MEDICARE COMPLIANCE
Welcome to Synergy’s blog page dedicated to the topic of Medicare compliance. Our team of Medicare experts share their InSights and knowledge on the latest developments and best practices for law firms to stay compliant with the MSP. Stay up-to-date with the latest trends and strategies to ensure that you have the information you need to navigate the complex world of Medicare compliance. Our blogs provide practical tips and advice for ensuring that your clients receive the medical care they need while complying with Medicare’s requirements. Let our experts guide you through the intricacies of Medicare compliance and help you stay on top of the latest developments in this rapidly-evolving field.
August 11, 2022
Evelynn Passino, J.D.
For clients with public benefits, closing out their case is not as simple as issuing a check for their net recovery. If the client has Medicare or will be eligible soon, then steps must be taken to comply with the Medicare Secondary Payer (MSP) Act. If the client has means-tested benefits, such as Medicaid or Supplemental Security Income (SSI), then additional steps may be necessary to ensure their recovery and eligibility for those benefits is protected.
Means-Tested Benefits
In cases where the client has means-tested benefits, their settlement recovery may be a countable resource, which means that receipt of those funds may cause them to be ineligible for their benefits. It is important to understand that not all public benefits programs operate the same way. For example, SSI, while it is a federal program, has state-specific nuances because some states supplement SSI benefits. Programs such as Medicaid, Section 8 benefits offered by the US Department of Housing and Urban Development (HUD), and the Supplemental Nutrition Assistance Program (SNAP) are administered on a state or local level, creating variations in how these programs work. Each program has its own eligibility requirements, which can include both categorical qualifications (such as being disabled, over 65, etc.) and financial qualifications. The financial qualifications may place limitations on income, assets, or both. Generally, means-tested benefits programs will exclude certain assets from being counted, such as a home, vehicle, and personal effects. Cash is almost always a countable resource and having too much of it available will cause the client to lose his or her benefits.
It is critical to know which benefits the client has so that educated decisions can be made about how to handle the recovery. Getting copies of the client’s benefit cards and award letters is recommended. If the client no longer has their award letters, which outline what benefit the client qualified for, these can usually be requested from the office administering the benefit. Some programs, such as the Social Security Administration, offer these online.[1]
Preserving Means-Tested Benefits
If a client is in danger of having more resources than they are allowed under their government program, then there are actions they can take to protect their benefits. One option is to use the money to purchase exempt resources, like a home or vehicle, or use the money to improve those resources, such as adding accessibility features to their car or adding a wheelchair ramp to their home. They may also want to pay down debts; however, they should be careful about this where there is not a clean paper trail, such as money loaned between family members. Paying back a person in those circumstances could appear (to the government) like a gift, which will be counted as a transfer for less than fair market value and may trigger transfer penalties resulting in ineligibility.
If the client is disabled, then another option is to deposit the money in a special needs trust (SNT). An SNT, when created and administered in compliance with 42 U.S.C. § 1396p(d)(4)(a-c), is typically not a countable resource, although programs differ as to how they can be used and what they can pay for. An SNT can be funded with either first-party money (such as a personal injury recovery) or third-party money (such as inheritance or other gift). An SNT can be created for an individual and managed on their behalf by a trustee of their choosing (called a standalone trust), or a person can join a pooled trust, which is an existing trust administered by a non-profit association. Generally, pooled trusts are faster to set up and lower in cost due to them being administered by a non-profit. Standalone trusts, however, can be customized, and the client has more control in choosing their trustee. In either case, if the client is receiving Medicaid, then Medicaid has a right to be paid back from the balance of the trust when the beneficiary dies (this is known as “Medicaid payback”).
Lastly, the client always has the option to forgo their benefits but should exercise caution in doing so because some benefits are difficult to re-qualify for if the client changes their mind later. They should also be careful if intending to preserve some benefits and not others. For example, some clients are willing to lose their SSI benefits after a settlement because they expect to have cash from the recovery available but want to continue receiving Medicaid benefits. In most states, a person qualifies for Medicaid automatically once they qualify for SSI, and this is how many on Medicaid access this benefit; however, the reverse is also true, that if a person loses eligibility for SSI then they also lose Medicaid. If they lose SSI-related Medicaid, there may be another Medicaid program they can qualify for, but they should confirm this before taking action that will jeopardize their SSI benefits.
Medicare
The MSP Act (42 U.S.C. § 1395 y(6)(b)) works to preserve the Medicare trust fund by ensuring that Medicare does not pay injury-related claims when another person or entity is liable. The Centers for Medicare and Medicaid Services (CMS) does this by seeking reimbursement on injury-related claims that accrued prior to settlement and asserting that Medicare’s interests be considered for claims which can be expected in the future.
Conditional Payments
CMS is notified of an accident through Mandatory Insurer Reporting (MIR), which is required by Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007. This reporting is done by liability insurers, no-fault insurers, workers’ compensation plans and insurers, and self-insured organizations. This puts CMS on-notice so they can begin tracking injury-related claims which they will seek reimbursement for at settlement. If a conditional payment is not repaid, CMS can take action against any of the entities responsible for payment, including the plaintiff’s law firm, and can seek double damages. 42 U.S.C. § 1395y(b)(2)(B)(iii); 42 U.S.C. § 1395y(b)(3).
Future Interests
MIR includes notification to CMS when the case settles, giving Medicare notice of the injuries and ICD-10 codes applicable to the case. Medicare’s preferred method for considering its future interests is through the creation of a Medicare Set-Aside (MSA). An MSA begins with an allocation, which is a report summarizing the expected injury-related care and prescriptions that would otherwise be covered by Medicare for the remainder of the Medicare beneficiary’s life. The allocation projects the cost of such care at the usual and customary prices where the injury victim lives. In worker’s compensation cases, there is a voluntary process for CMS to review the allocation in cases where certain thresholds are met. For someone who is a Medicare beneficiary at the time of settlement, this review may occur if the settlement exceeds $25,000. If the client has a reasonable expectation of being eligible for Medicare within 30 months (such as those who have applied for Social Security Disability Insurance), then CMS will only review the MSA if the settlement amount is more than $250,000. There is currently no review process for liability and no-fault cases.[2] CMS’ expectation is that the injury victim will set aside the amount of money in the MSA allocation and use this money to pay for Medicare-covered, injury-related services and prescriptions until exhaustion. CMS will resume normal coverage when the account has been properly exhausted, even if additional injury-related care is needed after that time.
It is important to note that the MSP Act does not explicitly require that an MSA be created or how much it is to be funded.[3] CMS has provided some guidance about when an MSA is not necessary, such as when the settlement, judgment, or award does not fund future medical costs or when the injury victim’s treating physician certifies that no further injury-related treatment is needed.[4]
Medicare’s enforcement mechanism regarding future medicals is to deny claims that are injury-related if they determine the Medicare beneficiary did not consider Medicare’s interest at the time of settlement. This provides additional room to argue how much is appropriate for an MSA or if an MSA is even advisable. What makes sense for a particular client will depend on their risk tolerance. If a client is risk-averse, they will probably want to fully fund a set-aside and administer it correctly to reduce the risk that Medicare will ever deny a claim. On the other end of the spectrum, some clients choose not to fund an MSA because they are adamant about not getting further injury-related treatment or they prefer to “roll the dice” and keep billing Medicare for injury-related care until Medicare denies it. For clients who are in the middle, they may want to fund an MSA, but not in full. One option is to reduce the MSA based on the value of damages suffered relative to the settlement amount obtained.
Funding
If a client decides to fund an MSA, then they need to decide how to fund it. MSAs can be funded by lump sum or by structured settlement annuity. The annuity is often preferred because it allows the MSA to be fully funded with less money out-of-pocket. It can also create a scenario where the MSA is temporarily exhausted, in which case Medicare will resume normal coverage until the next annuity payment is deposited into the MSA. Lump sum funding makes more sense when the MSA is smaller, and an annuity would not be advantageous.
Administration
The next step is determining how to administer the MSA. This depends on the client’s capacity, willingness, and whether they have means-tested benefits. For clients with capacity and no means-tested benefits, one option is to self-administer their MSA. This means they will take the recommended amount from their settlement, place it in a separate account, and pay any Medicare-covered, injury-related bills from this account. It requires some work on the client’s part to manage the account, keep records, and report to CMS (if required).[5] For those who do not want the hassle of administering their own account, there are companies that offer professional administration. These companies take custody of the MSA funding, provide the Medicare beneficiary with a card they can show when receiving injury-related care (similar to an insurance card), and handle all payments, recordkeeping and reporting. Generally, they can also get fee discounts for their clients on various services using their networks, which help the MSA last longer. There is a fee for these services, which unfortunately cannot be paid from the MSA funds. These companies often also have self-administration assistance services at a lower cost for those who wish to self-administer, but want some help with certain aspects, or want to take advantage of the network discounts.
If the client is dual-eligible, meaning they have both Medicare and Medicaid (or other means-tested benefits), then it is important to determine whether the MSA will be a countable resource for them. In most states and under most programs, it is countable, meaning the money in that account is treated like any other cash the client has available to them; however, some programs have begun to create exemptions for counting MSAs, so it is worth exploring where your state stands on this. If the MSA will be countable, then self-administration is not an option, and the MSA should be professionally administered and held in a special needs trust.
Conclusion
When a client has public benefits, it is important to understand which benefits they have, how those programs work, and what options are available. If they want to preserve their benefits, then there are likely to be some steps they need to take to ensure no interruption in the services they receive. It is helpful to get experts involved who understand these programs and can make sure the client makes an informed decision, whatever that decision may be.
Synergy Settlement Services works with clients every day to help them understand their obligations under the Medicare Secondary Payer Act and how to preserve eligibility for their benefits. Call Synergy today at (877) 242-0022 to learn how we can help.
[1] https://www.ssa.gov/myaccount/
[2] Memorandum from Sally Stalcup, MSP Regional Coordinator, CMS, Medicare Fee for Service Branch, Division of Financial Management and Fee for Service Operations (May 25, 2011), available at https://static1.squarespace.com/static/5807a480d482e9eb1f5d9c54/t/589d81823e00bea366d73d90/1486717333702/00-CMS-Sally-Stalcup-Memo-5-25-2011.pdf.
[3] Id.
[4] Id.; Memorandum from Charlotte Benson, Acting Director, Financial Services Group, Office of Financial Management, Department of Health & Human Services, Centers for Medicare & Medicaid Services, to Consortium Administrator for Financial Management and Fee-for-Service Operations, Medicare Secondary Payer—Liability Insurance (Including Self-Insurance) Settlements, Judgments, Award, or Other Payments and Future Medicals – INFORMATION (Sep. 30, 2011), available at https://www.cms.gov/files/document/future-medicals.pdf.
[5] CMS offers a self-administration toolkit for those who wish to handle this themselves: https://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/Workers-Compensation-Medicare-Set-Aside-Arrangements/Downloads/Self-Administration-Toolkit-for-WCMSAs-Version-1_3.pdf.
July 21, 2022
Rasa Fumagalli, JD, MSCC, CMSP-F
Netflix’s new baking competition show “Is it Cake” challenges judges to identify which of two identical objects is edible and which is not. Attorneys settling cases involving work-related injuries may find themselves similarly perplexed when it comes to whether a work-related injury will be treated as a workers’ compensation or liability case for purposes of the Medicare Secondary Payer Act (“MSP”). Depending on who the employer is at the time of a work-related injury, some injured employees may be covered by programs that are required under federal law. Depending on the nature of the program, the MSP compliance obligations will either be handled as a workers’ compensation or liability settlement. For example, the Longshore and Harbor Workers’ Compensation Act (“LHWCA”) that provides benefits for work-related injuries sustained by certain maritime and dock workers is viewed as workers’ compensation insurance when it comes to MSP compliance issues. On the other hand, the Federal Employers Liability Act (“FELA”) which provides benefits for railroad employees, who sustain injuries due to the negligence of a railroad carrier, is viewed as liability insurance when it comes to MSP compliance issues. (See MSP Manual, Chapter 1, Section 10.4)
Both liability and workers’ compensation settlements are impacted by the MSP Act. The MSP is comprised of a series of statutory provisions intended to reduce federal health care costs. The MSP provides that if a primary payer exists, Medicare only pays for medical treatment relating to an injury to the extent that the primary payer does not pay. The MSP Act and supporting regulations specifically state that Medicare is precluded from making payments for services “to the extent that payment has been made or can reasonably be expected to be made promptly under any of the following (i) workers’ compensation; (ii)liability insurance; (iii) no-fault insurance. (42 U.S.C.§1395y(b)(2)(A)(ii), 42 C.F.R.§411.20 (a)(2)). A primary payer’s responsibility for payment may be demonstrated by “a judgment, payment conditioned upon the beneficiary’s compromise, waiver, or release (whether or not there is a determination or admission of liability) of payment for items or services included in a claim against the primary payer or the primary payer’s insured or by other means…” (42 C.F. R§411.22(b)). The parties first and foremost should ensure that pre-settlement injury-related payments (conditional payments) made by Medicare are reimbursed to the appropriate Medicare Trust Fund. In addition, and in light of the MSP, settlements that close out future injury-related medical benefits should avoid cost shifting the post-settlement injury-related care onto Medicare.
The MSP compliance distinction between a liability settlement and a workers compensation settlement is an important one since it may impact the way parties address post settlement injury related care. The Centers for Medicare and Medicaid Services (“CMS”) has issued a great deal of guidance when it comes to workers’ compensation settlements that close out future injury related medical. The Workers’ Compensation Medicare Set-Aside Arrangement (“WCMSA”) Reference Guide (“Guide”), Version 3.7, 6/6/2022, explains that parties should take Medicare’s interest, with respect to future medicals, into account by including a WCMSA into the settlement terms. The WCMSA should contain sufficient funds from the settlement to cover the total cost that will be incurred for future injury related Medicare covered treatment. CMS encourages parties to seek CMS approval of the proposed WCMSA when the settlement meets CMS’ internal workload review thresholds. The benefit to CMS’ review and approval of the proposed amount is the certainty in knowing that Medicare will become the primary payer for any injury-related services that exceed the properly exhausted CMS determined WCMSA. Although the Guide also states that CMS approval of a proposed WCMSA amount is not required, Section 4.3 notes that CMS may treat the use of non-CMS approved products as “a potential attempt to shift financial burden by improperly giving reasonable recognition to both medical expenses and income replacement.” Non-CMS approved products are MSA reports that are not submitted to CMS for review.
If CMS concludes that there was an improper cost shift, it may deny payment for injury-related services until it is provided with attestation of appropriate exhaustion equal to the total settlement, less procurement costs and paid conditional payments. The parties may overcome this denial by showing CMS, at the time of the WCMSA exhaustion, that both the initial funding of the MSA was appropriate and the funds were used properly.
To understand the importance of the differences between whether a work injury is treated as workers’ compensation versus liability case in the context of the MSP, consider a FELA settlement. FELA is treated as a liability settlement for purposes of the MSP due to its differences from the typical workers’ compensation case. Although a FELA settlement involves a work-related injury, the railroad employee must show that his/her injuries were, due in whole or in part, to the negligence of the railroad. This burden of proof is different than the burden of proof in a typical workers’ compensation case. In most jurisdictions, for a workers’ compensation case, a worker must only show that he suffered an accidental injury, which arose out of and in the course of his employment. There is no need to show negligence.
Once a settlement agreement is reached in a FELA case, the parties should consider the potential impact of the MSP Act on the settlement. If the railroad employee is a Medicare beneficiary at time of settlement, Medicare will be given notice of the settlement under Section 111’s Mandatory Insurer Reporting obligation. The notice of settlement may result in the potential risk of Medicare denying post-settlement injury-related care. If the railroad employee has completed his injury-related treatment and no further treatment is indicated, the beneficiary may wish to obtain a written certification from the treating physician to that effect. Pursuant to CMS’ 9/30/2011 Memo, there is no need for a liability MSA when the treating physician makes this certification.
If, however, the beneficiary continues to treat for his injuries, or will need future injury-related care, an MSA might be considered to avoid any potential issues with Medicare denying post-settlement injury-related care. While a workers’ compensation settlement will usually fully fund the WCMSA, the liability MSA may at times consider the relative value of each of the elements of damage being compensated in the settlement (pro-rata apportionment). This apportionment approach considers the ratio between the total potential case value and the net settlement. Parties may also choose to fully fund the liability MSA. The decision of how much, or how little, risk to assume when it comes to post-settlement injury-related care is one that should be made by the beneficiary and documented in the attorney’s file.
Conditional payments, payments made by Medicare for injury-related care provided prior to settlement, must also be addressed in connection with a settlement. In a workers’ compensation case, conditional payment recovery is handled by the Commercial Repayment Center (“CRC”). The CRC seeks to pursue recovery directly from the workers’ compensation insurer carrier while the case is open. Once the case settles, the conditional payment recovery will move from the CRC to the Benefits Coordination and Recovery Center (“BCRC”) since the beneficiary is now the identified debtor. Since a FELA settlement is viewed as a liability settlement, the BCRC will handle the conditional payment recovery and seek recovery from the beneficiary debtor. Payments made by a Medicare Advantage Plan (“MAP”) must also be addressed. Information regarding the MAP payments is provided by the relevant insurance carrier themselves and not the BCRC/CRC.
While one work injury case may look just like any other, your MSP compliance approach may depend on whether CMS views the case as liability or workers’ compensation. A thorough understanding of the differences and risks of various approaches is necessary in order to avoid any unexpected consequences of inaction.
Contact Synergy Settlement Services to discuss the way our MSP compliance team may assist you.
Rasa Fumagalli JD, MSCC, CMSP-F
In Penelope Stillwell v State Farm Fire and Casualty Co., et al. case (2021 WL 4427081), a plaintiff attempts to impose primary payer status on a liability insurer post-settlement via a qui tam action in federal district court. The U.S. District Court, Middle District of Florida, Tampa Division addressed in this recent decision Stillwell’s complaint under the False Claims Act (FCA) and the MSP Act, the basis of the qui tam action. The essence of the claim against the insurer, State Farm, was that “by failing either to settle for an amount exceeding the expected medical expenses or to provide in the settlement some other mechanism to pay future medical expenses, the insurers failed to discharge their primary-payer responsibility and remain primary payers for post-settlement medical expenses.” US District Judge Steven D. Merryday dismissed the Stillwell’s complaint with prejudice for a failure to state a claim under the FCA and MSP.
The underlying case involved an Indiana state court negligence action for injuries sustained by William Stillwell, a Medicare beneficiary, during a fall. Although the homeowners’ association, property management and landscaping company insurers reached a settlement agreement with the Stillwells for the lump sum of $200,000, the Stillwells refused to execute the settlement documents since the settlement didn’t include a Medicare Set-Aside to cover William’s expected future medical expenses that were estimated to be $700,000. The Indiana trial court’s determination that the settlement was enforceable, was affirmed by the Indiana Court of Appeals. The terms of the settlement agreement reflected the insurers agreement to pay Medicare’s conditional payments directly from the settlement agreement. After the settlement, CMS demanded reimbursement of $29,509.33 in conditional payments after procurement costs were deducted.
After the losses in the Indiana state courts, the Stillwells sued the insurers under the FCA arguing that the insurers failed to discharge their primary payer responsibility since the settlement was less than the estimated future medical expenses. They also argued that the insurers should remain primary payers for post-settlement medical expenses and that their failure to report this responsibility to the Centers for Medicare & Medicaid Services (CMS) caused William’s physicians to falsely bill Medicare. The defendants argued that the Stillwells became the primary payers for post-settlement care after enforcement of the settlement agreement. Challenges to the pleadings were also raised.
In considering these arguments, the District Court noted the lack of CMS rules for post-settlement futures in liability settlements when compared to the rules for workers’ compensation settlements. The District Court’s opinion went out of its way to explicitly point out that “CMS has decidedly avoided regulating private liability settlements that include a Medicare beneficiary.” It declined to impose any such obligations since establishment of such rules belongs to the legislature or executive branches.
Stillwell also argued that the insurers hid their status as primary payers from CMS since they failed to report the Total Payment Obligation to Claimant (TPOC) settlement under their Section 111 Mandatory Insurer Reporting obligation. The Court found no support for this assertion since CMS had notice of the settlement based on the resolution of the conditional payments. Similarly, Stillwell’s claim that the insurers failed to complete Section 111 reporting of an Ongoing Responsibility for Medical (ORM) post-settlement was unfounded since there is no such reporting obligation for liability insurers for post-settlement medical expenses.
The Court also considered Stillwell’s claim that a settling party must consider Medicare’s interests by selecting one of the following mechanisms: the creation of a Medicare Set-Aside, an apportionment of part of the settlement for future medical expenses, a payment of a portion of the settlement into the Medicare Trust Fund or the proposal of an alternative plan to CMS. In examining these options, the District Court noted that there was no law that required the creation of a Medicare Set-Aside to cover future medical expenses in a liability case. Since a party may use the entire settlement to pay for post-settlement Medicare covered treatment, there was also no obligation to apportion funds from the settlement. Regarding Stillwell’s claim that the settlement should have included an amount that covers expected future medical expenses, the Court noted no substantive duty to include this in a personal injury claim settlement. Under the terms of the settlement agreement, the Stillwells became primarily liable for any future injury-related medical expenses. Since the Stillwells were responsible for post-settlement medical care, the insurers had no ORM to report.
The remaining arguments in the case focused on whether Stillwell’s FCA claims sufficiently alleged causation and a conspiracy between the insurers to violate the FCA and submit false claims or statements to Medicare. The Court found the claims were insufficient and warranted dismissal. Although Stillwell prevailed on her argument that her complaint was not a shotgun pleading, her action was dismissed with prejudice for failing to state a claim.
Take Away
Since William Stillwell died before the second amended complaint under the False Claims Act (FCA) and MSP Act was submitted, his need for any ongoing post-settlement medical care was moot. Rather, it appears that Penelope Stillwell’s FCA may have been motivated by a financial incentive along with a desire to force the Court to provide guidance regarding the consideration of Medicare’s interest in post-settlement injury-related care in a liability settlement.
It is clear that the Stillwells didn’t understand that the settlement of the case would make William the primary payer for any post-settlement injury-related care. Although his estimated future medical treatment would be about $700,000, liability settlements are compromise settlements that involve many more elements of damages than those found in workers’ compensation settlement. In light of this, it would be extremely rare to have a liability settlement include the full value of the estimated future medical care or even include an apportionment in the first place.
A discussion of the MSP Act and its potential impact on a settlement is a proactive way to prevent MSP confusion. Discussing the ramifications of the MSP with injury victims prior to settlement is important to avoid issues such as this and prevent the need to be in a federal district court post-settlement.
Learn more about Synergy’s MSP Compliance Services here.
September 9, 2021
Rasa Fumagalli JD, MSCC, CMSP-F
The American Bar Association’s Model Rules of Professional Conduct provide a blueprint for attorneys to follow when representing clients. The first Rule and arguably one of the most important ones, outlines a basic expectation in the client-lawyer relationship. Rule 1.1 states: “A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness, and preparation reasonably necessary for the representation.” The Comments section of this Rule notes that competent handling of a particular matter includes “inquiry into and analysis of the factual and legal elements of the problem and use of methods and procedures meeting the standards of competent practitioners. It also includes adequate preparation.” American Bar Association (ABA), Model Rules of Professional Conduct, 2020.
An attorney’s failure to make an inquiry into conditional payments is addressed in Forbes v. Benton County Agricultural Society, No. 20-1250, 2021 WL 1907130 (Iowa Ct. App. May 12, 2021). This action came before the Court pursuant to Plaintiff’s appeal of the district court’s order granting a summary judgment to the defendant. The Court of Appeals affirmed the district court’s order finding that the settlement agreement was valid, and that Plaintiff bore the risk of the mistake that was made in the settlement.
The underlying case involved a negligence action filed by Forbes in 2019 against the Benton County Agricultural Society (hereafter Ag. Society) for his fall that occurred while leaving the fairgrounds in August of 2017. The fall resulted in a head injury that required emergency surgery. During the settlement negotiations, the defense attorney extended an initial settlement offer of $10,000.00 noting Forbes’ excellent recovery. She further advised that Forbes’ actual medical bills totaled $2,732.00, for which Tricare had a subrogation interest. She did not believe that Forbes had any out-of-pocket expenses or that medical providers had any additional charges.
Forbes’ attorney made a counteroffer of $12,500.00 to settle the case noting that he would pay the Tricare lien of $2,732.00 from the settlement. The offer was accepted by the defense attorney on the condition that the negligence action be dismissed with prejudice. She also advised that the settlement releases would include provisions requiring Forbes to “satisfy any subrogation interests and liens.” Since Medicare must be provided with information regarding any settlement with a Medicare beneficiary plaintiff, Forbes’ attorney was asked to complete an insurer information sheet for the reporting. He was also advised to request a final conditional payment demand letter from Centers for Medicare & Medicaid Services (CMS). Shortly thereafter, Forbes’ attorney returned the completed information sheet to the defense, advised that he would “get rolling on the clearance letter from CMS,” and requested that the settlement check be payable to his firm.
Defense followed up with Forbes’ attorney regarding the status of the conditional payments since their Medicare inquiry revealed that Forbes was a current Medicare beneficiary. She also advised that her client required the amount of the final conditional payment demand from CMS before the settlement check was issued. Forbes’ attorney responded several weeks later and advised that CMS had identified $25,482 in conditional payments. Since he was surprised by this amount, he assumed that the Ag. Society would rather litigate comparative fault rather than reimburse Medicare for the conditional payments.
In response to Forbes’ assumption that the Ag. Society now wished to litigate the matter, the Ag. Society amended its answer to the negligence action to include the affirmative defense of compromise and settlement. A motion for summary judgment to enforce the settlement agreement was also filed.
Forbes’ attorney objected to the enforcement of the settlement agreement arguing that the agreement was voidable based on a mutual mistake. He also argued that there was no “meeting of the minds” since the defense sought a final demand letter from CMS before the settlement check was issued. The defense countered this by claiming the mistake was unilateral and that Forbes could have investigated the conditional payments prior to making a settlement demand in the case.
The district court granted the summary judgment, finding that there had been a meeting of the minds in reaching the settlement agreement. Although the contract was based on a mistaken assumption by Forbes, the settlement agreement was binding and enforceable.
The Court of Appeals agreed with the district court after considering the facts in the light most favorable to Forbes. In considering Forbes attorney’s argument that there was no “meeting of the minds” about the conditional payment terms, the Court reviewed the various communications between the parties. It noted that Forbes’ offer to settle his case for $12,500 was accepted by the defense. The defense’s requests for additional information to ascertain Forbes’ Medicare status and for the conditional payment clearance letter were acknowledged by Forbes when he returned the information and provided the defense with instructions on where to send the settlement check. These exchanges between the parties do not show any genuine material factual dispute about the agreement that could be litigated.
The Court next considered Forbes attorney’s claim that the settlement agreement was voidable because it rested on the erroneous mutual assumption that the only lien in the case belonged to Tricare and was in the amount of $2,732.00. Although the Court agreed that a mutual mistake may allow the party adversely affected to seek an annulment of the contract, it noted the Restatement Second of Contracts § 154 outlines the exceptions to this principle. According to the Restatement, there are three situations when the adversely affected party should bear the risk of the mistake. In this case Forbes‘ attorney met two of the three exceptions. He met the “conscious ignorance” exception in that he was aware when he agreed to the settlement that he had limited knowledge about the potential Medicare payments. Despite this, he went forward with the agreement and assumed the risk of the mistake. Since he had access to his client’s medical records, he could have investigated the existence of conditional payments.
The second exception allows a court to allocate the risk of the mutual mistake to the adversely affected party. The Court found that the district court was reasonable in assigning the risk of the mistake to Forbes’ attorney since he had the opportunity and the burden to inquire about the status of the medical bill payments given the nearly two-year period between the accident and the negligence suit. The $12,500 settlement agreement was found to be binding and enforceable.
Analysis
This case serves to highlight the impact of the Medicare Secondary Payer Act on a settlement involving a Medicare beneficiary plaintiff. 42 U.S.C. § 1395 Y(b)(2)(a). An understanding of the relevant provisions and procedures related to conditional payments would have prevented the parties from negotiating on false assumptions. In this case, an inquiry into the final conditional payment amount could have been made through the Medicare Secondary Payer Recovery Portal within 120 days of settlement. The figure could have also been reviewed in advance of final settlement and disputed. Furthermore, when assessing the known liens or reimbursement claims in a case, an amount that seems artificially low given the nature of the treatment should prompt further inquiry into the existence of other liens.
It is also important to note that a conditional payment demand that exceeds the settlement amount should always be reduced by Medicare. If Medicare does not have to take legal action to recover, Medicare regulations state: “If Medicare payments equal or exceed the judgment or settlement amount, the recovery amount is the total judgment or settlement payment minus the total procurement costs.” 42 C.F.R. 411.37(d). If no procurement costs or attorney’s fees are reflected on the final settlement detail documentation provide to Medicare at the time of settlement, Medicare will not reduce the amount of their conditional payment demand. Attorneys should be aware of this should they seek to reduce or waive their fees. This case may also be one that would benefit from a financial hardship waiver or compromise request to CMS.
If MSP compliance issues fall outside of your area of expertise, Synergy’s team is here to serve your needs. We have a deep team of experts that can help make sure you close your file compliantly. Let Synergy be your guide to ensure your client is protected and your practice is safeguarded against potentially devastating government-enforced consequences or mistakes such as the one discussed in this blog post.
July 28, 2021
Rasa Fumagalli JD, MSCC, CMSP-F
Introducing “Since You Asked,” Synergy’s first in a series of columns addressing MSP compliance questions in the area of workers’ compensation.
Question:
“My client is settling her case and does not know what to do with her Workers’ Compensation Medicare Set-Aside (WCMSA) funds. I’m not quite sure what to tell her. Can you help?”
Proper administration of the WCMSA funds is vital in order to ensure that Medicare will become the primary payer once the WCMSA account is depleted. Because of this, the Centers for Medicare & Medicaid Services (CMS) highly recommends the use of a professional administrator for the funds. In addition, when the WCMSA includes opioids and other “frequently abused drugs”, CMS expects the administration of the funds to be in accordance with CMS’ Part D Drug Utilization Review (DUR) policy. (WCMSA Reference Guide, Version 3.3, 4/19/2021, Section 17 et al).
If your client would prefer to self-administer her WCMSA account, CMS allows for this as long as she is competent. When your client receives the WCMSA funds, she should deposit the funds in a separate interest-bearing checking account that is insured by the Federal Deposit Insurance Corporation (FDIC). The funds should only be used to pay for injury-related Medicare-covered services even if your client is not yet enrolled in Medicare. The funds may also be used to pay for certain costs that are directly related to the WCMSA account. These consist of costs associated with copying documents, mailing fees/postage, banking fees related to the account, and income tax on interest income from the account. The WCMSA funds may not be used to pay for the following: fees for professionals hired to administer the account, any other expenses for administration of the account, attorney costs for establishing the WCMSA, and Medicare co-payments, deductibles, or premiums.
Record keeping is an important part of the proper administration of the WCMSA. Your client should record all of the transactions with the account and keep itemized receipts for each payment that is made from the account. An annual attestation of the appropriate use of the funds should be sent to Medicare’s Benefits Coordination & Recovery Center. Once the WCMSA account is fully depleted, your client should notify the BCRC of the complete exhaustion so that Medicare may become primary. CMS has issued a helpful Self-Administration Toolkit for WCMSAs that details the self-administration process and provides sample documents and letters. The most recent version of the toolkit may be found here.
In the event that your client is also receiving a public income-based benefit, such as Medicaid, it may be appropriate to place the WCMSA in a Special Needs Trust. Synergy’s team of experts is available to guide you and your client through the administration and MSP compliance process.
July 23, 2021
Rasa Fumagalli JD, MSCC, CMSP-F
The wait for proposed rulemaking related to Medicare Secondary Payer (MSP) compliance obligations regarding future medical services in liability settlements continues. Although the Department of Health and Human Services issued their initial notification of proposed rulemaking in the fall of 2018, the target date has been moved several times and is currently set for October of 2021. However, focusing solely on the notice of proposed rules will cause a practitioner to overlook the impact of important MSP compliance changes taking place with Section 111 Mandatory Insurer Reporting obligations on settlements.
Current MSP Landscape
By way of background, the MSP Act prohibits Medicare from making payment when “payment has been made or can reasonably be expected to be made under a workmen’s compensation law or plan of the United States or a State or under an automobile or liability insurance policy or plan (Including a self-insured plan) or under no-fault insurance.” (42 U.S.C §1395 Y(b)(2)(a)). 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 appropriate 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.” (42 C.F.R §411.22).
MSP compliance has three distinct components to it that should be addressed in connection with a settlement or a judgment. The first component involves conditional payments that were made by Medicare under traditional Medicare Parts A or B plans for injury-related treatment prior to settlement. Conditional payment information is provided by the Benefits Coordination & Recovery Center (BCRC). Once a final conditional payment demand is made, it should either be disputed or paid. A failure to reimburse the Medicare Trust Fund may result in Medicare filing suit directly for double damages against any or all entities that were responsible for reimbursement of the conditional payments.42 U.S.C §1395 y(b)(2)(B)(iii); 42 U.S.C.§1395y(b)3.
As part of the first component, it is also important to be aware of liens that may be asserted by Medicare Advantage Organization plans that provide benefits under Medicare Parts C and/or D. Although these plans are administered by private insurance carriers who enter into a contract with Medicare, their recovery rights are based on the Medicare Secondary Payer Act. Plaintiffs and their representatives should reach out to the Medicare Advantage plans themselves to investigate and resolve their liens since this information is not provided by the BCRC.
The second component involves consideration of Medicare’s potential interest in the future medicals that are released in connection with the settlement. Since Medicare is prohibited from making payment when payment has been made under a liability insurance plan, no-fault insurance plan, or workers’ compensation insurance plan, any settlement that includes a component of future medical damages runs a risk of Medicare denying post-settlement injury-related treatment. One of the triggers for this risk comes from the Medicare beneficiary’s responses to the MSP admission/ outpatient encounter questionnaire that must be completed prior to a provider submitting a bill to Medicare. According to CMS’ Manual System Medicare Secondary Payer transmittal of September 15, 2020, the purpose of the questionnaire is to assist “in the proper coordination of benefits to ensure adherence to Medicare Secondary Payer (MSP) provisions as outlined in section 1862(b) of the Social Security Act.” The questions seek information about whether the treatment is for an injury or illness for which another party may be liable. If it is, the provider must obtain information regarding the accident date and the other carriers. The transmittal memo further notes that “liability insurance is the primary payer only for services related to the liability settlement, judgment, or award.” The risk of post-settlement injury-related treatment denial may be mitigated in a variety of ways depending upon the specific facts of the case and the risk tolerance of the Plaintiff. Since the risk will fall on the Plaintiff, it is prudent for plaintiff counsel to document the MSP compliance discussions in your file.
The third component of MSP compliance is the Section 111 Mandatory Insurer Reporting obligation which serves as an enforcement mechanism for the MSP. It ensures that Medicare remains a secondary payer when a Medicare beneficiary receives a settlement, judgment, award, or other payment from liability insurance, no-fault insurance, or workers’ compensation. Section 111 reporting is completed by a responsible reporting entity (RRE) for the liability insurer, no-fault insurer and workers’ compensation plans and insurers. The RRE must report to Medicare if the plan has an Ongoing Responsibility for Medical (ORM – workers compensation/ Med Pay and Personal Injury Protection (PIP) coverage) in the case and/or the Total Payment Obligation to the Claimant (TPOC – or “settlement”). The current reporting TPOC threshold for settlements involving a Medicare beneficiary is $750.00 in both liability cases involving physical trauma and workers’ compensation cases. RREs must also query the system on a regular basis to identify claimants that become eligible for Medicare benefits while the claim remains open.
Under the Section 111 reporting requirements, the RRE must provide the injury victim’s first name, last name, date of birth, gender, and Medicare Beneficiary Identifier (MBI), Social Security Number, or the last five digits. The RREs must also report ICD diagnosis codes for the alleged illnesses/injuries that are claimed and/or released in the TPOC settlement, judgment, award, or other payment. CMS “encourages RREs to supply as many valid ICD-9/ICD-10 Diagnosis Codes as possible as that will lead to more accurate coordination of benefits, including claims payments and recoveries, when applicable.” (NGHP User Guide, Chapter IV, Version 6.4, June 2021). If the RRE fails to comply with the Section 111 reporting obligations, they may face a penalty of up to $1,000 per day per claim. To date, the penalty provision has never been enforced.
Shifting MSP Landscape
There are two changes in the foreseeable future that are likely to impact the settlement process for Medicare beneficiaries. The first involves the issuance of final rules that clarify when civil monetary penalties (CMP) should be imposed for Section 111 reporting violations. The proposed rules were issued by CMS in February of 2020 followed by stakeholder comments. CMS’ proposed rules contemplate CMP of up to $1,000 for each day of noncompliance for each claim with a maximum penalty of up to $365,000 per claim per year under the following circumstances: when the RRE failed to report within one year of the coverage effective date, date of settlement or establishment of payment obligation or when the RRE provided Section 111 information that conflicts with information provided in response to MSP conditional payment recovery efforts. Smaller CMPs would be assessed on a tiered approach when the reported data was of poor quality. Since the need to formulate regulations regarding the CMPs is outlined in the SMART Act that was passed in 2012, the industry expects the final rules to be issued by the end of the year. This is prompting liability carriers and their RREs to conduct a review of their reporting processes. This enhanced scrutiny is trickling down to settlement terms that contain a slew of overly broad ICD diagnosis codes that will have a negative impact on the Plaintiff once the case settles.
The second change involves the Provide Accurate Information Directly (PAID) Act that was signed into law in December of 2020 and must be implemented by December 11, 2021. The PAID Act requires Medicare to provide liability insurers, no-fault insurers and workers’ compensation plans and insurers with information regarding the Medicare Part C and Part D plans that provided coverage to the Medicare beneficiary injury victim. The RRE’s Section 111 queries will provide the Medicare Part C and D plans contract number, name, plan benefit package number, and plan address. It will also provide the effective dates for the previous three years. CMS issued a Technical Alert and hosted a webinar in June of 2021 to provide details regarding the technical changes that must take place to implement the PAID Act. Once the insurance carriers have access to the specific Medicare Part C and D plan coverage, settlement terms will likely impose additional burdens on the Plaintiff.
Settlement delays may be avoided by the Plaintiff taking charge of the MSP compliance obligations in a case. Synergy’s MSP compliance audit report arms you with documentation from an outside MSP compliance expert that addresses the status of conditional payment reimbursements, the strategy for post-settlement injury-related treatment, appropriate ICD 10 diagnosis codes that should be used by the Section 111 RRE, and MSP compliance settlement terms. By presenting the audit report to the defense, you are in the MSP compliance driver seat. Contact Synergy to learn more about our services.
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