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?