According to the AARP, there are currently 44 million Medicare beneficiaries, accounting for over 13 percent of the population in the United States. Medicare enrollment is expected to rise to 79 million by 2030.
Given this vast number of Medicare beneficiaries, as well as the increasing number of beneficiaries entering the program, Medicare continues to push enforcement of the Medicare Secondary Payer Act (MSP). The MSP, located at 42 USC §1395y(b)(2), provides that Medicare shall be a secondary payer when a primary payer (a workers compensation, liability, or no-fault carrier/plan) is available and primary to make payment.
Under the MSP, there are three primary obligations for primary payers: Reimburse Medicare for conditional payments; report the claim/settlement as required by the Medicare Medicaid & SCHIP Extension Act; and protect Medicare’s future interest, which may, particularly in workers compensation claims, involve a Medicare Set-Aside (MSA). Achieving these obligations must be an early thought in the settlement process, as compliance with these three requirements cannot be effectuated timely if the injured party’s Medicare status is not determined early in the claim.
Once an injured party is determined to be on Medicare, both sides must determine how any Medicare conditional payments will be reimbursed to the Centers for Medicare & Medicaid Services (CMS), as well as whether the parties will utilize an MSA as part of the settlement in order to fund the injured party’s need for future medical care.
A key sticking point the parties must discuss early is how Medicare will be reimbursed its conditional payments. The Court of Appeal of California discussed this issue in a case where a Medicare beneficiary was injured at a bar. In Karpinski v. Smitty’s Bar Inc., the court affirmed a trial court’s decision to enforce a settlement between the parties despite the defendant’s objections and attempts to delay settlement to ensure reimbursement of liens—particularly Medicare conditional payments—once it was notified post-settlement that Medicare was asserting conditional payments.
In Smitty’s, the settlement agreement provided a general release of all claims against Smitty’s by Karpinski (the plaintiff), and that Karpinski’s counsel would “negotiate, satisfy, and dispose of all liens.” The settlement agreement did not state that Karpinski must do so before receiving payment. The settlement agreement also required Karpinski and his counsel to hold Smitty’s, its attorneys, and the insurance company (Crusader Insurance Company) harmless with respect to any lien claims. The court enforced the settlement, which left Smitty’s feeling exposed because, if Karpinski did not reimburse Medicare, Smitty’s would continue to have exposure under the MSP for those conditional payments.
Talking About MSAs
This case is a perfect reminder that if the defendant wants to control the Medicare conditional payment reimbursement process (which is a wise step for a primary plan as the “deep pocket” that CMS may choose to pursue for repayment), it must make this a key term to discuss during settlement negotiations and a key element outlined in the settlement agreement.
Here, Smitty’s and its insurer had cause for concern: If Karpinski did not reimburse the conditional payments, Medicare could switch the debtor to Smitty’s and/or its insurer pursuant to 42 § CFR 411.24 and require Smitty’s and/or its insurer to reimburse Medicare. Smitty’s would then have to enforce its indemnification agreement to recover, which, depending on the financial viability of Karpinski, may have resulted in an uncollectible judgment. Knowing conditional payment exposures early in the process and ensuring that Medicare is directly reimbursed is a best practice for primary payers to avoid future exposures.
As it relates to Medicare Set-Asides, like conditional payments, the parties must all be on the same page about whether the settlement will include an MSA, and, if so, whether the parties will obtain approval from CMS on the MSA.
For mediation or negotiation to be effective, parties must communicate. That means that, in advance, critical terms are discussed among each party and attorney. Unfortunately, there is a tendency for parties to arrive at negotiation having never considered or discussed their views on whether an MSA is necessary (in some cases the law requires it) or even desirable. Perhaps an insurer is reluctant to obtain an MSA opinion before negotiation: Obtaining one might signal to the claimant that the carrier perceives a value over the $25,000 threshold, while not obtaining one may telegraph sincerity in a belief the case is not worth much to settle.
There is also a lack of consistency in terms of the “company line” on MSA approval. Insurers are familiar with risk and are adept at deciding how much risk to take. Some insurers are insisting on an MSA in all cases, even a seemingly nominal $5,000 settlement. Other insurers are more willing to take a risk and do not insist on an MSA even when the settlement exceeds that $25,000 threshold. Since it is likely that the insurer is the one that will pay for any error or failure regarding obtaining an MSA (being the “deep pocket”), that determination of “how much risk” is essentially its decision. If the parties do not discuss which posture applies in advance of negotiations, the process is lengthened, if not frustrated.
Explain Early, Discuss Clearly
MSAs are complex and confusing. Many lawyers do not understand the thresholds and requirements. Asking an injured worker to understand it, and to understand it quickly (at a mediation), is not realistic. Mediation or negotiation is not the time to begin explaining an MSA to the worker. The worker’s attorney should question the insurer in advance regarding whether an MSA is probable or definite from its perspective. Counsel needs to explain the implications to the worker in advance to allow her to consider the issue and its implications. If nothing else, this allows the worker to avoid surprise and discomfort during negotiations.
The most critical fact regarding an MSA is the parties’ feelings and intentions in the event an MSA will be engaged. If the settlement may be negated in light of some potential MSA outcome, the parties should clearly say so. If the deal is contingent upon the MSA not exceeding a certain dollar figure or upon the worker receiving a particular “net amount” exceeding some dollar figure after the MSA, the parties should say so. Ambiguity is neither wise nor productive, and can be downright expensive.
The fact is that ignoring the MSA issue is a choice. Whether it is a wise choice, a good guess, or a wild guess depends on the case and on the insurer’s risk tolerance. But, it is a choice. In order to make reasoned choices, it is positive for each party to discuss the potential impact of the MSA with counsel in advance. It is important that each party make its positions on the MSA clear and unequivocal from the outset. With such communication, the parties’ chances of reaching an enforceable and appropriate outcome are maximized.
As it relates to Liability Medicare Set-Asides (LMSAs), CMS has not yet formally introduced LMSA guidance nor does CMS currently review LMSAs as it currently does in workers compensation. However, CMS continues to state that it is working on a formal LMSA review process and that parties must take Medicare’s interests into account when settling a liability insurance claim with a Medicare beneficiary. This confusing posturing from CMS on LMSAs has caused problems in settlements where the parties were not on the same page regarding whether an LMSA was a requirement for a compliant settlement.
In Silva v. Burwell, a Medicare beneficiary plaintiff in a medical malpractice action came to terms on settlement with defendant medical providers. Post settlement, the defendants became concerned that they had not required an LMSA and were afraid that CMS would come back to them for future care post settlement. The plaintiff felt that an LMSA was not legally required and filed a motion to have the settlement move forward. However, due to the defendant’s request for a declaratory judgment, the settlement was held up an additional two years over the LMSA confusion. Again, the key takeaway here is that the additional two years of litigation could have been avoided if the parties took on the LMSA issue upfront.
The ultimate takeaway is that parties settling claims with Medicare beneficiaries would be wise to determine Medicare status, and determine how the parties intend to comply with the MSP early in the claim to avoid settlement delays.