Source: https://quickliens.com/to-msa-or-not-msa/
Timestamp: 2019-04-25 03:47:58+00:00

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TO MSA OR NOT TO MSA?
THE $64,000 QUESTION IN THIRD-PARTY LIABILITY SETTLEMENTS: TO MSA OR NOT TO MSA?
by: David R. Teter, J.D., D.C.L.
Medicare enrollment and spending should double within the next 15 years. Over the long-term, Medicare faces staggering deficits due to rising health care costs, increasing enrollment, and a declining American work force – Medicare’s primary source of income. As of 2016, the Medicare Trustees “recommend that Congress and the executive branch work closely together with a sense of urgency to address the depletion of the [Medicare] trust fund…” In 1980, the Medicare Secondary Payer Act (MSP) started the cost-saving process and reduced spending, recovered monies, and removed Medicare as a primary payer of medical treatment in the event of a workers’ compensation or third-party liability settlement. Under MSP and federal regulations the Medicare trust enjoys swift reimbursement for claims previously paid to medical providers in these settlements. Whereas federal regulations dictate consideration of Medicare’s future interest in workers’ compensation settlements, no analogous roadmap exists regarding third-party liability settlements. A worker’s compensation Medicare Set-Aside (MSA) is where parties set aside settlement funds in trust to fund future medical treatment that Medicare may otherwise pay, shifting the payment burden to the workers’ compensation carrier, as they are primarily responsible for the damages. MSAs are routinely used in workers’ compensation settlements in an effort to demonstrate MSP compliance. This paper analyzes the appropriateness of MSA utilization in third-party liability settlements with an eye toward long-term solvency of the Medicare trust.
I. A BRIEF HISTORY OF SOCIAL INSURANCE.
For centuries social security programs have benefited the elderly within society. In 16th century Europe, justices solicited the community for money put towards elderly relief. In 1601, the Elizabethan Poor Law consolidated “poor law” legislation and insured that the elderly received continued benefits. In 1834, the Poor Law Amendment Act created a regulatory framework and revolutionized administrative practices, thus paving the way for modern federal administrative agencies. In 1889, German Chancellor Otto von Bismarck established the first social insurance program entitled the Old Age and Disability Insurance Law. Unlike prior programs, the national German government contributed financial support. In the wake of the Great Depression, United States President Franklin D. Roosevelt introduced similar social security programs in the face of soaring poverty rates among senior citizens.
In 1965, President Lyndon B. Johnson signed the Social Security Act creating the Medicare program providing health insurance for aged Americans 65 and older and a supplementary medical insurance program to aid the elderly in paying doctor bills. The Act established the Medicare hospital insurance (HI) trust fund, or Medicare Part A. The HI trust funds healthcare costs for hospitals, skilled nursing facilities and is financed mainly through payroll and income taxes. The smaller Medicare supplemental medical insurance (SMI) trust fund, or Medicare Parts B and D, pays for physician services and medical supplies. It also includes certain prescription drugs (Part D, only) and, on a much smaller scale in comparison, is financed from various tax sources.
II. MEDICARE AS SECONDARY PAYER.
A. STATUTORY BASIS FOR MEDICARE’S RECOVERY RIGHT.
A primary plan, and an entity that receives payment from a primary plan, shall reimburse the appropriate Trust Fund for any payment made by the Secretary under this subchapter with respect to an item or service if it is demonstrated that such primary plan has or had a responsibility to make payment with respect to such item or service. A primary plan’s responsibility for such payment may be demonstrated by a judgment, a payment conditioned upon the recipient’s compromise, waiver, or release (whether or not there is determination or admission of liability) of payment for items or services included in a claim against the primary plan or the primary plan’s insured, or by other means.
In order to recover payment made under this subchapter for an item or service, the United States may bring an action against any or all entities that are or were required or responsible…under a primary plan. The United States may, in accordance with paragraph (3) (A) collect double damages against any such entity. In addition, the United States may recover under this clause from any entity that has received payment from a primary plan or from the proceeds of a primary plan’s payment to any entity.
Under these terms, CMS has no obligations to pay for medical treatment if payment was made, or reasonably expected to be made, by a primary plan (such as third-party liability insurance, workers’ compensation, or another responsible party). If Medicare made a payment, it is considered a “conditional payment”, and any entity receiving payment from that plan may be pursued for recovery of those payments and double damages. A primary plan’s responsibility for repayment could be determined by judgment or release where payment was made by the primary payer or its insured, or “by other means.”  Under 42 C.F.R. §411.22, “other means” may include, but not be limited to, “a settlement, award, or contractual obligation.” Whether a MSA is required to protect the Medicare trust in third-party liability settlements draws upon this language when future medicals are involved.
B. REGULATORY BASIS FOR MEDICARE’S RECOVERY RIGHT.
(a) Lump-sum commutation of future benefits. If a lump-sum compensation award stipulates that the amount paid is intended to compensate the individual for all future medical expenses required because of the work-related injury or disease, Medicare payments for such services are excluded until medical expenses related to the injury or disease equal the amount of the lump-sum payment.
(1) A lump-sum compromise settlement is deemed to be a workers’ compensation payment for Medicare purposes, even if the settlement agreement stipulates that there is no liability under the workers’ compensation law or plan.
(2) If a settlement appears to represent an attempt to shift to Medicare the responsibility for payment of medical expenses for the treatment of a work-related condition, the settlement will not be recognized. For example, if the parties to a settlement attempt to maximize the amount of disability benefits paid under workers’ compensation by releasing the workers’ compensation carrier from liability for medical expenses for a particular condition even though the facts show that the condition is work-related, Medicare will not pay for treatment of that condition.
(c) Lump-sum compromise settlement: Effect on services furnished before the date of settlement. Medicare pays for medical expenses incurred before the lump-sum compromise settlement only to the extent specified in § 411.47.
(1) Basic rule. Except as specified in paragraph (d)(2) of this section, if a lump-sum compromise settlement forecloses the possibility of future payment of workers’ compensation benefits, medical expenses incurred after the date of the settlement are payable under Medicare.
(2) Exception. If the settlement agreement allocates certain amounts for specific future medical services, Medicare does not pay for those services until medical expenses related to the injury or disease equal the amount of the lump-sum settlement allocated to future medical expenses.
(a) Determining amount of compromise settlement considered as a payment for medical expenses.
(1) If a compromise settlement allocates a portion of the payment for medical expenses and also gives reasonable recognition to the income replacement element, that apportionment may be accepted as a basis for determining Medicare payments.
The recommended method to protect Medicare’s interests is a workers’ compensation Medicare Set-Aside arrangements (WCMSA), which allocates a portion of the WC settlement for future medical expenses. The amount of the set aside is determined on a case-by-case basis and should be reviewed by CMS, when appropriate. Once the CMS determined set aside amount is exhausted and accurately accounted for to CMS, Medicare will agree to pay primary for future Medicare covered expenses related to the WC injury… It is not in Medicare’s best interest to review every WC settlement nationwide in order to protect Medicare’s interest per 42 C.F.R. §441.46.
(a) As used in this section, Medicare-covered services means services for which Medicare benefits are payable or would be payable except for applicable Medicare deductible and coinsurance provisions. Medicare benefits are payable notwithstanding potential liability insurance payments, but are recoverable in accordance with Section 411.24.
(b)This section applies when a beneficiary has received a liability insurance payment or has a claim pending against a liability insurer for injuries or illness allegedly caused by another party.
As section 411.46-47 clearly applies to worker’s compensation settlements, section 411.50-54 applies only to third-party liability settlements. No regulation exists that corresponds with section 411.46 pertaining to third-party liability settlements. Regardless, section 411.54 provides that conditional payments by Medicare are recoverable in accordance with section section 411.24 from “any entity that received payment.” Pursuant to the MSP Act, section 411.24 was used by the Government to obtain reimbursement from a plaintiff’s attorney in a third-party liability settlement. As a result, there exists strong argument that the conditional payment reimbursement regulations applicable to workers’ compensation cases also apply to third-party liability settlements. Whether the language in section 411.56 applies to third-party settlements regarding CMS’ power to not recognize settlement terms and whether Medicare’s interest must be considered with a MSA, remains unclear. Still Medicare asserts that it is not bound by allocation terms in third-party liability settlements. Also although Medicare’s interests must be considered, no established method exists to do so as a matter of law regarding future medicals.
C. CONSIDERING MEDICARE’S INTEREST IN THIRD-PARTY LIABILITY SETTLEMENTS: THE STALCUP MEMO AND THE SCHEXNAYDER DEBACLE.
“Medicare’s interests must be protected; however, CMS does not mandate a specific mechanism to protect those interests. The law does not require a “set-aside” in any situation. The law requires that the Medicare Trust Funds be protected from payment for future services whether it is a Workers’ Compensation or liability case. There is no distinction in the law.
In the absence of federal regulation, it appears that CMS continues to interpret congressional intent of the MSP Act by advising scenarios wherein a MSA is not required. Instead of advising when one is, in fact, required; they restate the now familiar cryptic phrase that “Medicare’s interests must be protected.” Furthermore, they fail to address any mechanism for parties to seek CMS approval. Therefore, the MSP statute continues in ambiguity in interpretation regarding third-party liability settlements.
In Schexnayder v. Scottsdale Insurance Company, it appears that the reason of Ms. Stalcup’s memo was in response to the Judge’s request in this particular matter. In Schexnayder, the claimant suffered from bodily injuries sustained as a result of a motor vehicle accident during the course and scope of employment. In that case, the two defendants were a workers’ compensation carrier along with a third-party liability insurance carrier. The defendant’s vehemently challenged the reasonableness and necessity of the claimant’s medical treatment and total damages, but ultimately admitted to liability. The matter was regarding a settlement received from both defendants.
CMS advised that parties to both workers’ compensation and third-party liability settlements should consider Medicare’s interests, as third-party liability proceeds are primary to Medicare. In Schexnayder, the parties reached an in globo settlement with the defendants; however, the settlement was predicated on the injured party accepting sole liability and responsibility for protecting Medicare’s interests. The settlement required that CMS must approve an MSA in this matter. However, the claimant was not Medicare-eligible upon settlement and failed to possess a “reasonable expectation” of Medicare enrollment within 30 months of the settlement date as required by federal regulation. Therefore, the attorneys submitted to the court that CMS would not review, much less approve, a proposed MSA allocation.
Undaunted, the Court set the proceedings for an evidentiary hearing ordering notice to the Secretary and Chief Counsel of Health and Human Services (HHS), the head of CMS and the Office of the U.S. Attorney for Louisiana’s Western District. On July 6, 2011, the U.S. Attorney advised that CMS would not appear at the hearing. Regardless, CMS, via counsel, provided the Court with Ms. Stalcup’s memo. Ultimately, the Court utilized the memo as guidance in its interpretation of how to protect Medicare’s interests.
The Court’s main considerations appear to be hinged upon the memorandum’s statement that “[t]he current policy of CMS/Medicare is that they do not require or approve Medicare set aside settlements in personal injury cases. . .” It appears that the Court failed to realize that CMS may deem this particular settlement as global for both the workers’ compensation and liability claims. Since workers’ compensation was involved the MSA would have needed to be performed regardless and the MSA allocation thresholds for those set in workers’ compensation cases would need to be applied here. As a result, whether CMS has a review procedure in place for MSAs in third-party liability settlements is moot and the Court’s analysis was unneeded. In the event the claimant was on Medicare or within 30 days of reasonable expectation of Medicare enrollment, CMS would have accepted the MSA for review and approval as this was clearly settlement proceeds from a workers’ compensation claim.
Notwithstanding the inappropriateness of CMS approval in this case, the Schexnayder Court mandated that the MSA be performed regardless in an effort to protect Medicare’s interests. This decision raises eyebrows for many reasons. As such, the Court sought an expert who calculated that the injured party’s potential future medical claims would total $239,253.84. The expert had referenced the Louisiana workers’ compensation fee schedule in determining the injured party’s future medical treatment costs. The Judge ordered that the experts calculated MSA amount was to be administered in trust to fund medical treatment that otherwise would be paid by Medicare. Furthermore, the Schexnayder Court stated that in the event Medicare made any conditional payments, that the injured party should immediately reimburse the Medicare trust for those payments.
As we shall see, Schexnayder posits that the MSP Act and its associated regulations remain exposed to confusing and erroneous interpretations by the Judiciary. Typically, the involved parties are in good faith attempting to protect Medicare’s interests and do not wish to expose themselves, nor their clients, to damages under the MSP Act. Due to the severity of the associated penalties, settling parties should demand a release that CMS that Medicare will not go after the settlement retroactively in an attempt to extort additional settlement dollars or to impose added liability.
Another confusing directive in the Schexnayder decision lies wherein the Court ordered that in the event Medicare made any conditional payments, that the injured party should immediately reimburse the Medicare trust for those payments. It remains important to note that Medicare made no conditional payments in this matter, because the injured party was not even a Medicare beneficiary at the time of settlement. As it is impossible for Medicare to have made conditional payments in the first place, the Court’s order appears unnecessary.
(ii)(a)(ii) Those costs are borne by the party against which CMS seeks to recover.
(2)(a)(ii)(2) Special rule. If CMS must file suit because the party that received payment opposes CMS’s recovery, the recovery amount is as set forth in paragraph (e) of this section.
(b) Recovery against the primary payer. If CMS seeks recovery from the primary payer, in accordance with § 411.24(i), the recovery amount will be no greater than the amount determined under paragraph (c) or (d) or (e) of this section.
(1)(c)(1) Determine the ratio of the procurement costs to the total judgment or settlement payment.
(2)(c)(2) Apply the ratio to the Medicare payment. The product is the Medicare share of procurement costs.
(3)(c)(3) Subtract the Medicare share of procurement costs from the Medicare payments. The remainder is the Medicare recovery amount.
(d) Medicare payments equal or exceed the judgment or settlement amount. If Medicare payments equal or exceed the judgment or settlement amount, the recovery amount is the total judgment or settlement payment minus the total procurement costs.
(2)(e)(2) The total judgment or settlement amount, minus the party’s total procurement cost.
Therefore, even if Medicare had made conditional payments on behalf of the injured party and all involved were doomed to reimburse the trust fund, the total amount due to Medicare should be reduced in consideration of the “costs of procuring the judgment or settlement.” Apparently, the Schexnayder Court’s order violates federal regulations. As previously stated herein, it remains common knowledge that Medicare’s interests are to be considered in these type of settlement scenarios. However, Medicare appears to be unable or unwilling to shed additional light on precisely how the involved parties can evidence that the settlement entered into is structured in compliance with the MSP Act.
As MSP compliance runs into muddier waters, we may see similar jurisprudence and more apparent and ill-informed guidance from CMS as lawyers continue to attempt to protect the Medicare trust and comply with the MSP Act. Confusing cases such as Schexnayder may merit legislative intervention to provide the ‘hard and fast’ rules in the future. Otherwise, we may continue guessing answers to the $64,000 question: to MSA or not to MSA?
In 2014, the Centers for Medicare and Medicaid Services withdrew a proposed rule on future medicals. This rule may have completely changed the environment for, and required the use of, MSAs in third-party liability settlements. The CMS rule was merely a proposal and had not been effectuated, so its withdrawal had no affect on the latest state of affairs regarding MSP Act compliance in these settlement types. Obviously, the floodgates of required MSAs in third-party liability settlements would be catastrophic for attorneys and clients. It also would cause overly burdensome costs and headaches to third-party liability settlement insurers. Therefore, attorneys should continue to evaluate their cases independently when determining whether a Medicare Set-Aside should be utilized in third-party liability settlements. For a “best practices” approach, lawyers should “examine the issue, document the file with your conclusions and underlying rationale, and talk to your client.” Regardless, some plaintiff lawyers have been creating Medicare set-asides in third-party liability settlements to cover their bases.
Second, it expanded who is affected by the Medicare Secondary Payer Act by requiring anyone who “reasonably anticipates receiving” Medicare benefits to establish a set-aside or otherwise pay for future costs with the award or settlement. As a comparison, in workers’ compensation cases, only current Medicare recipients or those who anticipate becoming recipients within 30 months of the settlement must make arrangements to pay for future medical treatment from the settlement or judgment. The proposed rule would have required everyone, regardless of age, to fund future care if they anticipated needing treatment for the case-related injury or illness while on Medicare decades later.
CMS provided no explanation as to why they withdrew the proposed rule. However, one attorney remarked that: “I like to think we’ve convinced them that they don’t have a right to create that rule, that the law does not support future Medicare set-asides in liability cases. But I don’t know that we’ve convinced them of that.” If the rule had been finalized, attorneys feel that it would have been challenged in court immediately.
III. CONCLUSION: TO MSA OR NOT TO MSA?
Without statutory authority, legislation, or regulation of the precise requirements necessitous to “reasonably consider Medicare’s interest” in third-party liability settlements, attorneys must consider whatever they feel best protects themselves and their clients from liability. With the recent withdrawal of CMS’ 2014 proposed rule regarding future medicals there may be no further guidance for some time. Therefore, due diligence and limited judicial intervention are required in these cases. As the U.S. government continues to manage its budget woes and massage spending, it remains likely that this particular issue may persist into the future. As previously stated herein, for a “best practices” approach, lawyers should “examine the issue, document the file with your conclusions and underlying rationale, and talk to your client.” Regardless, some plaintiff lawyers have been creating Medicare set-asides in third-party liability settlements to cover their bases.
 Timothy F. Geithner, et al., 2010 Annual Report of the Board of Trustees, Center for Medicare and Medicaid Services (Aug. 5, 2010), https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/downloads/tr2010.pdf.
 Jacob J. Lew, et al., 2016 Annual Report of the Board of Trustees, Center for Medicare and Medicaid Services (Jun. 22, 2016), https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2016.pdf.
 Workers’ Compensation Medicare Set-Aside Arrangement (WCMSA) Reference Guide – Version 2.5, Center for Medicare and Medicaid Services (Apr. 4, 2016), https://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/Workers-Compensation-Medicare-Set-Aside-Arrangements/Downloads/WCMSA-Reference-Guide-Version-2_5.pdf.
 1834 Poor Law. The Nat’l Archives, http://www.nationalarchives.gov.uk/education/resources/1834-poor-law/ (last visited Apr. 27, 2017).
 Otto von Bismarck, SSA Archives, https://www.ssa.gov/history/ottob.html (last visited Apr. 27, 2017).
 Lukas Pleva, Texas Congresswoman Eddie Bernice Johnson says Social Security slashed poverty among the elderly, Policifact.com (Aug. 17, 2010), http://www.politifact.com/truth-o-meter/statements/2010/aug/17/eddie-bernice-johnson/texas-congresswoman-eddie-bernice-johnson-says-soc/.
 Jhansan, Social Security: The Roosevelt Administration, Virginia Commonwealth University, http://socialwelfare.library.vcu.edu/eras/great-depression/social-security-the-roosevelt-administration/ (last visited Apr. 27, 2017).
 The preceding year F.D.R. executed the Communications Act of 1934 allowing television game shows to scam millions of Americans in the 1950s by fixing the results. Luckily, Congress passed 47 U.S.C.S. § 509 (LexisNexis, Lexis Advance through PL 115-29, approved 4/19/17) prohibiting these fraudulent game shows, such as the one named in the title of this paper. No arrests were made.
 Medicare Secondary Payer (MSP) Manual, Center for Medicare and Medicaid Services (Oct. 10, 2014), https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/downloads/msp105c01.pdf.
 Tax Policy Center Briefing Book, Tax Policy Center, http://www.taxpolicycenter.org/briefing-book/what-medicare-trust-fund-and-how-it-financed (last visited Apr. 27, 2017).
 In re Dow Corning Corp., 250 B.R. 298 (Bankr. E.D. Mich. 2000) at 336 n. 21.
 Medicare Secondary Payer (MSP) Manual, Centers for Medicare and Medicaid Services (Oct. 10, 2014), https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/downloads/msp105c01.pdf.
 Parashar B. Patel, Medicare Secondary Payer Statute: Medicare Set-Aside Arrangements, Center for Medicare and Medicaid Services Memorandum, (Jul. 23, 2001).
 42 C.F.R. §441.54 (Lexis Advance through the April 24, 2017 issue of the Federal Register. Pursuant to 82 FR 8346 (“Regulatory Freeze Pending Review”), certain regulations will be delayed pending further review. See Publisher’s Note under affected rules. Title 3 is current through April 7, 2017) (emphasis added).
 United States v. Harris, 2009 WL 891931 (N.D.W.Va.), affirmed, 334 F. App’x 569 (4th Cir. 2009).
 Sally Stalup. Untitled Memorandum. Centers for Medicare and Medicaid Services, Web. (May 25, 2011).
 Charlotte Benson. Medicare Secondary Payer-Liability Insurance (Including Self-Insurance) Settlements, Judgments, Awards, or Other Payments and Future Medicals. Centers for Medicare and Medicaid Services, Web. (Sept. 29, 2011).
 Workers’ Compensation Medicare Set-Aside Arrangement (WCMSA) Reference Guide – Version 2.5, CMS (Apr. 4, 2016), https://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/Workers-Compensation-Medicare-Set-Aside-Arrangements/Downloads/WCMSA-Reference-Guide-Version-2_5.pdf.
 42 C.F.R. § 411.37 allows for a reduction of the total amount due to Medicare in consideration of the plaintiff attorney’s fees and “approved” costs.
 Cindy Gierhard. ‘Catastrophe’ averted with Withdrawal of Future Medicals Rule, American Association of Justice, (Nov 6, 2014), https://www.justice.org/user?destination=magazine-article/trial/%E2%80%98catastrophe%E2%80%99-averted-withdrawal-future-medicals-rule.
 The average cost of producing a Medicare Set-Aside is around $3,000.00. CMS submission and approval costs another $1,000.00 (author is source).

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