Medicare Set-Asides and Future Damages Considerations in Civil Liability Matters, Lessons Learned through the Workers' Compensation Set-Aside Process

By White, Tamela J.; Stackpole, David A. | Defense Counsel Journal, October 2011 | Go to article overview

Medicare Set-Asides and Future Damages Considerations in Civil Liability Matters, Lessons Learned through the Workers' Compensation Set-Aside Process


White, Tamela J., Stackpole, David A., Defense Counsel Journal


THE MEDICARE SECONDARY PAYER ACT (MSP) (1) requires that Medicare not pay for any health care item or service that has been paid or should be paid by a primary source. When an illness or injury occurs, Medicare is the secondary payer to other available payment sources for healthcare related costs arising out of a particular triggering (qualifying) event. Since the passage of Section 111 of the Medicare, Medicaid, and SCHIP Extension Act (MMSEA), (2) much chatter has occurred about the consequences of MSP compliance and Section 111 reporting, particularly when future medical expenses are included as a part of a covered claim settlement. Beneficiaries, primary payers and attorneys all have certain compliance obligations under the MSP/MMSEA statutory mandates. The MMSEA and applicable regulations obligate all primary payers to notify the Centers for Medicare & Medicaid Services (CMS) of primary payment events. (3) CMS has developed a robust process through which Medicare's past and future interests arising out of workers' compensation (WC) (4) compensable events are anticipated, evaluated and protected. (5) The vehicle through which proof of Medicare's future interests are protected in this venue is a "Medicare Set-Aside" trust or "MSA." Regulation and policy memoranda operationalize CMS's exercise of statutory authority over a WC settlement and over any MSA for its life, from creation through exhaustion. There are workload approval thresholds that mandate settlement proposal approval by CMS. An MSA is warranted for any settlement that constitutes a commutation and involves a WC claimant who is a Medicare beneficiary at the time of settlement or who is reasonably anticipated to become a Medicare beneficiary within thirty (30) months thereof. (6)

As of the date of this publication no formal mechanism governs CMS management of third party civil tort liability claims and MSAs. (7) Notwithstanding, the MSP's mandate that all parties to the litigation, all primary payers and all counsel protect Medicare's interests must be followed regardless of the absence of specific regulations like those promulgated in the WC context. (8) An appreciation of the need for collaborative protocols to be used by courts and counsel in the tort arena is evolving. The United States District Court for the Western District of New York has adopted a Medicare Secondary Payer Protocol as of May, 2011 that is applicable to tort claims. Integral components of that protocol include confirmation of any future MSA commutation obligation, fund establishment, approval by CMS and differentiation of future medical expenses from other components of a settlement. (9) A member of the United States' Attorney Office in Northern West Virginia has also stated that education of personal injury lawyers of the fundamentals of future damages set-aside allocations is warranted. (10) The Superior Court of New Jersey recently applied CMS's WC policy in calculating plaintiff's counsel's procurement fee vis-a-vis a future set-aside fund arising out of a judgment in a tort claim. (11) Several courts have cited and applied MSA policy considerations in tort settlement approvals. (12) The likelihood that all lawyers working in the civil tort arena will confront and must follow the precedent established and perfected over the last decade in the WC process is a near certainty unless and until the constitutionality of the Secretary of Health and Human Service's policies and regulations are challenged, if at all. From a professional responsibility perspective, prudence dictates caution for all working with Medicare beneficiaries or anticipated beneficiaries and with primary payers in any litigated proceeding.

Because many non-workers' compensation litigation attorneys are unfamiliar with the historical precedence established in the WC specialty, this article provides an overview of the WC MSA regulations and compliance process. This article also refers to published opinions specifically relating to attorney professional liability exposure and omissions jeopardizing settlements. …

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