LMSA Issue Ties Settlement in Knots

The strange world of Liability Medicare Set-Asides (LMSAs) just got a little stranger with this case from Ohio where the twists and turns from the dueling sides read like an episode of the 80’s TV show “Knots Landing”.

Tye v. Upper Valley Medical Center  began with a 2010 medical malpractice claim against multiple parties associated with the medical care of Mr. Tye.  A mediation conference occurred on July 21, 2012 and a few weeks later, on August 6, 2012, a court issued an order that the matter was “conditionally dismissed without prejudice until such time as a final dismissal entry with prejudice is filed”.  We find out later in this opinion that there were two unresolved issues at the mediation:

  1. Plaintiffs were to decide whether they wanted to structure any portion of the settlement, and
  2. The parties were to jointly determine what amount, if any, needed to be set aside to protect Medicare’s interest.

On October 1, 2012 the Tyes filed a “Motion of Plaintiffs for Post-Settlement Interest,” claiming that they wanted interest added to the settlement because the matter was settled at the July 21, 2012 mediation conference and no money had been received. They also claimed that a Medicare Set-Aside was not agreed to.  A motion battle then followed.

The defense shot back on October 16, 2012 with a motion requesting the “Court to order Plaintiffs to establish a Medicare Set Aside account out of a portion of the settlement funds”.   They asserted that they had the matter examined by their outside consultant who determined that an LMSA was necessary in this case.  Strangely, also attached to this defense motion was a letter from the Tyes attorney which made a counter argument, claiming that they were a “neutral third party” and that a they “(do) not recognize Mr. Tye as an MSA candidate since a permanent burden shift of responsibility to pay for injury-related medical expenses from the tortfeaser to Medicare is not expected.”  Although Mr. Tye had been a Medicare beneficiary since 2004, it appears that this attorney thought Medicare would not likely have to pay for future injury related medical expenses because Mr. Tye’s past injury related medical expenses had been paid by his wife’s employer’s private health insurance.

On October 23, 2012 the Tyes opposed the motion, asserting that that there was no federal statute mandating MSAs and that the defense had incomplete and incorrect facts.

Motions and hearings continued for months.  Finally, on October 22, 2013 the trial court determined that an LMSA was unnecessary and that the post-settlement interest should run from November 8, 2012, the date that the court determined that an LMSA was not necessary.

On June 27, 2014, the Court of Appeals determined:

  • That a written settlement agreement between the parties does not exist
  • That the trial courts decision that a LMSA was not required in this case would be upheld
  • That post settlement interest would accrue on the $287,500 cash portion of the settlement from July 21, 2012, which was the date of the mediation.


 What a mess we have right now with LMSAs.  Settlements are being delayed and settling parties are running to court to get a judge to decide on this issue of LMSAs because they can’t decide.  But, doesn’t everyone in the MSA industry know by now that MSA’s are not required?  I’m not a lawyer, but if the law does not require LMSAs, how can a judge require them in a settlement?  The structured settlement is also not required by law either.  It must be agreed upon in the negotiation and settlement process.   Isn’t it the same with the LMSA?

That being said, the MSA account has been used effectively in the workers’ compensation arena for over a decade and has become a standard of practice in that industry.  Medicare is serious about enforcing the Medicare Secondary Payer (MSP) Statute, protecting the Medicare Trust Fund and cutting off a claimants’ Medicare benefits if they fail to protect Medicare’s interests.  Furthermore, Congress enacted Mandatory Insurer Reporting law in 2007 to assist the Center’s for Medicare and Medicaid (CMS) in enforcing the MSP for both workers’ compensation and liability settlements.  So, the settling parties should stop arguing about an LMSA being required (because it’s not) and work together to understand and take care of any joint responsibility they may have to protect Medicare’s interests under the MSP statutes.

How will all of this work itself out over time?  Will Medicare eventually come out with new formal regulations, in the near future that will work well for all parties?   I don’t know, but to quote Shakespeare:

O time, thou must untangle this, not I.

It is too hard a knot for me to untie!



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