MEDICARE SECONDARY PAYER ACT AND MEDICARE SET ASIDES: AN UPDATE

Transcription

1 MEDICARE SECONDARY PAYER ACT AND MEDICARE SET ASIDES: AN UPDATE By Susan K. Tomita, Esq Montgomery Blvd., NE, Ste. 210 Albuquerque, NM Ph: (505)

2 I. Definition of Issue Effective December 5, 1980, the Medicare Secondary Payer Statute made Medicare a secondary payer to insurance plans and programs for beneficiaries covered through (1) a group health plan based on either their own or a spouse s current employment; (2) auto and other liability insurance; (3) no-fault liability insurance; and (4) workers compensation situations, including the Black Lung program. Since the early 1980 s it is been clear that in Worker s Compensation settlements in which recovery is received for future medicals, Medicare s interests as a secondary payer must be addressed by setting aside the sums received for such future medicals that would have otherwise been paid by Medicare and that these set aside sums must be used to pay for such future medicals in lieu of submitting such claims to Medicare. In December 2007, the Medicare, Medicaid and SCHIPP Extension Act of 2007 (MMSEA) was signed into law. This legislation imposed reporting requirements on insurance companies and other payers to provide information to the Center for Medicare and Medicaid Services (CMS), the federal agency that administers the Medicare program, so that it can identify any situation in which Medicare is or will become the secondary payer. Since that time, it has become increasingly clear that Medicare expects that its interests will also be reasonably taken into consideration in the settlement of third party liability claims whether through the use of set asides or other comparable means. On February 3, 2017, CMS issued a Change Request (CR) to its Medicare Administrative Contractors requiring changes to be implemented by October 1, 2017 to the common working file in anticipation that the Centers for Medicare & Medicaid Services (CMS) will establish two new set-aside processes: Liability Medicare Set-Aside Arrangement (LMSA) and a No-Fault Medicare Set-Aside Arrangement (NFMSA). The CR request explained that An LMSA or NFMSA is an allocation of funds from a liability or an auto/no-fault related settlement, judgement or award, or other payment that is used to pay for an individual s future medical care and/or future prescription drug treatment expenses that would otherwise be reimbursable by Medicare. The changes ordered to be made will put into place the system updates necessary to create and utilize an LMSA and MFMSA MSP record, similar to a Workers Compensation Medicare Set-Aside Arrangement 2

3 (WCMSA) MSP record and to instruct when to deny payment for items or services that should be paid from an LMSA or NFMSA fund. This presentation will address our role as special needs planners in assisting in the settlement of third party liability cases in which our client is both receiving needs based benefits such as Supplemental Security Income and Medicaid that he or she seeks to retain by using a first party special needs trust; also receives Medicare, usually because he or she receives Social Security Disability Income or suffers from end stage renal disease or ALS/Lou Gerhig s disease; and will have future medical expenses related to the injury that was the subject of his or her claim. II. History of Medicare Secondary Payor Requirements A. Establishment of Medicare In 1965, Congress created the Medicare program which provides health insurance for individuals (and certain of their dependents) who worked and contributed into the Medicare system for required periods of time and who (1) are over the age of 65, (2) are on Social Security Disability Income (SSDI) or Disabled Adult Child (DAC) benefits, (3) have End Stage Renal Failure (ESRF) or (4) have Amyotrophic Lateral Sclerosis (ALS/Lou Gerhig s Disease). B. Medicare Secondary Payer Act (MSPA) Until 1980, Medicare was the primary payer for all services covered by Medicare except those covered by Worker s Compensation. In 1980, in an effort to shift costs from the Medicare program to private payers, Congress enacted that Medicare Secondary Payer Act (MSPA), 42 U.S.C. 1395y(b). MSPA provided that Medicare is the secondary payer to insurance plans and programs for beneficiaries covered through (1) a group health plan based on either their own or a spouse s current employment; (2) auto and other liability insurance; (3) no-fault liability insurance; and (4) workers compensation situations, including the Black Lung program. Emphasis added. While the MSPA was originally passed in 1980, federal authorities did not begin to enforce the secondary payer provisions of the MSPA until On July 23, 2001, a memorandum (known as the Patel Memorandum named after its author) was circulated by Centers for Medicare and Medicaid Services (CMS) to the insurance industry. It announced that compliance with the MSP statute was required in workers compensation cases whenever the settlements foreclosed future medical expenses. 3

4 C. Medicare, Medicaid and SCHIPP Extension Act of 2007 (MMSEA) and the Strengthening Medicare and Repaying Taxpayers (SMART) Act. In December 2007, the Medicare, Medicaid and SCHIPP Extension Act of 2007 (MMSEA) was signed into law. This legislation imposed reporting requirements on insurance companies and other payers to provide information to CSM so that it can identify any situation in which Medicare is or will become the secondary payer. The MMSEA was passed in order to address problems with inconsistent reporting and in an attempt to slow the depletion of the Medicare Trust Fund. As set forth in the statute, Payment under Medicare may not be made with respect to any item or service to the extent that. 42 U.S.C. 1395y(b)2(A)(ii). (ii) Payment has been made or can reasonably be expected to be made under a workman s compensation law or plan of the United States or a state or under an automobile or liability insurance policy or plan (including a self-insured plan) or under no fault insurance. The reporting requirements of MMSEA were modified by the Strengthening Medicare and Repaying Taxpayers (SMART) Act in order to eliminated reporting requirements for very small settlements for which it was not worth the administrative burden to process. As a result of the MMSEA, as modified by the SMART Act, the following settlements, under a phased in time table, have to be reported to CMS: After January 1, 2012: Settlements over $100, After July 1, 2012: Settlements over $50, After October 1, 2012: Settlements over $25, After January 1, 2013: Settlements over $5, After January 1, 2015: Settlements over $1, The MMSEA gave rise to the concern that CMS intended to enforce its secondary payer status in regard to liability settlements thereby requiring set asides. If CMS knows which Medicare recipients have received settlement monies, it will know whom to pursue. It is important to remember, however, that it is not the MMSEA that imposed such set aside requirements if such exist but rather the 1980 Act. Consequently, to the extent that there is a duty imposed to do a set 4

5 aside or otherwise reasonably consider Medicare s interest as a secondary payer, it has been in effect since the 1980 Act. D. February 2017 Change Request. As noted above, in February 2017, CMS issued a change request to its contractors requiring systems updates that will allow the tracking of liability and no-fault set asides and the denial of medical expense claims that should be paid from set asides. III. Present Status of Medicare Set Asides in Third Party Liability Cases. There has been as yet nothing similar to the Patel Memorandum promulgated for liability cases and there is no statute or regulation that explicitly requires a Medicare Set Aside account or trust. The requirement is that one reasonably consider Medicare s Secondary Payer status. 42 U.S.C. 1395y(b)(2). The February 2017 change request, which must be implemented by CMS contractors by October 1, 2017, has created an anticipation that guidance from CMS on LMSAs will be imminently forthcoming. There is old correspondence from CMS indicating that it was not enforcing its secondary payer status in liability cases as to future medicals except in cases in which the judgment or settlement agreement specifically apportions part of the award to future medicals. June 3, 2002 Bosserman Letter to the Center for Medicare Advocacy. Increasingly, however, CMS representatives have been explicit in expressing the opinion that sets asides are required in liability cases (and have been required since 1980) although conceding that there is at yet little formal guidance for such set asides. During an October 29, 2008, conference call regarding the Mandatory Insurer Reporting requirements, Barbara Wright of CMS stated I don t believe there is a General Counsel Memo that says that there are no liability set asides. We, in brief, we have a very informal, limited process for liability set asides. We don t have the same extensive ones we have for worker s comp. CMS further reiterated its position during a March 24, 2009 conference call regarding the Mandatory Insurer Reporting Requirements. During the March 2009 call, CMS officials restated CMS s position that the same mandatory framework necessitating MSAs in workers compensation settlements also mandate the creation of MSAs in liability situations especially when the liability settlement is intended to compensate the injured party to at least some of their future medical expenses. 5

6 In 2011, CMS issued a handout with internal guidance addressing liability settlements and MSAs. The handout advises that when a plaintiff s attorney determines that a settlement is intended to pay for future medicals, he or she should ensure that such settlement funds are used to pay future medicals related to the claim that would otherwise have been paid by Medicare. In a handout dated May 25, 2011, Sally Stalcup, MSP Regional Coordinator, CMS, Region VI, stated: There is no formal CMS review process in the liability area as there is for Workers Compensation, however Regional Offices do review a number of submitted set-aside proposals. If there was/is funding for otherwise covered and reimbursable future medical services related to what was claimed/released, the Medicare Trust Funds must be protected. If there was/is no such funding, there is no expectation of third party funds with which to protect the Trust Funds. Each attorney is going to have to decide, based on the specific facts of each of their case, whether or not there is funding for future medicals and if so, a need to protect the Trust Funds. They must decide whether or not there is funding for future medicals If the answer for defense counsel or the insurer is yes, they should make sure their records contain documentation of their notification to plaintiff s counsel and the Medicare beneficiary that the settlement does fund future medicals which obligates them to protect that Medicare Trust Funds. It will also be part of their report to Medicare in compliance with Section 111, Mandatory Insurer Reporting requirements. On September 29, 2011, the Acting Director of the Financial Services Group of CMS Office of Financial Management, Charlotte Benson, issued CMS first policy memorandum in regard to compliance with Medicare s requirements in connection with liability settlements. The memo states: The purpose of this memorandum is to provide information regarding proposed Liability Medicare Set-Aside Arrangement (LMSA) amounts related to liability insurance (including selfinsurance) settlements, judgments, awards, or other payments ( settlements ). Where the beneficiary s treating physician certified in writing that treatment for the alleged injury related to the liability insurance settlement has been completed as of the date of the settlement, and that future medical items and/or services for that injury will not be required, Medicare considers its interest, with respect to 6

7 future medicals for that particular settlement, satisfied. If the beneficiary receives additional settlements related to the underlying injury or illness, he/she must obtain a separate physician certification for those additional settlements. When the treating physician makes such a certification, there is no need for the beneficiary to submit the certification or a proposed LMSA amount for review. CMS will not provide the settling parties with confirmation that Medicare s interest with respect to future medicals for that settlement has been satisfied. Instead, the beneficiary and/or their representative are encouraged to maintain the physician s certification. The above referenced guidance and procedure is effective upon publication of this memorandum. In June 2012, CMS published an Advanced Notice of Public Rulemaking (ANPRM) in the Federal Register, seeking public comment on how to implement an MSA process for liability settlements. The notice stated that Medicare was considering seven options for addressing future medicals. Options 1-4 would be available to Medicare beneficiaries and those who are not yet beneficiaries. Options 5-7 would be available to beneficiaries only. 1. The beneficiary pays for future medicals out of the settlement funds, until exhausted, with random CMS audits. 2. Medicare would not pursue future medicals if certain conditions are met relating to the amount of the settlement, the type of injury, the injured persons, Medicare status, etc. 3. The injured person provides an attestation regarding the Date of Care Completion from his/her treating physician. 4. The individual/beneficiary submits a Liability MSA for CMS review and approval. 5. The beneficiary participates in one of the three new Medicare recovery options regarding a $300 threshold, a fixed payment option or $25,000 or less self-payment option. 6. The beneficiary makes an upfront payment to Medicare. 7. The beneficiary obtains a compromise or waiver of recovery and Medicare would have the discretion to not pursue future medicals. Dozens of comments were received including that CMS as a practical necessity allow an equitable reduction of a liability Medicare Set-Aside whenever a liability claim settled for less than full value. Medivest Comments. However, in October 2014, CMS withdrew its proposal because it failed to gain approval from the Office of Management and Budget (OMB). Although the reasons for OMB s disapproval are not known, OMB can reject a proposed rule for a variety 7

8 of reasons, including a cost-benefit analysis, economic impact and conflict with other agencies or rules. CMS said that it would revisit LMSAs at a later time. In late 2014, the United States Department of Health and Human Services (which oversees CMS) issued the following: The Centers for Medicare and Medicaid Services (CMS) has no current plans for a formal process for reviewing and approving Liability Medicare Set-Aside Arrangements. However, even though no formal process exists, there is an obligation to inform CMS when future medicals were a consideration in reaching the Liability Settlement, judgment, or award as well as any instances where a liability judgment or award specifically provides for medicals in general or future medicals. On June 8, 2016, CMS announced that it was again considering expanding its voluntary Medicare Set-Aside review process to include Liability Medicare Set-Asides (LMSAs) and nofault insurance MSAs. The announcement, on CMS s website, stated as follows: June 8, 2016 Consideration for Expansion of Medicare Set- Aside Arrangements (MSA) The Centers for Medicare and Medicaid Services (CMS) is considering expanding its voluntary Medicare Set-Aside Arrangements (MSA) amount review process to include the review of proposed liability insurance (including self-insurance) and nofault insurance MSA amounts. CMS plans to work closely with the stakeholder community to identify how best to implement this potential expansion. CMS will provide future announcements of the proposal and expects to schedule town hall meetings later this year. Please continue to monitor this website for additional updates. Then, in February 2017, CMS issued its change request to its contractors requiring that system updates be put into place by October 1, 2017, that will allow CMS to monitor LMSA and NFMSAs and to deny payment for medical expenses that should be paid from a set aside. In addition to CMS pronouncements, various courts have addressed the question of whether an MSA or similar arrangement is required in liability cases with disparate results. In Aranki v. Burwell, 151 F.Supp.3 rd 1038 (D.Ariz. 2015), the U.S. District Court, in a medical malpractice case, held that the question of whether a Medicare Set Aside is required in a non-workers compensation case was not ripe for review because no federal law mandates CMS to decide whether plaintiff is required to create an MSA. The court reasoned that: 8

9 To comply with the provisions outlined in the MSP statute, in worker s compensation cases CMS (Centers for Medicare and Medicaid Services) mandates the creation of a Medicare Set Aside ( MSA ) account. (42 C.F.R. 411). The purpose of an MSA is to allocate a portion of a workers compensation away to pay potential future medical expenses resulting from the work-related injury so the Medicare does not have to pay. However, no federal law or CMS regulation requires the creation of an MSA in personal injury settlements to cover potential expenses The Court finds that there is no justiciable case or controversy ripe for review. As such, the Court does not have subject matter jurisdiction to hear this case. The case is not ripe for review because no federal law mandates CMS to decide whether Plaintiff is required to create an MSA. That CMS has not responded to Plaintiff s petitions on this issue is not reason enough for this Court to step in and determine the propriety of its actions. There may be a day when CMS requires the creation of MSA s in personal injury cases, but that day has not arrived. Other cases also addressing the issue include: Berry v. Toyota Motor Sales, U.S.A., Inc., 2015 WL , (W.D. Louis. 2015). The court found that no MSA was required in a personal injury case in which it was not reasonably anticipated that the plaintiff would receive any future accident-related medical treatment that Medicare would called upon to pay. Tye v. Upper Valley Medical Ctr., 2014 WL , (Ohio Supreme Court 2014). The court held that a set aside was not required because (1) the plaintiff s injuries were paid by a private insurance carrier, (2) the private health insurance carrier would continue to pay plaintiff s medical expenses in the foreseeable future, and (3) Medicare did not have an established policy or procedure in effect for reviewing or providing an opinion regarding the adequacy of the future medical aspect of a liability settlement. Warren Frank v. Gateway Ins. Co., 2012 WL , (W.D.Louis. 2012) the U.S. District Court for the Western District of Louisiana held Medicare does not currently require or approve MSA s when personal injury lawsuits are settled. Sipler v. Trans Am Trucking, Inc., 881 F. Supp.2d 635 (D.NJ. 2012) The court determined that no federal law requires set-aside arrangements in personal injury settlements for future medical expenses. The court opined that to require personal injury settlements to specifically 9

10 apportion future medical expenses would prove burdensome to the settlement process and, in turn, discourage personal injury settlements. Big R Towing, Inc., v. David Wayne Benoit, et al., 2011 WL (W.D. Louis 2011) The United States District Court for the Western District of Louisiana found that a set-aside for future medical expenses in a liability case was appropriate. Early v. Carnival Corporation, 2013 WL (S.D.Florida Feb. 2013), the United States District Court for the Southern District of Florida found that because there is no legal requirement that the settlement in this personal injury lawsuit include a Medicare set-aside, it would not render an advisory opinion as to whether a set aside is necessary or not. Welch v. American Home Assurance, 2013 WL (S.D. Mass, Feb. 2013). The United States District Court for the Southern District of Mississippi found that there is an actual controversy when the parties seek a declaration of their rights and obligations in order to comply with the MSP and its related regulations involving the settlement of liability claims. Benoit v. Neustrom, 2013 WL (W.D.Louis April 2013). The United States District Court for the Western District of Louisiana not only opined on the necessity for an MSA in a liability case but applied a percentage formula to the net settlement proceeds to determine a specific sum of money to be set aside in trust for future medical expenses. Some of the confusion in the case law may be due to a lack of precision in framing the question placed before the court. An MSA is one way, the preferred way in Worker s Compensation cases, to comply with the requirement that Medicare s secondary payer status be reasonably considered. It is not necessarily the only way however. Consequently, if the question posed is whether an MSA is required in liability cases, the answer should be no because there may be other ways of reasonably taking into consideration Medicare s interests. The question should rather be do Medicare s secondary payer interests need to be reasonably taken into consideration in liability case? The answer to this question in light of the wording of the 1980 Medicare Secondary Payer statute is clearly yes. Those who believe that set asides should be done for liability cases argue that the handwriting is on the wall (1) MMSEA will give CMS the information it needs to pursue Medicare beneficiaries, (2) informal pronouncements are being made by CMS representatives that we should be doing set asides, (3) CMS is permitting its staff to review liability set asides which it wouldn t do if CMS didn t think they are required and is now again in the process of proposing 10

11 guidelines for such review (4) more and more personal injury attorneys are doing set asides in liability cases (often at the insistence of defense counsel) and submitting them to CMS for its review. Those believing MSA should be done argue that, while Medicare when it comes out with formal guidance is not likely to go back to 1980 to dig up old cases, it may well go back two or three years into the present time period to challenge cases in which no set aside was done. They argue that, since the secondary payer requirements are already in effect as the result of the 1980 act, we would not be safe in arguing that we did not know they would apply. According to its 2016 guide on what the Garretson Resolution Group (GRG), a private provider of personal injury settlement services, considers best practices in regard to the reasonable consideration of Medicare s interests concerning to future medicals, a practitioner should (1) determine whether the amount of compensation from the primary plan exists within the settlement award, (2) identify the exact amount of compensation for future medical expenses, and (3) ensure Medicare is not billed until that amount is exhausted. On the other side, the argument is that, unlike in Worker s Compensation cases, there is little formal guidance from CMS on liability set asides and that, when formal guidance is rendered akin to the Patel Memorandum, it is unlikely that Medicare will apply such guidance retroactively. As a result, attorneys of this persuasion argue that, except where there is an explicit allocation to future medicals, set asides are not required until we get formal guidance from CMS. IV. Guidance Concerning MSA s in Worker s Compensation Cases. Since there is little guidance from CMS in regard to MSAs in liability cases, those doing MSAs in liability cases often look for guidance to the guidelines provided by CMS in worker s compensation cases. Following the Patel Memorandum, CMS issued several additional memoranda that provide guidance for Workers Compensation set asides which include the following: 1. An MSA is not necessary where: a. The facts of the case demonstrate that the injured individual is only being compensated for past medical expenses; and b. There is no evidence that the individual is attempting to maximize the other aspects of settlement to Medicare s detriment; and 11

12 c. The individual s treating physicians conclude in writing that, to a reasonable degree of medical certainty, the individual will no longer require any Medicare-covered treatments related to the workers compensation injury. 2. CMS established review thresholds for Medicare Set Asides in Workers Compensation cases. These thresholds presently are: (1) if the claimant is receiving Medicare and the total uncommuted value of the settlement is over $25,000.00, or (2) if the claimant is reasonably expected to become eligible for Medicare within 30 months and the total uncommuted value of the settlement is over $250, CMS has made clear however that the above thresholds are workload thresholds and do not provide a safe harbor for settlements that do not meet the review thresholds. Rather, CMS position is that Medicare s interest must be reasonably considered in every case. 3. Since Workers Compensation cases do not involve issues of liability limits or comparative fault, the total amount of future medical expenses related to the injury that would be paid by Medicare must be used to fund the MSA without reduction. If the MSA is funded with a lump sum, Medicare will not allow a reduction for present value. If a structure is used to fund the MSA, however, a lesser amount can be used to purchase the structure that will fund the set aside amount. Consequently, most MSAs of substantial value should be funded with a structure. If a structure is used to fund the MSA, the MSA must initially be funded with a lump sum equal to the anticipated costs for two years plus the cost of the first major surgery. 4. After an amount is set aside, it must remain set aside for the claimant s lifetime (i.e. Medicare no longer allows the claimant to petition to release the funds for other purposes even if turns out that the funds are not in fact needed for injury related medical expenses that Medicare would have paid). 5. No reduction is allowed for periods of time that the claimant may not be on Medicare or for other sources of payment such as Veterans services or Medicaid. For example, the claimant is not allowed to reduce the MSA amount because he or she is eligible for Veterans services and therefore does not intend to use Medicare. 6. Costs of administration of the MSA cannot be paid from the MSA. Usually a separate structure is used to provide for the payment of the administrator. Even though it is helpful to look to CMS s memoranda concerning Worker s Compensation MSAs, it is important to remember that there are important differences between 12

13 liability settlements and Worker s Compensation settlements such as liability limits and comparative fault issues. Consequently, it is often inappropriate to fully fund an MSA in a liability case in which the plaintiff is only receiving a fraction of his or her actual damages. Also, as noted by the court in Sipler v. Trans Am Trucking, Inc., 881 F. Supp.2d 635 (D.NJ. 2012), the worker s compensation scheme generally determines recovery on the basis of a rigid formula, often with a statutory maximum, whereas tort cases involve noneconomic damages not available in workers compensation cases, and a victim s damages are not determined by an established formula, at pg V. Who is Liable if Medicare Asserts Its Secondary Payer Rights. CMS has a right of action to recover its payments from any entity, including a beneficiary provider, supplier, physician, attorney, State agency or private insurer that has received a primary payment. 42 U.S.C. 1395y(b)2(B), 42 C.F.R (e)&(g). Whether an individual or entity is at fault does not matter. CMS can recover from a defendant that has already paid the plaintiff irrespective of the agreement between the parties or a court order regarding who is responsible for satisfying Medicare s claim. If settlement monies are deposited into an attorney s trust account before being paid to a plaintiff, the attorney arguably received a primary payment and can therefore be sued by CMS to recover Medicare s claim. Under the MSP statute, there is no safe harbor for a party that has already paid. In U.S v. Harris, 2009 WL (N.D.W.Va 2009), CMS calculated the amount it was owed for conditional payments made after subtracting amounts for attorney s fees and costs. CMS made its demand by letter and, after the statutory time elapsed without appeal, the government filed suit. The court granted summary judgment to the government and ordered the plaintiff s counsel to pay the judgment plus interest. Although the Harris case involved CMS right to be reimbursed conditional payments made prior to settlement, based upon the same reasoning if CMS chooses to assert its secondary payer status by suing to recover amounts it wrongfully paid out, it can recover not only against the Medicare beneficiary but also against the defendant payer and anyone else who received a primary payment including the attorneys representing the plaintiff. In addition, Medicare may refuse to pay for injury related medical expenses until the entire award has been expended on such expenses which would be impossible if the claimant has already spent much of the award on other items (such as housing). Consequently, the claimant may be left 13

14 without access to medical care. The issue is therefore not merely one of money but potentially a life and death matter. One rather obscure point that is important to mention is that even if a claimant also receives Medicaid, the claimant may still be in trouble in regard to his or her access to medical treatment should he or she be eligible for Medicare and fails to do an MSA. This is because for dual eligibles (persons eligible for both Medicare and Medicaid) Medicare is the primary payer under Medicare Part D for prescription medications and Medicaid will not pay for such medications if the person is also eligible for Medicare, presumably even if Medicare is not in fact paying for such medications because of the claimant s failure to do an MSA. This is an important point because there is a tendency to assume that because a claimant is entitled to Medicaid, Medicare is not important because Medicaid will pay for what Medicare will not. This is not true in regard to prescription medications. VI. The Pros and Cons of a Medicare Set Aside. The benefit of doing a Medicare Set Aside is that it would avoid the harsh results that would occur should Medicare assert its secondary payer rights. On the other hand, doing an MSA in a situation in which Medicare might not enforce such rights has the downside of setting aside and using a portion of a plaintiff s settlement to pay for items for which Medicare otherwise would have paid thus losing the maximum benefit of the settlement. VII. Practical Guidance on the Role of the Special Needs Trust Attorney: A. Advising the Personal Injury Attorney and Client As result of frequently working with personal injury attorneys to advise them and to plan for the preservation of Medicaid and other needs based benefits, I also receive numerous calls regarding the need, if any, to do an MSA in a particular case. Generally, I meet with the personal injury attorney and, eventually, the attorney s client to weigh the pros and cons of doing an MSA in the particular case. The considerations would include the following: 1. Even if the risk is small, since the consequences of not doing an MSA could be huge, it is important to explain to each client who receives Medicare or who will likely be receiving Medicare in 30 months, and their attorneys, what the issues are regarding Medicare Set 14

15 Asides so that they can make the risk assessment themselves. Different people have different risk tolerances so it is worth taking the time to talk about the issues. 2. Since New Mexico is a part of CMS s Dallas region which has been at the forefront of encouraging MSAs in liability cases, I advise strongly considering a Medicare Set Aside in situations in which the client will be heavily dependent on Medicare benefits for injury related medical expenses and the settlement is significant (in excess of $500,000.00). In such cases, I advise applying reductions to the MSA amount to reflect compromises in the settlement amount due to weaknesses in the case, insurance limits, and comparative fault even though the guidance regarding workers compensation cases do not provide for such adjustments. This is because what is a reasonable consideration of Medicare s interest in a liability case is different than what it would be in a workers compensation case. An MSA should also be recommended in a case of whatever value if there is an amount in the judgment or settlement specifically allocated to future medical expenses. 3. Should a LMSA be submitted for review by CMS? At the present time, the vast majority of LMSAs, even if submitted to CMS, are not reviewed. The practice in New Mexico regarding the submission of LMSAs has been varied. Some attorneys do so under the thought that is provides some protection to be able to show that one tried to obtain approval. Others do not reasoning that it is a waste of time and could delay the settlement process should Medicare come back with a request for additional funding. Since liability MSAs are rarely reviewed by CMS, some personal injury attorneys have been obtaining court approval of their MSAs after notice to CMS and a hearing. Although CMS would not be bound by a state court ruling, the thought is that it would provide at least an equitable argument should the amount of the MSA later be questioned and in at least one case, the Dallas regional office acquiesced in the order by requested that the personal injury attorney send a copy of the office after which CMS would close [its] file. There is anticipation that CMS s February 2017 change request will be followed by a more definitive review process similar to that in place for workers compensation cases. In workers compensation cases, CMS contracts with third party providers to review, negotiate and approve MSAs. B. Drafting Medicare Set Asides. If the personal injury plaintiff is receiving Supplemental Security Income, Medicaid, or other needs based governmental benefits that require a first party special needs trust compliant with 15

16 the requirements of 42 U.S.C. 1396p(d)(4)(A), the MSA should be imbedded within a (d)(4)(a) trust. The (d)(4)(a) might provide for a separate account as follows: Medicare Set Aside Account Pursuant to 42 U.S.C. 1395Y(b)(2)(A): A. Notwithstanding any other dispositive provision of this trust applicable during the lifetime of [Beneficiary], the [Beneficiary] Irrevocable Trust shall contain a Medicare Set Aside account (MSA) which shall be segregated from other trust assets. As soon as practicable after the receipt of the trust assets described in Schedule A to this agreement, the Trustee shall segregate from the remainder of the trust assets those funds and structured settlement annuities listed on Schedule A that are intended to fund the MSA. B. Distributions During the Lifetime of [Beneficiary]. 1. During the lifetime of [Beneficiary], both the corpus and income of the MSA, including any payments that may be received in the future from any structure settlement annuity that is purchased to fund the MSA, shall remain segregated as a part of the trust estate and separately administered as a Medicare Set Aside arrangement. Payments may be made from MSA for the sole benefit of [Beneficiary] subject, however, to the limitations set forth in Subparagraph 2 below. 2. Payment of Certain Medical Expenses If and As Required for Medicare Benefits. During the lifetime of [Beneficiary] both the corpus and the income from the MSA may be paid for medical services and supplies that would otherwise be reimbursable under Medicare but only if (1) such payments are necessary to entitle [Beneficiary] to Medicare coverage under the Medicare Secondary Payer Statute and (2) such payments shall be prudent in the discretion of the Trustee after considering all other benefits to which [Beneficiary] shall be entitled. Such medical expenses and supplies are hereinafter referred to as eligible injury related medical expenses. 3. Engagement of Experts and Consultants. The Trustee shall engage the services of experts, including but not limited to [Name of Medicare Advisor], a Medicare claims and payment administrator, to advise and counsel the Trustee with respect to eligible injury related medical expenses. The Trustee may rely upon the written instruction and advice of such experts regarding disposition of the trust as to eligible injury related medical expenses, and payments and distributions from the MSA, made in accord with such instructions and advice of such experts, shall be conclusively deemed authorized and proper. The Trustee is specifically authorized to appoint, direct and/or remove [Name of Medicare Advisor], as an agent for the administration of the MSA and to authorize [Name of Medicare Advisor], to hold the MSA, or any portion thereof, as a part of the trust. For 16

17 administrative convenience, the Trustee is authorized to revocably assign to [Name of Medicare Advisor] any payments intended to fund the MSA. 4. Administrative Fees, Costs and Expenses Related to Medicare Set Aside Account. Administrative fees, costs and expenses related to the MSA shall not be paid from the MSA or its income. Any such fees, costs and expenses associated with the maintenance, management, and administration of the MSA, including but not limited to the fees of the Trustee and of [Name of Medicare Advisor] or any other Medicare claims and payments administrator or advisor, shall be paid from trust assets not contained in the MSA. The fees, costs, and expenses of experts and consultants retained in connection with the administration of the MSA shall not reduce or be paid from or as part of the compensation due the Trustee. 5. Distributions After the Death of [Beneficiary]. After the death of [Beneficiary], the remainder of the trust estate shall be distributed in accordance with the provisions of [Paragraph providing for the disposition of the remainder of the d4a trust after the death of the beneficiary] below. C. Determining the Amount with which to fund the MSA. The amount that would go into the MSA if it were fully funded (i.e. the total anticipated future medical expenses related to the injury that was the subject of the personal injury claim and that would have been paid by Medicare) is generally determined by MSA allocation specialists. There are a number of individuals and firms around the country that will calculate MSA allocations including submitting MSAs for review and approval by CMS or its contractors where such review and approval is available. The amount of the fully funded MSA is determined by reviewing the Medicare recipient s medical records particularly as they relate to anticipated future care, life care plans, and other medical information including often interviews with the Medicaid recipient and his or her physicians. An appropriate calculation of the amount of the MSA requires detailed knowledge of what Medicare will pay. For example, a physician may recommend that a certain type of therapy be received four times a month but, if Medicare will pay for that type of therapy only twice a month, the MSA should only contain the cost of such therapy twice a month. Since a large portion of MSAs is often attributable to the cost of prescription medications, the allocation specialist must determine when generic brands may be available to reduce such costs. Given the complexity of calculating the set aside, in large cases it is generally a task that neither the personal injury attorney nor the special needs planner has the expertise to accomplish. 17

18 D. Beneficiaries Over the Age of 65. A difficult issue that sometimes arises for special needs planners is that of Medicaid recipients over the age of 65 who have a MSA account. Since 42 U.S.C. 1396p(d)(4)(A) trusts are not available for persons over the age 65 and since in some jurisdictions persons over the age of 65 cannot fund a pooled trust account under 42 U.S.C. 1396p(d)(4)(C), such persons would lose their Medicaid eligibility if the MSA is considered a countable resource. In a July 11, 2005, memorandum from CMS in which the question of the effect of an MSA on Medicaid eligibility was posed, CMS stated as follows: Q13. Effect of WCMSA on Medicaid Eligibility Does a WCMSA have an effect on Medicaid resources for purposes of eligibility to Medicaid? A13. Medicare set-aside arrangements are not subject to any special treatment under Medicaid resource rules. These funds should be evaluated to determine if they meet the legal definition of a resource for Supplemental Security Income (SSI), and therefore Medicaid, purposes, i.e., cash or other assets that an individual owns and could convert to cash to be used for his or her support and maintenance. The funds must be in interest-bearing accounts. These funds may meet the SSI/Medicaid resource definition. There may be cases in which funds in a Medicare set-aside arrangement are placed into trusts, possibly trusts that would satisfy the definition of special needs trusts under Section 1917 of the Social Security Act. In those cases, the funds might not be a countable resource, but that result would be solely on the basis of Medicaid, not Medicare, rules. In a November 15, 2016, decision the North Carolina Court of Appeals held in Williford v. North Carolina Department of Health and Human Services, 792 S.E.2d 843, that funds in a workers' compensation Medicare Set Aside account did not constitute a countable resource for purposes of determining the recipient's eligibility for Medicaid because her use of MSA funds for her support and maintenance were subject to legal restrictions pursuant to a legally binding agreement, regardless of whether the funds were restricted by the bank in which they were deposited. The court found that the worker s compensation commission order approving the settlement agreement setting up the MSA was a legally binding agreement, that it precluded the recipient from using the funds for her general support and maintenance, and that if she used the funds for her general support and maintenance, she could be held in contempt for violating the terms of the order. Similarly, in the October 3, 2016, unreported decision in DeWhit Graham v. Louisiana Department of Health and Hospitals, No. 58,148, the Third Judicial District Court of Lincoln Parish, Louisiana, found that an MSA was not a countable resource reasoning that no reasonable person 18

19 would consider the Set-Aside Account an available resource for Graham. It is clear that Graham has never had access to the account or its cash value. Graham had no control over the account and would not benefit in any way. The annual annuity could only be used to reimburse or pay Medicare health care expenses. The payments were entirely under the control of the third party administrator and any unused payments would revert to the Worker s Compensation Insurer at the end of the annuity or Graham s death The Set-Aside Account is not a slush fund available to Graham, or his family, but a means to help protect the solvency of Medicare. Since most LMSAs are paid to the beneficiary s estate at death rather than reverting to the defendant, a mandatory Medicaid pay back provision in the MSA would be helpful in one s argument that, under the reasoning of Graham, an MSA should not be a countable resource. Copies of the Williford and Graham decisions are attached. In light of the above two decisions, in a situation in which neither a d4a nor a d4c trust is available to preserve Medicaid benefits, a practitioner might best protect an over 65 year old client from the loss of Medicaid benefits by (1) having a court order which both creates the MSA and restricts the uses to which the MSA may be applied, (2) having a professional administrator administer the MSA, and (3) including a mandatory Medicaid pay back after the death of the beneficiary. VIII. Administering Medicare Set Asides. Amazingly, the majority of MSAs are self-administered by the Medicare recipient, although in workers compensation cases in which the MSA is reviewed and approved by the Medicare contractor, self-administration is often not approved if there is evidence that there may be incapacity issues that would affect the Medicare recipient s ability to self-administer his or her own MSA. In the context of first party special needs trusts, however, the MSA would not be selfadministered. Generally the practice in New Mexico is that the Trustee of the d4a trust will contract with a Medicare Set Aside Administrator to administer the MSA portion of the trust. The MSA Administrator holds the MSA portion of the trust and is assigned any structured settlement payments that will fund the MSA. After the MSA is funded, the MSA Administrator issues to the Medicare recipient an insurance card that the Medicare recipient gives to his or her medical services providers when he or she receives services. Medical bills are sent by the providers directly to the MSA Administrator who then sorts out which bills should be paid by the MSA (i.e. those medical bills that are related to the 19

20 injury which was the subject of the personal injury claim) and which forwarded on to Medicare to pay (i.e. those medical bills for services unrelated to the injury). If an MSA has been properly funded but, due to unanticipated costs is depleted in any given year, the excess bills are send to Medicare. Medicare will pay the excess bills (assuming it agrees that the MSA was appropriately funded) until the next structured settlement payment is received after which the MSA will resume paying injury related medical bills. IX. Conclusion. It has become increasingly clear that Medicare s interests in regard to future medical expenses need to be taken into consideration in the settlement of tort liability claims. In light of the February 2017 change request that must be implemented by October 1, 2017, it is anticipated that further guidance from CMS concerning liability set asides is imminent. 20