Liability Medicare Set-Aside Arrangements – What to Believe?
Roy Franco
October 25, 2012

An article recently published in The Brief (Fall 2012), within the Tort Trial & Insurance Practice Section of the American Bar Association, may lead the reader to draw the wrong conclusion about how to protect Medicare’s interest when settling a general liability claim.  The implication in that article, “Medicare Set-Aside Arrangements Under the Medicare Secondary Payer Act”, is that if one follows the “Screen, Assess, Value and Educate” approach then there is no need to worry.  Such approach has not been endorsed by Medicare, and therefore the entity undertaking such action may not be adequately mitigating their Medicare Secondary Payer risk.

The article makes two points which are without dispute:  1) Medicare’s rights of recovery under the MSP Act extend both to the past and the future; and 2) Medicare has enacted no regulations with regard to how to accomplish such protection.  This unfortunate set of circumstances has left parties to fashion their own methods to resolve the exposure, but only if such methods are reasonable in approach.

A significant concern with the article, in my opinion, is the characterization of conditional payments.    These payments are defined as Medicare payments for items and services that should have been made by a primary plan such as the insurance carrier or self insured responsible for the claim.   Whether Medicare makes a payment for a medical item or service before or after the settlement date of a claim does not define whether such payment is a conditional payment.  42 U.S.C. Section 1397y(a)(2)(B) simply defines a conditional payment as a payment by the Secretary where the primary plan “has not made or cannot be expected to make payment with respect to such item or service…”  A payment of settlement cannot satisfy payment for an item or service, unless provisions have been made to handle the future payment, if any.  If not, the primary plan is subject to a reimbursement claim because a primary plan must reimburse if it is demonstrated that it “has or had a responsibility to make payment.”  See 42 U.S.C. §1395y(b)(2)(B)(ii).

Congress never intended to limit Medicare’s reimbursement rights.  The conclusion that somehow Medicare cannot claim reimbursement because of a settlement date appears to be a potential for abuse.  Medicare does not accept allocations by the parties.  Similarly, it will not accept dates to arbitrarily limit its reimbursement rights with regard to payments it has made to protect the beneficiary or for payments still being processed.

Medicare has been clear that the entire settlement amount is subject to their recovery right.  Rules for Workers’ Compensation were developed to allow a Medicare claimant to be able, with certain peace of mind, to know what could be spent outside of medical expenses.    Medicare will take an entire liability settlement and will not reduce its claim based on principles of fault or other applicable claim defenses.  Whether other damage elements apply also does not matter, as Medicare has priority.  See Hadden v. U.S. 2011 U.S. App. LEXIS 23289

A formalized approach makes sense to protect the primary plan from MSP exposure with regard to future medical.  However, best practices dictate a reasonable process that cannot be disputed by Medicare as collusion of the parties.  The steps to follow coincide with suggested rules by Medicare in its recent Advance Notice of Proposed Rule Making (ANPM).  The below process is consistent with the recommendations we have made to our clients:

  1. Settlement to Medicare beneficiary  is $300 or less;
  2. Claimant has agreed to Fixed Payment Option in cases that do not exceed $5,000;
  3. Claimant has certified no further medical treatment and has elected self calculate option for settlement not to exceed $25,000;
  4. Treating Doctor has certified treatment is complete and no further treatment is required;
  5. Other primary plan is responsible for medicals that will remain open; and
  6. Claimant receives no net benefits of settlement after deduction of attorney’s fees, costs and Medicare reimbursements, including liens.

If none of the above-numerated exceptions apply, then Protecting Medicare’s interest is required. The best way to do this will depend on the circumstances of the case, as Medicare has yet to formalize the rules.  LMSAs have been used to satisfy this requirement, but it is our opinion that unless approved by a Court, arbitration award, CMS regional office or U.S. Attorney’s office, then the allocation is not reliable.

We have had success in protecting our clients from Medicare and securing the right compliance method to close future medical.  Medicare’s rights are not limited and recent case law points to an expansion of Medicare’s rights as oppose to a limitation.  There is no doubt that this area of compliance is open to interpretation; however, simply stating in a release that the parties are not settling the future piece is likely to leave a gaping hole in those matters where there is clear incident-related treatment.  At Franco Signor LLC we navigate our clients through this maze on a daily basis.  Call us to discuss your case!