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By Jennifer C. Jordan, Esq.
Progress is the theme of this year’s update to The Complete Guide to Medicare Secondary Payer Compliance, 2012 Edition (available in October; see special offer below). Nothing has improved so much that people don’t still cringe at the mention of MSAs, but after 10 years of frustration over CMS acting like a dictatorial monarchy, things have started to give a little. Beginning with CMS voluntarily and preemptively making some efficient and cost effective changes in the handling of low dollar liability settlements, we are now on the brink of getting official federal regulations to govern the handling of future medical allocations. This is where we finally find out if the United States Constitution really works.
Since the Patel memo in 2001, MSAs have been ruled by memoranda, superseded at will by CMS to generally tailor its WCMSA approval process more in its favor. Using the voluntary aspect of the review program as a defense, CMS has essentially taken the position that the public can participate or not, but if it chooses to obtain its opinion as to the adequacy of an MSA, then it will do as the agency requires. Because it is not governed by law or regulation, CMS does not need to provide an appeal process or even entertain reconsideration requests should it chose not to. But official regulations just might not fix that so don’t get your hopes up. Any rules involving CMS approval will likely only touch upon the availability of and presumptions associated with the approval process, while the handling of the program will continue to be at the discretion of the Secretary.
Entering into the official rule making process is a game changer not because I believe it will force the agency to act reasonably, but because it will provide much needed clarification as to what obligations we do have in the settlement of an insurance claim involving a Medicare beneficiary. After a decade of uncertainty as to whether an LMSA obligation even exists, simply defining an exclusion to the extent of a future medical allocation in a liability settlement as already exists for workers’ compensation will achieve quite a bit. The doubters would no longer be able to use the absence of such a definition as a defense for not doing an LMSA. More importantly, CMS cannot institute regulations that completely disregard state laws governing the liability for the medical reimbursement; therefore, any LMSA regulations will have to address what to do in compromised situations such as those involving policy limits, statutory caps and comparative negligence. And equity is the biggest issue that CMS has been avoiding for over a decade.
We Reap What We Sow
In CMS’ defense, we reap what we sow. For many years, parties to insurance settlements would avoid reimbursing medical expenses by allocating settlement funds to everything but medical damages. You don’t think that the language in the CFR stating that the trigger for reimbursement is a “payment conditioned upon the recipient's compromise, waiver, or release (whether or not there is a determination or admission of liability) of payment for items or services included in a claim against the primary payer or the primary payer's insured” got there by happenstance? If you make a demand for medical damages, receive compensation based upon those medical damages and release any and all claims related to those medical damages, can you honestly believe that you can avoid reimbursing the federal government, with its statutory right to priority recovery, by merely denying liability despite making the insurance payment anyway? That proposition is just as ludicrous as CMS’ position at the opposite extreme, but that is why CMS is sitting over there. And of course CMS does have statutory authority and case law supporting its right to full reimbursement while all we have is the argument that it is just not fair.
The Art of Compromise
Even the appellate court in Hadden recognized that it is ridiculous to make a demand for all medical damages and then argue that Medicare should compromise its reimbursement rights, but what the court did not give any consideration of was the fact that the recovery was compromised from the start by the state’s comparative negligence laws. Had the case gone to judgment, the recovery would not have been much different given the extremely tentative liability of the only tangible defendant. The party truly liable is unknown, so even if CMS were to initiate recovery on its own behalf, it would not be able to recover from an unknown individual either. Yet the federal government has prioritizing its recovery rights over the plaintiff’s rights to compensation for damages other than medical and that is what is not equitable.
It is this expectation of full recovery that will make establishing future medical allocation rules for liability settlements difficult. Just as it is unlikely in a settlement situation that full value of the claim will be paid, so will it be unlikely that an entire lifetime of future medical expenses will be able to be allocated from that settlement. Without establishing criteria to compromise such an allocation, CMS will never be able to regulate the LMSA process because absent the compromise, making a future medical allocation from certain lower value cases will be an impossibility. These will be the claims where serious compromise takes place due to negligence issues, policy limits or statutory caps and where Medicare should appreciate a reasonable contribution to that future care rather than greedily demanding more.
Without some compromise on both sides of the equation, these proposed rules will never work. It is not just CMS that needs to understand that its demands are unreasonable. Compromising MSP reimbursements and set-asides in six- and seven-digit settlements should not be an issue, yet that request is made frequently. The fact that certain MSP vendors will provide an opinion in a high-dollar settlement that allocates away all settlement proceeds to everything but future Medicare covered medical expenses, then cries hardship and uses the fact that there is no money left as the defense as to why you do not need an LMSA, is part of CMS’ problem opening the door to compromise. If we don’t make reasonable proposals to CMS and CMS refuses to entertain reasonable requests when they are made, we remain at an impasse. In order for this federal rule making process to work, we need to suggest solutions that are equally objectionable to all involved.
CMS also needs to not lose sight of the fact that Medicare is the primary payer for its beneficiaries. The majority of these individuals are entitled to this medical coverage by statute due to meeting a minimum quantity of payroll contributions. It is not as if Medicare is simply free once you reach age 65 given that you likely paid into it all of your life and Parts B and D carry monthly premiums. If a Medicare beneficiary falls and sustains an injury, Medicare would have to pay for that treatment unless someone pushed the beneficiary, then Medicare is exempt. But say the pusher runs away or is uninsured and has no assets to speak of, or the incident happened in a crowded place and the assailant is unknown, Medicare will have to provide that treatment just as any health insurance plan would. Even if it is statutorily exempt from paying and entitled to reimbursement, that is still contingent upon identifying a tangible recovery source, so isn’t it rather hypocritical of the federal government to hold the parties to the insurance claim to a greater recovery standard than it could secure for itself?
It is unfortunate that CMS has yet to realize how much hardship it is causing its beneficiaries. Beyond cannibalizing insurance settlements between its ideas about Medicare’s rights to past and future medical expenses, beneficiaries are facing many post-settlement issues alone. After the insurance companies have written checks and the attorneys have all gone away, many Medicare beneficiaries are being denied unrelated treatment and faced with reimbursement demands with threats of Social Security payment off-sets, all of which is very upsetting to an older person who really doesn’t understand. What is worse is that there have been a few reported incidences of death resulting from the delay in treatment due to Medicare denying payment related to secondary payer issues. Many times the denials are for treatment totally unrelated to the insurance settlement, so it is even that much more disturbing to the beneficiaries when it happens. Given the agency’s propensity for making payments and later turning them into secondary payer issues while insurance claims are open, you would think that CMS could foresee the potential for death and authorize a conditional payment, but apparently that is a little too much to hope for.
Equitable Common Ground
So what can we hope for this year? First and foremost is resolution to the equitable apportionment issue. Whether it be through Supreme Court decision, LMSA regulation or simply by CMS finally accepting that it is just the right thing to do in certain cases, until we achieve some equitable common ground, this battle with CMS will go on. This issue affects both past and future medicals and resolution of it will go a long way in getting the public to accept LMSA obligations. Because of prior exposure to WCMSAs, many practitioners are fearful that similar practices applied to LMSAs will make settlement impossible and drive all claims involving Medicare beneficiaries through to judgment. If CMS is clear that it recognizes certain limitations to that obligation, parties may be less resistant to the act of creating LMSAs.
A Federal Question
With regard to the Supreme Court, it remains unknown if it will take cert in Hadden. Does it have all the elements of a case ripe for cert? Absolutely. It is a federal question with conflicting decisions in the Sixth and Eleventh circuits and has a huge public policy component in the way it deters the settlement of insurance claims. The Court has already decided equitable apportionment with regard to Medicaid reimbursements in Ark. Dept. of Human Servs. v. Ahlborn (547 U.S. 268 (2006)) and on June 25, 2012, agreed to hear US Airways v. McCutchen (663 F.3d 671 (3d Cir. 2011)) which questions an ERISA plan participant’s obligation to provide full reimbursement to the plan administrator for medical expenses recovered from a third party. While each of these cases has entirely different legal aspects, the underlying issue in each is simply equity. Without some level of fairness, parties to insurance claims cannot resolve them without judicial intervention, and our judicial system cannot absorb this burden. Facing its own financial crisis, 60 federal court facilities in 29 states were considered for closing this year in an effort to reduce costs. It is assumed that the courts cannot absorb the burden of hearing only the medical component of claims that were otherwise voluntarily settled among the parties.
Proposed MSA Rules
And, finally, the proposed MSA rules: There is a lot of potential here, but it is contingent upon public participation. We are essentially negotiating the terms of proposed administrative rules with CMS as opposed to being presented with unreasonable policies and left to tolerate them. As was evident with the evolution of the MMSEA Section 111 reporting process, CMS has limited understanding of the insurance industry and given the jurisdictional variations that will apply in liability settlements, it is obviously in need of input. In order for regulations to work, they will need to be extremely broad so that no type of claim or particular state law falls outside its purview. If it were up to me, I would institute a disclosure/reporting program. If CMS were to disclose unredacted guidelines like it gives the WCRC and simply tell the public what it expects to be funded, MSAs calculated by the public sector would all be done in the same manner and Medicare’s interests handled in a consistent manner. To keep everyone honest, CMS could require that those MSAs be uploaded through the WCMSA portal and be subject to a random audit performed by the WCRC. If the WCRC finds intentionally underfunded future medical allocations, CMS may disregard the settlement per 42 C.F.R. § 411.46.
Then we have the unknowns. With Obamacare being deemed constitutional, can we buy alternative coverage from the private sector no longer permitted to exclude it in order to protect Medicare’s interests? Will the new WCRC contractor bring any relief and determine once and for all that many of our issues were with the former contractor and not the program itself? What effect will the new matrix organization CMS proposes to form by combining COBC and MSPRC functions have on the process? And most importantly, how will the ORM RACs work and just how intrusive will that process be? There are just so many possibilities for what we will be talking about this time next year.
Love It or Hate It
Well, that is enough grandstanding for this year, particularly because by the time you read this, many of these points will be irrelevant. I am truly optimistic that the MSP community will rise to the occasion and be able to work with CMS to create regulations that are reasonable for all parties. Just taking the uncertainty out of the process will go a long way to lightening the burden and perhaps make people more accepting of the obligation. Love it or hate it, Medicare is relied upon by a large portion of our population and it is facing financial crisis as more and more baby-boomers become entitled every day. With secondary payer enforcement, CMS can hold off premature exhaustion of the Medicare trust fund that much longer, and therefore we can expect its active MSP enforcement to persevere.
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