The United States District Court for the Southern District of Florida in Humana Medical Plan, Inc. v. Western Heritage Insurance Company, No. 12-20123 (S.D., Florida, March 16, 2015) allowed Humana, a Medicare Advantage Organization (“MAO”), to pursue a private cause of action under the Medicare Secondary Payer Act, 42 U.S.C. § 1395y(b) against Western Heritage, a primary payer.  In doing so, the court adopted the Third Circuit’s analysis in In re Avandia Mktg., 685 F.3d 353 (3d Cir. 2012) where the court held that MAOs have a private cause of action against a primary plan under the statutory text of the Act.  The court further determined that Humana was entitled to recover double damages pursuant to 42 U.S.C. § 1395y(b)(3)(A).

The factual background of the case is fairly straight forward.  Mary Reale was enrolled in a Humana Medicare Advantage Plan when she sustained injuries in a slip-and-fall accident at a condominium complex that was insured by Western Heritage.  Ms. Reale subsequently entered into a settlement agreement with Western Heritage and its insured.  In funding the settlement, Western Heritage attempted to include Humana as a payee on the settlement check.  However, Ms. Reale objected because the amount of Humana’s lien was disputed between the parties.  In response, the state court judge ordered the tender of the entire settlement amount to Ms. Real without including any lien holder on the settlement check.  After Humana and Mrs. Reale were unable to agree on the amount Humana was to be reimbursed, Humana sued Western Heritage seeking reimbursement for conditional payments it made on behalf of Ms. Reale, along with double damages under the MSP Act.

In reaching its decision, the court distinguished the Ninth Circuit’s holding in Parra v. Pacificare of Arizona, 715 F.3d 1146 (9th Cir. 2013).  There, the Ninth Circuit found that the MSP Act does not create a private right of action in favor of MAOs, but rather only allows MAOs the right to establish such rights within their contracts.  The court noted that the facts of Parra (in particular, the fact that the MAO’s claim was not against a primary payer) were distinguishable from the facts of the case, as well as from the facts of the Avandia case.

This decision follows a recent ruling by a Texas federal district court, Humana v. Farmers Texas County Mutual Insurance Company, et al, No. 13-CV-611-LY (W.D. Texas, September 24, 2014), where the court denied the defendants’ motion to dismiss and allowed Humana to pursue a private cause of action for double damages under the Medicare Secondary Payer Act, 42 U.S.C. § 1395y(b).

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The Centers for Medicare and Medicaid Services (CMS) released a revised version of the MMSEA Section 111 NGHP User Guide on April 6, 2015.  The revised User Guide is version 4.6.  The revisions are the results of an NGHP Section 111 Alert issued on November 25, 2014, regarding Section 111 querying with partial Social Security Numbers (SSNs).  The revisions were made to Chapter IV: Technical Information (pp. 1-1 (summary of revisions), 8-6) and Chapter V: Appendices (p. 1-1 (summary of revisions) and Table F-1).  The revisions inform Responsible Reporting Entities (RREs) of the steps they need to take to remain in compliance with the NGHP Section 111 reporting requirements when RREs or their agents query using partial SSNs and receive a response indicating the information they submitted identified multiple Medicare beneficiaries.  When this occurs, RREs will receive the disposition code “DP” (for duplicate) or other messaging on the Beneficiary Not Found page indicating multiple Medicare beneficiaries were identified.  When RREs receive a response indicating multiple beneficiaries have been identified based on the partial SSN and other required query information, RREs are instructed to:
 
1) verify that the SSN, name, gender, and date of birth were entered accurately and re-submit; and
2) resubmit the individuals information using the full 9-digit SSN (if available).
 
If a match is still not located after resubmission, RREs must call the Benefits Coordination & Recovery Center (BCRC) at 855-798-2627 and file a self-report with the BCRC customer service representative to remain in compliance.
 
NGHP Section 111 Alert:
 
CMS also issued an NGHP Alert on April 8, 2015.  The Alert reminds RREs that beginning on October 1, 2015, RREs will be required to report ICD-10-CM diagnosis codes on claim reports with a CMS Date of Incident (DOI) on or after October 1, 2015.  The Alert encourages RREs and their reporting agents to commence testing with ICD-10-CM codes if they have not already done so.  While testing is not required, it is strongly encouraged.  Testing is the only way for RREs to ensure they will be able to beginning reporting with ICD-10-CM diagnosis codes on October 1, 2015.
 
Additional information regarding NGHP Section 111 reporting is available at http://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/Mandatory-Insurer-Reporting-For-Non-Group-Health-Plans/Overview.html, including links to the revised NGHP Section 111 User Guide and all NGHP Section 111 Alerts.

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Last week the Centers for Medicare & Medicaid Services (CMS) withdrew the Notice of Proposed Rulemaking (NPRM) it submitted to the Office of Management and Budget back on August 1, 2013 relating to CMS’ intent in addressing future medical costs in workers’ compensation, automobile, liability insurance (including self-insurance) and no-fault claims. 

The NPRM was expected to outline how Medicare’s interest should be protected (per the Medicare Secondary Payer Act [42 U.S.C. § 1395y(b)(2)]) in cases where future medical care is claimed or effectively released in the settlement, judgment, award, or other payment of damages. While CMS has guidelines in place for the handling of future medical expenses in workers’ compensation cases, until final rules are released in the liability context, there are no similar standards for claims involving self-insureds and automobile, liability, and no fault coverage. 

CMS began the process of issuing those regulations in June 2012, when it released an Advanced Notice of Proposed Rulemaking (ANPRM) for these claims. By originally submitting a NPRM for review by the Office of Management and Budget (OMB), CMS revealed that it intends to take the next step in the regulatory approval process. 

In July 2014, the Chair of DRI’s MSP Task Force, John V. Cattie, Jr., met with government officials, as part of the public commentary process. During that meeting, he stressed the importance that any future medicals rule proposed by CMS, which creates requirements for addressing future costs of care in liability settlements, judgments or other payments, must have clarity for all stakeholders; including which stakeholders are responsible to ensure Medicare remains a secondary payer for Medicare covered, injury-related future medical expenses arising from settlements, etc. Absent such clarity, he strongly recommended that the proposed rules be returned to CMS until such clarity could be obtained. 

The withdrawn may be attributed to one of two things happening: 1) CMS no longer believes that is has a statutory right to not pay certain future medicals expenses (i.e., no more MSAs); or 2) CMS heard the call that clarity was needed to the NPRM and is taking appropriate steps in accordance with the Administrative Procedures Act to provide that clarity.  We fully expect CMS to redesign the NPRM and resubmit to OMB at a later date. 

The upcoming guidelines are expected to pinpoint the circumstances in which and the actions settling parties should take to ensure that Medicare remains a secondary payer post-settlement. In the meantime, the withdrawal of the NPRM does not change the analysis in how best to deal with future cost of care questions arising in liability settlements. You should review each fact pattern to determine if an MSA is warranted based on the case specific facts in light of the current statutory, regulatory and administrative guidance from CMS as well as relevant case law. Part of that includes identifying whether a settlement pays dollars for injury-related future costs of care, which would otherwise be Medicare-covered. Documenting the file with those conclusions and their underlying rationale represents best practices for managing that risk in today’s environment.


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The Centers for Medicare & Medicaid Services (“CMS”) issued a Section 111 Non-Group Health Plan (“NGHP”) Alert on August 19, 2014.  The Alert revises the rules pertaining to Section 111 reporting for liability insurance (including self-insurance) in cases involving exposure, ingestion, and implantation.  Specifically, the Alert allows for the claims made in amended complaints or other comparable supplemental pleadings to govern Section 111 reporting obligations in the context of the December 5, 1980 cut-off.  

As background, the Medicare Secondary Payer (“MSP”) Act was enacted by Congress on December 5, 1980.  As such, CMS does not assert recovery claims against liability insurance settlements, judgments, awards, or other payments where the incident occurred before December 5, 1980.  CMS does not assert recovery claims where the incident occurred before December 5, 1980 because Medicare was the primary payer in these situations prior to the passage of the MSP Act.  The MSP Act has been revised several times since its initial passage on December 5, 1980.  One of the these revisions, referred to as Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (“MMSEA”), added mandatory reporting requirements with respect to Medicare beneficiaries who have Group Health Plan coverage or receive settlements, judgments, awards, or other payments from NGHPs.   

The Alert revises the Section 111 reporting requirements for liability insurance (including self-insurance) by providing that “the most recently amended operative complaint or comparable supplemental pleading” governs when determining whether the date of last exposure, ingestion or implantation claimed is before or after December 5, 1980.  The Alert responds to numerous inquiries regarding the effect of amended pleadings on Section 111 reporting obligations in the context of the December 5, 1980 cutoff for liability insurance payments.  See e.g., CMS-hosted Section 111 NGHP Town Hall Teleconference, pp. 46-47 (October 19, 2011); CMS-hosted Section 111 NGHP Town Hall Teleconference, p. 52 (February 23, 2012).

The Alert further provides:

Any operative amended complaint (or comparable supplemental pleading) must occur prior to the date of settlement, judgment, award, or other payment and must not have the effect of improperly shifting the burden to Medicare by amending the prior complaint(s) to remove any claim for medical damages, care, items and/or services, etc. 

Where a complaint is amended by Court Order and that Order limits Medicare’s recovery claim based on the criteria contained in this alert, CMS will defer to the Order. CMS will not defer to Orders that contradict governing MSP policy, law, or regulation.

Per the general rules governing Section 111 reporting, the revised language in the Alert controls over the applicable, current language in the MMSEA Section 111 Medicare Secondary Payer Mandatory Reporting, Liability Insurance (Including Self-Insurance), No-Fault Insurance, and Workers’ Compensation User Guide Version 4.2, Chapter III: Policy Guidance § 6.5.1, p. 6-23 through 6-25 (March 3, 2014).  The revised language in the Alert will be added to the next version of User Guide.

For complete details regarding Section 111 reporting obligations in the context of the December 5, 1980 cutoff, please see the full text of the Alert here.


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On June 3, 2014, the Centers for Medicare and Medicaid Services (“CMS”) released version 2.2 of its CMS WCMSA Reference Guide dated May 29, 2014 (the “Guide”).  While the Guide contains multiple updates and revisions (primarily with respect to medical payment records), the most critical update lies in Section 4.1.4 (Hearing on the Merits of the Case). CMS has identified that where parties identify which proceeds of the workers’ compensation (“WC”) award represent non-medical damages as compared to medical damages, and that allocation is approved by a court or other adjudicator (e.g. , a state WC board or commission) on the merits, then CMS will accept that allocation.  Sophisticated and diligent parties can now use this as a means to further limit related exposure on the MSA issue while the traditional WCMSA report (which only calculates medical expenses) no longer represents best practices in the Medicare Secondary Payer (“MSP”) compliance context.

Introduction

On June 3, 2014, the Centers for Medicare and Medicaid Services (“CMS”) released version 2.2 of its CMS WCMSA Reference Guide dated May 29, 2014 (the “Guide”).  Since its first release in March 2013, the Guide has become the one source of the truth in the Workers’ Compensation Medicare Set-Aside (“WCMSA”) world. The Guide consolidates all previous guidance from CMS about WCMSAs in one place, and then updates the Guide periodically as CMS guidance changes.  Version 2.2 represents the fourth published version of the Guide. Over the past fifteen months, the workers’ compensation (“WC”) community has learned that the Guide is the place to read not only what CMS expects from parties resolving WC claims involving Medicare interests but also what steps CMS directs parties to take to properly consider its interests in remaining a secondary payer post-settlement.

Hearings on the Merits of the Case

In Section 4.1.4, CMS discusses Hearings on the Merits of the Case.  There, it says:

“When a state WC judge approves a WC settlement after a hearing on the merits, Medicare generally will accept the terms of the settlement, unless the settlement does not adequately address Medicare’s interests. If Medicare’s interests were not reasonably considered, Medicare will refuse to pay for services related to the WC injury (and otherwise reimbursable by Medicare) until such expenses have exhausted the dollar amount of the entire WC settlement. Medicare also will assert a recovery claim if appropriate.

If a court or other adjudicator of the merits (e.g., a state WC board or commission) specifically designates funds to a portion of a settlement that is not related to medical services (e.g., lost wages), then Medicare will accept that designation.” (emphasis added)

Section 4.1.4, specifically the bullet portion of the statement, represents a significant development for all parties attempting to resolve a WC claim while trying to minimize its exposure on the WCMSA issue.

The allocation concept is not a new one, either for CMS or the judiciary. CMS’ own policy manual has addressed the concept of judicial allocations on the merits for years, though that has been limited to the conditional payment context.[1] The MSP body of case law that has developed over the past 20 years has also recognized the value, when determining the scope of CMS’ recovery rights, in identifying that portion of an award for non-medicals versus that portion for medicals.[2]  As CMS has moved forward in recent years to provide greater clarity around how to address its future interest, including the allocation concept as part of the discussion only makes sense.

The addition of Section 4.1.4 to the Guide may fundamentally change how parties resolve WC claims. Historically, when an employer or carrier received an MSA report from its trusted vendor containing an exceedingly high figure for the MSA, the parties were, most likely, stuck. Thinking that the entire amount of the MSA would need to be funded as part of any WC settlement and being advised that they must “consider and protect Medicare’s interest”, the parties would not close future medicals. Instead, they would close the indemnity portion of the WC claim and leave medicals open.

While that remains an option, CMS has now provided an available and compliant alternative for those interested in closing medicals and keeping the file closed. Instead of the MSA figure driving the potential amount needed to complete a settlement, parties can now agree on a settlement figure, then calculate that portion of the award for medicals versus non-medicals. When such analysis is conducted pre-settlement, one can understand with clarity how a potential settlement value affects the MSA obligation which results.

It is important to note that the Guide does not address nor does Section 4.1.4 change any currently existing reporting obligations linked to MMSEA Section 111 mandatory insurer reporting.[3]

Conclusion

In the Guide, CMS has now provided the WC community critical guidance about WCMSAs. Sophisticated and diligent parties will be sure to incorporate the allocation concept into every WC situation that needs to be resolved. Based on this new CMS guidance, a simple MSA report is no longer sufficient as that has the potential to lead to parties overfunding a WCMSA (increasing parties’ exposure on the issue in turn). Instead, to be compliant, any WCMSA guidance provided to parties attempting to resolve a WC claim should contain both an analysis of future cost of care needs going forward as well as an analysis of the non-medical component to the claim (using state specific WC statutes to identify factors such as disability rating, body part, number of weeks allowed and dollars per week).

DRI and its MSP Task Force will continue to monitor this rapidly developing area closely and provide updates as warranted. In the meantime, please reach out to John Cattie, our MSP Task Force Chair, with questions or concerns about this and other MSA issues by calling (704) 594-1778 or emailing him at jcattie@garretsongroup.com.


[1] See CMS MSP Manual, Chapter 7, Section 50.4.4 (Designations in Settlements).  There, CMS advises, “The only situation in which Medicare recognizes allocations … to nonmedical losses is when payment is based on a court order on the merits of the case.  If the court or other adjudicator of the merits specifically designate amounts that are for payment … not related to medical services, Medicare will accept the Court’s designation.”

[2] See, for example, Zinman v. Shalala, 67 F.3d 841, 846 (9th Cir. 1995) and Benson v. Sebelius, 2011 U.S. Dist. LEXIS 30438 (Decided March 24, 2011) (“…if a settlement covers both medical and nonmedical costs, CMS’s reimbursement may be apportioned so as to reach only the portion of the settlement allocated to cover medical costs.”).

[3] Pursuant to Section 6.5.1, Chapter III of the MMSEA Section 111 User Guide: ““No medicals”—If medicals are claimed and/or released, the settlement, judgment, award, or other payment must be reported regardless of any allocation made by the parties or a determination by the court.

• The CMS is not bound by any allocation made by the parties even where a court has approved such an allocation. The CMS does normally defer to an allocation made through a jury verdict or after a hearing on the merits. However, this issue is relevant to whether or not CMS has a recovery claim with respect to a particular settlement, judgment, award, or other payment and does not affect the RRE’s obligation to report.”

 

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A hot button concern of DRI members and clients today is how to minimize exposure to the federal government under the Medicare Secondary Payer Act (the “MSP”) for reimbursement obligations.  42 U.S.C. § 1395y(b)(2).  MSP reimbursement obligations may include conditional payment reimbursement and/or funding for a claimant’s injury-related future medicals.  Internal protocols for addressing MSP reimbursement likely vary from client to client as everyone’s tolerance for risk differs to a certain extent. Recently, an innovative funding protocol has gained traction and is being utilized by those who seek absolute means to extinguish all MSP reimbursement exposure under the MSP. By combining Medicare Set-Aside (“MSA”) analysis with funding settlement proceeds into an Internal Revenue Code §468B Qualified Settlement Fund (“QSF”), all MSP reimbursement exposure can be extinguished in full.

The MSA analysis concept is well-documented. Under the MSP, parties have an obligation to determine if the federal government has a right to not pay certain future medical expenses and then ensure that it does not pay a claimant’s medical expenses prematurely. 42 U.S.C. § 1395y(b)(2)(A)(ii).  As the Centers for Medicare & Medicaid Services (“CMS”) continues with the official rulemaking process, many seek shelter by addressing the MSA issue proactively prior to resolving a workers’ compensation, automobile, liability insurance (including self-insurance) or no-fault claim. Conducting MSA analysis and adding documentation to the file evidences your MSA compliance efforts. This alone, however, might not be enough, depending on your statutory interpretation with respect to future medicals under the MSP. 42 U.S.C. § 1395y(b)(2)(B)(ii).

To completely shield your client from MSP reimbursement exposure (past and future medicals), you may consider funding a QSF as part of the settlement disbursement process. The benefits of a 468B Settlement Fund to the client are: (1) to disengage from the litigation; and (2) qualify for economic performance to obtain a current income tax deduction. When utilized, payment is made by the client in exchange for a release from the present claimant(s) and possible future claimants. Once payment has been made to the 468B, the litigation process ceases for the client, thereby reducing legal costs and freeing up the resources being used in such litigation.

Further, it allows the client to deduct their payment (to the 468B) to the same extent as if the client paid the plaintiffs directly or paid into some other irrevocable and unconditional fund established to receive payments for the benefit of the claimants, thereby permitting a current income tax deduction if available. 

The client is completely released from present and future claimants despite the cause of action remaining alive to permit the Court to maintain its jurisdiction over the case. This is accomplished by transferring tort liability to the 468B through a novation, which has the added effect of adding a new party as substitute obligor who was not a party to the action (such as the administrator), and discharging the original defendants by agreement of all the parties, completely extinguishing any alleged liability of the defendants.  See Restatement (Second) of Contracts, Section 280 (1981).

Creation of Qualified Settlement Funds

Congress created 468B Settlement Funds under IRC §468B. The Treasury Department further defined these settlement funds by promulgating regulations that created the qualified settlement fund relating to Treas. Reg. §1.468B, which became effective on January 1, 1993. The relevant Treasury regulation, Treas. Reg. §1.468B-1(c), only lists three requirements to create 468Bs:

“A fund, account, or trust satisfies the requirements of this paragraph (c) if --

1. It is established pursuant to an order of, or be approved by, the United States, any state (including the District of Columbia), territory, possession, or political subdivision thereof, or any agency or instrumentality (including a court of law) of any of the foregoing and is subject to the continuing jurisdiction of that governmental authority;

2. It is established to resolve or satisfy one or more contested or uncontested claims that have resulted or may result from an event (or related series of events) that has occurred and that has given rise to at least one claim asserting liability –

(i) Under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (hereinafter referred to as CERCLA), as amended, 42 U.S.C. 9601 et seq.; or

(ii) Arising out of a tort, breach of contract, or violation of law, or

(iii) Designated by the Commissioner in a revenue ruling or revenue procedure; and

3. The fund, account, or trust is a trust under applicable state law, or its assets are otherwise segregated from other assets of the transferor (and related parties).”

A Safe Harbor From the Storm

MSP reimbursement concerns often delay the settlement continuum today.  Clients who wish to close a file and ensure it remains closed never really procure that level of comfort given current regulatory uncertainties.  Until CMS promulgates final, binding regulations in this area, utilizing tools which, by operation of law, extinguish MSP reimbursement exposure makes sense.  To that end, a QSF offers the following benefits when utilized:

1) Ensures compliance with all settlement terms while protecting proceeds in the interim;

2) Provides a current income tax deduction, as available, to the client in exchange for the release of the settlement monies to the QSF and its fund administrator; and

3) Allows the client to disengage from the litigation, thereby transferring all tort liability (including that arising under the MSP) to the QSF through a novation.  This also has the added benefit of adding a new party as substitute obligor who was not a party to the action (i.e., the administrator), and discharging the original defendants by agreement of all the parties, completely extinguishing any alleged liability of the defendants.

Conclusion

MSP reimbursement concerns cost our clients time and money.  Regulatory uncertainty in the MSP context creates unnecessary anxiety.  Solutions currently exist which, when utilized properly, can save our clients time, money and anxiety.  By combining MSA analysis with QSF funding as part of resolving a claim, the client gets the best of everything and you (likely) will get a repeat client seeking the same solution on future claims.


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There’s now word that the Centers for Medicare & Medicaid Services (CMS) will issue a Notice of Proposed Rulemaking as soon as September 2013 on addressing future medical costs in liability cases. The U.S. Department of Health & Human Services (HHS) has issued an agenda item indicating that is the earliest that CMS could proceed with issuing parameters for funding Medicare beneficiaries’ future medical expenses in liability claims.

The Notice of Proposed Rulemaking is expected to outline how Medicare’s interest should be protected (per the Medicare Secondary Payer Act [42 U.S.C. §1395y(b)(2)]) in cases where future medical care is claimed or effectively released in the settlement, judgment, award, or other payment of damages. While CMS has guidelines in place for the handling of future medical expenses in workers’ compensation cases, until final rules are released in the liability context, there are no similar standards for claims involving self-insureds and automobile, liability, and no fault coverage.
 
CMS began the process of issuing those regulations last year, when it released an Advanced Notice of Proposed Rulemaking (ANPRM) for these claims in June 2012. This agenda item now reveals that CMS intends to take the next step.
 
The upcoming guidelines are expected to pinpoint the circumstances in which a special account needs to be established – or dollars set aside – for Medicare’s funding of future medical treatment stemming from an injury for which a Medicare beneficiary received a settlement or damage award. These accounts are known as Medicare Set Asides (MSAs).
 
The DRI Medicare Secondary Payer Task Force will continue to follow these developments and update the DRI community as the situation unfolds. For more information, please see http://www.dri.org/News/MSP

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Effective today, Medicare has three years to claim reimbursement for its subscribers  medical costs. This statute of limitations is mandated by The Strengthening Medicare and Repaying Taxpayers (or SMART) Act1 which became law early this year. Until now, there had been uncertainty on the timeframe in which Medicare could seek to recoup costs for which another party accepted responsibility (through settlement, judgment, award, or other payment). The United States now has a three year window to file suit in an action to seek repayment, measured from the date of reporting to the Centers for Medicare & Medicaid Services (CMS) as part of the Mandatory Insurer Reporting rules following Section 111 of the Medicare Medicaid SCHIP Extension Act of 2007.2

Overall, the SMART Act aims to shorten the Medicare reimbursement timeline and create further clarity concerning the process. But, the law's full impact won't be known until its provisions are implemented over the course of the next 18 months.
 
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Recently, the U.S. District Court for the Western District of Louisiana issued the Benoit v. Neustrom opinion. 2013 U.S. Dist. LEXIS 55971 (decided April 17, 2013). Here, the parties sought approval that CMS' future interest could be fully satisfied by funding an MSA for less than full value of the Claimant's future medicals. The parties agreed to resolve a liability claim for a gross amount of $100,000. Defendant had an MSA allocation prepared, which concluded that the Claimant would be expected to incur between $277,758.62 to $333,267.02 in future injury-related care otherwise covered by Medicare. Additionally, Medicare had made conditional payments on the Claimant’s behalf totaling $2,777.88. 

The Court, having previous experience addressing MSA related questions, looked to the 11th Circuit decision in Bradley v. Sebelius for guidance. 621 F.3d 1330 (11th Cir. 2010).  Bradley was an allocation case under the MSP with respect to conditional payments, holding that CMS must respect a judicial allocation based on the merits of the case. Applying the logic that CMS’ recovery can be fully satisfied by identifying that portion of an award which is intended to compensate a Claimant for medical expenses (past and future), the Court agreed with the parties in that an MSA did not need to be fully funded to satisfy Medicare’s interest.  It did, however, disagree with respect to the dollar amount of the MSA. 

Instead of following a strict pro rata approach advocated by the Claimant, the Court instead calculated a ratio of the net settlement proceeds (after costs of procurement and conditional payments by CMS had been subtracted from the gross award of $100,000) against the mean MSA figure. That ratio of 18.2% was then applied to the net proceeds, leading the Court to conclude that an MSA totaling $10,138 would be an appropriate amount with which to satisfy Medicare’s future interest.

This case is yet another example in 2013 (building on recent cases such as Early and Sterrett) depicting that MSA issues cannot be ignored simply because the claim being resolved is a liability claim instead of a workers’ compensation claim.  While the issue must be addressed, the opinions also display that a more sophisticated methodology must be applied which takes into account the inherent differences between liability and workers’ compensation claims.  As such, MSAs in the liability context should rarely be funded for the full value of a claimant’s overall future costs of care otherwise covered by Medicare (as the claimant did not recovery 100 cents on the dollar for such damages).  In applying the allocation logic previously utilized in Bradley for conditional payments, the Court has provided a reasonable and logical path for parties to follow in the short term, with CMS anticipated to provide guidance in 2013 in the form of a Notice of Proposed Rulemaking.  

The DRI MSP Task Force will continue to follow these developments and provide you with practical means for incorporating this guidance into your practice.
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A recent state court opinion from Connecticut highlights the critical importance of future medical allocation under the MSP Act. If settling parties are able to determine that no settlement proceeds are payable for a claimant’s Medicare-covered future medical expenses, then the parties do not need to fund an MSA in order to comply with the MSP Act.  The resulting opinion underscores the importance of addressing the future medical expense issue proactively, before mediation, while focusing on whether any dollars could be said to be payable or “allocated” to future medical expenses.  


On February 5, 2013, the Connecticut Superior Court, Judicial District of Litchfield, granted the settling parties’ motion to determine that the parties have reasonably considered Medicare’s interests as required by the Medicare Secondary Payer (“MSP”) Act1.   In Sterrett v. Klebart2,   the settling parties had concluded that they had reasonably considered Medicare’s future interest and that a liability Medicare Set-aside Arrangement (“LMSA”) was not needed as part of settling the liability claim. The Court, after reviewing the evidence presented, agreed that the parties had reasonably considered Medicare’s future interest in concluded that no settlement proceeds had been “allocated” for future medical expenses otherwise covered by Medicare within the gross award.

Facts.
Plaintiff Clifford Sterrett (the “Plaintiff”) was allegedly injured when he fell down the stairs at the home of the defendants.  Defendants denied responsibility, citing certain special defenses as well as asserting the Plaintiff was contributorily negligent as a result of alcohol consumption.  The parties settled the claim at mediation, and the mediator signed off on a letter containing the elements of the settlement agreement, including a review of the factors that led to the gross award of $550,000, on December 3, 2012.  The parties submitted a joint motion, filed on January 29, 2013, seeking the Court’s approval that the parties had reasonably considered Medicare’s interests as required by the MSP Act.

Analysis.
The Court begins by providing a succinct recitation of the statutory language of the MSP Act. Then, the Court describes how the parties determined that the settlement proceeds did not address future medical expenses otherwise covered by Medicare.  The Court noted that the gross award of $550,000 represented a significant compromise over any potential verdict range, if this matter had proceeding to trial.  
In reaching its conclusion, the Court specifically states that it (as well as the parties themselves) understands that the Plaintiff would incur future medical expenses payable by Medicare post-settlement.  However, the funds payable to the Plaintiff did not contain sufficient proceeds to pay for such future medical expenses.  Instead, the proceeds represented noneconomic damages sustained by the Plaintiff as well as some “modest allocation for future medical expenses arising out of the possible need for home health aides” though such costs are not typically covered by Medicare.  The Court concluded that an LMSA was not required under these case specific facts and that the parties had reasonably considered Medicare’s future interest.  

Takeaway.
This case strikes at the heart of MSA analysis: how many dollars out of one undifferentiated sum is really being paid for future medical expenses as compared to all other damage components pled and released?  Historically, this issue creates great difficulty for parties3  and has been a source of much discussion over the past 12 months or so.  This should become much less opaque after CMS issues guidance about liability settlements and future medical expenses under the MSP Act.  That guidance is expected to be released later this year.  Until then, the best approach is to proactively address the issue, and evidence exactly how you have arrived at your conclusion on the future medicals issue.  That approach, coupled with the Court’s conclusion in Guidry v. Chevron4, highlights the importance of utilizing a formalized approach to MSP compliance.  When addressing future medicals issues under the MSP Act, a formalized approach will yield complaint results every time.    

Having a formalized settlement process that integrates these core concepts will achieve efficiencies and enhance the effectiveness of settlement programs.  Such a formalized settlement process should take into account the timing and coordination issues which may hinder successful LMSA analysis.  Thus, screening a case up front to verify entitlement and identifying a claimant as an MSA candidate early on is the proper launching point for any LMSA analysis.  As parties move towards resolution and identify the prospective gross award, they can then determine (consistent with CMS’s basic rules issued in the workers’ compensation settling) if a future medical allocation exists within the gross award, either in the form of a specific carve out or implicitly contained within the one undifferentiated lump sum.  

The DRI MSP Task Force continues to track relevant judicial opinions and guidance from CMS in order to ensure compliance for you and your clients.  Members of the MSP Task Force have experience in addressing these nuanced issues, and would be happy to guide you through them should you need assistance.  For more information, please see our website at http://www.dri.org/News/MSP. 

We continue to stress the importance of utilizing a formalized approach in addressing the LMSA issue on every single claim, as that process will, in and of itself, ensuring compliance on the LMSA issue.  

[1] 42 U.S.C. §1395y(b)(2).

[2] Sterrett v. Klebart, 2013 Conn.Super. LEXIS 245 (filed February 5, 2013).

[3] 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).

[4] Guidry, et al. v. Chevron USA, Inc., Civ. No. 6:10-cv-00868, 2011 U.S. Dist. LEXIS 148942 (W.D. La. December 28, 2011).  

 

 

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