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Intro: For workers compensation, the Centers for Medicare & Medicaid Services uses the Medicare set-aside (MSA) to protect Medicare's interests. This method allocates a portion of funds from a settlement or award and sets it aside for future medical costs of an injured worker. Roy Franco, co-chair of the Medicare Advocacy Recovery Coalition, says that the Medicare set-aside is probably a wise choice to protect Medicare in certain situations, so long as it is approved or defensible in some form when placed under scrutiny.
It is no secret the U.S. spending rate is adding trillions to the national debt. Medicare is 23% of the budget with payments projected near $1 trillion for 2012. Clearly, Medicare is at the center of discussions to avert the fiscal cliff. Future Medicare payments must be brought under control, and this can happen in two ways: lowering entitlement benefits or avoiding payment of benefits.
Political winds favor moving along the path of least resistance. Because it is estimated that Medicare overpays $98 billion annually because of fraud, waste and abuse, Congress will pressure the Centers for Medicare & Medicaid Services to eliminate this unnecessary cost, rather than reduce benefits or increase taxes to cover benefits.
A congressional tool available for CMS is the Medicare Secondary Payer Act (MSPA). Law since 1980, it requires CMS to stop benefit payments when another party is legally responsible to pay medical benefits. The law also allows CMS to make payment as an accommodation to the beneficiary, but only on the condition that Medicare is reimbursed. Improved enforcement of this law reduces costs for CMS.
CMS has used the MSPA to create a procedure for collecting future medical payments from workers compensation settlements, as well as improving reimbursement methods for Medicare payments made before a settlement, judgment or award for both workers compensation and liability claims. An area ripe for CMS enforcement is requiring settled liability claims to pay for future medical when it is alleged or claimed. In terms common to CMS, parties must consider, and where appropriate, protect Medicare's interest. For workers compensation, CMS uses the Medicare set-aside (MSA) to protect Medicare's interests. This method allocates a portion of funds from a settlement or award and sets it aside for future medical costs. When approved by CMS, the set-aside provides a fund to cover a beneficiary's future medical costs related to his or her work injury and allows parties to settle workers compensation cases with finality.
In June 2012, CMS published Advanced Notice of Proposed Rule Making (ANPRM) for future medical payments involving liability settlements. This announcement and request for industry comment was the first step toward developing a final rule on how to protect Medicare's interests in liability cases. It set forth a general rule that Medicare's interest be protected when a Medicare beneficiary reasonably anticipates receiving Medicare-covered services; and seven options CMS would consider satisfactory to meeting that obligation for all parties concerned.
The first ANPRM option requires the entire proceeds from the settlement of the claim to be used to pay for Medicare-covered items and for no other purpose. Such option is unlikely to be exercised and the industry will be forced into using the remaining options, which covers several limited exceptions to protecting Medicare's interest and an option to use the Liability Medicare Set Aside (LMSA) for most claims.
The ANPRM has caused significant debate within the industry on how to move forward. Some 108 entities — from trade associations to individuals — have filed responses with CMS to possibly temper the final proposed rule, which is expected in 2013. In the interim, the industry cannot sit on its laurels and must protect itself from this obvious exposure through adoption of reasonable methods to protect Medicare's interests.
Medicare regulations state that insurance companies are required to reimburse CMS for a beneficiary's conditional medical payments. Conditional payments are not clearly defined as to time and scope in the MSPA. It would be therefore imprudent to interpret conditional payments to mean only those CMS paid expenses that occur before a settlement, judgment or award date. When CMS expects payment to be made by an insurance carrier under the MSPA, it has the right to seek reimbursement from the insurance carrier. The MSPA implicates both past and future liability, thus great care should be taken to avoid CMS action for such reimbursement situations.
One idea is use the LMSA, and have it submitted for approval to bar future CMS action. Some CMS regional offices today regularly review Medicare set-asides. If an approval is secured, the parties are protected from CMS. If no CMS office will approve, another option is to obtain court approval of the LMSA, as evidence by the recent onslaught of court cases applying this method. When a court approval is based on the merits, Medicare must respect it, a LMSA by itself is not sufficient to protect parties. Approval during this period while a regulation is being developed helps establish the reasonable nature of the allocation that can stand up to CMS scrutiny.
A substitute for a court hearing is arbitration hearings that can be converted into a judgment under state rules. If the hearing official prepares a written award specifying past and future medical care has been paid, then Medicare must also respect the converted judgment.
As a last resort, payers can set up an estoppel defense. This requires submitting the Medicare set-aside to a CMS regional office for review, then following up until a response is received. Often, the CMS regional office will send a letter stating that it has insufficient resources for a review. Such a letter could prove helpful if CMS takes any adverse action later, but it is not iron clad.
Who is responsible for the LMSA is a hotly contested question. The MSPA equally applies to the insurance carrier, Medicare beneficiary and the plaintiff attorney. While the insurance carrier is the ultimate “deep pocket,” the plaintiff's attorney is probably the best choice to manage this issue as holder of the special relationship with their client. Notwithstanding, the insurance carrier must be involved in how the LMSA is established, since it is potentially exposed. The terms of the Medicare release or post hearing motion should cover the LMSA terms, including how it is to be managed. This protects all parties involved. Annuities should be used, wherever possible, to fund the LMSA. Should CMS make a claim, the the annuity is available as a funding source for the CMS dispute. If a claimant does not have legal representation, it is probably best for the insurance carrier to take control, develop the LMSA and have it approved.
It is the insurance carrier that will not fair well in a head-to-head battle with the unrepresented claimant in a subsequent action. Such claimants will engender sympathy due to interruption of their Medicare benefits and in the end cost the insurance carrier more than if it had managed the issue the first time around. This author's conclusion is that the Medicare set-aside is probably a wise choice to protect Medicare in certain situations, so long as it is approved or defensible in some form when placed under scrutiny. As the inspector general's office plans to step up MSPA enforcement, it is best to be as prepared as possible.
Pressure on CMS to reduce its costs has led it to develop final rules designed to protect its interest. The MSPA already provides the legal framework to support CMS claims. While rules are not yet defined, the law must be complied with, and can be done so by taking reasonable steps. Not considering Medicare's interest will lead CMS to stop future benefits or otherwise reduce benefits under the law. CMS will know of a settlement, judgment or award, as the new reporting law requires insurance carriers to share this information. CMS will take action to stop or reduce benefits and such disruption to a claimant's benefits will likely result in additional litigation. All parties working cooperatively and reasonably can avoid this result.
Roy Franco is co-chair of the Medicare Advocacy Recovery Coalition, a Washington based industry group that looks to bring about reasonable reforms to the Medicare Secondary Payer Act. He also is general counsel for his Medicare Secondary Payer compliance firm based in Bradenton, Fla. He can be reached at email@example.com or 888-959-0692.