Recently there has been a lot of talk about liability Medicare set-asides (LMSAs). Some Medicare set-aside (MSA) vendors have tried to make the case that the Centers for Medicare and Medicaid Services (CMS) is preparing to review LMSAs and, therefore, there is a need for those in the liability claim space to start developing a program for considering Medicare’s interests in liability settlements and ultimately procure LMSAs.
Notwithstanding some administrative publications, really nothing has changed in the Medicare Secondary Payer (MSP) law relative to liability claims. The fact remains that Medicare’s interests should be considered in all settlements that involve current or potential Medicare beneficiaries where some portion of the settlement is attributable to future medical expense that Medicare would otherwise cover. This does not mean, however, that LMSAs must be done – and LMSAs certainly do not need to be submitted to CMS for review.
Below we will discuss the Medicare Secondary Payer statute (“MSP”) and the purported “changes” that are relied on to suggest that the liability claim environment is changing. We will also provide best practices for handling liability claims that involve Medicare beneficiaries (and potential beneficiaries).
“LMSAs Are Imminent”
MSA vendors warning of impending LMSAs usually cite one of three publications from CMS as support that LMSAs are imminent: a June 15, 2012 Advance Notice of Proposed Rulemaking (ANPRM); a December 22, 2016 Solicitation, Offer and Award RFP-CMS-2016-8A-0008 (Contractor RFP); and a February 3, 2017 Publication #100-20 One-Time Notification (One-Time Notification). However, all three of these publications are administrative in nature and do not change or even interpret the law. Instead, these publications suggest that CMS is contemplating a voluntary CMS review process for LMSAs similar to the WCMSA voluntary review process.
The ANPRM titled “Medicare Program; Medicare Secondary Payer and ‘Future Medicals’” was a solicitation by CMS for comments from MSP stakeholders on standardized options that CMS was considering making available to beneficiaries and their representatives to clarify how they can meet their obligations to protect Medicare’s interest with respect to MSP claims involving automobile and liability insurance (including self-insurance), no-fault insurance, and workers’ compensation when future medical care is claimed or the settlement, judgment, award, or other payment releases (or has the effect of releasing) claims for future medical care.
Of note, the ANPRM was not a proposal to change or clarify the MSP law. By its very language, the ANPRM accepted that stakeholders have legal obligations under the MSP without CMS doing anything. The ANPRM was simply an attempt to develop voluntary, standardized options for demonstrating consideration of Medicare’s interests in a settlement.
In 2016, CMS started the process of finding a new WCMSA review contractor because the current contractor term was expiring. In the statement of work for the Contractor RFP, CMS included “Optional LMSA & NFMSA Recommendations.” Why CMS included these services in the Contractor RFP was not clear. However, some MSA vendors believe that CMS was preparing to ‘require’ LMSAs or would be offering a voluntary review process for LMSAs.
Regardless, CMS could not ‘require’ LMSAs of MSP stakeholders through the Contractor RFP process. To do so, CMS would at the very least have to go through formal rulemaking. CMS may offer a voluntary LMSA review process, which is the likely reason for building the capacity into the Contractor RFP. Again, however, this is not a change that warrants MSP stakeholders to create or change MSP compliance processes.
The One-Time Notification was published to comply with the Government Accountability Office final report entitled MSP Additional Steps are Needed to Improve Program Effectiveness for Non Group Health Plans (GAO-12-333), the Centers for Medicare & Medicaid Services (CMS) will establish two new set-aide processes: LMSAs and a NFMSAs. The One-Time Notification 1) addresses the policies, procedures, and system updates required to create and utilize an LMSA and NFMSA MSP record, similar to a WCMSA MSP record and 2) instructs the A/B MACs and shared systems when to deny payment for items or services that should be paid from an LMSA or NFMSA fund. That is, the One-Time Notification is an administrative notice to Medicare contractors that they need to create data fields and workflows to accommodate LMSAs and NFMSAs to ensure that Medicare is secondary when either exists.
The One-Time Notification does not require LMSAs; it does not establish a review process; nor does it in anyway suggest that the law regarding LMSAs has changed. It is simply a way to coordinate benefits between primary and secondary payers. Perhaps the One-Time Notification is a recognition that some MSP stakeholders are already using LMSAs as a tool to comply with MSP obligations, but that’s it.
The MSP Law
So, what does the MSP law require relative to liability claims? The MSP was originally enacted in 1965 with the creation of the Medicare program and the Medicare Trust Fund. In 1965, Medicare was the primary payer (except in workers’ compensation) for medical or hospital services even if a Beneficiary’s need for medical services was related to an injury or illness sustained in an accident. As a result, Medicare relieved the burden of private insurance where the private insurance was otherwise liable to pay. The Omnibus Reconciliation Act of 1980 changed the status of Medicare to a secondary payer. The MSP is now designed so Medicare will pay and then seek reimbursement from the private insurance carrier after, and to the extent, that carrier’s liability is determined.
Currently, the MSP requires the parties to a settlement to do three things. First, the MSP requires that any conditional payments made by Medicare be reimbursed from the settlement. (Payments already made by Medicare before settlement) Second, the MSP prohibits the parties to a settlement from unreasonably shifting the burden of future medical care to Medicare. That means the portion of the settlement that is reasonably allocated to future medical care must be used first for that care before Medicare pays. Third, the MSP requires the payer to report the settlement to CMS. Currently, there is no legal requirement in the law or regulations that require the parties to submit their proposed settlement to Medicare for “approval.”
To answer the question of whether an MSA is required for liability settlements, one must first look at the history of the law. The reason for this type of legal analysis is that CMS has failed to promulgate any regulations concerning an MSA requirement for liability settlements, even though Congress fully expected CMS to do so. Failure to create regulations does not mean that there is no requirement in the MSP for liability settlements; rather it means that the requirements are determined by an analysis of the statute, case law and legislative history.
In 1980, Congressional intent for the MSP was clear. Congress wanted to expand the MSP to make Medicare secondary to all insurance. Congress found that the original concerns that made a Medicare primary payer, (administrative difficulties in ascertaining private insurance and the attendant delays in payment) no longer justified retaining Medicare as primary payer, especially if it is understood that immediate payment may be made by Medicare and recovery attempts only undertaken after liability is established. Further, Congress clearly signaled their intent by declaring that it expected CMS to establish, in regulations, rules regarding the minimum amounts estimated as recoverable and the procedures for seeking recovery from private carriers. Such procedures were to be similar to those employed by Medicare in seeking recovery in workers’ compensation cases. Therefore, we know exactly what requirements Congress intended for liability settlements, it is the same requirements that existed for workers’ compensation claims under the MSP in 1980.
As the MSP requirements for liability settlements are the same as workers’ compensation claims in 1980, an analysis of those requirements is instructive. At that time Medicare had two regulations that dealt with recovery of “future payments” of medical care in a workers’ compensation settlement. These were 42 C.F.R. §405.320 and 42 C.F.R. 405.321, now known as 42 C.F.R. 411.46 and 42 C.F.R. 411.47. These regulations only dealt with compromise settlements. The regulation for commutation settlements was added in 1989. For the purposes of this letter, it will be assumed that all these regulations existed as of 1980 in their current citation.
Under the regulations, there are two basic requirements under the MSP for settlements. First, if the settlement intends to compensate the injured person for future medical care, then those funds must be used as a primary source to Medicare. Second, the parties to a settlement cannot “attempt to shift to Medicare the responsibility for payment of medical expenses for the treatment of [an actual or alleged injury]” by maximizing one aspect of the settlement (such as wage loss) over another (such as medical). In other words, a settlement should allocate the damage categories in a fair and reasonable manner. The parties cannot choose to allocate one dollar for future medical and a million dollars for other damages when the facts of the case support the opposite.
As a result of these two requirements, the following is mandatory for any settlement under the MSP. First, determine whether the settlement is a commutation settlement or a compromise settlement. A commutation settlement is a settlement that provides money to replace the benefits that the injured person would receive if the claim had not settled, e.g. no-fault claims. In other words, the payer is fully-funding its future obligations to the injured person today. By definition, a commutation settlement cannot be a compromise settlement. A compromise settlement is a settlement that provides less in compensation to the injured person than what could have been received if the claim was not denied or disputed. All settlements that are not commutation settlements, by definition, are compromise settlements.
Second, the parties need to determine how to comply with the law. An MSA, as defined above, is a good methodology for MSP compliance in a commutation settlement. It needs to be noted; however, that there are differences between an MSA for workers’ compensation and for liability. Currently, CMS is requiring more care to be projected than the law requires in a workers’ compensation MSA that is reviewed by CMS. For liability MSAs, the future medical needs should be a reasonable projection based upon the medical records. As liability MSAs generally cannot be reviewed by CMS, the stringent workers’ compensation process in place is not applicable. In a compromise case, an MSA is not required. What is required is a settlement allocation that apportions the settlement between future medical and other damage components. This apportionment must be reasonable and based on the facts and law of the underlying case.
The best interpretation of the MSP is that all parties to a settlement have a duty to reasonably consider Medicare’s interests. This means that the funds representing the settlement of the future medical care related to the claimed injury (and otherwise covered by Medicare) must be considered a primary payment to Medicare. Since these funds are a primary payment, Medicare is secondary to the funds allocated for future medical. This interpretation complies with all aspects for the MSP law and fits within the purpose of the MSP.
Does the MSP require an MSA in a liability settlement? The answer is no. The MSP is designed to prevent parties from unreasonably shifting the burden of the future health costs to Medicare. This can be done, as it is done in workers’ compensation, by the allocation of the settlement into medical, economic or other damages categories and in some cases, an MSA is also the appropriate consideration of Medicare’s interests. Currently, best practices suggest that a third party prepare or audit the MSA (or medical cost projection for an allocation) as this third party adds credibility, expertise and objectiveness to the MSA or the settlement allocation.
The following is an outline of the various steps that should be taken in reviewing a claim for Medicare’s potential interest.
Step 1. Determine whether the claim involves a Medicare beneficiary (or a potential Medicare beneficiary).
This information may be obtained in several ways. A claimant may be asked upfront about his Medicare beneficiary status, or an inquiry can be made to the Social Security Administration Agency. An adjuster may also look for “red flags” that indicate that Medicare may be involved. If the claimant is not on Medicare at the time of the initial investigation, the information should be periodically updated.
Step 2. If the claimant is currently a Medicare beneficiary, investigate/negotiate the conditional payments in the claim.
In most liability claims, a payment by Medicare, Medicare Advantage Plan or Part D prescription plan does not become “conditional” until the liability claim settles, or an award is entered. These events turn the insurance carrier into a primary payer and Medicare into a secondary payer. Although a final conditional payment demand will not always be available prior to settlement, the parties may estimate the amount of Medicare’s payments during the life of the claim. This estimate may be based on information found in the medical records, billing statements, or in a settlement demand. The claimant may also access conditional payment information by registering with www.mymedicare.gov. MSA vendors are also able to provide assistance with the conditional payment search, as well as with reviewing and analyzing the payments made and any BCRC, Medicare Advantage Plan or Part D prescription plan negotiations.
This process above should not to be confused with the Commercial Repayment Center’s (CRC) separate collection against carriers or self-insureds based upon Ongoing Responsibility of Medical (ORM) reporting. For example, ORM may be reported where the liability policy has a med pay component to its terms of coverage
Step 3. Address the conditional payment reimbursement issue in the terms of the settlement agreement.
Identify the party responsible for the conditional payment reimbursement to Medicare, Medicare Advantage Plan or Part D prescription plan. Although a claimant may assume responsibility for the conditional payments, Medicare has a cause of action against the primary payer if reimbursement is not made by the claimant. Double damages may be sought if the U.S. Government brings suit to collect the conditional payments. The suit may be filed against “any entity, beneficiary, provider, supplier, physician, attorney, State agency or private insurer that has received a primary payment” prior to Medicare Advantage Plan or Part D prescription plan’s reimbursement.
Step 4. Determine whether the nature of the injury claimed is likely to involve future Medicare‐covered care.
The MSP prohibits the parties to a settlement from unreasonably shifting the burden of future medical care to Medicare. In light of this, the claims handler should review the nature of the injury being alleged and the likelihood that future medical care will be involved. Catastrophic injuries, as well as more significant orthopedic or neurological injuries, are more likely to result in future care than the more minor soft tissue types of injuries. The likelihood of future medical care may be based on a review of the treating physician’s opinions, the standard of care guidelines for the type of injury sustained, as well as the type of prior treatment provided in the claim.
If future medical care is likely to occur, an LMSA or other allocation provides a method for avoiding a shift of future injury‐related medical care to Medicare. The parties may elect to fund a commutation LMSA that fully funds all of the future injury-related Medicare-covered treatment. A compromise allocation apportions funds from the net settlement for future injury-related Medicare-covered treatment. This is based on 42 CFR Section 411 Regulations that discuss the apportionment formula in the context of conditional payment reimbursement. CMS’ September 20, 2011, Memo provides an additional option for considering Medicare’s interest in a liability claim. If the claimant’s treating physician certifies in writing that treatment for the alleged injury related to the liability settlement has been completed as of the date of the settlement and that future medical items/services for the injury will not be required, the settlement does not cost shift future medical care to Medicare.
Failure to provide for a future medical allocation in a case that involves future medical care may result in Medicare viewing the entire settlement as a future medical allocation. While LMSAs are not legally required, nor do they require CMS review, they are a useful tool to delineate settlement funds among damage categories and demonstrate MSP compliance. Notwithstanding, the MSP law has not changed regarding liability claims and there is no need to be concerned with whether CMS will institute an LMSA review process.
 See 42 U.S.C. 1395y(b)(2);
 See H.R. Rep. No. 1167, 96th Cong. 2nd Sess. 389, reprinted in 1980 U.S.C.C.A.N., 5526, 5752)
 See 42 U.S.C. 1395y(b)(2)(B)(ii)
 See 42 U.S.C. 1395y(b)(2)(Subject to agency interpretation as explained below); See also 42 C.F.R. 411.46 and 411.47 (workers’ compensation regulations that are informative as to liability requirements.)
 See 42 U.S.C. 1395y(b)(8)(effective July 1, 2009, proposed regulations are published)
 See generally 42 U.S.C. 1395y(b)(2) and 42 C.F.R. 411 et seq. (there is an informal review process created by Medicare for w.c. commutation settlements only)
 CMS is the current agency that administers Medicare. Prior to that it was the Health Care Finance Administration (“HCFA”) and prior to that was the Department of Health and Human Services. For the purpose of this letter, CMS refers to any of these agencies as the historical context dictates.
 See H.R. Rep. No. 1167, 96th Cong. 2nd Sess. 389, reprinted in 1980 U.S.C.C.A.N., 5526, 5752)( the committee expects the Department of Health and Human Services to establish in regulations rules regarding the minimum amounts estimated as recoverable and the procedures for seeking recovery from private carriers. Such procedures are to be similar to those currently employed by Medicare in seeking recovery in workers’ compensation cases.)
 See supra note 2
 See 42 Fed. Reg. 52826 (September 30, 1977)(These were designated verbatim from 20 C.F.R. §405.320 and 321. The purpose was the consolidation and reorganization of provisions.)
 Per the table, 42 C.F.R. 405 §320 plus §405.321(a) became 42 C.F.R. §411.46 and 42 C.F.R. §405.321(b) became 42 C.F.R. §411.47. See 54 FED. REG. 41716 (October 11, 1989)
 See 54 FED. REG. 41716 (October 11, 1989)
 See 42 C.F.R. 411.46(d)(2) and 42 C.F.R. 411.46(a).
 See 42 C.F.R. 411.46(b)