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.