Litigation Section Blog: Will Medicare Set-asides be Required Starting Oct. 1? The Medicare Secondary Payer Act and Transmittal 1857:

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  • Litigation Section Blog
    August
    15
    2017

    Will Medicare Set-asides be Required Starting Oct. 1? The Medicare Secondary Payer Act and Transmittal 1857

    Kristen S. Scheuerman

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    In June, a Transmittal from the Department of Health and Human Services created a buzz among lawyers and Medicare professionals after it appeared to require Medicare Set-Asides. A more careful read of the Transmittal leads to a different conclusion, says Kristen Scheuerman.

    On Feb. 3, 2017, the Department of Health and Human Services (DHHS) and the Centers for Medicare and Medicaid Services (CMS) issued Pub 100-20 Transmittal 1787 Change Request 9383, which was subsequently replaced by Transmittal 1857 on June 8, 2017.1

    The subject of the document is: New Common Working File (CWF) Medicare Secondary Payer (MSP) Type for Liability Medicare Set-Aside (LMSAs) and No-Fault Medicare Set-Aside Arrangements (NFMSAs).

    Kristen S. Scheuerman com scheuerman herrlingclark Kristen S. Scheuerman, Marquette 2010, is a shareholder with Herrling Clark Law Firm, Ltd., in Appleton, where her practice is devoted primarily to plaintiffs’ personal injury litigation.

    This Transmittal created a buzz among lawyers and set-aside professionals, and as a result, you may have heard recently that LMSAs would be required beginning Oct. 1, 2017. A careful read of the Transmittal, though, leads to a different conclusion.

    The easiest way to appreciate this recent transmittal is to look at Medicare historically and the MSP Act.

    History of Medicare

    In 1965, the 89th United States Congress approved the Social Security Act, establishing government-sponsored health insurance for all people starting at age 65.2 This insurance is what we all know today as Medicare.

    In the 1980s, Congress amended part of the 1965 Social Security Act to include the Medicare Secondary Payer Act (MSP Act):3

    In simple terms, the MSP statute provides that to the extent a group health, workers’ compensation, liability, or no-fault insurance plan (including a self-insured entity) is obligated and chooses to pay the medical expenses of a Medicare beneficiary, the insurance plan is the primary payer and Medicare becomes the secondary payer. In these circumstances, Medicare may pay such expenses conditionally if payment by the commercial insurer is delayed or in dispute, or the existence of private insurance is unknown. If an insurer subsequently pays or settles the beneficiary’s claim, Medicare may recover its conditional payments from the beneficiary, or any person or entity receiving any portion of the insurance payment (including plaintiff’s counsel), and/or the insurer.4

    From the beginning, the MSP Act has included this critical language:

    Payment under this subchapter may not be made, except as provided in subparagraph (B), with respect to any item or service to the extent that … payment has been made or can reasonably be expected to be made under a workmen's compensation law or plan of the United States or a State or under an automobile or liability insurance policy or plan (including a self-insured plan) or under no fault insurance.5

    Based on this statutory language, the MSP Act has two key functions: (1) to shift fiscal responsibility for certain otherwise-covered services to a “primary plan” and; (2) to create an obligation that prevents Medicare from payment responsibility for future care when “primary funds” are available. In other words, the MSP Act addresses past payments (commonly referred to as conditional payments) and Medicare’s future interest.

    Conditional Payments

    Specifically, federal law states as follows:

    (ii) 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. If reimbursement is not made to the appropriate Trust Fund before the expiration of the 60-day period that begins on the date of notice, or information related to, a primary plan’s responsibility for such payment or other information is received the Secretary may charge interest (beginning with the date on which the notice or other information is received) on the amount of the reimbursement until reimbursement is made (at a rate determined by the Secretary in accordance with regulation of the Secretary of the Treasury applicable to charges for late payments).6

    With respect to the MSP Act and conditional payments, the Eleventh Circuit noted:

    In a nutshell, the MSP declares that, under certain conditions, Medicare will be the secondary rather than primary payer for its insureds. Consequently, Medicare is empowered to recoup from the rightful primary payer (or from the recipient of such payment) if Medicare pays for a service that was, or should have been, covered by the primary insurer. Although the statute is structurally complex – a complexity that has produced considerable confusion among courts attempting to construe it – the MSP's function is straightforward.7

    It is important to understand how “primary payer” is defined. Although the MSP Act does not define this term, Federal Regulation does:

    Primary payer means, when used in the context in which Medicare is the secondary payer,any entity that is or was required or responsible to make paymentwith respect to an item or service (or any portion thereof)under a primary plan.These entities include, but are not limited to, insurers or self-insurers, third party administrators, and all employers that sponsor or contribute to group health plans or large group health plans.8 (emphasis added)

    Liability Medicare Set-Asides (LMSAs)

    Since the MSP Act was enacted in 1980, claimants have always been required to consider Medicare’s future interest in the context of a liability settlement.9 However, there is not a single statute, regulation, rule, or code that requiresa set-aside in a liability case.

    There is no statute, regulation, or Medicare guidance that requires liability insurers to allocate settlement funds between future medical expenses and other beneficiary costs, nor is there any corresponding requirement for liability insurers to establish MSAs for payment of future medical expenses. In fact, Medicare guidance clearly acknowledges that such requirements do not exist.10

    CMS has a system in place to approve MSAs in the workers’ compensation arena.11 However, even within the workers’ compensation framework, MSAs are not required, despite popular beliefs to the contrary. In terms of workers’ compensation claims, MSAs are a preferred vehicle for considering Medicare’s future interests, but the term “set-aside” is not used anywhere in the MSP Act or related regulations.

    Stalcup’s Handout

    Until May 25, 2011, CMS, Congress, and every other regulatory body for that matter, were entirely silent on the issue of LMSAs. On that date, MSP Regional Coordinator Sally Stalcup issued a “specific handout” as a “service to the public” with respect to Medicare claims in certain states.12

    Stalcup’s handout ultimately provided little guidance and simply reiterated what was known, without providing any new or clear direction for the future. The handout reminded everyone that Medicare’s interests must be protected, whether the claim is a workers’ compensation or liability claim, but also affirmed that CMS does not mandate specific mechanisms to protect those interests.13

    The Benson Memo

    Shortly after the Stalcup handout was released, CMS issued a Memorandum (the Benson Memo) on Sept. 30, 2011.14

    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 service for that injury will not be required, Medicare considers its interest with respect to future medicals … satisfied.15

    While the Benson Memo offers insight into determining when a set-aside may or may not be required, it did nothing to provide any concrete conclusions about exactly how parties to a liability settlement were to address the need to protect Medicare’s future interests.

    In 2013, CMS submitted to the Office of Management and Budget a Notice of Proposed Rulemaking (NPRM) with respect to CMS’ intent to address future medical costs in liability claims. However, this NPRM was withdrawn by CMS in 2014, and nothing further was released by CMS until the recent Transmittal of June 8, 2017.

    The June 8 Transmittal

    This brings us full-circle to CMS’ most recent Transmittal. In the very first paragraph, it states:

    [t]his change request (CR) identifies the roles the A/B Medicare Administrator Contractors (A/B MACs), Durable Medical Equipment MACs (DME MACs), shared systems, and Common Working File (CWF) will have for creating Liability Insurance Medicare Set-Aside Arrangement (LMSA) … records on CWF and process Medicare Secondary Payer (MSP) claims accordingly with an open set aside MSP record on CWF. (emphasis added)

    I think the majority of people who saw this memo read “creating LMSAs” and stopped reading. But the words in bold are the most important to understand the purpose of the Transmittal. This Transmittal aims to create a process for CMS to use in better handling claims where an open LMSA may already exist.

    There is nothing in this Transmittal that changes the MSP Act or any other law relating to Medicare’s future interest: Medicare’s future interest must be protected but there still is no requirement for how that is to be done. Although practitioners and set-aside professionals were all hopeful that perhaps CMS had finally provided a road map to the persistent inquiry of “what must be done when a liability case settles to address Medicare’s future interest,” the question remains.

    If history is any indicator here, CMS’ actions in the workers’ compensation context with respect to set-asides tell us that although there may be guidelines someday with respect to LMSAs, those guidelines will take time, and lots of it, to develop and ultimately be implemented.

    Endnotes


    1 See CMS Manual on CMS.gov.

    2 H.R. 6675, 1965 Pub.L. 89-97. Of course, Medicare has been expanded over the years and also provides coverage today for those under age 65 with certain disabilities, and to any person of any age who is suffering from End Stage Renal Disease. See Medicare.gov and Medicare Program - General Information on CMS.gov.

    3 Codified at 42 U.S.C. § 1395y(b).

    4 Kathryn Bucher, Richard L. McConnell, and Katherine R. McDonald, Dispelling Medicare Myths in Tort Settlements, For the Defense, Vol. 55 No. 5, 49 (May 2013).

    5 42 U.S.C. § 1395y(b)(2)(A)(ii); Subsection (B) as referenced in the Statute states that: “[t]he Secretary may make payment under this subchapter with respect to an item or service if a primary plan described in subparagraph (A)(ii) has not made or cannot reasonably be expected to make payment with respect to such item or service promptly (as determined in accordance with regulations). Any such payment by the Secretary shall be conditioned on reimbursement to the appropriate Trust Fund in accordance with the succeeding provisions of this subsection.” 42 U.S.C. § 1395y(b)(2)(B)(i).

    6 42 U.S.C. § 1395y(b)(2)(B)(ii).

    7 United States v. Baxter Int’l Inc., 345 F.3d 866, 875 (11th Cir. 2003).

    8 42 C.F.R. § 411.21.

    9 42 U.S.C. § 1395y(b)(2)(A).

    10 Buchner, supra note 3, at 52.

    12 Sally Stalcup, CMS Handout, May 25, 2011.

    13 Id.

    14 Charlotte Benson, CMS Memorandum, September 29, 2011.

    15 Id.





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