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Is your MSP compliance provider doing more harm than good by advocating to ignore Medicare’s future interests?

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

With Medicare Secondary Payer (“MSP”) Compliance on everyone’s minds these days, it is no wonder that MSP vendors have tried to capitalize on these fears by offering services targeting them.  The problem is that some of these vendors may be doing more harm than good.  There is a national MSA provider and vendor that is offering an opinion letter to plaintiff personal injury attorneys (and to a lesser extent defendants) stating that no MSA is needed in certain liability settlements.  The letter provides a false sense of security.  The letter focuses on the risk of Medicare targeting the personal injury attorney with a recovery action.  However, that isn’t the real risk.  The real risk, and it is a big one, is that the plaintiff attorney might be sued for legal malpractice if a Medicare eligible client is denied future injury related care as a result of the settlement without being informed of their options or properly protected when it comes to the MSP.  With the implementation of mandatory insurer reporting for Medicare beneficiaries, all defendants must report settlements[1] (currently 50k or more) to Medicare.  Reporting includes the ICD9 codes related to the claimed injuries.  Reporting allows Medicare to flag those ICD9 codes and then deny payment for that future injury related care.  If the client is denied Medicare coverage for injury related care, what good is that no-MSA letter provided by this vendor?

In the case of a denial of future injury related Medicare covered services, the client would be left with a Medicare appeals process that does not let them see the inside of a court room for 420 days in certain circumstances[2].  Who would the client sue if that were the case?  While they likely would have a claim against the vendor that provided that letter, the more attractive target may be their own attorney that turned to this particular vendor and secured the letter on their behalf.  Legal malpractice exposure related to denial of future Medicare injury related benefits could be in the hundreds of thousands of dollars.  It is a very large exposure for plaintiff, personal injury practitioners and one that should not be taken lightly.  This is particularly so in the case of attorneys who rely on these opinion letters issued without a solid legal basis or foundation.  In reviewing said letter, it appears there are some misstatements and major inaccuracies.  Below I will delve into these issues and address the alternatives to a “no-MSA” opinion letter for those that are Medicare beneficiaries.

As a preliminary matter, I must make clear that the only time a personal injury lawyer needs to address this issue is if their settlement involves a Medicare beneficiary or arguably[3], those who have a “reasonable expectation” of becoming a Medicare beneficiary within 30 months.  A fundamental flaw with the letter created by this particular vendor, in my opinion, is that it acknowledges an obligation to address Medicare’s future interest but then opines it isn’t necessary simply because the recovery was too small.  Fundamentally, that is problematic because there is no basis for that assumption.  Furthermore, the letter states, inaccurately, that “[f]ederal laws establishes MSAs to prevent legally responsible parties in workers’ compensation or liability settlements from permanently shifting the burden of future medical expenses for injury related care to Medicare.”  There are no such “laws”.  There are some regulations that can be cited for the proposition that you can’t shift the burden in workers’ compensation cases when a Medicare beneficiary settles his or her claim.  Those regulations are inapplicable to liability settlements and are irrelevant in the context of a letter addressing whether to implement a liability set aside.  A more accurate statement would be that currently Medicare interprets the Medicare Secondary Payer Act as requiring protection of Medicare’s future interests when resolving a liability case.

The letter I reviewed was written in the latter part of last year.  It says that CMS has issued no guidance about when or how to use MSAs in third party liability cases.  That simply is not true.  There are two handouts/memorandums issued last year that address Medicare Set Asides in third party cases.  The first and most important is the Stalcup handout/memo issued in May of 2011 by the Dallas Regional Office Director for CMS, Region 6.  The handout, by its own words, indicates there are no “laws” requiring a set aside.  However, the handout does indicate that the law does require “the Medicare Trust Fund be protected from payment for future services whether it is a Workers’ Compensation or liability case.”  CMS’ method of choice for protecting the Medicare trust fund from making payments for future Medicare injury related care is a set aside according to the Stalcup handout/memo.  The Stalcup handout is not a memo from CMS’s headquarters and only applies to the states the Dallas regional office covers so it is limited in scope.  The second is a memo from the CMS headquarters office in Baltimore issued in September of 2011.  In this memo CMS provides a procedure to avoid establishing a liability Medicare set aside.  The memo provides that if the treating physician certifies in writing that the treatment for the injuries suffered in the accident are complete and that future Medicare covered services for the injury will not be required then a set aside isn’t necessary.  The Stalcup handout/memo is consistent with the public statements CMS has made regarding MSAs in liability cases.  The September 2011 memorandum from CMS HQ tells us when you don’t have to establish a liability Medicare Set Aside which presumably means CMS’s position is that in certain cases you do have to establish a liability Medicare Set Aside.  Accordingly, it is difficult to claim CMS has provided no guidance about liability Medicare Set Asides.

What I don’t disagree with is the methodology the letter employs in terms of its analysis of whether the set aside issue needs to be addressed.  First, the letter analyzes whether there is a permanent burden shift from a primary plan (liability insurer) to Medicare for future injury related care and the injury victim’s need for future injury related care.  If those two issues are addressed with a yes, then the letters says to look at Medicare entitlement or reasonable expectation within 30 months[4].  If the answer is yes, then look at whether the claim resolves future medical.  If yes, then the letter says to look at the gross recovery to determine whether it compensates the injury victim for future medicals based upon a damages versus recovery analysis.  This is where the analysis goes astray as there is absolutely nothing in the letter which examines the damages suffered versus what was recovered to support the opinion of no MSA being needed.  I would assert there is nothing which would ever support this type of opinion.  I will explain why further below.

Ultimately the letter says that although the vendor recognizes the injury victim client IS AN MSA CANDIDATE, an MSA is not warranted since the settlement does not contain sufficient proceeds to cover future injury related medical expenses.  While I believe you can potentially get to that opinion in the right case, there is no analysis or justification in the opinion letter I reviewed for that position.  I would propose that there is a much better way to deal with this issue and one that would protect the attorney from a legal malpractice claim instead of focusing on whether Medicare might bring a recovery action.  There is no law that provides for Medicare to recover damages in the context of failure to establish a set aside.  There would have to be a large extension of current conditional payment recovery laws under the MSP to justify any type of potential action to recover in the area of Medicare set asides.  Even if such an action were allowed, what would be the damages anyway?  There would only be a few scenarios where there is a potential for damages but as far as I know there has not been a single action by Medicare against any personal injury attorney in workers’ compensation cases or liability settlements that deal with failure to establish a set aside.  How could Medicare bring an action against a plaintiff attorney when there is no way that the attorney can force a client to set money aside if the injury victim refuses?  That really isn’t the primary issue though.

Getting back to an alternative solution to the situation where the case involves a Medicare beneficiary but there are limited settlement dollars.  Instead of just focusing on an opinion related to having no MSA, it makes more sense to estimate the future Medicare covered services and then apply an appropriate reduction methodology.  If you are going to recognize the need for an MSA like this vendor does in the letter, shouldn’t you do the analysis and justify a very small set aside with a proper analysis?  So what would that look like?  I would propose the following hypothetical:  Case is settled for $50,000 policy limits.  40% fee of $20,000 and costs of $2,500.  There is a small Medicare lien of $5,000.  Client will net $22,500.  An MSA estimate provides that Medicare’s exposure for future injury related care is $100,000.  The total value of the case if there had been no policy limits is $1,000,000.  The client has recovered 2.25% of their total damages.  The set aside based on an Ahlborn type of analysis[5] would be $2,250.  That type of analysis is what I would suggest adequately protects the attorney and the client.  While I would acknowledge that CMS has never approved this type of methodology, they have not disapproved of it either.  What CMS has said in the two memorandums issued in 2011 is that you have to properly address this issue.  An opinion letter that recognizes a set aside obligation in a liability settlement but then arbitrarily says not to set aside any money because of the small size of the settlement doesn’t afford much protection, if any.  Isn’t it a false sense of security they are selling?  Is it worth the exposure for the personal injury attorney?  Is it worth the potential loss of Medicare entitlement for injury related care for the injury victim?  Wouldn’t it be better to just set aside the $2,250 after a defensible analysis?

There will be certain cases where the MSA estimate and reduction methodology does not yield enough of a reduction from a practical perspective.  For example, if the same scenario I discussed in the same paragraph remained the same but the value of the case was dropped from $1M to $200,000 then the client recovered 11.25% of their damages and the set aside amount would be $11,250.  That would consume half of net settlement.  In that case, an argument could be made based on the underpinnings[6] of the Ahlborn decision, by analogy, that there should be no set aside because if the client were forced to set aside half of their net recovery then they would be setting aside dollars that aren’t necessarily meant to compensate for future medical.  Again, at least there is a rational basis for that argument and an analysis was undertaken to properly address the issue, rather than reliance upon an opinion letter that simply makes some assumptions.

Every lawyer who represents injury victims is going to have to decide what kind of protection they want in this new world of Medicare Secondary Payer Compliance.  Making wise choices is critical to avoid a large amount of potential exposure.  I believe that anyone who has one of these types of opinion letters discussed in this article has a tremendous amount of risk and exposure.  According to the CMS Stalcup handout/memo, if future medicals are funded for a Medicare beneficiary when they settle their case then the attorney “should to see to it that those funds are used to pay for otherwise Medicare covered services related to what is claimed/released in the settlement judgment award.”  The responsibility for defense counsel is a little bit different according the handout.  If future medical is funded, then defense counsel or the insurer “should make sure their records contain documentation of their notification to plaintiff’s counsel and the Medicare beneficiary that the settlement does fund future medicals which obligates them to protect the Medicare Trust Fund.”  “It will also be part of their report to Medicare in compliance with Section 111, Mandatory Insurer Reporting requirements.”  So to properly consider Medicare’s future interest according to CMS, it would necessitate advising the client of the obligation to set monies aside and the potential risk of denial of future injury related care if the issue is ignored.  Further, potentially engaging in the analysis I outlined above may be prudent for proper consideration of Medicare Secondary Payer Compliance.  Failure to properly address this issue can have disastrous consequences for an injury victim and expose plaintiff counsel to potential malpractice claims.

[1] Mandatory insurer reporting was created by amendment to the Medicare Secondary Payer Act by a law entitled the Medicare, Medicaid & SCHIP Extension Act of 2007.  MMSEA for short created a requirement for defendant/insurers to report all settlements with Medicare beneficiaries.  The requirements are codified at 42 U.S.C. § 1395y(b)(8).  The reporting is being phased in with settlements over $100,000 being reported as of 1/1/12 going back to a settlement date of 10/1/11; settlements over $50,000 being reported as of 7/1/12 going back to a settlement date of 4/1/12 and settlements over $25,000 being reported as of 1/1/13 going back to a settlement date of 10/1/12.

[2] There are five levels of Medicare appeals:

  1. The first level appeal is called a redetermination. Redeterminations regarding claim denials currently are processed by either Fiscal Intermediaries/Affiliated Contractors (FIs/ACs) or Part A and B Medicare Administrative Contractors (A/B MACs). Expedited redeterminations regarding service terminations are processed by Quality Improvement Organizations (QIOs).
  2. A Reconsideration is the second level of appeal. If you are unhappy with an FI/AC, A/B MAC or QIO redetermination, you can appeal to MAXIMUS Federal Services QIC Part A and request a Reconsideration.
  3. The third level of appeal is an Administrative Law Judge Hearing (ALJ Hearing). If MAXIMUS Federal Services renders an unfavorable or partially favorable decision, you may seek a third level appeal, called an ALJ Hearing. To qualify for an ALJ Hearing, you must meet the $120 minimum amount in controversy requirement.
  4. The fourth level of appeal is to the Medicare Appeals Council. If you are unhappy with the ALJ Hearing decision, you may ask the Medicare Appeals Council to review your case.
  5. The fifth level of appeal is Federal Court. If the amount involved is $1180 or more ($1220 beginning in calendar year 2009), you have the right to continue your appeal by asking a Federal Court Judge to review your case.

See for more detailed information on each level.


[3] I say arguably because the “reasonable expectation” standard comes from a CMS memorandum issued related to Workers’ Compensation Medicare Set Asides.  The standard is a “review threshold” and applies to settlements $250,000 or greater when the injury victim has a reasonable expectation of becoming a Medicare beneficiary within 30 months.  See 4/21/03 CMS Memorandum at Question Two.  The memorandum has no applicability to liability settlements.

[4] Because mandatory insurer reporting only covers Medicare beneficiaries it isn’t very likely that someone who may become a Medicare beneficiary in the future would be denied injury related care.  That being said, I am not advocating that one can ignore Medicare’s future interest in a liability settlement if that reasonable expectation criteria is met, but there is a legitimate argument for that in the context of a liability settlement.

[5] 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.  While admittedly that decision 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)?

[6] The Ahlborn opinion’s central premise is that Medicaid should not be able to asset a lien against the non-medical portions of the recovery.  I would argue that that similarly in the context of a Medicare beneficiary, CMS should not be able to compel a Medicare beneficiary to set aside funds for future Medical if those funds are coming from the non-medical portions of the recovery.

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