Posted on: 6/21/2012
John V. Cattie, Garretson Resolution Group
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The Medicare Secondary
Payer ("MSP") Act, 42 U.S.C. § 1395y(b)(2), obligates parties
resolving liability insurance claims to address two broad obligations: 1)
reimbursement/resolution; and 2) reporting. 42 U.S.C. § 1395y(b)(8). Within the
reimbursement/resolution prong lie two components: past medicals and future
medicals. (Technically, as opposed to a right of reimbursement for future
injury-related medicals, the MSP Act endows the Centers for Medicare and
Medicaid Services ("CMS") with the implicit right to NOT make
payments for an injured person's future injury-related care when another
primary plan or payer has already accepted responsibility for such payments and
has made payment to an injured person of such funds allocated to the injured
person's future cost of care needs. It is this right NOT to make a future
payment which distinguishes this right from rights to reimbursement for any
conditional payments made under the reimbursement provisions of the MSP Act.)
To comply with future medical obligations, parties should screen the case to
determine if a Medicare Set-Aside Arrangement ("MSA") is appropriate
under the case-specific facts. The MSA obligation is the subject of debate and
uncertainty nationwide. The purpose of this Article is to provide a formalized
approach to addressing the MSA issue in a 2012 liability insurance settlement.
Throughout this Article, when the term "settlement" is used, it
encompasses settlements, judgments, awards and other payments where CMS's right
of recovery ripens under the MSP Act.
An MSA may be the
appropriate way to consider and protect Medicare's future interest in liability
settlements. That conclusion, however, must be based upon a formalized, case-specific
analysis that meets the following standard: "reasonable good faith
effort at compliance" (the "Good Faith standard"). By
applying the formalized approach outlined below, parties (both plaintiffs and
defendants) will meet the Good Faith standard as they will have adhered to all
relevant statutory, regulatory and administrative guidance from CMS as well as
relevant and recent case law from across the country.
The MSA obligation in a
liability settlement is only clear (on its face) in the specific case where a
definitive allocation for future injury-related medical expenses exists for an
injured Medicare beneficiary. For example, a liability MSA would be properly
considered in the case where a liability action proceeds to trial, results in a
judgment in favor of a Medicare beneficiary, and the trier of fact determines
that a specific portion of the judgment is to be applied to pay for future
medical expenses. In that fact pattern, there would be an identifiable portion
of the judgment against which to apply future medicals. Prior to concluding an
MSA may be in the best interest of the Medicare beneficiary, the parties also
would need to identify whether there exists a burden shift to Medicare of the
obligation to pay for that future injury-related care due to the lack of any
primary payer (other than Medicare) to make such payments. If both of these
queries result in an affirmative determination, establishing an MSA and seeking
CMS approval may be the best, but not only, way to ensure compliance. But see
Schexnayder v. Scottsdale Ins. Co., Civ. No. 6:09-cv-1390, 2011 U.S. Dist.
LEXIS 83687, 2011 WL 3273547 (W.D. La. July 29, 2011) and Smith v. Marine
Terminals of Arkansas, No. 3:09-cv-00027-JLH, 2011 U.S. Dist. LEXIS 90428,
2011 WL 3489806 (E.D. Ark. Aug. 9, 2011), where parties were unable to gain
CMS's approval of the MSA proposal as a condition of settlement.
On the other hand, in
the majority of settlements where the parties settle liability claims using a
broad, general release of all claims and do not specify or otherwise allocate
settlement proceeds to particular damages, whether due to policy limitations or
other confounding factors to a claimant's full recovery of damages sustained,
the procedures by which one can determine the propriety of an MSA becomes much
less clear. When settling a liability case in which payment for future medical
expenses is not specifically negotiated, if a general release is implemented
that uses broad language (for example, referring to "all claims past and
future"), a future medical expense component is not readily identifiable.
The mere fact that a claimant sought future medical expenses as part of the
claim or the insurance carrier is being released (under the terms of the
settlement) from the obligation to pay future medical expenses does not
necessarily mean the gross recovery contains proceeds for future medical
expenses. For example, a $20,000 settlement for a 26-year-old woman, agreed to
after all the evidence was adduced, but to which policy limits apply, does not
mandate a liability MSA just because future medicals were pled prior to counsel
identifying those policy limits. Also, the mere presence of a life care plan
does not mean that the gross recovery contains proceeds for future medical
expenses. While a claim may contemplate future medical expenses, that in and of
itself does not guarantee the gross recovery contains proceeds for future
medical expenses, even if the release makes reference to "all claims past
and future."
To meet the Good Faith
standard when a liability claim is resolved, whether through a jury verdict or
a settlement agreement, if the injured person will incur future medical
expenses as a result of the injuries pled in the case, settling parties should
take steps to: 1) determine whether an MSA is appropriate under the
case-specific facts; and then 2) document the file accordingly. By
screening every case, taking a formalized approach to verifying, resolving and
satisfying potential MSA obligations, and documenting the file to demonstrate
the steps the parties took, settling parties will ensure that: 1) Medicare's
future interest has been considered and protected appropriately; 2) the
settling parties are fully compliant with the Medicare Secondary Payer Act
(statute and regulations); and 3) the claimant's Medicare benefits are
protected going forward.
A Formalized Approach to
MSA Compliance Yields MSA Compliant Results.
Settling parties should
apply the following four step approach when addressing the MSA issue in order
to "SAVE" a claimant's Medicare card and the Medicare program itself
(relative to future medicals):
1) Screen to validate a claimant's candidacy for an MSA;
2) Assess damages to determine whether an allocation for
future medicals exists within the gross recovery or potential gross recovery;
3) Value future medicals for the claimant's case; and
4) Educate and administer the MSA results properly.
Screen - Every claim should be screened when making
this determination to validate a claimant's candidacy for funding an MSA as the
appropriate means of compliance. MSAs are not appropriate in every
single case. Only after finding a claimant to be a candidate for use of an MSA
(based on case-specific facts such as claimant's Medicare enrollment status,
and whether claims resolution results in future medicals being closed such that
Medicare becomes the primary payer of future injury-related medicals going
forward, Finke v. Hunter's View, Ltd. and Wal-Mart Stores, Inc., Civ.
No. 07-4267 (WRW/RLE), 2009 WL 6326944 (D. Minn. Aug. 25, 2009)), can it be
said that an MSA may be warranted. Big R Towing v. Benoit, Civ. Action
No. 10-538, 2011 WL 43219 (W.D. La. Jan. 5, 2011). Any MSA allocation created
without first determining a claimant's candidacy for an MSA based on
case-specific facts has missed a critical threshold issue, and may be creating
an obligation which would not otherwise exist for the settling parties. If a
claimant is not deemed to be a candidate for an MSA, then the settling parties
are compliant with the MSP Act by simply documenting their respective files as
to the reason why an MSA was not appropriate based on the case-specific facts.
If the claimant is determined to be an MSA candidate, then the parties should
proceed to step two, the Assessment phase of the analysis.
Assess - Upon finding a claimant to be an MSA
candidate, the parties must next determine if the (potential) gross settlement
proceeds contain sufficient dollars to fund any MSA obligation through an
allocation to future medicals. To do this, parties should assess the damages
sustained, compare those to the gross recovery and conclude whether: i) the
gross recovery actually contains dollars for future medicals; or ii) due to the
case-specific facts, the claimant is not being compensated for future medicals
despite the fact that future medicals are a damage component being pled and
released and/or a life care plan may be in existence, evidencing the claimant's
need for certain future injury-related care. See Zinman v. Shalala, 67
F.3d 841, 846 (9th Cir. 1995) (where the Court foresaw this inherent problem in
liability settlements under the MSP Act).
Parties should rely on
standardized damage allocation methodology in making this determination,
ensuring a consistent application of these principles if challenged by CMS at a
later date. Guidry v. Chevron USA, Inc., Civ. No. 6:10-cv-00868, 2011
U.S. Dist. LEXIS 148942 (W.D. La. Dec. 28, 2011). Such a standardized
methodology should be based on all guidance in existence at the time of
settlement (including statutory, regulatory and administrative guidance from
CMS as well as relevant case law). Absent such a thorough methodology being
applied, the parties could be led off the path one way (funding an MSA when not
warranted) or another (failing to fund an MSA when warranted).
In applying standardized
damage allocation methodology (containing all relevant guidance) to every case,
settling parties and their counsel can identify, with reasonable certainty,
whether an allocation exists for future medicals within a (potential) gross award.
If it does not, then the settling parties are compliant with the MSP Act by
simply documenting their respective files appropriately (no allocation for
future medicals present). However, if the settling parties determine that an
allocation exists for future medicals, then an MSA is warranted. The amount of
the future medical allocation figure represents 100% value for all future
medicals funded within the gross award and the maximum possible MSA figure. It does
not, however, represent the final MSA amount. To determine that figure, the
parties should proceed to valuing the future medical damages component; step
three of the analysis.
Value - After assessing the damages in step two, if a
reasonable person would determine that an actual allocation for future injury-related
medical expenses exists in the settlement (based on standardized damage
allocation methodology), the task becomes to identify the appropriate MSA
amount to ensure compliance (and protect the claimant's Medicare card). To
identify the appropriate MSA allocation, a future cost of care
("FCC") analysis should be conducted. This FCC analysis would
identify all future injury-related care services/expenses expected to be
incurred by the claimant, and then divide those services/expenses between Medicare-covered
services/expenses and non-Medicare covered services/expenses. The resulting FCC
figure would then be compared to the future medical allocation identified
previously (in step 2 (Assess)). Based on this comparison, the MSA would be
fully funded (and the MSA obligation fully addressed) for the lesser of the
future medical allocation and the FCC analysis. Once the MSA allocation amount
is finalized (which occurs only once the settlement details are finalized), the
parties should determine how the MSA results will be memorialized and
implemented. Hinsinger v. Showboat Atlantic City, 18 A.3d 229 (N.J.
Super. Ct. 2011). To make this determination, the parties move forward to the
Education phase of the analysis (step four).
Educate – At this point, the claimant faces the same
funding and administrative decisions presented in the workers' compensation
context. Liability MSAs may be funded either with a full lump sum dollar amount
up front or with an initial lump sum, combined with the purchase of an annuity
or other structured settlement vehicle. Liability MSAs may either be
self-administered or administered by a professional custodian. What differs
greatly from the workers' compensation context at this point is the ability to
submit the MSA proposal to CMS for review and approval. While workers'
compensation MSAs are submitted to a central CMS office and CMS has a
formalized approach to the review of workers' compensation MSAs, liability MSAs
may be properly submitted only to the appropriate CMS regional office. The CMS
regional offices may choose to review a liability MSA based on unpublished
internal workload review thresholds, and those thresholds are subject to change
without notice. Simply put, CMS does not have the same formal review process
for liability MSA proposals as it does for workers' compensation MSA proposals,
and it may prove difficult to get CMS to review and approve a liability MSA
proposal.
As of the date of this
article, CMS does not encourage parties to submit a liability MSA for review
and approval. Nevertheless, even though CMS does not currently have the
resources to review liability MSAs (as a general rule), that does not mean that
analysis and (perhaps) ultimately funding a liability MSA is unnecessary in
today's environment. CMS officials have stated that its right to not pay
for future medical expenses in certain liability cases comes from the same
statutory rights under 42 U.S.C. § 1395y(b)(2) and its accompanying regulations
as do its rights to not pay for future medical expenses in the workers'
compensation arena.
Conclusion.
A formalized approach
yields compliant results. By determining if an MSA is appropriate under your
case-specific facts and then documenting your file accordingly, you will have
achieved the Good Faith standard that will lead to the protections the settling
parties seek. If liability MSAs are not yet on your radar as a standard
question you must ask and answer in resolving a third-party liability claim,
the time is now to determine how you will advise your clients to address the
issue going forward, understanding that CMS is getting more aggressive about
asserting its future interests be "considered" in the liability
context. By advising your clients to apply a formalized approach to the issue
(following the SAVE methodology described above), you have the ability to
ensure compliance on the MSA issue while simultaneously saving your clients
thousands of dollars needlessly funded into a liability MSA when one might not
be appropriate. By utilizing a formalized approach to address the liability MSA
issue in every claim that comes through its door, you and your clients can
ensure that: 1) Medicare's future interest has been considered and protected
appropriately; 2) the settling parties are fully compliant with the Medicare
Secondary Payer Act (statute and regulations); and 3) the claimant's Medicare
benefits are protected going forward. In doing so, you will also ensure that
your client can close its file in a more timely manner.
This formalized
approach, from initial screening to determine a claimant's candidacy for an
MSA, to a damages assessment to determine actual presence of settlement
proceeds paid for future medicals to the claimant's actual future
injury-related care needs and, finally, to the appropriate means by which to
set up and administer the MSA, and documenting the file accordingly ensures
compliance. Walking down this path a few times will trample the brush under
your feet, exposing a path to MSA compliance you can follow going forward.
John Cattie is the lead attorney for the Future Cost of
Care Practice at Garretson Resolution Group, counseling settling parties
nationwide on all Medicare Secondary Payer issues, including Medicare
Set-Asides. Within DRI, John serves as the Vice Chairman of the DRI Medicare
Secondary Payer Task Force and on the Young Lawyers Steering Committee as
Corporate Counsel Co-Vice Chairman. He is a frequent speaker at continuing
education events nationwide on the subject of Medicare Secondary Payer
compliance. John can be reached at jcattie@garretsonfirm.com.