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The ABA house of delegates, during its 2011 mid-year meeting, adopted a resolution regarding Medicare Set Asides and reform of the Medicare Secondary Payer Act.  The resolution is aimed at reform of the MSP and clearing up the confusion regarding whether a Medicare Set Aside is necessary in third party liability settlements, judgments or awards under the Medicare Secondary Payer Act.  This isn’t anything new or earth shattering as the ABA has been looking at this issue since late 2004. 

In late 2004, the Tort Trial and Insurance Practice Section (“TIPS”) of the American Bar Association (“ABA”) approved a recommendation to the association urging Congress to codify set asides in Workers’ Compensation cases.   The TIPS committee noted there was a “unique level of accord” amongst the “Plaintiff’s bar, the Defense bar, the insurance industry and Workers’ Compensation agencies and adjudicators” regarding the need for codification of set asides.   The stated rationale was the need to “return some level of certainty, predictability and efficiency to this Medicare set aside process so as to integrate it into the State, Federal and Territorial Workers’ Compensation systems which have been premised on the need for certitude, predictability, and efficiency.”

The TIPS report to the ABA pointed out that under 42 CFR 411.26 attorneys have potential exposure under the MSP “including professional liability exposure for failure to abide by its terms and or adequately advise clients” regarding set asides.   It recognized that Medicare beneficiaries who fail to obtain CMS approval of an MSA may “(1) receive a notice terminating future Medicare coverage, (2) be required to prove to CMS that they have spent the equivalent of 100% of the entire settlement solely for medical expenses before receiving Medicare reimbursements, and/or (3) lose Social Security disability benefits on a dollar for dollar basis until the MSP claim, including interest, has been satisfied.”   Lastly, the TIPS committee highlighted the private cause of action that exists under 42 U.S.C. §1395y (b)(3)(A) “for double damages for failure to provide primary payment or appropriate reimbursement.”   A possible result, as recognized by TIPS, is an insurance company being “forced to pay CMS 200% of the amount CMS determines should have been set aside in the settlement for future Medicare eligible expenses required to treat the occupational injury.”

On February 14, 2005 the ABA House of Delegates adopted a resolution urging Congress to enact legislation relating to Medicare Set Asides.   The resolution highlighted the need for a low dollar threshold below which an MSA would automatically be unnecessary in light of the expense compared to the amount at stake.   It urged Congress to clarify the process for approving set asides; set a deadline for approval after which it is automatically approved if there is no CMS response and create an appeal procedure if parties dispute a CMS decision.   Additionally, it recommended the use of Workers’ Compensation fee schedule to compute set aside allocations; create a “Safe Harbor” that Medicare’s interests are protected if the set aside is at least a set percentage of the total claim cost or total medical benefits and allow the costs of obtaining CMS approval and cost of administration to be funded out of the set aside allocation.   Interestingly, it offered up the idea to allow the parties to elect to turn the allocated funds over to CMS releasing all parties from any liability under the MSP.   In an effort to streamline the process, it suggested creating standard forms for CMS submission to expedite approval process.   Finally, it recommended including only medical expenses which are compensable under both applicable state, federal or territorial Workers’ Compensation Act and Medicare in the computation of the set aside amount.  

The new resolution, adopted in 2011, states the following:

“RESOLVED, That the American Bar Association urges Congress to acknowledge that there is no regulatory or statutory basis for Medical Set Asides for third party liability settlements, judgments or awards under the Medicare Secondary Payer Act and provide clear, predictable, and consistent procedures for the submission, uniform determination, and timely approval of any third party medical set aside settlement proposals (MSASP) voluntarily submitted to the Centers for Medicare & Medicaid Services (CMS) in response to the non binding recommendations of CMS.

FURTHER RESOLVED, that legislation to accomplish these goals should incorporate the following principles:

1.  Acknowledge that there are not statutory and regulatory requirements for determining Medical Set Aside payments and the process for approving claims subject to the Medicare Secondary Payer Act for third party liability claims.

2.  Exempt from review by CMS all settlements in which there are no legal obligations to pay medical benefits.

3.  Establish an appeals process that must be completed by CMS within 90 days of request by the claimant, insurer, or their representative.

4.  Prohibit CMS from seeking additional moneys from the settlement proceeds after review and/or appeals processes have been concluded.

5.  Prohibit recovery thresholds for MSASP that are linked to predetermined economic indices.

6.  Establish a statute of limitations for MSP claims.

7.  Establish a 30 day deadline by which CMS must respond in writing of its acceptance of the proposed MSASP.

8.  Require CMS to timely (“timely” means within 60 days the information must be delivered to the patient and patient’s lawyers) and reasonably provide a detailed list of any payments it made and/or may make a claim for set aside for, and if it does not, cannot collect or require a set aside for that patient.

9.  Prohibit the “certification” or claim of specialization by any private individual or person or government entity of a process, practice or individual in the determination of MSASP.

 10.  Prohibit the use of Social Security numbers and Health Card Numbers in the MSASP reporting process.”

Many of the things that the ABA is urging Congress to address is dealt with by the new SMART Act.  Urging Congress to acknowledge what CMS has already acknowledged regarding 3^rd party liability settlements and MSAs is completely ineffective and off the mark.  CMS has said that there are no guidelines for liability settlements, submission is voluntary and may not be reviewed.  The problem is they also say that the fact that they don’t have policies regarding liability settlements does not relieve an attorney or injury victim of its obligations to protect “Medicare’s future interests” under the MSP.  What is needed is codification of set asides for both workers’ compensation cases and liability settlements so there is certainty, procedural due process and an appeal mechanism.  There also needs to be regulations that address what to do with liability settlements where there is a limited recovery but a large amount of future Medicare covered services related to the injury.  A method of reduction or apportionment of damages similar to the Ahlborn approach is necessary.

I would not hold your breath though for any forthcoming guidance or legislation on set asides.  Previous attempts at legislation in just workers’ compensation cases died in committee.  There does not seem to be any appetite on the part of Congress or CMS to deal with the problems that Medicare futures present for personal injury settlements.