Court Grants Hearing in LHWCA Settlement When CMS Declined to Review Case Within Its Thresholds

Court Grants Hearing in LHWCA Settlement When CMS Declined to Review Case Within Its Thresholds

 By Jennifer C. Jordan, Esq., General Counsel, MEDVAL, LLC

Medicare set-asides have become an albatross for all insurers. And despite all their efforts to do exactly what CMS wants in the interest of protecting the Medicare Trust funds, CMS is constantly changing the rules or arbitrarily making random determinations that impact other legal obligations of the parties attempting to protect Medicare. An opinion recently published by the United States District Court for the Western District of Louisiana is a prime example of how CMS’ efforts are going too far at the expense of parties and in this instance, the federal court system as well [see Guidry v. Chevron USA, Inc., 2011 U.S. Dist. LEXIS 148942 (W.D. La. Dec. 28, 2011)].

On November 19, 2009, Branden Guidry was injured on a Chevron structure located on the Outer Continental Shelf when a drain cover that he walked over, while he was carrying nearly 100 pounds, pivoted and caused one of his legs to fall into a hole. Guidry was covered by the LHWCA, and Liberty Mutual provided workers’ compensation benefits. He also filed a liability suit against Chevron and Danos & Curole Marine Contractors and after lengthy negotiations, all parties agreed to settle. The liability claim was settled for $975,000 and the LHWCA claim for $50,000 with waiver of Liberty’s intervention and any lien it may have had in the liability claim, all of which predicated on the plaintiff taking responsibility for protecting Medicare’s interests under the MSP in the form of an MSA approved by CMS.

CMS approval of an MSA is only available to workers’ compensation settlements involving Medicare beneficiaries that exceed $25,000 or those who have a reasonable anticipation of Medicare entitlement in settlements in excess of $250,000. Other claims may be reviewed, but at the sole discretion of CMS. For purposes of the MSP, CMS treats LHWCA cases as workers’ compensation and extends the voluntary review program to those cases, unlike FELA claims for example which are treated as liability. When determining whether the settlement amount meets these thresholds, CMS requires that all settlements be counted, which includes associated third party liability settlements.

For purposes of the case at hand, this claim should have been eligible for CMS approval. Despite having been denied once before, Guidry had a second application for SSDI pending at the time of settlement. “Has applied” for SSDI is one of the express criteria for a reasonable anticipation of Medicare entitlement published by CMS. The total settlement amount, calculated as required by CMS, was well in excess of one million dollars. This case met the review threshold, yet CMS declined to review the proposed MSA, and the parties to the settlement were unable to meet a condition precedent of the settlement terms.

In an effort to avoid rescinding the settlement altogether and achieve MSP compliance, the plaintiffs moved to reopen the case so that they could seek a declaratory judgment for essentially approval of the MSA that CMS declined to review. HHS was notified of the hearing and declined to participate. The court held a hearing in which an MSP expert was heard and a litany of exhibits from a number of physicians and economic experts was entered into evidence. In the end, the court determined that Medicare’s interests had been adequately protected in the settlement within the meaning of the MSP.

Now, this order is significant in that it represents a ruling on the merits of the claim, which is the only thing that CMS officially states it will accept as a limiting factor on its reach under the MSP. Not sure why we need CMS to tell us that, considering it would be bound by a court order with or without the official statement. But other than that, this hearing was demonstrative of a complete waste of judicial resources. Nothing special occurred here beyond the parties agreeing that Medicare had an interest and obtaining an expert evaluation of what that interest was from a respectable vendor. Parading all of the information in front of a judge with no point of reference as to whether Medicare’s interest was reasonably protected or not brought no greater value to the MSP compliance efforts already taken, other than to absolutely cap CMS’ reach to the parties. However, the compliance efforts were in fact always reasonable and defensible – otherwise the parties would never have presented them to the court to begin with – therefore, the efforts would always be defendable whenever the issue was raised by CMS, if ever. Seeking a hearing of this sort in every instance where CMS declines to grace us with its opinion would be an enormous burden that the court system could not possibly absorb.

The judicial system in the United States has been in financial crisis for at least the last three years, during which time 42 states have reduced their judicial budgets, with cuts in some jurisdictions totaling more than 12 percent, 34 states have laid off court employees, 39 have stopped filling clerk vacancies and 23 have reduced court operating hours. [http://www.nytimes.com/2011/11/27/us/budget-cuts-for-state-courts-risk-rights-critics-say.html?pagewanted=all]. In an already troubled system, neither CMS nor parties to insurance settlements in general can possibly expect pointless hearings of this sort to be held on a regular basis. I would certainly hope that what remains of the American justice system remains available to those seeking justice as opposed to the paranoid attempting to forestall the possibility of liability for inchoate obligations that very likely may never materialize.

We may never know why CMS elected to not review this claim, given that Longshore cases are definitely treated as workers’ compensation for purposes of the MSP.  I suspect CMS declined to review because the claim was viewed as a liability settlement as opposed to an LHWCA settlement with a corresponding third party claim, given that Liberty was not technically a party to the suit. Regardless, the take away point is that CMS can decline to review any case submitted to it, whether or not it meets the thresholds. The approval program is voluntary, not mandated by any law or regulation, and totally subjective on the part of CMS and its various contractors, without appeal and apparently not binding on even CMS. Recent cases of where CMS has altered its opinion post-settlement have raised some serious concerns over the value of the approval, particularly because the approval carries an inherent cost in the delays of obtaining it and being forced to accept the calculation methods utilized by CMS in excess of Medicare’s exposure in the same services projected that the settling parties already agree to absorb in the interest of finality. If the finality does not exist, CMS approval carries little value.

There is a place for the hearing on the merits in resolving MSP issues, but it should be used sparingly and only in unresolved areas such as apportionment and compensability. Approval of an MSA already evaluated by an MSP professional in the manner consistent with CMS practices is just plain redundant, as is the multimillion dollar CMS review program, but that’s a rant for another day. Lawyers need to man up, agree to reasonable and defensible compliance measures within their interpretation of the law and regulations and not second-guess their efforts out of fear of the unknown future involvement of CMS.

© Copyright 2012 Jennifer C. Jordan, Esq. All rights reserved. Reprinted with permission. Jennifer C. Jordan is the Editor-in-Chief of The Complete Guide to Medicare Secondary Payer Compliance (LexisNexis).