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Aranki v. Burwell – Nothing New When it comes to Liability Medicare Set-asides

By Jason D. Lazarus, J.D., LL.M, MSCC

Recently, an Arizona Federal judge ruled that he would not make a determination on whether a Medicare Set-Aside (MSA) is necessary on a medical malpractice case. According to Judge Stephen McNamee:

[t]he Court finds that there is no justiciable case or controversy ripe for review. As such, the Court does not have subject matter jurisdiction to hear this case. This case is not ripe for review because no federal law mandates CMS to decide whether Plaintiff is required to create a MSA. That CMS has not responded to Plaintiff’s petitions on the issue, is not reason enough for this Court to step in and determine the propriety of its actions. There may be a day when CMS requires the creation of MSA’s in personal injury cases, but that day has not arrived.

We have received a flood of inquiries as to whether or not this case eliminates the need to do an MSA in liability settlements. The answer is “no”.  This decision does not give the plaintiff or counsel a pass on considering Medicare’s future interests in a liability settlement. The opinion actually says that an MSA isn’t required, which simply reaffirms Medicare’s position on set-asides. An MSA is never required, whether it be for a workers compensation or liability settlement. This decision does not change the current Medicare secondary payer landscape.  Attorneys still need to consider Medicare’s future interests when resolving claims.

The Aranki case is similar to other cases that have addressed the question of the necessity of a Liability Medicare Set-aside (LMSA) to “protect Medicare’s interests” under the Medicare Secondary Payer Act (MSP).  All of the cases that have been reported revolve around the confusion of the necessity of MSAs in liability settlements or the inability to get CMS approval of a liability set aside.  The area is so rife with confusion that most lawyers just don’t know what to do when resolving a case with a Medicare beneficiary.  Courts, like the one in Aranki, acknowledge the confusion but do little to clarify.  My previous articles and blog posts regarding this subject have tried to debunk the myths surrounding the MSP and liability settlements.  In a recent Florida Supreme Court opinion regarding collateral sources, Joerg v. State Farm, one such article was cited by the Court.  Despite all of the foregoing, many lawyers fail to recognize the potential risks of failing to advise clients about these issues.  Analyzing the Aranki case and the issues presented is a good opportunity to discuss this very important issue.

The plaintiff, Rachel Aranki, was the victim of medical malpractice in 2009, which left her partially paralyzed and in chronic pain.  She filed a medical malpractice action in Arizona state court against the treating physician.  The case was settled prior to going to trial.  At the time of settlement, Ms. Aranki was a Medicare beneficiary.  The question of whether CMS would mandate a set-aside stymied the finalization of the settlement.  The plaintiff, in an effort to comply with the MSP, sought a response from CMS on the necessity of an LMSA, but they got no response.  The state court judge enforced the agreement to settle and ordered Ms. Aranki to file a declaratory judgement action in federal court on the LMSA issue.  The United States District Court for the District of Arizona issued its order dismissing the matter for lack of subject-matter jurisdiction.  In the opinion, the Court stated that “no federal law or CMS regulation requires the creation of a MSA in personal injury settlements to cover potential future medical expenses.”  This is a true and accurate statement of the current state of the law as it pertains to set-asides.  However, that is not the end of the story.

While there is currently no regulation or law that mandates set-asides in liability settlements, it does not mean there will be no consequences when a plaintiff attempts to shift the burden to Medicare for future injury-related care.  It is very clear from Medicare’s public statements that the agency believes that set-asides are the best method to protect the program from paying for injury-related care when future medicals are funded by a settlement.  That does not mean it is the only way to demonstrate that Medicare’s interests were taken into account when a case involving a Medicare beneficiary is settled, it just means it is one way.  It is Medicare’s preferred method of protecting their future interests.

The real issue when a case involving a Medicare beneficiary is settled boils down to the risk taken by the plaintiff in terms of coverage of their future injury-related care by Medicare.  It isn’t a defense issue.  It is a plaintiff issue.  The plaintiff, if he/she does nothing without legal justification, could face a situation where Medicare denies future injury-related care since nothing was set aside.  The plaintiff needs to understand this risk before settling their case.  Since the settlement will be reported to Medicare under the Mandatory Insurer Reporting laws, Medicare will be on notice of the settlement and the injury related ICD codes.  That could trigger a denial of care and a lengthy internal appeals process before Medicare payments for accident related care might be reinstated by a Federal District Court.

While on the subject of Mandatory Insurer Reporting, it is important to address a few things.  As a practice point, plaintiff counsel should be proactively dealing with the defense in terms of what they report, as inaccurate reporting can cause problems with conditional payments as well as eligibility for future benefits.  For example, if a case involves neck and back injuries, but the defense takes the position that the neck is pre-existing and settles for payments exclusively for the back, then reports the ICD codes for the neck along with the back – that is a problem.  Another problematic issue is reporting the wrong date of accident which could trigger Medicare to issue a new final demand for conditional payments.  Another important practice point is to be leery of Medicare language being included in the release, as many times it has inappropriate language along with inaccurate references to the Medicare Secondary Payer Act.

Given all of the foregoing, what do you do?  “Nothing” isn’t the answer.  The answer is to consult competent experts on the subject to help navigate the complexities, advise the client about the risks and document your file as to what you did along with why.  I like to use the acronym of CAD, Consult Advise Document, to remember the steps.  The bottom line for personal injury practitioners is that the LMSA issue poses a legal malpractice threat, not some type of legal action by CMS against you. There is no mechanism for the government to bring any type of legal action related to Medicare Set-asides.  If you don’t pay back a conditional payment, the government can bring an action against the trial lawyer as the regulations do provide for this but there is no corollary for set-asides.

Similarly, the defendants don’t have any exposure or liability if nothing is set aside.  They simply don’t have a dog in the fight.  Their insistence on requiring a set-aside may expose them to some liability which is a good counter argument to a recalcitrant defendant.  According to Medicare, the defendant’s only obligations are to report a settlement to Medicare under the Mandatory Insurer Reporting laws and put the plaintiff on notice if future medicals are funded.  There is amemorandum from CMS MSP Regional Coordinator Sally Stalcup that lays out this obligation for defendants.  Providing that policy memo to defense counsel can also be helpful in allaying fears the defense has about their responsibilities/exposure.

To summarize, the best practice is to evaluate the case and document what is being done along with why.  This is especially critical if nothing is being done and the client is eligible to receive Medicare benefits (or has a “reasonable expectation”).  There are certainly justifications for doing nothing in proper situations.  For example, nothing may be done because after educating the client, the client refuses to set anything aside.  Or, it could be that future medicals aren’t funded.  It could be that, due to liability issues, the case was settled for less than full value and when you run an equitable distribution calculation the amount of future medicals covered by Medicare is minimal.  On the other hand, in certain cases there might be a desire or need to set something aside. In those cases, an estimate of future medical expenses that are Medicare covered should be obtained or a full allocation done.  That is appropriate documentation.

Also, don’t forget about CMS’ exception memorandum which was disseminated back in September of 2011.  In that memo, the Baltimore HQ office indicated there are cases where a Liability Medicare Set-aside wasn’t necessary, period.  The memo stated that if the treating physician certified in writing that there would be no future medical expenses covered by Medicare for the injuries suffered in the accident, then nothing needed to be set aside.  To document this exception, the treating physician’s letter should be obtained and retained by both the trial lawyer, as well as the client.

Finally, it is important to understand that certain injury victims will be dual eligible.  This means that they receive not only Medicare, but Medicaid as well.  When someone is dual eligible additional planning concerns arise.  If it is determined that a Medicare Set-aside is appropriate or needed in the future, it raises some issues with continued Medicaid eligibility.  A Medicare Set-aside account is considered an available resource for purposes of needs-based benefits such as SSI/Medicaid.  If the Medicare Set-aside account is not set up inside a Special Needs Trust, the client will lose Medicaid/SSI eligibility.  Therefore, in order for someone with dual eligibility to maintain their Medicaid/SSI benefits the MSA must be put inside a Special Needs Trust.  In this instance, you would have a hybrid trust which addresses both Medicaid and Medicare.  It is a complicated planning tool but one that is essential when you have a client with dual eligibility.

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