Supreme Court Decides Nevils: FEHBA Subro – “Shall Supersede and Preempt any State or Local law”

On April 18, 2017 in Coventry Health Care Of Mo., Inc. V. Nevils the United States Supreme Court held that the subrogation/reimbursement plan language contained in the health insurance contracts of Federal Employee Health Benefit plans (FEHBA) preempted state law.   This decision by the Supreme Court puts to rest over a decade of uncertainty in the area of FEHBA subrogation.  Unfortunately, that certainty deals a serious blow to injury victims who are covered by FEHBA plans.

The FEHBA Act contains an express-preemption provision, §8902(m)(1), which states that the “terms of any contract under this chapter which relate to the nature, provision, or extent of coverage or benefits (including payments with respect to benefits) shall supersede and preempt any State or local law . . . which relates to health insurance or plans.”  The question for the courts since McVeigh in 2006 was do subrogation/reimbursement provisions “relate to” “coverage and benefits”.

Justice Ginsburg, writing the majority opinion for the Court found that:

“Contractual provisions for subrogation and reimbursement ‘relate to . . . payments with respect to benefits’ because subrogation and reimbursement rights yield just such payments. When a carrier exercises its right to either reimbursement or subrogation, it receives from either the beneficiary or a third party “payment” respecting the benefits the carrier had previously paid.”

Id.

Continuing with the theme that all reason bends to financial gain the court made clear the monetary benefit to government was just too large to ignore.

“The Federal Government, more-over, has a significant financial stake. OPM estimates that, in 2014 alone, FEHBA ‘carriers were reimbursed by approximately $126 million in subrogation recoveries.’ 80 Fed. Reg. 29203. Such ‘recoveries translate to premium cost savings for the federal government and [FEHBA] enrollees.]’”

Id.

In explaining that it is the FEHBA statute, and not the individual FEHBA contracts, that provides for the preemption of state law the Supreme Court raises the trial bar’s other subrogation nemesis, ERISA.

“We conclude, however, that the statute, not a contract, strips state law of its force. … FEHBA contract terms have preemptive force … when the contract terms fall within the statute’s preemptive scope. It is therefore the statute that ‘ensures that [FEHBA contract] terms will be uniformly enforceable nationwide, notwithstanding any state law relating to health insurance or plans.’ Brief for United States as Amicus Curiae 28 (internal quotation marks omitted).

Many other federal statutes preempt state law in this way, leaving the context-specific scope of preemption to contractual terms. The Employee Retirement Income Security Act of 1974 (ERISA), 29 U. S. C. §1001 et seq., for example, preempts “any and all State laws insofar as they . . . relate to any employee benefit plan.” §1144(a).

Id.

Placing FEHBA subrogation rights in the same context as ERISA plans should be a clear and sobering indication to the plaintiff’s bar of how the courts will now view FEHBA subrogation/reimbursement demands.  Fortunately, most FEHBA plans are not drafted with the same draconian language as ERISA plans, often allowing for reasonable compromises to be reached. In resolving your client’s FEHBA subrogation/reimbursement issues the first step should be to obtain a copy of the specific FEHBA plan in which you client is enrolled.  You can find all FEHBA plans on this link.  https://www.opm.gov/healthcare-insurance/healthcare/plan-information/plans/.

As always, Synergy is here to help negotiate and resolve all lien types.  While FEHBA recovery has been strengthened by Nevils, we believe there are still avenues to travel down based on plan language to get a reduction.  We remain committed to getting the best possible outcome for an injury victim with all types of subrogation claims. 

CMS Gearing Up to Reject Medicare Claims Related to Liability Settlements

By B. Josh Pettingill

Last week, the Centers for Medicare and Medicaid Services (CMS) released a “CMS Manual System” “One-Time Notification” regarding Liability Medicare Set Asides and enforcement of the Medicare Secondary Payer statute (MSP). Starting October 1, 2017, Medicare and their contractors will reject medical claims submitted post-resolution of a liability settlement on the basis those claims “should be paid from a Liability Medicare Set Aside (LMSA)”. The commentary cites the basis for rejection of the claims as enforcement of the MSP statute[1]. It is also important to note that the alert mentions that “Liability and No-Fault MSP claims that do not have a MSA will continue to be processed under current MSP claims processing instructions”.

Here is a link to the announcement:

https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/2017Downloads/R1787OTN.pdf

At the heart of the announcement is the following text which Synergy has continually indicated was CMS’s position regarding liability settlements and enforcement of the MSP:

“Pursuant to 42 U.S.C. §1395y(b)(2) and §1862(b)(2)(A)(ii) of the Social Security Act, Medicare is precluded from making payment when payment “has been made or can reasonably be expected to be made under a workers’ compensation plan, an automobile or liability insurance policy or plan (including a self-insured plan), or under no-fault insurance.” Medicare does not make claims payment for future medical expenses associated with a settlement, judgment, award, or other payment because payment “has been made” for such items or services through use of LMSA or NFMSA funds. However, Liability and No-Fault MSP claims that do not have a MSA will continue to be processed under current MSP claims processing instructions.”

Enforcement of the MSP as it pertains to future Medicare covered services began back in 2001 when CMS announced in a policy memorandum the requirement to set aside a portion of workers’ compensation settlements allocated to future Medicare covered expenses[2]. Accordingly, the MSP enforcement only took place in the context of workers’ compensation matters. The practical implication of this memorandum was the advent of the Medicare set aside. In 2007, Section 111 Reporting Requirements (part of the Medicare, Medicaid, and SCHIP Extension Act (MMSEA)) added a mechanism for CMS to track Medicare beneficiaries who receive liability, workers’ compensation or no-fault liability settlements, judgements or awards[3]. This Section 111 Reporting Requirement gave CMS further ammunition to track compensable ICD codes related to the liability case.

There has been little to no enforcement of MSP in the context of liability settlements up until now. In most instances, Medicare has continued to process medical claims as if there never were a recovery made for future medical care. On very rare occasions, they would deny medial claims submitted by providers.  This latest commentary indicates an imminent change in the near future in regards to enforcement of the MSP. CMS is subtly sending the message that LMSAs are going to be a necessary mechanism in order to avoid denial of medical claims post-resolution. They are also suggesting there will be certain cases where LMSAs will not be necessary; although, this latest alert did not specify these circumstances.

Take Away for Plaintiff Attorneys

This alert is latest evidence to support that CMS is continuing its pursuit in establishing formal guidelines for liability MSAs. CMS started the regulatory process for liability set asides with the Advanced Notice of Proposed Rulemaking (ANPRM) proposal in May 2012.  However in October 2014, CMS withdrew its Notice of Proposed Rulemaking (NPRM) for protecting Medicare’s interests with respect to future medicals. Until CMS provides formal guidance on these issues to plaintiff attorneys, Synergy will continue to advocate for techniques that lower the MSA or completely eliminate the MSA obligation. We will also continue to monitor CMS developments on this issue and keep our clients informed to ensure MSP compliance for the Plaintiff community.

Synergy will be releasing a White Paper on the Current Status of Liability MSAs and Best Practices in the very near future. In the interim, here is a link to Synergy’s CEO, Jason Lazarus’s White Paper, Debunking the MSA Mystery. This paper provides a thorough overview on LMSAs and MSP compliance.

https://partnerwithsynergy.com/wp-content/uploads/2016/03/Debunking_The_MSA_Mystery_white_paper.pdf

[1] The MSP is a series of statutory provisions enacted in 1981 as part of the Omnibus Reconciliation Act 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. CFR Title 42, Part 411, Subpart B, Section 411.20 (2) provides “[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.

 

[2] Parashar B. Patel, Medicare Secondary Payer Statute: Medicare Set-Aside Arrangements, Centers for Medicare and Medicaid Services Memorandum, July 23, 2001

 

[3] https://www.cms.gov/medicare/coordination-of-benefits-and-recovery/mandatory-insurer-reporting-for-non-group-health-plans/overview.html

 

Liability MSAs: A Disconnect Between the Plaintiff’s Bar and Insurance Industry

B. Josh Pettingill, MBA, MS, MSCC

In the absence of formal guidance from Centers for Medicare and Medicaid Services (CMS), the plaintiff’s bar and the insurance industry have not agreed upon the appropriate way to protect Medicare’s interests when resolving a liability case that funds future medical needs. This brief article will explain this disconnect between the settling parties on liability claims as well as provide some recommendations to bridging the gap between the parties to ensure practical compliance with the Medicare Secondary Payer law (MSP).

Identification of Problems

Problem (1) The carriers are experienced in the area of Worker’s Compensation Medicare set asides (WCMSAs).

Since 2001, insurance companies have been using Worker’s Compensation Medicare Set Aside agreements (WCMSA) as a tool to resolve cases involving a Medicare beneficiary with a future medical component[1]. Trying to use a WCMSA in a liability claim is like putting a square peg in a round hole.  There is a fundamental difference between worker’s compensation claims and liability claims. The primary issue with WCMSA’s is they fully fund future Medicare allowable expenses related to an industrial accident since the carrier is liable for all future medical costs. Whereas, most liability cases resolve for a compromised amount due to issues such as pre-existing conditions, liability, causation, caps on damages and limited coverage. The common result in liability settlements involving Medicare beneficiaries is a disagreement between the parties as to what should be done for MSP compliance once the liability claim resolves, as well as how much, if any, of the settlement proceeds should be set aside. This disagreement causes delays in the settlement and ends up costing all parties involved.

As a recent example, Synergy was retained to review a Liability Medicare Set Aside (LMSA) prepared by the insurance carrier and provide guidance on the appropriate action for protecting Medicare’s future interests. The carrier insisted as part of the settlement, that the plaintiff fully fund a Medicare set aside in the amount of $110,000, which would have represented nearly 75% of the net recovery. This LMSA stipulation was not made not until after the mediation agreement had been signed. After reviewing all of the facts of the case, Synergy recommended $23,500 be set aside based on the appropriate reduction formula.

The settlement was delayed for over six months until the plaintiff attorney filed a motion for a special hearing to enforce the settlement and left the court to decide what the appropriate amount was that adequately considered Medicare’s interests. There were unnecessary and increased litigation expenses, as well as the resolution was delayed for nearly a full year. The judge ultimately approved the apportioned MSA amount based on a reduction formula similar to equitable distribution. Synergy has been involved in numerous cases where the LMSA issue had to ultimately be decided by

the courts when the parties were able to resolve their differences on protecting Medicare’s future interests. Getting court approval of an LMSA is not the norm and it should not become the norm. Instead, it should be the last resort for settling disagreements on MSP compliance.

At present, CMS does not have a formal process to review and approve liability MSAs as they do in workers’ compensation cases. CMS review of proposed LMSAs is determined on a case-by-case basis by the appropriate regional office. For example, both the California and Atlanta Regional offices routinely refuse to review LMSAs submitted for formal approval. In years’ past, Medicare would respond with a letter saying, “due to resource constraints, CMS is not providing a review of this proposed liability Medicare set aside arrangement.” This form letter would go on to say “this does not constitute a release or a safe harbor from any obligations under any Federal law, including the MSP statute.” (Emphasis added). In bold print the letter would warn, “All parties must ensure that Medicare is secondary to any other entity responsible for payment of medical items and services related to the liability settlement, judgment or award.” Currently, most regional offices have discontinued sending response letters to LMSAs. They simply will not bother to respond at all. Nevertheless, CMS does expect the funds to be set aside and spent on Medicare covered services before Medicare is ever billed, regardless of whether the MSA is reviewed/approved by CMS.

Problem (2) The carriers are writing the checks to resolve the liability claims.

The insurance carriers are paying to resolve the liability cases, which oftentimes gives them leverage to dictate the terms of the settlement. The plaintiff attorneys want the injury victims to get the settlement funds as quickly as possible so their client’s quality of life can be improved as they transition from litigation to life. They also have their attorney fees and need to recoup the costly litigation expenses of the case. As such, some plaintiff attorneys may be more likely to agree to Medicare secondary payer release provisions in an effort to expedite the exchange of settlement funds. These MSP provisions demanded by the defendants often are inaccurate, may not be applicable or may restrict the plaintiff in terms of future benefits. In many instances, the plaintiffs are not yet eligible for Medicare benefits, nor may they ever be entitled to receive Medicare benefits which makes it inappropriate to include any MSP language at all in the release.

Synergy was recently retained by a Minnesota law firm on a catastrophic multi-million dollar case. The insurance carrier refused to send the settlement checks until the plaintiff agreed to carve out monies for future medicals into a separate trust account. The plaintiff had not yet applied for Social Security disability benefits at the time of settlement; as such, she was not even eligible for Medicare benefits. However, the plaintiff agreed to set aside stipulation so the case could resolve without further delay or litigation expenses.

In another case, the insurance carrier insisted the plaintiff not only establish an MSA, but also submit the MSA to the Centers for Medicare and Medicaid Services (CMS) for review and approval. The insurance carrier attempted to build these terms into the mediation agreement. This client was receiving Medicaid benefits but was never going to be eligible for Medicare since she had not earned enough working credits to qualify. These are just but a few of many examples where a liability insurer attempted to impose MSP compliance terms to a settlement that were not applicable to the claim.

Problem (3) There is a tremendous amount of misinformation in the marketplace about Liability MSAs.

Some insurance carriers are convinced that failure to address Medicare’s future interests on liability case exposes them to future liability if not properly addressed. There is a small contingent of MSA vendors who have convinced the insurance industry that if you do not do an MSA when resolving a liability claim, then CMS can levy serious fines, penalties, or bring legal action against them.  The most common argument by these MSA vendors is that CMS can impose a lien post-settlement; therefore, retroactively exposing the carrier for not properly extinguishing all the liens. This argument is completely without merit. Since there are no regulations or statutes empowering Medicare to take any punitive action at all against a carrier for LMSAs, insurance carriers should be more concerned with conditional payments and reporting requirements.

On the other side of the spectrum, many plaintiff attorneys believe that they do not need to do anything with respect to protecting Medicare’s future interests. The plaintiff’s bar rightfully takes the position that one never has to do an MSA. While there is currently no regulation or law that mandates a liability Medicare set aside, it does not mean there will be no consequences when a plaintiff attempts to shift the burden to Medicare for future injury-related care.  It is very clear from Medicare’s public statements that the agency believes that set-asides are the best method to protect the program from paying for injury-related care when future medicals are funded by a settlement[2].  That does not mean it is the only way to demonstrate that Medicare’s interests were taken into account when a case involving a Medicare beneficiary is settled, it simply means it is one way.

The real issue, when a case involving a Medicare beneficiary is settled, boils down to the risk taken by the plaintiff in terms of coverage of their future injury-related care by Medicare.  This is not a defense issue; it is a plaintiff issue.  The plaintiff, if he/she does nothing without legal justification, could face a situation where Medicare denies future injury-related care since nothing was set aside.  The plaintiff needs to understand this risk before settling their case.  Since the settlement will be reported to Medicare under the Mandatory Insurer Reporting laws (Section 111 reporting), Medicare will be on notice of the settlement and the injury related ICD codes.  That could trigger a denial of care and a lengthy internal appeals process before Medicare payments for accident related care might have to be reinstated by a Federal District Court. This author has seen on numerous occasions where Medicare has denied accident related care for a plaintiff post-resolution of a liability claim when improper or no action was taken to protect Medicare’s future interests. Given the current interworking of Medicare, the risk for denial of benefits is extremely low but it still is a very real risk nonetheless.

Action Steps

CMS has stated the MSA issue is the plaintiff’s responsibility and the role of the defendant is to report current Medicare beneficiaries under Section 111 reporting[3]. The reality is that the defendant has no exposure for failure to address the MSA issue. However, plaintiff’s counsel has legal malpractice risks if they fail to properly advise the client regarding the set aside issue when they are currently eligible to receive Medicare beneficiary benefits.  Therefore, it is incumbent upon plaintiff counsel to consult with experts about proper Medicare compliance techniques, educate the plaintiff on the issues surrounding the MSP and then document what they have done to comply with the MSP.

Conclusion

Protecting Medicare’s interests on liability settlements should be a collaborative process for all parties involved. There needs to be greater education amongst the plaintiff and defense about the real potential implications of failing to adequately consider Medicare’s future interests. The parties must openly communicate to determine proper Section 111 reporting data, the Medicare eligibility status of the plaintiff, as well as MSP release language. They must also be proactive regarding the potential for a LMSA: what party is going to handle, and how much, if any, is going to be set aside, based on all of the facts of the case. There are numerous ways to deal with Medicare secondary payer compliance without having to do a Medicare set aside to ensure all parties are protected.

The lack of proper MSP compliance education and miseducation are the reasons for the great divide between the plaintiff’s bar and the insurance industry. Currently, there is no “one size fits all” approach to addressing LMSAs. All parties must make their best effort to protect Medicare’s interests. Section 111 Reporting has given CMS the ability to track current Medicare beneficiaries settling claims but the reality is CMS handles every liability case differently. Synergy has had clients recover millions of dollars and Medicare continues to pay for their accident related care. In other cases, we have seen plaintiffs get Medicare benefits for accident related care denied on cases settling for less than $50k. Some have even had their benefits denied as late as two years post-settlement. Synergy will continue to assist with techniques that lower the MSA or results in a zero amount set aside, while still ensuring our clients are properly protected.

Until CMS provides formal guidance on LMSAs, the plaintiff’s bar and the insurance carriers must consult with competent MSP compliance experts such as our team at Synergy, advise their respective clients on what the potential implications are for not properly taking into account Medicare’s interests, and document the file as to what was done, or what was not done as far as protecting Medicare’s interests.

[1] Parashar B. Patel, Medicare Secondary Payer Statute: Medicare Set-Aside Arrangements, Centers for Medicare and Medicaid Services Memorandum, July 23, 2001.

[2]  Sally Stalcup, MSP Regional Coordinator (May 2011 Handout). See also, Charlotte Benson, Medicare Secondary Payer – Liability Insurance (Including Self-Insurance) Settlements, Judgments, Awards, or Other Payments and Future Medicals – INFORMATION, Centers for Medicare and Medicaid Services Memorandum, September 29, 2011.

[3] Stalcup CMS Handout

Supreme Court Rejects Change in Lien Res. Outsourcing

After nearly five years, on October 6, 2016, the Florida Supreme Court issued Opinion SC16-104 and declined to make any change to the existing Rules Regulating the Florida Bar in relation to lien resolution outsourcing. As Florida’s trial attorneys know, the issue of whether there was a need for a change in the existing rules has festered in the Florida Bar Association for years. The issue was raised by a lawyer who requested that the Florida Bar address a reverse contingency fee on the reduction of hospital liens. From there, the Florida Bar has tried to craft a rule regarding outsourcing which ultimately has been rejected by the Florida Supreme Court several times.

The Florida Bar Association had created a proposed rule to address a concern that outsourcing lien resolution services could further reduce an injury victim’s net recovery. In responding to that concern, the Supreme Court used dicta in Opinion SC16-104 to remind counsel that addressing repayment obligations is part of the representation that is expected during the underlying personal injury action. The Court said:

On balance, we wish to reemphasize that lawyers representing clients in personal injury, wrongful death, or other cases where there is a contingent fee should, as part of the representation, also represent those clients in resolving medical liens and subrogation claims related to the underlying case. This should be done at no additional charge to the client beyond the maximum contingency fee, even if the attorney outsources this work to another attorney or non-attorney.

The Court goes on to say in dicta that:

If the circumstances of a particular case are such that the fee generated under the contingency fee agreement is expected to be insufficient for the work of resolving any outstanding lien, the attorney and client can seek leave of court pursuant to rule 4-1.5(f)(4)(B)(ii) of the Rules Regulating the Florida Bar to obtain an increased fee appropriate for the circumstances of the specific case.

It is unfortunate that the Court’s dicta is focused on the financial circumstances of the trial attorney rather than on what is most beneficial to the injury victim. In their proposal for a change even the Florida Bar Association acknowledged that in order to “maximize the client’s net recovery,” it may be that the “client’s best interest [are] served by having the lien and subrogation matters resolved by another with significant experience in the field.”[1] Synergy Lien Resolution Services (SLRS) was founded on that principle and has always operated under policies/ procedures designed to maximize the plaintiff’s net recovery. Additionally, the backbone principle of SLRS’s industry leading fee structure is based upon our ability to demonstrate a quantifiable value add to the injury victim’s net recovery.

Understandably the disconnect between the issue presented by the Florida Bar, and the dicta from the Court has left many Florida trial attorneys confused. Thus, it is important to remember that the Court refused to make a rule change so as before this ruling trial counsel must make reasonable efforts to identify any lien, advise the client of the potential lien, and make reasonable efforts to resolve the matter. Should trial counsel believe it would be in the plaintiff’s best interest to engage an expert, then outsourcing to SLRS for an additional fee is ethically authorized.[2] If there is a concern regarding whether the fees to reduce the lien may be passed along to the client, SLRS will assist with getting an order from the court with jurisdiction to approve all fees in conformance with 1.5(f)(4)(B)(ii).

SLRS processes are designed to assist Florida attorneys in compliance with the existing rules. SLRS can provide lien resolution outsourcing language which can be incorporated into retainer agreements. Additionally, upon engagement, SLRS will provide the required separate written informed consent. This separate informed consent has been required by the American Bar Association since 2008 and is contained in all SLRS intake packages. Finally, as discussed above, SLRS will assist trial counsel in obtaining court approval of the lien resolution fee. SLRS regularly assists counsel (specifically guardians of our minor and catastrophically injured clients) in obtaining court approval of our “savings” based fees, wherein we are regularly complimented by the court for the reasonableness of our fees.

In the end, each Florida attorney will have to decide what they believe the best course of action is given all of the foregoing. SLRS stands ready to assist in any way we can.

[1] Rule 4-1.5(f)(4)(E) Comments

[2] IN RE: Amendments to Rule Regulating the Florida Bar 4-1.5-Fees and Costs for Legal Services.

Florida Sup. Ct. No. SC16-104

Medicare Reduces Reporting Threshold from $1,000 to $750

Medicare has reduced the threshold for when a physical trauma-based liability settlement is large enough that the beneficiary needs to report it and repay conditional payments. On November 15, 2016, the Centers for Medicare & Medicaid Services (“CMS”) issued an alert which decreased the current reporting threshold from $1,000 to $750. The threshold decrease is a result of the mandatory annual review required by Section 202 of the Strengthening Medicare and Repaying Tax Payers Act of 2012 (“SMART Act”) to determine at what level do the costs related to collecting data and determining the amount of Medicare’s recovery claim outweigh the benefits of recovering the conditional payments.

The new threshold is effective as of January 01, 2017 for cases where a recovery demand has not yet been issued. It is important to note this threshold does not apply to settlements for alleged ingestion, implantation, or exposure cases. This means that physical trauma-based liability settlements of $750 or less do not need to be reported, nor will the beneficiary need to repay Medicare’s conditional payments.

CMS determined the average cost of collection for Non-Group Health Plan (NGHP) cases is $368.75 per case. NGHP cases are: liability insurance (including self-insured liability), no-fault insurance, and workers’ compensation. To arrive at a threshold, CMS compared the average cost of collection per case to the average liability insurance demand amount per settlement range. Among liability insurance cases, the average cost of collection most closely aligns with settlements of $750 and below, which have an average final demand amount of $384.25.

Among workers’ compensation and no-fault insurance cases, the settlement ranges of $750 and less result in average demand amounts of $510.03 and $573.27 respectively. These ranges most closely align with the average cost of collection per case. Based on these findings, CMS revised their reporting thresholds.

The SMART Act was designed to save Medicare money. Part of the expected savings is to come from an annual review meant to ensure that the federal government does not spend more money pursuing a reimbursement amount than the cost of that recovery effort.  The wise personal injury attorney can co-op this purpose and save his clients who receive de minimis recoveries from the hassle of dealing with the Medicare conditional payment issue.

The alert is available on the CMS website by click here.

Damages “shall” be in an amount double… Medicare Advantage Plans

On Monday, August 8th, the 11th Circuit affirmed the decision of the Southern District of Florida to award a Humana Medicare Advantage plan double damages when they were not repaid at the conclusion of a personal injury action. In Humana Medical Plan, Inc. v. Western Heritage Ins. Co., No. 15-11436 (11th Cir. Aug. 8, 2016) the 11th Circuit found that Humana’s claim against Western Heritage, the liability carrier in a personal injury action, for double the amount of benefits it provided to the plaintiff was proper. In fact, the 11th Circuit stated that Humana was entitled to summary judgment as to such a claim. Though, this decision by the 11th Circuit involves the complex cross-referencing of different sections of the Medicare Secondary Payer Act (MSP), the facts are ones trial attorneys are confronted with on a daily basis.

In June, 2009 the plaintiff sued a condominium association in state court for damages arising out of a slip-and-fall accident. In resolving the underlying personal injury action plaintiff’s counsel confirmed there were no outstanding Medicare liens as evidenced by a letter from The Center for Medicare and Medicaid Services (“CMS”) dated December 3, 2009. Near the conclusion of the underlying personal injury action it was discovered that the plaintiff’s medical benefits were provided by a Humana Medicare Advantage plan, which paid $19,155.41 in medical benefits related to the slip-and-fall.

Eventually Western Heritage, the third party liability carrier, learned of Humana’s Medicare Advantage lien and attempted to include Humana as a payee on the settlement draft. The state court judge ordered full payment to the plaintiff without including any lien holder on the settlement check. The judge simultaneously ordered plaintiff’s counsel to hold sufficient funds in a trust account to be used to resolve all medical liens. The plaintiff attempted to resolve the Humana claim, but while Humana and the plaintiff remained in ongoing litigation Humana filed an action against Western Heritage seeking double damages pursuant to 42 U.S.C. § 1395y(b)(3)(A).

In affirming the Sothern District of Florida’s opinion, the 11th Circuit found that the Medicare Secondary Payer Act’s (MSP) private cause of action extends to Medicare Advantage plans. The MSP provides:

“there is established a private cause of action for damages (which shall be in an amount double the amount otherwise provided) in the case of a primary plan which fails to provide for primary payment (or appropriate reimbursement) in accordance with paragraphs (1) and (2)(A).” 42 U.S.C. § 1395y(b)(3)(A)(emphasis added)

The 11th Circuit, in agreeing with the 3rd Circuit, found that 42 C.F.R. §422.108(f) extends the private cause of action to Medicare Advantage Plans (Medicare Advantage Organizations “MAO”s).

“The district court concurred with the Third Circuit’s analysis of the MSP private cause of action and held that ‘[t]he statutory text of the MSP Act clearly indicates that MAOs are included within the purview of parties who may bring a private cause of action.’  We agree.”

Id.

What should be especially upsetting for the trial bar is that the 11th Circuit performed this analysis specifically regarding 42 C.F.R. §411.24(g).

“CMS has a right of action to recover its payments from any entity, including a beneficiary, provider, supplier, physician, attorney, State agency or private insurer that has received a primary payment.”

42 C.F.R. §411.24(g) (emphasis added) See Also, United States v. Weinberg, 2002 U.S. Dist. LEXIS 12289 (E.E. Pa. July 1, 2002); United States v. Harris, 2009 U.S. Dist. LEXIS 23956 (N.D. W. Va. March 26, 2009) affirmed, 334 F. App’x 569 (4th Cir. 2009); Denekas v. Shalala, 943 F. Supp. 1073 (S.D. Iowa 1996).

The reality of this exposure struck home in a recent case of national attention in which a Humana Medicare Advantage plan utilized these statutes and regulations to file suit against the ParisBlank law firm, one of the most respected firms in the Commonwealth. As both the ParisBlank law firm and Western Heritage discovered, Humana is aggressively using these statutes and regulations. Humana’s mantra, proven successful to date, has been “damages shall be in an amount double.” Despite the fact that Western Heritage placed the full amount of Humana’s claim in trust ($19,155.41) during litigation, Humana demanded the damages be doubled. The 11th Circuit found that placing the funds in trust was not the required “appropriate reimbursement” and thus Humana’s intractability was rewarded. In supporting Humana, the court drew a harsh bright line stating:

“If a beneficiary or other party fails to reimburse Medicare within 60 days of receiving primary payment, the primary plan ‘must reimburse Medicare even though it has already reimbursed the beneficiary or other party.” 42 C.F.R. § 411.24(i)(1).

Id.

If the MAO is not repaid within sixty days, regardless of ongoing negotiations, they shall collect double damages.

“Finally, we agree with the district court that double damages are required by statute. Unlike the Government’s cause of action, the private cause of action uses the mandatory language “shall” to describe the damages amount.  Compare 42 U.S.C. § 1395y(b)(2)(B)(iii) (“The United States may . . . collect double damages  . . . .” (emphasis added)) with 42 U.S.C.  § 1395y(b)(3)(A)  (Damages “shall be in an amount double the amount otherwise provided.” (emphasis    added)); see also Baxter Jnt’l, Inc. , 345 F.3d at 905.

Therefore, the district court correctly ordered Western to reimburse Humana $38,310.82, double the amount to which Humana was otherwise entitled.

As an expert witness in the ParisBlank suit, Synergy’s Director of Lien Resolution Services, Dave Place, testified that one factor that  makes this clear trend of the Circuits unsettling is that Medicare Advantage plans are not required to follow any of the reporting or disclosure obligations that exist for traditional fee-for-service Medicare (A&B). There is no “portal” to check, or central repository of information from which a trial attorney could obtain some level of certainty that any potential repayment obligation is satisfied. In both the Western Heritage case and the ParisBlank matter, the parties involved had confirmation from CMS that Medicare had no interest. Understandable confusion followed when Humana asserted repayment rights at the conclusion of both personal injury cases. Yet, despite this confusion, which is clearly a result of the lack of corresponding, reporting, and disclosure requirements for MAOs, in both cases there was a demand for double damages as penalty.

Making it even more difficult and confusing for the trial attorney is that neither CMS nor BCRC provide any assistance. If a trial attorney reports a case to BCRC and the plaintiff is actually on a Medicare Advantage Plan neither CMS nor BCRC will inform the trial attorney. The burden is on the trial attorney to discover and satisfy these Medicare Advantage repayment obligations or potentially be forced to pay double themselves.

A few best practices:

  • Get all insurance cards from your client or their personal representative – Clients on Medicare Advantage plans often refer to their coverage as Medicare.
  • Confirm effective dates of coverage – Clients can switch back and forth from Medicare A&B to a MAO and back each year.
  • Potentially a repayment obligation to both CMS and a MAO may exist in the same case for the same accident, so you must check for both.
  • If you are expecting a large conditional payment amount to return from CMS and it is small or zero this should be a red flag that potentially an MAO is paying.
  • Review billing statements from hospitals and providers to determine if an MAO is making payment.
  • Consult an expert.

Another likely result of this case is that the trial attorney should now expect the same treatment of Medicare Advantage claims by defense counsel as is now the case with Medicare A&B. Defense counsel may demand written confirmation that any purported Medicare Advantage lien has been satisfied, and may be reluctant to disburse funds to the plaintiff with only the expectation that the plaintiff will satisfy this obligation.

Synergy will continue to actively protect injury victims and the attorneys who represent them. If you are having an issue like ParisBlank, give us a call and speak to an expert (877) 242-0022.

 

 

 

 

A Primer on Medicare Set Aside Self-Administration

By B. Josh Pettingill, MBA, MS, MSCC

Synergy receives numerous calls every week regarding what is required to properly self-administer an MSA.  The purpose of this article is to provide some guidance to attorneys regarding self-administered Medicare set aside (MSA) accounts. In administering MSAs, funds may only be used to pay for future Medicare covered, injury related medical expenses of the plaintiff. The Center for Medicare and Medicaid Services’ (CMS) guidelines indicate that the set aside funds should be placed in an interest-bearing account and may be either professionally administered or self-administered (Reference: 10/15/04, Memo Q 2).

The MSA “administration process” begins as soon as the attorney releases the settlement proceeds to the plaintiff. The plaintiff has the option of funding the MSA with a single lump sum out of the settlement proceeds or with future periodic payments using a structured settlement annuity (Ref: 7/23/2001 CMS Memo). When a set aside is funded with a lump sum, Medicare begins to pay for injury related health care as soon as the account is totally exhausted.

With an annuity funded MSA, there are two components of the set aside. The first component is the “seed money” which is used to cover the first 1-2 years’ worth of qualified medical expenses. The second component is future periodic payments from the annuity.  One year from the anniversary date of the settlement, the annuity payments will start to pay into the set aside account. When the funds are temporarily exhausted in any given year, Medicare begins paying for treatment related to the injuries. During this time of temporary exhaustion, the plaintiff will be responsible for any co-payments and deductibles.  If the funds are not all spent in a given year the remainder is carried over to the next year.  With annuity funding it functions much like a yearly insurance deductible. The MSA report should indicate the breakdown of the seed money, annuity payments and timeframe of the payments. The duration of the annuity payments are based on the life expectancy of the individual.

We recommend that attorneys issue separate checks from their trust account to fund a lump sum MSA, one for the MSA amount and one for the balance of the settlement proceeds. . The check should be written to the plaintiff with the subject referencing: John Doe Medicare set aside Account or John Doe MSA Account. To take it a step further, some attorneys actually request the defendant issue a separate check to seed or fully fund the MSA account. If the MSA is being funded with a structured settlement, the annuity will also be funded by the defendant with the seed being included in the cash paid at settlement.

Prior to releasing any settlement monies, attorneys should also have the plaintiff sign a separate document indicating they understand what their obligations are for self-administering the MSA account. Synergy offers an MSA consultation which includes a separate waiver for the plaintiff to sign indicating they understand the MSA obligations and are willing or not willing to create a set aside account. Attorneys do not have to hire an expert to advise and prepare such a document but it is the prudent way to ensure all parties are protected.

After settlement and establishing an MSA, Medicare may refuse to pay for any medical expenses related to the injury until the amount set aside for future medical expenses is properly exhausted. Consequently, there are certain steps that should be followed in administering the MSA account:

1.         Initial Set Aside Account Funding – The Medicare set aside Account will initially be funded by either a lump sum or via seed money with future annual payments from an annuity. We recommend a checking account be used to hold the funds for reasons I will explain below. It is not the responsibility of the attorney to oversee or assist in the process of establishing a self-administered MSA account. The plaintiff is responsible for opening the account. This account must be a segregated account and not comingled with any other non-MSA funds.

Note: If the MSA is being funded with an annuity, then a direct deposit form should be completed and sent back to the life insurance company issuing the annuity. This will ensure the annuity payments go directly to the MSA account and are not mailed directly to the plaintiff.

2.         Set aside Account – The Medicare set aside funds must be placed in an interest-bearing account checking or savings account. All interest earned on the Medicare set aside account has to be used solely for medical expenses from the accicdent/incident that would otherwise be covered by Medicare.

3.         Distribution of the set aside Account Funds – The funds in the Medicare set aside account must be used solely for legitimate medical expenses incurred for those medical needs related to or resulting from the injuries suffered, which would otherwise be reimbursable or paid for by Medicare. Funds in the Medicare set aside Account may not be used to pay for non-Medicare covered medical services. For a list of services not covered by Medicare, a copy of the booklet, “Medicare & You” can be obtained from the local Social Security office or by using the following link: http://www.medicare.gov/medicare-andyou/medicare-and-you.html.

The best gauge for determining what is covered by Medicare is the Medicare set aside analysis that was completed by the independent company or MSA specialist. If there are any questions concerning what Medicare covers, the plaintiff can also call l-800-MEDICARE.

The plaintiff may also use the MSA account to pay for the following costs that are directly related to the MSA account: document copying charges, mailing fees/postage fees, any banking fees related to the account and income tax on interest income from the set aside account (Ref: WCMA Reference Guide 2013).

4.         Reimbursement to Medicare – In the event CMS determines that Medicare has paid benefits prior to the depletion of funds in the Medicare set aside account, CMS, or its designated fiscal intermediary or carrier, shall have the right to seek and receive reimbursement of any such conditional payments or overpayments from the Medicare set aside Account to the extent that there are funds remaining in the account at that time. This situation can potentially arise if the medical providers bill Medicare for treatment related to the accident after the case has resolved but prior to the settlement funds being dispersed.

5.         Accounting Records – The administrator must maintain accurate records of the distributions and expenditures from the Medicare set aside account. The records should indicate the date of service, the diagnosis, the service received, who received payment and the date of the payment. The plaintiff may also want to keep a receipt or other evidence of each and every payment made from the Medicare set aside Account.  Using a debit card from a segregated account is an easy way to keep accurate accounting.  Anytime the injury victim goes to treat with a provider, they simply use the debit card to pay for the qualified medical expense. If the account balance ever gets down to zero, all they need to do is print out and mail the bank statement to Medicare with their receipts.

6.         Annual & Final Accountings – The plaintiff shall submit a final accounting ledger within 60 days of the MSA funds being depleted. The annual and final accounting will include evidence of every payment made from the Medicare set aside account. For liability MSAs, the accounting only has to be done upon the account balance reaching zero. In worker’s compensation cases, there are annual reporting requirements. The purpose of these account filings is for Medicare to confirm the MSA funds have been spent appropriately.

Once an MSA account has been completely exhausted and assuming the funds have been spent properly, the plaintiff has met their obligation to protect Medicare’s interests. They can then start to submit bills to Medicare again. At that time, the plaintiff should send a final attestation to Medicare as proof the funds were spent appropriately. The current address for sending final accounting on MSA accounts is:

Medicare Secondary Payer Recovery Contractor

Attention: MSP-Medicare Set Aside Reconciliation (NGHP)

P.O. Box 138832

Oklahoma City, OK   73113

7.         Delivery of Notices & Accountings – For worker’s compensation cases, the annual self-attestation should continue through depletion of the account. It is important that the administrator understands and complies with this requirement. The self-attestation letter must be signed and forwarded to CMS’ Medicare contractor no later than 30 days after the end of each year (beginning one year from establishment of the MSA account).

8.         Distributions Following Death of Beneficiary – In the event that the beneficiary dies before the funds in the Medicare set aside account are depleted, the MSA account should remain open for 180 days from the date of death to enable any outstanding bills for medical expenses incurred as a result of the incident that would otherwise be covered by Medicare to be paid. After the 180 days has elapsed, any funds remaining in the Medicare set aside account are payable to the claimant’s estate or proper payment subject to the appropriate State probate laws.

9.         Misappropriated Set Aside Account Funds – If the final accounting reveals that funds in the account were used to pay for items other than qualified medical expenses related to the accident, CMS may withhold Medicare coverage until the misappropriated amount is replenished and spent on injury related Medicare covered services. For example, if the plaintiff purchased a hot tub with funds from their MSA account, they would have to replenish their account with an amount equal to what was improperly used and then spend that money on injury related Medicare services before Medicare would cover future injury related treatment.

10.       Billing Rates – The MSA allocation is either prepared based on the usual and customary fee schedule or on the state’s worker’s compensation fee schedule, depending on the type of case. In the real world, doctors have the freedom to charge whatever rates they desire. It is important that the plaintiff attempt to negotiate with their providers for the lowest possible cost. This is easier said than done. With an MSA, the plaintiff essentially becomes a private payer for all Medicare covered treatment related to the accident until exhaustion. The MSA will not enjoy paying Medicare rates.

It should be noted that all of the above referenced guidelines come directly from the CMS memorandums relevant to worker’s compensation cases. Another helpful tool for administering MSA accounts is the, Worker’s Compensation Guidebook. To view the guide, use the following link:

http://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/Workers-Compensation-Medicare-Set-Aside-Arrangements/Downloads/March-29-2013-WCMSA-Reference-Guide-Version-13-copy.pdf

For liability cases, CMS has yet to issue a memorandum with guidelines for the administration of Liability MSA’s. Although it is perfectly “legal” for the plaintiff to self‐administer a liability MSA account, it can be a daunting task and create huge liability. If the plaintiff elects to self‐administer their account, they must have both the financial and medical administrative competency to do so. There are no “Medicare set aside police” monitoring set asides but if the MSA is improperly administered; it can lead to a loss of coverage for injury related Medicare covered services.

Attorneys should explain to their injury victim clients the intricacies of self-administration and let them make an informed decision before opting to self-administer. Professional administration is the recommended method to ensure full compliance with Medicare Secondary Payer requirements and to eliminate any possibility of the plaintiff ever losing their Medicare coverage. There is an additional cost for professional administration but with that cost, comes the peace of mind that Medicare coverage will not be jeopardized.

Synergy offers a Medicare set aside administration program through the use of a formal trust agreement with a corporate trustee and a separate professional Medicare set aside administrator. With a Medicare set aside Trust, the plaintiff has a professional trustee that has a fiduciary duty paired with a set aside Administrator, who handles managing the set aside funds and reporting to CMS. Administrative fees/expenses for administration of the MSA and/or attorney costs specifically associated with establishing the MSA cannot be charged to the set aside arrangement (Ref: 5/7/04 Memo).  Therefore, the professional administration costs must be paid for by the injury victim.

For all of your Medicare secondary payer compliance needs, please visit us at www.synergymsa.com or call us at (877) 242-0022.

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By B. Josh Pettingill, MBA, MS, MSCC

Plaintiff attorneys should go on the offensive in regards to any Medicare set aside (MSA) issue that may arise in a personal injury case involving a current Medicare beneficiary. According to the May 25, 2011 CMS policy memorandum issued from the Dallas regional office, an MSA is never required by any law or statute; however, it is the preferred method for protecting Medicare’s future interests when settling cases involving a Medicare beneficiary. (more…)

Is an Attorney Personally Liable to Repay Humana for Part C (Advantage plan) lien?

This case has gained national attention amongst the trial bar for its far reaching implications. Synergy is on the forefront of protecting plaintiffs and the plaintiff’s bar which is why we feel so strongly about how the court in this case simply got it all wrong. (more…)