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Are Medicare Set-Asides Necessary in Liability Cases?

There are no guidelines or a formal review process for liability settlements at this time.  However, there are two memorandums that attorneys should be familiar with as it relates to liability Medicare set asides. The first is the May 25, 2011 Stalcup memo, while the second is the September 30, 2011 treating physician certification memo. An in-depth examination of these memos serves as the starting point in determining the nature of the Medicare Secondary Payer compliance obligations in any given liability case.

Stalcup Memo

A memo was issued by Sally Stalcup, the MSP Regional Coordinator for CMS (Region 6 – Dallas RO) in May of 2011, which was the first detailed written pronouncement from CMS addressing Medicare set-asides in liability cases.  While it is informative and gives a glimpse of the thoughts of some at CMS regarding liability Medicare set-asides, it isn’t law.  The memo is simply one CMS Regional Coordinator’s viewpoint.  Until CMS issues formal guidance or there is law regarding Medicare set asides, we are left with nothing definitive to hang our hat on in terms of how to deal with Medicare’s “future interest”.  

The memo starts out with an important statement.  Ms. Stalcup indicates that the “information provided is only intended to be a general summary” but it isn’t “intended to take the place of either the written law or regulations.”  While Ms. Stalcup encourages readers to review statutes, regulations and other materials issued by CMS on this subject, that is impossible as there is nothing that specifically addresses liability Medicare set asides.  She limits the applicability of the memo to the states covered by the Region 6 office, which are Oklahoma, Texas, New Mexico, Louisiana and Arkansas.

The central premise of the memo is that when settling a case involving a Medicare beneficiary, “Medicare’s interests must be protected; however, CMS does not mandate a specific mechanism to protect those interests.”  While she acknowledges that the law doesn’t require a “set-aside” in any particular situation, she indicates that the Medicare Trust Fund must be protected from payment for future services whether they arise from a Workers’ Compensation settlement or liability settlement because there is no distinction in the MSP. She goes on to say that a “Set-aside is our method of choice and the agency feels it provides the best protection for the program and the Medicare beneficiary.”

She goes on to identify what she believes is the legal underpinnings of the need to address Medicare’s future interests.  She states that “Section 1862(b)(2)(A)(ii) of the Social Security, Act [42 USC 1395 y(b)(2)], precludes Medicare payment for services to the extent that payment has been made or can reasonably be expected to be made promptly under liability insurance. This also governs Workers’ Compensation.  42 CFR 411.50 defines the term “liability insurance”. Any time a settlement, judgment or award provides funds for future medical services, it can reasonably be expected that those monies are available to pay for future services related to what was claimed and/or released in the settlement, judgment, or award.  Thus, Medicare should not be billed for future services until those funds are exhausted by payments to providers for services that would otherwise be covered and reimbursable by Medicare. If the settlement, judgment, award. y [sic] are not funded there is no reasonable expectation that third party funds are available to pay for those services.”

Ms. Stalcup ‘s memo notes that CMS does not have a formal process to review and approve Medicare set asides like they do in Workers’ Compensation cases. Nevertheless, Ms. Stalcup states that CMS does expect the funds to be exhausted on otherwise Medicare covered and otherwise reimbursable services related to what was claimed and/or released before Medicare is ever billed” regardless of whether a set aside is reviewed/approved by CMS.

As is the case in Medicare conditional payments obligations, Ms. Stalcup emphasizes that allocations made in a settlement agreement to different categories of damages is ineffective in terms of getting around the obligation to set funds aside.  The memo states that the “fact that a settlement/judgment/award does not specify payment for future medical services does not mean that they are not funded.”  Further, the “fact that the agreement designates the entire amount for pain and suffering does not mean that future medicals are not funded.”  While Medicare has been challenged and lost in the 11th Circuit on the issue of its failure to recognize allocations by a court order other than on the merits of the case (see Bradley v. Sebelius), Ms. Stalcup sticks to the CMS position on this issue and states that the “only situation in which Medicare recognizes allocations of liability payments to nonmedical losses is when payment is based on a court of competent jurisdiction’s order after their review on the merits of the case.”  “If the court of competent jurisdiction has reviewed the facts of the case and determined that there are no future medical services Medicare will accept the Court’s designation.”  The lesson from these statements is that CMS will not stand for attempts to shift damages to non-medical categories and will not recognize allocations unless via a court order on the merits of the case.  While this may force issues of damages to be tried and clog the court system, CMS continues to take this ridiculous position.

To clarify what is considered future medical portions of a recovery and how to know whether a settlement includes them, the memo gives some examples. “Consider the following examples as a guide for determining whether or not settlement funds must be used to protect Medicare’s interest on any Medicare covered otherwise reimbursable, case related, future medical services. Does the case involve a catastrophic injury or illness? Is there a Life Care Plan or similar document? Does the case involve any aspect of Workers’ Compensation? This list is by no means all inclusive.”  An important part of the memo addresses what is “case related” medical expenses.  CMS’s view is that this includes “more than just services related to the actual injury/illness which is the basis of the case.”  “Because the law precludes Medicare payment for services to the extent that payment has been made or can reasonably be expected to be made promptly under liability insurance, Medicare’s right of recovery, and the prohibition from billing Medicare for future services, extends to all those services related to what was claimed and/or released in the settlement, judgment, or award. Medicare’s payment for those same past services is recoverable and payment for those future services is precluded by Section 1862(b)(2)(A)(ii) of the Social Security Act.”

The memo does address CMS’s view of plaintiff counsel’s obligations in regard to future Medicare covered services incurred by the client.  “We do however urge counsel to consider this issue when settling a case and recommend that their determination as to whether or not their case provided recovery funds for future medicals be documented in their records.  Should they determine that future services are funded, those dollars must be used to pay for future otherwise Medicare covered case related services.”  CMS will not issue opinion letters or sign off on determinations of whether or not there is a recovery of future medical services triggering the need to protect the Medicare Trust Fund.  The memo puts the determination of these issues in the lap of the attorney handling the claim.  According to Ms. Stalcup, each “attorney is going to have to decide, based on the specific facts of each of their cases, whether or not there is funding for future medicals and if so, a need to protect the Trust Funds.”  “They must decide whether or not there is funding for future medicals. If the answer for plaintiff’s counsel is yes, they should . . . 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.”

9/29/11 CMS HQ Memo

On 9/29/11, CMS issued a memorandum that provided an exception to the need to create a set-aside in a liability case. 

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, the parties just need to retain a copy of the doctor’s letter/certification to show that no liability MSA is needed in the case.  Fourth, and most importantly, it reinforces the negative in that if you don’t fall within this exception then a liability Medicare set aside should be considered.




The Synergy Settlements team will work diligently to ensure your case gets the attention it deserves. Contact one of our legal experts and get a professional review of your case today.

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