PROTECTING MEDICARE’S INTERESTS IN LIABILITY SETTLEMENTS Presented by: Todd A. Kipnes

WHAT IS A MSA?  A Medicare Set-Aside (MSA) is a pre-determined dollar amount to be set aside to pay for future claim-related medical and drug expenses that would otherwise be paid by Medicare  The MSA effectively acts as primary coverage for post-settlement medical expenses related to the claim.  Once the MSA is depleted, Medicare resumes primary payer responsibility.  A MSA can be self-administered or professionally managed.  A MSA can be funded with cash or a structured settlement.

A BRIEF HISTORY  1980 – Medicare Secondary Payer (MSP) Statute establishes that Medicare “shall be secondary to Workers’ Compensation and other insurance,” and its regulations prohibit Medicare from making payment where there is a primary payer.  2001 – The Center for Medicare Services (CMS) issues the “Patel Memo” (from Parashar B. Patel) “recommending” MSA’s in Workers’ Comp (WC) cases. Since that time, at least eight other memos regarding MSA’s have been issued, all concerning WC cases (with no mention of liability claims).  2003 – The Medicare Modernization Act (MMA) clarified Medicare’s status as a secondary payer to liability insurers (including self-insurers), and strengthened Medicare’s right to recover conditional payments (i.e., liens).

A BRIEF HISTORY – PART II  December 2007 – Section 111 of the Medicare, Medicaid, and SCHIP Extension Act (MMSEA) amends the MSP Statute to provide for Mandatory Insurer Reporting (MIR) by liability insurers (including self-insurers) of payments made to Medicare beneficiaries.  January 2011 – Effective date of MIR for certain Responsible Reporting Entities (RRE’s) in certain cases (e.g., WC).  January 2012 – Effective date of MIR for liability insurers at time of Total Payment Obligation to the Claimant (TPOC) (as opposed to Ongoing Responsibility for Medicals (ORM), common in WC cases).  NOTE: The MMSEA adds a reporting requirement, but does not mandate MSA’s for liability claims or make any other substantive change to pre-existing rules concerning the obligation to protect Medicare’s interest in a liability settlement.

A THREE-PRONGED APPROACH 1.A RRE must report to Medicare when it settles with, or assumes responsibility for medical treatment of, a Medicare beneficiary. 2.A settling liability insurer must protect Medicare’s interest in reimbursement for conditional payments. 3.A settling liability insurer must consider claimant’s future claim-related medical expenses and take Medicare’s interests into account.

FIRST PRONG – THE PRESENT 1.A RRE must report to Medicare when it settles with, or assumes responsibility for medical treatment of, a Medicare beneficiary.  This is a statutory obligation. Non-compliance carries a penalty of $1,000 per claimant per day, without limit.  Medicare eligibility should be determined as early as possible in the claims process. Generally, a claimant will be Medicare eligible if he: 1) is age 65 or older; 2) has received Social Security Disability (SSD) for 24 months; or 3) has End Stage Renal Disease.  For further information on the Section 111 reporting requirements, see:

SECOND PRONG – THE PAST 2.A settling liability insurer must protect Medicare’s interest in reimbursement for conditional payments.  This is also a statutory obligation. Medicare has the right to recover conditional payments, and broad power to pursue primary payers or payees (including attorneys and physicians) for reimbursement. If CMS must take legal action, it can recover twice the Medicare payment.  While commonly called a “Medicare lien”, a conditional payment is actually a statutory first right of recovery against all proceeds, and is not subject to the limitations of a normal “lien”.  For further information, see the website for the Medicare Secondary Payer Recovery Contractor:

THIRD PRONG – THE FUTURE 3.A settling liability insurer must consider claimant’s future claim-related medical expenses and take Medicare’s interests into account.  Medicare rules establish this obligation, but no guidance has been issued on how to satisfy this requirement when resolving liability claims. There is no safe harbor for insurers on this issue, but neither is it clear that there are any authorized penalties for non-compliance.  CMS has made clear that MSA’s are not required in liability cases. Establishment of a MSA is voluntary, and is only one way, among others, to protect Medicare’s future interests.  Attorneys and insurers have looked to the established Workers Comp framework for guidance, but CMS has stated that the same framework does not apply to liability cases.

SO WHY AM I HERE?  If CMS hasn’t shown any interest in liability claims, and it isn’t even clear that CMS has enforcement authority on the issue, why should I do anything to protect Medicare’s future interests? 1.The obligation does exist, and should be interpreted consistently with the overall intent of the MSP. 2.Ambiguity regarding CMS enforcement authority cuts both ways. 3.Measures to shift Medicare costs to primary payers have significant momentum. CMS could easily apply the WC framework to liability claims in the future. Many argue this is likely because: a.Liability insurers have “deep pockets”, and it makes sense that Medicare would target them in its efforts to cut costs. b.CMS has begun to review Liability MSA’s, suggesting they may be required, or at least encouraged, in the future.

SO WHAT SHOULD I DO?  Every organization should adopt a policy consistent with its own preferences and risk tolerance. Generally speaking, the larger the claim, the more careful it pays to be. Below are potential approaches in order of decreasing risk: 1.Do nothing, at least until an official policy on liability claims is articulated by CMS. 2.Use paperwork and settlement documents to establish that Medicare’s interests were affirmatively taken into account, including: a) a general statement that the parties made every effort to adequately protect Medicare’s interest; and b) an agreement by the plaintiff to assume responsibility as primary payer for all relevant future medical expenses. 3.Allocate a portion of the settlement to relevant future medical costs and have the plaintiff agree in the settlement documents that this allocation will be spent before seeking any Medicare benefits. Note, however, that Medicare is not bound by any allocation unless it is: a) approved in advance by CMS; or b) the result of a final judgment on the merits of the claim. 4.Have a third-party professional establish the allocation and create a MSA in that amount.

WHAT IS A MSA?  A Medicare Set-Aside (MSA) is a pre-determined dollar amount to be set aside to pay for future claim-related medical and drug expenses that would otherwise be paid by Medicare  The MSA effectively acts as primary coverage for post-settlement medical expenses related to the claim.  Once the MSA is depleted, Medicare resumes primary payer responsibility.  A MSA can be self-administered or professionally managed.  A MSA can be funded with cash or a structured settlement.

WC MSA’s – BACKGROUND  A MSA is CMS’ recommended method to protect Medicare’s future interests in a WC case.  The parties to a WC settlement that “closes out” the WC insurer’s obligation for future medicals, will allocate or “set aside” a sum of money to cover anticipated future accident-related medical expenses that would otherwise be paid by Medicare.  The basis for WC MSA’s is statutory: 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. 42 CFR §  There is no similar statutory basis for Liability MSA’s.

WC MSA’s – CMS APPROVAL  CMS will review and approve, or modify, proposed MSA allocations subject to certain thresholds: 1.The claimant is a Medicare beneficiary at the time of settlement and the total settlement amount is greater than $25,000; or 2.The claimant has a reasonable expectation of Medicare enrollment within 30 months of the settlement date and the total settlement amount is greater than $250,000.  CMS defines the term “reasonable expectation” as including, but not limited to, situations where the claimant: 1) is 62 years, 6 months old; 2) has ESRD; 3) has applied for SSD; or 4) has been denied SSD, but anticipates re-applying.  These thresholds reflect CMS workloads, and do not create safe harbors. Medicare’s interests must always be protected, even if the review thresholds are not met.  Some CMS regional offices will not review Liability MSA’s. Some always will, and others will when workload allows. The number of MSA’s submitted for review increased from 16,000 in 2008 to 50,000 in 2011, with no additional CMS staff.

COMPONENTS OF A MSA 1.Allocation Amount 2.Funding 3.Administration

MSA – ALLOCATION AMOUNT  An actual projection of the claimant’s anticipated future medical treatment and services related to the claim that would otherwise be covered by Medicare.  Usually performed by a MSA vendor or other MSA allocation professional.  Involves an assumption regarding life expectancy, usually based upon rated ages from life insurance companies (e.g., median rated age from range of rated ages obtained).

MSA – FUNDING  A MSA can be funded by a single lump sum or by a structured settlement annuity.  If a structured settlement, MSA funding is divided between: 1) seed money deposited at the time of settlement; and 2) annual deposits for the remainder of claimant’s life expectancy beginning no later than one year after settlement.  Seed money consists of: 1) at least two years of annual expenses; and 2) the cost of the first surgery, procedure and/or replacement.  Funds must be held in an interest-bearing account. Any unused funds remain in the MSA. When the funds are exhausted, Medicare becomes the primary payer until the next deposit (if any).  Structured settlements are the favored method for funding MSA’s because of the reduced cost.

MSA – ADMINISTRATION  A MSA can be administered by the claimant (“self administration”) or by a third party (“professional administration”).  If administered by a professional, then management fees should be included in the MSA funding.  The claimant can only use the MSA account to pay for post-settlement medical services and items related to the claim that would otherwise be covered by Medicare.  CMS requires annual reporting regarding expenditures made from the MSA account.

SO REMEMBER 1.PRESENT: A RRE must report to Medicare when it settles with a Medicare beneficiary. 2.PAST: A settling insurer must protect Medicare’s interest in recovering conditional payments already made. 3.FUTURE: A settling insurer must consider claimant’s future claim-related medical expenses and take Medicare’s interest into account.  A MSA is a pre-determined dollar amount to be set aside to pay for future claim-related medical and drug expenses that would otherwise be paid by Medicare.  MSA’s are not required in liability cases. Establishment of a MSA is voluntary, and is only one way, among others, to protect Medicare’s future interests.  Every organization should adopt a policy regarding the protection of Medicare’s future interests which is consistent with its own preferences and risk tolerance.