Medicare Entitled to Reimbursement in Wrongful Death Case When Medical Expenses Recoverable Under State Law

In Weinstein v. Sebelius, 2013 U.S. Dist. LEXIS 41594 (E.D. Pa. Feb. 13, 2013), the plaintiff sought judicial review of the CMS formal demand of $58,393.57 after the plaintiff had reached a medical malpractice settlement for $425,000.00. The plaintiff alleged that the decision upholding the demand by the Administrative Law Judge (ALJ) erred by failing to impose the burden of proof on CMS and by failing to accept a court order limiting the amount of the formal demand. The district court ruled that the ALJ’s decision was supported by substantial evidence.

At the time of settlement, the plaintiff conditioned her release on a court order that limited CMS’s right to recovery to $2,922.34, which represented Medicare payments for her late husband’s stroke-related care from April 10, 2005, to April 16, 2005. April 10 was the date of the alleged malpractice and April 16, the date of his second stroke. The plaintiff’s husband died from stroke complications on September 4, 2005.

Upon receipt of the $58,393.57 demand letter, the plaintiff filed an administrative appeal arguing that CMS was bound by the court order and that CMS did not prove that all of the expenses included in the demand were related to the medical malpractice. The ALJ determined that the state court had no jurisdiction over a federal authority such as CMS. The ALJ also found that CMS had based its demand letter on the plaintiff’s own wrongful death and survival claims, which involved services up to the point of her husband’s death in September.

The district court noted that according to the 2003 amendments to the Medicare Secondary Payer statute, CMS can satisfy its burden of showing that a primary payer is responsible for medical expenses through the presence of a settlement of a claim that sought recovery of medical expenses. The court quoted Hadden v. United States, 661 F.3d 298 (6th Cir. 2011), as support, "‘[t]he scope of . . . responsibility for a beneficiary’s medical expenses–and thus of his own obligation to reimburse Medicare–is ultimately defined by the scope of his claim against [the medical malpractice defendants],’ even if the beneficiary settles for less than the original claim." Weinstein, at *14, quoting Hadden 661 F.3d at 302. Because the plaintiff sought damages related to her husband’s alleged wrongful death and for all damages recognized by law, which in Pennsylvania includes medical expenses associated with wrongful death claims, the district court concluded that CMS was therefore entitled to reimbursement for medical expenses paid for the period from the alleged malpractice until the date of death.

CMS Will Now Require Pricing for Some Benzodiazepines and Barbituates in WCMSAs

On April 8, 2013, CMS issued the following notice concerning Benzodiazepines and Barbituates:

On October 2, 2012, the Centers for Medicare & Medicaid Services (CMS) issued a memorandum to Part D Sponsors concerning the transition to Part D Coverage of Benzodiazepines and Barbiturates beginning in 2013.

Effective June 1, 2013, all  Workers’ Compensation Medicare Set-Aside (WCMSA) proposals submitted to CMS for a review of the adequacy of the proposal amount are to include the pricing of benzodiazepines and barbiturates, where appropriate. 

Please note that WCMSA cases submitted to CMS  before June 1, 2013, closed due to missing, incomplete and/or inadequate supporting documentation (or any  other reason), and subsequently re-opened after June 1, 2013, will also be subject to a review that includes the pricing of benzodiazepines and barbiturates.

The official notice from CMS can be found at:
www.cms.gov/Medicare/Coordination-of-Benefits/WorkersCompAgencyServices/index.html

Court Finds No Enforceable Settlement Agreement When CMS Rejected WCMSA Proposal and Requested Additional $200,000

In Mark Rainey v. Goodyear Tire & Rubber Company, et al, 2013 N.C. App. LEXIS 354 (decided April 2, 2013), an injured worker's attorney mediated a claim with his employer and its insurance carrier.  As a result of these discussions, the injured worker's attorney offered, succinctly, "If you can get $315K plus msa [sic], all new money, we have a deal" *3.  Thereafter, the defendants submitted a proposed Medicare Set-aside of $65,948.00 to CMS.  When CMS issued its decision, however, and demanded an MSA of $381,385.00.  After requests for reconsideration, CMS reduced the amount to $266,207.00.  The parties could not agree as to who would be responsible for funding the MSA and whether they actually had an enforceable settlement agreement.  The plaintiff took the position that the parties did have an enforceable agreement and that the MSA should be funded completely by the defendants.  The defendants, on the other hand, took the position that obtaining CMS approval of the $65,948.00 MSA was a condition precedent to the settlement agreement.  Once CMS demanded an MSA in a different amount, the condition failed (and there was no agreement).

The reviewing court agreed with defendants and with the earlier decision of the commission.  The court found sufficient evidence to support the finding that there was no meeting of the minds with respect to reaching a final settlement of the claim, and, as such, no enforceable agreement existed.  When CMS demanded an increased MSA amount, the tentative agreement failed and the parties were free to resume settlement negotiations. 

This case underscores the value of both an accurately-prepared Medicare Set-aside calculation (so the parties know their potential exposure) as well as extremely careful preparation of settlement documentation.  Had the defendants moved forward and settled the case as defendants sometimes do - with an open-ended promise to fund the MSA in whatever amount CMS approves - they would likely have had no recourse but to pay the additional $200,259.00 as CMS requested.

CMS Issues New Workers' Compensation Medicare Set-aside Reference Guide

On March 29, 2013, CMS issued a guide to explain the process for submission of Workers' Compensation Medicare Set-aside Arrangements (WCMSAs) to CMS and to describe how such submissions are reviewed. Essentially, the WCMSA Reference Guide is a compilation of prior memos and alerts published by CMS on topics related to the submission and approval process. The Guide does not replace the memos and CMS cautioned readers to refer to the memos for more comprehensive explanations.

The Reference Guide is 88 pages in length. Several times throughout the Guide, CMS mentioned that MSAs are not mandatory and that submission is a voluntary process. CMS noted, however, that "[a]ny claimant who receives a WC settlement, judgment, or award that includes an amount for future medical expenses must take Medicare's interest with respect to future medicals into account." (Reference Guide, page 3). CMS explained that, "[i]n many situations, the parties to a WC settlement choose to pursue a CMS-approved WCMSA amount in order to establish certainty with respect to the amount that must be appropriately exhausted before Medicare begins to pay for care related to the WC settlement, judgment, award, or other payment." (Reference Guide, page 3). CMS further noted as follows:
If the parties to a WC settlement stipulate to a WCMSA but do not receive CMS approval, then CMS is not bound by the set-aside amount stipulated by the parties, and it may refuse to pay for future medical expenses, even if they would ordinarily have been covered by Medicare. However, if CMS approves the WCMSA and the account is later appropriately exhausted, Medicare will pay related medical bills for services otherwise covered and reimbursable by Medicare regardless of the amount of care the beneficiary continues to require.(Reference Guide, page 6).

If parties choose to submit a WCMSA proposal to CMS for review, CMS expects the submission to comport with the guidelines established in its memos and alerts and discussed in the new WCMSA Reference Guide. Though there is nothing really "new" about the information presented, a few topics that are sometimes overlooked warrant mentioning.
One of the discussions in the Reference Guide concerns the provision of final settlement documents to CMS. The Guide notes:
If CMS does not subsequently provide approval of the funded WCMSA amount as specified in the settlement or proof is not provided to CMS that the CMS-approved amount has been fully funded, CMS may deny payment for services related to the WC claim up to the full amount of the settlement. Only the approval of the WCMSA by CMS and the submission of proof that the WCMSA was funded with the approved amount, would limit the denial of related claims to the amount in the WCMSA. This shall be demonstrated by submitting a copy of the final, signed settlement documents indicating the WCMSA is the same amount as that recommended by CMS.(Reference Guide, page 23, emphasis added). Immediate submission of final, approved settlement documents to CMS is not only a great way to potentially lessen the amount of conditional payment claims that may be asserted for past treatment for which Medicare paid, it is the best way to ensure that CMS will pay for the claimant's treatment once the MSA funds have been exhausted.

Additionally, with regard to how medical expenses are accounted for in settlement documents, the Guide summarizes CMS' rules as follows:
If the settlement does not specifically account for past versus future medical expenses, it will be considered to be entirely for future medical expenses once Medicare has recovered any conditional payments it made. This means that Medicare will not pay for medical expenses that are otherwise reimbursable under Medicare and are related to the WC case, until the entire settlement is exhausted.
Example: The parties to a settlement may attempt to maximize the amount of disability/lost wages paid under WC by releasing the WC carrier from liability for medical expenses. If the facts show that this particular condition is work-related and requires continued treatment, Medicare will not pay for medical services related to the WC injury/illness until the entire settlement has been used to pay for those services.(Reference Guide, page 23, emphasis added). Basically, if a settlement does not include a designation of what is for past or future medical expenses, Medicare can require that the claimant spend the entire settlement amount before Medicare will pay for related treatment. When settlement documentation does contain a breakdown of amounts being paid for various aspects of a claim, if Medicare does not believe that its interests were protected by that designation, the designation will be completely disregarded by CMS. CMS has the ability to do that even if a settlement was court, board or commission approved.

The entire WCMSA Reference Guide may be found online at: http://www.cms.gov/Medicare/Coordination-of-Benefits/WorkersCompAgencyServices/Downloads/March-29-2013-WCMSA-Reference-Guide-Version-13.pdf

United States Supreme Court Issues Opinion that State Law Concerning State's Claim to Portion of Medicaid Beneficiary's Settlement is Preempted by Federal Law

In Wos v. EMA, the U.S. Supreme Court held that the anti-lien provision in federal Medicaid law preempts a State’s claim to any portion of a Medicaid beneficiary’s tort judgment or settlement that is not designated as payment for medical care. Wos v. EMA, 2013 U.S. LEXIS 2372 (U.S. Mar. 20, 2013).

In this case, the parents of a 13-year-old girl (EMA) settled her claim against physicians for injuries sustained at the time of her birth. The case settled for $2.8 million, but the settlement did not specify which portion of that amount was meant to cover EMA’s medical expenses, some of which were paid by the North Carolina Medicaid program. The trial court approved the settlement and placed one-third of the settlement proceeds into an escrow account pending a judicial determination of the amount of the lien owed by EMA to the North Carolina Medicaid program, pursuant to N.C. Gen. Stat. § 108A-57(a). EMA and her parents sought declaratory and injunctive relief, arguing that the State’s reimbursement scheme violated the Medicaid anti-lien provision. Id.

The statute at issue created an irrebuttable presumption that one-third of a Medicaid beneficiary’s tort recovery was attributable to medical expenses. The Court pointed out that if a State "arbitrarily may designate one-third of any recovery as payment for medical expenses, there is no logical reason why it could not designate half, three-quarters, or all of a tort recovery in the same way."  The Court stated that the North Carolina statute reflected its "effort to comply with federal law and secure reimbursement from third-party tortfeasors for medical expenses paid on behalf of the State’s Medicaid beneficiaries. In some circumstances, however, the statute would permit the State to take a portion of a Medicaid beneficiary’s tort judgment or settlement not ‘designated as payments for medical care.’" Id.

Accordingly, the Supreme Court affirmed the Fourth Circuit’s conclusion that the statute was preempted, as it impermissibly took a share of the recovery that was not related to medical expenses. Id.

Court Determines No Set-aside for Future Medicare Covered Medical Expenses Necessary for Paraplegic in Liability Case

by Matt Dorius, Esq.

In Sterrett v. Klebart, No. LLICV126007442S, 2013 Conn. Super. LEXIS 245 (Conn. Sup. Ct. Feb. 5, 2013), the plaintiff fell down stairs at the defendants’ home and alleged a spinal cord injury resulting in paraplegia. The parties reached a settlement agreement for $550,000.00, including $183,333.33 for a loss of consortium claim brought by the plaintiff’s wife. The parties filed a motion seeking the court’s determination that the parties had reasonably considered Medicare’s interests without setting aside any funds for future medical treatment.

 

Given the plaintiff's significant total damages and the applicable defenses in the case, the court found that the settlement agreement reflected a substantial compromise of the potential value of the claim. Even though the plaintiff was expected to need future medical treatment that would be covered by Medicare, the court noted that “the facts of this case mandate the conclusion that the defendants and their carriers lack liability for any such expenses.” Id. at *3. As such, the court agreed with the parties’ position that the settlement did not include funds for the plaintiff’s future Medicare-covered medical expenses. Instead, the court found, the settlement only included “a modest allocation for future medical expenses arising out of the possible need for home health aides,’” which would not be covered by Medicare. Id. at *6 n.4. The court therefore concluded that the parties “are not required to set aside any of the settlement proceeds for future medical expenses which may be paid or payable by Medicare.” Id. at *4-5. The court further stated that the parties “should not be subject to any claim, demand, or penalty from Medicare as a result of the settlement payment.” Id. at *5. 

 

As the court recognized, determining an appropriate amount, if any, to set aside from personal injury settlements for future Medicare-covered treatment involves a case-specific analysis of the alleged damages, applicable defenses, anticipated future treatment, and the extent to which the settlement reflects a compromise of the potential value of the claim. Although the court concluded in this case that no funds should be set aside for future Medicare-covered treatment, it is important to keep in mind that a federal court could decide the issue differently. 

 

In general, state court judgments are given preclusive effect in federal courts under 28 U.S.C. § 1738. However, the U.S. Supreme Court has consistently held that state court decisions are not preclusive when the party against whom the state court decision is asserted did not have a full and fair opportunity to litigate the issue in the state court proceedings. Allen v. McCurry, 449 U.S. 90, 95 (1980). In the Sterrett case, the United States was not present to represent its interests and the court’s decision does not indicate that the United States was notified of the parties’ motion or invited to participate in any proceedings. It is also relevant that the court in Sterrett simply approved an agreement between the parties and the issue of whether funds should be set aside was not contested. Cf., e.g., Robinson v. Commissioner, 70 F.3d 34 (5th Cir. 1995) (holding that a state court’s allocation of settlement funds was not binding for purposes of assessing federal income tax when the allocation was not contested and the state court did not make an independent finding on the merits). Also, although the court could decide on an allocation of the settlement proceeds under state law, the court lacked subject matter jurisdiction to determine Medicare’s rights regarding any future claims asserted under the Medicare Secondary Payer Act. 

 

CMS has not yet announced a position on whether funds should have been set aside in the Sterrett case. If CMS decides to pay for treatment and seek reimbursement from the parties in the future, the parties would likely be better protected from a lawsuit in federal court if the United States had been invited to participate in a hearing on the MSA issue. The defendants may also be better protected if they had contested the plaintiff’s position that the settlement did not include funds for future Medicare-covered medical expenses. With no evidence that the issue was contested or that the United States was invited to participate in any state court proceedings, it is likely that a federal court would find that the court's decision in Sterrett is not binding.

 

As with all Medicare Secondary Payer issues, we will continue to monitor this case and similar decisions and keep you informed.

Court Determines Medicare Set-aside Amount Based on Competing Testimony

- by Matt N. Tully, Esq.

 

The plaintiff in this case, Steven Welch, entered into a joint settlement with a workers’ compensation carrier and a general liability carrier.   Welch v. American Home Assurance Company, 2013 U.S. Dist. LEXIS 25948 (S. D. Miss Feb. 26, 2013).  However, if the case had been litigated and Welch had prevailed on his theory of recovery, he would have been awarded medical expenses under state tort law, not the state's workers’ compensation laws.   For this reason, the court was unclear whether the settlement should be considered eligible for CMS review and approval.  At the time of settlement, Welch was appealing the denial of his Social Security Disability application.  The parties petitioned the court to set an amount for a Medicare Set-aside as opposed to having an estimate prepared by a third party.

To determine the amount of future medical needs, the court heard testimony from Welch’s treating physician who estimated that Welch would require $456,657.35 in future medical treatment.   The court then heard from a nurse qualified in the field of life care planning and Medicare/CMS coverage rates.   Based on her testimony, which covered crucial points such as standard Medicare rates and non-covered items and services, the court found that the estimate of the treating physician was much too high.   The nurse expert identified $211,886.27 in items and services that would not be covered by Medicare and therefore should not be included in an MSA.   The court made further reductions based on standard Medicare rates and found that $278,019.08 would adequately protect Medicare’s interest, a significant reduction from the treating physician’s estimate.

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