Part 3 - Debunking the MSA Mystery: Clues to Solving Medicare Secondary Payer Compliance in Liability SettlementsPosted date in Medicare Set Asides, MSP Compliance
What is the “law” as it relates to set asides?
A formal “Medicare Set Aside” is not required by a federal statute even in Workers’ Compensation cases where they have been commonplace since 2001. Instead, CMS has intricate “guidelines” and “FAQs” on their website for nearly every aspect of set asides from when to do one, to submission to administration for Workers’ Compensation settlements. There are only limited guidelines for liability settlements involving Medicare beneficiaries. Without codification of set asides, there are no clear cut appellate procedures from arbitrary CMS decisions and no definitive rules one can count on as it relates to Medicare set asides. While there is no legal requirement that an MSA be created, the failure to do so may result in Medicare refusing to pay for future medical expenses related to the injury until the entire settlement is exhausted. There has been a slow progression towards a CMS policy of creating set asides in liability settlements over the last seven years as a result of the MMSEA’s passage.
In 2011, CMS issued the first two written pronouncements related to liability Medicare set asides. The first was issued by a Regional Director at CMS in Dallas in May of 2011. The second was a memo issued by CMS headquarters in Baltimore in September of 2011. The May of 2011 Sally Stalcup handout was the first detailed written pronouncement from CMS addressing Medicare set asides in liability cases. While it is informative and gives a glimpse of the thoughts of some at CMS regarding liability Medicare set asides, it isn’t law. The document is simply one CMS Regional Coordinator’s viewpoint and does not reflect the opinion of CMS headquarters. Nevertheless, it does provide a good road map of how to analyze these issue when a settlement involves a Medicare beneficiary or someone with a reasonable expectation of becoming one within 30 months. The September 2011 memo from CMS “HQ” requires a set aside in liability cases, arguably, by creating the negative (setting forth when a set aside does not have to be created). Below I will summarize both memorandums.
The May 2011 “Stalcup Handout”
The May 2011 Stalcup handout starts out with an important statement. Ms. Stalcup indicates that the “information provided is only intended to be a general summary” but it isn’t “intended to take the place of either the written law or regulations.” While Ms. Stalcup encourages readers to review statutes, regulations and other materials issued by CMS on this subject, that is impossible as there is nothing that specifically addresses liability Medicare set asides. She limits the applicability of the handout to the states covered by the Region 6 office, which are Oklahoma, Texas, New Mexico, Louisiana and Arkansas.
The central premise of the handout is laid out immediately that when settling a case involving a Medicare beneficiary, “Medicare's interests must be protected; however, CMS does not mandate a specific mechanism to protect those interests.” While she acknowledges that the law doesn’t require a “set-aside” in any particular situation, she indicates that the Medicare Trust Fund must be protected from payment for future services whether they arise from a Workers’ Compensation settlement or liability settlement because there is no distinction in the MSP. She goes on to say that a “Set-aside is our method of choice and the agency feels it provides the best protection for the program and the Medicare beneficiary.”
She goes on to identify what she believes is the legal underpinnings of the need to address Medicare’s future interests. She states that “Section 1862(b)(2)(A)(ii) of the Social Security, Act [42 USC 1395 y(b)(2)], precludes Medicare payment for services to the extent that payment has been made or can reasonably be expected to be made promptly under liability insurance. This also governs Workers' Compensation. 42 CFR 411.50 defines the term "liability insurance". Any time a settlement, judgment or award provides funds for future medical services, it can reasonably be expected that those monies are available to pay for future services related to what was claimed and/or released in the settlement, judgment, or award. Thus, Medicare should not be billed for future services until those funds are exhausted by payments to providers for services that would otherwise be covered and reimbursable by Medicare. If the settlement, judgment, award .y [sic] are not funded there is no reasonable expectation that third party funds are available to pay for those services.”
CMS does not have a formal process to review and approve Medicare set asides like they do in Workers’ Compensation cases according to Ms. Stalcup, which we already know. CMS review of proposed liability Medicare set asides is determined on a case-by-case basis by the appropriate regional office. For example, the Atlanta Regional office routinely refuses to review liability Medicare set asides we have submitted. Their typical response is that “[d]ue to resource constraints, CMS Is not providing a review of this proposed liability Medicare set aside arrangement.” The form letter goes on to say “this does not constitute a release or a safe harbor from any obligations under any Federal law, including the MSP statute.” (Emphasis added). In bold print the letter warns, “All parties must ensure that Medicare is secondary to any other entity responsible for payment of medical items and services related to the liability settlement, judgment or award.” Nevertheless, Ms. Stalcup states in her handout that “CMS does expect the funds to be exhausted on otherwise Medicare covered and otherwise reimbursable services related to what was claimed and/or released before Medicare is ever billed” regardless of whether a set aside is reviewed/approved by CMS.
As is the case in Medicare conditional payments obligations, she emphasizes that allocations made in a settlement agreement to different categories of damages is ineffective in terms of getting around the obligation to set funds aside. The handout states that the “fact that a settlement/judgment/award does not specify payment for future medical services does not mean that they are not funded.” Further, the “fact that the agreement designates the entire amount for pain and suffering does not mean that future medicals are not funded.” While Medicare has been challenged and lost in the 11th Circuit on the issue of its failure to recognize allocations by a court order other than on the merits of the case (see Bradley v. Sebelius), Ms. Stalcup sticks to the CMS position on this issue and states that the “only situation in which Medicare recognizes allocations of liability payments to nonmedical losses is when payment is based on a court of competent jurisdiction's order after their review on the merits of the case.” “If the court of competent jurisdiction has reviewed the facts of the case and determined that there are no future medical services Medicare will accept the Court's designation.” The lesson from these statements is that CMS will not stand for attempts to shift damages to non-Medical categories and will not recognize allocations unless via a court order on the merits of the case. While this may force issues of damages to be tried and clog the court system, CMS continues to take this ridiculous position.
To clarify what is considered future medical portions of a recovery and how to know whether a settlement includes them, the handout gives some examples. “Consider the following examples as a guide for determining whether or not settlement funds must be used to protect Medicare's interest on any Medicare covered otherwise reimbursable, case related, future medical services. Does the case involve a catastrophic injury or illness? Is there a Life Care Plan or similar document? Does the case involve any aspect of Workers' Compensation? This list is by no means all inclusive.” An important part of the handout addresses what is “case related” medical expenses. CMS’s view is that this includes “more than just services related to the actual injury/illness which is the basis of the case.” “Because the law precludes Medicare payment for services to the extent that payment has been made or can reasonably be expected to be made promptly under liability insurance, Medicare's right of recovery, and the prohibition from billing Medicare for future services, extends to all those services related to what was claimed and/or released in the settlement, judgment, or award. Medicare's payment for those same past services is recoverable and payment for those future services is precluded by Section 1862(b)(2)(A)(ii) of the Social Security Act.”
The handout does address CMS’s view of plaintiff counsel’s obligations in regard to future Medicare covered services incurred by the client. “We do however urge counsel to consider this issue when settling a case and recommend that their determination as to whether or not their case provided recovery funds for future medicals be documented in their records. Should they determine that future services are funded, those dollars must be used to pay for future otherwise Medicare covered case related services.” CMS will not issue opinion letters or sign off on determinations of whether or not there is a recovery of future medical services triggering the need to protect the Medicare Trust Fund. The handout puts the determination of these issues in the lap of the attorney handling the claim. According to Ms. Stalcup, each “attorney is going to have to decide, based on the specific facts of each of their cases, whether or not there is funding for future medicals and if so, a need to protect the Trust Funds.” “They must decide whether or not there is funding for future medicals. If the answer for plaintiffs’ counsel is yes, they should to [sic] see to it that those funds are used to pay for otherwise Medicare covered services related to what is claimed/released in the settlement judgment award.”
The September CMS HQ Memo
On 9/29/11, CMS issued a memorandum indicating there is no need for a liability Medicare set aside and that its interests would be satisfied if certain conditions (outlined below) were met. In the first memo coming from CMS HQ regarding Liability Medicare Set Asides, Charlotte Benson, Acting Director Financial Services Group for CMS, gives us an exception to the need to create a set aside in liability cases. According to the memo, a liability Medicare set aside isn’t necessary when the Medicare beneficiary’s treating physician certifies in writing that all of the care related to the claimed injury has been completed as of the date of the settlement.
The memo says:
Where the beneficiary’s treating physician certifies in writing that treatment for the alleged injury related to the liability insurance (including self-insurance) “settlement” has been completed as of the date of the “settlement”, and that future medical items and/or services for that injury will not be required, Medicare considers its interest, with respect to future medicals for that particular “settlement”, satisfied. If the beneficiary receives additional “settlements” related to the underlying injury or illness, he/she must obtain a separate physician certification for those additional “settlements.
When the treating physician makes such a certification, there is no need for the beneficiary to submit the certification or a proposed LMSA amount for review. CMS will not provide the settling parties with confirmation that Medicare’s interest with respect to future medicals for that “settlement” has been satisfied. Instead, the beneficiary and/or their representative are encouraged to maintain the physician’s certification.”
The memo is very important for a number of reasons. First, it is the first official memorandum from the CMS central office in Baltimore to substantively address liability Medicare set asides. Second, it provides a mechanism, if the case facts fit the criteria, to avoid the necessity of creating a liability Medicare set aside. It is a limited exception as the treating doctor must attest in writing that all of the treatment for the released injuries was completed at the time of settlement. Third, it avoids the need to request CMS review of a proposed “zero” liability Medicare set aside and the parties just need to retain a copy of the doctor’s letter/certification. Fourth, and most importantly, it reinforces the negative in that if you don’t fall within this exception then a liability Medicare set aside should be considered.
In an apparent attempt to create regulations governing liability set asides, on May 3 of 2012, the Office of Management and Budget received advanced notice of proposed rulemaking (ANPRM) entitled “Medicare Secondary Payer and ‘Future Medicals’ (CMS-6047-ANPRM)” from CMS. On June 14th, 2012 the contents of the proposal were released by CMS. A sixty day comment period began on 6/14/12 which expired on 8/14/12. The Medicare Secondary Payer Act provides that “[n]o rule, requirement or other statement of policy that establishes a substantive legal standard . . . shall take effect unless it is promulgated by the secretary by regulation . . .” Therefore, in order to establish a legal standard when it comes to Medicare set asides, the Agency (CMS), must promulgate regulations. The submission by CMS to the Office of Management and Budget of proposed rulemaking is the beginning of that process. The proposed rulemaking contains seven different options for dealing with future medicals for Medicare beneficiaries and the Agency solicited comments from all interested parties to create a standardized practice. To date, there are no proposed regulations.
According to the notice:
“This advance notice of proposed rulemaking solicits comment on standardized options that we are considering making available to beneficiaries and their representatives to clarify how they can meet their obligations to protect Medicare's interest with respect to Medicare Secondary Payer (MSP) claims involving automobile and liability insurance (including self-insurance), no-fault insurance, and workers' compensation when future medical care is claimed or the settlement, judgment, award, or other payment releases (or has the effect of releasing) claims for future medical care.”
. . .
“The primary purpose of this ANPRM is to respond to affected parties' requests for guidance on ‘future medicals’ MSP obligations, specifically, how individuals/beneficiaries can satisfy those obligations effectively and efficiently.”
CMS Proposed General Rule
“If an individual or Medicare beneficiary obtains a ‘settlement’ and has received, reasonably anticipates receiving, or should have reasonably anticipated receiving Medicare covered and otherwise reimbursable items and services after the date of ‘settlement,’ he or she is required to satisfy Medicare's interest with respect to ‘future medicals’ related to his or her ‘settlement’ using any one of the following options outlined later in this ANPRM.”
The notice outlined seven options to comply with the general rule. As of the writing of this article, no further action has occurred with respect to the proposal for proposed rulemaking. Nevertheless, the fact that CMS has created a proposal to make proposed rules/regulations for Medicare future medicals indicates they are serious about addressing this issue. It also indicates potential enforcement of the MSP as it relates to future medicals in liability settlements. However, it is worth bearing in mind that these were proposals and the process may result in no regulations at all.
The problem is that ANPRM doesn’t address some fundamental problems with liability settlements. As such, legal practitioners, Medicare beneficiary-injury victims and insurers are left guessing as to exactly what to do when a liability settlement is achieved. Many questions exist as to the proper course of action when a settlement involving a Medicare beneficiary is achieved. For example, consider the following questions. Is a formal liability set aside necessary? If so, how do parties determine if they are necessary? What rules apply if you do create a set aside? Do we look to the extensive CMS memoranda from Workers’ Compensation? What about the differences between Workers’ Compensation cases and liability cases? Will CMS take into account policy limits in a liability case in determining the sufficiency of an allocation? What happens if policy limits are $50,000 and the future Medicare covered services are $150,000? Will CMS take into account comparative fault/contributory negligence issues that may reduce recovery? What about statutory or constitutional caps on damages? Can CMS fail to pay for Medicare covered services post liability settlement for the Medicare beneficiary-injury victim if there is no set aside created?
Many of these questions simply don’t have answers at this point. I reviewed many of the comments filed with CMS regarding the ANPRM and these issues were raised by interested parties and industry participants alike with the hope that someone at CMS will consider these issues before regulations are created. I don’t hold out much hope that any forthcoming regulations will take into account all of the troubling issues related to set asides in liability settlements. That being said, I do hope that some of the core differences between workers’ compensation cases and liability settlements are taken into account before fashioning a set aside system that is similar to what exists today in workers’ compensation settlements given the inherent differences between the two systems.
In addition to the memorandums and the ANRPM, some MSA case law has developed beginning in 2009 which is summarized below. Unfortunately, the case law does not address any of these fundamental questions either in any meaningful way. However, inspection of the cases out there is imperative to understanding the current landscape and obligations related to the MSP.