Settlement Compliance Strategies for Closing Cases

October 13, 2022

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

Ethical Issues at Settlement

Suffering even a moderate personal physical injury can create difficult challenges both financially and emotionally for even the strongest among us.  However, what happens when someone suffers a serious or catastrophic personal physical injury?  Do they get the proper counsel regarding the form of the settlement to protect their current assets, preserve public benefits and safeguard the physical injury recovery?  Will the recovery be enough to pay for all the victim’s future medical needs without public assistance?  Can they recover physically?  Can they recover emotionally?  All these issues can be very difficult to face for someone who is seriously injured.  Personal injury practitioners who represent disabled clients should be aware of their obligations to advise these clients properly and understand the hurdles faced by the injury population in terms of recovery both financially and physically.  This white paper addresses issues of major importance when dealing with the form of settlement for a personal injury matter involving a disabled client.

Ethical Concerns & Malpractice Liability

The ABA Model Rules and Ethical Obligations to Advise the Personal Injury Client

Personal injury lawyers are excellent at consulting with clients on the value of their case and obtaining significant monetary results in the litigation, however the practitioner sometimes fails to properly advise/protect their client financially post-settlement.[1]  For personal injury victims there is usually a focus on the dollar amount of the recovery rather than how the recovery can be structured to provide protection to the disabled injury victim.[2]  The concentration of substance over form by the lawyer handling the physical injury suit can have devastating consequences for an injury victim.  A disabled injury victim can mismanage their personal injury recovery and lose the public benefit eligibility they desperately need.[3]  Therefore questions arise: Does a lawyer have an ethical obligation to advise a disabled client regarding the form of their recovery?  Does the lawyer have an ethical duty to explain the impact of a personal injury recovery on public benefits and techniques to protect eligibility?  Below I examine the ethical rules, statutes and case law to shed some light on potential answers to these questions.

There are four provisions within the ABA Model Rules of Professional Conduct that are particularly relevant to the personal injury lawyer’s advisement obligations when it comes to consulting on the form or structure of disabled injury victim’s recovery.  Rule 1.4 (b) provides:  “A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions . . . .”[4]  Rule 1.3 states: “A lawyer shall act with reasonable diligence and promptness in representing a client.”[5]  The commentary warns: “A client’s interests can be adversely affected by the passage of time.”[6]  1.2 (a) admonishes that:  “A lawyer shall abide by the client’s decisions concerning the objectives of representation . . . and shall consult with the client as to the means by which they are to be pursued.”[7]  Rule 1.2 also says “a lawyer shall abide by the client’s decision whether to settle a matter.”[8]  Finally, Rule 2.1 indicates:  “In rendering advice, a lawyer may refer not only to law but to other considerations such as moral, economic, social and political factors, that may be relevant to the client’s situation.”[9]

Many personal injury practitioners seem to believe that advice regarding financial matters and techniques to preserve public benefit eligibility crosses the line between legal and “financial” advice.  However, as I will discuss more thoroughly below, these issues touch on the law and do create an obligation on the part of the personal injury practitioner to properly advise the client regarding their implication as to the form or structure of the recovery.  If you take the Model Rules together with the legal malpractice case law discussed below, it is this author’s opinion that the personal injury lawyer must address the financial implications of the settlement and impact on public benefit eligibility with the injured client to enable the client to make an informed decision about the form of the settlement.  Allowing a disabled client to take the personal injury recovery in a single lump sum without any advice on the impact of that decision would set up a situation where the client could be adversely impacted by the passage of time. 

Malpractice Liability for Failing to Advise Injury Victim Clients

The Grillo[10] case from Texas is the most widely publicized legal malpractice settlement involving liability for failing to counsel a minor client on the form of a personal injury settlement.  Christina Grillo was born with Cerebral Palsy, cortical blindness and quite a few other medical problems.[11]  Her parents instituted a medical malpractice action alleging her medical problems were due to negligent medical care during delivery in a Texas Hospital.  The medical malpractice case was settled for $2.5 million.[12]  The settlement was placed into the court registry.[13]  The interest earned from the investments in the trust was taxable and the child lost her Medicaid eligibility since no special needs trust was established.[14] 

The personal injury lawyers who handled the case were later sued for legal malpractice for their handling of the settlement.  In the legal malpractice action, Grillo’s legal counsel, Kevin Isern, alleged that her personal injury lawyer “didn’t offer a structured settlement to the child and “[t]hey had the money deposited into the registry of the court . . .  and she lost Medicaid.”[15]  Having the money placed in the court registry meant Christina Grillo could not have a tax-free structured settlement and all of the accrued interest was taxable.  Isern pointed out that “[i]n a structured settlement, that does not occur.”[16]  He also pointed to the fact that the lawyers also failed to set up a special needs trust which would have preserved her Medicaid eligibility.[17]  Finally, Isern pointed out that in the Grillo case “[y]ou have a child who has all these needs, requires 24-hour care and has no government assistance to help pay for it.  She got taxed on all the money she gained.”[18]

The Grillo legal malpractice case was settled by the personal injury firm that handled the medical malpractice action on behalf of the minor and by the guardian ad litem (“GAL”) who had represented the minor’s interests when the settlement was approved. [19]  The personal injury firm settled the legal malpractice action for its handling of the medical malpractice settlement for $1,600,000.  Interestingly, the suit against the GAL was settled for $2,500,000.  For attorneys that serve as guardian ad litems with any frequency, it is attention grabbing that the GAL wound up with the largest share of the liability in terms of the gross settlement amount.  However, it sends a clear warning message to personal injury lawyers as well as guardian ad litems about their obligations to properly advise a client about the financial options they have and preservation of public benefits. 

The only other reported decision regarding suit over failing to give advice about the form of settlement is the French v. Glorioso decision.[20]  In French, the injury victim, Karen French, was shot during a robbery attempt at a parking garage in New Orleans and was rendered a quadriplegic.[21]  She brought suit against the owners of the parking garage for providing insufficient security.[22]  At the time of the shooting, she was covered by a group health care plan but subsequently lost the coverage and was dependent on Medicaid.  The case was settled in November of 1998.[23]  In July of 1999, French consulted an attorney about setting up an SNT.  The attorney advised her that she would lose her Medicaid eligibility since the settlement was deposited into the plaintiff attorney’s trust account.[24]  Following this discovery, French sued the personal injury lawyer for legal malpractice, negligent misrepresentation, breach of contract and breach of fiduciary duty.[25] 

Ultimately, the French case was not decided upon the merits of her claim against her personal injury attorney but instead on a personal jurisdiction issue.[26]  Ms. French hired a Texas lawyer to handle the claim, who in turn associated with local Louisiana counsel since the suit needed to be filed in Louisiana.[27]  The legal malpractice action was brought in Texas against the Louisiana attorney, which raised personal jurisdiction issues.[28]  There appeared to be some factual dispute between French and her personal injury attorney over what had been recommended in terms of setting up an SNT, but this case again demonstrates the potential malpractice liability for failing to properly and fully advise clients about the impact of the settlement on their financial situation and public benefit eligibility.[29]

Finally, the American Bar Association released its report on the Profile of Legal Malpractice Claims in 2003 and personal injury lawyers made up the largest percentage of malpractice claims, twenty percent.[30]  Advice and settlement/negotiation made up over twenty three percent of the claims overall.[31]  When those two categories are combined they are tied for first in terms of the highest claims by type of activity in the study.[32]  While the report does not specify, it is logical to conclude that claims of failing to give advice about financial options, taxation of damages and preservation of public benefits would squarely fall within the purview of advice as well as settlement/negotiation malpractice claims. 

Ethical and Legal Duties to the Plaintiff at Settlement

The fact that all the issues relating to the form of the recovery touches the law drives home the fact that it is the personal injury lawyer’s obligation to at least raise these issues as part of their discussions with the disabled client.  As discussed above, there are provisions in the United States Code along with the Internal Revenue Code that impact the form of the recovery.  These provisions, if not explained to the injury victim client, can result in the client’s inability to avail themselves of options available under the law.  If the injury victim’s lawyer does not explain these issues to them, who will? 

If the disabled client is not given advice about how to structure their recovery, they could suffer quantifiable damages that can be proven in a legal malpractice case.  There are many experts that can be hired to make sure clients are properly advised of all their options for their recovery.  To avoid future liability, the personal injury lawyer should hire such experts to protect their clients and themselves.  If clients refuse counseling or refuse methods to protect their recovery, a good course of action is to have them sign a waiver or acknowledgement that they have been advised of their options and understand what they are giving up.  If the personal injury practitioner gives clients all their options regarding how to structure their recovery, and has them sign a waiver/acknowledgement if they decline the options presented to them, the lawyer has at least documented the file so if there is a subsequent legal malpractice claim they can offer evidence of the advice they gave.

Pursuant to the Grillo decision and the Model Rules, a lawyer must counsel clients regarding their financial options and techniques to preserve public benefits to avoid causing a potential loss to the client.  Grillo’s message to plaintiff lawyers is to employ or consult competent experts in taxation, trusts and structured settlements prior to distributing any funds to the injury victim.  If a lawyer fails to discuss the financial options a client has and then the client sues for legal malpractice, there are demonstrable damages as Grillo so aptly demonstrated.  Without knowledge of the tax law, the client can lose the power of a significant tax exemption offered for structured settlement recipients.  He or she can lose out on the opportunity for a safe investment with competitive rates of return.  Finally, and potentially the most damaging, the client can lose public assistance eligibility.

The problem is that plaintiff counsel typically has a very short time period within which to counsel the client in between settlement/verdict and disbursement of the funds.  The biggest mistake a personal injury lawyer can make is triggering constructive receipt[33] by placing the settlement proceeds in his or her trust account.  One solution to the settlement time crunch is to use a qualified settlement fund (QSF).  A QSF is a temporary settlement related trust that can be created pursuant to Treasury Regulations to receive personal injury settlement proceeds.[34]  A court with jurisdiction over the matter must issue an order creating the trust and the trust must meet the definition of a trust under state law.[35] Once created, it allows for an immediate cash settlement with the defendant and removes the defendant from the process.  The QSF acts as a holding tank for the settlement proceeds and gives plaintiff counsel time to employ experts while preserving the ability to structure the settlement as well as create public benefit preservation trusts without violating the tax doctrine of constructive receipt.  A financial plan can be developed, and the client’s needs addressed.

A personal injury practitioner must discuss with disabled clients the form of their personal injury recovery or hire an expert to do so.  There are many different options when it comes to the form of the financial recovery.  While there certainly is no clear-cut answer as to the amount of the recovery that would trigger the counseling obligation, if a physical injury recovery could result in loss of public benefits it is prudent for the lawyer give advice to that client about the options or have an expert do so.  Every client, no matter age, sex or level of sophistication, should be given their options regarding the form of the recovery which are available under the law.  Disabled clients especially need counseling given the likelihood they will be receiving some type of public benefits.  To prevent being exposed to a malpractice cause of action, the personal injury practitioner should understand the types of public benefits that a disabled client may be eligible for and techniques that are available to preserve those benefits.  Having this knowledge will help the lawyer identify disabled clients they may want to refer for further consultation with other experts. 

Overview of Public Assistance Programs & Laws That Impact Settlement

Because most of a lawyer’s malpractice exposure at settlement is related to public benefit preservation, it is important to understand the basics of these benefits.  Ethically, a lawyer must be able to explain these matters to the extent that the client is informed sufficiently to make educated decisions.  There are two primary public benefit programs available to those who are injured and disabled.  The first is the Medicaid program and the intertwined Supplemental Security Income benefit (“SSI”).  The second is the Medicare program and the related Social Security Disability Income/Retirement benefit (“SSDI”).  Both programs can be adversely impacted by an injury victim’s receipt of a personal injury recovery.  Understanding the basics of these programs and their differences is imperative to protecting the client’s eligibility for these benefits.

Medicaid and Supplemental Security Income (hereinafter SSI) are income and asset sensitive public benefits which require special planning to preserve.  In many states, one dollar of SSI benefits automatically provides Medicaid coverage.  This is very important, as it is imperative in most situations to preserve some level of SSI benefits if Medicaid coverage is needed in the future.  SSI is a cash assistance program administered by the Social Security Administration.  It provides financial assistance to needy, aged, blind, or disabled individuals.  To receive SSI, the individual must be aged (sixty-five or older), blind or disabled[36] and be a U.S. citizen.  The recipient must also meet the financial eligibility requirements.[37]  Medicaid provides basic health care coverage for those who cannot afford it.  It is a state and federally funded program run differently in each state.  Eligibility requirements and services available vary by state.  Medicaid can be used to supplement Medicare coverage if the client is eligible for both programs[38].  For example, Medicaid can pay for prescription drugs as well as Medicare co-payments or deductibles. Medicaid and SSI are income and asset sensitive, therefore, creation of a special needs trust may be necessary which is described in greater detail below.

Medicare and Social Security Disability Income (hereinafter SSDI) benefits are an entitlement and are not income or asset sensitive.  Clients who meet Social Security’s definition of disability and have paid enough quarters into the system can receive disability benefits regardless of their financial situation.[39]  The SSDI benefit program is funded by the workforce’s contribution into FICA (social security) or self-employment taxes.  Workers earn credits based on their work history and a worker must have enough credits to get SSDI benefits should they become disabled.  Medicare is a federal health insurance program.  Medicare entitlement commences at age sixty-five or two years after becoming disabled under Social Security’s definition of disability.[40]  Medicare coverage is available again without regard to the injury victim’s financial situation. A special needs trust is not necessary to protect eligibility for these benefits.  However, the Medicare Secondary Payer Act (MSP) may necessitate the use of a Medicare Set Aside discussed in greater detail below.

Laws that Impact Settlement

In order to properly advise personal injury victims about their legal options at settlement, an attorney first must know and understand the laws that impact settlement.  There are important federal laws that can impact a client’s eligibility for public benefits post settlement that must be explained.  There are also financial options provided for under the Internal Revenue Code that should be explored.  These issues are laid out in more detail with a focus on the ethical and malpractice issues raised in discussing the form of a personal injury settlement.

Public Assistance

The Medicare Secondary Payer Act:  §1862(b) of the Social Security Act

A client who is a current Medicare beneficiary or reasonably expected to become one within 30 months should concern every trial lawyer because of the implications of the MSP.  The Medicare Secondary Payer Act (“MSP”) is a series of statutory provisions[41] enacted in 1980 as part of the Omnibus Reconciliation Act[42] with the goal of reducing federal health care costs.  The MSP provides that if a primary payer exists, Medicare only pays for medical treatment relating to an injury to the extent that the primary payer does not pay.[43]  The regulations that implement the MSP provide “[s]ection 1862(b)(2)(A)(ii) of the Act precludes Medicare payments for services to the extent that payment has been made or can reasonably be expected to be made promptly under any of the following” (i) Workers’ compensation; (ii) Liability insurance; (iii) No-fault insurance.”[44] 

There are two issues that arise when dealing with the application of the MSP: (1) Medicare payments made prior to the date of settlement (conditional payments) and (2) future Medicare payments for covered services (Medicare set asides).  Since Medicare isn’t supposed to pay for future medical expenses covered by a liability or Workers’ Compensation settlement, or a judgment or award, Centers for Medicare & Medicaid Services (CMS) recommends that injury victims set aside a sufficient amount to cover future medical expenses that are Medicare covered.  CMS’ recommended way to protect an injury victim’s future Medicare benefit eligibility is establishment of a Medicare Set Aside (“MSA”) to pay for injury related care until exhaustion. 

In certain cases, a Medicare Set Aside may be advisable in order to preserve future eligibility for Medicare coverage. A Medicare set aside allows an injury victim to preserve Medicare benefits by setting aside a portion of the settlement money in a segregated account to pay for future Medicare covered healthcare. The funds in the set aside can only be used for Medicare covered expenses for the client’s injury related care. Once the set aside account is exhausted, the client gets full Medicare coverage without Medicare looking to their remaining settlement dollars to provide for any Medicare covered health care. In certain circumstances, Medicare approves the amount to be set aside in writing and agrees to be responsible for all future expenses once the set aside funds are depleted.

The problem is that MSAs are not required by a federal statute even in Workers’ Compensation cases where they are commonplace.  There are no regulations, at this time, related to MSAs either.  Instead, CMS has intricate “guidelines” and “FAQs” on their website for nearly every aspect of set asides from submission to administration.  There are only limited guidelines for liability settlements involving Medicare beneficiaries.  Without codification of set asides, there are no clear-cut appellate procedures from arbitrary CMS decisions and no definitive rules one can count on as it relates to Medicare set asides.  While there is no legal requirement that an MSA be created, the failure to do so may result in Medicare refusing to pay for future medical expenses related to the injury until the entire settlement is exhausted.  There has been a slow progression towards a CMS policy of creating set asides in liability settlements over the last seven years as a result of the Medicare Medicaid SCHIP Extension Act’s passage[45].  This creates a difficult situation for Medicare beneficiary-injury victims and contingent liability for legal practitioners as well as other parties involved in litigation involving physical injuries to Medicare beneficiaries given the uncertainty surrounding the need to create a set aside.  There appear to be regulations on the horizon for set asides based upon a Notice of Proposed Rulemaking from CMS entitled “Medicare Secondary Payer and Future Medicals”.[46] 

Special Needs Trusts:  42 U.S.C. §1396p(d)(4)

The receipt of personal injury proceeds by someone seriously injured can cause ineligibility for means based tested government benefit programs.  Medicaid[47] and SSI[48] are two such programs.  However, there are planning devices that can be utilized to preserve eligibility for disabled injury victims. A special needs trust (SNT) can be created to hold the recovery and preserve public benefit eligibility since assets held within a special needs trust are not countable resources for purposes of Medicaid or SSI eligibility.  The creation of special needs trusts is authorized by the federal law.[49]  Trusts commonly referred to as (d)(4)(a) special needs trusts, named after the federal code section that authorizes their creation, are for those under the age of sixty five.[50]  However, another type of trust is authorized under the federal law with no age restriction and it is called a pooled trust, commonly referred to as a (d)(4)(c) trust.[51]  These trusts are described fully below. 

A personal injury recovery can be placed into a SNT so that the victim can continue to qualify for SSI and Medicaid.  Federal law authorizes and regulates the creation of a SNT.  The 1396p[52] provisions in the United States code govern the creation and requirements for such trusts.  First and foremost, a client must be disabled in order to create a SNT.[53]  There are three primary types of trusts that may be created to hold a personal injury recovery each with its own requirements and restrictions.  First is the (d)(4)(A)[54] special needs trust which can be established only for those who are disabled and are under age sixty-five.  This trust is established with the personal injury victim’s recovery and is established for the victim’s own benefit.  It can only be established by a parent, grandparent, guardian or court order.  The injury victim can’t create it on his or her own.  Second is a (d)(4)(C)[55] trust, typically called a pooled trust that may be established with the disabled victim’s funds regardless of age.  A pooled trust can be established by the injury victim unlike a (d)(4)(A).  Third and last is a third party[56] SNT which is funded and established by someone other than the personal injury victim (i.e., parent, grandparent, charity, etc. . .) for the benefit of the personal injury victim.  The victim still must meet the definition of disability. 

Dual Eligibility: The Intersection of Medicare and Medicaid – SNT/MSA

If you have a client who is a Medicaid and Medicare recipient, extra planning may be in order.  If it is determined that a Medicare Set Aside is appropriate, 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 SNT, 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.

Financial Considerations

Periodic Payments:  §104(a)(2) of the Internal Revenue Code

When any physical injury victim recovers money either by settlement or by verdict, the question of the tax treatment of said recovery arises.  As long as it is compensation for personal physical injuries it is tax-free under Section 104(a)(2) of the Internal Revenue Code.[57]  Section 104(a)(2) of the Internal Revenue Code states that “gross income does not include . . . the amount of any damages received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal injuries or sickness.”[58]  Section 104(a)(2) gives the personal injury victim two different financial options for their recovery, lump sum or periodic payments.[59] 

The first option is to take all of the personal injury recovery in a single lump sum.  If this option is selected, the lump sum is not taxable, but once invested, the gains become taxable and the receipt of the money will impact his or her ability to receive public assistance.[60]  A lump sum recovery does not provide any spendthrift protection and leaves the recovery at risk for creditor claims, judgments and potential rapid dissipation.[61]  The personal injury victim has the burden of managing the money to provide for their future needs be it wage loss or future medical.  The second option is receiving “periodic payments” known as a structured settlement[62] instead of a single lump sum payment.   A structured settlement’s investment gains are never taxed[63], it offers spendthrift protection[64] and the money has enhanced protection against creditor claims as well as judgments.[65]  A structured settlement recipient can avoid disqualification from public assistance when a structured settlement is used in conjunction with the appropriate public benefit preservation trust.

If a structured settlement is to be used for someone eligible for needs based public benefits such as Medicaid and/or SSI, it is vitally important that a plan be properly constructed to avoid disqualification.  A structured settlement alone will never preserve public benefit eligibility and may in fact cause permanent disqualification when lifetime benefits are involved.  For example, in Sams v. DPW [66], a Pennsylvania court found that the purchase of a structured settlement as part of a personal injury settlement was a transfer of assets for less than fair market value, causing disqualification from needs-based benefits for the recipient.  To avoid this sort of outcome, it is necessary that a structured settlement’s payments be irrevocably assigned to a properly created special needs trust.  According to a 2006 Social Security Administration letter, “if the beneficiary of a trust which is not a resource for SSI has no right to anticipate, sell or transfer the annuity payments, the payments from a structured settlement annuity that are irrevocably assigned to an SNT, are not income to the trust beneficiary when paid into the trust.”[67]   In addition, under the Sams decision, payments should begin immediately into the trust. They cannot be deferred, and the death beneficiary of future payments should be the special needs trust so as not to frustrate federal payback requirements. 

[1] This statement is based on the author’s personal experience and observations in countless cases.  However, the author acknowledges that practices do vary considerably in this area.  Some trial lawyers may simply refer a client to a financial advisor or a local bank.  Others may employ a settlement planner with expertise in structured settlements and public benefit preservation techniques.  See also Ellen S. Pryor, Liability for Inchoate and Future Loss After Judgment, Va. L. Rev., 1758, 1813 – 1827 (2002) (concluding that practices vary considerably in terms of advisement by the trial lawyer regarding financial obligations at settlement).

[2] Id.

[3] See Generally Marcus L. Plant, Periodic Payment of Damages for Personal Injury, La. L. Rev., 1327, 1331 – 1332 (discussing numerous studies on dissipation of settlements and the resulting dependence on public assistance programs).

[4] Model Rules of Professional Conduct Rule 1.4(b) (2007).

[5] Model Rules of Professional Conduct Rule 1.3 (2007).

[6] Model Rules of Professional Conduct Rule 1.3 (2007).

[7] Model Rules of Professional Conduct Rule 1.2(a) (2007).

[8] Model Rules of Professional Conduct Rule 1.2 (2007).

[9] Model Rules of Professional Conduct Rule 2.1 (2007).

[10] Grillo was a confidential legal malpractice settlement that became public due to a filing error on the part of the court approving the malpractice action.  See Amy Johnson Conner, Is Plaintiffs’ Lawyer Liable for Not Offering Structured Settlement?, Lawyers Weekly USA (August 6 2001).

[11] Id.

[12] Id.

[13] Id.

[14] Id.

[15] Id.

[16] Id.

[17] Id.

[18] Id.

[19] Amy Johnson Conner, Is Plaintiffs’ Lawyer Liable for Not Offering Structured Settlement?, Lawyers Weekly USA (August, 6 2001).

[20] French v. Glorioso, 94 S.W.3d 739 (Tex. Ct. App. 2002).

[21] Id. at 743.

[22] Id.

[23] Id.

[24] Id.

[25] Id.

[26] Id. at747.

[27] Id. at 743.

[28] Id.

[29] Id. at 747.

[30] American Bar Association Standing Committee on Lawyers’ Professional Liability, Profile of Legal Malpractice Claims (2003).

[31] Id.

[32] Preparation, filing, and transmittal of documents made up 23.08% of claims.  The next highest claim by type of activity, after the combination of advice and settlement/negotiation, was pre-trial and pre-hearing at 19.47%.  American Bar Association Standing Committee on Lawyers’ Professional Liability, Profile of Legal Malpractice Claims (2003).

[33] Constructive receipt is a tax doctrine that says even though a taxpayer might not have actual possession of money, they have constructively received the money if it has been set aside, credited to an account or otherwise is available without limitation to the taxpayer.  Money held in a plaintiff attorney’s trust account that belongs to the personal injury victim is constructively received for tax purposes.  This concept is important because once triggered; the plaintiff forever loses the ability to structure his or her settlement and could lose public benefits. 

[34]  Treas. Reg. § 1.468B-1 (2007).  There are three requirements for creation of a QSF:  (1) It is established pursuant to an order of . . . a court of law . . .; (2) It is established to resolve or satisfy one or more contested or uncontested claims . . . and that has given rise to at least one claim asserting liability (i) Under CERCLA (ii) Arising out of a tort, breach of contract, or violation of law; or (iii) Designated by the Commissioner in a revenue ruling or revenue procedure; and (3) The fund, account, or trust is a trust under applicable state law . . .

[35]  Treas. Reg. § 1.468B-1 (2007).  The mechanical steps involved in utilizing a QSF are as follows: 1.  Settle with Defendant for cash and execute a cash release which includes the agreement that Defendant will pay the settlement proceeds into the QSF.  2.  Petition a court with jurisdiction for creation of Qualified Settlement Fund and obtain order creating QSF.  3.  Defendant writes a check for the net proceeds to the Plaintiff to the Qualified Settlement Fund. 4.  Funds remain in Qualified Settlement Fund, without violating constructive receipt doctrine, until: a.  Allocation decisions are made; b.  Liens are satisfied; c.  Special needs trust is created or deemed not necessary.  Amount to be structured and the plan are decided upon.  5.  QSF automatically terminates when all funds have been dispersed.

[36] Disability is defined the same way as for Social Security Disability benefits which is that the disability must prevent any gainful activity (e.g. employment), last longer than 12 months, or be expected to result in death.  If someone receives disability benefits from Social Security, they automatically qualify as being disabled for purposes of SSI eligibility. 

[37] An individual can only receive up to $552.00 per month ($829.00 for couples) and no more than $2,000 in countable resources. 

[38] This is commonly referred to as “dual eligibility”.  For those who are dual eligible, Medicaid will pay Medicare premiums, co-payments and deductibles within prescribed limits.  There are two different programs.  First, is Qualified Medicare Beneficiaries (“QMB”).  The QMB program pays for the recipients Medicare premiums (Parts A and B), Medicare deductibles and Medicare coinsurance within the prescribed limits.  QMB recipients also automatically qualify for extra help with the Medicare Part D prescription drug plan costs.  The income and asset caps are higher than the normal SSI/Medicaid qualification limits.  Second is Special Low-Income Medicare Beneficiary (“SLMB”).  The SLMB program pays for Medicare premiums for Part B Medicare benefits.  SLMB recipients automatically qualify for extra help with Medicare Part D prescription drug plan costs.  Again, the income and asset caps are higher than the normal SSI/Medicaid qualification limits. 

[39] While most often we deal with someone who has a disability, Social Security Disability also provides death benefits.  Additionally, a child who became disabled before age 22 and has remained continuously disabled since age 18 may receive disability benefits based on the work history of a disabled, deceased or retired parent as long as the child is disabled and unmarried. 

[40] SSDI beneficiaries receive Part A Medicare benefits which covers inpatient hospital services, home health and hospice benefits.  Part B benefits cover physician’s charges and SSDI beneficiaries may obtain coverage by paying a monthly premium.  Part D provides coverage for most prescription drugs, but it is a complicated system with a large co-pay called the donut hole. 

[41] The provisions of the MSP can be found at Section 1862(b) of the Social Security Act.  42 U.S.C. § 1395y(b)(6) (2007).

[42] Omnibus Reconciliation Act of 1980, Pub. L. No. 96-499 (Dec. 5, 1980).

[43] 42 CFR § 411.20(2) Part 411, Subpart B, (2007).

[44] Id.

[45] The MMSEA created a mandatory insurer reporting requirement which tasks defendants/insurers with reporting settlements involving Medicare beneficiaries to Medicare.  The reporting requirement requires settlements of $2,000 or greater to be reported as of 10/1/13.  Medicare, Medicaid, and SCHIP Extension Act of 2007 (P.L. 110-173). This Act was passed by the House on December 19, 2007, and by a voice vote in the Senate on December 18, 2007.

[46] See OMB Website at http://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201304&RIN=0938-AR43&utm_source=hs_email&utm_medium=email&utm_content=9802088&_hsenc=p2ANqtz-_euylttJVQH6n2LezrHHgA7PMzVcdcZQAsDlnCG1ebSm8BHxtM5Ar222rNomoh-yQIo5y49aJC-7LqU-KfmwSRwyL2xmKNhbg9vTUcuUjT1mNfif4&_hsmi=9802088 

[47]  Medicaid is a needs based public benefit that provides basic health care coverage for those who are financially eligible.  The Medicaid program is federally, and state funded but administered on the state level.  Services and eligibility requirements vary from state to state.   The asset limit is $2,000 for most Medicaid programs but the income limits vary by state.

[48] SSI or Supplemental Security Income, administered by the Social Security Administration, provides financial assistance to U.S. citizens who are sixty-five or older, blind or disabled.  The recipient must also meet the financial eligibility requirements.  42 U.S.C. § 1382 (2007).

[49] 42 U.S.C. § 1396p (d)(4) (2007).

[50] 42 U.S.C. § 1396p (d)(4)(A) (2007).

[51] 42 U.S.C. § 1396p (d)(4)(C) (2007).

[52] 42 U.S.C. § 1396p (2007)

[53] To be considered disabled for purposes of creating an SNT, the SNT beneficiary must meet the definition of disability for SSDI found at 42 U.S.C. § 1382c.  42 U.S.C. § 1382(c)(a)(3) states that “[A]n individual shall be considered to be disabled for purposes of this title … if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or … last for a continuous period of not less than twelve months (or in the case of a child under the age of 18, if that individual has a medically determinable physical or mental impairment, which results in marked and severe functional limitations, and which can be expected to result in death or … last for a continuous period of not less than 12 months).”

[54] 42 U.S.C. § 1396p (d)(4)(A) provides that a trust’s assets are not countable if it is “[a] trust containing the assets of an individual under age 65 who is disabled (as defined in section 1382c(a)(3) of this title) and which is established for the benefit of such individual by a parent, grandparent, legal guardian of the individual, or a court if the State will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan under this subchapter.”

[55]42 U.S.C. § 1396p (d)(4)(C) provides that a trust’s assets are not countable if it is “[a] trust containing the assets of an individual who is disabled (as defined in Section 1382(a)(3) of this title) that meets the following conditions:  (i) The trust is established and managed by a non-profit association. (ii) A separate account is maintained for each beneficiary of the trust, but, for purposes of investment and management of funds, the trust pools these accounts. (iii) Accounts in the trust are established solely for the benefit of individuals who are disabled (by the parent, grandparent, or legal guardian of such individuals, by such individuals, or by a court. (iv) To the extent that amounts remaining in the beneficiary’s account upon the death of the beneficiary are not retained by the trust, the trust pays to the State from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under the State plan under this subchapter.”

[56] Third party special needs trusts are creatures of the common law.  Federal law does not provide requirements or regulations for these trusts. 

[57] I.R.C. § 104(a)(2) (2007).

[58] Id.

[59] Id.

[60] Id.

[61] Unlike a structured settlement, simply receiving a lump sum does not provide any spendthrift protection as the money can be dissipated rapidly.  Similarly, there is no protection from creditor claims like a structured settlement enjoys. 

[62] A structured settlement is a single premium fixed annuity used to provide future periodic payments to personal physical injury victims.  The interest earned is not taxable under Section 104(a)(2) and a series of revenue rulings that provide the basis for structured settlements.

[63] See I.R.C. § 104(a)(2) (2007).  See also Rev. Rul. 79-220 (1979) (holding recipient may exclude the full amount of the single premium annuity payments received as part of a personal injury settlement from gross income under section 104(a)(2) of the code).

[64] Structured settlements can’t be accelerated, deferred, anticipated or encumbered.  The payments are made pursuant to the terms of the contract with the life insurance company.  Thus, a personal injury victim is protected from spending the money too quickly.  However, there are “factoring” companies that will purchase structured settlement annuities and provide a lump sum payment.  These transactions are now regulated by IRC 5891 and many states have enacted provisions to protect structured settlement recipients from unfair transactions.  IRC 5891 requires a finding that the sale is in the best interest of the annuitant and requires judicial approval.  IRC 5891

[65] Many states offer protection by statute for annuities.  For example, in Florida, the Florida Statutes provide annuities immunity from legal process as long as they are not set up to defraud creditors.  See generally § 222.14 Fla. Stat. (2007).

[66] Sams v. Department of Public Welfare, 2013 Pa. Commw. LEXIS 337 (August 21, 2013).

[67] Letter from Nancy Veillon, Associate Commissioner for Income Security Programs to Roger M. Bernstein dated January 1, 2006. 

Ilya Lerma and James Holland on TLV Podcast

In the 31st episode of Trial Lawyer View, your premier source for insightful legal discussions, our esteemed host, Jason D. Lazarus, J.D., LL.M., CSSC, MSCC, CEO of Synergy, engages in a compelling dialogue with two distinguished legal experts, Ilya Lerma of Ilya Law and Jamie Holland of Holland Law. Together, they embark on a deep dive into the intricate realm of handling brain injury cases, shedding light on the evolving landscape of this crucial legal domain.

Brain injury cases are uniquely challenging due to the often unseen nature of these injuries, making it essential to navigate the complexities with precision and expertise. Ilya and Jamie share their invaluable perspectives on various aspects of this specialized field, offering a wealth of insights for both seasoned trial lawyers and those new to the domain.

Throughout this enlightening episode, our guests touch upon the evolving strategies for better assessing and addressing brain injuries. They emphasize the importance of bringing these often hidden injuries to the forefront of jury attention, a task that requires skillful advocacy and a comprehensive understanding of the medical and legal aspects involved.

One key takeaway from this episode is the perception that most trial lawyers tend to get wrong when litigating brain injury cases. Ilya and Jamie provide valuable guidance on how to avoid common pitfalls and misconceptions, equipping trial lawyers with the knowledge and strategies needed to effectively represent clients with brain injuries.

Whether you’re a seasoned attorney seeking to enhance your expertise in brain injury litigation or a legal professional interested in delving into this complex field, this episode offers a wealth of knowledge and practical insights. Join us as we navigate the intricacies of brain injury cases, unraveling the challenges and opportunities that lie within this critical area of trial law.

Don’t miss this opportunity to gain a deeper understanding of brain injury litigation from two distinguished legal minds. Tune in now to empower your legal practice and better advocate for those affected by brain injuries. Your journey to becoming a more informed and effective trial lawyer starts here.

Learn more here.

Maximizing Personal Injury Recoveries While Limiting Case-Related Costs

Rasa Fumagalli, JD, MSCC, CMSP-F

Personal injury settlements rarely make an injury victim whole. In light of this, cost management decisions factor into the strategy of the case. For example, while both life care plans and medical cost projection reports may be used as support for a settlement demand, their costs are very different. Life care plans may range anywhere from on the low end $10,000 to $20,000 or more, while medical cost projections are much more economical. The decision on which report to select may depend on the nature of the injuries, the expected range of settlement of the case, available coverage and time constraints associated with the settlement negotiations.

A comparison of the two reports is reflected in the below chart. Although both reports provide support for a demand of future injury-related medical care, the life care plan will usually be based on an in-home visit and interview with the injury victim. The medical cost projection, on the other hand, is based on information that is provided by the attorney handling the matter. Both reports are based on a review of medical records, but the life care plan report may also look to information gained through a conversation with a treating physician. Life care plans often have addendums that address lost earnings, replacement costs of household services and home modifications, while medical cost projections do not. In deciding which of these reports is appropriate to increase the value of the case, an attorney should avoid using a sledgehammer to crack a nut.

Life Care Plan (LCP)Medical Cost Projection (MCP)
Medical costsMedical costs
Durable medical equipment/suppliesDurable medical equipment/supplies
Prosthetics/orthoticsProsthetics/orthotics
Physician/specialist visitsPhysician/specialist visits
Rehabilitation/physical therapyRehabilitation/physical therapy
Future surgeries/proceduresFuture surgeries/procedures
MedicationsMedications
Home health careHome health care
Long term careLong term care
Transportation mileageTransportation mileage
Assessment of lost incomeN/A
Assessment of loss of earning capacityN/A
Estimate of home modificationsN/A
Estimate of vehicle modificationsN/A
Estimate of cost of replacement of household services that can no longer be performedN/A
Vocational therapyN/A
Based on in-home visit and interview with injury victimBased on intake packet provided by injury victim’s attorney
Review of medical recordsReview of medical records
Contact with physiciansN/A
Average cost: $15,000Synergy’s cost: $2,500

Conclusion

In the right case, don’t miss the opportunity to hit the defense hard early on by quantifying the future medical damages suffered by your client. You don’t have to spend tens of thousands of dollars on a life care plan to do this. Instead, let Synergy prepare a Medical Cost Projection (MCP) report quickly, based upon existing medical records (costs $2,500.00). That way you can quickly present evidence of future medical expenses and include the future medical cost projection report in your initial demands so you can settle cases earlier on.  Contact Synergy today to learn more about how our MCP report can simplify the negotiation of future medical care for your case.

Personal Injury Attorney Sued by ERISA Plan for Funds in Attorney’s Possession

September 8, 2022

Kevin James, Esq.

Who can be a defendant in an action brought under Section 502(a)(3) of ERISA?

ERISA self-funded plans are becoming more and more aggressive about asserting their reimbursement rights when one of their members has settled a personal injury claim.  These subrogation vendors are always on the look out for a chance to stake a claim on a client’s tort settlement.  They are paid bounty hunters and as subrogation bounty hunters they require bounties to hunt. 

Since the pandemic, the vendors have shown a trend of increasingly hardline behavior.  As one can imagine, the vendors invariably took a hit to their revenue stream when the nation went into lockdown due to the COVID-19 pandemic. Because there were fewer people on the roads, there were less car accidents. Because there were fewer elective surgeries, less chances for instances of medical malpractice. As subrogation vendors searched claim data of their insurance company clients, they saw less and less traumatic treatment that they could pursue for possible subrogation. In addition, as experienced by plaintiff attorneys, with courts closed due to the pandemic, certain cases became harder to settle without the hammer of a trial.

For the last few years, the opportunities these vendors have had to drive their revenue and profits have been curtailed and many are trying to squeeze every dollar they can out of the opportunities left to them.   Unfortunately, this leaves injured persons and their advocates in the position of having to contend with these aggressive lienholders.

The risks of not dealing with ERISA self-funded liens is becoming an ever more crowded minefield for injured parties and their attorneys.  A recent case out of the Western District of North Carolina illustrates the risk that attorneys and their firms can bear if they fail to properly resolve ERISA self-funded liens.

FACTS OF THE CASE:

An individual, who was covered under an ERISA self-funded plan, was injured in a motor vehicle accident. The Plan paid $18,295.88 in total medical benefits. The injured person hired a law firm to represent him in his tort claim. Prior to settlement of the of the injured party’s claim, the Plan placed the injured party’s attorney on notice that the benefits were paid by a self-funded ERISA qualified Plan and the Plan would be seeking reimbursement.

The plan language had two important provisions. First, it required full reimbursement under its terms; and second, it forbade the injured party from settling for less than an amount that would fully reimburse the plan, absent explicit written consent from the Plan.

While it’s unclear if there were any attempts at resolving the lien around the time of the settlement, the attorney eventually settled the tort claim without the Plan’s consent.  The attorney sent a letter to the Plan indicating that the case had been settled and all available funds had been proportionally distributed among the various lien holders as this was what had been requested by the injured party.  The letter also contained a check in the amount of $8,146.13 or approximately $10,000 less than the benefits expended by the Plan.   The letter went on to acknowledge that the check did not fully compensate the Plan’s lien but stated that any further obligation rested with the injured party alone and they had complied with the limited obligations the Firm had to the Plan.

The Plan not fully satisfied with this, continued its attempt for further reimbursement from the attorney.  The attorney responded to these attempts with a letter which stated, “We have closed the file and will not engage with any lien holder in any fashion or represent our client in this matter.” This second letter also indicated at least $4,603.87 had been allocated for payment to other lien holders.

The Plan filed suit against the injured party and the Firm for a constructive trust or equitable lien on the settlement proceeds with interest, a declaration of the Plan’s ownership of the settlement dollars equal to its payments, an order to turnover such proceeds and attorney’s fees and costs.  The Firm filed a motion to dismiss for failure to state a claim which resulted in the instant opinion.  

DISCUSSION:

The question presented by this case is essentially which parties can be a defendant in an action that arises under Section 502(a)(3) of ERISA.

The Firm relied on a series of opinions from a sister district court, the Eastern District of North Carolina, the most notable of which was Great-West Life & Annuity Ins. Co. v. Bullock, 202 F. Supp. 2d 461, 465 (E.D.N.C. 2002).  In Bullock, which contained similar facts, it was found that ERISA was silent to the issue of who can be a defendant in a Section 502(a)(3) action and turned to North Carolina state law to fill the gap.  After a review of North Carolina state law and absent bad faith or negligence on the part of the attorney, the Court found that the attorney could not be a defendant. The Bullock court rested its view on the theory that an attorney could not be sued because there exists no privity of contract between the attorney and a Plan fiduciary.

The Western District in the instant case found that the U.S. Supreme Court had resolved the question of who could be sued two years before Bullock in its decision in Harris Trust & Sav. Bank v. Salomon Smith, Inc., 530 U.S. 238, 246 (2000).  Harris was notably not cited by the Eastern District.  

The Western District found that the Eastern District’s attempt to gap fill from state law was unnecessary as ERISA, is in fact, not silent on the question who can be sued. The Western District quoted Harris andfound that Section 502(a)(3) “admits of no limit … on the universe of, possible defendants.” The only real limitation under the section is that the ERISA fiduciary is “seeking appropriate equitable relief”.   If the fiduciary is seeking appropriate equitable relief than “anyone” including an attorney or firm could be a defendant.

Finding that the Plan was seeking a constructive trust or equitable lien (thus the Plan was seeking an equitable and not a legal remedy), the Western District made four findings when denying the Firm’s motion to dismiss:

  1. The Plan had shown that it was plausibly entitled to full reimbursement;
  2. The settlement funds were identifiable and in possession of the Firm;
  3. The Firm was aware of the Plan’s right to full reimbursement;
  4. Reimbursement was not made to the Plan.

While this case arguably shows a split within the Fourth Circuit, it is within the weight of authority on ERISA cases. When an attorney has notice or arguably has reason to know an ERISA self-funded plan has an equitable lien or constructive trust, an attorney cannot simply wash their hands of the lien without potentially exposing themselves or the Firm to liability. 

This case also illustrates that an attorney’s duty to lien holders, under any relevant state law, will not serve as a defense when an ERISA qualified self-funded health plan pursues an action under Section 502(a)(3).

Synergy can assist you and your firm in resolving ERISA self-funded liens and avoid adverse results as such was found here.   This is especially true in the current environment as ERISA self-funded plans and their vendors are looking for opportunities to further extend the rights of these plans. The case is Mann+Hummel Filtration Technology US LLC v. Demayo Law Offices, LLP, Stephen Patterson.  CIVIL ACTION NO. 3:21-CV-00374-GCM-DSC.

Michael Walrath on TLV Podcast

Welcome to Episode 30 of Trial Lawyer View, your definitive source for thought-provoking legal discussions. In this episode, our illustrious host, Jason D. Lazarus, J.D., LL.M., CSSC, MSCC, the CEO of Synergy, sits down for an enlightening conversation with Michael Walrath, Esq. Together, they delve into the intricate world of hospital and provider lien litigation, a niche field that holds significant implications for personal injury cases.

Michael Walrath’s journey into this specialized area of law is a fascinating tale, and during the episode, he shares what led him to focus on hospital and provider lien litigation. This unique niche is marked by its complexity and intricacies, as hospital lien laws vary widely from state to state. As such, understanding the nuances of these laws and their implications is crucial for trial lawyers handling personal injury cases involving medical bills and liens.

One of the central topics explored in this episode is the often-misunderstood relationship between the bills sent by hospitals and the actual amount owed by patients. The discussion sheds light on the intricacies of hospital billing practices, offering valuable insights for trial lawyers seeking to navigate this complex terrain. Understanding how to effectively challenge and negotiate these bills is vital for advocating on behalf of injured individuals and their families.

Moreover, Michael and Jason delve into the differences in hospital lien laws across various states, highlighting the need for a nuanced approach to each case. This discussion provides listeners with a comprehensive overview of the challenges and opportunities presented by hospital and provider lien litigation.

As you immerse yourself in this engaging episode, you’ll gain a deeper understanding of the intricacies of hospital billing, lien laws, and the essential role they play in personal injury cases. Whether you’re a seasoned trial lawyer or a legal professional looking to expand your expertise, this episode offers a wealth of valuable information to enhance your practice.

Don’t miss this opportunity to delve into the complexities of hospital and provider lien litigation with two leading experts in the field. Tune in now to elevate your understanding and advocacy skills in this crucial aspect of trial law. Your journey to becoming a more informed and effective trial lawyer starts here.

Learn more here.

Complying with the Medicare Secondary Payer Act When a Client has Public Benefits

August 11, 2022

Evelynn Passino, J.D.

For clients with public benefits, closing out their case is not as simple as issuing a check for their net recovery. If the client has Medicare or will be eligible soon, then steps must be taken to comply with the Medicare Secondary Payer (MSP) Act. If the client has means-tested benefits, such as Medicaid or Supplemental Security Income (SSI), then additional steps may be necessary to ensure their recovery and eligibility for those benefits is protected.

Means-Tested Benefits

In cases where the client has means-tested benefits, their settlement recovery may be a countable resource, which means that receipt of those funds may cause them to be ineligible for their benefits. It is important to understand that not all public benefits programs operate the same way. For example, SSI, while it is a federal program, has state-specific nuances because some states supplement SSI benefits. Programs such as Medicaid, Section 8 benefits offered by the US Department of Housing and Urban Development (HUD), and the Supplemental Nutrition Assistance Program (SNAP) are administered on a state or local level, creating variations in how these programs work. Each program has its own eligibility requirements, which can include both categorical qualifications (such as being disabled, over 65, etc.) and financial qualifications. The financial qualifications may place limitations on income, assets, or both. Generally, means-tested benefits programs will exclude certain assets from being counted, such as a home, vehicle, and personal effects. Cash is almost always a countable resource and having too much of it available will cause the client to lose his or her benefits.

It is critical to know which benefits the client has so that educated decisions can be made about how to handle the recovery. Getting copies of the client’s benefit cards and award letters is recommended. If the client no longer has their award letters, which outline what benefit the client qualified for, these can usually be requested from the office administering the benefit. Some programs, such as the Social Security Administration, offer these online.[1]

Preserving Means-Tested Benefits

If a client is in danger of having more resources than they are allowed under their government program, then there are actions they can take to protect their benefits. One option is to use the money to purchase exempt resources, like a home or vehicle, or use the money to improve those resources, such as adding accessibility features to their car or adding a wheelchair ramp to their home. They may also want to pay down debts; however, they should be careful about this where there is not a clean paper trail, such as money loaned between family members. Paying back a person in those circumstances could appear (to the government) like a gift, which will be counted as a transfer for less than fair market value and may trigger transfer penalties resulting in ineligibility.

If the client is disabled, then another option is to deposit the money in a special needs trust (SNT). An SNT, when created and administered in compliance with 42 U.S.C. § 1396p(d)(4)(a-c), is typically not a countable resource, although programs differ as to how they can be used and what they can pay for. An SNT can be funded with either first-party money (such as a personal injury recovery) or third-party money (such as inheritance or other gift). An SNT can be created for an individual and managed on their behalf by a trustee of their choosing (called a standalone trust), or a person can join a pooled trust, which is an existing trust administered by a non-profit association. Generally, pooled trusts are faster to set up and lower in cost due to them being administered by a non-profit. Standalone trusts, however, can be customized, and the client has more control in choosing their trustee. In either case, if the client is receiving Medicaid, then Medicaid has a right to be paid back from the balance of the trust when the beneficiary dies (this is known as “Medicaid payback”).

Lastly, the client always has the option to forgo their benefits but should exercise caution in doing so because some benefits are difficult to re-qualify for if the client changes their mind later. They should also be careful if intending to preserve some benefits and not others. For example, some clients are willing to lose their SSI benefits after a settlement because they expect to have cash from the recovery available but want to continue receiving Medicaid benefits. In most states, a person qualifies for Medicaid automatically once they qualify for SSI, and this is how many on Medicaid access this benefit; however, the reverse is also true, that if a person loses eligibility for SSI then they also lose Medicaid. If they lose SSI-related Medicaid, there may be another Medicaid program they can qualify for, but they should confirm this before taking action that will jeopardize their SSI benefits.

Medicare

The MSP Act (42 U.S.C. § 1395 y(6)(b)) works to preserve the Medicare trust fund by ensuring that Medicare does not pay injury-related claims when another person or entity is liable. The Centers for Medicare and Medicaid Services (CMS) does this by seeking reimbursement on injury-related claims that accrued prior to settlement and asserting that Medicare’s interests be considered for claims which can be expected in the future.

Conditional Payments

CMS is notified of an accident through Mandatory Insurer Reporting (MIR), which is required by Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007. This reporting is done by liability insurers, no-fault insurers, workers’ compensation plans and insurers, and self-insured organizations. This puts CMS on-notice so they can begin tracking injury-related claims which they will seek reimbursement for at settlement. If a conditional payment is not repaid, CMS can take action against any of the entities responsible for payment, including the plaintiff’s law firm, and can seek double damages. 42 U.S.C. § 1395y(b)(2)(B)(iii); 42 U.S.C. § 1395y(b)(3).

Future Interests

MIR includes notification to CMS when the case settles, giving Medicare notice of the injuries and ICD-10 codes applicable to the case. Medicare’s preferred method for considering its future interests is through the creation of a Medicare Set-Aside (MSA). An MSA begins with an allocation, which is a report summarizing the expected injury-related care and prescriptions that would otherwise be covered by Medicare for the remainder of the Medicare beneficiary’s life. The allocation projects the cost of such care at the usual and customary prices where the injury victim lives. In worker’s compensation cases, there is a voluntary process for CMS to review the allocation in cases where certain thresholds are met. For someone who is a Medicare beneficiary at the time of settlement, this review may occur if the settlement exceeds $25,000. If the client has a reasonable expectation of being eligible for Medicare within 30 months (such as those who have applied for Social Security Disability Insurance), then CMS will only review the MSA if the settlement amount is more than $250,000. There is currently no review process for liability and no-fault cases.[2] CMS’ expectation is that the injury victim will set aside the amount of money in the MSA allocation and use this money to pay for Medicare-covered, injury-related services and prescriptions until exhaustion. CMS will resume normal coverage when the account has been properly exhausted, even if additional injury-related care is needed after that time.

It is important to note that the MSP Act does not explicitly require that an MSA be created or how much it is to be funded.[3] CMS has provided some guidance about when an MSA is not necessary, such as when the settlement, judgment, or award does not fund future medical costs or when the injury victim’s treating physician certifies that no further injury-related treatment is needed.[4]

Medicare’s enforcement mechanism regarding future medicals is to deny claims that are injury-related if they determine the Medicare beneficiary did not consider Medicare’s interest at the time of settlement. This provides additional room to argue how much is appropriate for an MSA or if an MSA is even advisable. What makes sense for a particular client will depend on their risk tolerance. If a client is risk-averse, they will probably want to fully fund a set-aside and administer it correctly to reduce the risk that Medicare will ever deny a claim. On the other end of the spectrum, some clients choose not to fund an MSA because they are adamant about not getting further injury-related treatment or they prefer to “roll the dice” and keep billing Medicare for injury-related care until Medicare denies it. For clients who are in the middle, they may want to fund an MSA, but not in full. One option is to reduce the MSA based on the value of damages suffered relative to the settlement amount obtained.

Funding

If a client decides to fund an MSA, then they need to decide how to fund it. MSAs can be funded by lump sum or by structured settlement annuity. The annuity is often preferred because it allows the MSA to be fully funded with less money out-of-pocket. It can also create a scenario where the MSA is temporarily exhausted, in which case Medicare will resume normal coverage until the next annuity payment is deposited into the MSA. Lump sum funding makes more sense when the MSA is smaller, and an annuity would not be advantageous.

Administration

The next step is determining how to administer the MSA. This depends on the client’s capacity, willingness, and whether they have means-tested benefits. For clients with capacity and no means-tested benefits, one option is to self-administer their MSA. This means they will take the recommended amount from their settlement, place it in a separate account, and pay any Medicare-covered, injury-related bills from this account. It requires some work on the client’s part to manage the account, keep records, and report to CMS (if required).[5] For those who do not want the hassle of administering their own account, there are companies that offer professional administration. These companies take custody of the MSA funding, provide the Medicare beneficiary with a card they can show when receiving injury-related care (similar to an insurance card), and handle all payments, recordkeeping and reporting. Generally, they can also get fee discounts for their clients on various services using their networks, which help the MSA last longer. There is a fee for these services, which unfortunately cannot be paid from the MSA funds. These companies often also have self-administration assistance services at a lower cost for those who wish to self-administer, but want some help with certain aspects, or want to take advantage of the network discounts.

If the client is dual-eligible, meaning they have both Medicare and Medicaid (or other means-tested benefits), then it is important to determine whether the MSA will be a countable resource for them. In most states and under most programs, it is countable, meaning the money in that account is treated like any other cash the client has available to them; however, some programs have begun to create exemptions for counting MSAs, so it is worth exploring where your state stands on this. If the MSA will be countable, then self-administration is not an option, and the MSA should be professionally administered and held in a special needs trust.  

Conclusion

When a client has public benefits, it is important to understand which benefits they have, how those programs work, and what options are available. If they want to preserve their benefits, then there are likely to be some steps they need to take to ensure no interruption in the services they receive. It is helpful to get experts involved who understand these programs and can make sure the client makes an informed decision, whatever that decision may be.

Synergy Settlement Services works with clients every day to help them understand their obligations under the Medicare Secondary Payer Act and how to preserve eligibility for their benefits. Call Synergy today at (877) 242-0022 to learn how we can help.

[1] https://www.ssa.gov/myaccount/

[2] Memorandum from Sally Stalcup, MSP Regional Coordinator, CMS, Medicare Fee for Service Branch, Division of Financial Management and Fee for Service Operations (May 25, 2011), available at https://static1.squarespace.com/static/5807a480d482e9eb1f5d9c54/t/589d81823e00bea366d73d90/1486717333702/00-CMS-Sally-Stalcup-Memo-5-25-2011.pdf.

[3] Id.

[4] Id.; Memorandum from Charlotte Benson, Acting Director, Financial Services Group, Office of Financial Management, Department of Health & Human Services, Centers for Medicare & Medicaid Services, to Consortium Administrator for Financial Management and Fee-for-Service Operations, Medicare Secondary Payer—Liability Insurance (Including Self-Insurance) Settlements, Judgments, Award, or Other Payments and Future Medicals – INFORMATION (Sep. 30, 2011), available at https://www.cms.gov/files/document/future-medicals.pdf.

[5] CMS offers a self-administration toolkit for those who wish to handle this themselves: https://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/Workers-Compensation-Medicare-Set-Aside-Arrangements/Downloads/Self-Administration-Toolkit-for-WCMSAs-Version-1_3.pdf.

Outsourcing of Lien Resolution for Personal Injury Law Firms

August 1, 2022

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

You might ask yourself, why hire experts to assist with lien resolution when I can do it myself.  You also might ask whether it is ethically permissible to outsource lien resolution to a lien resolution company.  The first question is quite simple to answer and the second one requires a little more examination of the rules regulating lawyers.

The problem really starts with the responsibilities a law firm has at the beginning of each new case as it pertains to liens.  I use lien synonymously with subrogation, reimbursement, and debts here even though there are differences.  Given the law, a law firm must track liens that are asserted against their client’s personal injury claim and in some instances will have an affirmative duty to investigate and identify possible liens (Medicare & Medicare Advantage plans are good examples). 

The law firm must determine whether a lien holder’s claim has merit and is legally valid.  To reach resolution, this requires a law firm to have significant contact and interaction with a variety of lien holders along with recovery vendors.  At the conclusion of the case, it frequently requires protracted negotiations to reach an agreement to resolve the claims made by a lien holder or recovery vendor against a settlement, judgment, or verdict.  The bigger issue, given the distractions it creates, is that law firms frequently wait too long to begin to negotiate a reimbursement to a lien holder which can delay disbursement to the injury victim.  All the foregoing creates pressure on law firms to outsource lien resolution functions.   

Why Outsource?

As to the question of why outsource, it really comes down to efficiency and results.  When resolving a lien on behalf of an injury victim, you typically are either dealing with a government benefit health plan or an aggressive recovery vendor on behalf of a plan.  Dealing with Medicare, Medicaid, FEHBA on the government side can be time consuming and ineffective.  Having to negotiate with and against recovery contractor groups for Medicare Advantage plans and Rawlings, Equian, Optum and Conduent can be equally difficult if not more so.  Recovery contractors are massive corporations whose sole reason for existence is to take dollars from a personal injury victim’s recovery.  They do this by relying upon the efforts of talented trial lawyers who secure settlements and receive verdicts.  These recovery contractors have very deep pockets and large staffs to pursue nothing but liens which makes for lopsided battles. 

So, to sum up succinctly why you may want to hire an expert lien resolution group to help you and your client:  

  1. To make your law firm more efficient by reducing operating expenses
  2. Give you a deep team of experts to fight the massive recovery vendors and
  3. Most importantly, get the best possible resolution for the injury victim when it comes to what must be paid back to a lien holder

Before moving on to ethics, let’s unpack a little bit more about the reasons to partner with an experienced lien resolution provider.  While the idea of subrogation and reimbursement may seem quite simple, the task of resolving these demands made against a personal injury settlement can become very time consuming as well as very complex.  “Lien law” is a dynamic and evolving area of the law with each type of lien having nuances and peculiarities along with resolution challenges. 

This is so much so that the health insurance industry has for decades recognized these complexities and turned to lien resolution/recovery contractor vendors themselves to make sure they get paid back after an injury is sustained.  Frequently, an attorney representing an injury victim is left to fight these vendors with one hand tied behind their backs due to a lack of resources, time, and specialized knowledge.  The recovery vendors business model relies upon this to make it much more difficult than it needs to be for trial lawyers. They know it can be overwhelming and they exploit that to their own advantage. So, the first question to ask yourself is do you want to take on large well-funded recovery vendors or partner with a lien resolution group who has the requisite expertise to fight fire with fire? 

Partnering with a well-qualified lien resolution group minimizes a law firm’s operating expenses. Every business seeks to decrease operating costs and increase efficiency. This can be accomplished by outsourcing all the time-consuming lien resolution functions. The large amount of time and effort a personal injury law firm devotes to post-settlement lien resolution issues typically creates a loss to the firm’s bottom line. Alternatively, outsourcing lien resolution functions allows the lawyer or firm to pass on the cost to the client, in most states, similar to the cost of retaining an expert. A trial lawyer’s valuable time is better spent on moving cases toward settlement or trial and not on cutting through government/private health plan red tape. Which, as stated above, are designed specifically to be difficult or frustrating to navigate.

Hiring a lien resolution group provides your law firm with a powerful partner in the lien resolution process. By partnering with lien resolution professionals, you gain a knowledgeable partner and resource for the lien resolution issues plaguing law firms. Without knowing every potential lien resolution argument and the latest rules/processes associated with health plan liens, attorneys and their staff are prone to inefficiency or worse yet mistakes.

A lien resolution group will have the necessary expertise to accelerate the lien resolution process as well as to get the best possible reduction.  Before moving on the last point, it is important to explore some examples.  Dealing with multiple lien types in a single case can pose significant challenges for even the most experienced trial lawyers as they all will have unique rights of recovery, recovery departments and differing practices related to notice, perfecting, and compromising claims.

For example, someone covered by an employer-based ERISA plan might move to a Medicare plan after losing their job due to the injuries they suffered.  These plans will have different processes to resolve.  You can have a client who is dual eligible meaning you have both Medicaid and Medicare liens.  Both Medicaid and Medicare lien resolution issues are quite complex by themselves – understanding Ahlborn/Gallardo for Medicaid and Medicare compromise/waiver processes for Medicare.  Another problematic area can be ERISA lien resolution and the impact on applicable lifetime coverage limits and future care denials. 

Given the ever-shifting legal landscape of lien resolution, lawyers must keep up to date in a variety of ways from Medicare-to-Medicare Advantage and Medicaid.  Add in ERISA, FEHBA, military, hospitals, provider, and private health insurance liens and you have a tremendous amount of law to keep up with and necessary analysis of the issues to get it all correct.  For a lawyer handling a personal injury case, there are a multitude of questions to answer related to each lien such as:

  • What are my legal obligations as plaintiff’s counsel and am I personally liable?
  • When looking at the client’s net recovery, are they made whole and is full reimbursement to the lien holder proper?
  • Is there a lien?  Reimbursement obligation?  Just a debt?
  • What standard reductions are provided by state or federal statutes for the applicable lien?
  • What other reductions of a lien or reimbursement obligation may be available to the client such as legal defenses, compromise/waivers or offsets?
  • Is the reimbursement obligation owed limited to past payments or does it also include future payments? 
  • Are there any state specific laws peculiar to the jurisdiction that impact lien resolution for the client?
  • For non-government benefit plans, what law applies?  State or federal?  Is it governed by ERISA, FEHBA, FMCRA or state law?  Combination of laws?
  • Who is the plan administrator and recovery vendor for non-government plans? 
  • Can the Plan or vendor actually prove it is the type of plan it claims to be? And its recovery rights under the law?

Proper expertise and a team to issue spot these kinds of problems along with powerful negotiation strategies can make sure the end result is the best possible outcome and is in the injury victim’s best interests. 

Lastly, the importance of an outstanding resolution result for a lien can’t be overstated.  Getting outstanding results when it comes to lien resolution leaves the client with a positive, lasting impression at settlement. Clients who are not properly educated about lien resolution, don’t understand these obligations, and have to pay back too much are often frustrated and discontent with the end result. A client’s poor impressions post settlement can affect a lawyer or law firm’s reputation in the community. Ultimately, client satisfaction with regard to the resolution of lien obligations may produce repeat business or boost new client referrals for a lawyer or law firm.

Ethics of Outsourcing Lien Resolution

Given the fact that litigating trial lawyers focus on personal injury law (proving causation, liability & damages), they may require outside assistance with certain areas beyond their scope of representation.  Historically, personal injury law firms have sought the help of outside legal counsel along with non-attorney specialists to professionally and efficiently deal with a variety of complex issues that arise at settlement.  Lien resolution is no different than when an attorney seeks the assistance of experts in other complex areas of law that he or she may be unfamiliar with.

For example, such outsourcing occurs regularly when an attorney is faced with dealing with probate, guardianship, government benefit preservation, tax, or bankruptcy situations that can and often do arise out of an underlying personal injury matter.  Personal injury attorneys also frequently engage experts to help with accident reconstruction, valuation of economic damages and Medicare experts.  Subrogation experts are just one more type of expert that a personal injury lawyer can turn to that will enhance the bottom-line net recovery while helping to navigate the pitfalls commonly encountered during the resolution process. 

The law governing health insurance subrogation claims are often litigated and are complicated as well as extensive.  ERISA, the Medicare Secondary Payer Act, Medicaid, FEHBA and other types of private insurance liens are specialties unto themselves; each rest on their own statutory and regulatory authority, can be governed by different state regulations and can often exist in concert with each other on the same case.  Additionally, the fact that oftentimes a personal injury victim will have multiple different types of liens asserted against their recovery, significantly complicates the lien resolution function.  A good example of this is Medicare where Parts A/B will have a conditional payment obligation to be satisfied, a Part C Advantage Plan lien (which Medicare itself doesn’t provide information about) and then a Part D prescription plan which could have a claim as well.  All stemming from one accident.  If a client has treated over the course of years post injury, they could have jumped between these plans each year.  

Therefore, it makes sense to ethically allow trial lawyers to outsource this function.  This is especially so to get the best possible outcome for the client and because liability falls on the trial lawyer to make sure that all subrogation claims, reimbursement obligations and liens are resolved in accordance with the law. 

Before moving away from the point of liability, it is important to realize that as a trial lawyer you can expose your client to litigation and possibly loss of health care coverage by failing to pay a valid lien holder.  In addition, a personal injury lawyer might be guilty of legal malpractice by paying a lien holder who doesn’t have a valid claim or by reimbursing a lien holder too much.  And worse yet, in the case of Medicare conditional payments or Medicare Advantage liens, you could be held personally liable for double the lien amount under the Medicare Secondary Payer Act’s double damages provision.  To further reinforce the point, ABA Model Rule 1.15, in the comment (4) states: 

“Paragraph (e) also recognizes that third parties may have lawful claims against specific funds or other property in a lawyer’s custody, such as a client’s creditor who has a lien on funds recovered in a personal injury action. A lawyer may have a duty under applicable law to protect such third-party claims against wrongful interference by the client. In such cases, when the third-party claim is not frivolous under applicable law, the lawyer must refuse to surrender the property to the client until the claims are resolved. A lawyer should not unilaterally assume to arbitrate a dispute between the client and the third party, but, when there are substantial grounds for dispute as to the person entitled to the funds, the lawyer may file an action to have a court resolve the dispute.”

Many states have ethical rules or opinions which mirrors Model Rule 1.15 which can be read to impose a duty upon trial lawyers to safeguard disputed funds, for example, when a lien holder claims more than they are entitled to from a settlement, judgment, or award.  Making this area even more treacherous for personal injury law firms.  In addition, Model Rule 1.1 requires a lawyer to have the requisite knowledge, skill, thoroughness, and preparation necessary for lien resolution if they undertake the responsibility.  Under my reading of 1.1’s comments, if a lawyer lacks the necessary expertise to resolve liens, then they must ensure competent representation through other means, such as by retaining other experts. 

Since resolving health care liens is complex from a procedural and legal perspective, a personal injury lawyer who lacks necessary knowledge, experience, and expertise to effectively resolve health care liens potentially jeopardizes the client’s interests in their settlement and creates professional liability for himself/herself as well as the firm. 

That brings us to the question at hand, what are the ethical rules guiding the outsourcing of lien resolution services to experts?  The ABA’s Formal Ethics Opinion 08-451 is a great starting point for the analysis.  While it does not address lien resolution directly, it does give the guiding framework for outsourcing.  The operative provisions of the ethics opinion state:

“A lawyer may outsource legal or nonlegal support services provided the lawyer remains ultimately responsible for rendering competent legal services to the client under Model Rule 1.1. In complying with her Rule 1.1 obligations, a lawyer who engages lawyers or nonlawyers to provide outsourced legal or nonlegal services is required to comply with Rules 5.1 and 5.3. She should make reasonable efforts to ensure that the conduct of the lawyers or nonlawyers to whom tasks are outsourced is compatible with her own professional obligations as a lawyer with “direct supervisory authority” over them.

In addition, appropriate disclosures should be made to the client regarding the use of lawyers or nonlawyers outside of the lawyer’s firm, and client consent should be obtained if those lawyers or nonlawyers will be receiving information protected by Rule 1.6. The fees charged must be reasonable and otherwise in compliance with Rule 1.5, and the outsourcing lawyer must avoid assisting the unauthorized practice of law under Rule 5.5.”

To summarize, if you are going to outsource you must remain ultimately responsible for the work and provide “direct supervisory authority” over those to whom you outsource to.  You must protect confidential information and ensure that the provider who will be outsourced to is competent and suitably trained.  Disclosure and informed consent of the outsourcing should be obtained from the client. 

While that is the general framework, some states have further defined what is ethically required when outsourcing lien resolution.  One great example of this is New York.  In an opinion issued in July of 2008, the NYCLA Professional Ethics Committee permitted New York lawyers to retain an outside lien resolution law firm and charge its fee as an expense of litigation paid by the client.  According to the opinion, NYCLA, Ethics Op. 739 (7/7/2008), with the client’s informed consent, a personal injury law firm may contract with a lien resolution firm and asses its fee as a cost in a contingency fee arrangement as long as the fee was reasonable. 

The definition of the fee being reasonable was analyzed in terms of “net benefit to the client”.  The example was given that a “lawyer who outsources a complex lien problem to another attorney who, in turn, resolves it for a fraction of the lien amount, gains a net benefit to her client.”  The general parameters of outsourcing in New York were laid out as: 

“It is ethically permissible for a plaintiff’s personal injury attorney to retain a specialty firm to handle the resolution of a Medicare, Medicaid or private healthcare lien on a settled lawsuit. Under the following conditions, the fee for said outside service may be charged as a disbursement against the total proceeds of the settlement: (a) at the outset of the representation, the Retainer Agreement with the client provides that the attorney may do so, and the client has given informed consent thereto; (b) the actual charges are passed on to the client at cost (without any overage or surcharge) and must be reasonable; (c) the transaction results in a net benefit to the client on each lien negotiated; ( d) the transaction complies with all principles of substantive law, including the fee limitations on contingent fees in the New York Judiciary Law and Appellate Division rules; and ( e) the referring attorney remains responsible for the overall work product. If counsel cannot comply with all of the above conditions, the fee for said services should be charged against the attorney contingency fee.”

Another great example is Ohio.  The Ohio Opinion 2009-9 (12/4/09) stated:

“If a plaintiff’s personal injury lawyer retains an outside law firm to provide health care lien resolution services in a settled matter, the plaintiff’s lawyer may use professional judgment as to whether to charge the client for the service as part of the contingent fee or as an expense of litigation. Either way, the client’s consent to the outsourcing and the fee arrangement must be obtained prior to outsourcing the service. Either way, the fees and expenses must be reasonable, not excessive. Either way, the nature and basis of the fee arrangement must be communicated to the client and pursuant to Rule l .5(c) a contingency fee agreement must be in writing. If the outsourced legal fee is included as part of a contingency fee, there is a division of fee among lawyers not in the same firm and that triggers the requirements of Rule 1.S(e). If the outsourced service is charged to the client as a litigation expense, the contingency fee rate must be appropriately set to not result in a duplicative and excessive legal fee charged to a client for a service that is billed separately as an expense.”

Similarly, Utah has directly addressed the outsourcing of lien resolution by personal injury lawyers to lien resolution specialists.  The Utah opinion, 14-01 (2/3/14), addressed two questions.  First, can a lawyer ethically and appropriately outsource lien resolution?  Second, should the fees associated with lien resolution be treated as a “cost” to the client?  The opinion addressed both those questions and found that the answers to both questions were yes.  The opinion stated:

“It is ethical for a personal injury lawyer to engage the services of a lien resolution company that can provide expert advice or to associate with a law firm providing this service.  If properly disclosed in the retention agreement, fee resolution services may be included as “costs” to the client provided the resolution services are professional services equivalent to accountants or appraisers.”

While most states have not directly addressed the outsourcing of lien resolution, the New York, Ohio, and Utah opinions give a general framework to use when deciding to outsource then passing along the fee as a case “cost”.  These opinions all find that it is permissible to outsource and pass along the fee as a case cost  if: (a) the personal injury lawyer’s retainer agreement with the client provides that the attorney may do so and the client has given their informed consent; (b) the fees charged are reasonable and are passed on without any surcharge; (c) the lien resolution service results in a net benefit to the client on each lien negotiated; (d) the outsourcing transaction complies with state specific bar rules and substantive law, including fee limitations for contingent fees; and (e) the referring attorney maintains ultimate responsibility for the work product. 

Therefore, if you desire to outsource lien resolution services the first step is amending your fee contract and providing information to the client about outsourcing these functions thereby securing informed consent.  The remainder of the parameters outlined in these opinions are typically easily met. 

Conclusion

There are strong reasons for outsourcing lien resolution to a team of experts with deep subrogation experience.  First, it makes your law firm more efficient by reducing operating expenses as well as removing the burden on a firm’s staff in terms of time spent on liens.  Second, since health insurance plans and government employ recovery vendors who are their experts a law firm should have its own team of experts to help fight and resolve liens.  Third, and probably most importantly, to make sure that the client’s net proceeds are protected by negotiating the deepest reduction of the amount claimed by a lien holder. 

The Utah ethics opinion mentioned above recognized that in complicated injury cases, with multiple liens, plaintiff counsel bears much responsibility to resolve these liens which can require “substantial expertise”.  The retention and assistance of lien resolution experts serves the “laudable goal” of fair resolution to both the client and lien holder.  The lien resolution services offered, according to the Utah ethics opinion, “are often a significant value enhancement for the client” since many plaintiffs personal injury lawyers may lack the necessary competence to evaluate medical billing.  These services allow a personal injury lawyer the ability to negotiate liens on equal terms with the lienholder’s lawyer by providing expert advice coupled with specialized legal resources for the personal injury attorney. 

In terms of the ethical issues surrounding outsourcing of lien resolution, the burgeoning complexities around lien resolution, potential impact to the client’s net proceeds as well as law firm liability related to liens, leads to the conclusion that outsourcing may be in everyone’s best interest. 

The question then turns to how to make sure outsourcing is done in compliance with applicable rules.  As discussed above, the ABA’s model rules certainly contemplate outsourcing of certain functions by lawyers.  The survey of states that have directly addressed the outsourcing of lien resolution have concluded that it is permissible but with protections put into place to address client confidentiality along with informed consent.  An outsourcing attorney must make sure that the lien resolution firm it hires has the competence, expertise, and suitable training to provide those services. 

Passing along lien resolution fees to the client requires that the client agree to the outsourcing as part of the retainer agreement and that the lawyer obtains informed consent for the outsourcing of lien resolution functions.  The use of a lien resolution group must produce a net positive outcome for the client with the fees being reasonable and no surcharge added on to the fees.  

The health insurance industry has known for decades the benefits of hiring subrogation experts.  A knowledgeable lien resolution partner can help even the playing field to protect your hard work and at the end of the day your client’s recovery.  It makes sense to outsource for all of the reasons enumerated herein and ethically it can be done by adhering to the principles outlined above. 

Contact Synergy today to see how partnering with us for Lien Resolution services can benefit you and your clients.

Kate Conway on TLV Podcast

In this episode of Trial Lawyer view, viewers were treated to an enlightening conversation between host and Synergy CEO, Jason D. Lazarus, J.D., LL.M., CSSC, MSCC, and Kate Conway from Powers Rogers. The episode, which was the 29th in the series, covered a range of topics related to Conway’s experience as a trial lawyer and her background in psychology.

One of the key takeaways from the conversation was Conway’s passion for helping people. She spoke at length about how her desire to make a difference in people’s lives led her to pursue a career as a trial lawyer. This deep sense of purpose has been a driving force throughout her career and has helped her to become one of the leading plaintiff medical malpractice attorneys in the country.

Another topic that was discussed in the episode was Conway’s leadership role in representing female trial lawyers. As a successful woman in a male-dominated industry, Conway has made it her mission to help other women achieve success in the legal profession. She shared some of her experiences and insights on how to navigate the challenges that women face in the industry.

Conway also talked about her experience of learning and working with her father, who is also a trial lawyer. She credited her father with instilling in her the values of hard work and dedication that have helped her to achieve success in her own career. She also discussed some of the challenges that come with working with family members and how she has navigated these challenges.

Overall, the conversation between Lazarus and Conway was engaging, informative, and inspiring. It provided valuable insights into the world of trial law and the personal experiences of one of its leading practitioners. Viewers who missed the episode are encouraged to check it out and not miss this great conversation.

Learn more here.

Is it Workers’ Compensation or Liability?

July 21, 2022

Rasa Fumagalli, JD, MSCC, CMSP-F

Netflix’s new baking competition show “Is it Cake” challenges judges to identify which of two identical objects is edible and which is not. Attorneys settling cases involving work-related injuries may find themselves similarly perplexed when it comes to whether a work-related injury will be treated as a workers’ compensation or liability case for purposes of the Medicare Secondary Payer Act (“MSP”). Depending on who the employer is at the time of a work-related injury, some injured employees may be covered by programs that are required under federal law. Depending on the nature of the program, the MSP compliance obligations will either be handled as a workers’ compensation or liability settlement.  For example, the Longshore and Harbor Workers’ Compensation Act (“LHWCA”) that provides benefits for work-related injuries sustained by certain maritime and dock workers is viewed as workers’ compensation insurance when it comes to MSP compliance issues. On the other hand, the Federal Employers Liability Act (“FELA”) which provides benefits for railroad employees, who sustain injuries due to the negligence of a railroad carrier, is viewed as liability insurance when it comes to MSP compliance issues.  (See MSP Manual, Chapter 1, Section 10.4)

Both liability and workers’ compensation settlements are impacted by the MSP Act. The MSP is comprised of a series of statutory provisions intended to reduce federal health care costs. The MSP provides that if a primary payer exists, Medicare only pays for medical treatment relating to an injury to the extent that the primary payer does not pay. The MSP Act and supporting regulations specifically state that Medicare is precluded from making payments for services “to the extent that payment has been made or can reasonably be expected to be made promptly under any of the following (i) workers’ compensation; (ii)liability insurance; (iii) no-fault insurance. (42 U.S.C.§1395y(b)(2)(A)(ii), 42 C.F.R.§411.20 (a)(2)). A primary payer’s responsibility for payment may be demonstrated by “a judgment, payment conditioned upon the beneficiary’s compromise, waiver, or release (whether or not there is a determination or admission of liability) of payment for items or services included in a claim against the primary payer or the primary payer’s insured or by other means…” (42 C.F. R§411.22(b)). The parties first and foremost should ensure that pre-settlement injury-related payments (conditional payments) made by Medicare are reimbursed to the appropriate Medicare Trust Fund. In addition, and in light of the MSP, settlements that close out future injury-related medical benefits should avoid cost shifting the post-settlement injury-related care onto Medicare.

The MSP compliance distinction between a liability settlement and a workers compensation settlement is an important one since it may impact the way parties address post settlement injury related care. The Centers for Medicare and Medicaid Services (“CMS”) has issued a great deal of guidance when it comes to workers’ compensation settlements that close out future injury related medical. The Workers’ Compensation Medicare Set-Aside Arrangement (“WCMSA”) Reference Guide (“Guide”), Version 3.7, 6/6/2022, explains that parties should take Medicare’s interest, with respect to future medicals, into account by including a WCMSA into the settlement terms. The WCMSA should contain sufficient funds from the settlement to cover the total cost that will be incurred for future injury related Medicare covered treatment. CMS encourages parties to seek CMS approval of the proposed WCMSA when the settlement meets CMS’ internal workload review thresholds. The benefit to CMS’ review and approval of the proposed amount is the certainty in knowing that Medicare will become the primary payer for any injury-related services that exceed the properly exhausted CMS determined WCMSA. Although the Guide also states that CMS approval of a proposed WCMSA amount is not required, Section 4.3 notes that CMS may treat the use of non-CMS approved products as “a potential attempt to shift financial burden by improperly giving reasonable recognition to both medical expenses and income replacement.” Non-CMS approved products are MSA reports that are not submitted to CMS for review.

 If CMS concludes that there was an improper cost shift, it may deny payment for injury-related services until it is provided with attestation of appropriate exhaustion equal to the total settlement, less procurement costs and paid conditional payments.  The parties may overcome this denial by showing   CMS, at the time of the WCMSA exhaustion, that both the initial funding of the MSA was appropriate and the funds were used properly.

To understand the importance of the differences between whether a work injury is treated as workers’ compensation versus liability case in the context of the MSP, consider a FELA settlement.  FELA is treated as a liability settlement for purposes of the MSP due to its differences from the typical workers’ compensation case.  Although a FELA settlement involves a work-related injury, the railroad employee must show that his/her injuries were, due in whole or in part, to the negligence of the railroad. This burden of proof is different than the burden of proof in a typical workers’ compensation case. In most jurisdictions, for a workers’ compensation case, a worker must only show that he suffered an accidental injury, which arose out of and in the course of his employment.  There is no need to show negligence. 

Once a settlement agreement is reached in a FELA case, the parties should consider the potential impact of the MSP Act on the settlement. If the railroad employee is a Medicare beneficiary at time of settlement, Medicare will be given notice of the settlement under Section 111’s Mandatory Insurer Reporting obligation. The notice of settlement may result in the potential risk of Medicare denying post-settlement injury-related care. If the railroad employee has completed his injury-related treatment and no further treatment is indicated, the beneficiary may wish to obtain a written certification from the treating physician to that effect. Pursuant to CMS’ 9/30/2011 Memo, there is no need for a liability MSA when the treating physician makes this certification.  

If, however, the beneficiary continues to treat for his injuries, or will need future injury-related care, an MSA might be considered to avoid any potential issues with Medicare denying post-settlement injury-related care.  While a workers’ compensation settlement will usually fully fund the WCMSA, the liability MSA may at times consider the relative value of each of the elements of damage being compensated in the settlement (pro-rata apportionment).  This apportionment approach considers the ratio between the total potential case value and the net settlement. Parties may also choose to fully fund the liability MSA. The decision of how much, or how little, risk to assume when it comes to post-settlement injury-related care is one that should be made by the beneficiary and documented in the attorney’s file.

Conditional payments, payments made by Medicare for injury-related care provided prior to settlement, must also be addressed in connection with a settlement. In a workers’ compensation case, conditional payment recovery is handled by the Commercial Repayment Center (“CRC”). The CRC seeks to pursue recovery directly from the workers’ compensation insurer carrier while the case is open. Once the case settles, the conditional payment recovery will move from the CRC to the Benefits Coordination and Recovery Center (“BCRC”) since the beneficiary is now the identified debtor. Since a FELA settlement is viewed as a liability settlement, the BCRC will handle the conditional payment recovery and seek recovery from the beneficiary debtor. Payments made by a Medicare Advantage Plan (“MAP”) must also be addressed. Information regarding the MAP payments is provided by the relevant insurance carrier themselves and not the BCRC/CRC.

While one work injury case may look just like any other, your MSP compliance approach may depend on whether CMS views the case as liability or workers’ compensation.  A thorough understanding of the differences and risks of various approaches is necessary in order to avoid any unexpected consequences of inaction.

Contact Synergy Settlement Services to discuss the way our MSP compliance team may assist you.