Medicare Compliance: Make an Effort to Simplify the Settlement Process Peter H. Wayne IV, Esq.

There is a new case being filed, ruling made, notice issued and hearing conducted every day with respect to the Medicare Secondary Payer Acti. All of this constant change in compliance procedures results in confusion amongst those who are responsible for addressing Medicares interest in a judgment, settlement or verdict. When coupling this confusion with the Medicare Secondary Payer Recovery Contractors (MSPRC) decision to stop issuing Final Demand letters following the May 9, 2011 Haro v. Sebeliusii decision, it becomes clear that substantial guidance is needed from Congress on how to properly protect Medicares interest in a settlement, judgment or verdict. Each and every person involved in personal injury litigation is well aware of the difficulty in trying to secure a prompt response from the MSPRC as it relates to Medicares conditional payment amount. The process is said to take 65 daysiii following the receipt of a Rights and Responsibilities letter from the Coordinator of Benefits Contractor for Medicare, but this is far from accurate. In actuality, however, the real turn-around time for a conditional payment amount is much closer to 120 days. In addition, whether or not a Medicare Set Aside (MSA)iv should be established in a case is always of great concern to both plaintiff and defense counsel. The gray area that surrounds Medicare Compliance is a plague on the settlement negotiation process. While MSAs are commonplace in workers compensation cases, there is no uniformity to them in liability cases. The unknown aspects in the conditional payment and MSA evaluation processes are what cause those who practice in personal injury litigation so much frustration. In light of the above, this author would like to address a few of the most recent decisions and notices in regard to Medicare compliance in an effort to provide insight on how best to address them in the foreseeable future until further guidance is obtained from Congress. Final Demand Letters: The MSPRC website states: Review of the Rights and Responsibilities letter (RAR) and the Demand Letters for liability insurance (including self-insurance), no-fault insurance and workers compensation is complete. The Issuance of the RAR resumed on June 10, 2011. The issuance Demand letters resumed on June 27, 2011. Copies of the revised RAR and Demand letters are available on the MSPRC website. www.msprc.info Wilson v. State Farm (2011 WL 2378190): The United States District Court for the Western District of Kentucky ruled on June 15, 2011 that it is not an act of bad faith for an insurer to withhold/delay the payment of settlement proceeds until a

determination is made with respect to Medicares conditional payment amount. Under Kentucky Law an insurer must (1) have an obligation to pay the claim at issue; (2) not have a reasonable basis for failing to pay the claim; and (3) know that it lacked a reasonable basis to delay payment or act in reckless disregard to the existence of that basis. The Court found that the actions of the insurer were reasonable in light of its potential exposure to liability and desire to avoid overpayment as set forth at 42 CFR 411.24 and under 42 USC 1395y(b)(2). It is important to note the insurer issued payment via two separate checks to the plaintiff and Medicare the day after the plaintiff received Medicares conditional payment amount. Hinsinger v. Showboat Atlantic City (2011 WL 1885980): The Superior Court of New Jersey acknowledged that MSAs are not required by statute or regulation, but rather they are CMS preferred method for protecting Medicares interest in a clients future cost of injury related care. The Court found no reason to apply a different method in workers compensation and liability cases. The Court also ruled that the statutory and policy reasons for establishing an MSA in both workers compensation and liability cases are the same. The Court ruled that 42 CFR 411.37 establishes the authority to reduce Medicares conditional payment amount by costs expended in procuring the judgment or settlement and extended 42 CFR 411.37 to MSAs so that attorneys fees can be deducted from them as well. The Court was silent on case expenses being deducted from MSAs. While this is only a state court ruling, it is one of the first to fully embrace the need for establishing an MSA in liability cases. House Rule 1063: The proposed bill was discussed at a hearing before the Subcommittee on Oversight and Investigations, Committee on Energy and Commerce in the House of Representatives on June 22, 2011. The bill would allow: (1) for settling parties to learn of Medicares Final Demand before settlement; (2) establish a recovery threshold so that Medicare does not spend more money pursuing a conditional payment amount than it will actually recover from the settlement itself; (3) remove a beneficiarys social security number as an identifier for Medicare Medicaid SChip Extension Act of 2007 (MMSEA) 111 reporting; and (4) establish a statute of limitations for all Medicare Secondary Payer claims. Western District of New York - Liability Set Aside Review: Recently, the United States Attorney's Office for the Western District of New York (USAOWDNY) released an advisory opinion on Medicare Secondary Payer protocol. The opinion establishes a voluntary process by which that U.S. Attorney's Office would review MSA proposals for liability cases provided certain conditions are met. The opinion sets forth the application process for obtaining approval from the USAOWDNY as to a Liability Medicare Set Aside (LMSA). The process requires that the case be in excess of $350,000.00 and an application must be submitted by the claimant and defendant/insurer collectively that provides several pieces of information about the case, including but not limited to the proposed amount of the LMSA, the settlement agreement, all Medicare Conditional payment correspondence and evidence that CMS approval was sought, but that no response was received by CMS within 60 days of the request for approval. http://www.nqbp.com/docs/uploads/WDNY-MSP_Protocol.pdf

Take Away: It is imperative that all parties involved in personal injury litigation cooperate with one another and make every effort possible to initiate the Medicare Conditional Payment and Medicare Set Aside determination process as early as possible. This author strongly advises that you obtain as much information as possible about a clients Medicare and other government benefits eligibility early in the litigation process. It is never too soon to start this aspect of the settlement. Because 111 of the MMSEA requires that defendants report to the Secretary of Health and Human Services about cases involving a Medicare beneficiary, defendants are significantly more aware of each partys obligation to protect Medicare and the potential liability that exists for failing to do so in a case. Thus, the more that plaintiff and defense attorneys cooperate with one another in order to help their clients properly resolve their respective obligations to Medicare the easier the settlement process will be. While each party can litigate the facts, it is best to help one another with Medicare so that the conditional payment amount is obtained as quickly as possible. At that point, then the acceptable determination can be made about the need for an MSA and the defense can properly report the case to Secretary of Health and Human Services. That said, the following options may help facilitate the settlement process: 1. Suggest that the settlement money be paid into the plaintiffs escrow account with 125% of Medicares conditional payment amount being withheld in escrow until a final demand is obtained from Medicare. 2. Suggest that the insurer disburse all of the settlement money but 125% of the Medicare conditional payment amount. Then, once a final demand is obtained, the insurer can cut a check directly to the plaintiff and Medicare separately. 3. Suggest that a third party be hired to help evaluate the need for and, if necessary, assess the size of an MSA in the settlement. This opinion will help each party know they are properly evaluating Medicares interest in the settlement and doing so in compliance with the October 22, 2009 MMSEA teleconference held by the Centers for Medicare and Medicaid Services (CMS). 4. Suggest that a Treas. Reg. 1.468B-1 Qualified Settlement Fund (QSF)v be established in an effort to facilitate the settlement process and permit the defense to obtain a current year tax deduction for their payment into the fund, while simultaneously knowing that the resolution of Medicares conditional payment interest is still subject to court oversight and approval. QSFs are useful tools that can help ensure proper client counseling can occur before, during and even after settlement. QSFs uniquely introduce a degree of breathing space after settlement that is valuable by: (1) allocating the settlement proceeds among the claimants; (2) ensuring the Medicares interests are fully verified and properly resolved; (3) verifying and negotiating liens and / or subrogation claims; (4) determining the appropriate role and underwriting1 of a structured settlement annuity; (5) evaluating the need to preserve governmental entitlement benefits (e.g., the need for the establishment of a special needs trust); and (6) enabling a host of other decisions to be made without the pressure associated with the litigation itself. This breathing space is made available because, while temporarily parked in the QSF, the assets are not constructively received by any claimant, as this doctrine is set forth in Treasury Regulation 1.451.2.vi

42 USC 1395y(b)(2) US District Court, District of Arizona iii The MSPRC website states: once you establish your case with the Coordinator of benefits contractor, you will receive a "Rights and Responsibilities" (RAR) letter from the MSPRC. The MSPRC will then automatically generate a "Conditional Payment Letter" (CPL) within 65 days from the date on your RAR letter. You do NOT need to request the CPL separately. iv Whenever a settlement, judgment or award involves the payment of money for an injured partys future cost of injury related care, an effort must be made to protect Medicares interest in that care whenever the injured person is either a Medicare beneficiary or will become a beneficiary in the next 30 months. The recommended method to protect Medicare's interest in such settlement, judgment or verdict is to establish a Medicare Set Aside (MSA). An MSA will act as a deductible for an Medicare beneficiary, such that they use their MSA on any injury related medical care, but once the money is exhausted then Medicare will again become the primary payer for such care. v A fund, account, or trust satisfies the requirements of this paragraph (c) if (1) It is established pursuant to an order of, or be approved by, the United States, any state (including the District of Columbia), territory, possession, or political subdivision thereof, or any agency or instrumentality (including a court of law) of any of the foregoing and is subject to the continuing jurisdiction of that governmental authority; (2) It is established to resolve or satisfy one or more contested or uncontested claims that have resulted or may result from an event (or related series of events) that has occurred and that has given rise to at least one claim asserting liability (I) Under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (hereinafter referred to as CERCLA), as amended, 42 U.S.C. 9601 et seq.; or (II) Arising out of a tort, breach of contract, or violation of law, or (III) Designated by the Commissioner in a revenue ruling or revenue procedure; and (3) The fund, account, or trust is a trust under applicable state law, or its assets are otherwise segregated from other assets of the transferor (and related parties). Treas. Reg. 1.468B-1(c). vi The Regulations state that income, although not actually reduced to a taxpayers possession, is constructively received by him in the taxable year during which it is credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time, or so that he could draw upon it during the taxable year if notice of intention to withdraw had been given.
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