Medicare Set Asides in Liability Settlements

Question: Is there any update (as of Feb. 2009) to set-aside expectations or requirements for liability cases?

Recent Seminar Attendee

Answer: We recently published the following guidance that may be helpful to you:

“Dealing with Misinformation Regarding Medicare Set Asides in Liability Settlements”

Several attorneys have contacted our firm in the last couple weeks telling us that a defendant/insurer is requiring a Medicare Set Aside be established in a liability settlement. In each of these instances, the defendants/insurers told plaintiffs counsel that “this new Medicare law means ‘set asides’ are now required in liability settlements.” We hope the overview below will help add some clarity (and give you a plan of action) if a defendant tells you that a Medicare Set Aside is required in your liability settlement.

The new law these defendants are referring to is the Medicare, Medicaid and SCHIP Extension Act of 2007 (“MMSEA”). MMSEA requires defendants to report certain information regarding settlements with Medicare beneficiaries to the Secretary of Health and Human Services. The implementation of MMSEA in July of this year indeed poses some new challenges to those practitioners settling single event and mass tort personal injury claims. The nature of these challenges, however, appears to be exaggerated now that some settlement consulting companies have distributed missives stating that the MMSEA requires Medicare Set Aside Arrangements (“MSA”) in liability settlements.

“MSA” has become a buzzword in the settlement community due to various memoranda from the Centers for Medicare and Medicaid Services (“CMS”). As a part of the “Patel memorandum” issued in 2001, CMS expressed its preference for practitioners to use MSAs as the suggested means for considering Medicare’s interest in workers’ compensation settlements. Subsequent memoranda further elaborated on the proper application of MSAs in workers’ compensation settlements. However, CMS has yet to address the use of MSAs in liability settlements in a similar manner. This lack of guidance has created uncertainty among practitioners involved in liability settlements.

When MMSEA was announced, some opined that Medicare would now begin requiring liability settlements to include MSAs starting July 1, 2009 and/or that such guidance is expected shortly from CMS. Such an interpretation of MMSEA misses the mark. CMS has not offered any formal guidance on the issue of liability MSAs and we believe such guidance will not be coming in the near future. Moreover, CMS has repeated in its last five “town hall” teleconferences that MMSEA’s settlement-reporting requirements are not intended to replace or change CMS’s recovery practices, including MSA guidance. Quite simply, the MMSEA is not designed to be a “Trojan horse” for liability MSAs.

In fact, the sole purpose of Section 111 of the MMSEA is to ensure that settling parties fully comply with the Medicare Secondary Payer requirement – That is, conditional payments must be verified and resolved in all liability, workers compensation and no- fault settlements. In this regard, if you are already verifying and resolving Medicare’s reimbursement claim in all your settlements, it is business as usual for you and your clients. This new law (to date) has nothing to do with identifying Medicare-covered future costs of care, which leads to MSA issues and analysis.

The history of the Medicare Secondary Payer (“MSP”) statute supports this conclusion. On Dec. 5, 1980, the MSP statutes as we know them today were modified to take into account Medicare’s conditional payment recovery rights. It was not until twenty-three years later, under Section 301 of the Medicare Modernization Act, when additional enforcement provisions were added to the MSP statute, focusing compliance on plaintiffs’ attorneys and their Medicare-entitled clients. Now, Congress has closed the loop with Section 111 of the MMSEA by placing a reporting obligation on self-insured defendants and/or insurance carriers. CMS’ February 3, 2009 MMSEA guidance emphasizes the fact that Section 111 did not change or remove any existing MSP rules, but adds to existing MSP requirements. As a result, for plaintiffs and their attorneys, the obligation is still to “verify and resolve” Medicare’s conditional payments, but for defendants, the sole obligation (through MMSEA) is to verify Medicare entitlement and inform CMS.

Nonetheless, whether promoted by a misunderstanding, self interest, or an extraordinary abundance of caution for their clients, a few settlement consulting companies unfortunately may have dragged the train out of the station and placed it on no clear track. We are aware that some insurers have gone beyond the rather unambiguous settlement reporting requirements associated with the new MMSEA and have begun mandating MSAs as a “default rule” in larger liability settlements (e.g. such as settlements of $750,000 and more). As one practitioner recently put it to me, “perhaps the momentum may be irreversible at this point.” In this regard, while we disagree with any interpretation that compliance with the MMSEA requires a customary use of MSAs in all larger liability settlements, we realize that we need to help our clients through this morass.

If you are settling cases with insurance companies that (understandably) are trying to protect themselves in the midst of this confusion, the Garretson Firm Resolution Group (“GFRG”) offers a few services that may help address the situation. As a preliminary step, however, you might diffuse the situation by informing the defendant that your firm has a formal Medicare compliance process in place, including the verification and resolution of Medicare’s reimbursement claim. You also may provide the defendant with our analysis of the state-of-affairs with respect to this issue. (We are commonly pulled into phone calls and are willing to discuss this topic with all parties). Should the issue remain after these preliminary efforts, we may be able to assist further by:

• Providing an analysis of the facts of your case against the existing CMS rules/guidance to produce a recommendation letter. (At a minimum, the recommendation letter allows you to document and memorialize the fact that you are considering Medicare’s interest at the time of settlement);
• Conducting a full Liability Medicare Set Aside (Liability MSA) evaluation (which may be necessary in a limited set of facts and/or to counter balance the proposed MSA provided by the defendant). A Liability MSA evaluation has two primary components: a) an analysis of the client’s future Medicare-covered injury-related care; and b) a determination of the appropriate allocation (if any) in the settlement to future medicals. (A “white paper” discussing this analytical process is available upon request);
• Submitting (if necessary under a very limited set of facts) Liability MSA proposals to CMS for approval.

Industry misinformation has injected Liability MSA requirements into the national discussion. While we do not believe “MMSEA equals Liability MSA,” we realize we all may be trying for some time – as cowboy wisdom goes - to stuff feathers into a pillowcase during a wind storm.

Posted by Matthew Garretson and Libby Vish