Liability Medicare Set Asides (LMSAs): October is Here! Now What?

By B. Josh Pettingill, MBA, MS, MSCC & Jason D. Lazarus, J.D., LL.M., MSCC

The debate regarding addressing Medicare’s future interest in liability settlements is filled with nuance and subtleties. An essential step in understanding the big picture is starting with the genesis of set asides, the Medicare Secondary Payer (MSP) Statute. Although, the finer points of this issue may leave room for interpretation, the MSP is express and clear. It precludes Medicare from paying for any item or service when payment has been made by a liability insurance policy, self-insured or no fault plan¹.

The debate is limited to the fashion in which we address a statue that has not been enforced up until this point as it relates to payments made by Medicare after settlement. The fact that a law has not been enforced in this way in the past does not mean it is irrelevant, especially when recent steps by the Centers for Medicare and Medicaid Services (CMS) begin to do just that. This article will examine the form, function and attempts at regulation surrounding set asides in liability cases.

A Medicare Set Aside (MSA) is currently not required by any regulation or statute, even in workers’ compensation cases. However, an MSA, according to CMS, is Medicare’s preferred method for protecting its future interests when the settlement funds future medical care. Starting October 1st, CMS is purportedly going to deny making payments for accident related care post-settlement of a liability or no-fault claim on the basis they should be paid for out of an MSA. In its conclusion, this article will provide suggested best practices to being complaint with the MSP statute and avoid possible Medicare denials from ever occurring.

Historical Enforcement of the MSP Statute

Enforcement of the MSP as it pertains to future Medicare covered services began back in 2001 when CMS announced in a policy memorandum the requirement to set aside a portion of workers’ compensation settlements allocated to future Medicare covered expenses². Accordingly, the MSP future medicals enforcement only took place in workers’ compensation matters. The memorandum was the advent of the Workers’ Compensation Medicare set aside (WCMSA). In 2007, Section 111 Reporting Requirements (part of the Medicare, Medicaid, and SCHIP Extension Act) added a mechanism for CMS to collect date about Medicare beneficiaries who receive liability, workers’ compensation or no-fault liability settlements, judgments or awards³. This Section 111 Reporting Requirement gave CMS further ammunition to track compensable ICD codes related to the liability case. A tremendous amount of electronic data gets reported every day now for settlements of 1k or greater involving a Medicare beneficiary.

Up until now, there has been little to no enforcement of MSP for future medicals in the context of liability settlements. In most instances, Medicare has continued to process medical claims as if there never were a recovery made for future medical care. On very rare occasions, they would deny medial claims submitted by providers. However, the frequency of denials is likely to increase going forward. Therein is the real risk associated with not considering Medicare’s future interests going forward. As will become evident from the next section of the article, there are new developments which makes the threat of denials much more likely.

MM9893 and SE17019 Alerts to the Medical Community

According to the CMS alert that was sent out in February⁴, starting October 1, 2017 “Medicare and their contractors will reject medical claims submitted post-resolution of a liability settlement on the basis those claims “should be paid from a Liability Medicare Set Aside (LMSA)”⁵. The commentary cited the basis for rejection of the claims as enforcement of the MSP statute. It also stated that Liability and No-Fault MSP claims that do not have an MSA “will continue to be processed under current MSP claims processing instructions.” CMS also warned medical providers to make sure their billing staffs were aware of changes . These “new policy changes” have the medical community, the plaintiff’s bar and the insurance industry all scrambling to get their internal procedures in place to address this change in how CMS processes liability and no-fault medical claims.

Last week, CMS issued a subsequent alert to the medical community on September 19th⁷. It reiterated that Medicare is supposed to be secondary to all forms of liability, no-fault and workers’ compensation insurance as it relates to future medicals. The purpose of the alert was to remind medical providers that they should be billing liability, no-fault or workers’ compensation Medicare set aside arrangements first before they attempt to collect payment from Medicare or its contractors. The other key takeaways were as follows:

1. The obligation to protect the Medicare trust funds exists regardless of whether or not there is a formal CMS approved MSA amount.
2. The CMS review process is voluntary for WCMSA amounts, and there is no formal process for reviewing proposed LMSA or NFMSA amounts, a Medicare beneficiary may or may not have documentation they can provide the physician, provider, or supplier from Medicare approving a Medicare Set-Aside amount.

The number of LMSAs and NFMSAs that currently exist or have been previously established is de minimis. That is the apparent good news; the direct impact to plaintiffs should potentially be minimal. However, there still may be unintended (or intended) consequences for Medicare beneficiaries. Medical providers may be overly concerned about Medicare not getting paid back when they send a claim to be processed and reimbursed. Is it possible that the medical providers will implement a more stringent internal screening process for both new and current patient’s claims. As a result, they may refuse to treat the plaintiff if they believe that Medicare will not reimburse them. For example, what if they started asking the following questions on their intake?

• Have you been injured in a personal injury accident in the last 3 years?
• Did you have a personal injury claim that was resolved in the last 3 years?
• If yes, what were the compensable body parts claimed?
• Did you establish a Medicare Set Aside arrangement as part of the resolution?
• If yes, how much money was set aside?

At minimum, these alerts are the latest signals to support that CMS is continuing its pursuit of establishing formal guidelines for liability MSAs. Although, these alerts do not create any new regulations or statutes regarding MSP compliance, that does not mean CMS will simply continue to sit back and not enforce the MSP statute. The alerts do create policies which can lead to denials of care or make it much more likely.

CMS Expands Voluntary Submission Thresholds to include LMSAs and NFMSAs.
In addition to the alerts CMS has sent to providers, they began a search for a new set aside review contractor. When CMS put out the request for a new workers’ compensation review contractor in December of last year, they said the new review contractor would not only review workers’ compensation MSAs but also liability and no-fault MSAs. Specifically, there would be a two tier review process for liability and no-fault MSA submissions⁸. The first tier would be a full review like what currently takes place with workers’ compensation MSAs that meet the submission thresholds. The second tier would be a “cursory” review that involves a less stringent methodology for cases that fall within a different threshold (yet to be determined by CMS).

CMS recently selected their new workers’ compensation review contractor⁹. On September 1st, the contract was awarded to Capitol Bridge LLC. It should be noted, that the value of the contract is over $60,000,000 – that is more than 10x the dollar amount the last review contractor received¹⁰. It is highly likely that the enormous compensation increase is due in part that the workload is going to increase substantially if/when they add voluntary submission thresholds for LMSA and NFMSAs¹¹. Starting in 2018, the new review contractor will step into said role. In fact, the new review contractor has already initiated training sequences under the old review contractor. Whether or not voluntary review thresholds are ever implemented for LMSAs and NFMSAS, all parties must be preemptive in identifying potential claims involving Medicare beneficiaries.

What changes are going to happen starting October First and beyond? Here are some possible scenarios:

1. Nothing is going to happen. Medicare continues to process claims like they always have done with the occasional audit of a Medicare beneficiary.
2. CMS issues a new policy memorandum to include voluntary submission review thresholds regarding LMSAs.
3. The frequency of Medicare post-settlement denials increases for liability and no-fault claims.
4. CMS issues a LMSA Reference Guide similar to what they have in workers’ compensation.
5. CMS issues formal guidelines for LMSAs and NFMSAs in 2018.

Let’s examine the most likely scenario that may play out in the immediate future.

The most likely scenario is that post-settlement denials will start to increase for situations when Medicare’s interests were not adequately considered.

Through the Section 111 reporting requirement, as discussed above, Medicare has developed a comprehensive system to track all settlements with current Medicare beneficiaries. In 2015, Medicare implemented the new ICD coding system. ICD-10 has 140,000 codes—more than 8 times the 17,000 codes in ICD-9. The additional codes enable responsible reporting entities to be more specific on claim forms in reporting the care provided to plaintiffs. What this means for plaintiffs is that when they go to treat for accident related care in the future, if treatment consists of a body part or ICD code previously reported to Medicare as part of the settlement, CMS may send a letter of denial or a treater might refuse to provide care. Consequently, the plaintiff may lose their Medicare benefits for accident related care indefinitely, until they have properly reimbursed Medicare for any past claims they have denied as well as sufficient funds have been spent down to adequately protect their “future interests”.

Insurance carriers and payers will start to be more stringent on incorporating an LMSA as part of the terms of the settlement.

Since 2001, insurance companies have been using Worker’s Compensation Medicare Set Aside agreements (WCMSA) as a tool to resolve cases involving a Medicare beneficiary with a future medical component¹². Trying to use a WCMSA in a liability claim is like putting a square peg in a round hole. There is a fundamental difference between worker’s compensation claims and liability claims. The primary issue with WCMSA’s is they fully fund future Medicare allowable expenses related to an industrial accident since the carrier is liable for all future medical costs. Whereas, most if not, all liability cases resolve for a compromised amount due to issues such as pre-existing conditions, liability, causation, caps on damages and limited coverage. The common result in liability settlements involving Medicare beneficiaries is a disagreement between the parties as to what should be done for MSP compliance once the liability claim resolves. This disagreement causes delays in the settlement and ends up costing all parties involved. In the absence of formal guidelines or voluntary review thresholds for LMSAs, all MSP compliance issues must be discussed early in the settlement process to avoid these delays. An early dialogue about expectations of what will be done to protect Medicare’s interests also makes imminent sense to avoid possible complications at settlement.

Addressing Medicare’s Future Interests without a CMS Approved MSA

Before settling their case, the plaintiff needs to understand this risk of potential denial of accident related care related to Mandatory Insurer Reporting under Section 111¹³. If a settlement will be reported to Medicare under the Mandatory Insurer Reporting laws (Section 111 reporting), Medicare will be on notice of the settlement and the injury related ICD codes. Denials will be related to “diagnosis codes or family of diagnosis codes”¹⁴. Such a denial could require a lengthy internal appeals process before Medicare payments for accident related care might have to be reinstated by a Federal District Court.

While there is currently no regulation or law that mandates a liability Medicare set aside, it does not mean there will be no consequences when there is an attempt by the plaintiff to shift the burden to Medicare for future injury-related care. It is very clear from Medicare’s public statements that the agency believes that set asides are the best method to protect the program from paying for injury-related care when future medicals are funded by a settlement. That does not mean it is the only way to demonstrate that Medicare’s interests were considered when a case involving a Medicare beneficiary is settled, it simply means it is one way.

From a practical standpoint, any of the below options could theoretically serve as alternatives to doing a liability set aside:

1. Plaintiff can use other health insurance to pay for accident related care.
2. Plaintiff can pay out of pocket as they go for treatment.
3. Plaintiff can set up a Medical Savings Account if they qualify.
4. Plaintiff can set up a settlement preservation trust to earmark funds for requisite healthcare.
5. Plaintiff can purchase a structured settlement to designate for any and all future medical care.

With any of these above options, there is no shift in burden for Medicare to pay for accident related care. Although it is certainly not recommended, another option would be for the plaintiff to do absolutely nothing. They can do nothing and continue to bill Medicare for accident related care after their case has resolved. If Medicare ever audited the file or established new conditional payments, then the plaintiff could simply pay Medicare back at their reduced fee schedule. However, if nothing is done to shift that burden away from Medicare, CMS could deny paying benefits for accident related care indefinitely, or up to the entire amount of the plaintiff’s settlement has been spent for accident related care. If the plaintiff is receiving Social Security disability or retirement benefits, the government can also garnish those monthly payments to recoup an overpayment or a conditional payment. Plaintiff attorneys and insurance carriers alike have to stop speculating and have to start preparing for the potential October 1st changes.

Conclusion
The MSP was established over thirty five years ago but this law is still the governing authority as it relates to liability and no-fault claims involving Medicare beneficiaries. The only debate that remains is, what are going to be the next action steps taken by CMS to fully and readily enforce the MSP statute as it relates to futures? It is critical to note, CMS does not have to issue any new formal policies for them to deny making payments for accident related claims post-settlement. They do not have to wait and see whether or not an LMSA or NFMSA has been established. Under the MSP, Medicare is always supposed to be a secondary payer to all forms of insurance.

Protecting Medicare’s interests on liability settlements should be a collaborative process for all parties involved. The parties must openly communicate (early and often) to determine proper Section 111 reporting data, the Medicare eligibility status of the plaintiff, as well as potential MSP release language. They must also be proactive regarding the potential for an LMSA: which party is going to handle, and how much, if any, is going to be set aside based on all of the facts of the case. There is currently no one size fits all solution to MSP compliance. The fundamental question all parties must ask when resolving a claim has to be, “does the resolution of this claim shift the burden to Medicare to pay for future accident related care?”
CMS has stated the set aside issue is the plaintiff’s responsibility and the role of the defendant is to report settlements with current Medicare beneficiaries under Section 111 reporting . Plaintiff’s counsel has legal malpractice risks if they fail to properly advise the client regarding the set aside issue when they are currently eligible to receive Medicare benefits. It is incumbent upon all parties to a liability or no-fault settlement to consult with competent MSP compliance experts, advise their respective clients on what the potential implications are for not properly taking into account Medicare’s interests, and document the file as to what was or wasn’t done to protect Medicare’s future interests.

[1] The MSP is a series of statutory provisions enacted in 1981 as part of the Omnibus Reconciliation Act with the goal of reducing federal health care costs. The MSP provides that if a primary payer exists, Medicare only pays for medical treatment relating to an injury to the extent that the primary payer does not pay. CFR Title 42, Part 411, Subpart B, Section 411.20 (2) provides “[s]ection 1862(b)(2)(A)(ii) of the Act precludes Medicare payments for services to the extent that payment has been made or can reasonably be expected to be made promptly under any of the following” (i) Workers’ compensation; (ii) Liability insurance; (iii) No-fault insurance. The one exception is conditional payments pre-settlement.
[2] Parashar B. Patel, Medicare Secondary Payer Statute: Medicare Set-Aside Arrangements, Centers for Medicare and Medicaid Services Memorandum, July 23, 2001
[3] https://www.cms.gov/medicare/coordination-of-benefits-and-recovery/mandatory-insurer-reporting-for-non-group-health-plans/overview.html
[4] This informal alert was reissued and summarized by Medicare Learning Network in June 2017.
[5] https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/2017Downloads/R1787OTN.pdf
[6] https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNMattersArticles/Downloads/MM9893.pdf
[7] https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNMattersArticles/Downloads/SE17019.pdf
[8]https://www.fbo.gov/index?s=opportunity&mode=form&tab=core&id=d3b45cd4fe90079ae5eaf5b2a96b9298&_cview=0
[9]https://www.fbo.gov/index?s=opportunity&mode=form&id=244bfc6f69ffabc8e368ab7eb68d01d4&tab=core&tabmode=list&=
[10] The last review contractor received a $6 million contract.
[11] The number of LMSA and NFMSA submissions could result in as many as 51,000 per year according to the draft proposal for the new review contractor.
[12] Parashar B. Patel, Medicare Secondary Payer Statute: Medicare Set-Aside Arrangements, Centers for Medicare and Medicaid Services Memorandum, July 23, 2001.
[13] For years, Synergy has stressed the importance of proper reporting of ICD codes. Failure by the responsible reporting entities (RREs) to report a claim in a timely manner can result in penalties of up to $1,000 per day. They can also be on the hook for double damages if Medicare’s reimbursement claim is not resolved at the time of resolution.
[14] MM9893 alert referenced not only individual ICD codes but family of ICD codes could trigger a denial.
[15] Stalcup CMS Handout