Facts: Plaintiff, a crane mechanic, was injured on the job. In addition to his workers’ compensation claim, he presented a claim against the owner/operator of the liftboat he was working on. He settled his liability claim for $785,000 and agreed to pay $82,500 of it to his employer’s workers’ compensation carrier in exchange of a waiver of their lien against all parties. He also agreed to be responsible for payment of his future medical expense, relieving the workers’ compensation carrier of its responsibility to prepare a Workers’ Compensation Medicare Set Aside (WCMSA) in lieu of a Liability Medicare Set Aside (LMSA).
Issue: How to protect parties with a LMSA in absence of a CMS approval process where a WCMSA is also available to the parties?
Ruling: No lawsuit was on file for the liability claim at the time it was settled by the parties. Under the terms of the settlement, Plaintiff agreed to prepare a LMSA to protect Medicare’s interest with regard to future medical. A MSA Vendor was retained by Plaintiff and an allocation for $6,701 was made. Plaintiff then filed this declaratory action in Federal District Court to approve the LMSA.
Jurisdiction was established under the Outer Continental Shelf Lands Act, as the accident took place in the Gulf of Mexico off the coast of Louisiana. The basis of the declaratory judgment was based on an actual controversy over the parties obligations to comply with the Medicare Secondary Payer Act. The Centers for Medicare and Medicaid Services (CMS) was invited to participate in the proceeding in that it had not established any procedures for approval of third party liability settlements.
CMS declined to participate, but in its declination to participate submitted through the U.S. Attorney’s office the following points:
1. CMS does not review or verify counsel’s determination of amount to protect Medicare’s interest;
2. CMS would not determine whether a set aside is needed; however,
3. CMS expects the settlement funds to be exhausted before Medicare is billed for future medical.
The Court agreed to hear the motion with the purpose of allocating the settlement amount between what Plaintiff could retain for personal use and what had to be set aside for future medical. The court’s ruling would cause Medicare to resume payment of benefits when the LMSA was exhausted versus the entire settlement amount of $785,000.
In confirming the LMSA value of $6,701, the court considered the following evidence:
1. Plaintiff required cervical decompression and fusion at C5-6 and C6-7 on 5/17/2011;
2. Plaintiff’s treating physician reported that Plaintiff had reached Maximum Medical Improvement (MMI) on 4/11/2012 with residual stiffness in neck requiring pain management;
3. On 5/31/2012, Plaintiff’s pain management doctor discontinued all prescription medications and only recommended over-the-counter drugs, discharging him from care; and
4. All treating physicians reported no further surgical or prescription medications were needed related to the accident BEFORE settlement;
Recognizing CMS declination to participate in the proceeding, and taking into account the health status of Plaintiff BEFORE settlement; and the professional review of future medical care based on the record by the MSA vendor, the court found the LMSA allocation to be sound and approved it.
Franco Signor Commentary:
1. Jurisdiction in Federal Court is difficult. The Medicare Secondary Payer Act does not confer jurisdiction on parties to go into Federal Court to confirm a LMSA. Jurisdiction needs to be established in an appropriate manner, under the proper statute. Here jurisdiction was allowed under a distinct Federal statute that governed activities in the Gulf of Mexico. If considering this option, finding the right pathway is key, otherwise the Court will dismiss. Jurisdiction is easier in State Court, but Medicare may be more apt to ignore state court rulings.
2. WCMSA was available to the parties, but the long approval process and the uncertainty of the amount of medicals the review contractor would approve caused the parties to opt out of that recommended process in exchange for U.S. District Court approval. In cases involving a third party settlement and workers’ compensation the MIR data reporting rules are not clear. Had this case involved a Plaintiff that was a Medicare beneficiary the workers’ compensation carrier may have still needed to deal with conditional payments and treasury demands in the future.
3. The declaratory action appears to be a good vehicle to confirm the LMSA. It allows the parties to properly set their rights under the Medicare Secondary Payer Act. The focus was on confirming the allocation; however, the opportunity should also be used to get an order for the workers’ compensation carrier to terminate ORM. This could be a powerful ruling should the Department of Treasury later seek recovery against the workers’ compensation carrier. With regard to the third party carrier, the appropriate MIR data to report such as TPOC amount should also be addressed. As Medicare can only collect against medicals, perhaps having an order that the TPOC was equivalent to the LMSA would be consistent with CMS prior policy in its MSP Manuals. Medicare can only collect from that portion of the judgment related to medicals. Having that reaffirmed would mitigate the third party carrier’s exposure to the medical portion only, should Medicare later make a claim. Again these additional steps should be considered if Plaintiff were a Medicare beneficiary as it would have required both the liability and workers’ compensation carrier to comply with MIR.
4. A court ruling, especially a District Court ruling, is helpful but still subject to attack from subsequent CMS action. We have seen situations where Medicare ignores the Court ruling. What makes the ruling stand a subsequent attack by Medicare is having a hearing on the merits. If matters are simply rubber stamped by the parties, it will fail a later attack by CMS. The way in which the court laid out and considered the medical evidence makes it a stronger case.
5. Plaintiff was not yet a Medicare beneficiary, so conditional payments at time of settlement will always be a moot issue. Medicare does not pay for items and services of non-Medicare beneficiaries. In a liability case, the MSP Act does not apply and so goes the need for a LMSA. However, Plaintiff agreed in this case to take responsibility for future medical that the workers’ compensation carrier was responsible for. Under the recommended process for a WCMSA, the workers’ compensation carrier would have had to get an approved WCMSA. Thus it made sense in our opinion to undertake this effort.
6. Finally, this is a case where there was an exceptional outcome medically that drove a low value LMSA. CMS does not care about fault, but in a court situation on the merits, a fault determination hearing could be had to adjust the allocation to match up with a party’s legal responsibility to pay. Unless the Supreme Court hears The Hadden case, additional steps will need to be taken to allow a beneficiary plaintiff to freely spend a settlement on matters other than medical. This case if anything, confirms Medicare’s position that it is entitled to see an entire settlement exhausted before it resumes benefits. This could surprise a lot of people as MIR data is being processed by Medicare.
At Franco Signor we strive to look at all issues to mitigate exposure. Please contact us to discuss your pending case to achieve the best possible protection.