Medicare Set-Asides

The Centers for Medicare & Medicaid Services (CMS) has officially withdrawn their Notice of Proposed Rulemaking (NPRM) for protecting Medicare’s future interests with respect to future medicals. The NPRM was originally submitted to the Office of Management and Budget (OMB) back in August 2013. With the NPRM, it was anticipated CMS was going to establish formal regulations for liability Medicare set asides (MSAs).  CMS first brought this matter to light with the Advanced Notice of Proposed Rulemaking (ANPRM) proposals in May 2012. Before that, the agency had only issued one formal memorandum back in September of 2011

The ANPRM was a series of ideas and suggestions for how to protect Medicare’s interests when future medical care was claimed as part of a settlement, award or judgment for liability insurance (including self-insurance), no-fault insurance, and workers’ compensation. You can read Synergy’s CEO, Jason Lazarus’ initial commentary from 2012 by clicking HERE.  There was a 60 day commentary period where CMS invited remarks from the Medicare secondary payer (MSP) industry. To read Synergy’s commentary regarding the ANPRM click HERE.  According to the agency, CMS took all of the ideas/recommendations into account when they submitted the NPRM to the OMB. The next step was going to be establishing formal guidelines for protecting Medicare’s interests with respect to future medical care.

Synergy engaged CMS directly with a framework for how to address protecting Medicare’s future interests on liability claims in our commentary on the ANPRM. Synergy will continue to work with CMS to make sure any future regulations are appropriate for stakeholders. If promulgated changes are going to occur with respect to protecting Medicare’s future interests, Synergy will be the voice of reason on behalf of injury victims and plaintiff attorneys.

With the withdrawal of NPRM, comes a collective sigh of relief from plaintiff attorneys. However, this does not change the current Medicare secondary payer landscape. Attorneys still need to consider Medicare’s future interests when resolving claims. CMS can deny treatment for Medicare beneficiaries who require accident related care post-settlement. Since the Medicare trust fund is losing millions of dollars every year, we fully anticipate CMS to revisit these issues again in the near future. Although, MSA’s are never required by any regulation or statue, the MSP still requires the Medicare trust fund be protected (according to CMS).

Medicare has issued guidance in the past in the form of memos.  As you may be aware, they issued a memorandum back in September of 2011 detailing an exception of when a Medicare set aside wasn’t necessary in a liability settlement.  This memo was issued by the Baltimore HQ.  The fact that they told everyone when one isn’t necessary reinforces the fact that they believe they are necessary regardless of whether there is a formal regulation issued or not.  They have been routine and common place in comp since 2001 without any real regulations.  It is all policy memoranda driven.  Until CMS comes out publicly and says don’t worry about any of this, we would still be concerned about clients who are Medicare beneficiaries and receive money towards future medicals.   

If you have a client who is a current Medicare beneficiary that is going to require future, accident related care and there are funds earmarked towards future medical treatment, a Medicare set aside should still be a consideration. However, there are numerous ways to deal with Medicare secondary payer compliance to ensure both your firm, as well as your clients are protected. So our suggested course of action remains the same:  Consult, Advise and Document (“CAD”).  Consult competent experts such as those at Synergy.  Advise the client regarding potential implications if they are a Medicare beneficiary and receive money for future medicals.  Document your file regarding what you did. 

At Synergy, we have the solutions that will help you settle cases compliantly for Medicare beneficiaries. 

B. Josh Pettingill, MBA, MS, MSCC

1.  Addressing Medicare’s past interests (resolving conditional payments) is an issue for everyone involved in the lawsuit/settlement process. Don’t forget to get the final demand letter from MSPRC before you disperse funds to your client.

2.  The Medicare future interest issue is a plaintiff issue, not a defense issue. Don’t let the other side convince you otherwise. Take control of the MSP process early on in the negotiations.

3.  A Medicare Set Aside (“MSA”) is not required by any law but it is Medicare’s preferred method  to protect their “future” interests and comply with the Medicare Secondary Payer Act.

4.  The CMS Submission and review process for liability MSAs is completely voluntary, so don’t agree to it as part of the settlement. You do not want to be stuck waiting for months to hear back from them and there is no formal appeal process if Medicare disagrees with the MSA allocation for future medical.

5.  The MSA can be self-administered or professionally administered. Professional administration is the best way to ensure your client is protected.

6.  An MSA can be funded with a lump sum or with an annuity. Annuity funding is cheaper (20-30% discount) than lump sum, which means more cash in your client’s pocket and a happier client.

7.  An MSA utilizes a rated age vs. normal life expectancy for calculating future medicals. Since life expectancy is reduced when a rated age is issued, it means less money has to be set aside because future Medicare covered services is calculated over remaining life expectancy. In turn, this means less money is needed to fund the set aside and more cash is available to your client.

8.  Never put the actual MSA amount in the release. This can potentially limit your client’s ability to deduct medical expenses as an itemized tax deduction.

9.  For “small cases” involving a current Medicare beneficiary, you still need to take into account Medicare’s future interests. There is no “small case” exception or safe harbor.

10.  CMS is going to know about the client’s settlement by way of conditional payment resolution or through the Mandatory Insurer reporting requirement. If your client is a current Medicare beneficiary, they will find out about the settlement

11.  Make sure your file is documented indicating the steps taken to address Medicare’s future interest. If Medicare ever audits your file in the future, you need to show them adequate steps were taken to protect their interests.

12.  There are many CMS Memorandums on WCMSA’s.  There are only 2 of them which pertain to Liability MSAs and only one of those is from CMS headquarters.

13.  The Medicare Secondary Payer Act has been interpreted by CMS as requiring protection of Medicare’s future interests. The MSP is the only law dealing with Medicare as a secondary payer.

14.  “Benoit v. Neustrom” is must read case law on Liability Medicare Set Asides. Click HERE to see our CEO’s blog post on Benoit

15.  Do not agree to overbroad or general language in the release regarding MSAs.

16.  Do not ever make CMS approval of a liability MSA a condition of settlement. Some CMS Regional Offices refuse to review liability Medicare Set Asides.

17.  Do not ever let the defendant put Medicare on the settlement check. You will not be able to cash it and your settlement will be delayed. There is case law to support this position.

18.  The Medicare, Medicaid, SCHIP Extension Act (MMSEA) is simply a reporting requirement for Responsible Reporting Entities settling cases with current Medicare beneficiaries.  It created a means for CMS to track current Medicare beneficiaries and settlements.

19.  If your case is being reported to Medicare, make sure the correct ICD codes are submitted. Otherwise, your client could get treatment cut off that is unrelated to the accident.

20.  A Medicare set aside should only be used to pay for injury related medical expenses ordinarily covered by Medicare.

For all of your MSP compliance and Medicare Set Aside needs, please call us at 877-242-0022 or visit us at www.synergysettlements.com.

Let Synergy be your knowledgeable and trusted settlement partner giving you peace of mind.   We resolve the most complex settlement related issues for law firms so lawyers can focus on being trial lawyers. Our team of highly skilled professionals includes attorneys, Certified Financial Planners, certified Medicare set aside consultants, subrogation experts, nurse consultants and case managers. We handle the difficult issues such as Medicare Secondary Payer compliance, structured settlements, public benefit preservation, lien resolution and complex settlement planning questions allowing you to concentrate on what you do best.

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

On April 17, 2013, the United States District Court for the Western District of Louisiana rendered an unprecedented decision.  In a case where a limited recovery was achieved due to complicated liability issues with the case, the Court reduced a liability Medicare Set Aside allocation by applying a reduction methodology.  This case validates the argument I have made since the passage of the MMSEA brought liability Medicare Set Asides to the forefront.  Because of the fundamental differences between the Workers’ Compensation system and the liability system, you can’t have MSAs in general liability settlements without apportionment.  The court in Benoit v. Neustrom agreed with me.

Benoit filed suit against the Sheriff of Lafayette Parish (Neustrom) and the Warden of the Lafayette Parish Correction center alleging injuries suffered while incarcerated.  The plaintiff alleged he wa allowed to remain in his jail cell without pre-medical evaluation when he was clearly suffering from the effects of alcohol detoxification.  Benoit was found unresponsive his cell and was transported the hospital where he was diagnosed with a hypoxic brain injury secondary to a seizure, followed by cardiac arrest, secondary to alcohol withdrawal and hypoxic encephalopathy.  The resulting injuries included an anoxic brain injury with bladder incontinence, ansomia, short term memory deficit, tremors and behavioral issues.  After in patient care in a nursing home, Mr. Benoit was released to the care of his wife.  Mr. Benoit had his care paid for partially by Medicare and Medicaid.

In October of 2012, the case was settled conditioned upon a full release by Mr. Benoit and his assumption of sole responsibility for “protecting and satisfying the interests of Medicare and Medicaid.”  To that end, a Medicare Set Aside allocation was prepared by an MSA vendor.  The MSA cost projections gave a range of future Medicare covered injury related care of $277,758 to $333,267.  The gross settlement amount was $100,000.00.  Medicaid agreed to waive its lien.  Medicare asserted a reimbursement right for its conditional payments of $2,777.88.  After payment of fees, costs and the Medicare conditional payment, Mr. Benoit was left with net proceeds of $55,707.98.  Mr. Benoit filed a motion for Declaratory Judgment confirming the terms of the settlement agreement, calculating the future potential medical expenses for treatment of his injuries in compliance with the Medicare Secondary Payor Act and representing to the court that the settlement amount was insufficient to provide a set aside totaling 100% of the MSA.

The matter was set for hearing and Medicare was put on notice of the hearing.  Medicare responded with a written letter asserting its demand for repayment of the conditional payment in the amount of $2,777.88 but didn’t address the set aside.  The Medicaid lien was waived prior to the hearing with conditions for creation of a Special Needs Trust to preserve Medicaid eligibility.  At the hearing, the sum of $2,777.88 was established without objection as the amount to be reimbursed to Medicare for the conditional payments made by Medicare.  This left the only issue for the court to address was the question of the future Medicare covered services for Mr. Benoit and the “extent to which the Medicare set-aside trust can or should be reduced to account for the financial hardship to the beneficiary, Michael Benoit.”  During the hearing, MSA allocation was submitted into evidence with a cost considerably larger than the net settlement figure.  A Social Security financial statement was also offered into evidence to demonstrate the financial hardship of Mr. Benoit.  Mrs. Benoit testified about Mr. Benoit’s extensive needs for things the MSA would not pay for and the limited income they received from Social Security.  The defendants provided testimony regarding the liability issues with the case which could have resulted in summary judgment had the case not settled.

Having heard testimony, the court rendered its opinion in April of 2013.  The court began its discussion with a citation and quotation of Sally Stalcup’s Region VI handout regarding set asides.  The quote language addresses the idea of an allocation of the damages.  CMS’s official position is that the only allocation they will respect is when it is by a court after their review on the merits of the case.  The court pointed out that CMS took that same position in the Bradley v. Sebelius case regarding conditional payments and lost.  Language from the Bradley decision was cited which stated that Medicare’s field manual was not entitled to administrative law based deference (under Chevron) and that the requirement of a decision on the merits of a case before respecting an allocation frustrated the long standing public interest in the resolution of lawsuits through settlement.  After discussing those points, the court went on to make its findings of fact and conclusions of law.

The first significant finding of fact was that Benoit’s claims were highly contested on liability and damages with a very real possibility of summary judgment being granted or an adverse liability verdict.  The second significant finding was that given the significant past and future losses suffered by Mr. Benoit offset by the difficult liability issues in the case, the settlement of $100,000 was a reasonable compromise to avoid the uncertainty and expense of a trial.   The fourth significant finding was that the estimate of future medical costs in the MSA allocation was both reasonable and reliable.  The bombshell finding was that the net settlement was 18.2% of the mid-point range of the MSA projection and using that percentage as applied to the net settlement, the sum to be set aside was $10,138 and not $305,512.  The court found that $10,138 adequately protected Medicare’s interests.

In its conclusions of law, the court first found it had jurisdiction to decide the motion because there was “an actual controversy and the parties seek a declaration as to their rights an obligations in order to comply with the MSP and its attendant regulations in the context of a third party settlement for which there is no procedure in place by CMS.”  The court then found that the sum of $10,138 “reasonably and fairly takes Medicare’s interests into account.”  Lastly, the court found that since CMS provides no procedure to determine the adequacy of protecting Medicare’s interests for future medical needs in third party claims and since there is a strong public policy interest in resolving lawsuits through settlement, Medicare’s interests were “adequately protected in this settlement within the meaning of the MSP.”  The court ordered that the MSA be funded out of the settlement proceeds and be deposited into an interest bearing account to be self-administered by Mr. Benoit’s wife.

This opinion is so important because it hits the nail on the head regarding an argument I have been making since the advent of liability MSAs.  As the AAJ pointed out in its commentary to the ANPRM, a liability insurer is not legally obligated to provide medical care in the future whereas Workers’ Compensation carriers are obligated to pay for future medical as long as the injury related conditions persist.  Furthermore, Liability settlements are fundamentally different from Workers’ Compensation settlements in that liability cases are settled for a variety of reasons which do not necessarily include contemplation of future medical treatment.  Even when future medical care is contemplated as part of a settlement, the amount can be very limited when compared to what the ultimate costs may end up being.  So accordingly, if set asides are done in liability settlements without recognition of these differences and with no apportionment of damages, you can conceivably have a situation where a party is setting aside their entire net settlement even though it is made up of non-medical damages.  In effect it can eliminate the recovery of the non-medical portion of the damages by requiring the Medicare beneficiary to set aside all of their net proceeds.  There is nothing in the MSP regulations or statute that requires Medicare to seek one hundred percent reimbursement of future medicals when the injury victim recovers substantially less than his or her full measure of damages.

Prior to the Benoit v. Neustrom opinion, I argued based upon Ahlborn that an MSA should be reduced by using a formula identical to that decision because the situations were analogous.  The argument goes something like as follows.  It does not work to have one hundred percent of a settlement consumed by a Medicare Set Aside that the client can’t touch except to pay for future Medicare covered services. Similarly, a set aside shouldn’t encompass non-medical portions of the recovery. I would argue that this gets to the very root of the issue dealt with in the Ahlborn US Supreme Court decision. The Ahlborn decision forbids recovery by Medicaid state agencies against the non-medical portion of the settlement or judgment. Ahlborn was recently affirmed by the US Supreme Court in WOS v. EMA. While admittedly both the Ahlborn and WOS decisions dealt with Medicaid lien issues and the Medicaid anti-lien statute, the arguments by analogy can be applied in the Medicare set aside context. The Ahlborn holding gets at the fundamental issue of whether a lien can be asserted against the non-medical portion of a personal injury recovery. Justice Stevens, in stating the majority opinion, said “a rule of absolute priority might preclude settlement in a large number of cases, and be unfair to the recipient in others.” Isn’t this so in the Medicare set aside context (which is really a future lien)? How do you settle a case for an injury victim when all of the proceeds would have to go into a set aside? Wouldn’t that force cases to trial where damages could be allocated to different aspects of the claim and a larger recovery might be possible?

In the Benoit case, the plaintiff took the position he was only recovering 10% of his total damages.  Therefore, based upon my Ahlborn analysis, the figures would look like:

The Benoit opinion was even more aggressive in its analysis.  Instead of looking at a ratio of the total case value versus the net, it looked at the ratio of the MSA amount to the net.  The analysis looks like:

Both methodologies get to the correct end result in my opinion.  While the Benoit v. Neustrom case is incredibly important because it is the first recognition of the fundamental problem involved with cases where there is a limited recovery but large future Medicare component, it is only a United States District Court opinion.  It is a trial court’s order on a motion for declaratory judgment.  Unless Medicare somehow intervenes and appeals, we will not see a Circuit Court of Appeals decision that would have precedential value.  Despite the foregoing, the court’s rationale supports applying a reduction methodology where before the Benoit v. Neustrom opinion there was no direct authority for this.  If Medicare ultimately creates regulations related to liability Medicare Set Asides, one can hope they will look very carefully at a workable solution to this type of situation.  The Benoit v. Neustrom decision provides one possible way to address the issue created by limited settlements with big future medicals.

To view the opinion click HERE

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

Many have been asking for formal guidance regarding Medicare set asides in liability settlements.  It seemed as though that was never going to happen.  That came to an end in May of this year with the release of a memo from the Region 6 CMS office regarding liability Medicare set asides.  Up until last week there was nothing from the Baltimore headquarters for CMS.  In the first memo coming from CMS HQ regarding Liability Medicare Set Asides (issued 9/29/11), Charlotte Benson, Acting Director Financial Services Group for CMS, gives us an exception to the need to create a set aside in liability cases.  According to the memo, a liability Medicare set aside isn’t necessary when the Medicare beneficiary’s treating physician certifies in writing that all of the care related to the claimed injury has been completed as of the date of the settlement.

The memo says:

“Where the beneficiary’s treating physician certifies in writing that treatment for the alleged injury related to the liability insurance (including self-insurance) “settlement” has been completed as of the date of the “settlement”, and that future medical items and/or services for that injury will not be required, Medicare considers its interest, with respect to future medicals for that particular “settlement”, satisfied. If the beneficiary receives additional “settlements” related to the underlying injury or illness, he/she must obtain a separate physician certification for those additional “settlements.”

When the treating physician makes such a certification, there is no need for the beneficiary to submit the certification or a proposed LMSA amount for review. CMS will not provide the settling parties with confirmation that Medicare’s interest with respect to future medicals for that “settlement” has been satisfied. Instead, the beneficiary and/or their representative are encouraged to maintain the physician’s certification.”

The memo is very important for a number of reasons.  First, it is the first official memorandum from the CMS central office in Baltimore to substantively address liability Medicare set asides.  Second, it provides a mechanism, if the case facts fit the criteria, to avoid the necessity of creating a liability Medicare set aside.  It is a limited exception as the treating doctor must attest in writing that all of the treatment for the released injuries was completed at the time of settlement.  Third, it avoids the need to request CMS review of a proposed “zero” liability Medicare set aside and the parties just need to retain a copy of the doctor’s letter/certification.

Despite the foregoing, every lawyer (plaintiff or defense) should read the Sally Stalcup memo regarding liability Medicare set aside arrangements.  The memo was issued back in May of this year by the Dallas Region 6 CMS office.  The memo, to summarize, indicates that “Medicare’s interests must be protected; however, CMS does not mandate a specific mechanism to protect those interests.”  Furthermore, the law “does not require a ‘set-aside’ in any situation.”  Nevertheless, the law does require “that the Medicare Trust Funds be protected from payment for future services whether it is a Workers’ Compensation or liability case.”  From CMS’s perspective, a set aside is their “method of choice and the agency feels it provides the best protection for the program and the Medicare beneficiary.”

If an injury victim is a Medicare beneficiary or has a reasonable expectation within 30 months of becoming a Medicare beneficiary, a set aside should be considered.  If however a treating physician certifies that all treatment for the released injuries is complete as of the date of settlement, then no set aside is necessary.  Navigating the MSP related issues at settlement can be difficult as well as confusing.  From the lawyer’s perspective, the most important thing is to make sure the injury victim client completely understands the potential impact of settling the case has upon future Medicare coverage of injury related care.

Synergy can make Medicare secondary payer compliance simple by handling these difficult issues for you.  We can prepare the Medicare set aside allocation, provide professional Medicare set aside administration via a Medicare Set Aside trust and resolve Medicare conditional payments.  Synergy does offer a package discount if you take advantage of any combination of these services.  Contact us today to see how can help you.

In the first memo coming from CMS HQ regarding Liability Medicare Set Asides, Charlotte Benson, Acting Director Financial Services Group for CMS, gives us an exception to the need to create a set aside.  According to the memo, a liability Medicare set aside isn’t necessary when the Medicare beneficiary’s treating physician certifies in writing that all of the care related to the claimed injury has been completed as of the date of the settlement.

The memo says:

“Where the beneficiary’s treating physician certifies in writing that treatment for the alleged injury related to the liability insurance (including self-insurance) “settlement” has been completed as of the date of the “settlement”, and that future medical items and/or services for that injury will not be required, Medicare considers its interest, with respect to future medicals for that particular “settlement”, satisfied. If the beneficiary receives additional “settlements” related to the underlying injury or illness, he/she must obtain a separate physician certification for those additional “settlements.”

When the treating physician makes such a certification, there is no need for the beneficiary to submit the certification or a proposed LMSA amount for review. CMS will not provide the settling parties with confirmation that Medicare’s interest with respect to future medicals for that “settlement” has been satisfied. Instead, the beneficiary and/or their representative are encouraged to maintain the physician’s certification.”

The memo is important for a number of reasons.  First, it is the first official memorandum from the CMS central office in Baltimore to substantively address liability Medicare set asides.  Second, it provides a mechanism, if the case facts fit the criteria, to avoid the necessity of creating a liability Medicare set aside.  It is a limited exception as the treating doctor must attest in writing that all of the treatment for the released injuries was completed at the time of settlement.  Third, it avoids the need to request CMS review of a proposed “zero” liability Medicare set aside and the parties just need to retain a copy of the doctor’s letter/certification.

Despite the foregoing, every lawyer (plaintiff or defense) should read the Sally Stalcup memo regarding liability Medicare set aside arrangements.  The memo was issued back in May of this year by the Dallas Region 6 CMS office.  The memo, to summarize, indicates that “Medicare’s interests must be protected; however, CMS does not mandate a specific mechanism to protect those interests.”  Furthermore, the law “does not require a ‘set-aside’ in any situation.”  Nevertheless, the law does require “that the Medicare Trust Funds be protected from payment for future services whether it is a Workers’ Compensation or liability case.”  From CMS’s perspective, a set aside is their “method of choice and the agency feels it provides the best protection for the program and the Medicare beneficiary.”

If an injury victim is a Medicare beneficiary or has a reasonable expectation within 30 months of becoming a Medicare beneficiary, a set aside should be considered.  If however a treating physician certifies that all treatment for the released injuries is complete as of the date of settlement, then no set aside is necessary.  Navigating the MSP related issues at settlement can be difficult as well as confusing.  From the lawyer’s perspective, the most important thing is to make sure the injury victim client completely understands the potential impact of settling the case has upon future Medicare coverage of injury related care.

To view the memo, click HERE