In Hinsinger v. Showboat Atlantic City, an opinion reached in January 2011 but not published until late May 2011, the Superior Court of New Jersey held that a portion of a Medicare beneficiary’s attorney’s fees associated with procuring settlement may be deducted from a Liability Medicare Set Aside (LMSA) account in determining the amount of money to be set aside for injury-related, otherwise Medicare allowable, medical expenses. Interestingly, Judge Rochelle Gizinski also addressed several different issues pertaining to MSAs that could have far-reaching effects on the settlement community.
First, and arguably the most significant, Judge Gizinski opined that the workers’ compensation federal regulations and the workers’ compensation CMS memos apply to liability MSAs. This is a first, as far as we know, and could possibly have a major impact for liability settlements in the future. The court justified this position by stating, “The statutory and policy reasons for creating both of them are the same: to protect the government, and the Medicare system in particular, from paying medical bills for which the beneficiary has already received money from another source.”
Second, the court continued on to determine that an attorney can recover a portion of their fees obtained on behalf of a client in a third-party liability case directly from the Medicare Set Aside itself. The opinion provides an analysis of the wording found in 42 CFR § 411.37, which outlines allowable deductions from MSAs when the recovery is sought from the party that received the primary payment. The court felt that 42 CFR § 411.37 was unclear as to whether or not the regulations apply only to recovery funds already paid by Medicare (conditional payments), or to funds obtained for future medical expenses. However, based on the language in the regulation and the headings themselves, the court found that 42 CFR § 411.37 could apply to funds awarded for future medical expenses as it does to conditional payments.
Third, the opinion also referenced the May 7, 2004 CMS memo entitled “Medicare Secondary Payer- Workers’ Compensation (WC)-INFORMATION.” This memo specifically prohibits administrative expenses or attorney costs associated with the establishment of the MSA from being taken out of the account. The court found that since it already established that the rules and regulations created in workers’ compensation situations also apply to set asides created in other situations, then this memo should also apply to third-party liability settlements as well. Interestingly, the court held that this directive applies only to attorney’s fees specifically associated with the establishment of the trust, and does not apply to attorney’s fees incurred in the procurement of funds in a civil suit.
The court held that its decision to apply 42 CFR § 411.37 to funds obtained in a civil action and placed within an MSA was also consistent with the general principles of equity. Allowing Medicare to avoid paying its fair share of expenses incurred in the procurement of a settlement, judgment, award or other payment would unfairly force a claimant to pay for those fees (resulting in a smaller amount of net proceeds) and would discourage Medicare beneficiaries from filing claims against liable third parties when they have a legal right to do so.
CMS has traditionally remained silent when pressed for clarification on issues related to liability MSAs, and in some instances, workers’ compensation MSAs. Courts across the country have been left to their own devices to determine a fair and equitable way to consider Medicare’s interest in their cases. The court’s decision in this case, along with others (see Haro v. Sebelius and Bradley v. Sebelius), may not be what CMS had in mind when issuing what little guidance they have offered up. On the other hand, the personal injury settlement community has clearly begun to police itself, which could very well have been CMS’s plan all along. The liability settlement community is calling for additional directives from CMS, and if CMS continues to remain silent on the issues then they can expect the courts to continue making their own interpretations.