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In Big R. Towing, Inc. v. Benoit, the United States District Court for the Western District of Louisiana recognized an obligation to set aside funds for future Medicare covered services and allocated said funds in a non-Workers’ Compensation case.  David Benoit was employed by Big R Towing as a captain aboard a tugboat.  At the time he was injured in December of 2009, he was working in that capacity and was covered as a seaman under the Jones Act.  Benoit suffered a back and hip injury while performing deck work on the tow.  He had a preexisting spinal condition which restricted him from performing the task he was injured while completing.  His treating physicians recommended surgery for his back and hip. 

There was conflicting medical testimony whether his need for surgery was related to his preexisting conditions or due to the accident.  Big R filed suit for declaratory relief on the issue of whether benefits were due.  Benoit filed a counterclaim seeking damages under the Jones Act and general maritime law.  The case was settled at mediation for a lump sum of $150,000.  At the time of the settlement, Benoit was receiving Social Security disability benefits and part of the consideration for the settlement was that Benoit would be responsible for protecting Medicare’s interest under the Medicare Secondary Payer statute.  Sound familiar?

An oral motion was made for the court to determine the future medical expenses in order for Benoit to set aside funding, taking Medicare’s interest into account.  The parties consented to allowing the United States District Court magistrate to rule on the issue of future medical expenses and a hearing was held with medical evidence presented as to future Medicare covered services.  The court made the following important findings of fact:

“1. Medicare does not currently have a policy or procedure in effect for reviewing or providing an opinion regarding the adequacy of the future medical aspect of a liability settlement or recovery of future medical expenses incurred in liability cases.”

 “2. David Wayne Benoit's date of birth is August 2, 1952 and he will not obtain the age of 65 within 30 months of the date of settlement.  However, he is currently receiving social security disability benefits.”

 “5. The parties have considered Benoit's projected future loss of earnings and projected future medical expenses. According to his health care providers, the future costs for low back surgery are $32,000.00, inclusive of hospital and surgical fees, and the costs for a left hip replacement are $20,500.00. The figure will not materially change if Benoit opts not to have surgery on his hip, but instead goes through palliative treatment. The combination of these two figures, $52,500.00, represents more than half of the net settlement proceeds and will be set aside by Benoit to fund these medical expenses.”

 After making the foregoing findings of fact, the court made the following noteworthy findings of law:

 “1. The parties shall and have reasonably considered and protected Medicare's interests in the settlement of this matter.”

 “2. Medicare is a secondary payor under the Medicare secondary payor program, to the extent that there are Medicare covered expenses incurred by David Wayne Benoit, in the past or in the future, arising out of the accident and injuries alleged in this lawsuit.” (emphasis added)

 “4. The findings of fact support the conclusion that it is reasonably expected that David Wayne Benoit may become a Medicare beneficiary in the future. The sum of $52,500.00 to be set aside by David Wayne Benoit out of the settlement proceeds for future medical expenses associated with lumbar surgery and left hip replacement or therapy fairly takes Medicare's interests into account and David Wayne Benoit should set aside that amount to protect Medicare's interests as the secondary payer for future medical expenses arising out of the injuries alleged in this lawsuit.” (emphasis added)

While this case, like the Finke decision, is not an appellate decision and is limited to the facts presented to the court, it is still noteworthy.  It is the first case I am aware of that actually recognizes an obligation to set aside monies for future Medicare services and allocates the funds in a non-Workers’ Compensation matter.  It is also very significant in terms of some subtle findings made by the court.  The first such finding is the judicial determination of what the allocation is without a formal allocation being completed by a 3^rd party company.  The second noteworthy finding or lack of a finding is in regards to apportionment.  There was no reduction of the set aside amount based upon the allocation encompassing more than half of the net proceeds.  There was no Ahlborn type of apportionment so that the set aside only reached the medical portion of the recovery.  Third, the court didn’t add the allocation amount onto the settlement, it was deducted from the gross settlement amount.  Lastly, Medicare is a secondary payer in liability cases in regards to future services. 

One other important point from Benoit, is the apparent judicial notice of the procedures established by CMS in terms of Medicare Set Asides for workers’ compensation settlements.  The court, by reference to them in some of its findings, seems to approve their use in liability settlements.  In my view this is troubling as the procedures do not take into account the unique differences between workers’ compensation settlement and liability settlements.  The fact that there was no consideration given to the fact that more than half of the client’s net proceeds were being set aside even though the client was not recovering one hundred percent of future medical expenses.  There was no analysis of what portion of the settlement was related to future medical.  This is problematic and illustrates just one of the many problems in applying procedures meant for workers’ compensation settlements to liability settlements in the MSA context. 

While some commentators believe that MSAs are already required by the MSP statute, I still believe that strong arguments can be made for why there is no valid requirement to establish a Medicare set aside.  I don’t believe a ruling such as in Benoit signals a recognition of set asides in every liability settlement, although I am sure that it will be hailed as such by some in the industry.  As for the argument for why they are not required outside of workers compensation settlements, there is nothing in the MSP statute, its regulations or case law interpreting the MSP requiring establishment of a Liability Medicare Set Aside period.  CMS has never provided any type of formal notice regarding a requirement for liability set asides.  For workers’ compensation settlements, CMS has published memoranda with extensive procedures for set asides and have a whole portion of their website devoted to set asides.  However, CMS has refused to provide any formal written guidance in the liability context.  We only have three things from CMS regarding liability set asides.  First, we have informal statements from CMS during town hall meetings indicating that in a liability settlement the same responsibilities exist to protect “Medicare’s Future Interests” as in workers’ compensation settlements.  Second, we have a memorandum from CMS addressing mixed workers’ compensation & liability settlements where the liability settlement extinguishes comp liability for future medical.  There CMS says you must do a set aside.  Third, the MSP manual was revised in 2009 and the term “Liability Medicare Set Aside” was added.  That is it.  Everything else published by CMS regarding set asides specifically deals with comp.  I don’t think that that would meet the notice requirements applicable to administrative law.  In order to require set asides in liability settlements, the Secretary of HHS would have to promulgate new regulations based upon 42 USC 1395hh(a)(2).  Without regulation, the government agencies, such as CMS, arguably do not get deference in their interpretations of a statute such as the MSP.  In the end, Medicare set asides come from CMS’s interpretation of the MSP as a whole so I could craft a strong argument that there isn’t sufficient statutory authority for MSAs even in comp.

Despite all of the foregoing, Benoit clearly demonstrates the trend towards addressing these issues.  Defendants are more and more including MSP compliance as a term of settlement.  I can make a good argument as to why to do a set aside, in the right case, even though there isn’t a definitive requirement at the present time.  In my opinion, the risks of not doing one outweigh the benefits of not considering Medicare’s future interest.  The risk of not doing one is Medicare could simply refuse to pay for injury related care post settlement based upon its interpretation of the MSP.  If they did that, there would have to be legal proceedings to figure out whether they were right in doing so.  In the meantime, the client could be left with no healthcare coverage at all if they only have Medicare for their injury related care.  I don’t think any lawyer would want to get into that kind of fight unless their client knowingly accepted that risk.  Establishing a set aside protects against the risk of losing Medicare coverage for injury related care, even know that risk is fairly remote.  Despite Benoit, I believe there are some legitimate arguments that can be made for reducing a set aside amount based upon some established legal principles.  There are problem cases though such as where you settle for a 25k policy but the future Medicare covered expenses are 300k.  What then?  There are not any great answers except that you can do whatever is reasonable given the fact that CMS has refused to provide any guidance at all and frequently refuses to review liability set asides when they are submitted to them.  Until CMS promulgates regulations and provides guidance, everyone has to take a reasonable and rational approach to resolution of these issues.