Medical Malpractice Report

MDTC Medical Malpractice Practice Section

Barbara J. Kennedy and Vanessa F. McCamant, Aardema Whitelaw, PLLC

bkennedy@aardemawhitelaw.com vmccamant@aardemawhitelaw.com

Medical-Malpractice Report

Clarity and Caution: An Update and Prospective on Medicare Medical Set-Asides in Liability Cases

History of Medicare Lien Enforcement. If you’ve been doing defense work for at least a decade, you likely remember the turmoil that rippled through the insurance industry and defense bar in 2007 and 2008. That’s when the Centers for Medicare & Medicaid Services (“CMS”) announced enhanced implementation and enforcement of the Medicare Secondary Payer Act and SCHIP Extension Act of 2007. Under the new federal regulations, liability insurance companies became “responsible reporting entities.” Attorneys and parties on both sides of a case were going to be held accountable for failure to notify Medicare of settlements and satisfy Medicare liens. Numerous seminars were conducted, articles written, in-service presentations made, and directives issued, addressing the new regulations. In reality, Medicare did not start implementing the new procedures until 2011.

Medicare liens were around long before 2007. In 1980, Congress passed the Medicare Secondary Payer Act (42 USC 1395y(b)), in order to shift costs from the government-funded Medicare program to private payers. The Act provided that Medicare would no longer be the primary payer for medical expenses and instead, Medicare would be secondary to any insurance plan with potential responsibility for the expenses incurred. Under the Secondary Payer Act, primary payers include tortfeasors and their private insurers. Severe penalties of up to $1,000 per day, per claim, and “super-penalties” can result from failure to recognize Medicare’s interests.

Medicare lien considerations arise in liability cases when a plaintiff is a Medicare beneficiary at the time of the award or settlement. Prior to 2007, handling a Medicare lien in a Michigan case typically involved the plaintiff’s attorney sending a letter or making a phone call to a CMS office in Chicago, evaluating a Medicare claims detail (or not) and negotiating a resolution or waiver of the lien. Often, defense counsel never inquired about the specifics of healthcare liens. From the defense’s perspective, liens were the plaintiff’s responsibility alone. That landscape changed dramatically.

One aspect of Medicare lien enforcement, which was discussed during the transition to our current reality, was the Medicare Medical Set-Aside Arrangement, or MSA, for future medical expenses. Under an MSA, a portion of the award or settlement funds is segregated into a special account in anticipation of future expenses, intended to avoid Medicare incurring liability as primary payer. Implementation of MSAs has been in place for some time in workers’ compensation cases. Consequently, MSAs are not new to Medicare.

During the initial period of transition, there was much debate about whether Medicare would require MSAs in liability cases under the new enforcement protocols. CMS proposed some regulations in 2012, and then withdrew them in 2014. The proposed regulations fueled the debate a bit further. At the conservative end, the argument was that if MSAs were required in workers’ compensation cases, it was best to err on the side of caution. Under appropriate circumstances, some liability insurers requested that plaintiffs agree to set up an MSA as part of the settlement agreement. Those at the other end of the debate pointed out that the CMS itself had not issued any guidelines, rules, or regulations regarding Medicare’s future interests, and that it was unnecessary “overkill” to consider an MSA in a liability case.

Currently, many insurance carriers require language in a release and settlement agreement to address MSAs in the context of a plaintiff’s responsibility to consider Medicare’s interests. That language typically includes what decision was reached regarding an MSA and the basis for that decision. Other insurance carriers currently don’t require any specific MSA language. In the context of liability cases, Medicare is already empowered by statute to request that money be set aside for future expenses from settlement proceeds, but no rules or guidelines exist to implement enforcement.

Predicting the Future. We anticipate that MSA requirements will be implemented in liability cases in the not-too-distant future. The next wave of Medicare transition may be upon us. This expected transition is evidenced by the implementation in February 2017 of technical changes and updates to accommodate processing of claims to include liability and No-Fault MSAs, or “LMSAs.” At this time, the changes consist of IT and programming requirements of the computer systems used by the government and Medicare contractors to implement future enforcement of reimbursement, first from an LMSA account where one exists. The new guidelines are instructive on what Medicare’s position may be with reference to future medical expenses and the requirements surrounding establishing a set-aside account. Recognizing this now, we can better prepare to handle the issue of liability MSAs effectively.

The internal publication issued by CMS provides a definition of liability and No-Fault set-aside arrangements as follows:

[A]n allocation of funds from a liability or an auto/no-fault related settlement, judgment, award, or other payment that is used to pay for an individual’s future medical and/or future prescription drug treatment expenses that would otherwise be reimbursable by Medicare.[]

The initial technical implementation focuses on the processing of claims by providers seeking reimbursement of expenses incurred by Medicare beneficiaries. It will allow Medicare to reject expenses related to an injury for which an LMSA exists, and to continue coverage for injury-related medical expenses when no LMSA has been set up. This two-tiered future claims processing system is noteworthy since it recognizes Medicare’s responsibility to continue coverage for accidental injuries when no MSA exists. This, in turn, at least implies that CMS may not require a set-aside account in all cases, even when future injury-related expenses are anticipated.

The limited nature of these new guidelines and their focus on technical claims processing requirements doesn’t lend itself to analysis of important issues such as determining whether an LMSA is appropriate and if so, how much money should be set aside. Likewise, it is unknown at this time whether CMS will be involved in reviewing or approving set-aside accounts in liability cases. Given the wide-ranging enforcement provisions of the current law, the best future course of action is likely exactly the same as the current best course of action: consider Medicare’s interests from the onset of settlement discussions and, if necessary, involve them in the negotiating process.

The Bureaucracy’s Current Position on MSAs: Since implementing the new lien enforcement regulations, the federal government has issued several policy statements on how Medicare’s interests must be protected in liability cases. In 2011, CMS issued a 3-page handout with internal guidance addressing liability settlements and MSAs where future injury-related care was required. Although not legal authority, it provided some guidance when dealing with the parties’ respective responsibilities. As to the obligations of the plaintiff’s counsel, the handout advises that when a plaintiff’s attorney determines that a settlement is intended to pay for future medicals, he or she should see to it that funds are used to pay for otherwise Medicare-covered services related to what is claimed and/or released in the settlement.

In 2011, two high-ranking government officials made published policy statements pertaining to Medicare Medical Set-Asides in liability cases. According to Medicare Regional Coordinator Sally Stalcup:

There is no formal CMS review process in the liability area as there is for Workers’ Compensation, however Regional Offices do review a number of submitted set-aside proposals. * * * If there was/is funding for otherwise covered and reimbursable future medical services related to what was claimed/released, the Medicare Trust Funds must be protected. If there was/is no such funding, there is no expectation of 3rd party funds with which to protect the Trust Funds. 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.

If the answer for defense counsel or the insurer is yes, they should make sure their records contain documentation of their notification to plaintiff’s counsel and the Medicare beneficiary that the settlement does fund future medicals which obligates them to protect the Medicare Trust Funds. It will also be part of their report to Medicare in compliance with Section 111, Mandatory Insurer Reporting requirements.

On September 30, 2011, CMS Acting Director Charlotte Benson issued a policy memorandum outlining the possible requirement of MSA funds in liability cases. It provided further guidance related to liability insurance settlements, judgments, awards, or other payments:

Where the beneficiary’s treating physician certifies in writing that treatment for the alleged injury related to the liability 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’.

In late 2014, the United States Department of Health & Human Services issued the following statement:

The Centers for Medicare & Medicaid Services (CMS) has no current plans for a formal process for reviewing and approving Liability Medicare Set-Aside Arrangements. However, even though no formal process exists, there is an obligation to inform CMS when future medicals were a consideration in reaching the Liability Settlement, judgment, or award as well as any instances where a liability judgment or award specifically provides for medicals in general or future medicals.

The federal government has expressed its position on future medical expenses and MSAs in at least one official communication from the US Department of Health & Human Services Office of General Counsel to the plaintiff’s counsel in response to specific inquiries. In 2015, that position was expressed in pertinent part, as follows:

We expect that [plaintiff] will release [defendants] from any obligation to pay future medical care in the settlement agreement. Under those circumstances, for purposes of the MSP statute, the settlement will compensate [plaintiff] for such medical care. * * *

Consequently [plaintiff] should not submit claims to Medicare for ongoing medical care related to the accident. Should [plaintiff] or his health care providers submit claims for future accident-related care to Medicare (even as a secondary payer) and Medicare pays those claims, such payment would create a Medicare overpayment which Medicare could recover from [plaintiff] or the provider.

While federal law prohibits Medicare from paying for future accident-related medical care [plaintiff] may require, it does not dictate the method the parties must use to ensure that Medicare is not billed for related services. In other words, federal law does not require the parties to create a set-aside; but it does require that Medicare be reimbursed for any medical payments it may make that [defendant] already made through the settlement.

This position is significant in clarifying Medicare’s position on MSAs. It is also significant in that Medicare recognizes that a release alleviates a defendant’s obligation with reference to future medical expenses. This is contrary to how Medicare views past/paid medical expenses. Abundant position statements and court decisions universally express the position that settlement documents cannot be drafted to exclude recovery for past expenses. Even when the settlement documents directly state that no consideration is paid for past medical expenses, Medicare can enforce its lien rights under the Secondary Payer Act with reference to past expenses it paid. That enforcement applies to all parties, all counsel, and insurance carriers (as “responsible reporting entities”) and carries significant penalties.

None of the government’s policy statements on MSAs are binding precedent, but may be useful in establishing the basis to consider and, in some cases, establish, a Medicare MSA. In cases involving a resolved injury, plaintiff’s counsel should obtain physician certification that no future treatment is anticipated. When ongoing sequelae is alleged but not borne out by the evidence, physician certification will help protect the plaintiff and plaintiff’s counsel, as will clarification in the settlement documents that no future medical expenses were considered in reaching the settlement. In cases involving an objectively verifiable permanent injury, plaintiff should strongly consider establishing an MSA.

The Courts’ Positions on MSAs. Various state and federal courts, which have interpreted the Medicare Secondary Payer Act and SCHIP Extension Act, have also provided some insight with reference to the issue of MSAs in liability cases. One constant in the opinions is the conclusion that there are no federal regulations in place requiring the establishment of MSAs in those cases. Thus, it’s safe to assume that once there are such regulations, the courts will rely upon and enforce them.

The 2014 Ohio case of Tye v Upper Valley Medical Center was a medical-malpractice action involving care in 2009 for a spinal epidural abscess. The plaintiff had primary private health insurance that had paid the majority of his incident-related medical expenses. The Medicare lien was resolved for approximately $1,800. Months after the case settled through private mediation, defendants sought an expert opinion from an experienced workers’ compensation attorney who concluded that an MSA was necessary. The defendants’ expert reached this conclusion based solely on his experience in workers’ compensation and admitted in his written opinion that he had not been provided any medical records or billings. Before entering into settlement negotiations, the plaintiff had retained an expert Medicare attorney who negotiated the lien resolution. That attorney concluded that the plaintiff:

[I]s not recognized as an MSA candidate since a permanent burden shift of the responsibility to pay for future injury-related medical expenses from the tortfeasor to Medicare is not expected.

The issue went before the trial court, which determined that the parties were not required to set aside any portion of the settlement proceeds for future benefits which may be paid or payable by Medicare based upon the following findings:

The Court did not proceed with the hearing until 10:30 a.m. By that time no representative from the U.S. Attorney’s office or Medicare, made an appearance. In addition, no pleading, or other response to Defendants’ Motion, had been submitted, filed or docketed with this Court by an attorney or representative for the Medicare Coordination of Benefits Contractor, Social Security Administration or the Centers for Medicare and Medicaid Services.

The Court further finds that on or about October 15, 2012, U.S. Attorney’s office, as the representative of the Medicare Coordination of Benefits Contractor was served, by certified mail, a copy of the Defendants’ Joint Motion. And, attached to the motion was a Notice of Hearing for the motion before this court.

The Court finds that the undisputed evidence in this matter is that the Plaintiffs, Scott Tye and Barbara Tye are husband and wife and they have entered into a Settlement Agreement with the Defendants, for injuries, some of which are permanent in nature. And, that the Defendant, Scott Tye will require medical treatment for those injuries.

Second, that Scott Tye became eligible for Medicare Benefits in September, 2004.

Third, that at the present time Scott Tye’s medical expenses, including those arising from injuries sustained in this matter, have been paid by a private health insurance carrier as a benefit of his wife’s employment.

Fourth, there is reason to believe that the private health insurance carrier will continue to pay Scott Tye’s future medical expenses in the foreseeable future.

Fifth, that Medicare does not currently have an established policy or procedure in effect for reviewing or providing an opinion regarding the adequacy of the future medical aspect of a liability settlement or recovery of future medical expenses incurred in liability cases such as this case.

Sixth, that the Plaintiffs are aware of their obligations to reimburse Medicare for all conditional payments made by Medicare and Plaintiffs have agreed to extinguish, out of the settlement proceeds, any and all additional medical liens currently existing, including any conditional payment already made by Medicare for injuries sustained by Plaintiff in this case.

The Ohio Court of Appeals concluded that the defendants’ arguments regarding the MSA were disingenuous. Their conclusion was supported by the fact that the plaintiffs sought an opinion from a neutral expert regarding the MSA issue ahead of the settlement date. The defendants acted on the issue only after settlement, and the moving party defendants merely joined the motion filed by other defendants ten days after it was filed.

The appellate court remarked that the outside consultant relied upon by the defendants clearly lacked information about the case, and his correspondence was dated three months after the settlement date. Significantly, the court did not believe that the authority attached to the defendants’ motion supported the motion; rather, it supported the conclusion that an MSA is not required in personal-injury cases. The appellate court also noted that a representative for Medicare received notice of the MSA hearing and declined to appear.

In early 2015, the U.S. District Court for the Western District of Louisiana issued its opinion in Berry v Toyota Motor Sales, concluding that no MSA was required in that products-liability matter. That court based its decision on information provided by CMS as well as opinions of the plaintiff’s treating physicians. The court concluded that no future medical care was necessary, related to the incident at issue. The court also found that Medicare’s interests had been adequately protected in the settlement negotiations. With reference to protection of Medicare’s future interests, the court made this observation:

[T]he government itself provides no procedure by which to determine the adequacy of protecting Medicare’s interests with reference to future medical expenses in conjunction with the settlement of third party claims.

Finally, the court was compelled to its decision by the strong public interest in resolving lawsuits through settlement.

In the medical-malpractice case of Aranki v Burwell, the state court judge who approved the settlement, ordered the plaintiff to file a declaratory judgment action in federal court on the MSA issue. The federal court declined to enter judgment on the basis that there was no justiciable case or controversy ripe for review. Consequently, the court did not have subject-matter jurisdiction:

This case is not ripe for review because no federal law mandates CMS to decide whether Plaintiff is required to create a MSA. That CMS has not responded to Plaintiff’s petitions on the issue, is not reason enough for this Court to step in and determine the propriety of its actions. There may be a day when CMS requires the creation of MSA’s in personal injury cases, but that day has not arrived. Because the first prong in the declaratory judgment analysis is not met here, the Court need not examine the second.

The courts have also made the distinction between personal injury and workers’ compensation settlements. As one court noted, in contrast to the workers’ compensation scheme that “generally determines recovery on the basis of a rigid formula, often with a statutory maximum,” tort cases involve noneconomic damages not available in workers’ compensation cases, and a victim’s damages are not determined by an established formula. Sipler v Trans Am Trucking, Inc, 881 F Supp 2d 635, 638 (D. NJ, 2012), citing Zinman v Shalala, 67 F3d 841, 846 (CA 9, 1995). This distinction doesn’t mean attorneys can ignore this issue and plead ignorance in liability cases. Medicare’s interests must still be protected, which may involve setting up an MSA.

Further Guidance on Whether to Set Up An MSA. First, confirm whether the plaintiff is a Medicare beneficiary. Don’t assume based on age that the plaintiff is not a beneficiary. Recipients of Social Security Disability or who are awarded a combination of SSD and SSI benefits are automatically enrolled in Medicare 24 months after the award is made, regardless of their age. If the award is retroactive, the 24-month period may start on the retroactive date, not on the date plaintiff was notified of the disability award. Don’t assume that a plaintiff’s statement made during discovery that he or she is not a Medicare beneficiary is still valid. Update the information to confirm the plaintiff’s status.

Second, carefully analyze the issue of whether future care is anticipated, related to the underlying injury. Typically, unless it’s obvious that future care is needed, a physician certification that treatment has concluded should be obtained. Otherwise, it seems prudent to create an MSA in any case that involves a reasonable likelihood of future injury-related medical care arising out of the injury giving rise to the case.

Third, consider the input of Medicare counsel in more complex cases or if you need guidance with reference to adequate funding for those cases in which an MSA is to be established. Some insurance carriers have Medicare counsel available to consult when resolving cases involving beneficiaries. While it is important to know at least the basics when it comes to Medicare, CMS, and the Secondary Payer Act, don’t hesitate to call on the experts when needed.

There are several national firms that specialize in Medicare resolutions. We will undoubtedly be hearing from them as the liability MSA issue “amps up” and we need to learn more about the specifics of future enforcement. Most of the specialty firms also offer custodial account services to hold the MSA funds and ensure Medicare is not billed until the MSA is exhausted. These firms also have online resources available, which can be invaluable in determining how to proceed in a particular case.

Current practices may certainly be continued until further information and directives are provided by the Centers for Medicare and Medicaid Services. When settling a case with a Medicare beneficiary, future medical costs should probably be addressed via some language in the release and settlement agreement. The statement can be as brief as simply acknowledging that Medicare’s interests were considered. In those specific instances when an MSA is appropriate to protect the plaintiff from incurring future out-of-pocket expenses or reimbursement claims by CMS, the establishment of the MSA should be described in the release and settlement agreement.

Conclusion. It took three or four years for the turmoil of 2007-2008 to morph into a normal part of our everyday practice. We don’t anticipate that it will take that long for the Medicare Medical Set-Aside in liability cases (or, the “LMSA”) to become a routine matter. Some practitioners are predicting that enforcement procedures will be in place as early as the end of 2017. The more prudent prediction is some time in 2018. The more we know ahead of time, the easier this next transition will be.

Categories: Volume 7 #4

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