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This White Paper analyzes the propriety of using a Medicare Set-aside Arrangement ("MSA") in liability settlements as opposed to the workers' compensation context. This memo contains the academic and legal underpinnings behind the current MSA debate as well as practical guidance/tips for dealing with situations where a settling party (perhaps misinformed about the related requirements [or lack thereof]) is demanding an MSA in a liability settlement.
In all settlements, compliance with Medicare rules and regulations can involve two obligations: i) the satisfaction and discharge of Medicare's reimbursement claim for injury-related care from the date of injury through the date of settlement; and ii) the evaluation of obligations associated with future costs of care that may be provided to the claimant from the date of settlement onward. In our experience, the most logical way to assure that these obligations have been satisfied is to review the relevant statutes as well as any guidance from the Centers for Medicare & Medicaid Services ("CMS") interpreting those statutes and apply this information to the facts of each case. Accordingly, this White Paper is based on the currently available guidance concerning satisfaction of Medicare's future interest in liability settlements.
MSA Overview
The purpose of an MSA, in both the liability and the workers' compensation (“WC”) context, is to pay for future injury-related care which would otherwise be covered by Medicare. However, the MSA obligation in a liability settlement is less definable when compared to the traditional application in a WC settlement. That is because in a WC settlement, following no fault standards, there are only three "buckets" of damages: (1) indemnity; (2) past medicals; and (3) future medicals. Because every WC settlement has a future cost of care damage allocation, the only condition left to consider is whether there is a permanent burden shift over to Medicare in the obligation to pay for that future injury-related medical care. The same is not the case in a liability settlement, as issues of comparative fault, special damages, and other, non-future medical damages are present, and serve to confound an easy application of MSA concepts. Far from being a position we take on settlements, the lack of a uniform damage allocation can be considered a truism when it comes to identifying the lack of any MSA guidance from CMS where liability settlements are involved.
Consider: if settlement involves a claimant who is entitled or soon to be entitled to Medicare, a WC settlement (indemnity and medical) has a definitive shift of future health care expenses from the WC carrier to Medicare. This shift-of-burden carries a clear obligation to protect Medicare's interest, at least when following the Memoranda issued by CMS, including the Workers' Compensation (Patel) Memo of July 23, 2001. In WC settlements involving Medicare beneficiaries, federal regulations provide that the liability for medical expenses incurred due to work-related injuries should not be shifted to Medicare from the responsible party. However, CMS' recommended means to protect Medicare's interest involves defining that portion of a Medicare beneficiary's WC settlement which relates to future cost of care. According to CMS' Memoranda, these monies should be set aside to pay for the beneficiary's future work-related injury and/or illness. Federal regulations 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.
Since liability cases often involve a mix of inter-related damages (beyond the statutorily defined silos of indemnity and medicals in the WC context), the application of the WC-oriented MSA principles (and associated guidance from CMS) is far from clear cut in the liability context. As such, WC-oriented MSA principles cannot merely be grafted onto a liability case. Instead, an independent review of damages, including an allocation intended to determine the existence of future costs of care, and the presence (or lack thereof) of a permanent burden shift over to Medicare to pay for such care is proper to determine the propriety of MSAs in liability cases.
Medicare's Recovery Rights (the law)
Medicare's right of recovery extends both to the past and the future. This is the case for both liability and WC cases. As such, when we talk about Medicare compliance, we are really talking about two separate and distinct moving parts. On the one hand, Medicare has past payments to be reimbursed (arising from date of injury through date of settlement). On the other hand, Medicare also has an incentive to not pay for future medical expenses where funds were specifically allocated from a WC settlement to pay for such future expenses (arising from date of settlement onward). Both past and future medical payments made or to be made by Medicare become a factor in settling WC cases to ensure Medicare compliance in the reimbursement sense.
In the case of past payments (date of injury to date of settlement), Section 1862(b)(2) of the Social Security Act (42 U.S.C. §1395y(b)(2)) provides that payment may not be made under Medicare for covered items or services to the extent that payment has been made, or can reasonably be expected to be made promptly, under a liability insurance policy or plan (including a self-insured plan). Thus, all past Medicare payments are conditioned on reimbursement to the Medicare program to the extent that payment with respect to the same items or services has been made, or could be made, under a liability insurance policy or plan (including a self-insured plan).
In the case of future payments (date of settlement onward) where a lump sum compensation award stipulates that the amount paid is intended to compensate the individual for all future medical expenses required because of the work-related injury or disease, federal WC regulations provide a mechanism whereby Medicare does not pay for such expenses until the amount of the future medical expenses equals that part of the lump sum payment. Where a compromise settlement allocates a portion for future medical expenses and reasonably recognizes the income replacement element (indemnity portion), CMS can accept such apportionment as a basis for determining Medicare’s future payments.
Who's Liable to CMS for What?
Based on currently enacted law, the liability to Medicare with regards to satisfaction of its past and future payments differs. 42 C.F.R. §411.24(e) sets forth that Medicare may assert a direct right of action against any entity that makes a primary payment. 42 C.F.R. §411.24(g) allows Medicare to recover its conditional payment interest from any party receiving a third party payment. When Medicare makes a conditional payment for injury-related care, Medicare may seek recovery from any entity that either makes a primary payment or receives a third party payment. Though it has traditionally pursued claimants (and claimants’ counsel in extreme circumstances) to recoup that conditional payment interest, Medicare is also will i ng to pursue corporate defendants for conditional payments that were not made as part of a settlement program. In short, Medicare can recoup its conditional payment interest from any entity that makes a primary payment or receives a third party payment.
That same liability paradigm does not exist when it comes to dealing with Medicare as a secondary payer for future medical expenses. Because the reimbursement obligation under the federal regulations contemplates conditional payments made, and Medicare does not make conditional payments post-settlement once it has been reimbursed and closed its file, the language set forth in 42 C.F.R. §411.24 does not apply. As such, Medicare looks to the claimant (and claimants' counsel) if/when it asserts a future subrogation interest in those situations where a claimant has failed to properly avoid a permanent burden shift over to Medicare at the time of settlement. Further, the current version of the Medicare Secondary Payer ("MSP") Manual notes that Medicare will not recover for future interests (i.e., future medical expenses) in a liability settlement.
Workers' Compensation Settlements (and MSAs)
While the purpose of this White Paper is to discuss the propriety of MSAs in the liability context, a discussion of WC fundamentals aids the reader in obtaining a better understanding of the underlying concepts. In the case of WC, reimbursing Medicare for conditional payments made on behalf of the Medicare enrolled beneficiary (settling the case) from date of injury through date of settlement is not the whole story. Per CMS Memoranda, Medicare’s future interest should also be considered in WC settlements for which the obligation to pay future injury-related medical expenses is being permanently shifted from the WC plan to Medicare. In this regard, if a WC claimant will have future medical expenses as a result of his/her injury, the wise practitioner advises his/her client of the need to set aside settlement funds to pay for Medicare-covered expenses as a means of protecting the client’s Medicare card. The most accepted compliance method for this obligation is to calculate and fund an MSA when appropriate.
Workers’ Compensation MSA Evaluation
Based on currently enacted law and guidance provided by CMS, an MSA is needed in a WC settlement when all of the following three criteria are met: 1) the claimant is either currently enrolled in Medicare or possesses a “reasonable expectation” of Medicare enrollment within thirty (30) months of settlement; 2) the WC settlement permanently closes future medical expenses, effectively shifting the burden of future injury-related care from the WC carrier to Medicare on a permanent basis going forward ; and 3) the claimant, in fact, requires future injury-related care that would otherwise be covered by Medicare. If a WC settlement meets these three criteria, then an MSA is appropriate.
MSAs are not needed in all WC settlements. If one of the criteria set forth above is not met, then an MSA is not necessary or appropriate for the settling parties to be Medicare compliant in a WC settlement. An MSA may not be necessary when: 1) the claimant lacks the requisite Medicare enrollment status (no current Medicare enrollment at settlement and/or no “reasonable expectation” of Medicare beneficiary status within thirty (30) months of settlement); 2) future medical coverage is not being permanently settled (no permanent burden shift exists); or 3) if the claimant’s treating physician can support that no future injury-related care is necessary (no future costs of care in the first place).
The CMS Policy Memoranda defines the term “reasonable expectation” as it relates to determining a person’s Medicare enrollment status for MSA determination purposes. The April 2003 CMS Policy Memorandum states that a “reasonable expectation” included any injured party that has: (1) applied for Social Security Disability Income (“SSDI”); (2) been denied SSDI, but anticipates appealing the decision; (3) is currently appealing the denial of SSDI or is re-filing for it; (4) is sixty-two (62) years and six (6) months old; or (5) suffers from an end stage renal disease, but has not yet qualified for Medicare.
Workers’ Compensation MSA Allocation
Once it has been determined that an MSA is appropriate as part of a WC settlement, the next step is to determine the appropriate amount with which to fund the MSA. Keeping in mind that the purpose of the MSA is to avoid an improper burden shift over to Medicare with respect to future injury-related medical payments, a future cost of care review helps with that determination. From the date of settlement going forward, the total future cost of care (injury-related) should be determined. Then, those future costs of care should be divided into those costs/expenses which would be covered by Medicare and those costs/expenses which would not be so covered. At that point, the MSA Allocation amount becomes that amount of future injury-related care otherwise covered by Medicare, which is available to fund an MSA.
Workers’ Compensation MSA Proposal
After determining the appropriate amount with which to fund the MSA, questions relating to the manner of funding and the administration of the MSA need to be answered. Each question has two potential answers. Each question should be decided by the Medicare beneficiary after being fully informed.
An MSA can be funded one of two ways. First, the MSA may be funded using a lump sum amount of settlement proceeds up front. Once funded, those proceeds must be spent only on future injury-related care that would otherwise be covered by Medicare. Once those proceeds have been exhausted properly and the MSA has been spent down to zero, then the claimant may begin to bill Medicare again for injury-related medical care. The second option is to fund the MSA using an annuity or other structured settlement vehicle. Here, the MSA is funded with ‘seed money’ consisting of the first two years of medical expenses which would otherwise be Medicare covered plus the cost of the first contemplated surgery or procedure. Then, the annuity would pay a sum certain into the MSA for the remainder of the claimant’s life expectancy to cover future injury-related care otherwise covered by Medicare. Medicare expresses no preference to one funding method or the other. There are advantages and disadvantages to each method, with a claimant making an informed decision based on the facts and circumstances of his/her case. Typically, smaller MSA accounts (e.g., less than $50,000) are funded as lump sums; whereas the larger accounts, which carry with them more significant future medical expenses, benefit from being able to become exhausted following complete disbursement of the seed money, and the first year’s annual payment into the MSA. At that point, with proper documentation, Medicare reclaims its position as primary payer for non-injury and injury-related medical bills until the next annual installment payment is made into the MSA.
Similarly, an MSA may be administered one of two ways. First, the MSA may be administered by the claimant. In this scenario, the claimant controls when MSA proceeds are used to pay for future injury-related care which would otherwise b e c overed by Medicare as opposed to when other funds should be used to pay for such expenses. In the alternative, an MSA can also be administered by a professional third party custodian/trustee. In this scenario, a custodian/trustee serves as the fiduciary of the account, determining the propriety and extent to which MSA funds are applied to pay for future injury-related care. Medical providers bill the custodian/trustee, and the custodian/trustee sorts through the bills, debiting the MSA account as appropriate. Again, both administrative methods have advantages and disadvantages. Self-administered MSAs are more simple and cost effective. However, since the goal is to preserve the claimant’s Medicare card as well as protect Medicare’s interest, it is imperative that the claimant has a full understanding of how the MSA proceeds should be spent and what expenses are Medicare-covered versus those that are not. Absent this understanding, a claimant runs the risk of spending the MSA proceeds inappropriately, and this jeopardizes his/her Medicare card. Professionally administered MSAs can be a more compliant solution with the right custodian/trustee, as the determination regarding when MSA funds are to be spent is left to a professional fiduciary experienced in such matters. However, professionally administered MSAs may be costly and complex. Again, the claimant should be fully advised of both options prior to being asked to make an informed decision.
CMS Submission of MSA Proposal for Review/Approval
While CMS’ has provided a series of guidelines to help the parties properly address the MSA issue in all WC settlements, CMS only will “review and approve” WC settlements (and associated MSA calculations) that meet certain thresholds. CMS established the following workload review thresholds to help manage the number of WCMSA proposals submitted for review and approval: 1) for a claimant who is a current Medicare beneficiary, the gross settlement amount must be greater than $25,000; and 2) for a claimant who is not yet Medicare enrolled but possesses a “reasonable expectation” of Medicare status within thirty (30) months of settlement, the gross settlement amount must be greater than $250,000.
An often misunderstood concept here is that these thresholds are workload review thresholds, not safe harbor amounts. Therefore, if the WC settlement involves a current Medicare beneficiary and the gross settlement is $20,000, it does not mean that an MSA is not proper to establish. Likewise, if the WC settlement involves an individual who is not yet entitled to Medicare but does possess a “reasonable expectation” of Medicare entitlement within thirty (30) months of settlement, the fact that the gross settlement is only $200,000 does not mean that an MSA is not appropriate. It merely means that if that MSA proposal was submitted to Medicare for review and approval, CMS would not review it. MSAs are appropriate whenever they are appropriate, no matter what the final gross settlement amount totals.
Because of these workload review thresholds, it cannot be said that parties are required to submit MSA proposals to CMS for review and approval. CMS approval of the set-aside calculation is voluntary, not mandatory. Though voluntary, CMS approval of the MSA proposal ensures that only a predefined portion of the settlement, rather than the entire settlement, must be spent before Medicare resumes payment of future injury-related medical expenses. Nevertheless, CMS review and approval of the MSA proposal remains the one proven method to ensure Medicare will not challenge the set aside calculations later on. Therefore, as part of installing a Medicare compliance program in y our practice, seeking CMS review and approval whenever a WC case meets the workload review thresholds established at the time of your settlement may become the final step to ensure Medicare compliance.
Taking the above mentioned guidance one step further, submitting a zero dollar MSA allocation to CMS for review and approval is also voluntary. CMS advises the settlement community that it lacks the time and resources to review all MSA proposals. Thus, the workload review thresholds are in place. However, if the attorney does not seek CMS approval, following client input, it is imperative to memorialize the comprehensive efforts that were undertaken to properly consider and protect Medicare’s future interest, to use Medicare’s vernacular. Examples include obtaining letters from treating physicians supporting the analysis, MSA evaluations prepared by independent third parties and claimant education regarding the proper use and accounting of the MSA funds.
Liability Settlements (and MSAs)
The fundamental statutory principle requiring settling parties to consider and protect Medicare’s future interest in WC settlements already exists and appears to apply to liability settlements as well. The MSP provisions state Medicare is always secondary to WC and other insurance, including no-fault and liability insurance. Again, under the Social Security Act, payment “may not be made under Medicare for covered items or services to the extent that payment has been made, or can reasonably be expected to be made promptly, under a liability insurance policy or plan.” Also, Medicare’s authority to review liability settlements arises under the same statute as does its authority to review WC settlements.
While the statutory principle to consider/protect Medicare’s past and future interests in liability settlements is uncontroverted, the extent of the MSA obligation in a liability settlement remains unclear. Unlike the use of MSAs in WC settlements, which can be supported by legal principles and administrative announcements, the same cannot be said for using MSAs in liability settlements. When the various individual factors are viewed in their totality, one cannot conclude that the MSA obligation in a liability settlement equals that of a WC settlement at this time.
Differences Between WC & Liability Settlements
The composition of a liability settlement is much more complex than a WC settlement. A WC settlement contains a finite number of potential recovery buckets: 1) indemnity; 2) past medical expenses; and 3) future medical expenses. On the other hand, a liability settlement contains many more potential recovery buckets when both economic damages (i.e., past medical expenses, future medical expenses, loss of earning capacity, loss of household services, etc.) and non-economic damages (i.e., pain & suffering, mental anguish, loss of independence, loss of society, etc.) are considered. Typically, these settlements also differ in the fact that settlement proceeds are often allocated specifically in a WC settlement while settlement proceeds are not often allocated in a liability settlement. These distinctions are critical; so much so that merely “bootstrapping” the WC rules to liability settlements is hardly compliant.
Currently Enacted Law re: MSAs in Liability Settlements
A fact often lost in the MSA debate is that the MSA obligation is not one imposed by the MSP statute. The MSP statute itself does not discuss MSAs. In fact, a review of all currently enacted federal statutes and regulations may lead one to the conclusion that there is no currently enacted law imposing an MSA obligation on settling parties. Current law does not even provide the settlement community with a statutory definition of “MSA” or “Medicare Set-aside Arrangement”, and currently enacted law makes no mention of those terms.
The closest currently enacted law comes to the “set-aside” concept may be found at 42 C.F.R. §411.46. This was one of several federal regulations enacted in support of the MSP Act. 42 C.F.R. §411.46(d)(1) sets forth that Medicare will generally pay for future injury-related care when a lump-sum compromise settlement forecloses the possibility of future payment of workers’ compensation benefits. The exception to that basic rule is found at 42 C.F.R. §411.46(d)(2), when a portion of the settlement agreement allocates certain amounts to future medical expenses. In those limited cases, Medicare will not pay for future injury-related care until those amounts allocated to future medical expenses have been exhausted. While there currently is no statutory definition of ‘Medicare Set-aside Arrangement’ or ‘MSA’, this section is as close as current law comes to telling the settlement community that MSAs are appropriate under certain circumstances.
Even here, this regulation does not support the conclusion that MSAs are required in liability settlements. First, this is a workers’ compensation regulation, not a third party liability regulation. The provisions related to third party liability settlements are set forth in Subpart D – Limitations on Medicare Payment for Services Covered Under Liability or No-Fault Insurance beginning at 42 C.F.R. §411.50. After comparing Subpart C (Workers’ Compensation) to Subpart D (Liability or No Fault), it becomes obvious that Subpart D does not contain the same language as is found in Subpart C at 42 C.F.R. §411.46. In fact, Subpart D contains no language discussing the effect on payment for services furnished after the date of settlement. Second, even in workers’ compensation settlements, the basic rule is that Medicare will pay for future injury-related care, with the exception being those cases where there is an allocation for future medical expenses. If this guidance were to be applied to the third party liability context, that would mean that Medicare generally pays for future injury-related care except those liability settlements where there is an allocation for future medical expenses. Absent this allocation for future medical expenses, federal law would allow Medicare to pay for future injury-related care. Therefore, not only does this regulation not support the use of MSAs in liability settlements, it provides support for the notion that the use of MSAs is the exception rather than the rule.
Current Guidance from CMS re: MSAs in Liability Settlements
The MSA obligation, such that it is, is one imposed by CMS Policy Memoranda as opposed to currently enacted law. As a result, any discussion regarding the use of an MSA in liability settlements stems from published guidance related specifically to WC settlements. Currently, there are fifteen (15) policy memoranda from CMS about the use of MSAs in WC settlements and zero (0) policy memoranda about the use of MSAs in liability settlements. The reason for the guidance in the WC situation is that CMS is interpreting the MSP statute, namely 42 U.S.C. §1395y(b)(2) and its associated regulations.
While CMS continues to release memoranda formalizing MSA procedures for WC cases, it has yet to release even a single memorandum formalizing standards o r guidance for the review of liability insurance settlements for MSA obligation purposes. In fact, the only place in those CMS policy memoranda where liability settlements are mentioned is in question and answer 19 of the April 2003 memo. In that Memo, CMS provides guidance for those WC settlements containing both a WC and a liability component. Further, should CMS choose to publish guidance concerning the use of MSAs in liability settlements, it would have to base such guidance on specific language in the MSP statute, as the regulations are silent on this point. If CMS intended for MSAs to be used routinely in liability settlements, it would issue similar guidance specific to the use of MSAs in liability settlements.
Simply put, to date, CMS has not chosen to expand its MSA guidance to specifically include liability settlements without a WC component. That is not to say CMS cannot make such an extension. However, we submit that, regardless of characterization, unless a settlement has a specific allocation of future medical expenses otherwise covered by Medicare, the elements that would even permit us to recommend MSAs in the liability context do not exist.
The Proper Use and Application of MSAs in Liability Settlements
Based on the currently enacted law and guidance, the establishment of MSAs in a liability settlement should be the exception, not the rule. The MSA obligation in a liability settlement is only clear (on its face) in the specific case where a definitive allocation for future injury-related medical expenses exists for an injured Medicare beneficiary. For example, a liability MSA would be properly considered in the case where a liability action proceeds to trial, results in a judgment in favor of a Medicare beneficiary, and the trier of fact determines that a specific portion of the judgment is to be applied to pay for future medical expenses. In that fact pattern, there would be an identifiable portion of the judgment against which to apply future medicals. Prior to concluding an MSA may be in the best interest of the Medicare beneficiary, the parties would also need to identify whether there also exists a permanent burden shift by reason of the lack of any primary payer (other than Medicare) to make such payments. If both of these queries result in an affirmative determination, establishing an MSA and seeking CMS approval may be the best, but not only, way to ensure compliance.
A second, albeit more rare, example would be a settlement release containing a definitive allocation for future medical expenses. This allocation could relate either to a specific future treatment (such as a surgery contemplated by the parties) or to generally anticipated future medical expenses for which the settling parties have agreed to a certain dollar amount and specifically listed on the settlement documents to ensure no future liability exists for those anticipated future medical expenses. We further submit that certain large settlements wherein damage elements other than future medicals are capped (such as pain and suffering) or non-existent (such as other economic damages, like lost wages) may fit this same unique mold in isolated circumstances when the liability settlement, by virtue of these caps and/or limited recovery buckets, looks more like a WC settlement.
On the other hand, in the majority of settlements where the parties settle liability claims using a broad, general release of all claims and do not specify or otherwise allocate settlement proceeds to particular damages, whether due to policy limitations or other confounding factors, the ability to determine the propriety of an MSA becomes much less clear. When settling a liability case in which payment for future medical expenses is not s pecifically negotiated, if a general release is implemented that uses broad language (for example, referring to “all claims past and future”), that future medical expense component is not readily identifiable. The mere fact that a claimant has pled for future medical expenses as part of the claim does not necessarily mean the gross recovery contains proceeds for future medical expenses. Also, the mere presence of a life care plan does not mean that the gross recovery contains proceeds for future medical expenses. While a claim may contemplate future medical expenses, that does not guarantee the gross recovery contains proceeds for future medical expenses, even if the release makes reference to “all claims past and future.”
In light of the lack of currently enacted law or CMS guidance on point about the use of MSAs in liability settlements, settling parties should make a “good faith effort at substantial compliance” when determining if an MSA should be established as a part of settling a liability claim. As part of our standard MSA Evaluation process, to meet the “good faith effort at substantial compliance” standard, we apply a damages/recovery “reasonable person” analysis to determine if a portion of the gross recovery definitively recognizes future injury-related care and then further determine the amount of future injury-related care for which Medicare would otherwise be responsible once we have identified a claimant as a candidate for an MSA. Our firm currently employs this good faith standard in all liability cases we review for MSA determination purposes in our capacity as an independent, neutral third party whose focus is on Medicare compliance as opposed to favoring either a plaintiff-oriented or defense-oriented analysis.
If, however, in good faith, a reasonable person would determine that an actual allocation for future injury-related medical expenses exists in the settlement (which should be the exception and not the rule) such that the claimant voluntarily chooses to pursue a set aside arrangement to protect his/her Medicare benefits, two options exist: i) identify the appropriate allocation and educate the claimant to ensure that those proceeds are spent down on future injury-related care (for which Medicare would otherwise pay); and/or ii) contact the appropriate Medicare regional officer, share the fact pattern of the case to determine whether he/she elects to review and approve the allocation. The regional offices make these elections based on workload thresholds and are subject to change without notice. CMS does not have the same formal review process for liability MSA proposals as it does for WCMSA proposals. However, settling parties need to be aware of the conditions (i.e., future cost of care allocation and permanent burden shift), that would lead to triggering the reasonable person standard such that an MSA may be appropriate even in a liability settlement.
The New MMSEA Statute Does Not Require MSAs
Despite considerable urban legend, the Medicare, Medicaid and SCHIP Extension Act of 2007 (“MMSEA”) does not contain any new guidance or requirements related to MSAs. The relatively new MMSEA statute has nothing to do with MSAs. The MMSEA statute requires defendants/insurers to report certain information regarding settlements with Medicare beneficiaries to the Secretary of Health and Human Services when appropriate. In fact, the sole purpose of the MMSEA is to ensure that settling parties fully comply with the previously existing Medicare Secondary Payer requirements – that is, past Medicare payments must be verified and resolved in all liability, workers’ compensation and no-fault settlements. In this regard, if plaintiff’s couns el is already verifying and resolving Medicare’s reimbursement claim in all settlements, as far as MMSEA is concerned, it is business as usual for plaintiff’s counsel and his/her 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.
In fact, CMS, in town hall teleconferences related to the MMSEA implementation, has informed the legal community that CMS’ routine recovery processes have not changed. Specific examples of these statements may be found in teleconference call transcripts dated March 24, 2009, October 22, 2009 and January 28, 2010. Based on the CMS town hall teleconference transcripts, we see that the set-aside process (whether it is for WC or liability) is: 1) voluntary, not mandatory; and 2) the same as it has been in the past.
Perhaps more persuasive to this point is the Congressional Research Service (“CRS”) analysis of the MMSEA statute. This comprehensive analysis of the new legislation (and its intent) does not mention, at any point, the concept of Medicare Set Asides in liability cases. Certainly if such purpose (i.e., requiring MSAs in liability settlements) were part of the Congressional intent of MMSEA, one would reasonably expect it would have been in the CRS analysis (after all it would be a rather notable revenue-generating component of such new law if it were a part of it).
Though off-topic from the stated intent, these same CMS town hall teleconferences have provided indicia from CMS officials as to the appropriate methods for considering and protecting its future interest. During the October 22, 2009 call, a call participant asked for the best way a party settling a liability case can ensure that Medicare’s future interest was being reasonably considered and protected. Ms. Barbara Wright (Technical Advisor, Division of Medicare Debt Management) responded by saying that parties should be taking Medicare’s future interests into account, whether by setting up an MSA or documenting what steps have been taken to consider and protect Medicare’s future interest. During the March 16, 2010 call, a call participant asked if MSAs were ever going to be something that enters the liability world. Ms. Wright responded that the obligation is the same, no matter whether the claim involves WC or liability, and that when future medicals are a consideration as part of a settlement, arrangements should be made to exhaust those future medicals prior to billing Medicare for related services. These comments support our position that parties should be reviewing MSA issues as part of a liability settlement and then either establishing an MSA for an appropriate amount (if necessary) or documenting the reasons why an MSA was not appropriate based on the case-specific facts in light of the currently enacted law and guidance provided by CMS.
In sum, the obligation under the MSP statute is to ensure Medicare remains a secondary payer by considering and protecting Medicare’s interests, not to set up MSAs in every single liability settlement. An MSA could be the appropriate way to consider and protect Medicare’s future interest, but only after arriving at that conclusion based on an evaluation of the case specific facts in light of the current law and guidance. To that end, the appropriate standard to be applied to MSA analysis in liability settlements is “good faith effort at substantial compliance”, appreciating the fact that there is neither a statutory requirement nor guidance for the use of MSAs in liability settlements. While MSAs are not recommended in every liability settlement, it is recommended that the settling parties analyze the MSA issues in liability settlements, and then document their files accordingly. In most liabil ity settlements, Medicare compliance can be achieved short of establishing an MSA so long as those conclusions have been documented in the file.
Practical Guidance (How to Document the File)
The above is intended to help an attorney sift through the confusion surrounding MSAs and emerge with a better understanding of the appropriateness of MSAs in liability settlements. However, no analysis would be complete without a discussion of what to do if the settling parties cannot agree on an appropriate Medicare compliance standard for MSAs, and out of an abundance of caution, discuss using MSAs as a condition of settlement. In these situations, it becomes critical to break any settlement impasse by adopting a formalized Medicare compliance process.
To that end, settling parties might consider the following, which we have successfully used in single event and mass tort settlements, alike:
• Educate. Make sure the parties know who is responsible to do what. Sharing key information, such as this White Paper, as well as other articles, including “Act II: Reporting Obligations for Settling Insurers where Medicare is a Secondary Payer: The Medicare, Medicaid and SCHIP Extension Act of 2007” (see www.garretsonfirm.com), is a key first step towards educating the settling parties about Medicare compliance action steps;
• Evaluate. Every case, regardless of liability or workers compensation, needs to have a damage evaluation performed to determine whether any portion of the settlement (or judgment) proceeds were paid to cover future medical expenses otherwise payable by Medicare. For example, we have been engaged by plaintiffs and defense alike to provide settling parties with an MSA Evaluation, which provides a fact-specific analysis of the case given the then current law and guidance about using MSAs in liability settlements. Settling parties can then use the MSA Evaluation to document their files and memorialize the fact that they have considered and protected Medicare’s future interest at the time of settlement, thus meeting their statutory obligation under the MSP statute;
• Agree (on Medicare compliance language in the release). As Medicare compliance issues are resolved, the parties need to properly document the steps taken as part of the release language in the settlement/release agreement, keeping the focus on the law as opposed to the conjecture surrounding Medicare compliance. In this regard, the release language should set forth each of the parties’ duties with respect to Medicare compliance (i.e., claimant and counsel have verified, resolved and will satisfy past payments made by Medicare; insurers/their insureds will electronically report to Medicare). The release language should also set forth certain representations and warranties and is likely to include language that the claimant (but not the claimant’s attorney, to avoid ethical traps) will indemnify the releasees from any and all injury-related obligations/Medicare rights (past, present or future) arising out of 42 U.S.C. §1395y(b)(2). As part of the MSA Evaluation process, we provide sample Medicare compliance release language for settling parties to incorporate, following their own due diligence review, into their master release; and
• MSA Report/CMS Submission. Following the above compliance phases, one final piece of the implementation puzzle is to develop, in the appropriate fact pattern, a future cost of care analysis by obtaining an MSA report from a qualified Medicare Set Aside allocation provider, and consider submitting such report (including a damages/recovery allocation performed by the qualified resource) to the appropriate Medicare Regional Office (“R.O.”). Based on our extensive experience, it is quite possible the response received will be that the R.O. is not reviewing and approving such submissions in liability settlements.
Finally, regardless of the outcome of the four action steps above, we recommend always disclosing to the injured claimant the analysis above to ensure he/she is fully informed about why an MSA is or is not being established. An example of such a disclosure statement is contained in the booklet entitled “Medicare, Medicaid & Private Health Insurance Plans: Important Information about Healthcare Liens in Personal Injury Settlements” which can be accessed at http://www.garretsonfirm.com/garretson/resources/?pageID=49.
Final Thoughts – MSAs as Part of the Medicare Compliance Puzzle
While the above is intended to help an attorney identify the situations when MSAs may need to be part of the discussion in settling liability claims, MSAs are but one part of the overall Medicare compliance puzzle. Earlier in this White Paper, we discussed Medicare’s reimbursement rights as consisting of past interests (date of injury to date of settlement) and future interests (date of settlement going forward). Therefore, determining if an MSA is needed really only gets the settling parties part of the way to Medicare compliance. MSA analysis should be the final step in the settling parties’ Medicare compliance initiatives. A properly compliant settlement should accomplish three goals: 1) affirmatively verify and resolve any conditional payments made by Medicare from date of injury to date of settlement; 2) ensure the appropriate data points are reported to Medicare to satisfy any reporting obligations under the MMSEA statute; and 3) appropriately consider and protect Medicare’s future interest by determining if an MSA is needed and if so, the appropriate amount with which to fund the MSA.
Conclusion
The use of MSAs is a topic of nationwide debate. The lack of any statutory requirement complicates the debate. While the legal community can follow guidance about how to use MSAs in WC settlements, no similar guidance exists about how to use MSAs in liability settlements. As a result, any entity professing that MSAs are now routinely required in all liability settlements absent: 1) a true good faith analysis, such as that discussed above; 2) specific guidance published by CMS; and/or 3) a bill passed by Congress and signed into law regarding the use of MSAs in liability settlements may, in fact, be improperly promoting a cost recovery mechanism that has no legal foundation.
This White Paper is based on our firm’s many years of experience with Medicare compliance issues. While our analysis is subject to interpretation, having specifically addressed this issue in both single event and mass tort settlement programs with CMS, we submit that until actual statutory guidance or any type of CMS guidance is provided, the question whether an MSA is required in liability settlements will be extremely fact-intensive with the required elements leading to an affirmative answer being few and far between.
We submit this White Paper to assist settling parties to better understand the use of MSAs in a liability settlement context. At the same time, hopefully, we have provided some practical guidance/tips for dealing with situations where the settling parties are confused about their Medicare compliance obligations, especially with respect to the related requirements (or lack thereof) concerning MSAs i n liability settlements.
The authors of this White Paper may be contacted as follows:
Matt Garretson: 513-794-0400 (mlg@garretsonfirm.com)
Sylvius von Saucken: 513-794-0400 (svs@garretsonfirm.com)
Jason Wolf: 704-559-4300 (jaw@garretsonfirm.com)
John Cattie: 704-559-4300 (jcattie@garretsonfirm.com)
John Cattie is our firm’s lead contact to initiate any case/fact-specific discussions.
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