District Court of New Mexico: “The uncertainty created by CMS’s repeated failure to clarify its position on requiring MSAs in personal injury settlements, is proving burdensome to the settlement process.”
Heather Sanderson
November 29, 2017

The United States District Court for the District of New Mexico has issued an interesting decision involving the uncertainty for the need of a Liability Medicare Set-Aside (LMSA) in a medical malpractice settlement involving a Medicare beneficiary. The case is captioned Silva v. Burwell, 2017 U.S. Dist. LEXIS 195032 (November 28, 2017). A copy of the decision can be found here.

A plaintiff in a medical malpractice action (“Plaintiff”) settled his claim with hospital and physician Defendants (“Defendants”) that had provided him medical treatment in December 2015. Because Medicare had made payments for his medical treatment, Medicare sought recovery for its conditional payments, which Plaintiff reimbursed Medicare in full. Although past payments were resolved, the parties were unclear on what obligations would be present to protect Medicare’s interests for future treatment.

Defendants asserted that the Plaintiff must create an LMSA from the settlement funds for future medical expenses because of a concern that Medicare could come back after Defendants for future medical expenses. Defendants brought about this concern due to the regulations and guidelines created for the review and approval for Workers’ Compensation Medicare Set-Asides (WCMSAs).

However, Plaintiff argued that there is no legal support for Medicare to request an LMSA, because the guidelines relate to workers’ compensation settlements do not relate to liability or personal injury settlements. Plaintiff requested CMS to state its position as to whether funds must be “set-aside” from the settlement of a personal injury claim to cover unknown, unspecific future medical expenses. CMS did not respond to Plaintiff’s inquiry and refused to take a position regarding 1) the legal basis of their claim for repayment or future medical care; and 2) whether a set-aside is required with respect to Plaintiff’s future medical care.

Defendants at this point agreed that they would release the money in trust to Plaintiff’s Trustee for his health and welfare if Plaintiff obtained a federal court order containing a finding that no federal law or CMS regulation requires the creation of a Medicare “set-aside” from Plaintiff’s personal injury settlement. During the state-court approval of the settlement, it was determined that a certain amount of the settlement would be kept in trust to meet any Medicare “set-aside,” while Plaintiff pursued the instant federal court action.

Consequently, Plaintiff filed a Declaratory Action in federal court seeking a declaration that no “set-aside” is required in Plaintiff’s state court settlement to pay for his future medical expenses, that Defendant CMS may not in the future decrease or refuse to pay for medical bills Mr. Silva may incur or otherwise penalize Plaintiff or his trust, and that MSAs are not required under the law for personal injury or medical malpractice damages. Defendants filed a motion to dismiss for lack of subject matter jurisdiction arguing that (i) there is no justiciable case or controversy because the Secretary has no duty under the law to take a position on the controversy; (ii) the United States is immune from suit; and (iii) Plaintiff has failed to exhaust his administrative remedies under the Medicare Secondary Payer Act.

The District Court upon reviewing the action for Declaratory Relief reviewed the Medicare Secondary Payer Act, the regulations governing WCMSAs, and also noted that CMS had previously issued a Proposed Notice of Rulemaking in 2012 which would have enacted a process for considering Medicare’s future interest in liability claims, but that CMS took no further action on the Notice.

The District Court ultimately granted Defendants Motion to Dismiss for lack of subject matter jurisdiction and would not determine whether an LMSA was required. Its reasoning was that the Plaintiff had not shown that CMS has ever sought to recover funds not placed in an LMSA in other similar personal injury settlements. Further, Plaintiff has not demonstrated that CMS is likely to seek reimbursement from either Plaintiff or Defendants if they do not create an LMSA.

Lastly, the District Court was not required to opine on whether an LMSA should be created in this case, as there is no law or regulation currently in place that requires CMS to decide whether Plaintiff is required

As final commentary, the District Court state that it concurred with the decision in Sipler, 881 F.Supp.2d at 638 concern that “to require personal injury settlements to specifically apportion future medical expenses would prove burdensome to the settlement process and, in turn, discourage personal injury settlements.”  More interesting was the District Court’s commentary that “the uncertainty created by CMS’ repeated failure to clarify its position on requiring MSAs in personal injury settlements generally and in specific cases is also proving burdensome to the settlement process.”

Franco Signor Commentary: Thoughts, conclusions and take-aways arise from this decision:

  • The timing of this decision with CMS’ very recent announcements that it intends to move forward with a voluntary review process for LMSAs is interesting. Clearly, the court did not consider CMS’ most recent alerts as well as contractual requirements in its new MSA contractor’s Request for Proposal (RFP) that it plans to create such a review process and that the new Contractor will be tasked with reviewing LMSAs as early as July 1, 2018. It seems that the District Court only looked at CMS’ inaction regarding the 2012 ANPRM as an indication that CMS did not intend to move forward with an LMSA requirement/process.
  • The District Court seemed to weigh too heavily the lack of evidence demonstrating that CMS has not yet denied future payment where no LMSA is established in a liability settlement with a Medicare beneficiary. Via MMSEA Section 111 reporting, CMS has visibility into TPOC (settlement) amounts and associated ICD-9/10 codes and may deny future care for treatment associated with those codes up to the settlement amount. While CMS is not currently taking this action, CMS could do so and Medicare beneficiaries are still at risk if Medicare takes such action to deny future medical expenses.
  • The District Court’s discussion of the Protocols litigation, Protocols, 549 F.3d, and its comparison to the instant litigation was interesting. In the Protocols litigation, Protocols ( workers’ compensation/MSA consultant) challenged CMS’ issuance of a memorandum in 2005 which stated that 42 CFR 411.47 only applied to medical expenses incurred before a workers’ compensation settlement. Protocols sought declaratory relief that the 2005 memorandum was invalid because it conflicted with the MSP and that 42 CFR 411.47 provided a valid method for structuring settlements to account for future medical expenses. Ultimately, the court sided with Protocols finding that Protocols created an injury-in-fact because it received consulting fees out of the settlement payment, and that the release of the 2005 memorandum could cause Protocols to be liable to repay that sum. Going back to the comparison of Protocols and this litigation, the District Court here was able to distinguish Protocols from the instant litigation in that Protocols could demonstrate that CMS had taken a contrary position to Protocols’ interpretation. Here, Plaintiff has not shown that CMS has taken a position contrary to Plaintiff’s interpretation of the MSP. In fact, neither of the parties could point to any federal regulation or law which would impose contingent liability for failure to include an LMSA.
  • Lastly, the Court’s frustrations with CMS’ failure to introduce clarification on LMSAs was very clear in its decisions. Also, it was pretty clear in this decision that the Court was frustrated with CMS’ lack of response to the Plaintiff’s inquiry into the need for an LMSA. Until CMS introduces some clarity/procedure/guidance on LMSAs, settlements will continue to be stalled, as occurred in this case. This case originally settled in 2015, and just now in November 2017, the parties finally were able to resolve the settlement fully, and to ultimately determine an LMSA was not needed (an unfortunate waste of time, resources, and burden on our judicial system). This is clear evidence that the lack of clarity from CMS on LMSAs is causing settlement delays.
  • The ultimate take-away is that the writing on the tea leaves shows that CMS intends to clear this all up very soon. Until such guidance is issued on LMSAs, primary payers would be wise to determine and agree to the need for an LMSA early on in liability claims so as to avoid settlement delays. Best Practices are important. We encourage you to register for our webinar tomorrow which will discuss this issue in further detail. Registration link can be found here: https://register.gotowebinar.com/register/2709736897362127361