CMS Declines to Participate in Hearing on Determination of Need for MSA

On March 13, 2012, the United States District Court for the Western District of Louisiana published an interesting decision that focused on how parties involved in litigation might resolve a dispute concerning the proper allocation of future Medicare payments. Until recently, conventional wisdom to determine the proper amount to allocate for future medicals would be pursued through the use of a Medicare Set Aside (MSA) and possibly the submission of the MSA to the Centers for Medicare and Medicaid Services (CMS) for review and approval.

However, in Frank v. Gateway Insurance Company1, we have yet another case where the interested parties sought to resolve all disputes concerning the appropriate funding of future medical payments through the courts, rather than taking the typical path of utilizing an MSA allocation.

The Frank case is interesting because CMS was noticed on the Order setting the hearing where the issue of the amount and need for a MSA would be heard, but CMS declined to participate in the hearing. This is also not the first time CMS has informed a court that it would not participate in a hearing during which the amount of future medicals would be determined. In Schexnayder v. Scottsdale Insurance Company, CMS also declined to participate in the hearing to determine the amount of the MSA. For a copy of PMSI’s previous legal bulletin and more detail on Schexnayder v. Scottsdale Insurance Company, please click here. In both Frank and Schexnayder, the claimants had filed a workers’ compensation claim in addition to a liability claim for their injuries. Of course, as seen in the well-known case of Bradley v. Sebelius, the Eleventh Circuit was highly critical of the government’s position of not participating in a court proceeding where a Medicare allocation was to be made. It remains to be seen as to whether more litigants will opt to resolve issues of proper future medical allocations in court, rather than with CMS. It also remains to be seen if CMS will adopt a different policy in light of these decisions. In any event, a closer examination of the Frank case may be helpful.

Warren Frank (Frank) was employed by Ranch Supply and was injured in a workplace accident on June 24, 2010. Frank was unloading merchandise off a trailer owned by Terence Coleman Trucking (Coleman), which was insured by Gateway Insurance Company (Gateway). While Frank was standing on the trailer unloading the merchandise, he fell in a hole on the trailer, causing him physical injuries.

Frank filed suit on October 4, 2010 in the District Court seeking to recover for the damages he allegedly sustained as a result of the accident. Frank underwent lumbar spinal surgery on July 27, 2011, which was performed by Dr. Blanda, an orthopedic surgeon. Post-surgery, Dr. Blanda opined that Frank was doing well and that he would more than likely not need any further surgery. The Defendants, Gateway and Coleman, removed the action to Federal court based upon diversity jurisdiction. Although liability and damages were contested by the Defendants, the claims were settled on December 7, 2011 after lengthy negotiations. However, the one issue remaining to be resolved was the issue of a MSA. On December 21, 2011, a hearing was set to determine the need for, and amount of the MSA for the purpose of complying with the Medicare Secondary Payer Act (MSP). A copy of the hearing order was sent to the United States Attorney’s Office.

On January 20, 2012, a letter from Assistant United States Attorney Karen King was received by the court which advised that the Government would not participate in the hearing. The letter stated: “The Centers for Medicare and Medicaid Services (CMS) does not review or verify counsel’s determination of whether or not there is a recovery for future medical services or counsel’s determination of the amount to be held to protect the Medicare Trust Fund except under limited circumstances.”

During the hearing on January 24, 2012, the Court received evidentiary medical records and affidavits from Frank’s treating physician, his pharmacist, as well as a Payment Summary Form from CMS which indicated prior conditional payments were made by Medicare. From this evidence, the Court was able to surmise that Frank would need $3,200.00 for his future Medicare covered items or services and ordered that Frank provide that amount out of his settlement funding for future payment of these items (his MSA was to be $3,200). The Court additionally ordered that Frank reimburse Medicare for any conditional payments made.

The court clearly was able to decide the necessary MSA amount without CMS’ intervention but interestingly, the Court spent an ample amount of time discussing the Bradley v. Sebelius decision and whether CMS manuals and memoranda should be given Chevron deference and the full weight of the law. The Bradley decision was an allocation case from 2010 in which the Department of Health and Human Services (HHS) sought to recover conditional payments made, although the settlement proceeds were inadequate to meet the value of both the survivor’s claims and the full Medicare conditional payment demand. The Bradley court determined that Medicare had to take a portion of its conditional payment amount, despite the HHS argument that the MSP Manual required that Medicare be able to recover its full demand. The court rejected this argument, stating that such manuals are not subject to the force of law and therefore not entitled to Chevron deference. The Bradley case is also similar to the Frank and Schexnayder decisions in that CMS would not participate in the hearing.

So we now have three cases in which the Government/CMS/HHS has declined to participate in hearings to determine the need for and amount of an MSA, which certainly raises many questions. Will CMS later be bound by the Court decisions regarding the MSA amount? Will CMS now be forced to provide more detailed guidelines on allocations in settlements if it continues to be asked to intervene in hearings? One can only speculate as the enforcement of the MSP and surrounding guidance is continuously ever-changing.

1. [2012 U.S. Dist. LEXIS 33581 (U.S. District Court for the Western District of Louisiana, March 13, 2012)]

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