Wisconsin Lawyer: Medicare's Stakes in PI Settlements:

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  • Wisconsin Lawyer
    September
    01
    2012

    Medicare's Stakes in PI Settlements

    Aaron Frederickson

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    In light of the ongoing debate on liability Medicare set-asides, litigators must be alert to the possibility that personal-injury claim proceeds of Medicare beneficiaries might be subject to claims of the federal government.

    Wisconsin LawyerWisconsin Lawyer
    Vol. 85, No. 9, September 2012

     

    PillsWith the aging of the U.S. population, personal injury attorneys in Wisconsin increasingly are dealing with cases involving plaintiffs who are Medicare beneficiaries. Although Medicare has been in existence since the 1960s, and the Medicare Secondary Payer Act (MSPA or the Act) since 1980, little was done initially to account for and protect Medicare's interests in personal injury plaintiffs' settlement agreements. However, with the advent of increasing enforcement of the MSPA in worker's compensation claims, attorneys practicing in the area of automobile and general liability cases are starting to realize that they too need to consider Medicare's interests when settling clients' claims.

    This article explores the origins of the MSPA and its effect on attorneys handling personal injury cases and discusses whether attorneys need to consider Medicare's future interests in their settlements. It also examines whether liability Medicare set-asides are needed given the statutory framework of the MSPA and provides tips to those who want to avoid future liability for failing to comply with the Act.

    Medicare Takes Aim at Worker's Compensation Claims

    The MSPA came into existence with passage of section 953 of the Consolidated Omnibus Reconciliation Act (COBRA) of 1980. Through a series of amendments, the Act has since been codified at 42 U.S.C. § 1395y(b)(2)(A)(ii). Initially, the government did not enforce the MSPA, and so the Act had little effect on the way personal injury attorneys practiced law until creation in the early 2000s of the Medicare set-aside.

    The terms "Medicare set-aside" and "Medicare set-aside trust" are not explicitly mentioned in the MSPA or in the Code of Federal Regulations. It is unknown who first coined the phrase Medicare set-aside trust, but it was referred to by the Centers for Medicare and Medicaid Services (CMS) in a July 23, 2001, policy memorandum issued by CMS deputy director Parashar B. Patel.

    According to Patel, under the MSPA, "Medicare is secondary payer to WC (worker's compensation), therefore, it is in Medicare's best interests to learn the existence of WC situations as soon as possible in order to avoid making mistaken payments. The use of administrative mechanisms sometimes referred to by attorneys as Medicare Set-Aside Trusts in WC commutation cases enables Medicare to identify WC situations that would otherwise go unnoticed, which in turn prevents Medicare from making mistaken payments." The memo also cautioned attorneys and claimant/beneficiaries against avoiding the repayment of Medicare conditional payments and attempting to maximize settlements to the detriment of Medicare.1

    Following the issuance of the "Patel Memo," the CMS continued to issue additional policy memoranda regarding Medicare secondary payer compliance over the next several years. However, all the policy memoranda focused on worker's compensation settlements and did not mention MSPA impact or implications on liability claims.

    Section 111 Reporting Guidelines and Medicare Compliance

    On Dec. 27, 2007, President George W. Bush signed into law the Medicare, Medicaid and SCHIP2 Extension Act of 2007 (MMSEA/section 111), which is codified at 42 U.S.C. § 1395y(b)(8). While the main purpose of the law was to help fund the federal SCHIP program, its provisions also have affected the insurance industry.

    Under this law, group health and non-group health (worker's compensation, liability, and automobile/no-fault insurance) plans are required to report to the federal government the terms of settlements related to claims involving Medicare beneficiaries and cases involving the ongoing responsibility for payment of medical benefits related to beneficiaries. In essence, the law created a means for the federal government to track personal injury claims.

    U.S. v. Stricker: A Step Toward Liability Medicare Set-Asides?

    Notwithstanding the lack of guidance regarding liability Medicare set-asides (LMSAs), case law should cause attorneys and claims handlers to take note. In 1996, litigation was commenced in Alabama concerning PCB contamination. In the cases Abernathy v. Monsanto Co. and Tolbert v. Monsanto Co.,3 the plaintiffs alleged that PCB exposure had resulted in health dangers and birth defects. The total "class" consisted of more than 20,500 people, including more than 900 Medicare beneficiaries.

    On Aug. 20, 2003, the parties agreed to a $300 million settlement, which later became known as the Abernathy settlement. Under the agreement's terms, on Aug. 26, 2003, the defendants were to make initial settlement payments totaling $75 million into a settlement account. The settlement was then formalized in early September 2003, followed by the entry of settlement in Calhoun County, Alabama. The defendants agreed to issue annual payments of $2.5 million per year from 2004 to 2013.

    Characteristics of Medicare Set-aside Accounts

    A "Medicare set-aside" is a tool that can be used in any worker's compensation, automobile/no-fault, or general liability claim to avoid making Medicare the primary payer. When a personal injury settlement occurs that closes out future medical care and treatment (meaning a person is not entitled to future medical benefits from an insurance carrier as part of a settlement), parties can allocate a percentage of the settlement monies and place it into an interest-bearing account at any financial institution. This account is referred to as a Medicare set-aside and has the following characteristics:

    • The account or set-aside can be administered professionally or by the claimant.
    • The monies in the account are to be used only to pay for medical care and treatment otherwise reimbursable by Medicare.
    • The party administering the set-aside may be required to pay for care under applicable fee schedules.
    • The account might require an annual accounting to the Centers for Medicare and Medicaid Services.
    • The account can be funded with annuities or lump-sum payments.

    Medicare set-asides typically are used in personal injury cases involving Medicare beneficiaries or in situations in which it is expected the claimant will become a beneficiary in the foreseeable future. They have long been used in worker's compensation claims to avoid shifting the burden of future medical expenses to Medicare, essentially because formal review processes have applied to these cases since the early 2000s. However, to date no formal review process exists for non-worker's compensation claims.

    On Dec. 1, 2009, the United States filed suit to recover reimbursement for its Medicare payments from various corporate tortfeasors, including their insurance carriers and subsidiaries and attorneys representing the Abernathy plaintiffs.4 Following the initiation of this lawsuit, United States v. Stricker, various defendants sought to dismiss the action under rule 12(b)(6) of the Federal Rules of Civil Procedure. The main issue in their motions was the applicable statute of limitation for the government's reimbursement causes of action, which was determined to be three or six years, depending on the parties' classification.

    Although the issue in Stricker was the application of the statute-of-limitation provisions in the MSPA and the Federal Claim Collection Act (FCCA) under 28 U.S.C. § 2415(a), the case also has raised awareness of attorneys and insurance companies concerning set-aside issues in liability cases. However, the issue remains as to whether the MSPA applies to "future interests" in these matters.

    The Ongoing Debate on LMSAs

    Although the Stricker case served as a wake-up call for the insurance and Medicare compliance industries, the issue of LMSAs was not addressed by the court or the parties during litigation. While some people see Stricker as being a step toward LMSAs becoming commonplace in non-worker's compensation personal injury litigation, others have viewed it in a different light. Although there are many arguments against use of an LMSA, or considering and protecting Medicare's future interests in non-worker's compensation cases, two main arguments have emerged in support of this position.5

    1) The MSPA is silent regarding Medicare's future interests in liability cases. Some observers argue that the MSPA is silent regarding non-worker's compensation cases and Medicare's future interests. They note that the Act itself is vague regarding the application of these interests, and that the object of the Act is only to recover conditional payments.

    Opponents of the use of LMSAs also point out that the Code of Federal Regulations is silent on non-worker's compensation claims. Existing federal regulations cover group health plans and worker's compensation settlements. While worker's compensation attorneys have guidance under 41 C.F.R. § 411.46(a) regarding future medical benefits, a similar regulatory provision is not present in the area of liability cases. The text of this section also specifically states that it applies only to "work-related injury or disease." Applying this section to non-worker's compensation cases would be inconsistent with the text of the regulation.

    2) The MSPA applies only to past or current recovery actions and not "future" recovery. Proponents of this view also rely heavily on the actual text of the Act. They note that 42 U.S.C. § 1395y(b)(2)(B)(ii) states as follows:

    "Repayment required. 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 a 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." (Emphasis added.)

    As noted above, the enforcement language of the MSPA seems to identify the Act as a "reimbursement" statute that applies only to recovery of past and present payments. The argument continues that the statute is not a "coordination of benefits" statute, which would also cover Medicare's future interests. Unfortunately, none of these arguments has been advanced in federal court for further interpretation.

    2011: The Year of the CMS Policy Memorandum

    Before 2011, all CMS policy memoranda were directed at worker's compensation plans. In May 2011, Sally Stalcup, MSP regional coordinator for CMS Region VI (Dallas), issued a general memorandum regarding LMSAs. This memorandum stated that, "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 Worker's Compensation or liability case. There is no distinction in the law."

    Following issuance of this memorandum, critics of LMSAs were quick to point out that it contained no specific or controlling legal authority regarding Medicare's future interests in liability claims. On the other hand, advocates for using LMSAs note that the MSPA generally, in conjunction with its regulations concerning worker's compensation claims, is a controlling legal authority.

    On Sept. 30, 2011, Charlotte Benson, an official with the CMS Office of Financial Management, issued what some observers argue is the first definitive policy related to LMSAs. In this memorandum, the CMS stated, "[w]here 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."

    The memorandum went on to note that future settlements would require additional "certifications" from treating physicians of injured parties.

    Judicial Clarification or Ongoing Confusion?

    Medicare secondary payer case law has often been defined and interpreted in the courts via class-action or mass-tort litigation. In 1994, the relevance of the MSPA escalated and caught the attention of attorneys with observers following the Baxter International silicone-breast-implants settlements. In United States v. Baxter International,6 the federal government brought a complaint-in-intervention regarding a class involving approximately 400,000 individuals, of whom nearly 80,000 were Medicare beneficiaries. The 11th Circuit Court of Appeals heard the matter.

    According to the court, "the MSP creates as a practical matter a need for insurers to determine, before paying a disputed liability claim (involving among its alleged damages medical expenses likely to have been paid by Medicare), whether the Government has made a conditional payment, upon peril of being forced to pay the same claim twice. As the second payer, such insurer is in a position to determine which claim has been, or is at risk of being, paid twice, while Medicare, as the first payer, is not. Because the statute is built on the recognition that Medicare frequently will not know which of its payments has been subsequently duplicated by an insurer, it would – in this unique setting of a class action involving thousands of claimants – defeat the purpose of the statute to require that the Government identify each patient, procedure, and payment amount at the pleading stage without benefit of discovery."7

    Following the Baxter decision, litigation regarding Medicare secondary payer compliance-related issues in the federal courts has become more frequent. Notwithstanding compelling arguments of equity and public policy, the courts often gave the U.S. Department of Human Services and the CMS "Chevron deference"8 on matters related to Medicare's rights of recovery concerning conditional payment recovery under the MSPA.9 However, this deference has not been unanimous: conflicting decisions have arisen in other circuits.10

    As a result of this litigation, attorneys became increasingly concerned regarding Medicare's future interests and use of LMSAs. To address these concerns, some attorneys have brought actions or motions in federal courts to approve a LMSA in situations in which one otherwise would not be approved by the CMS.11

    In Finke v. Hunter's View,12 the parties to a $1.5 million settlement brought such a motion before the district court judge. After hearing arguments related to the facts of the case, liability issues, and concerns as to future adverse action by the CMS against the parties related to an LMSA, Judge William R. Wilson Jr. determined that a zero dollars ($0) LMSA was reasonable.13

    Following the Finke decision, a number of other litigants brought similar motions in federal court either requesting $0 LMSA allocations or for approval of a specific LMSA amount. In Big R. Towing v. Benoit,14 the parties brought a similar motion before U.S. Magistrate Judge Patrick J. Hanna to "determine future medical expenses for purposes of allocating the settlement proceeds taking Medicare's interests into account consistent with the Medicare Secondary Payor (sic) Act, 22 U.S.C. 1395y."15

    Notwithstanding that liability and issues concerning future medical care and treatment were "vigorously contested," the Big R. Towing parties agreed to a settlement of $150,000, in exchange for a complete release of all claims.16 The parties also stipulated that Benoit's medical care and treatment would cost approximately $52,500. The court determined that there was no evidence that Benoit was attempting to maximize the settlement to the detriment of Medicare, that the sum of $52,500 should be set aside for future medical expenses, and that this amount would reasonably consider Medicare's future interests.17 Case law coming from the federal courts signals that a LMSA analysis may be required even though there are no federal regulations similar to those applicable to worker's compensation.

    Aaron FredericksonAaron Frederickson, William Mitchell 2002, is founder of MSP Compliance Solutions, St. Paul, Minn. He previously worked as a litigator in the areas of worker's compensation, no-fault, and general liability law. He is a Medicare Set-Aside Consultant Certified (MSCC) and is a charter member and on the board of the National Alliance of Medicare Set-Aside Professionals (NAMSAP). He is also involved with Volunteer Lawyers Network and serves low-income clients with legal matters. Contact him at com Aaron MSPComplianceSolutions MSPComplianceSolutions Aaron com.

    More recently, the U.S. Department of Health and Human Services has begun the formal rulemaking process regarding LMSAs under the MSPA. Although the rulemaking process will likely not be complete and fully implemented until 2013 or 2014, any rules in this area will alter the legal landscape in this ever-changing area of the law.

    Conclusion

    The issue of Medicare's future interests in liability cases is a hot-button topic that puzzles many attorneys and claims handlers. At this point, there is no general consensus among the federal courts or attorneys as to the need for LMSAs as a requirement or necessity. To complicate matters further, the failure of the CMS to promulgate rules or procedures for LMSAs has further muddied the waters.

    While arguments can be made on both sides of this issue, it is clear that the CMS, and to some extent the courts, are interested in protecting the solvency of Medicare. Although each case needs to be analyzed on its own merits, the consideration of Medicare's future interests through the use of LMSAs is clearly one tool that Wisconsin attorneys and claims handlers can use to protect themselves and their clients from the iron fist of Medicare and the MSPA.

    Endnotes

    1 Parashar B. Patel, Centers for Medicare and Medicaid Services, policy memorandum (July 23, 2001).

    2 SCHIP, which stands for State Children's Health Insurance Program, is a federally administered health-care program that provides matching funds to states for health insurance programs for families with children.

    3 The Abernathy matter is a consolidated action composed of Abernathy v. Monsanto Co., No. CV-96-269; Abbott v. Monsanto Co., No. CV-97-967; Nelson v. Monsanto Co., No. CV-99-502; Long v. Monsanto Co., CV-96-268; Suggs v. Monsanto Co., CV-01-0874, all filed in the Calhoun County (Alabama) Circuit Court; and Brown v. Monsanto Co., No. CIV 97-ETC-1618-E (N.D. Ala.).

    4 No. CV 09-BE-2423-E (E. Ala. 9-30-10).

    5 41 C.F.R. § 411.46(a) states the following: "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."

    6 345 F.3d 866 (11th Cir. 2003).

    7 Id. at 884-85.

    8 Chevron U.S.A. Inc. v. Natural Resources Defense Council Inc., 467 U.S. 837 (1984). In this case, the U.S. Supreme Court set forth a legal test for determining a federal agency's deference when interpreting federal statutes and regulations.

    9 Hadden v. United States, 661 F.3d 298 (6th Cir. 2011); Jackson v. Hudson Ct. LLC, No. A-4755-08T1, 2010 WL 2090036 (Sup. Ct. N.J. A.D. May 24, 2010); Gray v. John/Jane Doe Emp., No. 3:10-38-DCR, 2010 WL 3199347 (E. Dist. Kentucky Aug. 12, 2010); cf. Bradley v. Sebelius, 621 F.3d 1330 (11th Cir. 2010).

    10 Bradley v. Sebelius, 621 F.3d 1330 (11th Cir. 2010).

    11 The author is not aware of any definitive decision concerning LMSAs in the Seventh Circuit Court of Appeals.

    12 No. 07-4267 (WRW/RLE), 2009 WL 6326944 (D. Minn. Aug. 25, 2009).

    13 Id. at *3.

    14 2011 U.S. Dist. LEXIS 1392 (W. Dist. LA 1-5-2011).

    15 Id. at *1.

    16 Id. at *1-5.

    17 Id. at *5-6.