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LMSAs Not Required By Law, Federal Court Confirms
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LMSAs Not Required By Law, Federal Court Confirms

What Happened:

Silva v. Burwell[1] is a federal trial court case from late November 2017 in which the plaintiff, Silva, asked a federal court to declare whether a liability Medicare set-aside (LMSA) was required after funding of a proposed state court medical malpractice settlement had been conditioned upon getting such federal court confirmation.  The only unresolved issue was how future medical bills were to be handled because all of Medicare’s conditional payments for past medical expenses had been reimbursed by plaintiff as contemplated by the Medicare Secondary Payer provisions of the Social Security Act, often referred to as the Medicare Secondary Payer statute found at 42 U.S.C. Section 1395y(b) et seq. (MSP).

The state court defendants felt a LMSA was legally required and were concerned that Medicare might seek reimbursement for payments incurred post-settlement for treatment of the medical malpractice injury.  The plaintiff disagreed, arguing that there was no requirement under the law for LMSAs. Plaintiff pointed out that review thresholds by the Centers for Medicare & Medicaid Services (CMS) for MSAs exist only in the workers’ compensation context and do not extend to liability/personal injury settlements. Plaintiff asked CMS to set forth its position whether some portion of personal injury liability settlement funds must be set aside to cover “unknown, unspecific future medical expenses.”[2]

With such a non-specific question, it is not surprising that CMS did not respond. However, even if plaintiff had asked CMS for its position regarding known specific future medical expenses, the result would likely have been the same, as CMS doesn’t require Medicare set-asides (MSAs), doesn’t require submission of MSAs, and doesn’t have a practice or procedure for reviewing LMSAs like it does for workers’ compensation Medicare set-asides (WCMSAs).[3]  To satisfy a settlement condition and in an attempt to get funds released, plaintiff filed a declaratory judgment action in federal court against CMS and the former Secretary of the Department of Health and Human Services (Secretary) asking for several confirmations, including that no LMSA was required to pay plaintiff’s future medical expenses.

During an analysis of the MSP and whether there was a requirement for LMSAs, the court referenced CMS’s 2012 notice of proposed rulemaking[4] concerning potential regulatory clarification on LMSAs and pointed out that CMS never followed up on the notice.[5]  The Silva court then correctly determined that “no federal law or CMS regulation [currently] requires the creation of a MSA in personal injury settlements to cover potential future medical expenses.”[6] The Silva court shared the Sipler[7] court’s public policy concern that requiring apportionment of future medical expenses in personal injury settlements would discourage settlements due to being burdensome.[8] The court added that the repeated failure of CMS to clarify an official position on whether it requires LMSAs generally, or in specific cases when requested by personal injury litigants, was also proving burdensome to the settlement process.[9]

Result of the case:

The court then went through a “case or controversy” analysis to determine whether the plaintiff had standing for the court’s review.  A plaintiff who has not sustained an “injury in fact” will not have standing.  In this case, because there was a) no conflict between the law as it exists, and the way business was being done, b) not a sufficient likelihood that the government would seek reimbursement in the future (from plaintiff or defense) for failing to create a MSA in the liability case, and c) no requirement for CMS to confirm whether a LMSA was required, there was no injury in fact.  The lack of a duty by CMS to respond to plaintiff’s request was also described as preventing the case from being ripe.  Because there was not a sufficient injury and the matter was not ripe for review, the case was dismissed for lack of subject matter jurisdiction.[10]

Take Aways:

  • The law is clear.  No LMSA is required.  While the Silva court did not mention that CMS may potentially begin reviewing LMSAs as early as July 1, 2018, a change in procedure by CMS to review some LMSAs would still not change the law as it stands.
  • CMS has guidelines for reviewing WCMSAs and while CMS, via the Stalcup Memo, set forth CMS’s policy that a “set-aside” is its method of choice, the Stalcup Memo also made clear that “the law does not require a ‘set-aside’ in any situation.”[11]
  • The Stalcup Memo stressed the need to protect the Medicare Trust Funds if based on the specific facts of a case (and regardless of the type of case), there is funding for future medicals.[12]
  • While the Silva case did not clear up the law, it did not necessarily make it more confusing. Federal cases concerning the ripeness for review of LMSAs or performing review of LMSAs have remained in district courts. Unless a split emerges at the federal Circuit level, the US Supreme Court will not rule on the issue.  Liability cases are dependent on the facts and so are the questions about treatment of LMSAs.
  • Therefore, it will be up to CMS to propose and follow through with regulations governing LMSAs. A change in policy by CMS could be helpful for parties and courts, but won’t guarantee consistency. There are cases where federal district courts have reviewed LMSAs.  For example, in Schexnayder v. Scottsdale, a federal court agreed to review a LMSA and decided that parties to the liability settlement had adequately protected Medicare’s interests after CMS failed to review the LMSA.[13] Other federal district court cases have reviewed liability settlements and approved amounts to be set aside in LMSAs[14], or otherwise evaluated and determined that Medicare’s interests had been reasonably considered and protected.[15]
  • The Silva case highlights the time, expense and legal obstacles associated with trying to get clarification/confirmation from courts in the area of MSP compliance.
  • When medical expenses are implicated, it may be more productive for parties to invest their time and effort into accurately predicting and documenting what future Medicare allowable medical expenses are likely to be incurred instead of risking the time and expense of federal court review, and running the risk of a dismissal for lack of subject matter jurisdiction like in Silva, or an increase in the LMSA amount, like in the Welch v. American Assurance case cited in the endnotes.
  • What is required when future medicals are “in play” in liability (including self-insurance) settlements? The Stalcup Memo advised that “each attorney is going to have to decide, based on the specific facts of each of their cases, whether or not there is funding for future medicals and if so, a need to protect the Trust Funds.”[16] Therefore, parties need to consider and protect the Medicare Trust Funds. Often, a LMSA is the best choice. There may be other options that could be considered if well documented and properly executed during administration.

[1] Silva v. Burwell, 2017 Westlaw 5891753 (D. New Mexico 2017).

[2] Id. 2-3.

[3] Sally Stalcup, MSP Regional Coordinator, Region VI (May 25, 2011 Handout); See also, Schexnayder v. Scottsdale Ins. Co., 2011 WL 3273547 at 5 (W.D. La. 2011) (adopting policy from the Stalcup memo in Court’s findings of fact).

[4] Medicare Program; Medicare Secondary Payer and “Future Medicals,”77 Fed. Reg. 35917-02, 35918 (June 15, 2012).

[5] Silva v. Burwell, 2017 U.S. Dist. LEXIS 195032 (D. New Mexico 2017) at 6 citing Aranki v. Burwell, 151 F. Supp.3d 1038, 1040 (D. Ariz. 2015).

[6] Id. at 11 citing Aranki v. Burwell, 151 F. Supp.3d 1038, 1040 (D. Ariz. 2015); Sipler v. Trans Am Trucking, Inc., 881 F. Supp.2d 635, 638 (D. NJ. 2012)(holding “no federal law requires set-aside arrangements in personal injury settlements for future medical expenses.”).

[7] Sipler v. Trans Am Trucking, Inc., 881 F. Supp.2d 635, 638 (D. NJ. 2012).

[8] See id. at 13.

[9] Id.

[10] Id. 12-13.

[11] Sally Stalcup, MSP Regional Coordinator, Region VI (May 25, 2011 Handout) at 1.

[12] See id. at 3 (“. . . IF there was/is funding for otherwise covered and reimbursable future medical services related to what was claimed/released, the Medicare Trust Funds must be protected”).

[13] Schexnayder v. Scottsdale Ins. Co., 2011 WL 3273547 at 5 (W.D. La. 2011).

[14] See e.g. Benoit v. Neustrom, 2013 WL 170220 (W.D. La. 2013) (determining that there was an obligation for a LMSA); Cribb v. Sulzer Metco (US) Inc., 2012 WL 4787462 (E.D. NC 2012) (approving a $4,500 LMSA); and Welch v. American Home Assur. Co., (S.D. Miss. 2013) (increasing amount of LMSA over the amount recommended by Medicare Set-Aside expert in combo liability and WC case).

[15] See Finke v. Hunter’s View, Ltd., 2009 WL 6326944 (D. Minn. 2009)(LMSA not necessary after court determined that liability settlement amount was a significant compromise of the overall value of the claim, with a plaintiff who was not a Medicare beneficiary, would not become eligible for Medicare benefits within the foreseeable future, was covered under his spouse’s health insurance policy, and when Medicare would be reimbursed for conditional payments and not be billed in the “reasonably anticipated future.”)

[16] Sally Stalcup, MSP Regional Coordinator, Region VI (May 25, 2011 Handout) at 3.

 

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