The Quest for CMS Guidance on Liability MSAs Continues

The quest for CMS guidance on liability MSAs continues. It was most recently addressed in the Silva v Burwell, 2017 U S Dist LEXIS 195032 ( November 28, 2017) case that was considered by the US District Court for the District of New Mexico.

By way of background, this case arose from a December 2015 medical malpractice settlement agreement between Mr. Silva and the Hospital Defendants. The settlement was intended to compensate Mr. Silva for his traumatic brain injury that resulted from a 2011 medical malpractice incident. Since Medicare had made conditional payments prior to the settlement, the Hospital Defendants wanted Mr. Silva to create a Medicare Set-Aside to cover future medical expenses. They were concerned that CMS would come after the hospitals for future medical expenses that would have been paid by Medicare. Given this concern and Mr. Silva’s reluctance to establish an MSA, the Hospital Defendants wanted Mr. Silva to secure a federal court order finding that no federal law or CMS regulation required the creation of an MSA from the personal injury settlement before the settlement funds were released.

Although Mr. Silva asked CMS to state its position on this, CMS did not respond. The Plaintiff Silva then brought this action under the Declaratory Judgment Act against Defendants Burwell, the Secretary of the US Department of Health and Human Services, CMS and the US Department of Health and Human Services seeking to secure a declaration that no MSA is required. Defendants Burwell et al. filed a Motion to Dismiss arguing that the Court lacked subject matter jurisdiction. The Court agreed and granted the Motion to Dismiss.

In dismissing the declaratory judgment action, the Court reviewed the Medicare Secondary Payer Act and MSAs. It noted that although CMS promulgated regulations “requiring” the creation of MSA accounts in workers’ compensation cases and provided a process for review, Medicare had not established a similar process for liability cases. The Court then looked to see if Plaintiff Silva had standing to bring the action before it. In analyzing the Protocols, LLC v Leavitt, 549 F.3d 1294 (10th Cir.2008) criteria for standing, the Court found that Plaintiff Silva had failed to show that CMS had taken a position contrary to Plaintiff Silva’s interpretation of the MSP obligations. The Court noted that although the Hospital Defendants wanted reassurance and confirmation from CMS on the need to establish a liability MSA in this settlement, there is no federal law or regulation that requires CMS to provide this information. Furthermore, the Court noted that the Defendants Burwell et al. had not taken any action to indicate that they interpret the MSP as requiring MSAs in non-workers’ compensation claims. It also observed that the uncertainty created by CMS’ failure to clarify its position on this was detrimental to the settlement process. Since Plaintiff Silva did not have standing to bring this action, the case was dismissed for lack of subject matter jurisdiction.

The Court’s decision fails to appreciate that the MSA is merely a settlement tool intended to prevent a future conditional payment by Medicare. The establishment of an MSA is not “required” by the MSP or supporting Regulations and is a legal fiction. Medicare’s status under the MSP as a secondary payer when a primary payer is available however may make funding an MSA in connection with a settlement a prudent course of action. Since the MSP Act specifically identifies liability plans as a primary plan when “ payment has been made or can reasonably be expected to be made,” Medicare is a secondary payer in these cases as well.

The Court also erroneously noted that CMS had not taken any action to indicate that they are interpreting the MSP to apply to non-workers’ compensation claims. This fails to consider the statements and Alerts that have been issued by CMS on this topic. Section 111 reporting obligations for liability cases also suggest otherwise.

We will continue to keep you advised of further developments.

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