Introduction and Background
Unlike Workers Compensation Medicare Set-Aside (WCMSA) Arrangements, which Independent Life has written about in two prior articles (Part 1) and (Part 2), almost no regulatory authority exists for Medicare set-aside arrangements (MSAs) in third party liability settlements. The Medicare Secondary Payer (MSP) Act, enacted in 1980, requires certain insurers, including liability, automobile, no-fault and workers compensation insurers, to make payment first for services to Medicare beneficiaries regarding claimed injuries covered under their policies, with Medicare responsible only as a “secondary payer.”
Until 2001, however, when CMS issued the first of several policy memorandums addressing WCMSAs (the Patel Memo), CMS failed to take any practical steps to enforce the MSP rules. Beginning in 2015, CMS began to publish a WCMSA Reference Guide, which originally supplemented and has ultimately replaced the CMS WCMSA memorandums.
The Reference Guide, which includes numerous references and rules for structured settlement annuities has been updated multiple times – most recently in WCMSA Reference Guide Version 3.8 published November 14, 2022 and available for download on the CMS website.
CMS defines a WCMSA on its website as “a financial agreement that allocates a portion of a workers’ compensation settlement to pay for future medical services related to the workers’ compensation injury, illness, or disease. These funds must be depleted before Medicare will pay for treatment related to the workers’ compensation injury, illness, or disease.”
The CMS website further states: “[a]ll parties in a workers’ compensation case have significant responsibilities under the Medicare Secondary Payer (MSP) laws to protect Medicare’s interests when resolving cases that include future medical expenses. The recommended method to protect Medicare’s interests is a WCMSA.”
To date, however, CMS has been unable or unwilling to provide similar regulatory guidance for liability MSAs having repeatedly proposed, then withdrawn, liability MSA rules beginning in 2012.
CMS Withdrawal of its Most Recent NPRM
Most recently, in 2018, a proposed CMS Notice of Proposed Rulemaking [NPRM] would have clarified “existing Medicare Secondary Payer (MSP) obligations associated with future medical items related to liability insurance (including self-insurance), no fault insurance, and workers’ compensation settlements, judgments, awards, or other payments.”
On October 13, 2022, however, CMS withdrew the 2018 NPRM without comment – an action that caught many MSP experts completely by surprise.
Consider that less than one month earlier, three CMS representatives (Jacqueline Cipa, CMS Deputy Director, Division of MSP Operations; Steve Forry, CMS Division Director for MSP Program Operations; and John Jenkins, MSHS, MSHA, CMS Health Insurance Specialist) had addressed the 2022 National MSP Network Annual Conference.
According to one MSP Network conference attendee, these CMS representatives discussed other active projects on the CMS agenda (e.g. new re-review options, advanced notifications on key changes, AI on ICDs, etc.) surrounding implementation and improvement of WCMSA processes. However, they said nothing to signal the forthcoming CMS decision to withdraw the liability MSA NPRM.
Questions for Structured Settlement and Settlement Planning Professionals
With CMS offering no explanation as to why it withdrew the NPRM or any updated CMS liability MSA guidance, what liability MSA questions, and what MSA questions more generally, should structured settlement and settlement planning professionals now be asking?
This article addresses two of the most immediate questions (why did CMS withdraw the NPRM; and how will this action impact liability cases going forward?) with relevant explanations and analysis from selected MSP experts.
A subsequent article, the final article in this four-part Independent Life MSA series, will address two structured settlement specific questions: how will the CMS NPRM withdrawal impact the structured settlement MSA market; and what lessons, if any, should the structured settlement industry learn as a result?
Why did CMS withdraw the NPRM?
Since CMS withdrew the NPRM, multiple MSP experts have offered their interpretations and advice. These MSP experts include: Natt Reifler, Esq., VP of MSP Compliance at Medivest; Rafael Gonzalez, Esq., an attorney with the law firm Cattie & Gonzalez; and Rasa Fumagalli, J.D., MSCC, CMSP-F, Director of MSP Compliance Services Synergy Settlement Services.
Reifler and Gonzalez also question whether CMS has the authority under the MSP Act to issue regulations for liability MSAs.
Gonzalez, writing on LinkedIn notes: “Word has it CMS has finally decided the MSP statute needs to be amended before going forward on code of federal regulations. So, be on the lookout for possible or potential legislation to be introduced during next Congress.”
In her article titled “Medicare withdraws proposed regulations for liability Medicare Set-Asides, AGAIN!!!”, Fumagalli suggests a possible link between the CMS NPRM withdrawal and the “dire financial straits” of the Medicare Trust Fund.
As a consequence, she predicts: “Medicare’s decision to withdraw the notice of proposed rule might mean that a greater focus will be placed on the Section 111 Total Payment Obligation to Claimant (TPOC) reporting resulting in increased denials of post-settlement injury-related claims.”
How does the withdrawal of the NPRM impact liability cases going forward?
Regardless of the reason(s) CMS withdrew the NPRM – perhaps a combination of factors (political pressure, MSP Act restrictions, financial duress of the Medicare Trust Fund, as well as the comparative complexity of liability cases versus workers compensation cases) – parties settling liability cases must still comply with the requirements of the MSP Act when applicable.
42 C.F.R. § 411.20 (a)(2) states that Medicare is prohibited from making payments for services “to the extent that payment has been made or can reasonably be expected to be made under any of the following: (i) workers’ compensation; (ii) liability insurance; (iii) no-fault insurance.”
In their linked articles, each of the three MSP experts also address the challenges for attorneys and other professionals advising clients in liability cases as a result of CMS withdrawing the NPRM.
Reifler offers the most comprehensive analysis and recommends “[e]ach attorney should provide their clients with enough information to help them assess their risks and to determine if denial of injury-related future medicals or the potential for recovery of future conditional payments by Medicare is a risk they are willing to take.”
Reifler also adds that products (such as allocation reports, compliance opinion letters and apportionment analyses – in conjunction with legal opinion letters) are available in the market for liability settlements to address MSP exposure and protect Medicare’s interests with varying client-specific risk tolerance levels.
Gonzalez recites a litany of ongoing MSA problems resulting from the NPRM withdrawal (“… and worst of all, back to significant potential exposure for payers and beneficiaries alike”), before proposing a legislative solution: Congress should amend the Social Security Act to clarify how litigants in all cases can make sure Medicare remains a secondary payer pre and post settlement.
Funagalli points out CMS has previously provided some insights into its liability MSA approach with two 2011 publications: 1) the CMS Region VI Stalcup Memorandum; and 2) the CMS Benson Memorandum. Without additional liability-specific CMS MSA guidance, structured settlement and settlement planning professionals might now want to review those CMS memos.
Summary of the Stalcup Memorandum
Written by Sally Stalcup, then CMS Region VI Coordinator, and published May 25, 2011, the untitled “Stalcup Memo” sets forth CMS liability MSA policy positions with important caveats. Described as a “general summary … not intended to take the place of either the law or regulations,” the memo’s applicability is limited to states covered by CMS Region VI: Oklahoma, Texas, New Mexico, Louisiana and Arkansas.
Some of the issues addressed in the Stalcup Memo:
1. “CMS does not mandate a specific mechanism to protect those interests … [a]nd the law does not require a ‘set-aside’ in any situation.” Further, there is no distinction in the law between a Workers’ Compensation and a liability case.
2. A set-aside is CMS’ preferred method of choice as it provides the best protection for Medicare and the Medicare beneficiary.
3. Unlike Workers Compensation cases, there is no formal review process for liability cases. CMS review is decided on a case-by-case basis.
4. The only situation where CMS will recognize allocations of liability payments to non-medical future losses is when payment is based upon an order of a court of competent jurisdiction following its review on the merits of the case.
5. Each plaintiff attorney and defense attorney must decide, based on the facts of each case, whether there is funding for future medicals and, if yes, a need to protect Medicare.
6. If yes: 1) plaintiff attorneys should make certain those funds are used to pay for otherwise Medicare covered services as provided in the settlement or judgment; 2) defense attorneys or insurers should document their notification of the plaintiff attorney and Medicare beneficiary that the settlement does fund future medicals that obligates them to protect Medicare.
Although “not inclusive,” the Stalcup Memo also provides examples to help attorneys determine whether liability settlement funds must be used to protect Medicare’s interests “on any Medicare covered otherwise reimbursable, case related, future medical services.” The memo further clarifies the terms “otherwise reimbursable” and “case related.”
Summary of the Benson Memorandum
To this writer’s knowledge, a memorandum issued on September 30, 2011 by Charlotte Benson, then Acting Director of CMS Financial Service Group, Office of Financial Management, (the “Benson Memorandum”) has been the only memorandum addressing liability MSAs published by CMS National Headquarters. In summary, the memo states a Medicare beneficiary does not need to submit a liability MSA amount for review, and Medicare considers its interest satisfied, “where the beneficiary’s treating physician certifies in writing that treatment for the alleged injury related to the liability insurance (including self-insurance) “settlement” has been completed as of the date of the “settlement”, and that future medical items and/or services for that injury will not be required.”
For more detailed insights concerning these two CMS liability MSA related publications, Jason Lazarus, President and Chief Executive Officer of Synergy Settlement Services, has previously published online analyses of both the Stalcup and Benson Memos.
Medicare Secondary Payer (MSP) professional practice, including but not limited to Medicare Set-Asides (MSAs), has become an important and complex specialty that increasingly overlaps with and impacts structured settlements and personal injury settlement planning. This article summarizes general analysis and recommendations by MSP experts following CMS’s recent withdrawal of the liability MSA NPRM. The concluding article of Independent Life’s MSA series will consider more specifically the impact of CMS’ action on the structured settlement MSA market.