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The memo starts out with an important statement.  Ms. Stalcup indicates that the “information provided is only intended to be a general summary” but it isn’t “intended to take the place of either the written law or regulations.”  While Ms. Stalcup encourages readers to review statutes, regulations and other materials issued by CMS on this subject, that is impossible as there is nothing that specifically addresses liability Medicare set asides.  She limits the applicability of the memo to the states covered by the Region 6 office which are Oklahoma, Texas, New Mexico, Louisiana and Arkansas. 

The central premise of the memo is laid out immediately that when settling a case involving a Medicare beneficiary, “Medicare's interests must be protected; however, CMS does not mandate a specific mechanism to protect those interests.”  While she acknowledges that the law doesn’t require a “set-aside” in any particular situation, she indicates that the Medicare Trust Fund must be protected from payment for future services whether they arise from a Workers’ Compensation settlement or liability settlement because there is no distinction in the MSP.  She goes on to say that a “Set-aside is our method of choice and the agency feels it provides the best protection for the program and the Medicare beneficiary.”

She goes on to identify what she believes is the legal underpinnings of the need to address Medicare’s future interests.  She states that “Section 1862(b)(2)(A)(ii) of the Social Security, Act [42 USC 1395 y(b)(2)], precludes Medicare payment for services to the extent that payment has been made or can reasonably be expected to be made promptly under liability insurance.  This also governs Workers' Compensation.     42 CFR 411.50 defines the term "liability insurance".  Any time a settlement, judgment or award provides funds for future medical services, it can reasonably be expected that those monies are available to pay for future services related to what was claimed and/or released in the settlement, judgment, or award.  Thus, Medicare should not be billed for future services until those funds are exhausted by payments to providers for services that would otherwise be covered and reimbursable by Medicare.  If the settlement, judgment, award .y [sic] are not funded there is no reasonable expectation that third party funds are available to pay for those services.”

CMS does not have a formal process to review and approve Medicare set asides like they do in Workers’ Compensation cases according to Ms. Stalcup which we already know.  CMS review of proposed liability Medicare set asides is determined on a case by case basis by the appropriate regional office.  For example, the Atlanta Regional office routinely refuses to review liability Medicare set asides we have submitted.  Their typical response is that “[d]ue to resource constraints, CMS Is not providing a review of this proposed liability Medicare set aside arrangement.”  The form letter goes on to say “this does not constitute a release or a safe harbor from any obligations under any Federal law, including the MSP statute.” (Emphasis added).  In bold print the letter warns, “All parties must ensure that Medicare is secondary to any other entity responsible for payment of medical items and services related to the liability settlement, judgment or award.”  Nevertheless, Ms. Stalcup states in her memo that “CMS does expect the funds to be exhausted on otherwise Medicare covered and otherwise reimbursable services related to what was claimed and/or released before Medicare is ever billed” regardless of whether a set aside is reviewed/approved by CMS.

As is the case in Medicare conditional payments obligations, she emphasizes that allocations made in a settlement agreement to different categories of damages is ineffective in terms of getting around the obligation to set funds aside.  The memo states that the “fact that a settlement/judgment/award does not specify payment for future medical services does not mean that they are not funded.”  Further, the “fact that the agreement designates the entire amount for pain and suffering does not mean that future medicals are not funded.”  While Medicare has been challenged and lost in the 11th Circuit on the issue of its failure to recognize allocations by a court order other than on the merits of the case (see Bradley v. Sebelius), Ms. Stalcup holds the CMS line on this issue and states that the “only situation in which Medicare recognizes allocations of liability payments to nonmedical losses is when payment is based on a court of competent jurisdiction's order after their review on the merits of the case.”  “If the court of competent jurisdiction has reviewed the facts of the case and determined that there are no future medical services Medicare will accept the Court's designation.”  The lesson from these statements is that CMS will not stand for attempts to shift damages to non-Medical categories and will not recognize allocations unless via a court order on the merits of the case.  While this may force issues of damages to be tried and clog the court system, CMS continues to take this ridiculous position. 

To clarify what is considered future medical portions of a recovery and how to know whether a settlement includes them, the memo gives some examples.  “Consider the following examples as a guide for determining whether or not settlement funds must be used to protect Medicare's interest on any Medicare covered otherwise reimbursable, case related, future medical services. Does the case involve a catastrophic injury or illness? Is there a Life Care Plan or similar document? Does the case involve any aspect of Workers' Compensation? This list is by no means all inclusive.”  An important part of the memo addresses what is “case related” medical expenses.  CMS’s view is that this includes “more than just services related to the actual injury/illness which is the basis of the case.”  “Because the law precludes Medicare payment for services to the extent that payment has been made or can reasonably be expected to be made promptly under liability insurance, Medicare's right of recovery, and the prohibition from billing Medicare for future services, extends to all those services related to what was claimed and/or released in the settlement, judgment, or award. Medicare's payment for those same past services is recoverable and payment for those future services is precluded by Section 1862(b)(2)(A)(ii) of the Social Security Act.”

The memo does address CMS’s view of plaintiff counsel’s obligations in regard to future Medicare covered services incurred by the client.  “We do however urge counsel to consider this issue when settling a case and recommend that their determination as to whether or not their case provided recovery funds for future medicals be documented in their records.  Should they determine that future services are funded, those dollars must be used to pay for future otherwise Medicare covered case related services.”  CMS will not issue opinion letters or sign off on determinations of whether or not there is a recovery of future medical services triggering the need to protect the Medicare Trust Fund.  The memo puts the determination of these issues in the lap of the attorney handling the claim.  According to Ms. Stalcup, each “attorney is going to have to decide, based on the specific facts of each of their cases, whether or not there is funding for future medicals and if so, a need to protect the Trust Funds.”  “They must decide whether or not there is funding for future medicals. If the answer for plaintiffs counsel is yes, they should to [sic] see to it that those funds are used to pay for otherwise Medicare covered services related to what is claimed/released in the settlement judgment award.”

So what does this all mean?  It means what I have been saying for quite some time.  CMS believes that the obligation to protect Medicare’s future interests is the same in Workers’ Compensation cases as it is in liability settlements.   This is despite the fact that no formal guidance exists for liability Medicare set asides and CMS routinely refuses to review/ approve them either.  Nevertheless, counsel is supposed to make sure that funds recovered for future Medicare covered services related to the injury be spent on that care before Medicare ever pays a dime.  The question for attorneys representing a Medicare beneficiary is what do I do to comply with what CMS expects?  The answer is, in my opinion; educate the client on the risks of failing to set aside the money for future Medicare covered services.  Mandatory insurer reporting of settlements with Medicare beneficiaries commences on 1/1/12 with reporting going back to settlements occurring on 10/1/11.  Medicare will know every facet of a settlement with a Medicare beneficiary once the reporting goes into effect as the ICD9 codes for all of the care will be reported to Medicare along with a massive amount of information about the claim that is being settled.  This will give Medicare the ability to flag a Medicare beneficiary’s number and refuse to pay for Medicare covered services related to the injury.  Accordingly, the Medicare eligible injury victim must understand that this risk is present when they settle their case.  Your closing statement should be amended to address this issue, you should consider using a waiver if the client refuses and you should develop a comprehensive CYA letter to address these issues with a client when a settlement is reached. 

While what I have laid out above is great in theory, the problem is that defendants are routinely including “kitchen sink” language in their releases to address Medicare.  This language frequently shifts the burden of creating a Medicare set aside to the injury victim and counsel or identifies an arbitrary amount to be set aside.  The latter practice is dangerous because those releases typically have the injury victim acknowledge a responsibility to set funds aside while picking an arbitrary (usually small) amount to be set aside.  This is simply bad practice and exposes the injury victim as well as plaintiff counsel since if CMS ever refused to pay for Medicare covered services related to the injury there would be no way to justify the amount of the set aside.  A better practice is to actually do an MSA analysis, which may or may not include getting a formal MSA allocation done.  There are certain instances where an MSA may be unnecessary based upon factors present in the case such as a private primary health insurance policy, Workers’ Compensation coverage for future medical or where there is no future Medicare covered expenses related to the injury.  These should be identified and the release language specifically tailored to that exception but with an indication that Medicare’s future interests where considered with nothing needing be set aside.  If the case requires the full-blown MSA analysis, it should be done and the cost of doing so passed along as a client cost.  Most MSA allocations reports cost approximately $2,000 - $3,000, which is a small price to pay for proper analysis of the client’s exposure. 

While I applaud Sally Stalcup’s efforts to clarify things with respect to liability Medicare set asides, application of what she suggests is a little more difficult in the real world.  What happens with the $25,000 policy limits settlement where future Medicare covered services are $200,000?  How do you deal with that situation?  There are ways in my opinion to deal with this situation using a reasonable reduction formula, but CMS does not recognize any type of reduction formula.  How do you deal with a defendant that does not understand the responsibilities under the MSP and confuses issues of Medicare conditional payment reimbursement and Medicare set-asides?  CMS does not offer formal guidance or approvals on these issues so how do you deal with defense counsel or the insurer’s insistence upon unnecessary language or set asides?  As I have written before, we need definitive law, an appellate procedure and protections of all parties’ rights in the MSP process.  While change appears to be coming in the reform of the MSP in relation to Medicare conditional payments, that isn’t the case for Medicare set asides.  Hopefully at some point in the near future, someone will take up the matter with Congress so legislation can be introduced.  Until then, we have to deal with this the best way we can.