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On May 3 of 2012, the Office of Management and Budget received a proposed rule entitled “Medicare Secondary Payer and ‘Future Medicals’ (CMS-6047-ANPRM)” from CMS.  Unfortunately, the substance of the submission By CMS is not available to the public at the present time.  By way of background, CMS is the government agency charged with administering the Medicare system and coordination of Medicaid programs in conjunction with the States.  CMS is short for the Centers for Medicare & Medicaid Services.  CMS is a sub-agency under The U.S. Department of Health and Human Services (“HHS”). 

The Medicare Secondary Payer Act provides that “[n]o rule, requirement or other statement of policy that establishes a substantive legal standard . . . shall take effect unless it is promulgated by the secretary by regulation . . .”.[i]  Therefore, in order to establish a legal standard when it comes to Medicare set asides, the Agency (CMS), must promulgate regulations.  The submission by CMS to the Office of Management and Budget of a proposed rule appears to be the beginning of that process based upon the title.  Under the federal rulemaking process, the first step is submission to the Office of Management & Budget who then accepts or rejects.  Thereafter, pursuant to the Administrative Procedures Act that governs federal agency action, new approved regulations must be published in the Federal Register 30 days before the new regulation takes effect.   The public and interested parties may comment, object or offer amendment during the 30-day period prior to the regulation taking effect. 

For the time being, we don’t know what the proposed regulations address.  Is it Workers’ Compensation Medicare Set Asides?  Liability Medicare Set Asides?  Both?  Neither?  Currently, CMS provides guidance regarding set asides through the issuance of memos.  As of today, there are 16 memos issued by CMS for workers’ compensation Medicare set aside arrangements.  There are two with regard to liability Medicare set aside arrangements.  Since the MSP requires regulations when implementing a substantive legal standard, CMS obviously believed that the memos were insufficient and have instead sought formal regulation.

It is important to note that the Medicare Secondary Payer Act is vague and ambiguous with regard to how to protect Medicare’s interests post settlement.  In liability cases, there is only one regional coordinator’s memo/handout and one CMS issued memorandum that guides what to do in liability settlements when it comes to Medicare beneficiaries with future medicals.  Workers compensation cases have much more guidance than liability cases, but whether that is sufficient under administrative law principles is still debatable. 

Given the lack of guidance and the current state of affairs, the question becomes how much deference must be given to CMS in terms of its interpretation of the Medicare Secondary Payer Act when it comes to future medicals in the absence of regulations?  Federal decisions have addressed these questions and an overview of that law is appropriate.  In a landmark U.S. Supreme Court case, Chevron USA v. Natural Resources Defense Council[ii], a two pronged test was established to determine deference to agency action.  An agency’s construction of a statute it administers is reviewed through the lens of the two part test.  First, if Congress has directly spoken to the precise question at issue, that is the end of the matter and the agency must give effect to the unambiguously expressed intent of Congress.[iii]  The second part of the test comes if there is not a finding that Congress has spoken directly to the issue.  If it has not, then the question is whether the agency’s interpretation of the statute it administers through its regulations are based upon a permissible construction of the statute.[iv]  The problem is that Congress has not directly spoken on the issue of Medicare futures and CMS has issued no regulations for liability settlements that would be entitled to “Chevron deference”.

In the area of liability Medicare set asides, all we have are a couple of agency pronouncements that don’t carry the same force as law.  The U.S. Supreme Court addressed the deference that these types of pronouncements get under administrative law principles.  In Christensen v. Harris County[v], the Court indicated that “[i]nterpretations such as those in opinion letters – like interpretations contained in policy statement, agency manuals, and enforcement guidelines, all of which lack the force of law – do not warrant Chevron-style deference.”  “Instead, interpretations contained in formats such as opinion letters are "entitled to respect" under our decision in Skidmore v. Swift & Co., 323 U. S. 134, 140 (1944), but only to the extent that those interpretations have the ‘power to persuade’ ”.  Given the Christensen decision, what are parties to do when it comes to liability Medicare set aside?  The GE v. US EPA[vi] decision is instructive.  In the GE case, a federal district court found that GE didn’t get fair warning from the EPA of its interpretation of regulations.  The court held that when “the regulations and other policy statements are unclear, where the . . . [parties’] interpretation is reasonable, and where the agency itself struggles to provide a definitive reading of the regulatory requirements, a regulated party is not “on notice” of the agency’s ultimate interpretation of the regulations, and may not be punished.”  Applying the rationale from the GE case to the liability Medicare set aside conondrum, one can only do what is reasonable and rational in making a good faith effort to be compliant with the MSP given the lack of regulations and no punishment should result. 

If the regulations that have been submitted to address the issue of set asides in both workers’ compensation and liability settlements, then they likely would be entitled to the Chevron type of deferrence.  The question would become whether the agency’s interepreation of the MSP is permissible.  Given the complete lack of formal regulation that current exists in the set aside landscape, it certainly would not be bad to have something more definitive then pocliy memorandums.  Ultimately, if the regulations do not work they will be challegned and we might eventually see what type of deference CMS would get in regards to its intepretation of the MSP as it relates to “future medicals”.  For the time being, we can only do what is rational and reasonable.  If we do ultimately get regulations from CMS regarding future medicals, it will represent a huge paradigm shift in the way cases are settled for Medicare beneficiaries.  All parties will have to settle cases in a different manner than they do today.  The process of this regulation becoming final will surely be the subject of a lot of comments both positive and negative.  I plan to be personally involved in that process to make sure that the plaintiff side of these issues is adequately represented.