Maintaining your client’s Medicare eligibility is often crucial to your settlement. More important, beginning next year, a far-reaching Medicare law is likely to affect your case, your client’s eligibility – and possibly your own liability.

By Doug Brand

Let’s say that you represent an injured client in a case involving workers compensation, an auto or general liability policy, self-insurance, or no-fault insurance. Which of these statements is true:

➢ “The case will settle for less than $25,000 and therefore I don’t need to be concerned with Medicare.”

➢ “My client has not applied for SSDI and is not receiving Medicare benefits so there is no need for a Medicare Set-Aside.”

➢ “Resolving potential Medicare problems is the insurance company’s problem and I have no responsibility for it.”

Actually, none of these statements is true and every plaintiff attorney needs to understand the reasons why. For example, the first statement reflects a misconception that Medicare regulations are not triggered when settling smaller cases. This is demonstrably false. According to Medicare regulations, Medicare has the right to refuse payment for medical care regardless of the cost “if a settlement appears to represent an attempt to shift to Medicare the responsibility for payment of medical expenses for treatment of a work related condition…[1]” . Therefore, in Medicare’s eyes, the amount of your settlement is immaterial.

The second statement is false because it does not reflect the language and Congressional intent of the Medicare Secondary Payer (MSP) Statute of 1980[2]. Congress enacted the MSP to give Medicare rights as a secondary payer. The law prohibits Medicare from making a payment when there is a primary payer such as a worker’s compensation carrier. Accordingly, Medicare is allowed to decline future coverage to your client if it determines that the expense is due to an injury covered by workers compensation. The most recognized and probably the best way to ensure that your client will not have Medicare deny future coverage is through a Medicare Set-Aside that is pre-approved by CMS. (See next section for details.)

The third statement conflicts with federal rules governing Medicare payments. CMS has the right to audit the injured person’s settlement and the MSP gives CMS strong recovery rights (double damages incurred by Medicare plus interest) if it finds that its interest was not properly considered. Medicare may require repayment of any claims they have paid on behalf of the injured person, or suspension of benefits until any overpayment is recovered.

Not taking Medicare’s interests into consideration could be the basis for a client’s potential claim against you for negligent representation. There is also precedent for the Federal Government having a cause of action against the plaintiff’s attorneys involved in the claim[3]. While neither of these options is a common outcome, as Clint Eastwood once said in an old movie, “Ask yourself: Do you feel lucky?”


II. Navigating Medicare

So how do you safeguard your client (and yourself) from unpleasant surprises from Medicare?

The answer lies with a Medicare Set-Aside. These specialized accounts emerged in the mid- to late 1990s to help plaintiffs avoid the problem of a future MSP claim or denial against them. The MSA rapidly became CMS’ preferred way of quantifying expected future medical expenses, which it then used to determine an expected reserve and thereby offering the plaintiff a “safe harbor” for settlement. Plaintiffs have two options for their MSA funds: a custodial account managed by a company such as Medivest or a self-administered account. Regardless of the choice, the duties and administration obligations are the same.

In 2001, CMS began to formalize its MSA guidelines so as to “provide Medicare and its beneficiaries security with regard to the amount that is to be used to pay for an individual’s disability related expenses.[4]” During the past several years, CMS has continued to refine and clarify these regulations. Among the main requirements once Medicare approves the allocation, only Medicare allowable expenses may be paid from the MSA account, which must be used exclusively for the MSA allocation. Funds must be paid out according to the worker’s compensation fee schedule in the state of jurisdiction (or by the method used in the allocation).

One frequent source of confusion involves when CMS approval is necessary. CMS approval is not necessary (1) if your client is receiving Medicare benefits at the time the case settles and the total settlement amount is less than $25,000 or (2) if your client will be receiving Medicare in the next 30 months and the settlement is less than $250,000 (the case still may need to take Medicare’s interests into consideration per the MSP – just no pre-approval required). CMS pre-approval is required if (1) your client is receiving Medicare at settlement and the total settlement amount is for more than $25,000 or (2) your client “is reasonably expected to become a Medicare beneficiary within 30 months of the settlement date[5]” and the total settlement amount is more than $250,000[6].

Here is how CMS defines “total settlement amount”:

“[T]he computation of the total settlement amount includes, but is not limited to, wages, attorney fees, all future medical expenses, and repayment of any Medicare conditional payments [Liens], and… payout totals for all annuities to fund the above expenses should be used rather than the cost or present values of any annuities. Also note that any previously settled portion of the WC claim must be included in computing the total settlement amount.[7]”

The good news for your client is that when CMS approves an MSA settlement, your client should avoid a future Medicare denial or MSP claim stemming from the injury. The MSA process begins with a CMS filing on behalf of your client[8]. In brief, an allocation company (ie: Medivest) will provide CMS with a report that details the plaintiff’s condition and recommends how much of the settlement be “set aside” to satisfy likely future medical expenses due to the injury that would be covered by Medicare.

This allocation should include basic information about the client: rated age, the date and basis for Medicare entitlement, a description of the injury and statement about the extent of future recovery. You must also submit an unsigned draft of the Settlement Agreement (or a Compromise & Release in California) and your client must sign a release form that allows CMS to investigate any Medicare liens. (If you think your client may already be receiving Social Security Disability or Medicare benefits, send all release forms out as early as possible.)

Your documentation should also include financial information including the amount of the settlement, how the MSA will be funded (lump sum and/or structured settlement) and whether the MSA monies will be self administered or professionally administered. You should also include any prior medical expenses due to the injury paid for by either the defendant or Medicare. Remember too that Medicare will demand that any expenses (conditional payments) it has already paid must be recovered.

Importantly, it is in your client’s clear best interest for the allocation company to provide full and complete documentation in the initial filing, especially for anything that may mitigate future costs. Your recourse is limited if you or your client disagrees with the amount that CMS determines is necessary for the MSA. You have no appeal rights and if you chose to submit additional evidence, CMS considers this a new submission and evaluates it in order of receipt[9].

Equally important is how to fund the MSA once CMS approval is granted – by investing a lump sum settlement and/or with a structured settlement. If your client chooses a structured settlement, the payment stream can be tailored to meet his/her future medical needs through a secure annuity[10].

Finally, attorneys need to be aware of a new federal law [11] designed to add teeth to CMS’ ability to enforce the MSP Statute. The SCHIP Extension Act of 2007 not only requires additional information to be reported to CMS but also adds stiff penalties (up to $1,000 per day, per claimant) for non-compliance.

Specifically, beginning July 1, 2009, the SCHIP law places new rules on “applicable plans,” which it defines as liability insurance, self-insurance, no fault insurance and workers’ compensation laws or plans. The insurer must determine whether a plaintiff is entitled to Medicare benefits and if so, submit information to Medicare to the Health and Human Services Department (HHS) after the claim is resolved. HHS has not yet specified the information required for these filings.

While the defense bears the primary burden for implementing SCHIP regulations, prudence requires plaintiff attorneys to ensure that they are protecting Medicare’s interests as currently required by the MSP statute. Be assured that as Congress appropriated $35 million to CMS for enforcement of the SCHIP law, there will be plenty of oversight and enforcement. It is very important to understand that the SCHIP does not mandate MSAs for general liability claims or any other type of claim. It is simply a reporting requirement with stiff penalties for non-compliance.


III. Conclusion

Earlier this year, famed Houston attorney Joseph D. Jamail appeared before a convention of structured settlement consultants to discuss the importance of protecting the plaintiff when negotiating a case settlement. Once voted “trial lawyer of the century” by the California Trial Lawyers Association, Mr. Jamail said:

“Too many of us fail to remember that in becoming a lawyer, we assume solemn responsibilities and obligations. Lawyers are supposed to be the custodians of a community’s legal and ethical sense.”

He also added that structured settlements “are the ultimate safeguards of the funds that are to guarantee the medical and economic assistance and all of the other necessities necessary to maintain life.”

When it comes to protecting clients seeking compensation from workers comp, auto or general liability, self-insurance, or no-fault insurance, the plaintiff attorney must understand the changing rules that CMS demands. Yes, most of the burden will fall on the defense. But the plaintiff attorney should not be lulled into a false sense of security.

Given Medicare’s spiraling costs, it is a virtual certainty that CMS will increasingly look to parties outside the defense to assess penalties for errors in Medicare compliance. The smart plaintiff attorney needs to be aware of the changing rules and the best ways not only to protect his/her client’s future but also to protect his/her own professional liability.


Doug Brand is CEO of Medivest Benefit Advisors (www.Medivest.com). A transcript of trial attorney Joe Jamail’s speech to the structured settlement industry is available at www.StructuredSettlement.info.

References:

[1] [back] 42 C.F.R. §411.46(b)(2). Regulations are based on the Medicare Secondary Payer (MSP) Statute which governs settlement of injuries resolved in accordance with “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 self-insured plan) or under no fault insurance.” 42 U.S.C. §1395y (b)(2)(A)(i)(ii).
[2] [back] See 42 U.S.C. §1395y (b) for the relevant provisions.
[3] [back] See United States v. Sosnowski, 822 F. Supp. 570 (W.D. Wis. 1993).
[4] [back] Memorandum from the Deputy Director, Purchasing Policy Group, Center for Medicare Management, July 23, 2001, p. 2.
[5] [back] Memorandum from the Director, Center for Medicare Management re: “Medicare Secondary Payer – Workers’ Compensation Additional Frequently Asked Questions”, May 23, 2003, p. 1.
[6] [back] Any case in which the injured person has applied for or is receiving Social Security benefits may require an MSA. These thresholds should only be used to determine if a CMS submission is necessary, not if an MSA is necessary.
[7] [back] Memorandum from the Director, Financial Services Group, Office of Financial Management, CMS, July 11, 2005, p. 2.
[8] [back] For a sample MSA submission, see http://www.cms.hhs.gov/medicare/cob/pdf/attwc_sample.pdf
[9] [back] For a more complete explanation of this, see Memorandum from the Director, Financial Services Group, Office of Financial Management re: “Medicare Secondary Payer – Workers’ Compensation Additional Frequently Asked Questions”, July 11, 2005, pp. 5-6.
[10] [back] See § 104(a)(2), Internal Revenue Code.
[11] [back] The Medicare, Medicaid, and SCHIP Extension Act of 2007 signed into law on December 29, 2007.