Liability Medicare Set-Asides: Are they a Mythical Unicorn or A Realistic Obligation under the MSP?

Liability Medicare Set-Asides (aka LMSAs): Are they grounded in the Medicare Secondary Payer Act (MSP) as a legal requirement? The P&C industry has heard chatter of the concept of LMSAs since the inception of the Workers’ Compensation Medicare Set-Aside (WCMSA) review process established at the Centers for Medicare & Medicaid Services (CMS) in 2001. However, twenty (20) years later, the current guidance on LMSA requirements is nebulous, to say the least.

CMS provides the following examples as to what would be considered “general liability” claims subject to such MSP requirements: 1) Medicare beneficiary injured in an auto accident; 2) Beneficiary files a claim against the alleged responsible party and receives payment; 3) or Medicare is secondary to the liability insurance payment.[1] As demonstrated by the examples, “general liability claims” by CMS’s definition can be quite broad in its applicability. In basic concept, an LMSA is a set-aside/allocation of future medical care as it relates to the underlying injury for general liability settlements with Medicare beneficiaries.

The lack of clarity around LMSAs could be about to change as potentially as early as two (2) months from now in March. As mentioned in our prior blog, last year, CMS posted on the OIRA website its intent to issue a Notice of Proposed Rulemaking (NPRM) on “Medicare Secondary Payer Clarifications and Updates.” According to the description of the latest NPRM, the Proposed Rule will provide clarity/guidance around future medical obligations with respect to general liability claims, settlements, judgments/awards, and in workers’ compensation and no-fault scenarios. The notice on the OIRA site can be found here.

Back ten (10) years ago, in 2011, the industry did receive limited guidance from CMS via two different written mediums regarding LMSA requirements. On May 25, 2011, Ms. Sally Stalcup, a then Regional Administrator of CMS Region VI, issued an informal “handout” which provided insight into CMS’ viewpoint of LMSAs under the MSP. While the handout was not considered formal guidance, it provided the viewpoint from an employee of CMS’ MSP program which was the following: While no formal review process exists for review of a proposed LMSA at CMS (some Regional Offices has historically reviewed a proposed LMSA), the obligation to protect Medicare’s future interests under the MSP is the same as in workers’ compensation.

Further, Ms. Stalcup specifically noted in her memo, “[e]ach attorney is going to have to decide, based on the specific facts of each of their cases, whether or not there is funding for future medicals, and if so, a need to protect the Trust Funds.” In other words, Ms. Stalcup provided that a distinguishing factor in whether an LMSA is required hinges on whether the settlement releases future medical obligations. In other words, if the settlement effectively releases the primary plan’s obligation to pay for any future medical treatment as it relates to the underlying injury, the parties must protect Medicare’s interest. Further, although CMS does not mandate a specific mechanism in which to protect its interests, LMSAs are CMS’ method of choice and what “. . .the agency feels provides the best protection for the program and the Medicare beneficiary,” according to Ms. Stalcup.  

Next, on September 29, 2011, CMS issued a memorandum providing a key scenario where an LMSA would not be required. The memo provided that in the liability context, submission of an LMSA to CMS was not necessary if a treating physician provided a written certification confirming that no further medical treatment or services would be required because of the claimed injury. 

Further, the memo indicated, that the treating physician must make this certification “as of the date of settlement.”  CMS provided a broad definition of settlement, including settlement, judgment, award, or other payment. It is noteworthy to point out that this September 29, 2011 memorandum no longer currently lives on the www.cms.gov website (and likely was withdrawn by CMS), yet it is not uncommon for settling parties to treat this memorandum as currently in effect. For a copy of either of the two aforementioned memoranda, please e-mail me at heather@sandersoncomp.com.

Despite this guidance issued in 2011, the lack of clarity around LMSAs has increasingly become an issue amongst settling parties with Medicare beneficiaries. In recent popular decisions such as Abate v. Wal-Mart Stores East, L.P.[2], and Silva v. Burwell[3], what would otherwise have been settled and closed liability claims were held up in Court for years due to the lack of understanding/agreement on LMSA requirements. Settling parties are naturally concerned that if no LMSA is established, that Medicare could coordinate benefits and/or seek conditional payment recovery for post-settlement medical treatment paid for by the Medicare program that was the responsibility of the primary payer.

Courts across the country have had to grapple with questions in proposed liability settlements with Medicare beneficiaries such as: 1) Is an LMSA required? 2) Do the parties need a treating physician statement to avert an LMSA? 3) If Medicare’s interests need to be protected, who’s obligation is it to establish an LMSA, the plaintiff/Medicare beneficiary or primary payer? While courts have been helpful in guiding parties on LMSAs, the obligations that may be present under the MSP must come from the administrative agency (CMS) as closest to and having jurisdiction over the MSP program.

What statutory obligations the upcoming NPRM will contain for parties settling general liability claims with Medicare beneficiaries is the million-dollar question. Further, in the interim, what parties need to do now in settlements of general liability claims with Medicare beneficiaries prior to the NPRM’s issuance is perhaps the more pressing question.

Working with an MSP expert that can look at the specific facts of the settlement, the settlement language, and the overall MSP compliance strategy is highly recommended in this nebulous time.

[1] See Slide 10. https://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/Coordination-of-Benefits-and-Recovery-Overview/Medicare-Secondary-Payer/Downloads/MSP-Overview.pdf

[2] 2020 U.S. Dist. LEXIS 222363 (November 30, 2020).

[3] 2017 U.S. Dist. LEXIS 195032 (November 28, 2017).