New Jersey Court Grants Motion to Enforce & Questions Need for Liability Medicare Set Asides
Roy Franco
August 17, 2012

Sipler v. Trans Am Trucking, Inc., et al., 2012 US Dist. LEXIS 109278 (U.S. Dist. Court for New Jersey, 7/24/2012).

Facts: (Highlights):

  1. A settlement was reached for $225,000 on the eve of trial;
  2. No other terms were discussed at the time of settlement
  3. The injured plaintiff had recently become eligible for  Medicare benefits, but Medicare did not pay  because incident-related medical was paid for by a first-party auto insurance policy, and later covered by  a group health insurance plan in which plaintiff was l enrolled in and expected to be enrolled in for the foreseeable future.
  4. Defendant proposed release terms contained additional  provisions not previously agreed to or discussed at time of settlement:
    1. Prohibiting  Plaintiffs from submitting reimbursement claims to Medicare for injuries arising out of the March 8, 2006 accident;
    2. Prohibiting Plaintiffs’ private group health plan from  paying for the claims arising out of the accident-related injuries because those injuries are preexisting; and
    3. Seeking Plaintiffs’ acknowledement that Medicare will not pay for future treatment for injuries arising out of the accident.
    4. Plaintiffs  could not agree to defendants’ additional proposed terms  and  filed a Motion to Enforce the Settlement.

Issues:  Does federal law require Plaintiffs to disqualify themselves  from Medicare benefits or establish a Medicare set aside for his future treatment?  Do Defendants have authority to protect the rights of Medicare?

Court Holding:  No and no.   With regard to the first issue, Plaintiffs no-fault and Group Health Plan coverage is primary over Medicare under the Medicare Secondary Payer Act.  When these plans are no longer applicable (through cancellation or other reasons), Medicare is primary.  The Court found it offensive that defendants would essentially leave Plaintiffs without benefit of medical coverage by virtue of a Release.  We agree with the Court on this position as protection of  health coverage is an important privilege that should not be waived without careful consideration.

In regards to a requirement for a Liability Medicare Set Aside Arrangement (LMSA),  Defendants cited to the CMS Memo, dated September 29, 2011, stating that under the MSP, “[a]ll parties do have significant responsibilities under the MSP to protect Medicare’s interests when resolving cases that include future medical expenses.  A recommended method to protect Medicare’s interest is a set-aside arrangement , which allocates a portion of the settlement for future medical expenses.  The amount of the set-aside is determined on a case-by-case basis.”  The court cites to support its position denying any weight to the CMS Memo, the cases of  Christensen v. Harris County, 529 U.S. 576 and Shalala v. Guernsey Memorial Hospital, 514 U.S. 87.  Each of those cases found  Medicare Provider Reimbursement Manual “is a prototypical example of an interpretive rule” that does not require notice and comment, and therefore “does not have the force and effect of law and is not accorded that weight in the adjudicatory process.”  We disagree with the Court, that if appealed this position will be upheld for several reasons.

1.  The CMS Memorandum – Medicare Secondary Payer – Liability Insurance (Including Self-Insurance) Settlements, Judgments, Awards, or Other Payments and Future Medicals — Information, dated September 29, 2011 is not part of the Medicare Reimbursement Manual;

2.  The Court does not mention or provide any analysis with regard to the Chevron deference; and

3.  Medicare based on its recent publication in the Federal Register requesting commentary on its Advanced Notice of Proposed Rule Making, dated June 12, 2012 is clearly moving in an opposite direction.

Franco Signor LLC Commentary:  A few in the   liability industry are  citing to the Sipler decision as precedent.  The case is of  limited value from a precedential standpoint.  It is one District Court’s opinions and the opinion therein may be persuasive for that District Court, but outside would have little precedential weight.  The Court’s premise that the CMS Memo has little weight and is contrary to opinions of other Courts.  A recent decision by the Third Circuit Court of Appeals in Avandia Marketing v. Products Liability Litigation Glaxosmithkline, LLC, 2012 U.s. App. LEXIS 13230  found CMS MSP Memos are to be given great weight under the Chevron deference. 

The Court’s dicta with regard to public policy promoting settlements as well as impracticality of requiring pre-approval of a liability settlement is also not persuasive.  On Writ of Certiorari to the U.S. Supreme Court is Hadden v. U.S. and the central issue to be decided is Medicare’s insistence that it be reimbursed 100% of the conditional payments because of the settlement and Medicare’s acknowledgement that if the matter were tried it would take less.  Up through at least the Third Circuit (Hadden) and Ninth Circuit (Zinman) the Courts the appellate courts are not as concerned about the public policy promoting settlements.  As for the impracticality of requiring prior Medicare approval, Medicare has proposed rules (ANPRM) :  (http://tinyurl.com/945wx7o) suggesting exactly that take place under Option 3.

The real crux of this  case is the ambush by defendants with regard to proposed Medicare terms.  We have advised our clients that proper Medicare compliance requires Parties settling the case, be proactive on managing any potential Medicare-related provisions.  If so,  this motion may not have seen the inside of a courtroom.  The primary plan is exposed under 42 C.F.R. Section 411.24(i) to Medicare and is required to reimburse, even if it has paid Claimant.  This exposure must be effectively dealt with, but until clearer rules are developed it will have to be done through cooperation.  The actions taken in by Sipler defendants have increased exposure, because now they are required to report under 42 U.S.C. Section 1395y(b)(8) and the exposure outcomes of such reporting remain to be seen.

At Franco Signor LLC we remain available to discuss with you the MSP issues surrounding a claim!