Schexnayder v. Scottsdale Insurance Company: Settlement Tailspin

This case demonstrates that sometimes just the mention of “Liability Medicare Set-Aside” can send a settlement into a tailspin.

Mr. Schexnayder incurred a work-related injury when an 18-wheeler struck his vehicle from behind. His injury resulted in three surgical procedures on his neck and back. On March 20, 2011, a global settlement was reached. $2.1 million was to be paid to Mr. Schexnayder with $195,261 being paid from Mr. Schexnayder’s employer’s workers’ compensation carrier, and the balance from truck driver’s employer’s liability carrier.

The settlement, however, was contingent upon the Centers for Medicare and Medicaid Services (CMS) approving a Medicare Set Aside (MSA) to comply with the provisions of the Medicare Secondary Payer Statute. The parties determined that the criteria for submitting a Workers’ Compensation MSA (WCMSA) to CMS for approval was not met because Schexnayder was not a current Medicare beneficiary, and didn’t have “reasonable expectation” of Medicare enrollment within 30 months of settlement.

Because the workers’ compensation MSA criteria were not met, the parties decided to prepare and submit a Liability MSA (LMSA) to CMS for approval. According to the liability MSA report, the future medical bills amounted to $239,253. Not surprisingly, CMS informed the parties that they would not review the LMSA.

On May 11, 2011, the parties advised the court that the condition of the settlement could not be met because CMS would not review the MSA. In order to avoid rescinding the settlement altogether, the parties filed a joint motion with the court asking for a declaratory judgment to approve the settlement and to declare that setting aside a sum of money for future medical expenses satisfies the interests of Medicare.

The court asked CMS to attend the evidentiary hearing. CMS responded, advising the court that they would not participate. However, CMS did provide the court with a “handout” from Ms. Sally Stalcup of Dallas, TX, CMS MSP Regional Coordinator for Region 6, which covers six states including Louisiana. The three-page handout outlines the CMS Region 6 position on MSP compliance in simple, easy to understand terms.

So, armed with the Sally Stalcup handout, Judge Patrick J. Hanna found that the estimate of future medical cost of $239,253 was a reasonable amount that fairly took Medicare’s interest, as a secondary payer, into account. The court further found that Mr. Schexnayder is aware of his obligation to reimburse Medicare for all conditional payments. But, since Medicare opted not to participate in the hearing, there was no evidence presented that conditional payments were made prior to settlement. The court ordered Mr. Schexnayder to reimburse Medicare should he find that Medicare made any pre-settlement conditional payments and to fund an MSA for $239,253 with his wife as the administrator.

This case is puzzling in many ways. First, the court’s order for Mr. Schexnayder to reimburse Medicare for conditional payments was unnecessary. Mr. Schexnayder was not a Medicare beneficiary. Medicare will only pay medical bills for a Medicare beneficiary. So, there will be no conditional payments made by Medicare.

Second, the decision to submit a liability MSA seems unwarranted. The parties understood correctly that a WCMSA did not need to be submitted because Mr. Schexnayder was not a current Medicare beneficiary and didn’t have a “reasonable expectation” of Medicare enrollment within 30 months of settlement. The WCMSA CMS policy memos say that when both a liability claim and a workers’ compensation claim are settled together the WCMSA rules apply. So, since the WCMSA rules apply, it doesn’t seem that a LMSA should have been submitted.

Third, all the emphasis and analysis on the “Stalcup handout” seems unnecessary because this is a WCMSA case according to the CMS memos and the CMS policy memos would apply. The Stalcup handout was prepared primarily to deal with liability MSA issues.

This case demonstrates the quagmire the industry faces when trying to protect Medicare’s interest in liability cases with regards to future medicals and MSAs. Almost everyone agrees that MSP statue is good public policy (i.e. Medicare shouldn’t pay medical bills that insurance money should pay). However, compliance is difficult without any specific guidance from CMS.

To view Schexnayder v. Scottsdale Insurance Company click here.
To view the Sally Stalcup handout click here.

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