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CMS Gearing Up to Reject Medicare Claims Related to Liability Settlements: LMSAs on the Horizon

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:

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.

[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




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