In early August, 2009, the American Association for Justice (AAJ), formerly the Association of Trial Lawyers of America (ATLA), sent out an e-mail bulletin to its members on the use of Medicare Set-Asides (MSAs) in liability settlements. Here is what the bulletin said:

                                        EMERGENCY MEDICARE SET ASIDE INFORMATION

Dear Colleague:

In cases involving Medicare beneficiaries, attorneys for both the plaintiff and defendant are required to report certain information to the Centers for Medicare and Medicaid Services (CMS). In addition, any case settlement or judgment must reimburse Medicare where the Trust Fund has made conditional payments for medical costs. Under the Medicare Secondary Payer Act, attorneys have been settling cases involving liability claims without completing a Medicare Set Aside (MSAs) to account for future medical costs. However, attorneys representing claimants in workers’ compensation cases have been preparing MSAs on a case-by-case basis.

It has come to our attention that some defense firms and insurance providers are now claiming that CMS requires MSAs in liability cases pursuant to Section 111 reporting requirements included in the Medicare, Medicaid & SCHIP Act of 2007 (MMSEA), Public Law No. 110-173. This is false. Section 111 contains reporting requirements for responsible reporting entities(1) (RREs) only. Section 111 does not impact or change the requirements for plaintiffs’ attorneys.

Moreover, statements from CMS, and other federal entities, make clear that the agency does not require set-asides for liability claims. Since the MMSEA’s passage, CMS has held several Town Hall teleconferences to discuss the Section 111 requirements. During the March 24, 2009 call, Barbara Wright, CMS’ Acting Director of the Division of Medicare Debt Management, made several statements reiterating that Section 111 has no impact on liability MSAs.(2) For example:

· In response to a question as to whether liability set-asides will be required under Section 111, she said "the point is the set-aside process is totally separate from the Section 111 reporting process. As we’ve said in more than one call we don’t anticipate changing our routine recovery process." (Transcript, pg. 24)

· When explaining that worker’s compensation agreements use a formal review process which makes set-asides recommended, she said that was in contrast to liability agreements. Liability "does not have the same formal review process although our regional offices will consider review of proposed liability set-aside amounts depending on their particular work load and whether or not they believe significant dollars are at issue."
(Transcript, pg. 24).

    In addition, CMS also has released several Alerts explaining Section 111, which do not indicate any intent to require MSAs for liability claims. For example:

· "Unless you are a business entity which qualifies as [a required reporting entity (RRE)] for purposes of Section 111, you do not need to initiate any specific actions in connection with Section 111." (CMS Alert, 2/23/09).(3)

· "The new Section 111 requirements do not change or eliminate any existing obligations under the MSP statutory provisions or regulations." (CMS Alert, 2/23/09).

    Moreover, the Congressional Research Service (CRS) provided Congress with an "objective and non-partisan analysis" analysis of the MMSEA. As there was no legislative history regarding the bill, the CRS research report is the most reliable analysis of the MMSEA, including the Section 111 reporting requirements.

    CRS’ analysis of the Section 111 reiterates that it is a reporting requirement, and makes no mention of the need for set-asides in liability cases. The Section 111 analysis states, in part:

    This provision requires an insurer or third-party administrator for a group health plan (and in the case of a group health plan that is self-insured and self-administered, a plan administrator or fiduciary) to (1) secure from the plan sponsor and participants information required by the Secretary for the purpose of identifying situations where the group health plan is or has been a primary plan to Medicare, and (2) submit information specified by the Secretary. If an insurer or third-party administrator for a group health plan fails to comply, then a $1,000 per day civil monetary penalty will be imposed for each individual for which information should have been submitted.(4)

    If CRS believed that the legislative language implies any Congressional endorsement of liability set-asides, it would have been included in this analysis.

    The information in AAJ's little analysis is essentially accurate as far as it goes, but the analysis itself is woefully flawed and incomplete in that it completely ignores the 800-pound gorilla in the room. It is true that MMSEA Section 111 says nothing about MSAs in liability settlements (or in WC settlements either, for that matter). In fact, no federal statute or regulation currently in existence even contains the words "Medicare Set-Aside." Just the same, MSAs have been in use in Workers' Compensation settlements since 1995 (about 6 years before Medicare announced any formal procedure for review of Workers' Compensation MSAs), not because of the MMSEA, but because of provisions found in 42 U.S.C. Sec. 1395y(b)(2) (the Secondary Payer Statute), which predates the MMSEA by more than 25 years. What the AAJ piece misses is the fact that the same provision of the Medicare Secondary Payer statute that gave rise to the use of MSAs in WC settlements applies equally to liability settlements and has done so since December of 1980!

    If the AAJ's point is to try to assure PI attorneys that the MSP statute's provisions regarding Medicare's treatment of post settlement medical expenses do not apply to liability, then the AAJ is incorrect.

42 U.S.C. Sec. 1395y(b)(2)(A)(ii) states:

" In general
Payment under this subchapter may not be made . . . with respect to any item or
service to the extent that -

(ii) 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."

    Can someone please show me where the above provision applies to WC any differently than it does to liability (or to automobile or no-fault insurance)? A liability settlement is a situation where "payment has been made . . . under a . . . liability insurance policy or plan (including a self-insured plan)." As such, Medicare is prohibited from covering any of the plaintiff’s future injury-related medical expenses if the settlement included compensation for those expenses. In other words, Medicare retains its status as Secondary Payer after the plaintiff’s liability claim is settled, just as in Workers’ Compensation settlements. That status continues until the future services for which payment was made from the Workers’ Compensation or liability settlement have been provided to the plaintiff and paid for by the plaintiff out of his or her settlement proceeds.

    The Medicare Set-Aside was invented by a former Elder Law attorney in 1995 as a means to ensure the proper application of proceeds from a Workers’ Compensation settlement toward the claimant’s post-settlement medical expenses so that Medicare would begin coverage of those expenses upon proper exhaustion of those settlement proceeds. The Medicare Set-Aside was created as a tool to provide a safe means to comply with the requirements of the Secondary Payer statute in a particular case. It could have just as easily been developed to fulfill the same function in the context of a liability settlement, but for the fact that the particular case that spawned the first MSA happened to be a Workers’ Compensation case. Since that time, use of MSAs in Workers’ Compensation settlements has become a standard practice where Medicare’s interests under the Secondary Payer statute are implicated. This is not because MSAs do not apply in the context of liability settlements, but rather because the appropriateness of using MSAs to reasonably consider Medicare’s future interests as Secondary Payer in liability settlements has simply been overlooked or ignored until fairly recently.

    Since 2005, representatives from CMS have stated that Medicare's interests must be reasonably considered in liability settlements just as much as in WC settlements. While CMS has not officially stated that MSAs are recommended in liability settlements and has not published any official policies or procedures on this subject, several CMS Regional Offices have been voluntarily reviewing MSA submissions in liability settlements for almost three years (just as the Regional Offices were doing with Workers' Compensation MSAs until CMS began issuing policies and procedures for review of WCMSAs in 2001). Clearly, this would not be the case if the CMS Central Office had not authorized them to do so. Why would CMS Central give authorization to any Regional Office to spend precious time and manpower on a superfluous task? If it were okay to just ignore Medicare's interests as secondary payer post settlement, why allow any Regional Office to review a single MSA proposal in a liability settlement?

    What the MMSEA does is require reporting of detailed information in any liability (or Workers' Compensation or No-Fault) settlement involving a Medicare beneficiary. That information, in turn, will clearly alert CMS to any situation where a "payment has been made" (e.g., through a judgment, settlement or award) by a liability carrier or self-insured liability defendant so that Medicare will be able to deny payment for future injury-related care until the beneficiary can demonstrate that his or her settlement monies have been exhausted on payment for such care. In short, all the liability settlements that flew under the radar for years will now be bright green blips on CMS' screen. Can anyone really take the position that CMS is only requiring this reporting because they like looking at bright green blips? The MMSEA reporting requirements are clearly designed to provide CMS with a superior ability to ensure that its interests under the MSP statute are being reasonably considered in Workers’ Compensation, No-Fault and liability settlements.

    So, if Medicare's interests must be reasonably considered in liability settlements, just as they must be reasonably considered in WC settlements, how will parties settling a liability case ensure that this is done where CMS will now know about every liability settlement involving a Medicare beneficiary? Answer: use a tool that has proven to be effective for this purpose in a related context, i.e., a Medicare Set-Aside arrangement. Of course, if someone comes up with a better tool, use it. In the mean time, the MSA is the most effective tool available.

    On the other hand, doing nothing at all, as the AAJ appears to advise, cannot possibly be considered "reasonable consideration of Medicare's interests," no matter how that phrase is defined. For AAJ to be advising its members that, when settling a liability case for a Medicare beneficiary, they can simply ignore all of the MSP statute other than the part requiring repayment of Medicare conditional payments made prior to settlement, is simply irresponsible. I wonder if the AAJ will stand behind any of its members who suffer legal consequences as a result of following that organization’s unsound advice?

    I recently received an e-mail from an Elder Law attorney asking the following questions:

1. Insurance defense counsel are beginning to ask for MSA’s in liability matters now.  I understand your suggestion that the law is and has been that Medicare’s interest must be considered.  But in reality, people have been settling these actions by the thousands for many years without setting up MSA’s.  Is it really reasonable to conclude that all of those people face the prospect of being cut-off benefits?  Isn’t it more reasonable to assume that if in fact this becomes the standard, that requirement will be applied prospectively?  And then, isn’t it malpractice for a plaintiff’s lawyer to agree to a restriction on the funds recovered that isn’t required?

2. The July 2009 changes appear only to require reporting by the insurance carrier.  It’s probably a fair inference to conclude that this is the first step toward implementing a requirement for MSA’s in liability cases, but it doesn’t say that – does it?  Again, is it reasonable for plaintiff’s attorneys be agreeing to significant limitations on how the funds recovered for their clients are able to be used, before there is any clarity on this point from CMS?  After all, what will the safe- harbors be?  Same as WC? Something else?

3. Do the penalty provisions for failure to comply in liability cases reach the plaintiff’s lawyer – or are they just against the insurance carrier?  Looks to me like the carrier only – but I may be missing something.

    These are good questions and are representative of what a lot of people are asking about this issue.  Here is my response:

    
Thank you for your e-mail.  I will be happy to address your comments.

1.         The language in the Medicare Secondary Payer (MSP) Statute at 42 U.S.C. §1395y(b)(2)(A) prohibiting payment for items or services that have been paid by a WC plan or an automobile, liability or no-fault plan has been in the statute since 1980.  This is the language that initially prompted the use of Medicare Set-Asides in WC settlements beginning in 1995 (6 years before CMS officially announced any policies on the use of Medicare Set-Asides (MSAs)).  This same language is the basis for statements we have been hearing from people at CMS since 2005 (and from at least one attorney with HHS’ Office of General Counsel with whom I spoke as far back as 2003) that CMS considers Medicare to be secondary after settlement in both WC and liability cases and that Medicare’s interests must be reasonably considered in both contexts.  It is reasonable to assume that any person who settled a liability claim under the existing statute runs the risk of having benefits denied for injury-related care unless he or she can demonstrate that the settlement, or at least a reasonable allocation from the settlement towards future injury-related medical expenses of the type covered by Medicare, has been exhausted on injury-related medical care.  It is also reasonable to assume that CMS has the right to recover any post-settlement overpayments and that CMS will enforce that right.  Whether CMS will only act prospectively from some date yet to be determined or whether CMS will go back 4 years, 10 years or 28 years is anyone’s guess.  However, be aware the several CMS Regional Offices have been reviewing MSA proposals in liability settlements on a discretionary basis for at least 2 years now.

            Since at least when I started practice in this area over a decade ago, it has been routine practice for Medicare contractors (formerly the Part A fiscal intermediaries and the Part B carriers) to send a letter to Medicare beneficiaries, either when the beneficiary first enrolled in Medicare or whenever the contractor received a request for payment of an item or service that matched their computer’s list of treatments commonly associated with an injury.  (42 U.S.C. §1395y(b)(5)(D)).  That letter affirmatively requested information on whether there was an injury; whether a 3rd party claim existed and all of the pertinent information on the claim, including the identity of the liable third party and its insurance carrier.  The purpose of gathering this information was to identify the existence of 3rd party claims and payments; facilitate the collection of overpayments for injury-related medical care; and to prevent future overpayments.  Last February, CMS amended its MSP regulations.  Among those amendments were the following revisions to 42 C.F.R. §411.25:

 § 411.25 Primary payer’s notice of primary
payment responsibility.
(a) If it is demonstrated to a primary
payer that CMS has made a Medicare
primary payment for services for which
the primary payer has made or should
have made primary payment, it must
provide notice about primary payment
responsibility and information about the
underlying MSP situation to the entity
or entities designated by CMS to receive
and process that information.
* * * * *
(c) The primary payer must provide
additional information to the designated
entity or entities as the designated entity
or entities may require this information
to update CMS’ system of records.
 

            The new reporting requirements coming into effect on July 1, 2009 seem to me to be an extension of this practice to place the burden of reporting directly on the insurance carriers without the need to send the traditional “liability letter.”  It certainly indicates to me that CMS is preparing to become more active in enforcement, but that does not mean that those who settled liability claims before July 1, 2009 without taking Medicare’s interest as secondary payer properly into account can breathe easy.

            As far back as I can remember, the Medicare contractors responsible for processing requests for payment have routinely denied coverage for items or services resulting from injuries where they are aware that a 3rd party (WC plan, automobile, liability or no-fault plan) is liable and the Medicare beneficiary cannot demonstrate that any payments he or she may have received as the result of a settlement, judgment or award have been expended on injury-related medical care.  Where they have not taken this position, it is generally because they have not been made aware of the fact that there is or was a liable 3rd party or that a payment has been made.  Given the fact that the Medicare beneficiary has had an affirmative duty under the MSP Statute since at least 1980 to report the existence of liable 3rd parties, any lack of coverage denial by Medicare under the MSP statute due to lack of proper reporting hardly seems solid ground for any defense against CMS if it were to choose to become more aggressive in enforcement, whether prospectively or retroactively.

            You asked if it is reasonable to assume that “all of those people face the prospect of being cut-off benefits.”  In fact, only a fraction of these people will actually face a cut-off in benefits because CMS probably will not catch everyone who is currently not in compliance with the law.  (Just as the IRS certainly has not caught everyone in the U.S. who is out of compliance with the Internal Revenue Code).  I think the better question is:  Is it reasonable to assume that none of those people face such a prospect and, if not, is it reasonable to assume that my client will not be among the unlucky ones whose benefits are cut off; or who may find himself or herself at the wrong end of an action by the federal government to recover a post-settlement Medicare overpayment?  In my opinion, a lawyer’s duty is to his or her client; and if failure to comply with the MSP statute creates a risk that his or her client may be adversely affected unnecessarily, that lawyer should ensure compliance with the MSP statute in the context of the client’s liability settlement or be prepared to face the consequences.

            You asked if it is malpractice to place restrictions on a plaintiff’s settlement unnecessarily.  My answer would be “yes.”  However, the question incorrectly assumes that the creation and funding of an MSA creates restrictions in excess of those already existing (see the discussion under my answer to your question #2 below); and that any restrictions involved in funding an MSA from the proceeds of settlement are unnecessary.  I believe it would more likely be considered malpractice to:  a) settle a case without considering the impact of a federal statute that has been in effect for over 25 years; b) advise a client that he or she does not need to comply with federal law because CMS will not find out about the settlement or because CMS will probably not do anything about it; c) jeopardize a client’s future Medicare benefits for injury-related care unnecessarily; and d) potentially expose the entire settlement to payment for injury-related medical care when, by going through some fairly simple steps, that exposure could be limited to only a relatively small percentage of the settlement.

2.         Section 111 of the Medicare, Medicaid and SCHIP Extension Act (usually “MMSEA” but which I like to refer to as “MMSCHIP” – pronounced “Mess Chip”) requires required entities, including WC and liability insurers and self-insurers, to report certain proscribed information to CMS whenever they determine one of their claimants to be eligible for Medicare.  This reporting requirement goes into effect under the statute on July 1, 2009.  That statute does not say anything about Medicare Set-Asides or anything similar in the context of either WC or liability settlements.  It seems that quite a few attorneys and other professionals out there mistakenly believe otherwise.  Section 111 itself does not specifically require the use of MSAs in liability settlements; and it does not mark any significant point in time for compliance with the already-existing requirements applicable to liability carriers under the MSP statute. 

            However, most knowledgeable folks practicing in the area of MSAs realize that CMS would not be launching such a mammoth information gathering venture unless it planned to put that information to use.  Those of us who practice in this area recognize that the type of information being required by CMS under MMSCHIP is hauntingly familiar in character – it is precisely the type of information required to accompany a typical proposal to CMS for review and approval of an MSA in a WC settlement.  That the reporting requirement is expressly applied to liability carriers as well as WC carriers tells us that CMS likely has plans to develop practices and procedures for submission and approval of MSAs in liability settlements, similar to those currently in place for WC settlements.  However, the MMSCHIP reporting requirements are hardly the first effort by CMS to protect its interests in liability settlements.  As I stated above, they have been making such efforts for years now.  Rather, I see the reporting requirements as an effort by CMS to improve the efficiency of its ongoing efforts to enforce the MSP statute.

            Again, you ask about what is reasonable for a plaintiff’s attorney to advise his or her client in the context of a liability settlement where the MSP statute and its requirements are implicated, even though CMS has not yet set forth policies and guidelines for the use of MSAs in liability settlements. 

            First, let me clarify that there are no safe harbors for WC settlements and there likely will not be any for liability settlements either.  Many believe that there is a safe harbor for WC settlements where either a) the claimant is currently eligible for Medicare and the settlement is less than $25,000; or b) the claimant is reasonably expected to become eligible for Medicare within 30 months of the settlement and the total settlement is less than $250,000.  In fact, these are workload control criteria only, not safe harbors.  That is, CMS does not require submission and review of MSAs in these cases, but still requires that Medicare’s interests under the MSP statute be reasonably considered.  In plain English, this means that CMS still expects some type of arrangement such as an MSA to be set up and properly funded and administered – CMS just does not want to review and approve the arrangement in advance. 

            So, back to your question as to whether it is reasonable for a plaintiff’s attorney to agree to significant restrictions on a plaintiff’s settlement before CMS has offered any clarification on this point:

            You have characterized the creation and funding of an MSA as placing restrictions on a portion of the plaintiff’s settlement.  This is not strictly the case.  The truth is that the MSP statute already places restrictions on the plaintiff’s settlement.  That is, the statute clearly states that Medicare may not make a payment for any item or service if a liability insurance plan has already made payment; and it is clear that a settlement that closes out liability for future medical costs constitutes a payment under both the MSP statute and the regulations.  Thus, it is the making of a payment by the liable 3rd party that triggers the applicability of the MSP statute.  Medicare’s general approach is to exclude coverage of future injury-related medical expenses until the entire payment (that this, the entire settlement amount) has been exhausted on injury-related medical care, unless the settlement clearly allocates a reasonable portion of the settlement to compensation for future injury-related medical expenses of the type covered by Medicare.  Therefore, the plaintiff has two choices:  1) do not allocate the settlement and expose the entire settlement to future injury-related medical expenses before Medicare will begin coverage of those expenses; or 2) limit that exposure to only that portion of the settlement reasonably allocated to compensate for future injury-related medical expenses of the type covered by Medicare.  The latter choice is clearly the most favorable to the plaintiff.

            Think of it this way:  Once the settlement is paid, the payment becomes what is effectively a Medicare deductible relative to future injury-related medical costs.  It makes sense to minimize that deductible so as to free up as much of the plaintiff’s settlement as possible for the plaintiff to use for things other than medical expenses.  However, before Medicare will resume coverage for injury-related medical expenses, the plaintiff will be required to demonstrate that this deductible has been properly expended.  This requires some sort of an accounting.  If the plaintiff cannot prove proper application of the deductible funds, Medicare will assume that funds have been used for other items and will deny coverage.  Setting up an MSA simply provides a vehicle to segregate the deductible funds; earmark these funds for a single purpose (i.e., payment of future injury-related medical expenses of the type normally covered by Medicare); and more easily allow to plaintiff to be able to account for the proper expenditure of these funds from a separate account.  If the plaintiff must expend his or her deductible amount properly before Medicare will resume coverage, why not run that deductible amount through a separate account that improves the plaintiff’s ability to account for those expenditures when the time comes?

            If anything, setting up an MSA actually limits the restrictions that the MSP statute already places on use of the plaintiff’s settlement.  This is true, even absent any official guidance from CMS.  Remember, CMS did not invent the concept of a Medicare Set-Aside.  Rather, this concept was invented by a former elder law attorney in 1995 as a means of compliance with the requirements of the MSP statute following payment of a WC settlement.  MSAs were in use in WC settlements for 6 years before CMS finally published its first policy memorandum on the use of MSAs in WC settlements, not because CMS required it but because there was a perceived need to limit the risk that the settling claimant would not be able to receive Medicare coverage in the future for his injury-related medical care.  The same rationale applies to liability settlements today as applied to WC settlements in 1995.  The risk to the settling plaintiff already exists, even though CMS has not yet officially announced it preferences on how to reduce that risk.  An effective tool also already exists in the Medicare Set-Aside.  Most experts agree that CMS will adopt policies for use of this tool in liability settlements, as they eventually did in WC settlements.  I can see no cogent reason to advise clients not to use that tool now to limit their existing post settlement risks, even though CMS has yet to announce its official policies in that regard.

3.         Potential liability to repay Medicare overpayments from a 3rd party payment most certainly does extend to the plaintiff’s attorney.  Under 42 U.S.C. §1395y(b)(2)(B )(iii), the statute states:  “In addition, the United States may recover under this clause from any entity that has received payment from a primary plan or from the proceeds of a primary plan's payment to any entity.”  Since the plaintiff’s attorney is virtually always paid a contingency fee from the proceeds of settlement, he or she will fall squarely within this language.  This is nothing new.  See:  U.S. v. Sosnowski, 822 F. Supp. 570 (W.D. Wis. 1993).  Further, there is nothing in the MSP statute or regulations to limit that liability to pre-settlement overpayments, as opposed to post-settlement overpayments. 

            Further, I firmly believe that an attorney who fails to properly advise his or her client on the use of an MSA in connection with the client’s liability settlement risks significant exposure for malpractice liability.  This, of course, is separate an apart from any liability to Medicare under the MSP statute.

It certainly looks that way. Since at least 2005, several officials from the Centers for Medicare and Medicaid Services (CMS) and representatives from the Department of Health & Human Services' Office of General Counsel (OGC) have been keen to point out that the Medicare Secondary Payer Statute (MSP), 42. U.S.C. 1395y(b)(2), applies to liability, automobile and no-fault just as it does to workers' compensation. Under that statute, Medicare may not pay for an item or service that has been paid for by one of these types of plans. A settlement that closes out liability for future injury-related medical care constitutes a payment for that care. Therefore, Medicare will not pay for future injury-related care until the entire payment for future medical expenses from the settlement is exhausted on that care.

Since July, 2001, CMS has published eleven separate policy memoranda to date, developing and defining its policies on the use of Medicare Set-Aside Arrangements (MSAs) in workers' compensation settlements involving persones who are or soon will be eligible for Medicare. Medicare has not published any official policy or procedure on what to do in liability settlements. Further, there are no regulations dealing with Medicare’s interests post settlement other than in the regulations dealing solely with WC. However, representatives from Medicare have been unwavering in stating that, even in liability settlements, Medicare is the secondary payer and it’s interests must reasonably be considered. What they have not nailed down is exactly how they want Medicare’s interests to be reasonably considered. While I and most people I have spoken with in the MSA industry believe that an MSA is the best way to reasonably consider Medicare’s interests following the liability settlement, no one from CMS has officially pronounce this to be the case. On the other hand, the CMS Regional Offices have been accepting and reviewing some MSA proposals in liability settlements on a discretionary basis for over two years now.

Further, I think it is important to clarify that there is no statute or regulation even alluding to "Medicare Set-Asides" in connection with any type of settlement. What we have is a statute that prohibits payment for an item or service that has been paid by a liable third party (e.g., through a settlement that compensates for that item or service). CMS did not even create the concept of Medicare Set-Asides. This was an invention by an attorney that was intended as a safe and reliable means of compliance with the MSP statute, to ensure that the portion of the settlement payment meant to compensate the claimant for certain items or services is actually used to pay for those items or services, thus allowing the claimant to once again look to Medicare for coverage of injury related medical care once that payment has been properly applied. CMS immediately saw the value in this and, over time, developed policies where use of a MSA was seen as the preferred method for reasonably considering Medicare’s ongoing interests as secondary payer following a WC settlement.

The closest thing that CMS has released to the use of an MSA in the context of a liability settlement was a statement in its April, 2003 Policy Memo at Q&A #19 dealing with WC and liability settlements arising from a common injury. There, CMS indicated that a MSA would be "appropriate" since Medicare is secondary to liability settlement proceeds. (Interestingly, CMS indicated that the MSA in such a case needs to be sufficient to cover work-related medical expenses after the liability settlement is exhausted. This sounds a bit like "double-dipping." Since there is only one injury and the claimant has only one lifetime, it would seem improper for CMS to require exhaustion of the entire liability proceeds in addition to the WCMSA. However, that is an argument for another day.)

In December of 2007, Congress enacted the Medicare, Medicaid and SCHIP Extension Act of 2007, which I lovingly refer to as MMSCHIP (pronounced: "MessChip"). This act, among other things, contained provisions amending the MSP statute that will require workers' compensation, liability, automobile and no-fault carriers and self-insured plans to report certain information whenever there is a settlement, judgment, award or other payment of a claim involving a current Medicare beneficiary. Failure to report in a timely manner results in a civil penalty of $1,000 per day per claim. These provisions will go into effect by statute on July 1, 2009. CMS has not yet finalized its requirements for exactly what is to be reported, when or how, but the process has begun. CMS has already published proposals for comment, indicating the type of data it will require.

Many people in the MSA industry have mistakenly stated that MMSCHIP requires the use of MSAs in liability settlements. In fact, MMSCHIP does not contain any language that would require MSAs in liability settlements. That legislation only deals with the duty to determine Medicare status for claimants when a settlement or judgment is imminent; and the reporting of "yet to be determined" information for those claimants determined to be eligible for Medicare.

I personally believe that MMSCHIP is a signal of things to come because, after all, the requirement for reporting of information begs the question: Why does CMS want this information? As we see CMS begin to develop the type of data that it will require, I am immediately impressed by how strikingly similar this information is to that which is required for submission of a MSA for approval in a workers' compensation settlement. Given the anecdotal pronouncements of certain CMS and OGC representatives in the past, the type of information MMSCHIP will require upon settlement of a liability, WC, auto or no-fault claim involving Medicare beneficiaries, and the fact that certain CMS Regional Offices have already begun reviewing MSA proposals in liability settlements on a discretionary basis, I see CMS requiring MSAs in liability settlements as an inevitability. (I say "requiring" even though CMS likes to say it is "appropriate." This is because the failure to use an MSA where CMS feels it would be "appropriate" carries the substantial risk that CMS would require the entire settlement to be exhausted on injury-related medical care before resuming Medicare coverage of such care.)

The current process for discretionary review of liability MSAs by the CMS Regional Offices also harkens me back to the "good ole days" from 1996-2001 when we were submitting workers' compensation MSAs to the Regional Offices under very much the same type of ad hoc arrangement. When the July, 2001 memo on Medicare Set-Aside Arrangements in workers' compensation settlements was finally released, most of the policies and procedures were already familiar as having been developed on a case-by-case basis since 1996. I would not be surprised to see that same process play itself out in the context of liability MSAs.

That having been said, there are many issues that arise in the liability area that simply are not there in workers' compensation, such as comparative fault, general damages, damage caps, policy limits, etc. The bottom line is that the use of MSAs in liability settlements is still in its infancy. I suspect that the industry and CMS will go through a learning process, similar to that which led to the first policy memo on workers' compensation MSAs. There are sure to be differences in the way liability MSAs are handled as compared to workers' compensation MSAs, at least there certainly should be. I would also expect to see some new regulations under the non-workers' compensation sections of the Code of Federal Regulations at some point that would clarify CMS’ authority regarding protecting its interests as secondary payer following liability settlements. However, I do not think anyone really knows exactly how this will all look in the end.

In the mean time, my basic recommendations to personal injury attorneys who call me to "ask a few quick questions" about their upcoming settlements are:

1) If the plaintiff is eligible for Medicare or will become eligible in the foreseeable future (how long depends a bit on the size of the future medical portion of the settlement), then it is a good idea to create and fund some type of Medicare Set-Aside Arrangement;

2) If an MSA is to be created and funded from the proceeds of settlement, the plaintiff's attorney should obtain a Medicare Set-Aside allocation report from a professional with experience in projecting future, injury-related, Medicare-type expenses for medical care and prescription medications, since this report will provide the reasonable amount to be used to fund the MSA;

3) The settlement documents should contain language clearly stating that Medicare's interests under the MSP statute are being reasonably considered through the creation and funding of a MSA; and clearly stating the amount with which the MSA will be funded, representing the portion of the entire settlement allocated to future, injury-related medical and prescription drug expenses of the type normallly covered by Medicare; and

4) While it is not necessary to submit this to CMS for approval, it may be a good idea to seek a discretionary review from the appropriate CMS Regional Office if the size and character of the settlement are such that there is a substantial risk that CMS will not later agree to the sufficiency of the set-aside amount.

    On August 25, 2008, the Centers for Medicare and Medicaid Services (CMS) released its eleventh policy memorandum regarding Medicare Set-Aside Arrangements (MSAs). The new memorandum addresses pricing of implantable devices, such as spinal chord stimulators, an issue that has been somewhat controversial recently. The new memorandum also effectively eliminates the ability of a WC claimant to seek an early termination of an MSA account.

In its July 11, 2005 policy memorandum, CMS stated, at Question & Answer #10:

Q10. Beneficiaries that Request Termination of a WCMSA Account – May a claimant have any or all of a WCMSA released for personal purposes under any circumstances?
A10. The administrator of the CMS-approved WCMSA should not release set-aside funds for any purpose other than the purpose for which the WCMSA was established without approval from CMS. However, if the treating physician concludes that the beneficiary's medical condition has substantially improved, then the beneficiary (or the beneficiary's representative) may submit a new WCMSA proposal covering future expected medical expenses. Such proposals must justify at least a 25% reduction in the outstanding WCMSA funds. In addition, such proposal may not be submitted until at least five years after a previous CMS approval letter and should be accompanied by all supporting documentation not previously submitted with the original WCMSA proposal. The CMS decision on the new proposal is final and not subject to administrative appeal.

The above proposals shall be submitted to CMS c/o COBC. If CMS determines that a 25% or greater reduction is justified, CMS will issue a new approval letter. After CMS issues a new approval letter, any funds in the current WCMSA in excess of the newly calculated amount may be released to the claimant.

            Note: The above answer replaces Question Number Eleven in the April 21, 2003 ARA WC
            Memorandum. 

    The August 25, 2008 memorandum states that this provision of the July 11, 2005 memorandum is rescinded, effective immediately. The memorandum goes on to state that "[s]ection 1862(b)(2) of the Social Security Act (the Act) (42 USC 1395y(b)(2)) requires that Medicare payment may not be made for any item or service to the extent that payment has been made under a workers' compensation (WC) law or plan. Medicare does not pay for an individual's WC related medical services when that individual received a WC settlement, judgment or award that includes funds for future medical expenses, until all such funds are properly expended." 

    Thus, even if the future required medical care for a settling claimant turns out to be less involved or costly than originally anticipated, CMS will require that the settlement's allocation to future medical expenses be "frozen" as of the time of settlement. Once the MSA amount is set and the settlement is final, the MSA will need to be funded in full from the portion of the settlement payment allocated to future medical expenses of the type normally covered by Medicare. Medicare will not cover any future, injury-related medical expenses after that point until the entire MSA amount has been properly exhausted.
    
    CMS' earlier position, as stated in its July 11, 2005 memorandum, certainly seems more reasonable from the viewpoint of the claimant/Medicare beneficiary who, five years after the settlement, no longer requires injury-related medical care. After all, why should the claimant be forced to maintain funds in an MSA for items or services that will no longer be needed? Perhaps CMS' new position is designed to ensure that such a claimant's MSA will never be exhausted to ensure that there will be no future exposure to the Medicare trust fund for that claimant's injury related medical costs.

    In addition to rescinding its earlier policy on early termination of MSAs, CMS reiterated its position that "[t]o protect the Medicare Trust Fund, a set-aside arrangement should be funded based on the life expectancy of the individual unless the State law specifically limits the length of time that WC covers work-related conditions." CMS will continue to allow life expectancy to be based upon rated ages, but now limits "acceptable proof" of a rated age to rated ages shown on the letterhead of an insurance company or settlement broker (apparently, a physician's statement regarding reduced life expectancy will no longer be acceptable). Further, the submitter must include a statement that all rated ages obtained for the claimant have been disclosed.

    In its July 11, 2001 memorandum, CMS provided that it would consider rated ages in calculating remaining life expectancy. In CMS' sample WCMSA submission, dated April, 2005, CMS stated in Note 2, Page 3, that where multiple rated ages are available, CMS would require employment of the median rated age. Thus, in the past, it has been a fairly common practice among some MSA practitioners to only submit the highest rated age obtained to ensure the shortest available calculation of remaining life expectancy and the lowest available MSA allocation amount. CMS' new policy is clearly designed to force a discontinuation of this practice. 

    One of many controversies in the MSA industry in recent years has involved the seemingly arbitrary pricing of certain medical equipment and procedures by CMS and the Workers' Compensation Review Center (WCRC) in the process of reviewing MSAs submitted for approval. Certainly one of the most significant of these, at least from the standpoint of required increases to proposed MSAs, is the pricing of implanted devices, such as spinal chord stimulators. The variety of devices by type, manufacturer, durability and cost, as well as the issue of whether such a device will even be employed for a given claimant, originally resulted in inconsistent treatment of this rather expensive item in many MSA submissions.

    In the past few years, WCRC and CMS have taken to employing some assumptions, apparently across the board to all submissions where the claimant is a possible candidate for a spinal chord stimulator (SCS). If the medical records contain any indication that such a device has been recommended by the claimant's physician, the MSA has been reviewed with the assumption that the claimant has completed a successful trial of the device and that the claimant would indeed consent to the implantation of the device, even if this was not the case in reality. Further, WCRC and CMS have been adjusting proposed MSA amounts upward based upon which devices CMS and WCRC assumes would be used and based upon higher replacement frequencies than may be indicated by the actual facts of the case.

    As a result, CMS and WCRC have essentially engaged in flat rate pricing of implantable devices. This practice has drawn criticism from MSA professionals because the practice ignores the individual care needs of claimants and also ignores the state WC schedule rates for these implantable devices and related procedures. This criticism recently reached its crescendo when CMS and WCRC increased its flat rate pricing without any advance notice or explanation to the MSA industry, resulting in a flurry of rejected MSAs with seemingly exorbitant and arbitrary increases in pricing.

    CMS' new memorandum appears to address this issue by creating a new grid to be used in the pricing of SCS' and other implantable devices. The grid provides for inclusion of individualized information regarding, among other things, the type, manufacturer, useful life, and suitability to the particular claimant of the specific device to be used. It also allows for a breakdown of associated devices, providers and procedures, as well as for pricing at state WC schedule rates. This type of detail at least provides an indication that CMS and WCRC may be ready to employ a more individualized approach to pricing of SCS' and other implantable devices; and will use its flat rate pricing model for these devices as a default in the event the individualized information requested in the new grid is not provided.

    To read the new CMS memorandum in its entirety and to review the new grid for SCS pricing, please go to: www.jjcelderlaw.com/August25-08CMSMemo.pdf

Never underestimate the power of voters to influence their elected representatives.  Congress voted this week to override the president's veto and to enact H.R. 6331, the Medicare Improvements for Patients and Providers Act of 2008.  This act will prevent the dreaded rate cuts and may actually provide some improvements to Medicare.  Way to go!

Well, maybe Congress is thinking after all.  HR 6331 passed by a bi-partisan majority vote, which would stop the Medicare rate cut; provide safeguards for Medicare beneficiaries needed preventative services, mental health services and prescription medications; and enhance Medicare for people with low incomes.  I say "would" because there is still one problem:  apparently Dub is going to veto the bill.  Why am I not surprised? 

The Centers for Medicare Advocacy has set up a web site for those wishing to contact their legisators and encourage them to vote to override this presidential veto.  Here is the link:  http://salsa.democracyinaction.org/o/777/t/5888/campaign.jsp?campaign_KEY=25183

What is going on in Washington, D.C.?  It seems that there are still enough Republicans in Congress to prevent passage of legislation that would stop cuts in Medicare payments to doctors and other providers.  Are these Republican Congressmen nuts?  Cut Medicare?  What exactly do you think all these providers will do when they have to settle on an even more reduced rate of payment than they are receiving now?  Your decision is going to reduce availability of medical care to seniors and people with disabilities.  I hope you have thought about how you are going to explain this to your own parents ...<< MORE >>

"John, you have to start a blog."  A lot of people have said that to me over the past several years.  Up until now, I have been (perhaps wisely) reluctant to enter the blogosphere; and I have had my reasons.  What does one "blog" about, anyway?  Who cares about my opinion?  When am I going to find time to keep up a blog?  And most importantly, what if nobody reads the darn thing and I end up looking like an idiot?

To be honest, I suppose it really all boils down to an old geezer who is a bit scared of trying something new.  Well, we all know the cure for that, don't we?  If you are afraid of trying something new, you need to try it anyway.  So here I am, caught between the Scylla of cowardice and the Charybdis of potential failure.  How do I get myself into these situations?  Maybe that question should wait until some (possible) future blog entry.

Needless to say, I am new to this "blog" thing.  I have no idea what I am doing, but, true to form, I am going to do it anyway.  I hope this experiment, because it is essentially an experiment at this point, turns out to be something positive.  I am going to try to stick to discussing matters about which I have at least some knowledge; and which have to do with my Elder Law practice.  However, do not be surprised to see me wander afield from time to time, if only out of a need to break the monotony.

I would love input from all of you out there who might stumble upon my rantings.  I would love to know what you are interested in discussing here.  I will not necessarily indulge your preferences, but I would like to know.  I would also like to know your opinions on the topics we do end up discussing, although I do reserve editorial privilege over anything that eventually is published here.

Wish me luck and keep coming back.  OMG, what have I gotten myself into?