Beware of Problematic Medicare Secondary Payer Compliance Settlement Terms

April 15, 2021

Medicare Secondary Payer (MSP) compliance settlement terms utilized by defendants are often overly broad in nature. The recent opinion, Kupolati v. Village of Timber Creek Association, 2021 N.J. Super. Unpub. LEXIS 7 (App. Div. Jan. 5, 2021) and Abate v. Wal-Mart Stores, No. 1:17-cv-288-SPB, 2020 WL 7027481 (W.D. Pa. Nov. 30, 2020) (mem.), highlight the problems that may arise when MSP compliances issues are overlooked or misunderstood during settlement discussions. These cases highlight the need for collaboration between the parties as it relates to Medicare Secondary Payer terms at settlement.

In Kupolati, the Superior Court of New Jersey, the appellate division was asked to review the defendant’s appeal from the trial court’s order that granted Plaintiff’s motion to enforce her settlement agreement with the Village of Timber Creek Association (Association). The Superior Court affirmed the trial court’s order.

The underlying facts of the case show that the plaintiff injured herself when she slipped and fell on a sidewalk near her home. She subsequently agreed to accept the sum of $180,000.00 in exchange for a signed general release that waived any claims against the Association.

The general release that was sent over by the defense included the release of past and any future Medicare conditional payments under the Medicare Secondary Payer Act. Plaintiff’s counsel however objected to the general release since it addressed claims that were “now existing or which may accrue, including any claims asserted or which could have been asserted in any lawsuit, on account of and in any manner arising out of or related to an event …. occurring on or about 3/20/2015 at Village of Timber Creek.”

The defense terms also included a provision requiring the plaintiff’s treating physician to certify that she would not require any additional treatment or monitoring. This request was never discussed during the settlement negotiations.

The plaintiff moved to enforce the settlement without the objectionable provisions while the defendant requested enforcement with the provisions. In granting the plaintiff’s motion, the trial court considered “standard practice” when it comes to general releases. It found that the defendant failed to show that the inclusion of the treating physician’s certification regarding future treatment in the terms of a settlement release was standard practice. Similarly, the defense’s inclusion of a general release of a non-party insurer was not considered to be standard practice.

On appeal, the defendant argued that the trial court should have heard evidence since there was a genuine issue of fact as to the settlement terms, or in the alternative enforced the defendant’s version of the settlement terms. The appellate court noted that the plaintiff met her burden of establishing the agreement to settle the case through her attorney’s certification of his version of the settlement conference. The attorney certified that the parties never discussed the physician’s certification during the conference, nor did they agree to generally release the insurer. Since defense counsel never denied the plaintiff’s version of the settlement conference, the court found that there was no genuine issue of fact that would warrant a hearing.

The court next considered whether the objectionable provisions regarding the general release of the insurer and physician certification were consistent with industry customs. The court noted an agreement may be supplemented with terms common to an industry “if each party knows or has reason to know of the usage and neither party knows nor has reason to know that that the other party has an intention inconsistent with the usage.” Restatement (Second) of Conts. § 221 (Am. Law Inst. 1981) In evaluating this argument, the court determined that the terms were not consistent with industry customs since the defendant failed to present any competent evidence to support this. The court also affirmed the trial court’s interest award.

A review of the Abate opinion shows a similar motion to enforce a settlement agreement, albeit from the defense. In Abate, the plaintiff was offered the sum of $250,000.00 to settle her claim from injuries she sustained from a falling ladder at Wal-Mart. Although the plaintiff signed the settlement release, she claimed that she was never allowed to review the agreement and did not authorize the terms. The Court granted the defendant’s motion after reviewing the evidence in the case.

The facts of the case show that the parties engaged in settlement discussions in October and November of 2019. Settlement documents were executed at the end of November. Subsequently, the Centers for Medicare & Medicaid Services (CMS) issued a final conditional payment demand that Plaintiff’s counsel sent to the defense.

The plaintiff then sent the court an ex parte letter alleging that she had been “bullied” into signing the settlement release. In December of 2019, the court held a conference with the parties to address the plaintiff’s correspondence. During the conference, the plaintiff was represented by a new attorney. Her former counsel testified that the plaintiff had been advised about her net settlement after attorney’s fees and the Medicare lien was deducted. He also testified that he explained the release language to her and his request for a written certification from the treating physician that no further injury related treatment would be required. This was requested so that Medicare’s interest would be taken into account. He further noted that it is “typical for them to do that thing. We’ve encountered that in the past.”

In granting the defendant’s motion to enforce the settlement agreement, the court determined that the plaintiff’s former counsel had the express authority to accept the settlement offer in the case. The settlement terms were also sufficiently definite and supported by adequate consideration. There had also been no showing of fraud, duress or mistake that would support setting the agreement aside.

The court next considered the contract provision that required the plaintiff to “warrant and agree” that she has “satisfied Medicare’s interest” by securing a written certification from her treating physician that was consistent with the CMS Memorandum dated September 30, 2011 (CMS Memo). This report had not been obtained since the plaintiff was still treating. In light of this, the plaintiff argued that the settlement release was unenforceable and missing a “required component.” The court rejected this argument noting that the essence of the agreement was Walmart’s agreement to pay money in exchange for the plaintiff’s agreement to terminate the litigation and release claims. It also reviewed the CMS Memo noting that it did not “require” that a settling Medicare beneficiary obtain a letter certifying the completion of treatment.

Conclusion

Medicare Secondary Payer compliance obligations impact both parties to a settlement. Failing to address these issues before crafting a release can lead to the parties fighting in court over the inclusion of Medicare-related settlement terms. Although settlement terms are usually drafted by the defense, the MSP terms may consist of numerous boilerplate provisions that have no bearing on the actual settlement, and inclusion of them could be problematic for the Medicare beneficiary. Careful attention should be paid to the following key MSP compliance areas when it comes to the settlement documents:

1. Get an agreement on what ICD codes will be reported pursuant to Section 111 Mandatory Insurer Reporting. Section 111 Total Payment Obligation to Claimant (TPOC) reporting will identify the diagnosis codes that are being released in connection with the settlement. A discussion and agreement between the parties as to the correct accident date(s) and diagnosis codes will prevent any post-settlement MSP compliance issues.

Practice Tip: Get an agreement in writing regarding what codes will be reported by the defendant to make sure that unrelated care or non-compensated injury claims aren’t reported incorrectly.

1. The conditional payment reimbursement obligations in the release should be consistent with the settlement discussions.

Practice Tips: A practitioner should be mindful that interim conditional payment numbers from the Benefits Coordination & Recovery Center may change once the case settles and it is reported with the final settlement detail as well as when the defense completes the Section 111 Mandatory Insurer Reporting in the claim. In addition, a practitioner should proactively identify any Medicare Advantage Plans that may have made injury-related payments in order to avoid any unexpected post settlement recovery claims.

1. Settlement terms that address future injury-related treatment should be consistent with the settlement discussions.

Practice Tips: A unilateral requirement in the settlement terms that the plaintiff obtains a written certification from a treating physician that the plaintiff has completed his treatment and does not require any more treatment is inappropriate. A better course of action is to have a discussion of the MSP Act and its potential impact on a settlement with the plaintiff prior to the settlement conference. This would allow the plaintiff to determine what course of action, if any, they prefer to take while understanding the risks/benefits of each approach.

1. Watch for settlement terms that do not apply, such as a requirement that CMS review a Liability Medicare Set-Aside. Similarly, a settlement with an estate for a wrongful death action should never have any boilerplate language regarding future medicals.

A proactive approach to MSP compliance will result in smoother settlements every time. Collaboration with the other side when it comes to Medicare compliance settlement terms will save a lot of time and potentially prevent any arguments about the enforceability of the settlement. Here, “an ounce of prevention is worth a pound of cure.”

Nathan Carter on TLV Podcast

In Episodes 3 & 4 of Trial Lawyer View, TLV host and Synergy CEO Jason D. Lazarus has a wide-ranging heartfelt discussion with Nathan Carter of Colling Gilbert Wright & Carter about representing him after he was struck by a car while cycling, cases Nathan has handled that have made a difference, his philosophies on the practice of law and taking the risk to start a new law firm while enduring the death of one of his founding partners.

Learn more here.

Workers’ Compensation Medicare Set-Aside (WCMSA) Arrangement

April 8, 2021

Rasa Fumagalli JD, MSCC, CMSP-F

The nature of the Workers’ Compensation Medicare Set-Aside (WCMSA) has evolved over the years since the 2001 Patel Memo. That evolution has seen us move from every WCMSA that met the Center for Medicare and Medicaid Services (CMS) internal workload review threshold being submitted to CMS for review, to now a practitioner may be offered an evidence-based medicine WCMSA, a “certified” WCMSA or a compromise WCMSA. An understanding of the differences between these various types of proposed WCMSAs and their projection methodology is important when it comes to settlement discussions.

The WCMSA that most practitioners are familiar with is the “traditional” WCMSA. This type of WCMSA is submitted to CMS for review when CMS’ internal workload review threshold is met. Although CMS recommends that parties seek Agency (CMS) review of the WCMSA, the WCMSA Reference Guide (Guide) specifically states: “There are no statutory or regulatory provisions requiring that you submit a WCMSA amount proposal to CMS for review.” The Guide further states that “if you choose to use CMS’ WCMSA review process, the Agency requests that you comply with CMS’ established policies and procedures.”

The Guide includes the general frequency schedules for various diagnostic studies, implants, and drugs used by the Workers Compensation Review Contractor (WCRC) in determining future treatment costs. Given the “cookie-cutter” projection methodology that is used by the WCRC, the CMS-determined WCMSA may, at times, overfund the future treatment. The benefit to CMS review, however, is the assurance that CMS will become the primary payer upon review/approval of the allocation and proper exhaustion of the WCMSA funds.

A second type of WCMSA is the evidence-based medicine WCMSA. This may or may not be submitted to CMS for review. Rather than projecting future treatment based on the Guide’s frequency schedules, the projections instead focus on evidence-based medicine guidelines, such as those that may be found in the Official Disability Guidelines (ODG) or American College of Occupational and Environmental Medicine (ACOEM) guidelines. It is generally lower than a “traditional” WCMSA and will also limit projections based on state law arguments. If the evidence-based medicine WCMSA is submitted to CMS for review and approved by CMS, the WCMSA may more accurately allocate funds for the future treatment.

A practitioner may also be presented with a “certified” WCMSA that is not submitted to CMS for review. The “certified” WCMSA projection methodology looks to evidence-based medicine guidelines. It also comes with an assurance that the reasonableness of the certified WCMSA projections will be defended against any challenges by CMS. The WCMSA funds, however, must be either professionally administered or “self-administered with support” in order to extend the life of the funds. Since this type of WCMSA is not submitted to CMS for review, CMS is not bound by it.

The compromise WCMSA is used in disputed settlements and is never submitted to CMS for review. It is based on the calculation methodology that is outlined in 42 C.F.R. § 411.47. Although this provision discusses conditional payments, it should equally apply to the apportionment of future medical damages in a compromise settlement.

Conclusion

Although the majority of WCMSAs are prepared by the defense, it is important that the practitioner scrutinize the methodology used in the WCMSA projections. If the WCMSA is not going to be submitted to CMS for review, an evidence-based medicine projection methodology is more appropriate than the “cookie cutter” projections used in the traditional WCMSA. This difference is particularly significant when the WCMSA is to be carved out from the settlement rather than added to the settlement. When in doubt as to the best approach, Synergy’s team is available to guide you through your Medicare Secondary Payer compliance options.

Sean Domnick on TLV Podcast

In Episodes 1 & 2 of Trial Lawyer View, TLV host and Synergy CEO Jason D. Lazarus has an engaging conversation with American Association for Justice Secretary, Sean Domnick of Domnick Cunningham & Whalen. They discuss the importance of work-life balance, learning to choose your battles, finding your niche to really make an impact, and the importance of connecting with empathy.

Learn more here.

Don’t Forget to Protect Your Fees from the Tax Man

March 11, 2021

Anthony F. Prieto, Jr., CFP®

Trial lawyers have been deferring fees into structured settlement products dating back to the early 1990s. The IRS challenged fee structure arrangements in Childs v. Commissioner.[1] In this seminal 1994 tax case, the IRS argued the fees should be taxed in the year earned; however, the lower court and the 11th Circuit affirmed the decision that the fees are not taxable in the year earned but in the year(s) payments are received from the attorney fee structure. The ruling is more in-depth, but this established the precedent allowing fee deferral solutions to be developed.

The basic concept of these solutions is an irrevocable assignment of a fee before it is earned. This creates separation and keeps the taxpayer from taking constructive receipt of the funds. [2] A portion of the fee (up to 100%) can be used to purchase periodic payments that are taxed in the calendar year that funds are received. The amount deferred is not limited like a traditional 401(k) or IRA program. The age funds can be received is also not limited, so payments can be made before age 59.5.

What does this mean to an attorney? Simply put, with proper planning an attorney can manage the timing of their income. This gives the attorney two ways to generate a return on their fee. The first way is to earn a return via the investment itself. The products available offer a variety of investment choices. An attorney can be as safe or aggressive as they choose from an investment perspective. Products are available that allow an attorney to place a fee in a variety of annuity or investment funds. The variety of options has increased over the last ten years and allows for most people to find a solution that meets their objectives. The return can be fixed or variable in these products. The interest earned is deferred.

The second way to earn return is to receive payments at a lower tax rate in subsequent tax years. Regardless of political views, almost every change in the White House comes with a new tax plan. The tax plan usually involves some changes to the marginal rates on earned income. President Biden has introduced a variety of tax-related items during the past year. One that he frequently referred to during his campaign was an increase on top earners. He has stated that he will seek an increase the marginal tax bracket from 37% to 39.6% for those earning over $400,000. He has also proposed moving the capital gains rate to 39.6% for those earning over $1,000,000. These two changes could allow an attorney to pay a lower amount in taxes if they can defer until tax rates are lower. Any reduction in tax payments creates an added return for the attorney.

If you can combine a positive return on your investments and a reduced tax burden, you have created two ways to benefit from deferring a fee. The products in place create powerful tools that are not available to most taxpayers. It can be used in combination with other retirement plans to create income without a penalty before age 59.5. It can be used to defer excess amounts when you reach your deferral limits, which is $19,500 in 2021.

Attorney fee deferrals have a lot of benefits and with proper planning can create a more comprehensive retirement plan for most attorneys. It is always a good exercise to review the options with your tax and planning advisors to see what plan matches your long-term goals.

[1] A summary of Childs v. Commissioner can be found here: https://www.irs.gov/pub/irs-wd/0836019.pdf

[2] An explanation of constructive receipt can be found here: https://www.law.cornell.edu/cfr/text/26/1.451-2

[3] The IRS’ contribution limits can be found here: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits

Electronic Payment Feature of Medicare Secondary Payer Recovery Portal

February 23, 2021

Rasa Fumagalli, JD, MSCC, CMSP-F

The Centers for Medicare & Medicaid Services (CMS) agency has made significant improvements over the years in their online self-service tools for Medicare beneficiaries, their representatives, insurers, and recovery agents. Beneficiaries may obtain detailed information regarding their claims by registering on the MyMedicare.gov website. If the beneficiary has a third-party claim, he or she can access the Medicare Secondary Payer conditional payment information from their MyMedicare page or by entering the Medicare Secondary Payer Recovery Portal (MSPRP). Click here to see the MSPRP User Guide.

Today, the MSPRP allows beneficiaries and their representatives to self-report claims, upload Proof of Representation and Consent to Release forms, obtain conditional payment information and submit disputes to CMS. The MSPRP also allows the beneficiary or his representative to make an electronic payment of the conditional payment demand through Pay.gov, a secure government-wide collection portal. With the current delays that the USPS is experiencing, this is a useful alternative. Additional details regarding the process may be obtained here: https://go.cms.gov/2ZICL2N

Binding CMS to its WCMSA Determination

February 11, 2021

Rasa Fumagalli, JD, MSCC, CMSP-F

Securing CMS review of a Workers’ Compensation Medicare Set-Aside (WCMSA) proposal can, at times, be cumbersome. Once the CMS WCMSA determination letter is received, parties may often just close their files after the settlement funds are disbursed. This brief article will address the frequently overlooked CMS determination finalization process.

Parties that seek CMS review of a WCMSA should follow the guidelines that are set forth in CMS’ WCMSA Reference Guide (Guide). The most current version of the Guide, Version 3.2 was released on October 5, 2020, and outlines the process used by CMS in reviewing WCMSA proposals.

According to the Guide, the main benefit of seeking CMS review of a WCMSA proposal is the certainty that CMS will become the primary payer for injury-related, Medicare-covered services upon proper exhaustion of a CMS-determined WCMSA. This benefit, however, requires that the parties properly finalize the CMS determination. Section 15.3 of the Guide addresses this requirement in a “note,” which states: “the case will not be considered final until CMS receives the final settlement with the appropriate WCMSA amount.”

CMS determination letters also remind parties of this requirement. The first two pages of a CMS determination letter include the following statement:

“Approval of this WCMSA amount is not effective until the Centers for Medicare & Medicaid Services (CMS) receive a copy of the final executed workers’ compensation settlement agreement, which must include this approved WCMSA amount. Please include the CMS Case Control Number listed at the top of this letter in any correspondence. Submit your settlement agreement via the Portal if your original submission was via the Portal. If you originally submitted outside of the Portal, submit the settlement agreement to the following address:

WCMSA Proposal/Final Settlement
P. O. Box 138899
Oklahoma City, OK 73113-8899”

This last step is an important one since it gives CMS notice that the CMS determined WCMSA has been properly funded. This funding is then reflected in Medicare’s Common Working File for the beneficiary and serves to limit the amount of the settlement that may be considered for future medicals. Failure to properly finalize the CMS determination may result in the unintended consequence of Medicare considering the entire settlement as a future medical allocation, thereby defeating the benefit of the CMS review. Since there is often a delay between the issuance of the CMS determination and the actual settlement that funds the CMS determination, it is imperative that parties not overlook the finalization requirement.

Preparing for the ERISA Lien Battle

February 11, 2021

Teresa Kenyon, Esq.

The dreaded ERISA lien. The vendors representing ERISA self-funded health plans’ interests certainly want you to believe that it must be reimbursed in full. They will cite the US Airways v McCutchen case, tell you that they are not subject to equitable doctrines, and, therefore, do not have to reduce for attorney fees, limit, or waive their full recovery even if your client was not made whole from a compromised settlement. How do you get an ERISA plan to be fair and equitable?

What is ERISA?

ERISA is an acronym for the Employee Retirement Income Security Act. That is right, its original intention in its 1974 creation was focused on pension plans not health benefits. According to the US Department of Labor, ERISA protects the interest of employee benefit plan participants and their beneficiaries. It requires plan sponsors to provide plan information to participants. It establishes standards of conduct for plan managers and other fiduciaries. And it establishes enforcement provisions to ensure that plan funds are protected and that qualifying participants receive their benefits.[1]
Great! This all sounds good. The employee is protected. The Plan must follow rules. The Plan must provide detailed reporting to the federal government. It must provide disclosures to the participants and establish guidelines on how denied claims can be appealed. And it must ensure that the funds are protected and delivered in the best interest of the plan to pay future claims.

An ERISA plan as it relates to health benefits is an “Employee Welfare Benefit Plan.” The ERISA statute defines it as

“any Plan, fund or program which was… established or maintained by an employer or by an employee organization… for the purpose of providing for its participants or their beneficiaries through the purchase of insurance or otherwise, (A) medical, surgical or hospital care or benefits…”[2]

Recovery of Settlement Funds

But what is the Plan’s expectations when they have paid for medical expenses, as they are required to do, and the beneficiary recovers money from an at fault party or their insurance carrier?
In theory, subrogation and reimbursement is a logical idea. The health plan lien holder’s mantra is that a Plan should not have to pay for medical treatment when someone else is the reason for the need of that medical treatment. It follows that all costs of a loss should be placed on the wrongdoer and that the Plan can be reimbursed by the actual injured party. And this can function flawlessly when there are enough funds to reimburse all parties who have suffered a loss. The thought that Polly the Plaintiff should not receive a double recovery when someone else actually carried the burden makes logical sense. But what about when there are not enough funds recovered? Settlements can be limited due to policy limits, liability issues, comparative fault, etc.

In equity, the amount any Plan recovers from a settlement fund should be parallel to what the injured plaintiff is recovering for their loss. If the Plan has paid $30,000 in medical expenses and the settlement is limited to $100,000 whether due to policy limits, liability issues, or otherwise, where is the equity in allowing the plan to recover their full $30,000? Why does a Plan have more rights to reimbursement than Penny, the actual injured plaintiff? The inequity that plaintiffs see on a regular basis as it relates to ERISA self-funded liens is disheartening.

Assume that Penny had lost wages of $20,000 while she was recovering from her loss. Assume that she has a hospital lien of $70,000 because her health plan did not pay for the out of network provider that the ambulance drove her to on the day of her loss. Assume that she lost her job and eventually obtained another employer which provided her health benefits leading to another health insurance claim for reimbursement of $50,000. By numbers alone, Penny the plaintiff is not fully compensated for her loss. Why should the original Plan receive their full $30,000? Why has the case law developed to allow a Plan to add one sentence to a 100-page Plan Document that gives it the right to collect in full even if it totals 1/3 of the limited settlement and even when there are other hands out at the table?

Based on those facts, this is not functioning as was originally intended when ERISA was created. As far back as 1997, a District Court judge identified that that a particular case before the court “becomes yet another illustration of the glaring need for Congress to amend ERISA to account for the changing realities of the modern health care system. Enacted to safeguard the interests of employees and their beneficiaries, ERISA has evolved into a shield of immunity that protects health insurers, utilization review providers, and other managed care entities from potential liability for the consequences of their wrongful denial of health benefits.”[3]

Funding Status

State laws are in place in many places to prevent this type of thievery of settlement funds. In most states, the law generally requires the lien be reduced by attorney fees and be reduced or eliminated completely when the injured plaintiff is not made whole or was partially at fault for the loss. But not all plans are subject to state law. This is where the funding type matters. The United States Supreme Court decided in FMC Corp. v. Holliday that state laws shall not limit a self-funded ERISA Plan from recovering from a settlement if the language of the Plan Plan’s language clearly says so.[4]

So, what constitutes self-funded? An employer Plan is self-funded if the employer pays for the employees’ medical benefits through their own funds. The employer assumes the financial risk directly and is liable for the payment of all medical bills. Compare this to an employer who secures an insurance policy, and the insurance carrier assumes all the financial risk and pays all the medical bills. It is all about where the funds come from to pay the medical claims. The convoluted part is that most self-funded plans use insurance carriers to administer or pay their claims. The big-name insurance carriers are involved in both self-funded and fully insured health plans. The insurance card can look very similar because they both reflect Cigna or Blue Cross.

How do you determine the funding status? You must obtain the relevant documents from the plan administrator.

Supporting Document Request

There is a laundry list of items that the plan participant is entitled to receive under the ERISA statute § 1024(b)(4).[5] “The administrator shall, upon written request of any participant or beneficiary, furnish a copy of the latest updated summary, [sic] plan description, and the latest annual report, any terminal report, the bargaining agreement, trust agreement, contract, or other instruments under which the plan is established or operated.

- - The Plan Document (written instrument pursuant to 29 U.S.C. § 1102) in effect on the date of injury as well as any document amending, supplementing, or otherwise modifying the Plan Document; Summary Plan Description and employee benefits booklet in effect at the time of injury as well as all documents issued subsequently during any year in which benefits were paid;
  - SPD Wrap Documents;
  - Bargaining Agreement, Trust Agreement, Contract, etc. under which Health Plan is established;
  - Trust Agreement or other document establishing funding for the Plan;
  - Annual Return/Report (IRS/DOL Form 5500), including all attached Financial Schedules;
  - Administrative Services Agreement with any Third-Party Administrator for the Plan;
  - An affidavit from the Plan Administrator attesting to self-funded status of the Plan;
  - A complete statement of benefits paid to or on behalf of claimant/beneficiary;
  - Specific plan component(s) paying benefits (e.g., health, dental, vision, AD&D, disability, etc.);
  - “Stop-loss” or excess/re-insurance coverage (insurer, policy numbers, and attachment points).”

An administrator is required to provide the requested documents. The ERISA statute has created a civil penalty[6] which has been increased to $110/day.[7] Subrogation vendors, insurance carriers, and defense firms regularly state that they do not have all the documents, that they are not the proper party for requesting the documents, that the documents are not necessary to ascertain the funding status of the plan, etc. Essentially, they assert that they are not subject to the penalty for their failure to comply which includes the failure to comply completely.

In this list are documents that will lead you to discover the funding status of the Plan. You will likely not obtain all of them and not all are needed to assess the funding status of the Plan. In order to review what you really need, it is recommended that you ensure that you have the relevant ones to assess the Plan’s rights.

Form 5500

The first to review is the Form 5500.[8] This Form is an IRS document but should be completed by ERISA plans and can give some great guidance if you know what you are looking for as you review the document. The first place to look is section 8 and 9.

Section 8b lists the plans whose funding type will be checked in section 9. Many review this part of the Form and assume that because Insurance is marked in 9a(1) that the health plan is fully insured. But that is an incorrect reading. In fact, looking at this alone cannot give you all the answers, it only leads you down a road. This Form reflects that this employer has both insured plans and self-funded benefit plans. 4A is the health plan, 4B is the Life Insurance, 4D is Dental etc. Section 9 only tells you that some of those are insured and some of those self-funded (paid for by the general assets of the plan sponsor). Perhaps the health is self-funded, but the life insurance and dental are insured. The next step is to look at the Schedules to determine which is which. Schedule A lists the insured coverages and Schedule C lists the self-funded. Unfortunately, even with an 82-page instruction guide,[9] these Forms are often completed incorrectly or incompletely which makes them often unreliable for determining funding status.

The Plan Documents

The most important document to review is the Plan Document. Not only will there be some indication of funding type within this document, but it is also the terms of this document that govern the right of recovery of a self-funded plan. The US Supreme Court held in US Airways, Inc. v. McCutchen[10] that a self-funded plan could claim a right to a disproportionate share of the recovery if the contract were clearly written to eliminate equitable principles. McCutchen argued that a recovery by the US Airways plan, in his case, would be an inequitable windfall to the plan and a complete blow to the injured plaintiff, himself. The Plan attempted to claim full reimbursement of their $66,866 payment towards medical expenses from his $110,000 policy limit recovery even though his net, after attorney fees and costs, was only $66,000. McCutchen argued that the Plan should take no more than the portion that would be classified as a “double recovery” thereby allowing him to receive compensation for the rest of his damages. .

Ultimately, US Airways had to reduce their reimbursement claim by attorney fees as their policy was silent on that equitable doctrine. Further, when the case was remanded to the lower court, it was discovered that the Court was looking at the wrong document completely. In Cigna Corporation v. Amara, the US Supreme Court indicated that “summary documents, important as they are, provide communication with the beneficiaries about the Plan, but that their statements do not themselves constitute the terms of the Plan.”[11] The Master Plan Document controls and you should not settle for just the Summary Plan Description.

The McCutchen Court held that the Plan should be enforced as written and that both sides should be held to their mutual promises. This is inequity at its finest. McCutchen had no part in agreeing whether certain terms would be part of the contract nor did he have the ability to strike terms from the contract. It is a classic contract of adhesion. One where the Plan is in the power position and able to modify their contracts year over year and ensure that they remain in power. Because of that, any ambiguities are to be resolved in the favor of the injured plaintiff and not the drafter.[12]

This is one place where ERISA self-funded plans and the vendors that handle them miss the mark and yet it was a big focus in the McCutchen decision. They ride the train of power as if simply being an ERISA self-funded plan gives them a strong legal right of recovery in all situations. They conveniently miss the places where their contract language has deficiencies. Instead, they want Polly the plaintiff to overlook those ambiguities or just interpret it based on what the Plan meant to write. It does not work that way! We recently had a case where the Summary Plan Description (SPD) referenced a Master Plan Document (MPD) but the subrogation vendor could only produce two SPDs with different dates. The representative’s response to our identifying this as a major issue was to still reference a document that does not exist and asked that we refer to the “MPD (also titled SPD but is in fact the MPD).”

At least one court had it right.

“Any burden of uncertainty created by careless or inaccurate drafting of the summary must be placed on those who do the drafting, and who are most able to bear that burden, and not on the individual employee, who is powerless to affect the drafting of the summary or the policy and ill-equipped to bear the financial hardship that might result from a misleading or confusing document. Accuracy is not a lot to ask. And it is especially not a lot to ask in return for the protection afforded by ERISA’s preemption of state law causes of action– causes of action which threaten considerably greater liability than that allowed by ERISA.”[13]

Conclusion

When it comes to ERISA Plans and ensuring that your injured plaintiff retains compensation for her injuries, it is important to make sure that the ERISA Plan has a right to be at the table and has a right to request reimbursement from the settlement funds. This article narrowly focuses on just a few of the many things that must be investigated as it relates to an ERISA Plans demand. Synergy’s Experts are ready to step in and fully review your next ERISA lien.

[1] https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/what-is-erisa

[2] 29 U.S.C. § 1002(1).

[3] Andrews-Clarke v. Travelers Ins. Co., 984 F. Supp. 49 (D. Mass. 1997).

[4] FMC Corp. v. Holliday, 498 U.S. 52 (1990)

[5] 29 U.S.C. 1024(b)(4).

[6] 29 U.S.C. 1132(c)(1)

[7] 29 CFR 2575.502c-3

[8] Obtain your own at FreeERISA.com or on the US Department of Labor website to be found here: www.efast.dol.gov/portal/app/disseminatePublic?execution=e2s1

[9] www.dol.gov/sites/dolgov/files/EBSA/employers-and-advisers/plan-administration-and-compliance/reporting-and-filing/form-5500/2020-instructions.pdf

[10] 569 U.S. 88 (2013).

[11] Cigna Corp v Amara, 131 S. Ct 1866 (2011).

[12] Contra proferentem is the common law doctrine that contracts and other written instruments should be construed against the drafter.

[13] Hansen v Continental Ins Co, 940 F2d 971 (5^th Cir. 1991)

Medicare Set-Asides for General Liability Settlements: How to Protect Your Clients and Practice

February 3, 2021

Rasa Fumagalli, JD, MSCC, CMSP-F and Jennifer L. Yu, Esq.

In stark contrast to the world of worker’s compensation, most attorneys agree that there is a dangerous amount of gray area surrounding the subject of Medicare Set-Asides for liability settlements. This is so because the Centers for Medicare and Medicaid Services (CMS) has been slow in providing any real guidance for liability settlements that include compensation for future medicals costs.

To date, the guidance consists of the May 2011 CMS Stalcup memo (one regional director’s view) and the September 2011 CMS memo regarding treating physician certifications.

In 2018, the Department of Health and Human Services issued an initial notification of proposed rulemaking related to the Medicare Secondary Payer Act. The most recent abstract of the proposed rule states:

“This proposed rule would clarify existing Medicare Secondary Payer (MSP) obligations associated with future medical items, services related to liability insurance (including self-insurance), no-fault insurance, and worker’s compensation settlements, judgments, awards, or other payments. Specifically, this rule would clarify that an individual or Medicare beneficiary must satisfy Medicare’s interest with respect to future medical items and services related to such settlements, judgments, awards, or other payments. This proposed rule would also remove obsolete regulation.”

Since that time, the proposed rulemaking has been continuously postponed. In light of this, it falls upon the attorney to take “reasonable efforts” to protect Medicare’s interest. Failure to do so could result in possible disruption of a client’s benefits and open the attorney up to a malpractice claim. One of the most effective ways to protect against this is by calling in a Medicare expert for an MSP case evaluation.

The absence of formal regulation by CMS does not mean that the MSP Act does not apply to liability settlements. The MSP Act clearly prohibits Medicare from making payment when “payment has been made or can reasonably be expected to be made under a…liability insurance policy or plan (including a self-insured plan) or under no-fault insurance.”[1] The exception to this occurs when payment is not reasonably expected to be made “promptly” or within 120 days of receipt of the claim by the primary payer.

If Medicare makes payment in this situation, the payment is conditioned upon the reimbursement of the payment to the Medicare Trust Fund. A primary payer’s reimbursement obligation to Medicare may be demonstrated by: “a judgment, a payment conditioned upon the recipient’s compromise, waiver or release (whether or not there is a determination or admission of liability) of payment for items included in a claim against the primary payer or by other means.”[2]

The above provisions may impact a plaintiff’s settlement in the following way: If the plaintiff is a Medicare beneficiary and accepts a settlement that provides funds intended to compensate her for future medicals, this is a payment that has been made under a liability plan. Should the plaintiff require future injury-related Medicare-covered treatment, Medicare is prohibited from making payment for these services. Should an inadvertent payment be made, the Medicare Trust Fund could demand reimbursement.

Assessing next steps for your client when it comes to the MSP comes down to your client’s risk tolerance. There is no requirement that any moneys be set aside for future care covered by Medicare, but it is important to keep in mind that Medicare is on notice of any settlement as it has the benefit of the Section 111 mandatory insurer reporting requirement for any physical trauma liability settlement over $750.00. The Section 111 Total Payment Obligation to Claimant (TPOC) report must include the injury-related diagnosis codes, since the codes are added to the plaintiff beneficiary’s Medicare Common Working File. This can easily trigger a future denial of injury related care by Medicare. An MSA is the easiest way to protect against this issue. It will ensure that the proper amount of money is apportioned and also acts as a type of deductible; meaning that once those funds are depleted Medicare will pick up the payments from that point.

Conclusion

The MSP Act and the language used in the abstract of the proposed rule regarding “existing” MSP obligations should be considered by plaintiffs’ attorneys that are handling liability if Medicare is involved. If the settlement funds future medicals, then a decision to apportion some of the settlement funds as an LMSA may prevent your client from experiencing future issues with Medicare. The MSP compliance strategy however should always be driven by the circumstances of the case. If the area of MSP compliance is outside of your legal expertise, protect your firm and your client by partnering with an expert in the field. Until CMS provides additional guidance, the safest and easiest way to navigate the gray area is to work with an outside MSP compliance expert to assess your clients’ future need and provide supporting documentation for your file.

[1] 42 U.S.C. § 1395y(b)(2)(a).

[2] 42 C.F.R. § 411.22.