For many years, Liability Medicare Set-Asides (LMSAs) have been a hot topic for discussion due to the potential challenges that a Centers for Medicare & Medicaid Services’ (CMS) LMSA review policy would impose on parties negotiating liability settlements that involve Medicare beneficiaries.
An LMSA is an allocation of funds set aside for Medicare beneficiaries’ future medical expenses in a liability settlement. While CMS has not implemented a formal review process for LMSAs, it continues to hint that a review process is imminent, most likely in 2018. A valid fear among stakeholders has been that CMS would move forward with implementing an LMSA program without input from the industry, and if CMS did not take time to hear the stakeholders’ concerns, then the public policy of promoting settlements would be placed at risk.
Fortunately, CMS recognized the need to reach out to the industry for guidance at the end of 2017. What can we expect in the coming months as CMS continues to indicate that an LMSA review process is forthcoming?
A good starting point is the “Advanced Notice of Proposed Rule Making (ANPRM) on Medicare Secondary Payer and Future Medicals,” issued by CMS on June 14, 2012. The ANPRM was CMS’ attempt to establish a regulation requiring parties to adopt an LMSA if certain exceptions were not met. This was quite a departure from CMS guidance on workers compensation settlements that provided for a voluntary process to protect Medicare’s interests. It demonstrated that CMS was serious about LMSAs, and it sent shockwaves throughout the industry.
CMS further proposed in the ANPRM an option to protect Medicare’s interests by preparation and submission of an LMSA to CMS. The general idea put forth by Medicare was that the entire liability settlement amount represented future medicals and would, therefore, have to be exhausted before Medicare would assume primary responsibility to pay for the beneficiary’s future treatment as it relates to the injury. The industry’s response was a collective gasp. The thought that a government agency could lay claim to the entirety of the settlement proceeds without due process was unimaginable, and the response to defeat this measure was swift.
All other damage elements, such as pain and suffering, lost wages, and loss of earning capacity, would not be considered in a coordination of benefits calculation. From CMS’ perspective, the settlement was for the benefit of Medicare to protect the trust fund. As such, an LMSA would provide relief from such a burdensome rule by providing the Medicare beneficiary peace of mind regarding what portion of the beneficiary’s settlement should be attributed to Medicare-covered future treatment.
CMS ultimately withdrew its ANPRM because of the overwhelming industry response. However, the exceptions and seven options provided in the ANPRM are helpful in providing insight to the voluntary policy CMS has been hinting at throughout 2017.
Cobbling together these exceptions, we can readily put together the framework that CMS may look to use in its future voluntary LMSA approval policy. We can expect that the LMSA review framework is likely to include the following:
1) To avoid preparing an LMSA for CMS claiming any right to the settlement proceeds, the parties will need a letter from the treating physician that states that no related future medical treatment is expected to a reasonable degree of medical certainty.
2) Review thresholds based on settlement amounts to lessen the burden on MSA review contractors.
3) Separate review thresholds for claimants who are Medicare beneficiaries at the time of settlement versus claimants who will become Medicare beneficiaries within 30 months of settlement.
4) A higher settlement number threshold will apply to reasonably expected Medicare beneficiaries compared to Medicare beneficiaries.
5) A formula approach will be included as an alternative to an approved LMSA (i.e., CMS and claimant’s attorney will each take one-third).
6) A hearing on the merits establishing the LMSA amount will also be an acceptable CMS alternative to a LMSA, but expect this to be narrowly defined.
Should this framework be the final basis for CMS’ voluntary LMSA review policy, it will likely delay liability settlements with Medicare beneficiaries. Additional measures must be taken by CMS that support the important public policy of promoting the settlement of liability claims. As such, a voluntary review process that is simply a “cut-and-paste” effort of the current workers compensation MSA review process will not work, as workers compensation and liability claims functionally operate very differently.
CMS enjoys a secondary payer position when a workers compensation case does not settle. That’s because the workers compensation primary plan continues to report to CMS its ongoing responsibility for medicals (ORM). However, during the pendency of a liability claim, the liability insurance does not have to pay for the beneficiary’s ongoing medical treatment.
In the vast majority of all liability claims, the ORM indicator is blank—which equals “no”—when a liability primary plan reports pursuant to Section 111 MMSEA Medicare Reporting. In fact, the liability primary plan does not report the liability claim to Medicare at all until the claim settles and there is a total payment obligation to claimant (TPOC) event. (Essentially, the TPOC amount is the settlement amount.) Consequently, Medicare remains primary for items and services until there is a TPOC event. To secure secondary payer status, Medicare must encourage liability settlements and, therefore, have a more flexible approach than what it presently does for workers compensation proposed settlements.
Medicare’s approach cannot be a general rule that provides the entirety of the Medicare beneficiary’s liability settlement for future medicals without regard to other damage elements present in the case. A Medicare beneficiary would have no incentive whatsoever to pursue a liability claim if the only benefit is to secure Medicare benefits to which he is already entitled. Consequently, CMS must design its policy clearly on what the beneficiary retains from a settlement that is available beyond future medical expenses.
To avoid catastrophic issues that destroy and impede liability settlements, CMS should consider the following.
Expand the definition of acceptable legal documentation that is binding upon CMS. Currently, CMS only accepts court orders issued after a hearing on the merits of the case. Essentially, evidence must be presented in court or CMS does not have to accept the legal documentation. CMS should expand what constitutes “hearings on the merits” to include decisions by court-appointed magistrates, arbitrators, and mediators. Since very few cases go to trial, many of these rulings may occur in the form of post-settlement discussion motions or other similar hearings in which the hearing officer issues a letter opinion. These opinions should assist in determining contributory negligence, comparative fault, and other claims defenses, including issues of medical causation. If such issues are not taken into consideration, then the cost for primary plans/insurance carriers to litigate becomes easier to accept versus settlement.
Provide clear guidance on cases that settle for policy limits. The value of the settlement would typically be less than the full value of the case. However, to protect its insured, the insurance company must pay policy limits when claims circumstances dictate it. As such, an LMSA cannot be approved by a CMS review contractor in a vacuum. A mechanism, such as a formula, should be in place to allow parties to calculate the amount to be paid to Medicare that still incentivizes the beneficiary to accept it.
Clearly state how parties should approach liability settlements that involve multiple parties that can either settle all at once or settle piecemeal. There should only be one LMSA per liability event; not one from each defendant.
Explain what documents are necessary to support the LMSA. Plaintiffs do not typically secure the entire medical record that Medicare review contractors require. Defendants, unlike their employer counterparts in workers compensation claims, do not have access to such records until litigation is filed. Since most cases settle before litigation, there is a cost to secure these medical records. If settlement is a certainty, incurring these costs makes sense, but if the LMSA is as volatile in value as the Workers Compensation Medicare Set-Aside, then plaintiffs will be reluctant to incur such costs. CMS should consider other methods to summarize these records, such as medical reports from plaintiff and defense doctors.
Clear rules on pricing. An LMSA could quickly be overvalued if usual and customary rates for items and services do not resemble the reality of the jurisdiction. This would apply equally for prescriptions where the applicability of average wholesale pricing may negate any settlement opportunity. Pricing must be reasonably based because primary plans will not pay more than what the value of the case would be if it goes to trial.
CMS will move forward in 2018, and the industry must be ready to respond. The Medicare Advocacy Recovery Coalition is moving ahead with stakeholder meetings, and it is important to lend your voices and support to help prepare the best commentary for CMS consideration. Get involved.