• The Medicare Secondary Payer Statute
  • May 5, 2003 | Author: Robert T. Lewis
  • Law Firm: Capehart & Scatchard, P.A. - Mount Laurel Office
  • I. Background

    A workers' compensation settlement, with a waiver of future medical benefits, is negotiated between the parties and then placed before the presiding Judge of Compensation for approval. The Judge reviews the matter to ensure fairness to the parties. But, did anyone inquire as to whether it was fair for Medicare?

    This is a question addressed by the Medicare Secondary Payer (MSP) Statute. The MSP provides that the Center for Medicare and Medicaid Services (CMS) may pursue damages against any entity that attempts to shift the burden of medical costs to Medicare. The MSP must be carefully considered by all parties involved in a settlement when future medical benefits are being closed.

    There is currently no case law in New Jersey concerning the enforcement of the MSP. However, one of the reasons that this has become a legitimate concern is that CMS has recently increased their efforts at identifying and enforcing the MSP. Another reason for concern is that a class action lawsuit has been filed in Alabama against a workers' compensation carrier who failed to consider Medicare's interest in previously negotiated settlements. Penny Frazer v. CNA Insurance, CV-02-PWG-1684-W (United States District Court for the Northern District of Alabama Western Divisional Area, filed July 15, 2002). The lawsuit alleges that the insurance carrier mislead consumers and "avoid[ed] compliance with applicable law in that they failed and refused to make the required deposits contemplated by the Medicare Secondary Payer Statute." Obviously, this case raises serious concerns and will need to be followed closely.

    II. Medicare as Secondary Payer Statute (MSP)

    The provisions of the MSP may be found at 42 U.S.C. §1395y (b). The MSP provides that Medicare does not pay for any services for which payment has been made or can reasonably be expected to be made promptly "under a workmen'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." 42 U.S.C. §1395y (b)(2)(A)(i)(ii). Therefore, the workers' compensation provider is considered the "primary plan" and Medicare is considered the "secondary plan" for the payment of related medical expenses.

    Under the MSP, CMS has the right to seek reimbursement of medical expenses paid by Medicare, which the workers' compensation carrier should have made. 42 U.S.C. §1395y (b)(2)(B)(i)(ii)(iii). Additionally, the MSP provides for a private cause of action for double damages against the workers' compensation carrier for failure to provide primary payment or appropriate reimbursement. 42 U.S.C. §1395y (b)(3)(A).

    III. What can be done to safeguard against the MSP?

    As previously indicated, there is an absence of case law in New Jersey regarding the enforcement of the MSP. Therefore, it is impossible to provide analysis based upon legal precedent for the handling of these claims. The CMS, however, has provided some insight into how to avoid a claim under the MSP and protect your client(s).

    On July 23, 2001, CMS set forth a Memorandum concerning the "Commutation of Future Benefits in Workers' Compensation Cases." The Memorandum may be found on the internet at: http://cms.hhs.gov/medicare/cob/pdf/wcfubene.pdf. Based on the information provided by CMS, the following options may be considered to safeguard against enforcement of the MSP.

    A) Medicare Set-Aside Custodial Arrangement

    The first safeguard available is the creation of a Medicare Set-Aside Custodial Arrangement. A portion of the settlement proceeds would be "set-aside" to pay future medical bills. It is a way to close future medical benefits for the carrier and still preserve petitioner's rights under Medicare for future medical treatment.

    With a Medicare Set-Aside Custodial Arrangement, a fund is created and the petitioner submits his or her bills for medical treatment to be paid out of the fund. Once the fund is depleted, the beneficiary becomes eligible for Medicare to pay ongoing future medical expenses.

    However, in order to ensure Medicare will pick up future medical expenses, approval must be obtained from CMS. If they approve the amount deposited into the fund, Medicare will then waive any claims against the employer or carrier for the worker's medical treatment.1 In order for CMS to approve the arrangement, they must be provided with all relevant information about the claim and anticipated future medical expenses.

    The following information is considered by CMS to ensure the adequacy of the fund and to ensure that there has not been any attempt to shift liability to Medicare:

      1. Date of entitlement to Medicare.

      2. Basis for Medicare entitlement.

      3. Type and severity of injury or illness. Is full or partial recovery expected? What is the projected time frame if partial or full recovery is anticipated? As a result of the accident is the individual an amputee, paraplegic or quadriplegic? Is the beneficiary's condition stable or is there a possibility of medical deterioration?

      4. Age of beneficiary.

      5. Workers' compensation classification of beneficiary.

      6. Prior medical expenses paid by workers' compensation carrier due to the injury or illness in the 1 or 2 year period after the condition has stabilized-- If Medicare has paid any amounts, they must be recovered.

      7. Amount of lump sum or amount of structured settlement.

      8. Is the commutation for the beneficiary's lifetime or for a specific time period?

      9. Is the beneficiary living at home, in a nursing home, or receiving assisted living care? If the beneficiary is living in a nursing home, or receiving assisted living care, it should be determined who is expected to pay for such care.

      10. Are the expected expenses for Medicare covered items and services appropriate in light of the beneficiary's condition?2

    CMS may also require the completion of a life-care plan to assist in the projection of future medical expenses. Any remaining money in the fund at the time of the petitioner's death would pass to his or her estate. Again, written approval for the amount to be "set aside" must be obtained from CMS. The downside is the approval process may take as long as a year.

    B) Medicare Set-Aside Arrangement

    Another recommended safeguard is a Medicare Set-Aside Arrangement. Instead of a trust fund, the carrier may purchase an annuity or structured settlement from which a designated amount each month goes towards the injured worker's anticipated medical care.3 Under this arrangement, Medicare will pay for the cost of medical care over and above the allocated amount.4 However, like the Custodial Arrangement, approval must be obtained from CMS to ensure the adequacy of the amount.

    IV. When should a safeguard be taken?

    Consideration should be given to Medicare's interest whenever future medical benefits are being closed and either of the following applies:

    A) The Petitioner is Medicare Eligible - Regardless of Amount.

    1) A Petitioner is Medicare eligible if he or she is:

      a) 65 years or older;

      b) On Social Security Disability for 24 months or longer; or

      c) Suffering from End Stage Renal Disorder.

    B) The Petitioner has a "reasonable expectation" of becoming a Medicare beneficiary within 30 months of the date of settlement and the anticipated amount of the settlement, including indemnity, is expected to be greater than $250,000.00.

    An individual would have a "reasonable expectation" of becoming a Medicare beneficiary, if any of the following factors are met:

      1) Petitioner has been approved for SSDI (Medicare coverage begins 24 months after receipt of SSDI);

      2) Petitioner is 62 ½ or older (Individuals become entitled to Medicare benefits at age 65);

      3) Petitioner is a SSDI applicant, though not yet approved;

      4) Petitioner has been deemed Permanently and Totally Disabled; and/or

      5) Petitioner cannot return to past work and is not able to engage in any reasonable gainful employment. 6

    The decision on whether or not to obtain CMS approval before resolving the claim should be made on a case-by-case basis and after consultation with an attorney familiar with the MSP.

    If the settlement closes future medicals and the conditions of (A) or (B) are met, the MSP must be considered prior to settling the claim. Approval from CMS, and the use of a set-aside arrangement appears to be the only way to ensure future protection for the worker, employer, insurer, and attorney.

    V. Consequences of not considering Medicare's interest

    As previously indicated, if CMS does not "sign off" on the settlement and elects to enforce the MSP, the United States "may bring an action against any entity, which is required or responsible (directly, as a third-party administrator, or otherwise) to make payment" for the expenses at issue. 42 U.S.C. §1395y (b)(2)(B)(ii). In addition, the statute provides for a private cause of action for double damages against the primary payer. 42 U.S.C. §1395y (b)(3)(A). Medicare also has the option not to recognize the settlement and refuse to pay for petitioner's medical care. The regulations provide, "if a settlement appears to represent an attempt to shift to Medicare the responsibility for payment of medical expenses for treatment of a work related condition, the settlement will not be recognized." 42 C.F.R. §411.46(b)(2).

    Failure to adequately address this issue could result in exposure to both sides of the settlement. A workers' compensation carrier or self-insured can be exposed to double damages and paying future medical benefits despite a previously negotiated settlement. A Petitioner can run the risk of having future medical care declined. Finally, the government may even have a right of recovery against the attorney(s) involved in the handling of the claim. United States v. Sosnowski, 822 F. Supp. 570 (W. D. Wis. 1993). As a result, this is an issue that concerns all parties to a settlement and should be carefully considered by everyone prior to settling a claim that closes future medical benefits.

    1 Melissa C. George and Bennett L. Pugh, Closing Future Medical Benefits for Injured Workers, 62 Ala. Law 322 (2001).

    2 Memorandum from The Deputy Director Purchasing Policy Group Center For Medicare Management, Commutation of Future Benefits in Workers' Compensation Cases (July 23, 2001).

    3 George and Bennett, supra note 1.

    4 Id.

    5 Gould & Lamb Healthcare Consultants, LLC, MSA Quick Take

    6 Id.