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Medicare Set-Asides for General Liability Settlements: How to Protect Your Clients and Your Practice

February 3, 2021

Rasa Fumagalli, JD, MSCC, CMSP-F and Jennifer L. Yu, Esq.

In stark contrast to the world of worker’s compensation, most attorneys agree that there is a dangerous amount of gray area surrounding the subject of Medicare Set-Asides for liability settlements.  This is so because the Centers for Medicare and Medicaid Services (CMS) has been slow in providing any real guidance for liability settlements that include compensation for future medicals costs.

To date, the guidance consists of the May 2011 CMS Stalcup memo (one regional director’s view) and the September 2011 CMS memo regarding treating physician certifications.

In 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 that time, the proposed rulemaking has been continuously postponed. In light of this, it falls upon the attorney to take “reasonable efforts” to protect Medicare’s interest.  Failure to do so could result in possible disruption of a client’s benefits and open the attorney up to a malpractice claim.  One of the most effective ways to protect against this is by calling in a Medicare expert for an MSP case evaluation.

The absence of formal regulation by CMS does not mean that the MSP Act does not apply to liability settlements. The MSP Act clearly prohibits Medicare from making payment when “payment has been made or can reasonably be expected to be made under a…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 is a Medicare beneficiary and accepts a settlement that provides funds intended to compensate her 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 could demand reimbursement.

Assessing next steps for your client when it comes to the MSP comes down to your client’s risk tolerance.  There is no requirement that any moneys be set aside for future care covered by Medicare, but it is important to keep in mind that Medicare is on notice of any settlement as it has the benefit of 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 include the injury-related diagnosis codes, since the codes are added to the plaintiff beneficiary’s Medicare Common Working File. This can easily trigger a future denial of injury related care by Medicare.  An MSA is the easiest way to protect against this issue.  It will ensure that the proper amount of money is apportioned and also acts as a type of deductible; meaning that once those funds are depleted Medicare will pick up the payments from that point.


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 if Medicare is involved. 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. The MSP compliance strategy however should always be driven by the circumstances of the case. If the area of MSP compliance is outside of your legal expertise, protect your firm and your client by partnering with an expert in the field. Until CMS provides additional guidance, the safest and easiest way to navigate the gray area is to work with an outside MSP compliance expert to assess your clients’ future need and provide supporting documentation for your file.


[1] 42 U.S.C. § 1395y(b)(2)(a).

[2] 42 C.F.R. § 411.22.

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