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Liability Medicare Set-Asides: Where are we Today?

November 12, 2020

By: Rasa Fumagalli, JD, MSCC, CMSP-F

The Centers for Medicare and Medicaid Services (CMS) has been slow in providing detailed guidance in the area of liability settlements that include compensation for future medicals. To date, the guidance consists of the May 2011 CMS Stalcup memo and the September 2011 CMS memo regarding treating physician certifications. Although CMS issued Notice of Proposed Rulemaking regarding Liability Medicare Set-Asides (LMSA) and settlement of future medicals in 2013, it was withdrawn in October of 2014.

In the fall of 2018, the Department of Health and Human Services issued an initial notification of proposed rulemaking related to the Medicare Secondary Payer Act. The most recent abstract of the proposed rule states:

“This proposed rule would clarify existing Medicare Secondary Payer (MSP) obligations associated with future medical items, services related to liability insurance (including self-insurance), no-fault insurance, and worker’s compensation settlements, judgments, awards, or other payments. Specifically, this rule would clarify that an individual or Medicare beneficiary must satisfy Medicare’s interest with respect to future medical items and services related to such settlements, judgments, awards, or other payments. This proposed rule would also remove obsolete regulation.”

Since the initial notification in the fall of 2018, the target date for the notice of proposed rulemaking has been continuously postponed. The most recent target date of August 2020 has now come and gone. In light of this, it is unlikely that the notice of proposed rulemaking will occur in 2020.

The absence of formal regulation by CMS does not mean that the MSP Act does not apply to liability settlements that close out future medicals. The MSP Act clearly 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.”[1] 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 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.”[2]

The above provisions may impact a plaintiff’s settlement in the following way. If the plaintiff, a Medicare beneficiary, accepts a settlement that provides funds intended to compensate the plaintiff for future medicals, this is a payment that has been made under a liability plan. Should the plaintiff require future injury-related, Medicare-covered treatment, Medicare is prohibited from making payment for these services. Should an inadvertent payment be made, the Medicare Trust Fund would expect reimbursement. Medicare will be aware of the settlement due to the Section 111 mandatory insurer reporting requirement for any physical trauma liability settlement over $750.00.  The Section 111 Total Payment Obligation to Claimant (TPOC) report must also include the injury-related diagnosis codes, since the codes are added to the plaintiff beneficiary’s Medicare Common Working File. This data is used to prevent Medicare from making payments when Medicare is the secondary payer.

The MSP Act and the language used in the abstract of the proposed rule regarding “existing” MSP obligations should be considered by plaintiffs’ attorneys that are handling liability claims for Medicare beneficiaries. If the settlement funds future medicals, then a decision to apportion some of the settlement funds as an LMSA may prevent your client from experiencing future issues with Medicare.  A settlement that does not fund future medicals should include an analysis that provides support for the position so that Medicare does not have an interest in the settlement when it comes to future medicals. Although additional guidance by CMS when it comes to LMSAs is pending, we should be careful what we wish for.



[1] 42 U.S.C. § 1395y(b)(2)(a).

[2] 42 C.F.R. § 411.22.

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