Tag Archives: Medicare Set-Aside

Summary of Final Rule: Conditional Payment Appeals Process for Applicable Plans

On February 27, 2015, CMS published in the Federal Register the SMART Act Appeal Final Rule which can be located at 80 Fed. Reg. 10611. The rule can be found here and will go into effect on April 28, 2015. CMS had previously issued the Proposed Rule on this very topic on December 27, 2013. Materially, the Final Rule is effectively the same as the Proposed Rule without substantive change. While some greater strides toward more operational efficiencies could have been made in finalizing the Final Rule, Helios applauds CMS finalizing this proponent of the SMART Act within two years of the law’s enactment.

What the Final Rule does: The Final Rule puts into place a conditional payment appeals process for “applicable plans.” An applicable plan means liability insurance (including self-insurance), no-fault insurance, or a workers’ compensation law or plan. Prior to implementation of this Final Rule, applicable plans had no appeal rights with regard to conditional payment demands from Medicare. With this final rule in place, applicable plans can now appeal final conditional payment demands issued by Medicare if the applicable plan disputes the amount or liability owed.

How the Appeals Process will work: Applicable plans’ appeal rights are the same process that beneficiaries, providers and others must use to dispute a conditional payment demand. It is a four-level appeals process which requires that the applicable plan exhaust its rights in the following order: (1) reconsideration of a claim by the CMS contractor; (2) evaluation of the claim by a Qualified Independent Contractor (QIC); (3) adjudication of the dispute by an Administrative Law Judge (ALJ); (4) and lastly a review of the ALJ decision by the Department Appeals Board’s Medicare Appeals Council. It has been noted that this current four-level appeals process can take up to four years to pursue. It was requested that CMS simplify this appeals process and skip the first two levels; however, CMS declined this suggestion.

What is Not Subject to Appeal: Through the rulemaking process, industry stakeholders requested that CMS allow applicable plans to appeal issues other than the conditional payment amount. In particular, it was requested that CMS allow the applicable plan to dispute who or which entity that CMS would pursue an MSP recovery from. CMS declined this request, citing its authority within the MSP to recover from the beneficiary, the primary payer or any other entity receiving proceeds from the payment by the primary plan. Stakeholders also requested that an applicable plan be able to appeal an initial conditional payment demand, even if the final amount of the repayment was not yet available in a Final Demand letter. CMS also declined this request; Applicable Plans may only appeal from Final Demands.

Who May Appeal: It was requested that either the applicable plan or the beneficiary be able to appeal where the identified debtor is either the applicable plan or the beneficiary. CMS declined this request and has stated that the Final Rule makes appeal rights available to the identified debtor, not potential identified debtors. Therefore, applicable plans may only appeal under this process if they are the identified debtor in the Final Demand letter. Additionally, beneficiaries may only appeal under previously existing conditional payment processes if the beneficiary is the identified debtor in the Final Demand Letter.

Commenters also had requested that applicable plans be able to appoint third parties/agents as representatives in the appeals process. CMS contends that applicable plans already have this right, and further specified that the party appointing a representative must include the beneficiary’s Medicare health insurance claim number (HICN) on the appointment of representation.

Notice of Appeal: It was also requested that either the applicable plan should be copied on a recovery demand with the beneficiary as the identified debtor; or all potential debtors should be copied on all actions (that is, recovery demands, appeal requests, all notices or decisions). CMS declined this request citing that additional notice would not be necessary since only the identified debtor can appeal the Final Demand. Additionally, it would cause “an increase in administrative costs and would cause confusion in many instances, particularly where beneficiaries would receive copies of demands issued to applicable plans.”

Medicare Advantage Plan Conditional Payment Appeals: Commenters requested that the proposed rule be revised to include appeal rights for applicable plans when a Medicare Part C organization or Part D plan pursues an MSP based recovery from the applicable plan. CMS stated that the request was outside the scope of the rule and that the SMART Act provision for applicable plan appeals amended only the MSP provisions for Medicare Part A and Part B.

MSA Appeals: It was requested that the proposed rule should address appeals related to the determination of WCMSA amounts for future medicals. CMS stated that this issue is outside of the scope of the rule and that this particular issue would be addressed separately. As an aside, if CMS does create an appeals process for MSAs, it would likely be created outside of the legislative process which could allow for the appeals process to be implemented more quickly.

In summary, the Final Rule provides a much needed conditional payment appeals process for Applicable Plans. While the four-level appeals process may be rumored to be slow, Applicable Plans now have the same rights of appeal that previously only existed for others in the Medicare program. The SMART Act is continuing to steadily create a more efficient process and reform the MSP system.

Federal Circuit Court Finds Employment Discrimination Settlement Lacking Medicare Details Binding, Leaving Parties Unprotected from MSP Viewpoint

gavel-papersOn February 11, 2015, the United States Court of Appeals for the Second Circuit published its opinion on Hoover v. New York State Department of Corrections and Community Supervision, Albion Correctional Facility, Sue Wojcinski, Sandra Durfee, Angie Maume, and Donna Baker, finding that if defendants considered plaintiff’s Medicare status to be critical in deciding whether to settle, they should have ascertained that status before agreeing to settle the case on November 5, 2012 for $750,000. As a result, the court affirmed the judgment of the district court, which had previously directed that judgment be entered in favor of plaintiff in the amount of $750,000 when the parties were unable to agree on the exact Medicare language in the settlement documentation.

Plaintiff commenced this employment discrimination action on November 21, 2002. After several motions for summary judgment, and several changes in attorneys, at a conference on July 9, 2012, the court scheduled jury selection and trial to commence on November 7, 2012. On the morning of November 5, 2012, two days before the trial was scheduled to commence, counsel telephoned the judge’s chambers to report that the parties had reached a settlement. That afternoon, the material terms of that settlement were placed on the record. At that time, defendants’ attorney indicated he had offered and the plaintiff had accepted $750,000 total inclusive of damages, costs and fees to settle. Defense counsel also indicated he had advised plaintiff counsel that because of new Medicare and Medicaid laws, there would be some documents that would be forthcoming to determine how to word the stipulation.

On the record, the judge asked whether the dismissal of the claims would be with prejudice in return for the payment of the settlement amount, and both counsel agreed. The judge further asked counsel to confirm the material terms of the settlement, and that although documentation needed to be executed to confirm the settlement, that the settlement would be effective November 5, 2012, notwithstanding any additional documentation which needs to be executed. Both counsel agreed. As a result, the court issued an order that same day indicating that because a settlement had been reached, the material terms of which were placed on the record, the jury trial scheduled to commence on November 7, 2012 was cancelled, as the parties would file an executed stipulation of dismissal.

After spending the better part of a year attempting to finalize the language of the settlement documentation, the parties reached an impasse. Defendants then asked the court to compel plaintiff to execute their settlement agreement, and plaintiff asked the court to compel defendants to execute her version.

On October 16, 2013, the United States District Court for the Western District of New York published its decision denying both motions and concluding instead that if the parties had not executed settlement documentation by November 8, 2013, the court would entertain a motion to enforce the settlement.

Defendants insisted that plaintiff either provide a physician’s letter stating that she would not require further treatment, or else agree to a Medicare Set-Aside (MSA), whereby a certain amount of the settlement proceeds would be set aside to pay for future medical payments, in order to protect the parties against any potential liability to Medicare. The court however ultimately found that although defendants could have conditioned the settlement on plaintiff’s providing a physician’s letter or agreeing to a MSA, they did not do so.  If defendants considered plaintiff’s Medicare status to be critical in deciding whether to settle, they should have ascertained that status before agreeing that the settlement was effective as of November 5, 2012. The court therefore ordered that if the parties had not executed settlement documentation by November 8, 2013, the court would entertain a motion to enforce the settlement.

When the parties were unable to agree on the exact language of the settlement documentation, the court directed that judgment be entered in favor of plaintiff in the amount of $750,000. The State appealed that decision. On appeal here, the Circuit Court reiterates the fact that the parties expressed a clear intent to settle and placed the material terms of their settlement on the record, with neither party making any express reservation to be bound only by writing. As a result, the court agrees with the magistrate judge that “although defendants could have conditioned the settlement on plaintiff’s providing a physician’s letter or agreeing to a Medicare set-aside, they did not do so.” “If defendants considered plaintiff’s Medicare status to be critical in deciding whether to settle, they should have ascertained that status before agreeing that the settlement was effective as of November 5, 2012.” The court therefore affirms the judgment of the district court.

We have all seen work comp and auto cases with MSP issues. And it is no longer unusual to read about medical malpractice or products liability cases with MSP issues. This however may be the first federal employment discrimination case dealing with MSP issues. More so however, this is yet another example of how waiting too long to prepare to protect Medicare’s interests in any type of settlement can end up affecting your agreement, provide you with unclear or unwanted language, or even worse, leave you unprotected from an MSP perspective. Over the last five years, there have been numerous state and federal cases concluding that despite Medicare’s guidance in workers compensation cases, and lack thereof in liability cases, courts will not disturb parties’ agreement to settle, even if it is clear both parties may be leaving the courtroom without appropriately taking Medicare’s interests into consideration. Helios can assist you with complying with MSP issues from the moment a claim is filed through settlement. Please contact us at http://www.helioscomp.com/settlement-solutions to learn more.

CMS Issues NGHP User Guide Version 4.5; Reaffirms that Orders Contradicting the MSP will not receive Deference

heatherCMS has updated their User Guide for Non Group Health Plans. The update is dated February 2, 2015. The only update to the guide is the following:

The updates listed below have been made to the Policy Guidance Chapter Version 4.5 of the NGHP User Guide. As indicated on prior Section 111 NGHP Town Hall teleconferences, the Centers for Medicare & Medicaid Services (CMS) continue to review reporting requirements and will post any applicable updates in the form of revisions to Alerts and the User Guide as necessary.

The following update was made to Chapter III for this release: RREs generally are not required to report liability insurance (including self-insurance) or no-fault insurance settlements, judgments, awards or other payments where the date of incident (DOI) as defined by CMS was prior to December 5, 1980. For this release, new policy language was added to the following document: “Liability Insurance (Including Self-Insurance): Exposure, Ingestion, and Implantation Issues and December 5, 1980.” (Section 6.5)

  • Any operative amended complaint (or comparable supplemental pleading) must occur prior to the date of settlement, judgment, award, or other payment and must not have the effect of improperly shifting the burden to Medicare by amending the prior complaint(s) to remove any claim for medical damages, care, items and/or services, etc.
  • Where a complaint is amended by Court Order and that Order limits Medicare’s recovery claim based on the criteria contained in this alert, CMS will defer to the Order. CMS will not defer to Orders that contradict governing MSP policy, law, or regulation.

This information was provided in a previous August 19, 2014 CMS alert; therefore, it appears that CMS has simply incorporated that alert into the User Guide. However, it is noteworthy that CMS continues to point out it will not abide by court orders that contradict MSP policy, law, or regulation. Particularly in the liability context, this could certainly cause some anxiety for settling parties since without an official LMSA process, the courts are now often times issuing orders that no LMSA obligations remain. CMS could later look upon that court order and state that the order contradicted MSP regulations.

However, there are steps that parties can take to take into account Medicare’s interests and decrease the likelihood that CMS would find that the settlement/order contradicts MSP regulations. For example, in the recent liability case Berry v. Toyota Motor Sales (click here to read our blog on this case), the plaintiff was able to obtain opinions from its treating providers that no future medical treatment related to the claim would be needed. Since CMS has stated that if a treating physician certifies in writing that no future care is needed, no LMSA would be required, CMS would not later find that the order contradicted MSP policy in this case.

The fact that CMS has continued to reiterate its policy that it will not defer to court orders that contradict MSP policies and regulations should not come as a shock, and as previously stated, if parties take proactive steps to demonstrate the protection of Medicare’s interests, CMS would likely defer to the court’s decision on the matters relative to the MSP in the court order.

The new User Guide can be found here, and the August 19, 2014 alert can be found here. For questions, please contact heather.sanderson@helioscomp.com.

Pennsylvania Bankruptcy Court Finds MSA is a Trust, Allows Claimant to Keep Funds, Away from Creditors

Stethoscope and GavelOn January 5, 2015, the United States Bankruptcy Court for the Middle District of Pennsylvania published its opinion on In Re: Jesus Arellano, concluding that property traceable to a pre-bankruptcy petition lump sum workers’ compensation settlement award may be claimed as exempt resources. The court also finds that the WCMSA established a trust for the benefit of medical providers since the express intent of the settlement agreement was to create a fund to pay for medical treatments and prescription drugs related to the work-related injury. By finding that the WCMSA funds were to be held in trust for the benefit of providers of medical services related to the workers’ compensation claim, the court determines that the WCMSA is not property of the bankruptcy estate and may not be administered by the Bankruptcy Trustee for the benefit of creditors. Therefore, the court rules in favor of exempting all proceeds from the settlement agreement and all property acquired with these proceeds.

In 2010, Jesus Arellano (Debtor) sustained a broken hip at work in Maryland. Thereafter, he filed a workers’ compensation claim. On December 1, 2011, Debtor entered into a settlement agreement with his employer whereby Debtor would receive a lump sum payment of $225,000. In addition, $72,741.88 was paid to Debtor as a Medicare set aside for Debtor’s need for future treatment for his injuries.

In January 2012, Debtor deposited both the lump sum settlement and the Medicare set aside in his bank accounts. Debtor admitted that he used to funds to make several purchases – a 2005 Ford F-150 for $17,000, real property located at 3587 Cannon Lane, York PA 17408 for $85,000, and real property located at 3887 Cannon Lane, York PA 17408  for $86,000. On November 1, 2012 Debtor sold the 3887 Property to his brother through an installment agreement for $90,000. Under the terms of the sale, Debtor’s brother is obligated to make payments of $1200 per month, which includes principal and interest at 5.5 percent, until the balance is paid in full in June 2020.

Debtor filed a Chapter 7 bankruptcy petition on March 8, 2014, claiming as exemptions  the 3587 Property, the 3887 Property, funds in 2 checking accounts established from Debtor’s workers compensation pay-out, and the Ford F-150 under 11 U.S.C. §522(d)(11)(E).

On April 30, 2014, the Trustee filed an objection to Debtor’s exemption claim asserting that §522(d)(11)(E) did not authorize Debtor to exempt property that was the proceeds of a workers’ compensation claim. On May 22, 2014, Debtor responded to the Trustee’s objection asserting that the property could be exempted under §522(d)(11)(E) and that the property claimed was reasonably necessary for Debtor and his dependents.

A hearing on the Trustee’s objection was held on September 25, 2014, at which time the issues were identified as follows: 1) whether funds or property traceable to the proceeds of a lump sum workers’ compensation settlement received prepetition may be claimed as exempt under §522(d)(11)(E); and 2) if the funds and property may be exempted, whether they are necessary for the support of Debtor and his dependents.

The Trustee based his objection on a decision rendered in 2001 by Judge Thomas in the case of In re Michael, 262 B.R. 296 (Bankr. M.D. Pa. 2001). The facts in In re Michael are similar to the facts here. The debtor received a lump-sum settlement after sustaining a work-related injury prior to filing his bankruptcy petition. On his schedule of exemptions, the debtor listed the proceeds of the settlement as exempt under 11 U.S.C. §522(d)(11)(E). Judge Thomas upheld the trustee’s objection to the exemption claim holding that workers’ compensation claims could not be exempted under §522(d)(11)(E), but must be exempted under §522(d)(10)(C). Judge Thomas cited the analysis of the court in In re Williams, 181 B.R. 298 (Bankr. W.D. Mich. 1995), and adopted the majority view that “workmen’s compensation awards, and the tracing of those awards into certain specific items, are beyond the scope of 11 U.S.C. §522(d)(11)(E).”

To avoid the injustice of finding that workers’ compensation awards paid in installments could be exempted, but those received in a lump sum could not, the bankruptcy court in In re Sanchez, 362 B.R. 342 (Bankr. W.D. Mich. 2007) decided to give the issue a fresh look. In Sanchez, Judge Hopkins looked at the plain meaning of the statute and concluded that workers’ compensation awards may be exempted under §522(d)(11)(E) if the award is traceable to a payment that is intended to compensate the debtor for the loss of future earnings and is reasonably necessary for the support of the debtor or the debtor’s dependents.

The court here agrees with the conclusion of the Sanchez court that §522(d)(11)(E) unambiguously exempts “a payment in compensation of loss of future earnings of the debtor,” including lump sum workers’ compensation payments, without restricting such payment to tort-type actions. The court therefore concludes that §522(d)(11)(E) provides a basis upon which property traceable to a pre-petition lump sum workers’ compensation settlement awarded for the loss of future earnings to the extent that the lump sum is reasonably necessary for the support of a debtor and the dependents of a debtor may be claimed as exempt.

In addition, part of Debtor’s workers’ compensation settlement was a Medicare “set aside” (WCMSA) payment. WCMSA is 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.” The Center for Medicare and Medicaid Services provides that a claimant “can ONLY use a WCMSA to pay for medical treatment or prescription drugs related to his or her workers compensation injury, and ONLY if the expense is for a treatment or prescription Medicare would cover. This is true even if he or she is not yet a Medicare beneficiary.”

The court therefore concludes that the WCMSA provided as a result of Debtor’s settlement agreement established a trust for the benefit of medical providers. The express intent of the settlement agreement was to create a fund from which Debtor was to pay for his medical treatments and prescription drugs related to his work-related injury. Even though the agreement did not specifically state that Debtor is to hold the funds as trustee for the benefit of his medical providers, no such words are needed in order to create an express trust. The subject matter of the trust is the WCMSA of $72,741.88. The parties to the settlement agreement were competent to create the trust, Debtor was capable of holding the funds as trustee, and entities providing medical services to Debtor were named beneficiaries of the trust. Thus, all the requirements necessary to create a trust have been met in the settlement agreement.

By finding that the WCMSA payment was to be held in trust for the benefit of providers of medical services related to Debtor’s workers’ compensation claim, the court finds that the WCMSA is not property of Debtor’s bankruptcy estate and, as such, may not be administered by the Trustee for the benefit of creditors. The court therefore rules Trustee’s objection to Debtor’s exemptions under 11 U.S.C. §522(d)(11)(E) is overruled.

Does this case open up any liability for payers? If, in fact, MSAs are a trust for the benefit of medical and prescription providers, doesn’t the trustor, the payer funding the trust, have a fiduciary responsibility to the medical and prescription vendors providing such benefits/services? If a medical or prescription vendor provides benefits/services to the claimant, but the MSA trustee is unable to pay because funds were misused, does the medical or prescription vendor have a cause of action against the trustor, the original primary payer? At Helios, because of our extensive national resources and country-wide market strength in pharmacy, medical services, and durable equipment, our MSP compliance products, specifically our MSA professional administration services, not only take this potential liability into account, but solves it. Contact us to find out how.