Medical Malpractice, Medicare Set-Aside Arguments

Question: I thought I was quite secure in my understanding that the Medicare Set Aside rules ONLY apply to workers compensation recoveries. I have argued the matter before, and haven't had to challenge my mind on this for awhile.

However, after checking the statute and confirming the above opinion as statutorily sound, I have learned from an esteemed colleague that CMS has indeed asserted a Set-aside requirement out of a completed settlement in a non-workers’ compensation matter. The attorney who is dealing with this tells me he has spoken with the CMS rep, and has cited the statute and reg to her, and they still assert entitlement to this abomination. Have I been wrong? Is there some right to set aside in our med mal cases, etc.? If so, there may be a hell of a lot of changes I need to make in my demands or case selection.

Missiouri Attorney

Answer: I sent the message below in response to a Medical Malpractice Listserv posting related to this topic last month. It might be helpful:

It would be very rare that a Liability Medicare Set Aside (LMSA) would be required under those facts. The Medicare Set Aside obligation is unique as it applies to a liability settlement as opposed to the traditional application in a workers’ compensation (“WC”) settlement. A WC settlement (with its two distinct components - indemnity and medical damages) has a definitive shift of future health care obligation (from the carrier to Medicare) which carries a clear obligation to protect Medicare’s interest in cases involving a plaintiff entitled (or soon to be entitled) to Medicare. In WC settlements involving Medicare beneficiaries, federal regulations provide that the obligation for work-related injury medical expenses should not be shifted to Medicare from the responsible party. Accordingly, a portion of a Medicare beneficiary’s workers’ compensation settlement must be set aside to pay for the beneficiary’s future work related injury and / or illness. Federal regulations also provide that Medicare will not pay for any medical expenses for the work-related injury or illness until the amount allocated to future medical expenses is exhausted. Medicare has a formalized guidance and protocol established for workers’ compensation settlements to ensure the agency’s interests are protected. Formalized guidance and protocol, however, is not available for liability settlements.

Satisfying Medicare’s interest for future injury-related care in liability settlements has a myriad of variables which don’t exist in WC (economic and non-economic damages, derivative claims, and other factors confounding recovery including, but not limited to caps, and policy limits). These factors make it much more difficult for the Centers for Medicare & Medicaid Services (CMS) to determine the amount allocated for future medical expenses. The only liability cases wherein Medicare contends that it is clear an obligation exists is a case involving a Medicare beneficiary where there is a defined judicial allocation for future medicals (i.e. an interrogatory / verdict sheet with a definitive allocation for future medicals). These cases are obviously the exception and not the norm. More commonly, liability cases settle with a broad, general release. When we evaluate such cases, we employ the appropriate standard of “properly considering Medicare’s interest.” The determining factors include:

• Is the Client currently entitled to Medicare?
• Was it a pure Liability case? Was there any workers compensation component?
• What was plead & released (indemnity & meds only, specific allocations? Etc.)
• Has the settling parties properly satisfied Medicare’s conditional payments (date of injury through date of settlement?
• Who has been paying for injury related care?
• Will there be future injury related care (treatment, management, drugs)? (If not, obtain a treating physician letter)
• Will Medicare now (after the settlement) be absorbing the burden?
• What documentation exists concerning the types of damages being released? (Certainly the settling parties should heavily document their files and incorporate language into the settlement documents explaining how they have “considered Medicare’s interests.” Examples include: Complete analysis and allocation by qualified “MSA” professional / vendor and / or letters from treating physicians supporting that no future injury-related care is necessary or supporting small costs only)

Based upon the facts you provide (and assuming the liability settlement is below $1M in gross recovery), at face value your case does not look like an LMSA candidate. Of course, the appropriate measures need to be taken to reimburse Medicare for past injury-related care and I recommend that you memorialize in your file the internal evaluation in regards to the necessity of an LMSA. Also, given the clients age, I am also mindful of Medicare’s limited coverage of nursing home care – Certainly your client may exhaust the settlement proceeds on the nursing home care and may need to explore alternative nursing home coverage via Medicaid or other programs.

As a final note, for cases in which the above analysis does trigger a concern in a liability case, we typically gather the necessary case detail to generate a neutral damages / recovery evaluation. This evaluation produces a determination identifying the appropriate (if any) future medical allocation (FMA). At this point, we perform a future cost of care analysis (FCC) which will identify the injury-related care for which Medicare would otherwise pay. We then recommend the liability Medicare set aside of the lesser of the two numbers. Furthermore, we evaluate and provide a recommendation as to the need to pursue Centers for Medicare & Medicaid Services (CMS) approval. Again, such cases are the exception and not the norm.