Close

1.877.725.2467 info@medivest.com

Tag Archive for: Court Cases

LMSAs Not Required By Law, Federal Court Confirms
by

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.

Florida Supreme Court Declares Statutory Workers’ Comp Attorney Fee Schedule Unconstitutional

On April 28, just 540 days after oral arguments, the Florida Supreme Court, issued its highly anticipated decision in the Castellanos v. Next Door Company case, declaring that the attorney fee schedule in the Florida Workers’ Compensation statute is unconstitutional.

The claimant in this case, Marvin Castellanos, injured his neck, back and shoulders while working at Next Door Company in Miami, Florida and was eventually awarded $822.70 in benefits.

Castellanos’ lawyer worked 107 hours on the case and billed $36,817.50 in fees. Under a 2009 statute, plaintiff attorney’s fees are limited to: 20% of the first $5,000 in benefits, 15% of the next $5,000, 15% of the next $5,000, 10% of the remaining during the first 10 years of the claim and 5% percent after 10 years. So accordingly, the attorney received $164.54 for his work, which amounted to $1.54 per hour.

The high court struck down the fee schedule part of the statute as unconstitutional on the grounds that:

  • The claimant must be able to obtain a competent attorney “to navigate the thicket” of the complex workers’ compensation system.
  • The statutory attorney fee schedule is so low, in some cases, that it can prevent the injured person from hiring an attorney and from receiving benefits.
  • Therefore, the statutory fee schedule is unconstitutional because it denies the claimant due process and it violates the intent of the statute, which from the onset, is to provide disability and medical benefits to the injured worker.
  • The mandatory fee schedule “precludes any consideration of whether the fee award is reasonable to compensate the attorney”.

The long, fascinating history of this Florida attorney fee issue, with twists and turns like a trip down Lombard Street, is explained in detail in the Court’s 55-page opinion. Basically, from 1941 to 2009 the law provided for “reasonable attorneys fees”. In 1968, the Lee Engineering case outlined “reasonable fee factors, that were later codified in the statute in 1977. Fast forward to 2008, to the highly publicized case of Emmy Murray v. Mariner Health, where the Florida Supreme Court refused to rule on the constitutionality issue but upheld the “reasonable attorneys fees” part of the statute. Then in 2009, the Florida Legislator struck the “reasonable attorneys fees” language from the statute, leaving only the mandatory fee schedule.   And now, in 2016, in Castellanos v. Next Door Company, the Florida Supreme court struck down the mandatory fee schedule.

This decision in Castellanos v. Next Door Company is seen as a victory for the injured workers and their attorneys and a crushing defeat for the business and insurance communities who fear the return of higher workers’ compensation costs. One thing I think is certain: This is not the last we will hear of this issue.

To view, Castellanos v. Next Door Company, SC13-2082 April 28, 2016, click here.

To view a 2.17.2011 Medivest blog on the Florida claimant attorney fee issue click here.

by

Florida Supreme Court Rules on Medicare Payments and the Collateral Source Rule

The Florida Supreme Court, in Joerg v. State Farm (October 15, 2015), decided an important case that will have a significant impact on settlements in Florida. They ruled that the Florida collateral source rule prohibits the defense from introducing evidence of future Medicare and Medicaid benefits in a personal injury trial, overturning their previous ruling in Florida Physician’s Insurance Reciprocal v. Stanley, 452 So. 2nd 514 (Fla. 1984) (Stanley), which carved out a limited exception for free, or low cost future collateral benefits.

For further details, I am re-posting below, with permission, an excellent blog article written by four Florida attorneys from the national law firm Wilson, Elser et al.

Florida Supreme Court Rules Defendants May Not Admit Evidence of Potential Collateral Source Benefits Provided by Social Legislation, Such as Medicare and Medicaid
October 23, 2015 by Authors: Nicholas D. Freeman, Rod Janis, Anthony P. Strasius and Kathy Arline

In John Joerg, Jr., etc., et al. v. State Farm Mutual Automobile Insurance Co., No. SC13-1768 (October 15, 2015), the Florida Supreme Court held that defendants are precluded from introducing evidence regarding collateral source benefits that plaintiffs may receive in the future from social legislation, such as Medicare and Medicaid. The decision receded from the court’s prior decision in Florida Physician’s Insurance Reciprocal v. Stanley, 452 So. 2d 514 (Fla. 1984), which had allowed limited admission of evidence concerning certain free or low-cost future collateral source benefits. The Joerg decision has significant ramifications because it removes a tool that could be used to diminish the jury award for the plaintiffs’ future damages.

Background
Florida law generally holds that evidence of collateral source benefits is not admissible because it will likely confuse the jury. However, Florida Statute §768.76 requires the court to reduce the jury verdict by any collateral source benefits received by the plaintiff. There is no reduction of collateral source benefits for which a subrogation or reimbursement right exists, and the reduction shall be offset to the extent of any amount that has been contributed on behalf of the plaintiff to secure the benefits. The statute specifically notes that benefits received under Medicare and similar federal programs are not considered collateral sources.

In Florida, evidence that a claimant is qualified to receive benefits from social legislation such as Medicare or Medicaid is considered highly prejudicial and is typically not admissible. However, the Stanley decision created a potential narrow exception. In Stanley, the plaintiffs alleged that the defendants’ medical negligence resulted in the intellectual disability and cerebral palsy suffered by their son. In that decision, the Court determined the defendants were permitted to introduce evidence of “free or low-cost charitable and governmental programs available in the community” to pay portions of the son’s future health care. The Court held that the evidence was admissible because it was relevant to the issue of determining damages for the plaintiffs’ future expenses. Since the Stanley decision, the trial courts have wrestled with the issue of whether future benefits that may be provided by Medicare and similar programs are “free or low-cost” benefits that are relevant admissible evidence.

In Joerg, the plaintiff was struck by a car while riding his bicycle. He was considered a developmentally disabled adult who lived with his parents his entire life, and as a result of his disabilities he was entitled to reimbursement from Medicare for his medical bills. He sued State Farm Mutual Automobile Insurance Company, and received a judgment at trial. The trial court did not permit the introduction of evidence concerning the plaintiff’s future Medicare benefits, and State Farm pursued an appeal.

Supreme Court’s Rationale
On appeal, the Supreme Court held it is improper to introduce evidence concerning Medicare benefits because plaintiffs are required to reimburse Medicare for any future benefits that are provided, and because the future benefits are uncertain. The Court explained that the Centers for Medicare and Medicaid Services have several tools to require the plaintiff to repay future Medicare benefits pursuant to the Medicare Secondary Payer Act. Thus, regardless of whether an individual paid for the benefits, the Court found they are not “free” benefits that should be admissible under the rationale in Stanley.

The Court further noted it was speculative to attempt to calculate damage awards based on benefits that a plaintiff had not yet received and may never receive. This is particularly true should the plaintiff’s eligibility or the benefits become insufficient or cease when they are dependent on limited public funding and unpredictable legislative action. Thus, the Court receded from the Stanley decision to the extent that it supported admission of evidence of future benefits potentially available through social legislation.
The Court bolstered its decision, saying that it was consistent with public policy concerns. It pointed out that excluding evidence of the collateral source benefits avoids the inherently prejudicial effect on the plaintiff. Further, the Court concluded that exclusion was also proper to ensure that tortfeasors do not enjoy a windfall at the expense of taxpayers who fund social legislation benefits.

Analysis
The result will have a significant impact for tortfeasors and their insurers. The tortfeasors have lost a tool to establish there will be limited future damages based on the probable existence of benefits that will reduce the cost of the plaintiff’s future medical expenses. Defense attorneys will have to find creative ways to protect their clients from this ruling and its impact on the changing face of litigation. These could include using experts to address reasonable anticipated costs of future medical treatment; aggressively deposing the billing employees of medical providers to find errors in the use of CPT codes that inflate past charges; or obtaining admissions that the providers never actually received payment for full amounts.

by

U.S. Bankruptcy Court Decides WCMSA Funds are Exempt from Chapter 7 Bankruptcy

The United States Bankruptcy Court for the Middle District of Pennsylvania has decided that assets in a Workers’ Compensation Medicare Set-Aside (WCMSA) are exempt property and therefore not available to creditors in a Chapter 7 bankruptcy case (In Re: Jesus Arellano, Debtor Steven M. Carr, Chapter 7 Trustee Objectant v. Jesus Arellano, Respondent. Decided January 5, 2015).

Facts
Mr. Arellano sustained a broken hip at his place of work in 2010. In 2011 he received a settlement from his employer and from the Worker’s Compensation Fund for the State of Maryland for a lump sum of $225,000 plus $72,741.88 for a WCMSA. The WCMSA was for the estimated amount of his future medical treatment for his injuries.

Although Mr. Arellano acknowledged in the settlement agreement that he was to only use the funds to pay for his medical expenses, he promptly bought a 2005 Ford F-150 for $17,000, some real property for $85,000 and another piece of real property for $86,000. In 2012 he sold the first property to his brother for $90,000 and took back an installment note, which will pay him $1,200 per month for eight years.

Mr. Arellano then filed for Chapter 7 bankruptcy in March of 2014 and claimed exemptions for the Ford 150, both pieces of real property and the workers’ compensation settlement monies including the WCMSA. He failed to disclose the installment note receivable as income or as an asset.

The bankruptcy trustee, who represents the creditors, objected to these exemptions, claiming that federal bankruptcy law does not allow Mr. Arellano to exempt property that was purchased with the proceeds of a workers’ compensation settlement.

Court’s Discussion
In a well-reasoned 21-page opinion, the court reached the following conclusions:

  • The property was “traceable to payment in compensation of loss of future earnings of the debtor… To the extent reasonably necessary for the support of the debtor and any dependent of the debtor” under 11 U.S.C. §522(d)(11)(E).
  • Because the WCMSA funds were held in an “express trust” for the benefit of medical services related to Mr. Arellano’s workers’ compensation claim, they were not property of his bankruptcy estate.
  • Converting the WCMSA funds to real and personal property does not mean that they were not necessary for the support of the debtor.
  • Whether or not the debtor may have misused the WCMSA funds was not an issue before the Court and in any event the WCMSA funds are not property of the estate.

Court Opinion
The Court decided in favor of the debtor, Mr. Arellano, allowing all of the proceeds from the settlement and all property acquired with those proceeds (including the subsequent installment note receivable) to be exempt from the claims of the creditors in the Chapter 7 bankruptcy.

Conclusion
This case provides some much needed guidance on an often-discussed topic in our industry, namely, what happens to MSA funds in a bankruptcy? Clearly, this court held that MSA funds are exempt from bankruptcy proceedings.

The concept that a WCMSA is an express trust where settlement monies are held for the benefit of medical providers is one that I have not heard before. The purpose of a WCMSA is not to protect the medical providers. They will likely be paid without the WCMSA. The purpose of the WCMSA account is to protect Medicare by making sure that Medicare is secondary to insurance settlement money.

It’s interesting the U.S. Bankruptcy court did not address the issue of the misspent “trust” funds. If these monies were held in trust for the benefit of the future medical providers, then wouldn’t converting them to a truck, real estate and later an installment note receivable be a breach of fiduciary duty? Perhaps that is outside the purview of a bankruptcy court. But, how can you pay a doctor bill with a truck?

Medicare has a severe penalty for the misuse of WCMSA funds, which is the loss of Medicare benefits until the money is restored to the WCMSA account. It would be a tragedy if this claimant were to lose Medicare benefits in the future and not be able to get medical care. This is just another example of why the settling parties should consider professional administration in every WCMSA settlement.

by

McCarroll v. Livingston Parish Council – After Review, the Ruling on the Field Stands

Reading this case reminds me of instant replay in football. The Louisiana Court of Appeal, First Circuit, upheld the Office of Workers’ Compensations (OWC) finding that the entire settlement should be vacated by saying, “Based on our thorough review of the record, we cannot say that the OWC manifestly erred in vacating the Order of Approval… Accordingly, we find no error in the OWC’s finding… For these reasons, the OWC judgment vacating the settlement is affirmed”. In other words, there was no indisputable, conclusive evidence to reverse the OWC’s ruling so the ruling on the field stands.

The facts in this case are rather intricate. Basically, a settlement agreement was approved by the OWC on March 9, 2009 with a misunderstanding as to who would pay for a February 16, 2009 cervical fusion surgery. Mr. McCarroll thought that Medicare and the insurer would pay. Medicare did not pay, apparently because, it was a pre-settlement expense that was the responsibility of LWCC. LWCC refused to pay because it believed the surgery would be paid out of the MSA settlement monies that it awarded to McCarroll, which specifically included monies to pay for the surgery.

The matter went to trial on April 24, 2013 with the sole issue of who was responsible for the surgery bill that occurred prior to the settlement date. The trial court judge vacated the settlement finding LWCC misrepresented, although unintentionally, that Medicare would pay for the cost of the surgery that exceeded the MSA funds.

The defendants appealed and The Louisiana Court of Appeal, First Circuit, affirmed the trial courts decision to vacate the settlement, finding that there was no indisputable evidence to reverse the ruling.

Click here to view McCarroll v. Livingston Parish Council and LWCC, Court of Appeal, First Circuit decision.

by

Benoit v. Neustrom: Equitable Apportionment is a Practical Necessity

As I have been saying for many years, I believe that equitable apportionment calculations are a “practical necessity” for implementing Liability Medicare Set-Asides (LMSAs).   LMSAs just don’t work without it.  The court in Benoit v. Neustrom agreed.

Facts:

In July 2009, Mr. Benoit was found face down and unresponsive, in his jail cell, after being convicted on his third drunk driving charge.   He was treated at a hospital where he was diagnosed with a host of problems including: hypoxic brain damage, cardiac arrest, hypoxic encephalopathy, anoxic brain injury, consequential bladder incontinence, anosmia, short term memory deficit, tremors and behavioral issues.  While hospitalized he was temporarily ventilator-dependant and needed gastrostomy tube feedings.  After a lengthy hospital stay and time in a nursing home, he continued with outpatient treatment.

One year later, Mr. Benoit filed suit against the sheriff of Lafayette Parish, LA and the warden of the Lafayette Parish Correctional Center claiming that their employees failed to properly evaluate his condition when he was obviously suffering from the effects of alcohol detoxification.

In October 2012, the parties reached a settlement of $100,000, conditioned upon the plaintiff’s release of all claims against the defendants and the plaintiff’s assumption of sole responsibility for protecting the interests of Medicare and Medicaid.  A Liability Medicare Set-Aside (LMSA) report was prepared, which projected future Medicare allowable, injury related medical costs at a range of $277,758.62 to $333,267.02, with a midpoint of $305,512.50.  In addition, $2,777.88 was established as the amount needed to reimburse Medicare for conditional payments.

On October 29, 2012, the plaintiff filed a Motion for Declaratory Judgment, asking the court to approve the settlement, to approve a reduced LMSA proportionate to the plaintiff’s recovery, and to allow Mr. Benoit’s wife to administer the LMSA funds.

The settlement amount of $100,000 resulted in a net amount of $55,707.08 to the plaintiff after fees, expenses and the Medicare conditional payment.

Findings of Fact:

After analyzing the handout from the CMS MSP Region VI Regional Coordinator (affectionately know in the MSP industry as the “Stalcup Handout”) and the Bradley v. Sebelius case, the court determined the following findings of fact (paraphrased, in part):

  1. Medicare does not currently require or approve LMSAs when personal injury lawsuits are settled.
  2. Both liability and economic damages were contested and that “the specter of a verdict adverse to the plaintiff on liability was quite real”.
  3. Past medical expenses in excess of $80,000 were paid by Medicare and Medicaid, and estimated future LMSA medical expense projections range from $$278,000 to $333,000.
  4. The parties agreement in this case to settle for $100,000 “represents a reasonable compromise to avoid the uncertainty and expense” of a trial.
  5. Mr. Benoit currently receives Social Security Disability Income. The LMSA projections are reasonable and reliable
  6. Mr. Benoit believes that 10% of the gross settlement would be an equitable amount to set aside into an LMSA account since the recovery obtained is approximately 10% of the possible recovery if he had prevailed on all the liability issues.  (Apparently, Mr. Benoit was proposing an LMSA amount of $10,000).  The court rejected Mr. Benoit’s calculation methodology and reasoned that since the net settlement of $55,707 was 18.2% of the midpoint of the LMSA projection ($55,707/$305,512 = 18.2%), then the LMSA should be 18.2% of the net settlement, or $10,138 (18.2% x $55,507 = $10,138).
  7. Since Mr. Benoit’s cognitive impairments preclude him from self-administering his own LMSA, his wife will administer the LMSA and the Special Needs Trust (SNT).
  8. Mrs. Benoit is aware of her obligation to reimburse Medicare for the conditional payments.
  9. There is no evidence that anyone is attempting to maximize other parts of the settlement to Medicare’s detriment.

 

Conclusions of Law and Court Order:

The court concluded by drawing several conclusions of law and then ordering the plaintiff to:

  1. Reimburse Medicare $2,777.88 for conditional payments
  2. Set aside $10,138 into an LMSA to protect Medicare’s interest
  3. Deposit the $10,138 into an interest bearing account to be administered by Mrs. Benoit.

Concluding Thoughts:

This is a very important case for many reasons.  First it points out why equitable apportionment is a “practical necessity” for doing LMSAs in liability settlements.  This case was disputed.  The defendants did not agree with the claims of fault made by the plaintiff.  The claimant agreed to a compromise settlement of 10% of full value, in his estimate, to avoid the uncertainties of going to trial.  As in most liability settlements, there was no allocation of the reduced settlement proceeds to the possible parts of the settlement like pain and suffering, lost wages, loss of consortium, future medicals, etc.    The parties just evaluated there opposing interests and agreed to a settlement of $100,000.  This case settled for less that the projected future medical cost, so it is impossible for the plaintiff to set aside $305,512 of the $55,707 settlement proceeds.  The LMSA had to be reduced to at least the $55,707 settlement amount.  A further reduction is fair, because all of the plaintiff’s net settlement should not have to go into a LMSA in a case that is compromised.   It’s really just common sense that liability settlements must use an equitable reduction formula to arrive at a LMSA amount.  That being said, I must point out that I think it would make more sense to reduce the LMSA by the same percentage that the total case value was reduced, which would have resulted in a LMSA amount of $30,551  ($100,000 settlement / $1,000,000 full value, or 10% x 305,512 = $30,551).

Second, Medicare now only allows a reduction of an MSA if  “a court of competent jurisdiction” orders it “after their review on the merits of the case”. To only allow a court to make this calculation clogs up the court system, curtails settlements and cost Medicare money by reducing LMSAs.

Third, an evaluation of competence should take place by the settling parties before Medicare Set-Aside monies are given to a claimant to self-administer.  The court in this case made that determination. However, unfortunately, everyday, in cases all over America, large amounts of money are turned over to injury victims to self-administer their own MSAs with no evaluation of competence whatsoever.  Why?  Because it is not required. And what happens if a seriously injured person does not manage this money properly and fails to follow all the complex rules?  They are at risk to lose their Medicare insurance benefits and the Medicare Trust funds lose money.  Allowing incompetent, injured claimants to self-administer their own MSAs is truly a lose-lose situation for the claimant and for the Medicare Trust Funds.

Judge Denys Plaintiff Motion to Enforce Settlement without Social Security Number

Michelle Taylor v. General Electric pits the plaintiff’s desire to protect their private information against the defendant’s requirement to report that private information to the government as part of an insurance settlement. The issue in this case was must the claimant provide the insurer her social security number (SSN) so the defendant can settle the claim and report the settlement under Section 111, the mandatory insurer reporting provisions of the Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA).

After an extensive legal analysis, the U.S. magistrate judge recommended to the U.S. District Court for the Eastern District of Pennsylvania that the plaintiff’s motion to enforce the settlement be denied. Basically, the magistrate judge concluded that the lack of a SSN disclosure provision in the settlement agreement constituted a material term of the settlement that was never agreed upon, and that the law does not allow him to enforce a contract where essential matters are left open.

Interestingly, the SMART bill, signed by President Obama on January 10, 2013, deals with this problem of plaintiffs not wanting to disclose SSNs in settlements when SSNs are required by the insurer to comply with Section 111 mandatory insurer reporting requirements of MMSEA. The SMART bill’s solution is to give the government 18 months, with a one-year extension, to modify the reporting requirements so that reporting the SSN is not required.

For me, I would give an insurance company my SSN in exchange for a check rather than pay my attorneys to go to court. Medicare has my SSN anyway.  But that’s just me. Also, I always thought that the answer to the SSN issue is to do the same thing the IRS does with 1099s. If the plaintiff won’t give the insurer their social security number, check a box that says the claimant is refusing to disclose their SSN and that box will get reported to Medicare as part of Section 111 reporting.

To view Michelle Taylor v. General Electric click here

To view the SMART Bill, H.R. 1845 click here

To view previous Medivest blog about H.R. 1845 click here

by

Sterrett v. Klebart: Court Agrees to Zero Future Medical Allocation

The parties in this recent case agreed to allocate no moneys from a compromised liability settlement to future medical items, even though future medical treatment was anticipated.  They then filed a joint motion asking the Superior Court of Connecticut to determine if they reasonably considered Medicare’s interest as required by the Medicare Secondary Payer Act.

Facts

Mr. Sterrett (Claimant) was a “social invitee” at the home of the Mr Klebart (Defendant) when he fell backwards while ascending the stairs and suffered a spinal cord injury that resulted in paraplegia.  He sued the Defendants claiming they were negligent for not having a handrail in the stairway.  The Defendants asserted that Mr. Sterrett was contributorily negligent because he was under the influence of alcohol.  The parties reached a settlement in the amount of $550,000.   The settlement agreement did not reflect any compensation for future medicals even though it was anticipated that Medicare would be paying expenses related to the injury in the near future.  The parties did, however, reimburse Medicare $14,448.30 for conditional payments that Medicare had previously made.   In addition, the settlement allocated $183,333.33 to a loss of consortium claim brought by the co-plaintiff, Barbara Sterrett.  The settling parties then filed a motion, asking the court to determine that the parties reasonably considered Medicare’s interest as required by the Medicare Secondary Payer Act, 22 U.S.C. 1395(y)(b)(2)(B)(ii).

Court Decision

The Superior Court relied on Finke v. Hunter’s View, Ltd, 2009 WL 6326944 (D. Minn. 2009) to conclude that: (a) the parties had reasonably taken Medicare’s interest into consideration and (b) no Medicare Set-Aside was necessary.  The court also based it’s opinion on the fact that the settlement agreement did not address any future medical expenses.   The court further found that “the plaintiffs and defendants should not be subject to any claim, demand, or penalty from Medicare as a result of the settlement payment that has been agreed upon in this matter”. 

Discussion

This case again points out how troubling and flawed the Medicare Secondary Payer program is regarding liability settlements.

First, the Sterrett court relied on Finke.   However, Finke was not expected to be a Medicare beneficiary in the foreseeable future, and had other insurance to pay any anticipated future injury related medical bills.  So in Finke the court found that the settlement, which allocated no monies to future medical bills, reasonably protected Medicare’s interest because it was not foreseeable that Medicare would make any payments for medical bills in the foreseeable future.   However, in the Sterrett case “The parties agree, and the court understands that it is contemplated that Sterrett will incur medical bills payable by Medicare in the foreseeable future”. It’s puzzling how the Sterrett decision protects Medicare from paying for any future medical treatment that might be required that should reasonably be expected to be made under a liability insurance plan [see 42 U.S.C 1395(b)(2)(A)].

The second problematic issue involves “equitable apportionment”, one of the most hotly debated issues in the MSP industry today.  The Sterrett court determined that the settlement, in spite of allocating no monies to future medicals, satisfied the requirement to reasonably consider and protect Medicare’s interest.  The reasoning was that the $550,000 settlement represented a substantial compromise over the potential verdict amount should this case go to trial.  Furthermore, the court concluded that it was reasonable, in this severely compromised case, to apportion all of the settlement dollars first to the other parts of the settlement leaving nothing left for the future medical portion.

The Centers for Medicare and Medicaid Services (CMS) generally takes the position that they should be first in line in apportioning a compromised settlement like this so that monies for conditional payments and future medicals would be apportioned first.   The Sterrett Court took the opposite position and decided that CMS’ interest is last in line regarding apportionment of future Medicare Set-Aside monies.   Many in the industry think that an “equitable apportionment” that reduces all parts of the settlement proportionately makes the most sense.

An “equitable apportionment” method in this case would work like this.  First, lets assume that the future medicals were determined to be say $100,000.   Second and most difficult, say it could be determined that a reasonable estimate of the full value of the case was four times the $550k settlement amount or $2.2M.  So instead of Medicare’s interest being protected first or last, Medicare’s interest would be apportioned down proportionate to the total settlement reduction.  Since the entire case settled for 25% of value, Medicare would get 25% of it’s conditional payment reimbursed or $3,612.08 (25% of $14,448.30) and a MSA would be funded to protect Medicare’s future interest at $25,000 (25% of $100,000).

Amazingly, for the 33 years since the passage of the MSP Statute in 1980, CMS has not addressed the issue of equitable apportionment for future medicals in liability settlements.  This leaves the issue up to the settling parties and sometimes a court to determine what is reasonable.

We believe that equitable apportionment of future medicals is a practical necessity to be able to implement liability MSAs. Medicare should be limited to a fair and equitable portion of a reduced settlement.  It is very unfair to a claimant who receives a reduced settlement to have to pay Medicare their full lien and set aside a full portion into an MSA.  In some cases this leads to a ludicrous result where a severely injured claimant receives no funds at all from a settlement with the at-fault party.   The Medicaid system uses an “Ahlborn” formula for this purpose and it works well.   This same equitable apportionment concept can work in the Medicare context, too.

The truly amazing thing about CMS not endorsing an equitable apportionment methodology for liability MSAs is that, in our opinion, it is the key to implementing a liability MSA program that would save the Medicare Trust Fund perhaps $4-$7 billion dollars per year.  The Sterrett court decision allowed CMS’ interest in future medicals to be set at zero by the two settling parties and CMS was left with nothing.  Wouldn’t it be better for CMS to adopt an “equitable apportionment” approach rather than be stiffed and get nothing?

To view the Sterrett v. Klebart case click here.

To view the Finke v. Hunter View, Ltd. case click here.

To view the Medivest response to the CMS-6047-ANPRM which explains more about our proposed improvements to the MSP program click here.

 

by

Court Determines the Necessity and Amount of the MSA in Stephen Welch v. American Home Assurance

An interesting case dealing with a dispute about the necessity for and the amount of a Medicare Set-Aside (MSA) was decided last week in a U. S. District Court in Mississippi.

Facts

Mr. Welch filed a workers’ compensation insurance claim with his employer, claiming that he injured his left elbow at work while lifting a wooden board.  The employer/carrier denied the claim based on a doctor’s report that Mr. Welch was suffering from an acute left elbow strain prior to the date of the injury.  A Mississippi Workers’ Compensation Commission (MWCC) administrative law judge later ordered that Mr. Welch be provided medical and temporary disability benefits by the employer/carrier.  Mr. Welch then filed a bad faith action against the carrier seeking actual, compensatory and punitive damages claiming that the carrier’s denial and delay of his workers compensation claim substantially worsened his condition.

Issues Before the Court

A confidential global settlement was entered into with the condition that a court determine the necessity of an MSA and the amount of an MSA, if any.  An immediate motion was filed in the U.S. District Court.  In addition, the defendants also requested that the court-determined MSA be self-administered by the claimant.   Finally, the parties requested that the court order declare that the interests of Medicare were reasonably considered and protected.

The Court was advised, by letter from the U. S. Attorney’s Office, that the U.S. Government would not have a representative at the hearing stating that  “the United States Department of Health and Human Services (DHHS) is not a party to this action and there has been no waiver of sovereign immunity on its behalf.”  The letter further stated that, “Nevertheless, the settlement funds should be exhausted on otherwise reimbursable services related to what was claimed and/or released before Medicare is billed for future medical services.

Court Decision

After an analysis of some conflicting testimony, the Court ordered that an MSA in the amount of $278,019.08 should be set aside from the global settlement, and that this figure would adequately protect Medicare’s interests.

Discussion – There are two particular issues in this case that warrant further discussion, in our opinion:

1.  Submitting a global settlement for CMS review.

It seems that the settling parties should have simply submitted an MSA to the Centers for Medicare and Medicaid Services (CMS) under the well-established review procedures established for this type of global settlement case, instead of asking a court to review it.

2.   Two-Step Approach to Determining Competence to Self-Administer

First, kudos to the court for evaluating Mr. Welsh’s “cognitive” ability to be able to self-administer his own MSA funds.   The CMS allows an individual to self-administer his or her own MSA funds but the CMS also requires that the administrator be “competent”.

In determining “competence”, the court first determined that the claimant was not “cognitively impaired”.   This is a very good first step because rarely would a cognitively impaired, injured person have the ability to successfully apply the complex rules required to properly administer an MSA.

Second, kudos again to the court for also determining that Mr. Welch was “capable of administering any funds placed in an MSA account” based upon the findings that Mr. Welch understood and agreed: (a) to an MSA to protect Medicare’ interest, (b) that the MSA must be placed into an interest bearing account, (c) that MSA funds must be used solely for injury related medical treatment, and (d) that he must keep accurate accounting records.   Certainly these factors are essential in order to successfully administer an MSA account.  In addition, MSA administration requires an understanding of very complex Medicare allowable treatment guidelines, state-specific fee schedules and financial discipline.   The truth is very few individuals have the ability, knowledge and skills necessary to successfully accomplish this on their own.

Finally, much care is usually taken to determine the MSA amount.  Similar care should be taken to determine if the claimant is competent to self-administer the MSA funds.  The court is off to a good start in outlining a protocol for settling parties to adopt to evaluate whether an injured person is competent to self-administer an MSA.  If the injured person is not cognitively impaired, understands all the complex requirements and has the requisite skills and abilities, then self-administration is an option.  If not, then self-administration should be avoided and an experienced professional administration company should be chosen to administer the MSA funds.

To view Stephen Welch v. American Home Assurance click here.

by

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.


by

Coventry Health Care, Inc Agrees to Pay U.S. $3 Million to Avoid Prosecution

It was announced on November 19, 2012 that Coventry Health Care, Inc. (Coventry) has agreed to pay a $3,000,000 fine to the U.S. Government to avoid any prosecution of crimes arising from unauthorized access to a Medicare database.

Coventry entered the Medicare Set-Aside industry in 2005 when it acquired First Health Group Corp. for $1.7 million.   Although this was a large acquisition for Coventry that more than doubled its assets and employees, the Medicare Set-Aside division accounted for less than .25% of Coventry’s consolidated revenue, or about $1.7 million in annual revenue.  Coventry no longer sells Medicare Set-Asides.

In January 2007, the Centers for Medicare and Medicaid Services (CMS) notified Coventry regarding unauthorized access of CMS’ database. In 2008, the U.S. Attorney’s Office for the District of Maryland began an investigation into practices at Coventry.

As part of Coventry’s normal course of business, certain employees had authorized access to Medicare’s Common Working File database.  However, a few employees accessed CMS’ Common Working File for the purposes of preparing Medicare Set-Aside reports.  This access was not authorized by CMS and was, according to the government, “intended in part to give Coventry an unfair advantage over its competitors”.

On November 19, 2012, it was announced by both Coventry and by the U.S. Department of Justice (DOJ) that an agreement had been reached whereby Coventry would pay a $3,000,000 fine in return for the government not filing criminal charges.  In addition, Coventry agreed to maintain employee training and testing programs regarding privacy and security of government databases.

Click here to the see the DOJ press release.
Click here to see Coventry’s press release.

by

U.S. Supreme Court Declines to Hear Hadden Case

The U.S. Supreme Court has denied the petition for writ for certiorari in the Hadden v. United States case, marking the final chapter in perhaps the most watched Medicare Secondary Payer (MSP) court case in U.S. history.   The issue in this case was whether Medicare is entitled to full reimbursement of its outlay under the MSP Act when a beneficiary compromises a personal injury claim, (as the 6th Circuit held in the Hadden case) or whether Medicare is entitled to only a proportional recovery (as held by the Eleventh Circuit).  By refusing to hear this case, this conflict in the courts will not be resolved and confusion will remain the status quo in the MSP compliance industry.

The Facts of the Case

On a warm, August afternoon in 2004, Vernon Hadden was standing next to the traffic circle at the center of the small, historic town of Elkton, Kentucky. Mr. Hadden was severely injured when a service truck struck him as it swerved to avoid collision with a car that ran a stop sign. The car kept going and has never been identified.  The company that owned the work truck agreed to settle for $125,000, which represented 10% of the value of the case.  Medicare claimed that Mr. Hadden must make 100% reimbursement of their outlay (less attorneys fees), or $62,338, even though Mr. Hadden only received 10% of the value of his case.  Mr. Hadden paid Medicare under protest, appealed to Medicare and lost, filed suit in U.S. District court and lost, appealed to U.S. Court of Appeals for the Sixth Circuit and lost, and finally petitioned the U.S. Supreme Court, which just denied his appeal.

Conclusion

It seems remarkably unfair that Mr. Hadden, who was seriously injured and received only 10% of the value of his case because the “at fault” driver left the scene, must reimburse Medicare for 100% of their outlay.  After all, Medicare is his medical insurance plan he paid the premiums to that insurance plan on every paycheck during his working life.  The Sixth Circuit’s decision, which now stands, was based on its interpretation of the word “responsible” in the statute.  So, Mr. Hadden suffers again.  This time his suffering is based on a vaguely worded statute, the meaning of which the courts cannot agree.

Perhaps the legislative branch of government should resolve this conflict by passing a bill that amends the MSP statute, allowing Medicare to only receive a proportionate recovery in cases like this where the injured person receives a reduced settlement.

Ironically, on the same day that the U.S. Supreme Court refused to hear the Hadden case, it agreed to hear a Medicaid case (Delia v. E.M.A.) that involves a very similar proportional recovery issue.

To view the Hadden petition for writ of certiorari, click here.

To view the U.S. Supreme Court docket for Hadden, click here.

To view the 4/12/2012  Medivest blog on Hadden petition filed with the U.S. Supreme Court, click here.

To view the 12/30/2011 Medivest blog regarding Hadden losing appeal to 6th Circuit, click here.

To view 11/2/2010 Medivest blog regarding Bradley and Hadden cases, click here.

To view the Delia v. E.M.A petition to the U.S. Supreme Court, click here.

To view the U.S. Supreme Court docket for Delia v. E.M.A, click here.

by

Cribb v. Sulzer Metco U.S., Inc: Federal Court Approves $4,500 LMSA

On September 5, 2012, the U.S. District Court for the Eastern District of North Carolina approved a liability settlement and the establishment of a $4,500 Liability Medicare Set-Aside.  Because Medicare does not currently require or approve Medicare Set-Asides when personal injury cases are settled, the litigants felt it necessary to go to federal court for certainty that they complied with their obligations under the Medicare Secondary Payer (MSP) provisions.  After paying an undisclosed amount of attorney’s fees to go to court, the parties got the certainty they were looking for.

Reading cases like this makes me wonder if I’ve tumbled down the rabbit hole with Alice and landed in Wonderland.  There should be a better way for settling parties to obtain some certainty that they are complying with the MSP Statute than having to spend the time and money to go to federal court.

Click here to view Cribb v. Sulzer Metco U.S., Inc

by

Bessard v. Superior Energy Services

In a recent order by the U.S. District Court for the Western District of Louisiana, Lafayette Division, the court approved a Medicare Set-Aside in a Longshore and Harbor Workers’ Compensation Act (LHWCA) case.

Gregory Bessard was injured in a workplace accident when he jammed his neck and right shoulder on a crane aboard a lift boat working in the Gulf of Mexico.  He underwent an anterior cervical decompression and fusion of the C5-6 and C6-7 levels of the spine.  After lengthy negotiations, the defendant agreed to settle the case for $785,000 conditional upon obtaining a Medicare Set-Aside.  The MSA report came back showing that Mr. Bessard’s estimated injury related, Medicare allowable future medical expenses were $6,701.00.

The parties were concerned that CMS would not review the MSA so they jointly filed a motion of declaratory judgment asking the court to: approve the settlement, state that the interests of Medicare were being protected and order Mr. Bessard to establish an MSA.  CMS responded to a court inquiry stating that, “CMS would neither participate nor review the parties’ determination of whether a set aside was needed or the amount of the set-aside with respect to the liability settlement. Nevertheless, CMS expects the settlement funds to be exhausted on otherwise Medicare covered and otherwise reimbursable services related to what was claimed and/or released before Medicare is billed for future medical services”.

The court found that “since CMS provides no procedure by which to determine the adequacy of protecting Medicare’s interests” in this case, the $6,701.00 MSA was reasonable and fairly took Medicare’s interests into consideration.  In addition, the court ordered Mr. Bressard to establish and self-administer the MSA.

Interestingly, the court also found that Mr. Bessard was “able” to self-administer the MSA.  This complies with an October 15, 2004 CMS memo that requires that all MSA administrators (including self-administrators) be “competent”; a requirement that CMS rarely ever enforces.

This case is very similar to Smith v. Marine Terminals of Arkansas (8/9/2011) where CMS refused to review a LHWCA case even though it exceeded their review threshold.  The court determined that the MSA was reasonable and that Medicare’s interests were reasonably considered and protected in the settlement.

The Bessard v. Superior Energy Services case points out that navigating the waters of MSP compliance can be difficult.  It’s a shame that CMS provides very little guidance to parties who are just trying to protect Medicare’s interests, preserve the Medicare Trust Funds and comply with the Medicare Secondary Payer statute.  Having to go to federal court is not an appropriate approach.   The solution to this problem seems very simple.  Medicare should establish and publish detailed guidelines for settling parties to follow so they can have certainty that they are complying with the statute.

Click here to view Gregory J. Bessard V Superior Energy Services LLC Et Al.
Click here to view Smith v. Marine Terminals of Arkansas

by

Sipler v. Trans Am Trucking, Inc.: Liability Medicare Set-Asides are not Required.

On, July 24, 2012, a U.S. District Judge sided with the plaintiff in a personal injury case, Sipler v. Trans Am Trucking, Inc., granting a motion to exclude Medicare Secondary Payer language added by the defendant without prior agreement, and enforce the settlement.  Trans Am Trucking wanted language added to the agreement that stated Jeffrey Sipler would not seek to have Medicare pay for his future injury related medical care, and that he would establish a Medicare Set-Aside.  The plaintiff objected and filed the motion with the court to enforce the settlement without it.

U.S. District Judge Dickinson Debevoise, from the District of New Jersey, ruled in favor of the Plaintiff.  Judge Debevoise stating that according to the Medicare Secondary Payer Statue, the Plaintiff may not seek payments from Medicare to the extent they were provided for by his health insurance and/or his settlement.  However, “no federal law requires set-aside arrangements in personal injury settlements for future medical expenses”.  He went on to say that,  “to require personal injury settlements to specifically apportion future medical expenses would prove burdensome to the settlement process and, in turn, discourage personal injury settlements”.  He summarized, “the parties in this case need not include language in the settlement documents noting Mr. Sipler’s obligations to Medicare or fashion a Medicare set-aside for future medical expenses”.

It seems to me that the take-away from this ruling is that this judge was not going to force the parties to add language to a settlement agreement, absent prior agreement among the parties, especially when that language is not required by law.

To view the Sipler v. Trans Am Trucking ruling, click here.

by

Writ of Certiorari Filed with U.S. Supreme Court in Hadden v. U.S.

The Medicare Advocacy Recovery (MARC) Coalition has filed a petition for Writ of Certiorari with the U.S. Supreme Court, requesting that it review the 6th Circuit Court of Appeals’ decision in Hadden v. U.S.   In that case, the Court of Appeals held that Medicare was entitled to a 100% recovery of its conditional payments even though Mr. Hadden was forced to settle for 10% of the case value because the at-fault driver was never found.

The petition claims that the 6th Circuit Court of Appeals majority erred in its decision in Hadden v. U.S., stating that the “MSPA’s text, structure and purpose all lead to the conclusion that, where a beneficiary receives a discounted settlement, the government must receive a similar reduction in its recovery.” Furthermore, the petition argues that the issue is a public policy issue of exceptional importance because it affects tens of millions of Americans.   Finally, the petition makes the case that Supreme Court review is warranted because the 6th Circuit’s decision in Hadden v. U.S. conflicts with the 11th Circuit’s in Bradley v. Sebelius.

According to the Supreme Court rules, four of the nine justices must vote to accept a case for review.  The court usually chooses to hear cases that have national significance, might solve conflicting decisions in the federal circuit courts, and/or have precedential value.  The court accepts between 100-150 of the more than 7,000 cases that it is asked to review each year. Those odds may seem low, but this case does meet all three of the Supreme Court’s criteria for review, so it would not be surprising if it decides to hear the case.

To view our 12/30/2011 post on 6th Circuit opinion in Hadden v. U.S., click here.

by

Illinois Court Gives a Portion of Claimants MSA to Ex-Wife – In re Marriage of Christopher Washkowiak and Rosa Washkowiak

In a 2-1 split decision, dated March 7, 2012, an Illinois Court of Appeals affirmed the trial courts decision to award an ex-wife part of the husband’s workers’ compensation settlement that was placed in a Medicare Set-Aside (“MSA”) account.

Facts
Christopher and Rosana Washkowiak were married in 2004. In 2008, Christopher was injured while working for Northern Pipeline Construction (“Pipeline”). On August 31, 2010 he was granted dissolution of marriage. The divorce settlement agreement awarded 17.5% of the “net proceeds” from Christopher’s workers compensation settlement to Rosana. On December 9, 2010, the Illinois Workers’ Compensation Commission approved a settlement agreement between Pipeline and Christopher releasing Pipeline from all past and future obligations for the payment of workers’ compensation benefits, indemnity and/or medical benefits and awarding Christopher $365,000 (less attorneys fees and expenses for a net of $296,330) plus a $70,000 MSA.

The parties agreed that the Rosana was entitled to 17.5% of the $296,330 that Christopher received. However, a dispute arose as to whether Rosana was entitled to 17.5% of the $70,000 MSA funds.

The dispute and the court opinion turned primarily on the interpretation of the term “net proceeds” in the divorce agreement. The divorce agreement stated that, “The Respondent is awarded 17.5% of the net proceeds from the Petitioner’s workers’ compensation settlement as and for her interest in the same. Net proceeds are defined as the agreed award amount less workers’ compensation attorneys’ fees and usual and customary litigation fees and expenses.”

Christopher argued that the MSA funds were set-aside to satisfy Medicare’s interest and were not part of the “net proceeds” of the settlement. Rosana, however, argued that she was entitled to 17.5% of the MSA funds because the $70,000 MSA funds did not fall under the excluded category of attorneys’ fees, usual and customary litigation fees and expenses.

Court Decision
The trial court determined that Rosana was entitled to 17.5% of the $70,000 in the MSA. The appellate court affirmed the trial courts finding in a 2 to 1 decision.

The appellate court majority stated that case law required them to determine the parties’ intent solely from the language of the divorce agreement. In their analysis, they concluded that the MSA funds fell “squarely within the dissolution decree’s definition of “net proceeds” and not into one of the exceptions for legal fees or litigation expenses. They were not persuaded by Christopher’s argument that the MSA funds were not part of the net proceeds because those funds are only to be used to pay for his future medical costs. They said the $70,000 MSA funds were clearly part of the net proceeds and that Rosana was therefore entitled to them under the divorce agreement.

The dissenting judge made a very interesting point that the divorce agreement did not intend for the $70,000 MSA to be part of the net proceeds because of this language: “Total amount of settlement $365,000 (does not include $70,000 MSA)”. The dissenting judge concluded that, “Because the MSA funds were set aside for the sole purpose of satisfying Medicare’s interests, I would find that they are not part of the ‘net proceeds’ of the settlement.” However, the majority was not persuaded by these dissenting arguments.

Concluding Thoughts
Conceptually, the federal government’s Medicare Secondary Payer (MSP) program and the practice of using Medicare Set-Asides are simple to understand. Medicare should pay second, and insurance coverage or insurance settlement money should pay first. Mr. Washkowiak, who was injured at work, received $70,000 from the workers’ compensation carrier that was designated to pay his future medical bills. The settling parties agreed to follow Medicare ‘s voluntary MSA guidelines and put this money into a separate bank account to be restricted to only paying his future medical bills. This MSA was done to protect Medicare from paying future medical bills and to show that the settling parties were complying with obligations they may have under the MSP statute.

How can this MSA money be a marital asset if it is restricted to being used to only pay future medical bills of Mr. Washkowiak? How can the ex-wife be entitled to this money? He was seriously injured and received this money to pay for his future medical treatment. Is she going to use it to pay his future medical bills? Does this court decision, which requires part of the MSA account to be paid to the wife, violate federal Medicare memos which say that this money can only be paid for future medical bills? How can the wording of the divorce decree control whether or not this restricted bank account is a marital asset or not? I am not saying that the court got it right or wrong in this case. I will let the lawyers debate that. Perhaps they followed the law as it stands now. But if the law does not allow an MSA account to be a separate asset in a divorce, then something is wrong, because it should.

by

Hadden v. U.S. – Hadden Loses Appeal to 6th Circuit

It was a warm August day in 2004 when Mr. Vernon Hadden paused at the traffic circle, smack dab in the center of the small town of Elkton, Kentucky. He watched as a car ran the stop sign. Then, to his dismay and detriment, a work truck, owned by the well known and member-owned, Pennyrile Rural Electric Cooperative (“Pennyrile”) veered leftward to avoid a collision with the car and plowed right into him.  Mr. Hadden was rushed to the hospital where his treatment began for serious injuries. Medicare paid his medical bills of $82,036.17, in full, because Mr. Hadden, was a Medicare recipient due to being over 65 years of age.

Unfortunately for Mr. Hadden, the driver of the car, which was clearly the cause of the accident, never stopped and was never identified. Therefore, Mr. Hadden had no recourse to legally collect for his damages, except to file suit against Pennyrile. Pennyrile, in what most observers think was a very generous move, agreed to make a settlement payment of $125,000 to Mr. Hadden.

What happened next was that Medicare circled back and wanted Mr. Hadden to reimburse them $62,338.07 ($82,036.17 less a reduction for Mr. Hadden’s attorneys fees). Why? Because according to the Medicare Secondary Payer Act, Medicare is a “secondary payer” of medical expenses and if Medicare pays out expenses, they have a right to be reimbursed from any settlement proceeds.

Mr. Hadden paid the $62,338.07 (plus some interest) under protest then requested that CMS waive entirely or reduce its subrogation claim to 10% of the settlement. Mr. Hadden argued that Medicare should only be entitled to 10% of his $125,000 damage award, or $12,500 (before any statutorily allowed reduction for attorneys fees). He reasoned that Pennyrile was responsible for only 10% of his damages; thus he only received 10% of his total damages and therefore Medicare is only entitled to 10% of their claim.

CMS denied Mr. Hadden’s request to waive or reduce its subrogation claim. Mr. Hadden requested reconsideration from CMS and CMS upheld it’s previous decision to deny. He then requested a waiver of recovery from CMS which was denied. Then he appealed and a Medicare Qualified Independent Contractor returned a decision in favor of CMS. Then he appealed to an Administrative Law Judge (ALJ) who issued an opinion in favor of CMS. He appealed to the Medicare Appeals Council and lost. He filed a claim in federal court; the case was remanded back to the Secretary of the Department of Health and Human Services (HHS) and HHS ruled in favor of CMS. He then filed suit in U.S. District Court and on August 6, 2009, the district court upheld the decision by HHS.

On October 10, 2010, the U.S. Court of Appeals for the Sixth Circuit heard the case. Finally, over a year later on November 21, 2011, the Sixth Circuit Court of Appeals published its opinion, affirming the District Court’s decision that Mr. Hadden must reimburse Medicare in full even though he received a partial settlement himself.

The Sixth Circuit focused primarily on the meaning of the word “responsible” in the MSP statute at 42 U.S.C 1395y(b)(2)(B)(ii) as applied to the specific fact pattern in this case. The statute says that “an entity that receives payment from a primary plan”…”shall reimburse”…the “Trust Fund”…”if it is demonstrated that such primary plan has or had responsibility (emphasis added) to make payment with respect to such item or service”. The Sixth Circuit said that Mr. Hadden received full compensation for his medical expenses because he “demanded that Pennyrile pay for all of them”. They further said, “His obligation to reimburse Medicare – is ultimately defined by the scope of his own claim against the third party…And thus a beneficiary cannot tell a third party that it is responsible for all of his medical expenses, on the one hand, and later tell Medicare that the same party was responsible for only 10% of them, on the other.”

Judge Helene White dissented. She wrote that although the MSP statute clearly states that while Mr. Hadden was responsible to reimburse Medicare from his settlement proceeds, it was silent with regards to the amount to reimburse when there was a reduced settlement. She said that if the MSP Statute means what the majority says it means i.e., responsibility means full responsibility, then Pennyrile and Mr. Hadden would be responsible for the full $82,000 reimbursement to Medicare, even if Pennyrile had paid Mr. Hadden only $22,000. Using another example, she stated that if Medicare had paid $250,000 in medical costs, Pennyrile would be liable to the secretary for the full amount, and Medicare could have sued both Pennyrile and Hadden for the balance of its conditional payments. She stated that the statute should not be interpreted in a way that leads to an absurd result like this.

This case, which has drawn national attention, has been fascinating to follow. Mr. Hadden, was simply standing beside the street, next to the historic Todd County Courthouse, when a truck smashed into him. The car that caused the truck to strike him fled the scene. Mr. Hadden suffered serious injuries and received a much-reduced settlement which Medicare wanted the majority of. He and his lawyers were persistent in appealing the Medicare reimbursement demand. The wheels of justice turned slowly. The legal issues are complex and unsettled. But eventually the case made its way to the U.S. Appeals court, which took over a year to publish an opinion.

Although the appeals court decision was not in Mr. Hadden’s favor, there is a ray of hope for Mr. Hadden and others in the same situation. Interestingly, the U.S. Supreme Court could eventually hear this case because of the well-articulated dissenting opinion and because an opposite opinion was reached by the 11th Circuit in Bradley v. Sebelius.

by

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.

by

Erin Brockovich’s Partner in Litigation Loses Appeal: Sixth Circuit Holds that Medicare Secondary Payer Statute is not a Qui Tam Statute

Erin Brockovich, made famous by the 2000 movie staring Julie Roberts, and her litigation partners, have been suing hospitals and nursing homes for years claiming that those groups violated the Medicare Secondary Payer Statues (MSP) by failing to reimburse Medicare for unspecified conditional payment advances.

In December 2006, the St. Pete Times reported that Brockovich was listed as a plaintiff on 33 such lawsuits in California, and Douglas L. Stalley, a Tampa, FL resident, was listed as a plaintiff on 16 such lawsuits in Florida and three other states.   It was further reported that by November 2006 all but one of the California cases, and all but 4 of the Stalley cases, were dismissed.

On July 8th, 2011, there was a decision on one of the Florida cases.  The U.S. Court of Appeals for the Sixth Circuit upheld a previous lower courts determination to dismiss and grant sanctions in the case of Stalley v. Mountain States Health Alliance.  In this case, as in the others mentioned above, the plaintiff was claiming that the MSP was a qui tam statute, which permits private attorney generals to sue on behalf of the United States.

The Sixth Circuit said “notwithstanding Stalley’s tireless efforts, no court has ever found that the MSP is a qui tam statute, permitting private attorneys general to sue on behalf of the United States”.  The court went on say that “not even so much as a law review article, much less a case, supports Stalley’s claim.”  Finally, the court said, “Stalley cannot point to even a passing reference in the legislative history of the MSP to bolster his position.”

So the Sixth Circuit, after describing the Stalley’s claims as “utterly frivolous”, “unreasonable” and “vexatious” upheld the lower District Courts decision to impose sanctions of $276,589.69 against he plaintiff as a deterrent against anymore similar vexatious law suits.

To view the 7/11/2011, U.S. Court of Appeals decision in Stalley v. Mountain States Health Alliance click here

To view the 2/28/2008, U.S. Court of Appeals decision in Stalley v. Mountain States Health Alliance, et al click here