Medicare Set-Asides in Liability Claims: Coming to a Settlement Near You

By: Marinda Griese, PI, ARM-P, Claims Administrator, California Joint Powers Risk Management Authority & Heather Sanderson, Esq., President, Sanderson Firm PLLC

Published in the July 2022 Edition of CLM Magazine 

Liability Medicare Set-Asides (LMSAs) are back as a topic of discussion as the Centers for Medicare & Medicaid Services (CMS) is taking noticeable action in pushing forward with formal legislative guidance on the utilization/incorporation of LMSAs in settlements with Medicare beneficiaries. In February of this year, CMS sent a Proposed Rule to the White House Office of Information and Regulatory Affairs on “MSP and Future Medicals” which is understood to be the first formal policy around LMSAs. At the time of the publishing of this article, the text of the Proposed Rule has not been released publicly. Thus, a legislative policy around LMSAs is imminent.

MSAs, whether utilized in workers’ compensation or liability settlements, allocate a portion of a settlement for an individual’s claim-related, Medicare-covered medical expenses. The goal of an MSA is to estimate, as accurately as possible, the cost that will be incurred for all medical expenses otherwise reimbursable by Medicare for claim-related medical conditions, and to set aside sufficient funds from the individual’s settlement to cover those costs. Establishing an MSA account protects Medicare’s interests and allows Medicare to pay secondary for future Medicare-covered expenses until the MSA account is exhausted.

While detailed policy guidance exists for workers’ compensation MSAs, no such formal guidance exists for bodily injury claims such as medical malpractice or non-industrial slip and falls. As of today, the only official policy guidance regarding the appropriateness of an MSA for liability claims stems from a September 30, 2011, CMS Memorandum which provides the following language:

Where the beneficiary’s treating physician certifies in writing that treatment for the alleged injury related to the liability insurance (including self-insurance) “settlement” has been completed as of the date of the “settlement”, and that future medical items and/or services for that injury will not be required, Medicare considers its interest, with respect to future medicals for that particular “settlement”, satisfied. If the beneficiary receives additional “settlements” related to the underlying injury or illness, he/she must obtain a separate physician certification for those additional “settlements.”

When the treating physician makes such a certification, there is no need for the beneficiary to submit the certification or a proposed LMSA amount for review. CMS will not provide the settling parties with confirmation that Medicare’s interest with respect to future medicals for that “settlement” has been satisfied. Instead, the beneficiary and/or their representative are encouraged to maintain the physician’s certification.

CMS recognizes that settling parties may not always be able to obtain the treating physician certification described above. Additionally, since the Proposed Rule has not yet been finalized, there is no clear policy guidance for protecting Medicare’s interests in liability settlements where a treating physician has not issued a treatment completed certification. However, the absence of formal, detailed LMSA regulations or policy guidance does not mean that Medicare’s interests must not be considered. The MSP Act still clearly prohibits Medicare from making payment when “payment has been made or can reasonably be expected to be made under a workmen’s compensation law or plan . . . or under an automobile or liability insurance policy or plan (including a self-insured plan) or under no-fault insurance.”

Until the Proposed Rule is finalized, and clear policies and guidelines are in place on liability case settlements, we look to both existing law, as well as the underlying intent or “spirit of the law,” when recommending best practices. If your organization is issuing a liability settlement check for $750.00 or more to a Medicare beneficiary or a claimant who is reasonably expected to become a beneficiary within 30 months of settlement, then you have a reporting obligation as a Responsible Reporting Entity (RRE), and will want to keep the following best practices and tips in mind:

Identify each claimant’s beneficiary status before entering settlement negotiations. Beneficiaries can include claimants who have not worked for two years, are disabled, and minors whose parents are on Medicare.

Remember to correct all critical errors returned in the CMS query process and document efforts to achieve compliance, such as attempts to obtain social security numbers. Refer to the proposed rule to see specific steps CMS defines as meeting “good faith efforts.”

When resolving conditional payments, avoid inadvertently accepting unrelated or pre-existing injuries by confirming only relevant classification codes (ICD) are listed on the notice. Pay attention to deadlines and dispute inaccurate codes within thirty days. RREs are responsible for inconsistencies, so keep ICD codes updated as the claim evolves. Keep in mind that the BCRC information does not include Medicare Advantage Plan (MAP) payments and each MAP plan can collect separately, so it is wise to pro-actively identify any MAP liens.

To adequately protect Medicare’s interests, one must also evaluate any future covered treatment needed. Familiarize yourself with LMSAs and their options, including medical-based allocations, submit and non-submit set-asides, and various levels of administration. Special needs structures and LMSAs can be set up into annuities to leverage the future value of money. Becoming familiar with your structure broker as well as your Medicare compliance vendor’s products and services can sometimes mean the difference in whether a claim can be resolved. 

Once settlement is reached, customize the release agreement language to be case and fact specific, incorporating any structure or set-aside where appropriate. Avoid generic boilerplate language and avoid language designed to shift the Medicare reimbursement burden to the claimant. If claimants fail in their obligations, it may result in double damages, interest, and Treasury collection actions against the RRE. 

Keep in mind that until a Total Payment Obligation to Claimant (TPOC) date and amount is entered, the settlement has not been reported. TPOC amounts should be the total settlement that claimant is receiving, less attorney fees and lien payments. If your organization is one of several co-defendants, report the global settlement amount and not just your company’s portion. The TPOC date should be the date of the final award, or if none, the date of the signed settlement, or if none, use the date of the check.  Report TPOCs promptly, but no later than one year.

Proactive claim handlers and litigation managers are already aware of the steps involved in taking Medicare’s interests into account when resolving liability claims. However, if you are still getting up to speed, remember there are specialized service providers available to help guide you and your organization in your data cleanup and compliance efforts.

Marinda Griese, PI, ARM-P is the Claims Administrator for California Joint Powers Risk Management Authority and can be reached at marinda@cjprma.org. Heather Sanderson, Esq. is President of Sanderson Firm PLLC and can be reached at heather@sandersoncomp.com.