The Ambiguity Around Liability MSAs Continues; CMS to allow Section 111 Records to Accept Medicare Eligibility Effective Dates 3 Months in Advance

Two (2) interesting updates involving Medicare Secondary Payer (MSP) obligations were released yesterday: 1) An update from CMS allowing RREs to report/query Section 111 Reporting records which will provide Medicare eligibility effective dates 3 months in advance to the RRE, and 2) A decision out of a District Court in Florida shined some light on the current conundrum as to whether Liability Medicare Set-Asides (LMSAs) are required in settlements with Medicare beneficiaries. Let’s look at and analyze both.

CMS’ Update on S111 Eligibility Effective Dates states the following:

Effective October 4, 2021, Section 111 MSP record submissions will accept effective dates up to three months in the future for certain Non-Group Health Plan (NGHP) claims. Because Medicare entitlement records may have effective dates up to three months in the future, CMS is updating the COB&R systems to accept these future MSP effective dates.

When a S111 Ongoing Responsibility for Medical (ORM) NGHP record is submitted, and the Medicare Beneficiary’s entitlement is in the future (up to 3 months), the system will now create an MSP record with a future MSP Effective Date.

For example, if a Responsible Reporting Entity submits a claim that it has an ORM for on 10/05/2021 and the beneficiary’s Medicare entitlement date is 01/01/2022, the Benefits Coordination and Recovery Center (BCRC) will now accept the Medicare entitlement date of 01/01/2022 as the MSP effective date.

Sanderson Firm Commentary: Responsible Reporting Entities (RREs) will now be able to report S111 data for an individual if that individual’s query response file reflects that the person will become a Medicare beneficiary within 3 months. Previously, S111 records could not be submitted for non-Medicare beneficiaries. Thus, with this new option, RREs can more proactively report if they receive a positive eligibility response when the query is conducted that may reflect eligibility up to 3 months in advance.

ORM and TPOCs on behalf of these future Medicare beneficiaries would now be reported. Of course, conditional payments will not accrue until the individual becomes Medicare eligible, but this change could have further implications to allow Medicare visibility into a greater number of settlements, allowing CMS to recover conditional payments in situations where the individual might not have become Medicare eligible pre-settlement.

The Ambiguity Around Liability MSAs Continues

A decision published out of the District Court for the Middle District of Florida, Stillwell v. State Farm Fire & Cas. Co., 2021 U.S. Dist. LEXIS 184114 (September 27, 2021), highlights the perplexing ambiguity surrounding the need for a future medical allocation or LMSA in liability settlements. As many are aware, CMS has yet to establish a policy for LMSAs, but a Notice of Proposed Rulemaking (NPRM) on “MSP and Future Medicals” would seemingly govern and provide guidance on the need for LMSAs soon, with an expected release date just next month, in October of 2021.

For more on the current state of the NPRM and LMSAs, please see our prior blog. Also, be sure to sign up for our upcoming webinar on MSP and Liability Claims taking place on October 13, 2021 at 1:30 PM EST. Registration is free, but no CEUs/CLEs will be offered.

Back to the Stillwell case, a Medicare beneficiary (William Stillwell) suffered a fall on his property and pursued a negligence liability claim against the homeowners’ association, property management company, and a landscaping company (Defendants). The Medicare beneficiary and his wife (the Stillwells) came to an agreement with the Defendants to settle his claim for $200,000. However, the Stillwells refused to execute a release agreement which provided that no set aside would be included to cover future medical expenses, which were expected to exceed $700,000. The Stillwells claimed that the $200,000 settlement (which was insufficient to cover William’s future medical expenses) improperly shifted the burden of future care from the insurers to Medicare.

Thus, the Stillwells filed this action alleging violation of the False Claims Act (FCA) and the Medicare Secondary Payer Act (MSP) against the Defendants with the alleged basis that the Defendants 1) shifted the burden of primary payment onto Medicare and in the future, and 2) failed to report the settlement to the Centers for Medicare & Medicaid Services (CMS) which would cause William’s doctors to falsely bill Medicare, instead of the Defendants for William’s post settlement future medical needs.

The District Court ultimately dismissed the Plaintiffs’ matter with prejudice, but before doing so, went into a deep analysis to determine that unlike in workers’ compensation, CMS has not issued any regulation or requirement for a LMSA. Further, to agree with the Stillwells would go against judicial policy unless a law required some restriction. The Stillwells additionally accepted the terms of the settlement, thus releasing the Defendants from future liability.

Lastly, there was no evidence to prove that the Defendants did not notify CMS of the settlement. In fact, all parties acknowledged that CMS became aware of the settlement in 2016 and the parties had resolved any pre-settlement Medicare conditional payment obligations. There was further no Ongoing Responsibility for Medical (ORM) reporting obligation as the Defendants did not have an obligation to directly pay for William’s medical expenses during the pendency of his claim pre-settlement.

Sanderson Firm Commentary: Until CMS moves its NPRM on MSP and Future Medicals forward, we will continue to see unfortunate cases like these cropping up. While the liability industry has enjoyed never having a requirement for LMSAs unlike that in workers’ compensation, there are repercussions to having no guidance from CMS. Here, in this case, Stillwell, the parties had finalized settlement terms in 2016. Here we are at the end of 2021, over 5 years later, still working through whether the parties should have had a LMSA or not. The ambiguity caused the delay of what should have been a finalized settlement over 5 years. It is a waste of not only liability payers’ time and money, but also the Medicare beneficiaries and our judicial systems. It should be noted that CMS was invited to participate in the litigation but declined.

Key Take-Aways for Liability Payers:

1. In Stillwell, the District Court noted that while an LMSA may not have been required, that the beneficiary’s entire settlement amount would otherwise be subject to coordination of benefits/recovery up to the entire settlement amount ($200,000). It is this author’s opinion that it may have been preferable for the parties to carve out some reasonable portion of the settlement (future medical allocation or LMSA) for William’s future medical expenses that would otherwise be covered by Medicare, thereby protecting the rest of the settlement from Medicare’s recovery, and protecting the primary liability payer. Talk to an MSP legal expert at Sanderson Firm for appropriate legal strategy when settling liability claims with Medicare beneficiaries.

2. Keep an eye on the upcoming NPRM on MSP and Future Medicals. Once released, we will have clear guidance on when LMSAs may be appropriate.

3. Register for our upcoming webinar on October 13th to learn more about Liability Claims and MSP Best Practices for 2021 and Beyond.