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.