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Debunking the MSA Mystery:  Clues to Solving Medicare Secondary Payer Compliance in Liability Settlements

By Jason D. Lazarus, J.D., LL.M., MSCC

Introduction

In 2010, I published an article entitled “Medicare Myths:  What Every Trial Lawyer Should Know about the MSP & Liability Medicare Set Asides”[i].  Since that time there have been many new clues provided by CMS and legal decisions providing guidance regarding what to do when settling a case with a Medicare beneficiary to address protecting Medicare’s “future interests”.  This article seeks to clarify the current Medicare Secondary Payer (“MSP”) landscape as it relates to Medicare futures by analyzing the clues and suggesting some ways to make sure a liability settlement is MSP compliant.  Despite all of the developments since 2010, there are still no statutes, regulations or cases which require a Medicare Set Aside (“MSA”) in liability settlements.  Nevertheless, based upon the information available today it may be prudent to consider engaging in a “set aside analysis” if a settlement involves a current Medicare beneficiary or someone with a “reasonable expectation” of Medicare entitlement within 30 months.  This does not necessarily mean setting aside anything, but what it does involve is a thorough analysis of the Medicare Secondary Payer related issues.  If something is set aside, it also may include creating a legal justification for why a limited amount is being set aside if a full recovery wasn’t possible due to certain issues present in the case. 

Confusion surrounding the need for an MSA in liability settlements began with the passage of Section 111 of the Medicare, Medicaid & SCHIP Extension Act in 2007 (“MMSEA”)[ii] and its original reporting deadline of 7/1/09.  This provision caused a tremendous amount of misunderstanding among insurance professionals, lawyers and settlement planners alike.  Many people were led to believe that the “new law” required MSAs.  Even today, there are still some that say this but it just isn’t the case.  Simply put, the MMSEA imposes a mandatory insurer reporting requirement upon responsible reporting entities (“RREs”).  As of the writing of this article, the MMSEA requires the reporting of every settlement of $5,000 or greater if it involves the injury of a current Medicare beneficiary.[iii]  The threshold for reporting settlements will drop to $2,000 as of 10/1/13 and then $300.00 as of 10/1/14.[iv]  The reporting requirements involve reporting a substantial amount of information to Medicare, so much so that there is an almost 300 page manual for insurers to review to comply with the reporting. 

Mandatory Insurer Reporting Overview

President Bush signed the MMSEA into law on December 29^th 2007.[v]  Part of this Act, Section 111, extends the government’s ability to enforce the Medicare Secondary Payer Act.[vi]  As of April 1, 2011, an RRE, (liability insurer, self insurer, no-fault insurer and workers’ compensation carriers) must determine whether a claimant is a Medicare beneficiary (“entitled”) and if so provide certain information to the Secretary of Health and Human (hereinafter “Secretary”) Services when the claim is resolved.[vii] 

Under MMSEA, the RREs/insurers (hereinafter RRE) , must report the identity of the Medicare beneficiary to the Secretary and such other information as the Secretary deems appropriate to make a determination concerning coordination of benefits, including any applicable recovery of claim.[viii]  Failure of an applicable plan to comply with the reporting requirements shall incur acivil money penalty of $1000 for each day of noncompliancewith respect to each claim.[ix]  A single claimant can have more than one claim but the penalty is per claim.  These reporting requirements make it very easy for CMS to review settlements to determine whether Medicare’s interests were adequately addressed by the settling parties and potentially deny future Medicare covered services related to the injuries suffered. 

The biggest problem with the reporting requirement is the required disclosure of ICD-9 medical diagnosis codes which identify the medical conditions that are injury related.  These ICD-9 codes can form the basis for the care potentially rejected by Medicare in the future.  If the plaintiff and plaintiff counsel are unaware of the conditions disclosed by the defendant/insurer through the reporting process, there could be some serious problems when the plaintiff seeks medical care from Medicare in the future.  For example, a plaintiff sustained back and neck injuries which were claimed as a part of their lawsuit.  The plaintiff had pre-existing neck problems.  The case is ultimately settled with the defendant paying nothing for the neck injury because they determined that the neck injury was primarily due to a pre-existing condition.  Now the defendant/insurer reports the settlement and lists the ICD-9 codes related to the neck injury even though they paid no settlement dollars towards that injury and rejected that part of the claim.  The neck care could be rejected by Medicare in the future leaving the client with no set aside funds to pay for that care and no Medicare coverage either. 

Every time I give a presentation to other lawyers about this particular issue, I suggest that the parties should be collaborating on this aspect of the Medicare settlement process.  If the plaintiff does not know what is being reported then the scenario I just outlined could occur.  The practical problem is that defense counsel typically is unaware of what is being reported and the ICD-9 codes aren’t included in the release.  Accordingly, there are no guarantees that even if the parties discuss this aspect of the reporting conundrum that the right codes will be reported.  However, it still bears emphasis and discussion.  Without focusing on this issue as part of the settlement process, a plaintiff and plaintiff lawyer may find there are serious repercussions that result.