in the system.

[8] https://searchhealthit.techtarget.com/definition/common-working-file-CWF

[9] https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/2017Downloads/R1787OTN.pdf

By B. Josh Pettingill, MBA, MS, MSCC & Jason D. Lazarus, J.D., LL.M., MSCC

The debate regarding addressing Medicare’s future interest in liability settlements is filled with nuance and subtleties. An essential step in understanding the big picture is starting with the genesis of set asides, the Medicare Secondary Payer (MSP) Statute. Although, the finer points of this issue may leave room for interpretation, the MSP is express and clear. It precludes Medicare from paying for any item or service when payment has been made by a liability insurance policy, self-insured or no fault plan¹.

The debate is limited to the fashion in which we address a statue that has not been enforced up until this point as it relates to payments made by Medicare after settlement. The fact that a law has not been enforced in this way in the past does not mean it is irrelevant, especially when recent steps by the Centers for Medicare and Medicaid Services (CMS) begin to do just that. This article will examine the form, function and attempts at regulation surrounding set asides in liability cases.

A Medicare Set Aside (MSA) is currently not required by any regulation or statute, even in workers’ compensation cases. However, an MSA, according to CMS, is Medicare’s preferred method for protecting its future interests when the settlement funds future medical care. Starting October 1st, CMS is purportedly going to deny making payments for accident related care post-settlement of a liability or no-fault claim on the basis they should be paid for out of an MSA. In its conclusion, this article will provide suggested best practices to being complaint with the MSP statute and avoid possible Medicare denials from ever occurring.

Historical Enforcement of the MSP Statute

Enforcement of the MSP as it pertains to future Medicare covered services began back in 2001 when CMS announced in a policy memorandum the requirement to set aside a portion of workers’ compensation settlements allocated to future Medicare covered expenses². Accordingly, the MSP future medicals enforcement only took place in workers’ compensation matters. The memorandum was the advent of the Workers’ Compensation Medicare set aside (WCMSA). In 2007, Section 111 Reporting Requirements (part of the Medicare, Medicaid, and SCHIP Extension Act) added a mechanism for CMS to collect date about Medicare beneficiaries who receive liability, workers’ compensation or no-fault liability settlements, judgments or awards³. This Section 111 Reporting Requirement gave CMS further ammunition to track compensable ICD codes related to the liability case. A tremendous amount of electronic data gets reported every day now for settlements of 1k or greater involving a Medicare beneficiary.

Up until now, there has been little to no enforcement of MSP for future medicals in the context of liability settlements. In most instances, Medicare has continued to process medical claims as if there never were a recovery made for future medical care. On very rare occasions, they would deny medial claims submitted by providers. However, the frequency of denials is likely to increase going forward. Therein is the real risk associated with not considering Medicare’s future interests going forward. As will become evident from the next section of the article, there are new developments which makes the threat of denials much more likely.

MM9893 and SE17019 Alerts to the Medical Community

According to the CMS alert that was sent out in February⁴, starting October 1, 2017 “Medicare and their contractors will reject medical claims submitted post-resolution of a liability settlement on the basis those claims “should be paid from a Liability Medicare Set Aside (LMSA)”⁵. The commentary cited the basis for rejection of the claims as enforcement of the MSP statute. It also stated that Liability and No-Fault MSP claims that do not have an MSA “will continue to be processed under current MSP claims processing instructions.” CMS also warned medical providers to make sure their billing staffs were aware of changes . These “new policy changes” have the medical community, the plaintiff’s bar and the insurance industry all scrambling to get their internal procedures in place to address this change in how CMS processes liability and no-fault medical claims.

Last week, CMS issued a subsequent alert to the medical community on September 19th⁷. It reiterated that Medicare is supposed to be secondary to all forms of liability, no-fault and workers’ compensation insurance as it relates to future medicals. The purpose of the alert was to remind medical providers that they should be billing liability, no-fault or workers’ compensation Medicare set aside arrangements first before they attempt to collect payment from Medicare or its contractors. The other key takeaways were as follows:

1. The obligation to protect the Medicare trust funds exists regardless of whether or not there is a formal CMS approved MSA amount.
2. The CMS review process is voluntary for WCMSA amounts, and there is no formal process for reviewing proposed LMSA or NFMSA amounts, a Medicare beneficiary may or may not have documentation they can provide the physician, provider, or supplier from Medicare approving a Medicare Set-Aside amount.

The number of LMSAs and NFMSAs that currently exist or have been previously established is de minimis. That is the apparent good news; the direct impact to plaintiffs should potentially be minimal. However, there still may be unintended (or intended) consequences for Medicare beneficiaries. Medical providers may be overly concerned about Medicare not getting paid back when they send a claim to be processed and reimbursed. Is it possible that the medical providers will implement a more stringent internal screening process for both new and current patient’s claims. As a result, they may refuse to treat the plaintiff if they believe that Medicare will not reimburse them. For example, what if they started asking the following questions on their intake?

• Have you been injured in a personal injury accident in the last 3 years?
• Did you have a personal injury claim that was resolved in the last 3 years?
• If yes, what were the compensable body parts claimed?
• Did you establish a Medicare Set Aside arrangement as part of the resolution?
• If yes, how much money was set aside?

At minimum, these alerts are the latest signals to support that CMS is continuing its pursuit of establishing formal guidelines for liability MSAs. Although, these alerts do not create any new regulations or statutes regarding MSP compliance, that does not mean CMS will simply continue to sit back and not enforce the MSP statute. The alerts do create policies which can lead to denials of care or make it much more likely.

CMS Expands Voluntary Submission Thresholds to include LMSAs and NFMSAs.
In addition to the alerts CMS has sent to providers, they began a search for a new set aside review contractor. When CMS put out the request for a new workers’ compensation review contractor in December of last year, they said the new review contractor would not only review workers’ compensation MSAs but also liability and no-fault MSAs. Specifically, there would be a two tier review process for liability and no-fault MSA submissions⁸. The first tier would be a full review like what currently takes place with workers’ compensation MSAs that meet the submission thresholds. The second tier would be a “cursory” review that involves a less stringent methodology for cases that fall within a different threshold (yet to be determined by CMS).

CMS recently selected their new workers’ compensation review contractor⁹. On September 1st, the contract was awarded to Capitol Bridge LLC. It should be noted, that the value of the contract is over $60,000,000 – that is more than 10x the dollar amount the last review contractor received¹⁰. It is highly likely that the enormous compensation increase is due in part that the workload is going to increase substantially if/when they add voluntary submission thresholds for LMSA and NFMSAs¹¹. Starting in 2018, the new review contractor will step into said role. In fact, the new review contractor has already initiated training sequences under the old review contractor. Whether or not voluntary review thresholds are ever implemented for LMSAs and NFMSAS, all parties must be preemptive in identifying potential claims involving Medicare beneficiaries.

What changes are going to happen starting October First and beyond? Here are some possible scenarios:

1. Nothing is going to happen. Medicare continues to process claims like they always have done with the occasional audit of a Medicare beneficiary.
2. CMS issues a new policy memorandum to include voluntary submission review thresholds regarding LMSAs.
3. The frequency of Medicare post-settlement denials increases for liability and no-fault claims.
4. CMS issues a LMSA Reference Guide similar to what they have in workers’ compensation.
5. CMS issues formal guidelines for LMSAs and NFMSAs in 2018.

Let’s examine the most likely scenario that may play out in the immediate future.

The most likely scenario is that post-settlement denials will start to increase for situations when Medicare’s interests were not adequately considered.

Through the Section 111 reporting requirement, as discussed above, Medicare has developed a comprehensive system to track all settlements with current Medicare beneficiaries. In 2015, Medicare implemented the new ICD coding system. ICD-10 has 140,000 codes—more than 8 times the 17,000 codes in ICD-9. The additional codes enable responsible reporting entities to be more specific on claim forms in reporting the care provided to plaintiffs. What this means for plaintiffs is that when they go to treat for accident related care in the future, if treatment consists of a body part or ICD code previously reported to Medicare as part of the settlement, CMS may send a letter of denial or a treater might refuse to provide care. Consequently, the plaintiff may lose their Medicare benefits for accident related care indefinitely, until they have properly reimbursed Medicare for any past claims they have denied as well as sufficient funds have been spent down to adequately protect their “future interests”.

Insurance carriers and payers will start to be more stringent on incorporating an LMSA as part of the terms of the settlement.

Since 2001, insurance companies have been using Worker’s Compensation Medicare Set Aside agreements (WCMSA) as a tool to resolve cases involving a Medicare beneficiary with a future medical component¹². Trying to use a WCMSA in a liability claim is like putting a square peg in a round hole. There is a fundamental difference between worker’s compensation claims and liability claims. The primary issue with WCMSA’s is they fully fund future Medicare allowable expenses related to an industrial accident since the carrier is liable for all future medical costs. Whereas, most if not, all liability cases resolve for a compromised amount due to issues such as pre-existing conditions, liability, causation, caps on damages and limited coverage. The common result in liability settlements involving Medicare beneficiaries is a disagreement between the parties as to what should be done for MSP compliance once the liability claim resolves. This disagreement causes delays in the settlement and ends up costing all parties involved. In the absence of formal guidelines or voluntary review thresholds for LMSAs, all MSP compliance issues must be discussed early in the settlement process to avoid these delays. An early dialogue about expectations of what will be done to protect Medicare’s interests also makes imminent sense to avoid possible complications at settlement.

Addressing Medicare’s Future Interests without a CMS Approved MSA

Before settling their case, the plaintiff needs to understand this risk of potential denial of accident related care related to Mandatory Insurer Reporting under Section 111¹³. If a settlement will be reported to Medicare under the Mandatory Insurer Reporting laws (Section 111 reporting), Medicare will be on notice of the settlement and the injury related ICD codes. Denials will be related to “diagnosis codes or family of diagnosis codes”¹⁴. Such a denial could require a lengthy internal appeals process before Medicare payments for accident related care might have to be reinstated by a Federal District Court.

While there is currently no regulation or law that mandates a liability Medicare set aside, it does not mean there will be no consequences when there is an attempt by the plaintiff to shift the burden to Medicare for future injury-related care. It is very clear from Medicare’s public statements that the agency believes that set asides are the best method to protect the program from paying for injury-related care when future medicals are funded by a settlement. That does not mean it is the only way to demonstrate that Medicare’s interests were considered when a case involving a Medicare beneficiary is settled, it simply means it is one way.

From a practical standpoint, any of the below options could theoretically serve as alternatives to doing a liability set aside:

1. Plaintiff can use other health insurance to pay for accident related care.
2. Plaintiff can pay out of pocket as they go for treatment.
3. Plaintiff can set up a Medical Savings Account if they qualify.
4. Plaintiff can set up a settlement preservation trust to earmark funds for requisite healthcare.
5. Plaintiff can purchase a structured settlement to designate for any and all future medical care.

With any of these above options, there is no shift in burden for Medicare to pay for accident related care. Although it is certainly not recommended, another option would be for the plaintiff to do absolutely nothing. They can do nothing and continue to bill Medicare for accident related care after their case has resolved. If Medicare ever audited the file or established new conditional payments, then the plaintiff could simply pay Medicare back at their reduced fee schedule. However, if nothing is done to shift that burden away from Medicare, CMS could deny paying benefits for accident related care indefinitely, or up to the entire amount of the plaintiff’s settlement has been spent for accident related care. If the plaintiff is receiving Social Security disability or retirement benefits, the government can also garnish those monthly payments to recoup an overpayment or a conditional payment. Plaintiff attorneys and insurance carriers alike have to stop speculating and have to start preparing for the potential October 1st changes.

Conclusion
The MSP was established over thirty five years ago but this law is still the governing authority as it relates to liability and no-fault claims involving Medicare beneficiaries. The only debate that remains is, what are going to be the next action steps taken by CMS to fully and readily enforce the MSP statute as it relates to futures? It is critical to note, CMS does not have to issue any new formal policies for them to deny making payments for accident related claims post-settlement. They do not have to wait and see whether or not an LMSA or NFMSA has been established. Under the MSP, Medicare is always supposed to be a secondary payer to all forms of insurance.

Protecting Medicare’s interests on liability settlements should be a collaborative process for all parties involved. The parties must openly communicate (early and often) to determine proper Section 111 reporting data, the Medicare eligibility status of the plaintiff, as well as potential MSP release language. They must also be proactive regarding the potential for an LMSA: which party is going to handle, and how much, if any, is going to be set aside based on all of the facts of the case. There is currently no one size fits all solution to MSP compliance. The fundamental question all parties must ask when resolving a claim has to be, “does the resolution of this claim shift the burden to Medicare to pay for future accident related care?”
CMS has stated the set aside issue is the plaintiff’s responsibility and the role of the defendant is to report settlements with current Medicare beneficiaries under Section 111 reporting . Plaintiff’s counsel has legal malpractice risks if they fail to properly advise the client regarding the set aside issue when they are currently eligible to receive Medicare benefits. It is incumbent upon all parties to a liability or no-fault settlement to consult with competent MSP compliance experts, advise their respective clients on what the potential implications are for not properly taking into account Medicare’s interests, and document the file as to what was or wasn’t done to protect Medicare’s future interests.

[1] The MSP is a series of statutory provisions enacted in 1981 as part of the Omnibus Reconciliation Act with the goal of reducing federal health care costs. The MSP provides that if a primary payer exists, Medicare only pays for medical treatment relating to an injury to the extent that the primary payer does not pay. CFR Title 42, Part 411, Subpart B, Section 411.20 (2) provides “[s]ection 1862(b)(2)(A)(ii) of the Act precludes Medicare payments for services to the extent that payment has been made or can reasonably be expected to be made promptly under any of the following” (i) Workers’ compensation; (ii) Liability insurance; (iii) No-fault insurance. The one exception is conditional payments pre-settlement.
[2] Parashar B. Patel, Medicare Secondary Payer Statute: Medicare Set-Aside Arrangements, Centers for Medicare and Medicaid Services Memorandum, July 23, 2001
[3] https://www.cms.gov/medicare/coordination-of-benefits-and-recovery/mandatory-insurer-reporting-for-non-group-health-plans/overview.html
[4] This informal alert was reissued and summarized by Medicare Learning Network in June 2017.
[5] https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/2017Downloads/R1787OTN.pdf
[6] https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNMattersArticles/Downloads/MM9893.pdf
[7] https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNMattersArticles/Downloads/SE17019.pdf
[8]https://www.fbo.gov/index?s=opportunity&mode=form&tab=core&id=d3b45cd4fe90079ae5eaf5b2a96b9298&_cview=0
[9]https://www.fbo.gov/index?s=opportunity&mode=form&id=244bfc6f69ffabc8e368ab7eb68d01d4&tab=core&tabmode=list&=
[10] The last review contractor received a $6 million contract.
[11] The number of LMSA and NFMSA submissions could result in as many as 51,000 per year according to the draft proposal for the new review contractor.
[12] Parashar B. Patel, Medicare Secondary Payer Statute: Medicare Set-Aside Arrangements, Centers for Medicare and Medicaid Services Memorandum, July 23, 2001.
[13] For years, Synergy has stressed the importance of proper reporting of ICD codes. Failure by the responsible reporting entities (RREs) to report a claim in a timely manner can result in penalties of up to $1,000 per day. They can also be on the hook for double damages if Medicare’s reimbursement claim is not resolved at the time of resolution.
[14] MM9893 alert referenced not only individual ICD codes but family of ICD codes could trigger a denial.
[15] Stalcup CMS Handout

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

“Although the statute is structurally complex—a complexity that has produced considerable confusion among courts attempting to construe it—the MSP’s function is straightforward.” US v. Baxter Intern., Inc., 345 F. 3d 866 (11th Cir. 2003). Attorneys are consistently exposed to liability risks when handling cases for Medicare beneficiaries. This practitioner-based article addresses the growing concerns when working for Medicare beneficiaries and advises attorneys how to deal with Medicare issues strategically instead of ending up in federal court. Jason Lazarus develop answers to help address attorney’s questions when working with Medicare beneficiaries. In this Article, the author reviews the basics of Medicare coverage. Once representing a Medicare beneficiary, both the attorney and Medicare beneficiary client should be aware of the implications of the Medicare Secondary Payer Act as it relates to Conditional Payments as well as Medicare set asides. The Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA), triggers important compliance requirements impacting attorneys involved in the representation of those who are Medicare eligible. Next the author suggests ways to navigate the resolution process for clients and how to deal with conditional payment issues before turning to Part C Advantage Plans (MAO) as the “hidden” lien. The author discusses the threat of Medicare’s denial of care in future personal injury cases and the four levels of internal appeals process. The author urges lawyers to stay aware and educated when working for Medicare beneficiaries.

To View this article as published by The Elder Law Journal at the University of Illinois College of Law »

About the Author

Jason Lazarus is a founding Principal and Chief Executive Officer of Synergy Settlement Services. He is also the managing partner and founder of the Special Needs Law Firm in Florida. Formerly he was the President of a National Settlement Planning firm and previously spent ten years assisting injury victims as a settlement planner. Prior to his experience starting his settlement practice, Mr. Lazarus practiced as a Medical Malpractice and Worker’s Compensation attorney. Mr. Lazarus has presented and published work on Elder Law topics in AAJ’s Trial Magazine, NAELA Journal, ElderLaw Report, and more. Mr. Lazarus received his J.D. from Florida State University and his LL.M. in Elder Law from Stetson University College of Law. Mr. Lazarus is also a Medicare Set Aside Consultant certified by the International Commission on Health Care Certification.

B. Josh Pettingill, MBA, MS, MSCC

In the absence of formal guidance from Centers for Medicare and Medicaid Services (CMS), the plaintiff’s bar and the insurance industry have not agreed upon the appropriate way to protect Medicare’s interests when resolving a liability case that funds future medical needs. This brief article will explain this disconnect between the settling parties on liability claims as well as provide some recommendations to bridging the gap between the parties to ensure practical compliance with the Medicare Secondary Payer law (MSP).

Identification of Problems

Problem (1) The carriers are experienced in the area of Worker’s Compensation Medicare set asides (WCMSAs).

Since 2001, insurance companies have been using Worker’s Compensation Medicare Set Aside agreements (WCMSA) as a tool to resolve cases involving a Medicare beneficiary with a future medical component[1]. Trying to use a WCMSA in a liability claim is like putting a square peg in a round hole.  There is a fundamental difference between worker’s compensation claims and liability claims. The primary issue with WCMSA’s is they fully fund future Medicare allowable expenses related to an industrial accident since the carrier is liable for all future medical costs. Whereas, most liability cases resolve for a compromised amount due to issues such as pre-existing conditions, liability, causation, caps on damages and limited coverage. The common result in liability settlements involving Medicare beneficiaries is a disagreement between the parties as to what should be done for MSP compliance once the liability claim resolves, as well as how much, if any, of the settlement proceeds should be set aside. This disagreement causes delays in the settlement and ends up costing all parties involved.

As a recent example, Synergy was retained to review a Liability Medicare Set Aside (LMSA) prepared by the insurance carrier and provide guidance on the appropriate action for protecting Medicare’s future interests. The carrier insisted as part of the settlement, that the plaintiff fully fund a Medicare set aside in the amount of $110,000, which would have represented nearly 75% of the net recovery. This LMSA stipulation was not made not until after the mediation agreement had been signed. After reviewing all of the facts of the case, Synergy recommended $23,500 be set aside based on the appropriate reduction formula.

The settlement was delayed for over six months until the plaintiff attorney filed a motion for a special hearing to enforce the settlement and left the court to decide what the appropriate amount was that adequately considered Medicare’s interests. There were unnecessary and increased litigation expenses, as well as the resolution was delayed for nearly a full year. The judge ultimately approved the apportioned MSA amount based on a reduction formula similar to equitable distribution. Synergy has been involved in numerous cases where the LMSA issue had to ultimately be decided by

the courts when the parties were able to resolve their differences on protecting Medicare’s future interests. Getting court approval of an LMSA is not the norm and it should not become the norm. Instead, it should be the last resort for settling disagreements on MSP compliance.

At present, CMS does not have a formal process to review and approve liability MSAs as they do in workers’ compensation cases. CMS review of proposed LMSAs is determined on a case-by-case basis by the appropriate regional office. For example, both the California and Atlanta Regional offices routinely refuse to review LMSAs submitted for formal approval. In years’ past, Medicare would respond with a letter saying, “due to resource constraints, CMS is not providing a review of this proposed liability Medicare set aside arrangement.” This form letter would go 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 would warn, “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.” Currently, most regional offices have discontinued sending response letters to LMSAs. They simply will not bother to respond at all. Nevertheless, CMS does expect the funds to be set aside and spent on Medicare covered services before Medicare is ever billed, regardless of whether the MSA is reviewed/approved by CMS.

Problem (2) The carriers are writing the checks to resolve the liability claims.

The insurance carriers are paying to resolve the liability cases, which oftentimes gives them leverage to dictate the terms of the settlement. The plaintiff attorneys want the injury victims to get the settlement funds as quickly as possible so their client’s quality of life can be improved as they transition from litigation to life. They also have their attorney fees and need to recoup the costly litigation expenses of the case. As such, some plaintiff attorneys may be more likely to agree to Medicare secondary payer release provisions in an effort to expedite the exchange of settlement funds. These MSP provisions demanded by the defendants often are inaccurate, may not be applicable or may restrict the plaintiff in terms of future benefits. In many instances, the plaintiffs are not yet eligible for Medicare benefits, nor may they ever be entitled to receive Medicare benefits which makes it inappropriate to include any MSP language at all in the release.

Synergy was recently retained by a Minnesota law firm on a catastrophic multi-million dollar case. The insurance carrier refused to send the settlement checks until the plaintiff agreed to carve out monies for future medicals into a separate trust account. The plaintiff had not yet applied for Social Security disability benefits at the time of settlement; as such, she was not even eligible for Medicare benefits. However, the plaintiff agreed to set aside stipulation so the case could resolve without further delay or litigation expenses.

In another case, the insurance carrier insisted the plaintiff not only establish an MSA, but also submit the MSA to the Centers for Medicare and Medicaid Services (CMS) for review and approval. The insurance carrier attempted to build these terms into the mediation agreement. This client was receiving Medicaid benefits but was never going to be eligible for Medicare since she had not earned enough working credits to qualify. These are just but a few of many examples where a liability insurer attempted to impose MSP compliance terms to a settlement that were not applicable to the claim.

Problem (3) There is a tremendous amount of misinformation in the marketplace about Liability MSAs.

Some insurance carriers are convinced that failure to address Medicare’s future interests on liability case exposes them to future liability if not properly addressed. There is a small contingent of MSA vendors who have convinced the insurance industry that if you do not do an MSA when resolving a liability claim, then CMS can levy serious fines, penalties, or bring legal action against them.  The most common argument by these MSA vendors is that CMS can impose a lien post-settlement; therefore, retroactively exposing the carrier for not properly extinguishing all the liens. This argument is completely without merit. Since there are no regulations or statutes empowering Medicare to take any punitive action at all against a carrier for LMSAs, insurance carriers should be more concerned with conditional payments and reporting requirements.

On the other side of the spectrum, many plaintiff attorneys believe that they do not need to do anything with respect to protecting Medicare’s future interests. The plaintiff’s bar rightfully takes the position that one never has to do an MSA. While there is currently no regulation or law that mandates a liability Medicare set aside, it does not mean there will be no consequences when a plaintiff attempts to shift the burden to Medicare for future injury-related care.  It is very clear from Medicare’s public statements that the agency believes that set-asides are the best method to protect the program from paying for injury-related care when future medicals are funded by a settlement[2].  That does not mean it is the only way to demonstrate that Medicare’s interests were taken into account when a case involving a Medicare beneficiary is settled, it simply means it is one way.

The real issue, when a case involving a Medicare beneficiary is settled, boils down to the risk taken by the plaintiff in terms of coverage of their future injury-related care by Medicare.  This is not a defense issue; it is a plaintiff issue.  The plaintiff, if he/she does nothing without legal justification, could face a situation where Medicare denies future injury-related care since nothing was set aside.  The plaintiff needs to understand this risk before settling their case.  Since the settlement will be reported to Medicare under the Mandatory Insurer Reporting laws (Section 111 reporting), Medicare will be on notice of the settlement and the injury related ICD codes.  That could trigger a denial of care and a lengthy internal appeals process before Medicare payments for accident related care might have to be reinstated by a Federal District Court. This author has seen on numerous occasions where Medicare has denied accident related care for a plaintiff post-resolution of a liability claim when improper or no action was taken to protect Medicare’s future interests. Given the current interworking of Medicare, the risk for denial of benefits is extremely low but it still is a very real risk nonetheless.

Action Steps

CMS has stated the MSA issue is the plaintiff’s responsibility and the role of the defendant is to report current Medicare beneficiaries under Section 111 reporting[3]. The reality is that the defendant has no exposure for failure to address the MSA issue. However, plaintiff’s counsel has legal malpractice risks if they fail to properly advise the client regarding the set aside issue when they are currently eligible to receive Medicare beneficiary benefits.  Therefore, it is incumbent upon plaintiff counsel to consult with experts about proper Medicare compliance techniques, educate the plaintiff on the issues surrounding the MSP and then document what they have done to comply with the MSP.

Conclusion

Protecting Medicare’s interests on liability settlements should be a collaborative process for all parties involved. There needs to be greater education amongst the plaintiff and defense about the real potential implications of failing to adequately consider Medicare’s future interests. The parties must openly communicate to determine proper Section 111 reporting data, the Medicare eligibility status of the plaintiff, as well as MSP release language. They must also be proactive regarding the potential for a LMSA: what party is going to handle, and how much, if any, is going to be set aside, based on all of the facts of the case. There are numerous ways to deal with Medicare secondary payer compliance without having to do a Medicare set aside to ensure all parties are protected.

The lack of proper MSP compliance education and miseducation are the reasons for the great divide between the plaintiff’s bar and the insurance industry. Currently, there is no “one size fits all” approach to addressing LMSAs. All parties must make their best effort to protect Medicare’s interests. Section 111 Reporting has given CMS the ability to track current Medicare beneficiaries settling claims but the reality is CMS handles every liability case differently. Synergy has had clients recover millions of dollars and Medicare continues to pay for their accident related care. In other cases, we have seen plaintiffs get Medicare benefits for accident related care denied on cases settling for less than $50k. Some have even had their benefits denied as late as two years post-settlement. Synergy will continue to assist with techniques that lower the MSA or results in a zero amount set aside, while still ensuring our clients are properly protected.

Until CMS provides formal guidance on LMSAs, the plaintiff’s bar and the insurance carriers must consult with competent MSP compliance experts such as our team at Synergy, advise their respective clients on what the potential implications are for not properly taking into account Medicare’s interests, and document the file as to what was done, or what was not done as far as protecting Medicare’s interests.

[1] Parashar B. Patel, Medicare Secondary Payer Statute: Medicare Set-Aside Arrangements, Centers for Medicare and Medicaid Services Memorandum, July 23, 2001.

[2]  Sally Stalcup, MSP Regional Coordinator (May 2011 Handout). See also, Charlotte Benson, Medicare Secondary Payer – Liability Insurance (Including Self-Insurance) Settlements, Judgments, Awards, or Other Payments and Future Medicals – INFORMATION, Centers for Medicare and Medicaid Services Memorandum, September 29, 2011.

[3] Stalcup CMS Handout

By B. Josh Pettingill, MBA, MS, MSCC

Synergy receives numerous calls every week regarding what is required to properly self-administer an MSA.  The purpose of this article is to provide some guidance to attorneys regarding self-administered Medicare set aside (MSA) accounts. In administering MSAs, funds may only be used to pay for future Medicare covered, injury related medical expenses of the plaintiff. The Center for Medicare and Medicaid Services’ (CMS) guidelines indicate that the set aside funds should be placed in an interest-bearing account and may be either professionally administered or self-administered (Reference: 10/15/04, Memo Q 2).

The MSA “administration process” begins as soon as the attorney releases the settlement proceeds to the plaintiff. The plaintiff has the option of funding the MSA with a single lump sum out of the settlement proceeds or with future periodic payments using a structured settlement annuity (Ref: 7/23/2001 CMS Memo). When a set aside is funded with a lump sum, Medicare begins to pay for injury related health care as soon as the account is totally exhausted.

With an annuity funded MSA, there are two components of the set aside. The first component is the “seed money” which is used to cover the first 1-2 years’ worth of qualified medical expenses. The second component is future periodic payments from the annuity.  One year from the anniversary date of the settlement, the annuity payments will start to pay into the set aside account. When the funds are temporarily exhausted in any given year, Medicare begins paying for treatment related to the injuries. During this time of temporary exhaustion, the plaintiff will be responsible for any co-payments and deductibles.  If the funds are not all spent in a given year the remainder is carried over to the next year.  With annuity funding it functions much like a yearly insurance deductible. The MSA report should indicate the breakdown of the seed money, annuity payments and timeframe of the payments. The duration of the annuity payments are based on the life expectancy of the individual.

We recommend that attorneys issue separate checks from their trust account to fund a lump sum MSA, one for the MSA amount and one for the balance of the settlement proceeds. . The check should be written to the plaintiff with the subject referencing: John Doe Medicare set aside Account or John Doe MSA Account. To take it a step further, some attorneys actually request the defendant issue a separate check to seed or fully fund the MSA account. If the MSA is being funded with a structured settlement, the annuity will also be funded by the defendant with the seed being included in the cash paid at settlement.

Prior to releasing any settlement monies, attorneys should also have the plaintiff sign a separate document indicating they understand what their obligations are for self-administering the MSA account. Synergy offers an MSA consultation which includes a separate waiver for the plaintiff to sign indicating they understand the MSA obligations and are willing or not willing to create a set aside account. Attorneys do not have to hire an expert to advise and prepare such a document but it is the prudent way to ensure all parties are protected.

After settlement and establishing an MSA, Medicare may refuse to pay for any medical expenses related to the injury until the amount set aside for future medical expenses is properly exhausted. Consequently, there are certain steps that should be followed in administering the MSA account:

1.         Initial Set Aside Account Funding – The Medicare set aside Account will initially be funded by either a lump sum or via seed money with future annual payments from an annuity. We recommend a checking account be used to hold the funds for reasons I will explain below. It is not the responsibility of the attorney to oversee or assist in the process of establishing a self-administered MSA account. The plaintiff is responsible for opening the account. This account must be a segregated account and not comingled with any other non-MSA funds.

Note: If the MSA is being funded with an annuity, then a direct deposit form should be completed and sent back to the life insurance company issuing the annuity. This will ensure the annuity payments go directly to the MSA account and are not mailed directly to the plaintiff.

2.         Set aside Account – The Medicare set aside funds must be placed in an interest-bearing account checking or savings account. All interest earned on the Medicare set aside account has to be used solely for medical expenses from the accicdent/incident that would otherwise be covered by Medicare.

3.         Distribution of the set aside Account Funds – The funds in the Medicare set aside account must be used solely for legitimate medical expenses incurred for those medical needs related to or resulting from the injuries suffered, which would otherwise be reimbursable or paid for by Medicare. Funds in the Medicare set aside Account may not be used to pay for non-Medicare covered medical services. For a list of services not covered by Medicare, a copy of the booklet, “Medicare & You” can be obtained from the local Social Security office or by using the following link: http://www.medicare.gov/medicare-andyou/medicare-and-you.html.

The best gauge for determining what is covered by Medicare is the Medicare set aside analysis that was completed by the independent company or MSA specialist. If there are any questions concerning what Medicare covers, the plaintiff can also call l-800-MEDICARE.

The plaintiff may also use the MSA account to pay for the following costs that are directly related to the MSA account: document copying charges, mailing fees/postage fees, any banking fees related to the account and income tax on interest income from the set aside account (Ref: WCMA Reference Guide 2013).

4.         Reimbursement to Medicare – In the event CMS determines that Medicare has paid benefits prior to the depletion of funds in the Medicare set aside account, CMS, or its designated fiscal intermediary or carrier, shall have the right to seek and receive reimbursement of any such conditional payments or overpayments from the Medicare set aside Account to the extent that there are funds remaining in the account at that time. This situation can potentially arise if the medical providers bill Medicare for treatment related to the accident after the case has resolved but prior to the settlement funds being dispersed.

5.         Accounting Records – The administrator must maintain accurate records of the distributions and expenditures from the Medicare set aside account. The records should indicate the date of service, the diagnosis, the service received, who received payment and the date of the payment. The plaintiff may also want to keep a receipt or other evidence of each and every payment made from the Medicare set aside Account.  Using a debit card from a segregated account is an easy way to keep accurate accounting.  Anytime the injury victim goes to treat with a provider, they simply use the debit card to pay for the qualified medical expense. If the account balance ever gets down to zero, all they need to do is print out and mail the bank statement to Medicare with their receipts.

6.         Annual & Final Accountings – The plaintiff shall submit a final accounting ledger within 60 days of the MSA funds being depleted. The annual and final accounting will include evidence of every payment made from the Medicare set aside account. For liability MSAs, the accounting only has to be done upon the account balance reaching zero. In worker’s compensation cases, there are annual reporting requirements. The purpose of these account filings is for Medicare to confirm the MSA funds have been spent appropriately.

Once an MSA account has been completely exhausted and assuming the funds have been spent properly, the plaintiff has met their obligation to protect Medicare’s interests. They can then start to submit bills to Medicare again. At that time, the plaintiff should send a final attestation to Medicare as proof the funds were spent appropriately. The current address for sending final accounting on MSA accounts is:

Medicare Secondary Payer Recovery Contractor

Attention: MSP-Medicare Set Aside Reconciliation (NGHP)

P.O. Box 138832

Oklahoma City, OK   73113

7.         Delivery of Notices & Accountings – For worker’s compensation cases, the annual self-attestation should continue through depletion of the account. It is important that the administrator understands and complies with this requirement. The self-attestation letter must be signed and forwarded to CMS’ Medicare contractor no later than 30 days after the end of each year (beginning one year from establishment of the MSA account).

8.         Distributions Following Death of Beneficiary – In the event that the beneficiary dies before the funds in the Medicare set aside account are depleted, the MSA account should remain open for 180 days from the date of death to enable any outstanding bills for medical expenses incurred as a result of the incident that would otherwise be covered by Medicare to be paid. After the 180 days has elapsed, any funds remaining in the Medicare set aside account are payable to the claimant’s estate or proper payment subject to the appropriate State probate laws.

9.         Misappropriated Set Aside Account Funds – If the final accounting reveals that funds in the account were used to pay for items other than qualified medical expenses related to the accident, CMS may withhold Medicare coverage until the misappropriated amount is replenished and spent on injury related Medicare covered services. For example, if the plaintiff purchased a hot tub with funds from their MSA account, they would have to replenish their account with an amount equal to what was improperly used and then spend that money on injury related Medicare services before Medicare would cover future injury related treatment.

10.       Billing Rates – The MSA allocation is either prepared based on the usual and customary fee schedule or on the state’s worker’s compensation fee schedule, depending on the type of case. In the real world, doctors have the freedom to charge whatever rates they desire. It is important that the plaintiff attempt to negotiate with their providers for the lowest possible cost. This is easier said than done. With an MSA, the plaintiff essentially becomes a private payer for all Medicare covered treatment related to the accident until exhaustion. The MSA will not enjoy paying Medicare rates.

It should be noted that all of the above referenced guidelines come directly from the CMS memorandums relevant to worker’s compensation cases. Another helpful tool for administering MSA accounts is the, Worker’s Compensation Guidebook. To view the guide, use the following link:

http://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/Workers-Compensation-Medicare-Set-Aside-Arrangements/Downloads/March-29-2013-WCMSA-Reference-Guide-Version-13-copy.pdf

For liability cases, CMS has yet to issue a memorandum with guidelines for the administration of Liability MSA’s. Although it is perfectly “legal” for the plaintiff to self‐administer a liability MSA account, it can be a daunting task and create huge liability. If the plaintiff elects to self‐administer their account, they must have both the financial and medical administrative competency to do so. There are no “Medicare set aside police” monitoring set asides but if the MSA is improperly administered; it can lead to a loss of coverage for injury related Medicare covered services.

Attorneys should explain to their injury victim clients the intricacies of self-administration and let them make an informed decision before opting to self-administer. Professional administration is the recommended method to ensure full compliance with Medicare Secondary Payer requirements and to eliminate any possibility of the plaintiff ever losing their Medicare coverage. There is an additional cost for professional administration but with that cost, comes the peace of mind that Medicare coverage will not be jeopardized.

Synergy offers a Medicare set aside administration program through the use of a formal trust agreement with a corporate trustee and a separate professional Medicare set aside administrator. With a Medicare set aside Trust, the plaintiff has a professional trustee that has a fiduciary duty paired with a set aside Administrator, who handles managing the set aside funds and reporting to CMS. Administrative fees/expenses for administration of the MSA and/or attorney costs specifically associated with establishing the MSA cannot be charged to the set aside arrangement (Ref: 5/7/04 Memo).  Therefore, the professional administration costs must be paid for by the injury victim.

For all of your Medicare secondary payer compliance needs, please visit us at www.synergymsa.com or call us at (877) 242-0022.