Return of Bigfoot: Practical Solutions For CMS’ Mythical Liability MSA Policy

In May of 2017, I published an article entitled “Is Bigfoot Real? Are Liability MSAs Coming?”ⁱ It underscored that a CMS policy on Liability MSAs (“LMAs”) might be taking shape—much like grainy photos amidst the Pacific Northwest forest. In the year since, there have been multiple LMA policy sightings but still nothing close to anything clear and unmistakable. Because of the ongoing and extremely practical concerns raised by our clients about extinguishing any future recovery action from CMS, it’s a good time to revisit, update and provide some insights on LMAs. While we all await a substantive, comprehensive CMS policy, here is a recap of recent activity:

Last Half of 2017
In addition to a CMS’ October 24, 2017 announcementⁱⁱ that CMS “continues to consider” formal review guidelines for LMSAs, the Agency reissued a “MLN Matters” memorandum to the medical payment community on November 7, 2017ⁱⁱⁱ. It clarified that CMS’ position on the MSP Act is that “Medicare is always a secondary payor to liability insurance (including self-insurance), no fault insurance and workers’ compensation benefits.” Despite several Federal District Courts having issued substantive rulings on LMSAs previously^iv (at least one has even calculated its own LMSAs^v), a New Mexico Federal District Court noted that it lacked jurisdiction to rule on an LMSA. In its November opinion the Court also added that “[t]he uncertainty created by CMS’s repeated failure to clarify its position on requiring MSAs in personal injury settlements…is also proving burdensome to the settlement process^vi.”   

First Half of 2018
When CMS’s current Workers’ Compensation Review Contractor, Capitol Bridge, LLC, was awarded its reported $60m contract to review the industry’s workers’ compensation MSAs (“WCMSAs”) on March 19, 2018, it had presumably met one qualifying criteria^vii in the RFP that it could “propose a technical approach” to reviewing Liability and No-Fault MSAs. In fact, the RFP indicated that CMS may have targeted July 1, 2018 to issue a liability policy. However, recent conversations at CMS as reported by NAMSAP at the National Council of Self-Insureds (www.natcouncil.com) on June 12, 2018 have indicated that CMS estimates that it will be a minimum of another 18 months before they have a review standard in place.   

CLEAR REQUIREMENTS, STRATEGIC OPTIONS & BEST PRACTICES

In the meanwhile, what should the nation’s claims professionals, counsel and claims organizations do to meet CMS’s undefined expectations for compliance with the Medicare Secondary Payor Act in liability claims? Here are a few practical strategies for you to discuss with your MSP compliance team on a liability claim: 

A. Follow the Clear Requirements from CMS

• Discover and negotiate conditional payments & MAP liens
  While more than a decade of speculation abounds about the applicability of MSAs to liability claims, 42 CFR 411.24 is quite clear that CMS may seek reimbursement of any conditional payments “from any entity, including a beneficiary, provider, supplier, physician, attorney, State agency, or private insurer.” Claims organizations should always address these “super liens,” including their negotiation over any inaccuracies. This should include any liens asserted by a Medicare Advantage Plan (“MAP”) that may claim a private right of action that includes a double damages provision—especially in the 3rd and 11th Circuits—against any primary plan and possibly attorneys^viii. As of 2017, about 33% or 19 million of the 57 million Medicare recipients are enrolled in a MAP^ix and as private, for-profit organizations they have been aggressive in their recovery efforts.
• Meet any obligations under Section 111
  Simply stated, all designated Responsible Reporting Entities (“RRE”) must report the required fields on all settlements that involve a Medicare beneficiary regardless of the line of insurance including, of course, liability settlements, judgments and awards. While Reporting should never be confused with LMSAs, it is essential to closing any case involving a Medicare recipient.  Medicare wants its 160+ fields of data on every claim and has been provided significant statutory penalties ($1000 per day, per claim) for any RRE that does not provide it.^x   

The practical reality is that the RRE’s submission on the settlement, judgment, or award informs CMS on the total amount and disposition of the case, the name and Medicare status of the plaintiff, names of all parties including counsel, and will place all of this in the plaintiff’s Common Working File. When individuals seek Medicare benefits because they have “aged-on” to Medicare or have been awarded SSDI benefits, they will need to prove proper exhaustion of an LMSA or a definitive disposition of the claim that “protected the Trust Fund” before benefits will be provided. Ignoring the LMSA issue will likely be quite problematic.

B. Consider Five Strategic Options

1. Leverage Medicare Status
Aside from monetary considerations in the review thresholds, if the plaintiff is not a Medicare beneficiary and does not have a reasonable expectation of becoming one within 30 months (62.5 years old or in the SSDI application process or is stricken with ESRD), WCMSAs are not warranted. Why wouldn’t these exclusions apply in an LMSA context too? This approach is supported by the Minnesota District Court in Finke^xi and Medicare status should be readily available as to the parties as a result of a lien search and Section 111 reporting. If this exception is used, memorialize it in your settlement documents to document that you have not neglected an LMSA analysis.

2. Harness the Greater Complexity of Liability Cases
Medicare can only assert that a claims organization is a primary payor to the extent of its obligations. Can you shift a responsibility that you did not have in the first place? Practically speaking, liability cases provide far more opportunities to advance this argument than any no-fault-orientated workers’ compensation claim. Consider how contributory negligence, policy limits, apportionment between defendants, statutory caps and/or any other limits may confine your liability for ongoing and future Medicare-covered medical care. For example, in the Sterrett case, a Connecticut Superior Court ruled that while the paraplegic plaintiff will have future Medicare-covered expenses, his contributory negligence resulted in a “substantial compromise” settlement focused on non-economic damages. In the absence of an appointment formula from CMS, the court applied its own logic.^xii

Furthermore, the infamous Stalcup memorandum—which is not official CMS policy beyond Region VI (Arkansas, Louisiana, New Mexico, Oklahoma & Texas)—provides some indication that “[i]f the court of competent jurisdiction has reviewed the facts of the case and determined that there are no future medical services Medicare will accept the Court’s designation.”^xiii With that in mind, the court’s ruling or “designation” on the inapplicability of an LMSA or the reduction of an LMSA based on a legal argument should significantly mitigate any future CMS recovery exposure for all parties. Obviously, if partial, apportioned, or capped future Medicare-covered benefits are in the mix, it would be wise to provide a professionally prepared LMSA with an organization with the capacity to testify on any legal or medical issues. While one court deemed that a disagreement on the necessity of a LMSA undermined the entire settlement agreement^xiv, a careful presentation should provide the judge with sufficient grounds for such a ruling.    

3. Solicit the Court for a Ruling
While the Stalcup memo is silent on a court’s capacity to rule on the sufficiency of the future medical benefits, some federal district courts have included medicals as part of their analyses. While the court may opt to raise the amount^xv, the Guidry^xvi, Smith^xvii, Bertrand^xviii and Cribb^xix courts among others have ruled not only on the applicability of legal arguments but also the sufficiency of future medical benefits as a result of a “designation” request. With that in mind, whether or not a court is presented with a legal argument to assess, there is precedent to present to the court for assessing the sufficiency of an LMSA. In fact, the 11th Circuit Court of Appeals in Bradley v. Sibelius, 621 F 3rd 1330 (11th Cir. Fla 2010) quotes the US Supreme Court’s Chevron^xx doctrine that “agency interpretations contained in policy statements, manuals, and enforcement guidelines are not entitled to the force of law” in ruling that notion that CMS policy memoranda do not trump the district court’s authority to interpret the MSP statute as it see fit. Combined with CMS routine rejection of reviewing LMSAs, a district court ruling should provide significant risk mitigation to all parties on legal and medical determinations about what Medicare is entitled to expect.

In addition, I would also recommend petitioning the Court for a specific finding of fact (as was done in most of the cases above) that the parties did not attempt to shift the burden for future Medicare-covered expenses to CMS and the Medicare Trust Fund.

Critical note on structures and professional administration: If a Court rules on a specific allocation amount to set aside for future, Medicare-covered medical expenses to “protect” Medicare’s interests, the parties have not only gained clarity but also may have created a post-settlement or post-judgment condition subsequent. In order to avoid a recovery action from CMS or from a MAP, the parties need to ensure that the specified dollars are spent on the specified services and that these are reported back to CMS on an annual basis. The best way to ensure such a practice is with a “replenishing MSA^xxi” that combines financing with a structured settlement and leveraging professional administration. This provides everyone with security and sleep-at-night compliance because the funds are secured and will be dispensed according to the order over the term of the LMSA and any shortfall in the LMSA on an annual basis should be funded by CMS as it is with a WCMSAs. Combining a Court’s order on an LMSA with ongoing funding, administration and reporting that ensures that the order is followed post-settlement or judgment is a gold-standard answer to this challenge. In addition, the structure should be compelling to a plaintiff beyond these features. A structure often safeguards needs-based public assistance benefits or eligibility (AFDC, SSI, Medicaid, etc.) and protects these funds from liens from many kinds of creditors (bankruptcy, divorce, etc.) in ways a lump sum cannot. By the way, the use of the “replenishing MSA” might be even more critical should a Court determine that the LMSA does not present “a justiciable case or controversy ripe for review^xxi” and the parties agree to an allocation any way.

4. Talk to the Doc
In its “Benson Memo” on September 30, 2011^xxiii, CMS stated that it will consider its interests protected if the plaintiff’s treating physician certifies that future medical care will not be necessary post-settlement in a liability claim. If secured, memorialize in your settlement documents and keep the physician’s letter on file. While practically difficult, it is a bright line to consider, especially if the medical issues in a claim are resolved and future medical exposure is highly speculative.

5. Create a Protocol and Follow It
As with any process that might be scrutinized by a Federal agency for compliance, establishing a clear Protocol is invaluable. Publishing, training, and establishing a pattern or practice of consistently following that Protocol can be nothing but helpful for a variety of purposes. We recommend that you consider with your MSP compliance provider and counsel a Protocol that includes the following eight components:

•  Consider settling cases before a formal requirement is initiated.
  According to NCCI, 61% of the costs of in WCMSAs in excess of $200,000 created between 2010 and 2015 arose from prescription drugs^xxiv. CMS requires an AWP standard that professional administrators like Ametros report are spent at about 70% of what is allocated. With that in mind, it is likely that the advent of a formal review process will increase the cost of prescription drugs alone by 18.3% of the total LMSA calculating the costs of non-network DME and a predilection to “over-include.” NCCI also reports that 73% of WCMSAs involve individual between the ages of 50 and 70 years of age. With all that in mind, CMS’s guidelines for LMSAs are likely to increase the cost of liability judgments and settlements by at least 20%, especially involving a Medicare beneficiary or individual 30 months from eligibility between the ages of 50 (remember SSDI eligibility!) and 70—and especially in cases in excess with $200,000 or more in the potential allocation. Perhaps aggressive settlement of those claims might be important to pursue. By the way, if using a structured settlement, more savings—an average of an additional 30%—can be created to create more savings that can be used to bridge the settlement gap. Also, any opposition to a structure usually can be successfully addressed in reviewing the benefits (discussed above) with the plaintiff and counsel.
•  Leverage a comprehensive MSP provider who will be credible in testimony from the outset.
  Because the issues that arise can require a legal opinion, a medical/life care plan assessment, a pharmaceutical review and general expertise on the MSP statute, choose your MSP provider carefully and ensure that they have all these capacities to advance your Protocol. You also need to be sure that the conditional payment and reporting challenges are met with expertise the Court will recognize upon examination or in deposition.
• Ensure that conditional payments and Medicare Advantage Liens are discovered and negotiated.
  As noted above, investigate, negotiate and mitigate these issues prior to settlement.  Take care to document an agreement over conditional payments with dates of service that date back before the date of settlement. Given that it may take as much as 39 months between the date of service, date of billing and actual payment, this issue can arise. As part of the Protocol, we suggest developing and employing standard language with your MSP compliance vendor and counsel.   
•  Verify accurate and timely section 111 reporting.
  While this challenge has its own complexities, CMS authority is clear and their penalties are quite steep. While beyond the scope of this article, I urge you to be fastidious in verifying and documenting any Section 111 reporting responsibility in any liability case closure with your MSP compliance vendor and counsel.
•  Leverage aspects of the WCMSA.
  Consider adopting the WCMSA review standard as a backstop for Liability claims. While there has been long debate about whether WCMSAs need to be prepared in cases that do not fit the review standard, the LMSA court cases do not seem to differentiate between the CMS review standard and a WCMSA requirement for CMS cases. In fact, when CMS published its Advanced Notice of Public Rulemaking (ANPRM) in the Federal Register in June 2012, it seemed fixated on the $25,000 threshold for review in LMSAs^xxv. If you agree, graft those standards into your Protocol.   That it, consider making Medicare eligible individuals with a claim amount over $25,000 or individuals with a “reasonable expectation” of Medicare within 30 months and an amount in dispute over $250,000 exempt from consideration for an LMSA. Again, as part of the Protocol, we suggest developing and employing standard language with your MSP compliance vendor l and striving for verification by the court. Should you choose different criteria, we recommend analogizing or differentiating those Protocol from the WCMSA review guidelines.
• Seek a “Benson” opinion from the treating physician.
  If active treatment has ended, seeking a certification in any case from the treating physician that future treatment is necessary is a bright line opportunity to avoid an LMSA. If not successful in completely extinguishing the need for an LMSA, you may find grounds for ring fencing it in on specific medical issues that can mitigate speculation as well as unwarranted costs. From a Protocol perspective, it is a bright line policy exception authorized by CMS and designed to provide the Court with license to weigh this, as well as other, issues when combined with the 11th Circuit’s jurisprudence in Bradley.
• Develop an LMSA “Bradley Checklist”.
  Given the lack of guidance from—and the resistance to review by—CMS on LMSAs, the courts provide a pathway of you ask for rulings on legal issues that define the extent of liability and on the efficacy of future Medicare-covered benefits. Because CMS routinely refuses to review LMSAs, a “zero allocation” brief from your MSP compliance provider counsel cannot be submitted. But it can be used to brief the judge on the issues that eliminate the need for an LMSA. Similarly, that strategy can form the rationale for any motion for offsets to an LMSA as well. Again, that checklist should include: coverage issues, exclusions, significant compromise or nuisance value rationale, apportionment of fault or contributory negligence, policy limit exhaustion, statutory caps, subrogation/the existence of another primary provider, allocation of proceeds for non-Medicare covered damages or any other argument that shifts all or some of the liability for ongoing, Medicare-covered expenses elsewhere. Standardize the language and consider seeking a ruling from the court as another dimension of motion practice.
• Fund with a structure and include professional administration.
  If any future LMSA allocation is in play, funding it with a structured settlement combined with professional administration likely creates a replenishing LMSA as it does with a WCMSA. While I do lead a structured settlement brokerage company, the value of their use is objective. As it states in Section 5.2 of the WCMSA Reference Guide v. 2.5, if the MSA is “spent in a given annual period, Medicare will pay primary for further WC claim-related medical expenses during that period” as long as it can be documented that the year’s MSA annuity payment was exhausted on MSA approved medical expenses.   

CONCLUSION

Despite the fact that CMS officials have indicated that the “Medicare Trust Funds must be protected” if the settlement or judgment includes “funding for otherwise covered and reimbursable future medical services^xxvi”, a substantive, comprehensive policy on Liability MSAs from CMS simply does not yet exist. However, the Courts have stepped into the leadership breach in the cause of bringing necessary finality to the settlement, judgment, or award.

If the parties seek a ruling on an LMSA (or its absence) that integrates WCMSA policy and LMSA breadcrumbs, persuasive precedent from other courts to address the issues, sound legal arguments and medical analysis about future Medicare-covered expenses medical expenses AND a “replenishing” LMSA funded with a structure and professional administration, clarity and finality are possible despite that fact one Court aptly described the Medicare Secondary Payor Act is one of the “the most completely impenetrable texts within human experience^xxvii.”

While the mythical creature of an official LMSA policy from CMS still eludes capture, these strategies should provide a practical pathway out of the woods.