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Wayne Schlaht
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Is Medicare as we know it going away? Liability Medicare Set Aside Rules

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With the potential for change in the Medicare system hanging in the balance with this year's election, CMS (the goverment agency charged with administering the Medicare system) has issued a proposal for proposed regulations of Medicare futures for liability settlements.

Liability Medicare Set Aside Advance Notice of Proposed Rulemaking

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

On May 3 of 2012, the Office of Management and Budget received advanced notice of proposed rulemaking (ANPRM) entitled “Medicare Secondary Payer and ‘Future Medicals’ (CMS-6047-ANPRM)” from CMS. On June 14th, the contents of the proposal were released by CMS. A sixty day comment period began on 6/14 which expires tomorrow on 8/14. By way of background, CMS is the government agency charged with administering the Medicare system and coordination of Medicaid programs in conjunction with the States. CMS is short for the Centers for Medicare & Medicaid Services. CMS is a sub-agency under The U.S. Department of Health and Human Services (“HHS”).

The Medicare Secondary Payer Act provides that “[n]o rule, requirement or other statement of policy that establishes a substantive legal standard . . . shall take effect unless it is promulgated by the secretary by regulation . . .”.[i] Therefore, in order to establish a legal standard when it comes to Medicare set asides, the Agency (CMS), must promulgate regulations. The submission by CMS to the Office of Management and Budget of proposed rulemaking is the beginning of that process. The proposed rulemaking contains seven different options for dealing with future medicals for Medicare beneficiaries and the Agency is soliciting comments from all interested parties to create a standardized practice.

According to the notice:

“This advance notice of proposed rulemaking solicits comment on standardized options that we are considering making available to beneficiaries and their representatives to clarify how they can meet their obligations to protect Medicare's interest with respect to Medicare Secondary Payer (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.”

. . .

“The primary purpose of this ANPRM is to respond to affected parties' requests for guidance on ‘future medicals’ MSP obligations, specifically, how individuals/beneficiaries can satisfy those obligations effectively and efficiently.”

  1. CMS Proposed General Rule

“If an individual or Medicare beneficiary obtains a ‘settlement’ and has received, reasonably anticipates receiving, or should have reasonably anticipated receiving Medicare covered and otherwise reimbursable items and services after the date of ‘settlement,’ he or she is required to satisfy Medicare's interest with respect to ‘future medicals’ related to his or her ‘settlement’ using any one of the following options outlined later in this ANPRM.”

Comment: While the general rule seems to take it as a given that CMS is granted recovery rights to future medicals post settlement, that isn’t necessarily the reality. Even though CMS is the agency charged with interpreting the MSP, it is far from clear that the plain language of the MSP statute gives CMS a recovery right as it relates to future medicals. Clearly the MSP statute was enacted in 1980 to protect the Medicare Trust Fund and prevent it from making payments for services where a primary payer exists. However, all of the statutes and regulations (save two regulations in the workers’ compensation context) address recovery of payments made prior to settlement and not future medicals.

In addition, there is apparently no fundamental recognition by CMS of the differences between the realities of liability settlements and workers’ compensation settlements based upon the ANPRM options. Where MSAs have been commonplace in workers’ compensation settlements, there is always an allocation of the damages recovered between future medical and indemnity. Workers’ compensation is a no-fault system and the carrier is obligated to pay for all future medical expenses unless there is a medical washout. That isn’t the case for liability settlements. Instead, settlements are done on an unallocated basis and factors such as comparative fault, causation issues, liability issues, caps on damages, policy limits and other factors cause cases to be resolved for far from full value. Any system that does not account for these differences when it comes to future medicals that are Medicare covered can’t work. A blanket rule regarding future medicals that does not provide safe harbors or consideration of the realities of liability settlements could discourage settlements and prevent lawyers from taking cases at all if they involve a Medicare beneficiary. This could cause Medicare to not recover conditional payments and be on the hook for all future medical if there is no recovery.

The Seven options provided in the notice are as follows:

Options 1-4 are available to Medicare beneficiaries as well as to individuals who are not yet beneficiaries but will be within 30 months

5-7 would be for Medicare beneficiaries only

Option 1: Pay for all related future medical care until the settlement proceeds are exhausted completely. Medicare wouldn’t review any documentation but would select Medicare beneficiaries at random to provide documentation from beneficiaries selected at random as part of “Medicare’s program integrity efforts.”

Comment: This option might make some sense in low dollar cases where the client wants to take on the risks associated with potential loss of future Medicare eligibility. It could be a small claim safe harbor. However, this is probably not a viable option or an attractive option given the lack of clarity as well as the random enforcement threat. In addition, it really puts the injury victim in the situation they were pre-settlement and puts all of the risk on them in the event the cost of medical care is high.

If on the other hand the idea behind this option is a self calculated and managed set aside, it that could be viable. The devil would be in the details in terms of this option. For example, how would “settlement proceeds” be defined? All damages recovered? Only future medical damages? Also, who determines what is related medical? Is it the injury victim? The treating physician? If there is going to be random enforcement then a procedure should be established to appeal denial of care that does not involve going through the internal CMS appeals process given the lengthy time period that involves. Instead, appeal should be quick and allow the injury victim access to a federal district court after one level of internal appeals within the agency.

Option 2: Medicare will not pursue “future medicals” if the individual/beneficiary’s case fits certain conditions. There are two methods:

  1. The amount of liability insurance “settlement” is a defined amount (CMS would define with comments) or less and the following criteria are met:

* The accident, incident, illness, or injury occurred one year or more before the date of

"settlement;"

* The underlying claim did not involve a chronic illness/condition or major trauma;

* The beneficiary does not receive additional "settlements;" and

* There is no corresponding workers' compensation or no-fault insurance claim.

  1. The amount of liability insurance “settlement” is a defined amount or less and the following criteria are met:

* The individual is not a beneficiary as of the date of "settlement;"

* The individual does not expect to become a beneficiary within 30 months of the date of "settlement;"

* The underlying claim did not involve a chronic illness/condition or major trauma;

* The beneficiary does not receive additional "settlements;" and

* There is no corresponding workers' compensation or no-fault insurance claim.

Comment: This would be a welcome option that would allow for CMS to define cases that fit within a class that don’t require anything as it relates to future medicals. However, that assumes that the low dollar threshold was set at a reasonable level. If the threshold is set so low that it hardly applies in any case, then this would be of no value at all. CMS’s past low dollar thresholds in the conditional payment context have been way too low to be of any benefit to nearly anyone. There are certainly cases that simply don’t justify the expense to CMS or the parties to undertake any analysis regarding future medicals. In addition, if a low dollar threshold was established there must be some mechanism to adjust it on an annual basis upwards so that medical inflationary rates are taken into account. Medical costs rise annually at a much greater rate than normally inflation rates for other goods and services so it is imperative that the number adjust annually.

Option 3: Provide an attestation from treating physician as to the date of care completion. This can be done before settlement and if the care is completed, there would be no need to do anything as it relates to future medicals. Of course, conditional payments would still need to be resolved. The attestation would have to contain the date of care completion and a statement that the individual/beneficiary would not require any future additional care related to the settlement. There is also an attestation option “after settlement”. This seems to be asking the doctor to project a date of care completion and the future medicals would be limited to the period between the date of the settlement and care completion.

Comment: We currently have this option pursuant to a CMS memo released on 9/29/11. This option isn’t really all of that realistic in my opinion given the limited circumstances that this may be possible in. If the standard were changed to an attestation that based on reasonable degree of medical probability the client will not need future care, it might be more workable. For attestations post settlement, CMS should clearly disavow any need for a set aside as of the date that the physician attests to no future treatment being needed.

Option 4: The individual/beneficiary submits a proposed Medicare Set-Aside Arrangement (MSA) to CMS for review and approval. The process would be similar to the one that exists for workers’ compensation cases.

Comment: This is really similar to the current state of affairs but we would have a formal review process. This proposition is quite scary given the fact that it currently takes 6-12 months to get a CMS approved/reviewed MSA back in the workers’ compensation system. CMS currently reviews approximately 60,000 MSAs in workers’ compensation cases annually as opposed to the 40 million potential annual liability claims that might need review. CMS would need to significantly ramp up their manpower and capabilities if they do go this route. It isn’t workable to have liability claims held up by a CMS review process. If there is a review process, then it should be one wherein all parties can submit and be covered by the safe harbor of a CMS approved set aside (unlike in workers’ compensation where only certain claims may be reviewed). A better system would be to allow both the plaintiff and defendant to rely upon qualified 3rd parties to estimate the future Medicare covered expenses without the need for CMS review/approval.

In addition, there must be a “reduction formula” to address cases where there are liability problems, policy limits, caps on damages and other reasons why the recovery is limited. Medicare should only be able to have an injury victim set aside a proportionate share of future medical since other damages are part of an unallocated settlement. Insistence upon a trial on the merits to allocate damages would completely frustrate the system and discourage settlement. CMS’s current position of requiring this must be abandoned as part of any workable solution for Medicare futures. At least one federal court agrees with this (see 11th Circuit opinion in Bradley).

Option 5: The Medicare beneficiary participates in one of the new conditional payment resolution processes:

  1. $300 threshold (see blog post at http://www.specialneedsfirm.com/post-detail.php?id=195 );
  2. Fixed payment option (see blog post at http://www.specialneedsfirm.com/post-detail.php?id=204 )or
  3. Self-calculated conditional payment option (See blog post at http://www.specialneedsfirm.com/post-detail.php?id=211 )

Participating in one of the foregoing methods of conditional payment resolution would at the same time also satisfy any obligations with respect to future medicals.

Comment: This in effect would create a low dollar safe harbor below which nothing needs to be done. Since the thresholds are very low when using these options and the self calculated option requires a physician attestation that there will be no future medical care, this probably would be virtually inapplicable most of the time. The fixed payment option requires one quarter of the settlement to be automatically paid to Medicare for past medical. It is probably exceedingly rare for a claim settled for $5,000 or less to have one quarter of the monies attributable to Medicare past payments. It isn’t realistic that this option would be used frequently obviating the need to address future medicals. While the self calculation method is a very welcome option, it is not applicable to many cases given the $25,000 threshold. With the addition of the physician attestation that there will be no future medical treatment related to the injury the option has very, very limited applicability or usefulness.

Option 6: The Medicare beneficiary makes an upfront payment to Medicare for future medicals. If there is ongoing responsibility for future medicals (ORM), CMS would review and approve a proposed amount to be paid as an upfront lump sum payment for the full amount of the future injury related medical care. This option would generally apply in workers’ compensation, no-fault insurance situations or when life time medicals are imposed by law. This would take the place of setting aside monies and administering an MSA.

If ongoing responsibility for medicals was not imposed, demonstrated or accepted, the Medicare beneficiary may elect to make an upfront payment to Medicare based upon a specified percentage of the net proceeds.

According to the notice:

“This option would most often apply in liability insurance (including self-insurance situations, primarily due to policy caps. For the purposes of this option, the term "beneficiary proceeds" would be calculated by subtracting from the total "settlement" amount attorney fees and procurement costs borne by the beneficiary, Medicare's demand amount (for conditional payments made by Medicare), and certain additional medical expenses the beneficiary paid out of pocket.”

Comment: This is an interesting option. The primary reason I don’t care for either of these options is that it takes control out of the hand of the injury victim since the payment is made upfront to Medicare without the ability to get it back in the event there is no future Medicare covered services. If care is never received, then Medicare is unjustly enriched with funds that should be property of the beneficiary or estate. If there was a framework indexed by the amount of recovery with a corresponding automatic percentage to be set aside, it could be viable. The problem here is what should the percentage be? If it is set too high by CMS then it will be of little usefulness similar to the conditional payment resolution thresholds which are set far too low. The definition of “beneficiary proceeds” as used in this option is workable as it deducts out procurement costs, conditional payment amounts and certain other medical expenses. The first option where there is a determination of ORM, requires CMS review which as discussed above isn’t realistic without drastic changes in the current review process. Having the parties use 3rd parties to make a determination of what is an accurate figure for future medicals is a reasonable, rational system that works.

Option 7: The Medicare beneficiary can seek a compromise or waiver of recovery as it relates to future medicals. This would be similar to the process currently in place in the conditional payment resolution system. It would allow a Medicare beneficiary to attempt a waiver/compromise for both conditional payments and future medicals.

Comment: This would be a very welcome mechanism given the fact that there are certain cases where a set aside simply isn’t practicable. However, CMS does retain discretion to grant a compromise or waiver. That allows Medicare to grant a waiver for conditional payments but not futures. This provides no certainty or finality rendering this option useless. Additionally, compromises and waivers are infrequently granted in the conditional payment context so it may be a completely moot option.

Definitions: The proposal contains several definitions. It defines “chronic illness/condition”; “date of care completion”; “future medical care”; “physical trauma” and “major trauma”.

Comment: The primary problem I have is with the definition of “major trauma” which introduces a new concept called the “Injury Severity Score (ISS)”. If the “ISS” is greater than 15 or serious injury to two or more ISS body regions, an injury victim has suffered “major trauma”. This adds an extra layer of complexity that isn’t warranted nor desired. A secondary problem is the definition used for “Date of Care Completion”. Having a physician attestation, as discussed above, that is absolute and requires the treater to say there will be no future medical care related to the settlement does not work Doctors frequently don’t deal in absolutes when it comes to future medical care. Instead, a reasonable degree of medical probability should be the standard and that should be something that can appear in a medical record instead of a formal letter being required.

Summary:

In my mind, there are some critical things that have to be addressed if there are going to be regulations for liability Medicare set asides. My suggestions for what has to be in any rules if CMS wishes to regulate liability settlements related to future medicals are as follows:

  1. Low dollar threshold below which no MSA is needed. I think 500k or below would be a reasonable figure. Most settlements in that range can’t adequately protect Medicare’s “future interests” anyway after deducting procurement costs and satisfying liens/conditional payments. The low dollar threshold should be annually indexed for inflation so that it properly adjusts upward every year to account for inflation.
  2. Timeline for submissions/review – automatic acceptance of a submitted MSA if no response within certain time frame (60 days?) Need a reasonable review threshold and if injury victim does not meet the review threshold, they are automatically protected (default approval of LMSA). In the alternative, the parties should be able to rely upon 3rd party experts to determine the appropriate amount of future medicals without needing CMS review/approval of the proposed amount.
  3. Need an appeal process directly to Federal district court when CMS makes an adverse decision particularly if Medicare covered services are denied improperly.
  4. Reduction formula for liability issues (see above) for cases where there are liability issues, caps on damages, policy limits, sovereign immunity and other factors that cause a recovery to be limited. Potentially allow parties to allocate damages in a settlement agreement amongst the various categories of damages to limit amount to be set aside.
  5. Reduction of MSA for procurement costs
  6. MSA only applies to current Medicare beneficiaries in liability settlements (get rid of reasonable expectation category)
  7. Recovery mechanism for any upfront payment option if there are no Medicare covered expenses and a process to undue a set aside if there aren’t any future Medicare covered services
  8. Every option provides the finality and certainty of a CMS approved set aside without the delays associated with CMS submission

The commentary period ends tomorrow (8/14). If you would like to comment, you must refer to file code “CMS-6047-ANPRM”. There are various ways to comment, but the easiest way would be by going to http://www.regulations.gov and follow the instructions under the “More Search Options” tab. The AAJ along with many state trial lawyer associations will be filing commentary. Many MSP industry members/groups will also be filing commentary. Of course the defense bar and insurers are also commenting.

Please bear in mind that this is just a proposal to make proposed rules. My understanding is that this process may result in no rules at all. However, what is clear is that CMS is intent on trying to address the problems that have been created by mandatory insurer reporting leading to denial of future care and the proliferation of the insistence by defendants of a set aside when settling cases with Medicare beneficiaries. Given the limited guidance that has been issued by CMS regarding liability settlements and addressing “futures”, a little public commentary may result in a workable framework.

Click HERE to read the proposal