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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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LMSA Issue Ties Settlement in Knots

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

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

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

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

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

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

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

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

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

Conclusion:

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

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

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

O time, thou must untangle this, not I.

It is too hard a knot for me to untie!

 

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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.

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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

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CMS Issues Seven Guidance Statements in a Single Day

CMS has been very busy lately working to improve its Medicare Secondary Payer (MSP) program as became apparent on Friday, September 30th when it announced seven separate guidance statements on the “MMSEA 111 What’s New ” section of its website.

1. Delay in Section 111 Reporting for Certain Liability TPOCs – CMS has delayed Section 111 reporting for certain liability Total Payment Obligation to Claimant (TPOC) settlements, awards or other payments.   No other Section 111 reporting dates were changed.  This change is optional.  Previously, all liability TPOCs incurred in Q4/2011 where to be reported in Q1/2012.  That still applies to TPOCs that exceed $100,000, but the new reporting timetable for Section 111 liability TPOCs under $100,000 now depends on the TPOC amounts.  So, here is a complete new Section 111 timetable for all reporting types with the latest 9/30/2011 liability TPOC changes highlighted with asterisks.

Section 111 Timetable Chart – as of September 30, 2011

Type Capture Date Report Date
Workers’ Comp ORM Q4/2010 and prior Q1/2011
Workers’ Comp TPOC Q4/2010 Q1/2011
Liability ORM Q4/2010 and prior Q1/2011
*Liability TPOCs > $100,000 *Q4/2011 *Q1/2012
*Liability TPOCs > $50,000 *Q2/2012 *Q3/2012
*Liability TPOCs >$25,000 *Q3/2012 *Q4/2012
*Liability TPOCs over min threshold *Q4/2012 *Q1/2013
Min threshold, TPOC ≤ $5,000 2012 exempt
Min threshold, TPOC ≤ $2,000 2013 exempt
Min threshold, TPOC ≤ $600 2014 exempt
no min threshold 2015 and thereafter

Note: The four rows with asterisks reflect the new timetable changes announced on 9/30/2011.  The minimum thresholds remain the same.

2. Policy Guidance Related to Exposure, Ingestion, Implant Issues and December 5, 1980 – CMS stated that it historically has not asserted a Medicare Secondary Payer (MSP) recovery claim against settlements where the date of incident (DOI) occurred before 12/5/1980, which is the effective date of the MSP Statute.   CMS then went on to clarify that for purposes of determining the DOI, it uses:

  • the date of last exposure for environmental hazard cases,
  • the date of last ingestion for ingestion cases,
  • the date of last physical exposure for ruptured medical implant cases and..
  • the date the implant was removed for non-ruptured implant cases.

Finally, CMS said that when reporting both under Section 111 and to the COBC, the date of first exposure/date of first ingestion/date of implantation is the date that MUST be reported as the DOI.

3.  An Alert Related to Qualified Settlement Funds – CMS announced a limited exception to Section 111 reporting when settlement funds are paid to a Qualified Settlement Fund (QSF).  Under this exception, Section 111 reporting is NOT required if: (a) the settlement is a liability TPOC only payment, (b) the settlement payment is issued by the QSF in connection with a bankruptcy, and (c) the settlement funds where paid to the QSF after October 1, 2011.

4.  A Policy Memorandum for Liability Medicare Set-Asides Regarding Treating Physician Certification – In its very first policy Memorandum addressing Liability Medicare Set-Asides (LMSA), CMS addressed the issue of how to “consider Medicare’s interest” in liability settlements where future injury related medical treatment will not be required.  CMS said that if the treating physician certifies in writing that no future medical treatment is required, Medicare will consider its interest satisfied and there is no need an LMSA for review.

5. The MSPRC implements a Self-Service Phone Feature –  The Medicare Secondary Payer Recovery Contractor (MSPRC) has added a 24/7, no wait-time, self-service phone feature to its customer service line that gives callers up-to-date demand and conditional payment amounts and the dates those letters were issued without having to speak to a customer service representative.

6. Option to Pay a Fixed Percentage for $5,000 or less Liability Settlements – Beginning in October 2011, CMS will implement an option to a fixed percentage of certain trauma-based liability cases with settlements of $5,000 or less.  More details on this will be posted at www.MSPRC.info on or before October 21, 2011.

7.  Upcoming improvements to the MSP program – CMS announced the following upcoming improvements expected within the next 3-9 months:

  1. The implementation of a MSPRC Web portal where a beneficiary/representative can obtain information about Medicare’s claim payments, demand letters and input settlement and disputed claim information.
  2. The implementation of an option that allows for an immediate payment to Medicare for future medical costs that are claimed/released/effectively released in a settlement.
  3. The implementation of a process that provides Medicare’s conditional payment amount, prior to settlement in certain situations.

Again, like several previous news announcements from CMS, this is very encouraging news.  Stay tuned; we will keep you informed as more developments follow.

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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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Congress Holds Hearing on Medicare Secondary Payer Problems

Yesterday, June 22, 2011, the Oversight and Investigations Subcommittee held a hearing to examine the Medicare Secondary Payer (MSP) System.

In his opening statement, Congressman Cliff Stearns (R-FL), the subcommittee chairman responsible for calling the hearing, spoke of serious delays in obtaining conditional payment information from CMS.  He mentioning widespread complaints that, “CMS is creating unnecessary roadblocks”, “that CMS is not providing this [conditional payment] information in a constant or timely manner”, and that these delays “cause lawsuits to drag on, hinders timely payments to injured individuals, and causes uncertainty and increased costs for both large and small businesses”.   Congressman Stearns went on to say that when parties are “anxious to pay the federal government, and they can’t get a complete or timely response about how much they owe, the system is badly broken.”

Concerning Medicare Set-Asides (MSAs) , Congressman Stearns said that CMS may not know when an MSA has been “improperly spent on unrelated, non-medical expenses”.

After additional opening remarks by Congressman Fred Upton (R- MI), Chairman of the Committee on Energy and Commerce, additional panelist presented their statements followed by a discussion:

Panel I

Ms. Deborah Taylor
Director of Financial Management,
Centers for Medicare and Medicaid Services

Mr. James Cosgrove
Director, Health Care
Government Accountability Office

Panel II

Mr. Marc Salm
Vice President, Risk Management
Publix Super Markets, Inc.

Mr. Scott Gilliam
Vice President
Cincinnati Insurance Company

Mr. Jason Matzus
Partner
Raizman Frischman & Matzus, P.C.

Ms. Deborah Taylor, from CMS, emphasized the importance of the MSP law by saying that it has saved the Medicare Trust Funds over $50 billion over the last decade.    Interestingly, she said, “any restrictions on existing MSP rights or recovery processes would adversely affect savings that would otherwise accrue to the Medicare Trust Funds through MSP recovery activities”.   She said that the new Non Group Health Plan (NGHP) Mandatory Insurer Reporting process established by Congress has resulted in significant additional recoveries for the Medicare Trust Funds.

Mr. James Cosgrove from the Government Accountability Office provided a 16 page paper that described the MSP process in detail.

The second panel all testified to serious problems in the MSP process including:

  • The need for CMS to provide the conditional payment amount before settlement
  • The need for a threshold below which MSP will not apply
  • Eliminate the required use of Social Security numbers in MSP Mandatory Insurer Reporting
  • Adding more customer service phone lines for MSPRC
  • Allow safe harbors and discretion for $1,000 per day MSP MIR penalties
  • Consider ways to control errors where the MSP system is wrongfully denying beneficiary coverage for unrelated claims

It’s very encouraging that this hearing took place that highlights the many of the current problems with the MSP process.   Congressman Stearns put it well when he said that said that the system is certainly broken when interested parties who want to pay Medicare can’t find out how much they owe in a timely manner.   Lets hope that Congress can fix some of these MIR and conditional payment problems.

Congress and CMS also need to realize that billions of dollars are being lost because of problems with MSAs, such as that liability MSA procedures are not clear, and that most claimants are not capable of managing MSA funds themselves in accordance with the complex rules required by CMS.  Perhaps those issues should be the subject of the next hearing.

To see the agenda, opening statements and witness statements click here.

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Western District of NY Issues MSP Protocol

On May 6, 2011, Assistant U.S. Attorney for the Western District of New York (WDNY) Robert G. Trusiak issued the WDNY Medicare Secondary Payor Protocol, which outlines a voluntary standard operating procedure for resolving the future medical component of a liability settlement involving a Medicare beneficiary. While this policy was not released by the Centers for Medicare and Medicaid Services (CMS), it is the first bit of guidance offered by the federal government on the issue of Liability Medicare Set Asides (LMSAs).

Before the application for MSP compromise can be filed with the US Attorney’s office for the WDNY, the following criteria must be met:

  1. Medicare must have been notified of the pending liability claim and subsequent settlement of the claim.
  2. A letter from the Medicare Secondary Payer Recovery Contractor (MSPRC) must be obtained stating that the conditional payment obligation concerning repayment of any Medicare liens related to the claim was resolved, or provide adequate assurances to that effect.

Once the application criteria has been met, appropriate steps must be taken to ensure the application includes the following:

  1. A copy of the MSPRC letter stating the matter concerning repayment for any Medicare liens related to the claim was reviewed and resolved or provide adequate assurances to the effect.
  2. Proposed LMSA concerning payment for the future medical items and services related to the claim.
  3. An agreed copy of the settlement agreement subject to the completion of MSP obligations.
  4. A joint statement from the applicants certifying the following:
    a. The value of the agreed settlement equals or exceeds $350,000.
    b. The plaintiff is a Medicare beneficiary as that term is defined under 42 C.F.R. §400.202.
    c. CMS was requested to approve the LMSA, but no substantive response has been received for at least 60 days from the date of the letter to CMS; and
    d. An affidavit from the preparer of the LMSA that it is true and correct based on the Medicare beneficiaries medical records and the injuries being released as well as in the conformance with the WCMSA submission checklist as published by CMS.

The U.S. Attorney’s office for the WDNY reserves the right to request additional information from the parties, however upon receipt of all required information will issue a release. The release will compromise the LMSA obligations related to the settlement, judgment, award or other payment. It is important to note that the WDNY MSP Protocol is not available for liability cases involving mass torts, and again, is not the policy of CMS.

On the positive side, this protocol does provide more peace of mind to those parties settling liability claims involving Medicare beneficiaries in the WDNY’s venue. However, while it is refreshing to see an arm of the federal government offer guidance on the issue of LMSAs, it should be noted that the agency given the task of enforcing the Medicare Secondary Payer (MSP) Statute, CMS, has not endorsed the policy at all. The last statement of the protocol says clearly, “This is not the policy of CMS”.

This protocol falls short of addressing the heart of the problem, which is CMS’ insistence on viewing LMSAs through the same lens as they have viewed WCMSAs. They are clearly two different beasts, and this does nothing to change that fact. For example this protocol leaves many questions such as what to do if the settlement is under $350K, or if apportionment of the set aside is an accepted practice. While we commend the WDNY for taking a position on this issue, it would be helpful to see them tackle the more controversial elements of handling LMSAs.

To view the WDNY MSP Protocol in its entirety, please click here.