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In Smith v. Marine Terminals of Arkansas, the United States District Court in the Eastern District of Arkansas was asked to determine a set aside amount in a Longshore/Jones Act case.  Specifically, the plaintiff, Billy Smith, asked “the court to confirm and/or determine a reasonable allocation representing the future cost of medical treatment causally related to injury sustained in plaintiffs accident of April 14, 2006 that would also be covered by Medicare, commonly referred to as the ‘Medicare Set Aside’ (“MSA”).”  In so making this determination, the Smith court addressed what is necessary in its opinion under federal law when a case is settled on behalf of a Medicare beneficiary.  The court stated that because “Billy Smith is a current recipient of Social Security Disability benefits, he is currently Medicare eligible and the parties must reasonably consider and protect Medicare's interests consistent with the Medicare Secondary Payor Act, 42 U.S.C. § 1395y.”

Billy Smith filed a Longshore and Jones Act claim after being injured on a floating barge.  Mr. Smith’s right hand was severely injured in April of 2006 while working on the floating barge.  The Jones Act claims were dismissed on motion for Summary Judgment.  Smith’s alternative claim under the Longshore and Harbor Workers’ Compensation Act survived summary judgment.  The parties ultimately reached an agreement to settle the claim.  As part of the settlement, the parties agreed to retain the services of a company to determine the Medicare set aside “allocation” amount and submit it to CMS for approval since it met the Workers’ Compensation Medicare Set Aside review thresholds. 

A Medicare set aside allocation was created and submitted to CMS for review and approval.  The set aside amount was determined to be $14,647.00.  After requests for more information made by CMS and discussions with CMS, the vendor who performed the MSA allocation was unable to get CMS to provide a response to the review.  CMS’s failure to review the set aside was inexplicable given the settlement amount of $1,000,000.00 and the $25,000 review threshold for current Medicare beneficiaries.  Given the fact that CMS failed to review and approve the MSA, the settlement was put into jeopardy because of the risk of non-review/approval of the set aside amount.  Accordingly, the parties requested the federal district court issue an order determining the set aside amount. 

The court found that the MSA of $14,647.00 was a “reasonable estimate and determination of the future expected medical treatment that Billy Smith will require resulting from his accident-related injuries that would otherwise be covered by Medicare.”  Additionally, the court found there was no evidence that any of the parties were attempting to shift the responsibility for future medical expenses related to the injuries suffered to Medicare.  The court then went on to make its conclusions of law.  The Smith court concluded as a matter of law that the parties had “reasonably considered and protected Medicare’s interest” in the settlement.  Further, the set aside amount of $14,647.00 was deemed to have “fairly and reasonably” taken “Medicare’s interest into account”.  Finally, the court ordered that the full amount of the set aside shall be placed in a separate bank account by Billy Smith for the “exclusive payment of future medical expenses incurred for treatment of injuries sustained in his accident of April 14, 2006 which would otherwise be paid or payable by Medicare.”  Lastly and most importantly, the court ordered that the parties could rely upon the court’s acceptance of the MSA at the $14,647 figure despite the lack of CMS approval. 

The decision is important from the stand point of what can be done to achieve complete compliance in a case where CMS refuses to review a set aside.  Because CMS routinely refuses to review set asides in liability cases, the Smith decision provides a road map of how to get around the issue of a non-review.  The parties can seek an order such as the one issued in the Smith case in similar circumstances.  While CMS typically does not respect a decision which allocating settlement proceeds unless it is a decision on the merits of the case, it seems improbably that CMS could prevail with that type of argument when they fail to review a set aside allocation.  If they are given the necessary information to review the set aside allocation, how can CMS then claim a federal court’s decision allocating the funds is improper?  It seems as though the parties in the Smith case did everything they possibly could do to comply with what they believed was necessary regarding the MSP and futures.