Draine v. S & ME, Inc: Circuit Court Order to Fund a $500,000 MSA Overturned

An interesting case, first reported by Workcompcentral yesterday, deals with the perplexing issue of an extremely high counter from the Centers for Medicare and Medicaid Services (CMS) after the review of a Medicare Set-Aside (MSA) proposal.  Reading this case made me appreciate that last minute decision I made decades ago to pursue accounting as a profession rather than law!

What happens when the settling parties follow the recommended, but voluntary, MSA procedure, agree that a settlement of $80,709.45 would protect Medicare’s interest, send it to Medicare for approval and Medicare comes back and says that they need to set-aside $554,243.53 instead?  Not only did this happen in this case but the settlement was also approved by the Circuit Court in Knox County (that will become important later), subject to CMS approval.

The insurer, Liberty Mutual Insurance, began negotiating with CMS shortly after they received the $554,243.54 counter-higher letter.  By March 2011, there was still no agreement between Liberty Mutual and CMS so the claimant filed a petition in Circuit Court in Sullivan County (notice that the settlement was approved in Knox County) to enforce the 2009 settlement, as amended by CMS, for $554,243.53.

The employer, S & ME, Inc, a well-known environmental engineering firm in the Eastern U.S., and Liberty Mutual, responded by filing a motion to dismiss, contending that Knox County, rather than Sullivan County, was the proper venue for the action.  The motion was denied in part because the claimant was self-represented.  Ultimately, after many motions were heard in both counties, the Sullivan County Circuit Court entered an order directing Liberty Mutual to pay $500,825.05 into an account administered by the claimant and $72,186.05 to the claimant’s attorneys.

Not surprisingly, the Employer and Insurer appealed this judgment claiming that the Sullivan County trial court erred.  The appeal was referred to the Special Workers’ Compensation Appeals Panel, which agreed that the Sullivan County trial court erred by denying the motion to dismiss, and therefore reversed the order due to lack of venue.

However, this saga is not yet over because the claimant can still seek relief in Knox County, if he hasn’t already.

There are many issues to discuss here.  First, self-representation did not work out well for the claimant in this case.   He ultimately lost because he filed in the wrong county.

Second, something is terribly wrong with this process where the settling parties volunteer to go under the CMS review knife, come out bleeding, and have no recourse except to go to court.  Unfortunately, this happens frequently, especially in the projection of future prescription drug costs, because there are wide differences between the amounts that the MSA industry calculates and the amounts that CMS ultimately decides is appropriate.  The MSA industry has been pleading with CMS for years to work together to resolve this problem and publish guidelines for everyone to follow but no progress has been made.

Third, there needs to be a formal appeals process in cases like this where the settling parties compute an $80,000 MSA and CMS counters back with $500,000.   The insurer in this case tried to appeal to CMS for over a year with no success.  This holds up settlements which is not good for anyone, including CMS.  There have been repeated attempts by the MSA industry to try to persuade CMS to establish a formal appeals process.  Hopefully we will see some progress on this in 2013.

Finally, this case will be interesting to follow as it will likely be heard in Knox County.  I’m not a lawyer, but generally speaking it seems to me that if you settle a case conditional on CMS approval and you don’t get CMS approval then the case is not settled.  We will wait to see what happens.

Click here to read Drain v. S & ME, Inc., et al filed January 22, 2013.

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  1. Jim Price Jan 31, 2013 - 12:36 PM

    The simple solution here is for Liberty and the employer to simply keep the medicals open. If their projections of $80K in work-related medicals is correct, this is far more economical than paying $500K into an MSA.