The Present State of Affairs with Regard to Liability Medicare Set Asides
Roy Franco
June 9, 2014

Many times we are asked when CMS will issue regulations related to protecting Medicare’s interest in a liability case.  The short answer is: No person outside of CMS really knows.  Thus far, CMS has taken the following steps toward possible rule-making.  1) Issued a Policy Memo on Future Medicals and Liability Claims, on September 30, 2011, that does not explain LMSAs; 2) Issued an Advanced Notice of Proposed Rule Making (ANPRM) on June 15, 2012 to secure comments from the Industry about how Medicare should be protected; and 3) Submitted proposed regulations to the Office of Management and Budget on or about October, 2013.  The Office of Management and Budget has yet to act, but is required to approve these proposed rules before they can be published and enacted.  No other action has occurred.

Today, those involved in liability settlements are confused over their responsibility to protect Medicare’s interest.  While all parties are required to protect Medicare’s interest; the insurance carrier and/or self-insurer has little authority to take any action without the support of the claimant and/or claimant’s attorney.  Absent collaboration, the responsibility falls squarely on the claimant and/or his or her attorney.  As such, how Medicare’s interest has been protected can fall into three scenarios:

1.  Follow Workers’ Compensation Recommended Guidelines.  These guidelines discuss how parties to a workers’ compensation case can safely allocate a settlement between future medical and indemnity benefits.  If CMS approves the allocation, the parties have peace of mind with regard to the balance of the settlement.  CMS must approve the allocation for it to work, if not, CMS can void the settlement under 42 C.F.R. Sec. 411.46.  Regrettably, this rule has no application to liability cases, and CMS Regional Offices do not typically approve LMSAs.  Absent an approval, the allocation is simply a private allocation between parties that CMS does not recognize.  See Medicare Secondary Payer Manual, Chapter 7, Sect. 50 et. seq.  the end result is that the entire settlement could be subject to repayment to Medicare.

2.  Do Nothing.  Based on the lack of rules and regulations, parties take the position that they have no responsibility to protect Medicare’s interest, and retain consultants to support their position.  Typically, Medicare’s interest is protected if the parties take reasonable steps to do so.  Whether positions by consultants — that nothing is necessary simply based on the claims of the parties that future medicals are not involved — remain to be tested.  However, based on the Medicare Secondary Payer Manual, Chapter 7, Sec. 50 et. seq., it is hard to view this as anything other than a private allocation by the Parties; which CMS will not recognize.  Again, the entire settlement could be subject to Medicare’s reach.

3.  Secure approval of a third party, typically the CMS Regional Office, or by order of the court.  CMS recognizes an Order by a court so long as it was heard on the merits with regard to an allocation.  This appears to be the safest method available to Parties today, but it is expensive.  It would be difficult for CMS to defeat a Court order on future medicals, especially since most give notice to the Agency about the hearing.  Even though CMS does not attend, because it is not subject to jurisdiction, it would be those same courts that would be later hearing the case as to why their order was not valid when issued.  This is especially germane since no rules and regulations are in place.  Furthermore, CMS has gone on record that Parties must act reasonably to protect Medicare’s interest to avoid cost shifting.  A Court order would go a long way to establish reasonableness.  This is precisely the reason why, for larger settlements, such a method is attractive during this period where rules and regulations are absent.

A recent U.S. District Court case in the Western District of Virginia is an example of how parties that collaborate can protect Medicare’s interest.  In that situation, the claim occurred as a result of an automobile accident.  The allegedly negligent party settled with the Medicare beneficiary claimant for $550,000.  Recognizing that the defendant would be required to report data about the settlement to CMS under Section 111 of the MMSEA law, the plaintiff felt compelled to collaborate with defendants to protect Medicare’s interest.  Consequently, a decision was made to apportion the settlement between medicals and non-medical damages.  In addition to taking care of the past medical expenses, including those paid by Medicare, the Parties agreed to set-aside $50,000 for future incident-related care and treatment so it did not fall to Medicare to pay. The court agreed.

Unlike other cases that took this approach, previous courts required both a prepared LMSA and notice to CMS.  Neither occurred here, and unless there is more to the record than what is disclosed in the decision, CMS may have a basis to negate the allocation.  That is because there was no hearing on the merits.  It is a possibility, unless the Parties can demonstrate that the $50,000 allocation was reasonable based on the medicals that were alleged, claimed and or released.  Notwithstanding, it is better than doing nothing.

Click here for the decision in Slack v. DaSilva, 2014 U.S. Dist. LEXIS 75430.

Franco Signor specializes in all aspects of Medicare Secondary Payer compliance, including how best to protect Medicare’s interest so that a liability settlement is not subject to collateral attack later by CMS.   Because Medicare will use data supplied by defendants under Section 111 to coordinate future benefits, it’s important Parties have a plan to avoid unnecessary re-opening and re-litigation of a claim.  Call us today to find out how.