Once Again, Use of the LMSA Requires Agreement by All Parties
Roy Franco
June 30, 2014

What a waste of time.  In Tye v. Upper Valley Medical Center, the parties held up a settlement for almost two years because of the defendant’s insistence of a Medicare Set Aside.  This case involved a medical malpractice settlement that occurred on July 21, 2012.  It was a personal injury settlement, that was “conditionally dismissed without prejudice until such time [as] a final dismissal entry with prejudice is filed” on August 6, 2012.  All that was missing were the settlement documents.  On August 24, 2012, Plaintiff made demand for the entire distribution of $587,500 without the benefit of the structure.  In response, defendants claimed, for the first time, a Medicare Set Aside was required.  Motion practice then followed.  Notice was given to Medicare, presumably, the Centers for Medicare & Medicaid Services (CMS) and the U.S. Attorney’s office, but no one showed for the hearing.   The trial court denied a MSA was required, even after taking evidence from Medicare consultants for the plaintiff and the defense.  The appeal then ensued, which reached the same result.

Bottom-line: Without collaboration and cooperation there will be no LMSA.  The defendants may have felt protected with a structure, but there was nothing in the terms of the settlement agreement that required a structure.  A structure would have provided a stream of payments that defendants could tax, in the event CMS presented a claim.  It would have been the easiest way to collateralize the indemnification against such issues by the Plaintiff.  However, when the Plaintiff requested tender of all funds without regard to the structure, the panic of the defendants were obvious with their push for a Medicare Set Aside which was never part of the original deal.  That being the case, the defense lost at trial, as a settlement is simply determined from its terms and this being a material term was never discussed.  Defendants also lost their financial protection from CMS, and filed an appeal.  They again lost – why?  Simply because there are no rules, regulations, CMS policies, or otherwise that grants unilateral right for defendants to require a MSA.  If defendants wanted an MSA or structure then they should have conditioned such as part of the deal.

That being said, the plaintiff Medicare beneficiary is not exactly insulated from CMS issues.  While the case suggests plaintiff’s future Medicare benefits are protected by his wife’s Group Health Plan, the defendants are still required to report this settlement to CMS to the tune of $587,500.   This data will no doubt trigger action on the part of CMS to coordinate benefits based on the injury codes as described by defendants in compliance with their MMSEA reporting requirement.  CMS takes the position that the entire settlement is to be used for future medical, less conditional payments and attorneys’ fees.  Plaintiffs’ Medicare consultant has recommended no MSA, but that opinion has no bearing on how CMS will react when it comes to coordination of benefits.   While Plaintiff has won the battle, which was the right outcome in our opinion, if some action is not taken to demonstrate how a $587K settlement does not involve future medical, then his Medicare benefits, and quite possibly Social Security benefits, could be at risk later if Medicare begins paying incident-related care and treatment.

In the end, CMS is serious about protecting the trust fund.  Parties need to take reasonable steps to demonstrate such protection.  However, defendants by themselves cannot do it on their own.