Liability Medicare Set-Asides Are Coming Soon to the Medicare Agenda

The Centers for Medicare and Medicaid Services (CMS) is again considering the review of Liability Medicare Set-Asides (LMSA). CMS issued an alert on June 9, 2016, stating that it was considering an expansion of its existing voluntary Medicare Set-Aside (MSA) review process to include the review of liability insurance (including self-insurance) and no-fault insurance MSAs. CMS further stated within the alert that it planned to work with the stakeholder community to identify how best to implement the expansion. Lastly, the alert stated that CMS would provide future announcements of the proposal and expects to schedule town hall meetings later this year to discuss the LMSA process.

The alert was foreshadowed by a series of prior events. On Feb. 22, 2016, CMS issued a revised statement of work within its request for proposal (RFP) for the workers’ compensation review contractor (WCRC) to include the review of “other” non-group health plan set-aside arrangements. Logically, the only other type of non-group health plan set-asides would be liability and no-fault, since CMS already reviews workers’ compensation Medicare Set-Asides (WCMSAs). Therefore, the indication was clear from CMS’ most recent WCRC RFP that CMS desired to begin reviewing LMSAs with its new contractor.

Up until now, CMS had not provided any finalized or formal process surrounding LMSAs. On the flip side with workers’ compensation, CMS has communicated its recommended WCMSA process via various memoranda and a WCMSA Reference Guide since 2001. The workers’ compensation process essentially involves the submission of a WCMSA to the WCRC for appropriate value and then approval from the applicable CMS regional office.

Because Medicare has not provided clear guidance on how to achieve the protection of Medicare’s future interests in liability claims but has remained firm in its position that Medicare secondary payer (MSP) obligations are the same in liability as they are in workers’ compensation claims, there has been confusion and uncertainty upon settlement in the liability industry regarding this issue.

A common point of confusion is whether CMS will provide an opinion or a release regarding whether an LMSA is needed or required in a particular liability settlement. CMS will not respond to this type of request or issue such an opinion or release. In fact, CMS generally has declined to opine on whether an LMSA is required in a settlement in all fashions. A great deal of case law exists wherein parties have sought to have CMS intervene in litigation and opine on the need for an LMSA. CMS has declined to participate in the proceedings—e.g., Bertrand v. Talen’s Marine & Fuel LLC and Frank v. Gateway Insurance Company.

CMS historically has made other attempts to clarify the LMSA issue. On Sept. 29, 2011, CMS issued a memorandum stating that, if the parties are able to obtain the plaintiff’s treating physician’s attestation that no future care is needed as it relates to the injury, then no LMSA is needed. However, within that alert, CMS declined to clarify when an LMSA would be needed if such a statement from a treating physician could not be obtained. In effect, the memo left more questions unanswered.

In an attempt to clarify further, CMS issued an advance notice of proposed rulemaking (ANPRM) in 2012, which sought to provide parties with several options that could satisfy Medicare’s future interest in liability claims. The ANPRM provided seven different options by which parties could protect Medicare’s future interests in a liability settlement with a Medicare beneficiary. However, the ANPRM was withdrawn in 2014 for unknown reasons.

There has been a great deal of speculation as to the reasoning behind the withdrawal of the ANPRM. Some of the speculation was that the comments that vehemently opposed the notion of LMSAs, which were submitted in response to the ANPRM, induced CMS to withdraw the proposed rulemaking. The industry generally responded to CMS via its commentary to the ANPRM that (1) CMS does not have a clear right under the MSP to require its interests to be protected in liability/no-fault claims, and (2) assuming for argument’s sake that CMS does have the right to require its interests to be protected in such claims, creating an LMSA process that mimicked the existing WCMSA process would not be logical due to the fact that liability claims are vastly different from workers’ compensation claims.

Unlike workers’ compensation, oftentimes liability claims do not have a distinct “carve out” for the future medical element of a claim. Additionally, comparative fault/negligence issues, denial of liability, and claims settling for a fraction of what the full value would be had the claim gone to trial would need to be considered when determining an LMSA. Another item that was unclear to the industry was whether it would be the plaintiff or insurer’s responsibility to establish an LMSA.

Since CMS withdrew the ANPRM and now appears to be pursuing establishing an LMSA process via administrative alerts/memoranda as it did with the WCMSA process, the industry is hopeful that CMS will create a process for LMSAs that will work well within the context of liability claims.

Because the RFP process for the new WCRC has been not been released and is delayed by several months, it is expected that any LMSA process likely will not be put into place until 2017. In the meantime, best practices for liability claims with Medicare beneficiaries should focus on precise reporting with accurate ICD-9/ICD-10 coding, prompt reimbursement of conditional payments (whether traditional or Medicare Advantage), and clear settlement language that identifies the responsibilities of the parties should Medicare present a future claim for reimbursement.