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Applicability of the Medicare Secondary Payer Act

By Robert S. Dampf

                 ll attorneys involved in       therefore, Medicare only pays as a sec-       trigger Medicare approval. One circum-
                 personal injury cases, re-     ondary payer. Workers’ compensation           stance arises when the injured party has
                 gardless of whether repre-     claims include cases involving the Fed-       been both Medicare-eligible since the
                 senting plaintiffs or defen-   eral Employees’ Compensation Act and          time of his or her injury, and when the
                   dants, need to be aware      the U.S. Longshoreman’s and Harbor            injured person is 65 years of age or older,
of the issues presented by the Medicare         Workers’ Compensation Act. Medicare           or has been on Social Security disability
Secondary Payer Act (MSPA).1 The es-            is also a secondary payer for medical         for 24 months or longer. If the above
sence of the Act is that Medicare has a         expenses covered by accidental injury         criteria have been met, Medicare must
priority right of recovery for medical          policies, automobile insurance policies,      approve the settlement.
bills it has paid in the past and/or might      self-insured entities responsible for acci-       The second circumstance occurs when
pay in the future on behalf of claimants.       dent victims, and any personal injury         a gross settlement exceeds $250,000, and
The MSPA statute and regulations reflect        coverages. Such personal injury cover-        the injured party has a reasonable expec-
the congressional intent to shift the burden    ages include all types of liability insur-    tation of being Medicare-eligible within
of coverage from Medicare to private enti-      ance, automobile med-pay coverage, and        30 months. The beneficiary of the medical
ties in an effort to reduce Medicare costs.2    uninsured motorist coverage.3                 benefits must cooperate with the Centers
Consequently, Medicare in many instances                                                      for Medicare and Medicaid Services
will remain a secondary payer when there is            What is the Critical                   (CMS). If the beneficiary does not cooper-
an appropriate “primary payer.”                         Determination?                        ate, the CMS may recover from him or her.4

  Does It Apply in My Case?                        Settlements in a tort or workers’ com-              Who Administers
                                                pensation type of case require Medicare                 This Program?
  Payments made pursuant to workers’            considerations if the settlement involves
compensation laws and certain third-party       the payment of any past or future medical       Originally the Medicare program was
payments are primary as to Medicare;            bills. There are two circumstances that       managed by the Healthcare Financing

                                                                                     Louisiana Bar Journal Vol. 54, No. 3           173
Administration, a unit of the Department                                                     What Happens if Medicare’s
of Health and Human Services. The unit                                                         Interests Are Ignored?
has subsequently been renamed the “Cen-
ters for Medicare and Medicaid Services”                                                       The CMS has a right to file suit against
located in Baltimore, Md., with regional                                                    any entity to recover benefits that should
offices located around the United States.5                                                  have been paid to Medicare, regardless
                                                                                            of whether the entity is a beneficiary,
      What About Applicable                                                                 provider, supplier, physician, attorney,
      Statutes of Limitations?                                                              private insurer, etc.8 The provisions of
                                                                                            the Act clearly apply to both settlements
   There is no statute of limitations that                                                  and judgments. Further, Congress has
affects this program. The CMS may re-                                                       created a private right of action for double
cover without any regard to claim filing          The Medicare Secondary                    damages.9
requirements or statute of limitations.6         Payer Act and regulations
                                                                                                 Structured Settlements
What Needs to be Done if the                    have teeth. Therefore, claims
 Provisions Are Applicable?                       made against defendants                      In the establishment of a Medicare
                                                  could result in a penalty                 set-aside, the parties must satisfy the ad-
   Medicare pre-approval is required                                                        ministrative requirements of the CMS.
through the CMS. The CMS literature
                                                 repayment of medical bills                 Structured settlements are allowed pur-
states that the process takes between 45              after settlement.                     suant to the CMS rules promulgated in an
and 60 days; however, anecdotal history                                                     Oct. 15, 2004, Policy Memorandum. The
indicates that this is a bit optimistic. The                                                use of the structured settlement must be
CMS looks at a number of factors in                                                         approved by the CMS.
determining whether to approve the settle-      What About Future Medical
ment. These factors include the date of         Expenses? (The MSA Issue)                            Valuation of the
entitlement to Medicare, the type and                                                              $250,000 Threshold
severity of the injury or illness, whether
                                                   The Medicare Set-Aside (MSA) is an
the injured party’s condition is stable or                                                      The use of a structured settlement
                                               arrangement by which future medical
whether the party will require serious                                                      may trigger the requirement for an MSA
                                               expenses and tort-related expenses can
additional medical care in the future, and                                                  where one would not otherwise be re-
                                               be paid, which will satisfy the Medicare
the amount of the settlement. Approval is                                                   quired. As discussed above, one of the
                                               Secondary Payer statutes. A MSA is re-
required to preserve the beneficiary’s                                                      circumstances in determining whether
                                               quired in situations where the MSPA is
benefits if certain medical expenses ex-                                                    the Medicare Secondary Payer Act is
                                               applicable. There are a number of private
ceed projected costs.                                                                       applicable is whether or not the gross
                                               companies that will help establish the
                                               MSA. It is strongly suggested that prac-     settlement exceeds $250,000, and
  What Happens if Medicare                     titioners use the Internet “search engine”   whether the injured party has a reason-
     is not Protected?                         available through their computers and        able expectation of being Medicare-eli-
                                               research Medicare set-asides for the         gible within 30 months of settlement.
    The beneficiary is responsible for ob-     names of private companies that will         The determination of the $250,000 value
taining payments reasonably expected           assist in creating the Medicare set-aside    is measured by the total to be paid out
under the workers’ compensation or li-         fund. This will preserve Medicare ben-       over the life of the payments, and not by
ability scheme. Medicare will not pay          efits for their clients and relieve them-    the present value cost of the annuity.10
future benefits until the beneficiary has      selves of potential liability. These com-    Special attention should be paid because
exhausted those remedies under the pri-        panies examine a number of relevant          this is the one circumstance where the use
mary payer scheme. Therefore, the plain-       factors including the date and nature of     of a structured settlement can actually be
tiff can lose future Medicare benefits if      the injury, the extent of the injury, the    harmful to your client. This is because
the approval has not been obtained from        rated age, Medicare entitlement history,     the use of the structured settlement may
the CMS. Additionally, CMS may either          a comprehensive review of medical            trigger the applicability of the statute
file suit against the party that received a    records, and physician recommendations       when a lump sum valuation would not.
payment or against the third-party payer.7     into the future.

174      October/November 2006
      Has This Been Tested                    costs (legal fees and expenses) were in-        force responsibility for the payment of
         in the Courts?                       curred because the claim was disputed.          benefits to private payers under the de-
                                              Lastly, the plaintiff was required to incur     fined circumstances. It bears repeating
   In United States of America v. Baxter      this expense in order to obtain a recovery.13   — the statutory and regulatory scheme
International, 345 F.3d 866 (11 Cir.                                                          has teeth.
2003), the court was faced with a claim                  Prepare Ahead
by the government that Medicare had a
right of recovery in the class action in-         If you are the attorney for either plain-
                                                                                                  1. 42 U.S.C. § 1395y (2006).
volving breast implants. In Baxter, su-       tiff or defendant, you must work through
                                                                                                  2. See United States of America v. Baxter
pra, the parties had resolved the class       the analysis to see if your case is subject     International, 345 F.3d 866 (11 Cir. 2003).
action lawsuit without protecting             to the MSPA.                                        3. 42 C.F.R. § 411.20 et seq. (2006).
Medicare’s right of recovery. The United          If the case does fit the criteria, deter-       4. 42 C.F.R. § 411.23 (2006).
States Court of Appeals determined that       mine what amounts have been paid in the             5. Department of Health and Human
Medicare did have a right of recovery.        past. Put Medicare on notice of the po-         Services, Centers for Medicare and Medicaid
The court also expanded and explained         tential secondary recovery. Then, hire          Services, 7500 Security Blvd., Mail Stop C2-
the reach of the Medicare Secondary           the entity that specializes in computing the    21-15, Baltimore, MD 21244-1850.
                                              amount of the set-aside. Explore with the           6. 42 C.F.R. § 411.24 (f) (2006).
Payer Act with an excellent discussion of
                                              entity the appropriate funding mechanism.           7. 42 C.F.R. § 411.37 (2006).
congressional intent and the obligation
                                                  Be certain that all the parties entering        8. See for example, 42 C.F.R. § 411.24 (b),
imposed by the statutory scheme. The                                                          (e) and 42 C.F.R. § 411.26 (2006).
court noted the congressional intent of       the mediation or negotiation are aware of
                                                                                                  9. 42 U.S.C. § 1395y(b)(3)(A) (2006).
reducing federal health care costs and        the issue. They also must realize that              10. See Centers for Medicare and Medicaid
shifting the burden to those who are right-   each and every one involved will be at          Services Memorandum Directive dated 4/22/
fully the primary payers. The court also      risk for penalties if the issue is not re-      03, available at
observed that the statutes are complex        solved.                                         WorkersCompAgencyServices/Downloads/
and have created confusion.11                                                                 42203Memo.rtf.
                                                            Conclusion                            11. Id. at 875.
   How Do I Deal with This                                                                        12. 42 C.F.R. § 411.28 (2006).
                                                                                                  13. 42 C.F.R. § 411.37 (2006).
After Obtaining a Judgment or                     The MSPA and regulations have teeth.
                                              Therefore, claims made against defen-
 Participating in a Mediation                 dants could result in a penalty repayment
  or Settlement Discussion?                   of medical bills after settlement. The            ABOUT THE AUTHOR
                                              plaintiff that received the settlement funds
    Start by explaining it to the client.     is subject to penalties and the lawyers           Robert S. Dampf began his me-
There are no options, no exceptions and                                                         diation practice in 1989, me-
                                              may be as well. Claims may be made                diates approximately 260 cases
no prudent alternatives in dealing with       against the lawyers and health care pro-          per year, and has mediated in
the problem. The simplest solution after      viders for recovery of funds paid by              excess of 3,000 cases. In addi-
recognizing the applicability of the prob-    Medicare.                                         tion to having trained in me-
lem is mentioned above. Go to the “search                                                       diation and the negotiation
                                                  A claim made against a defendant              process, he has lectured and
engine” and find a company that specifi-      may result in a “three-fold” payment of           given CLE seminars on mediation in Califor-
cally deals with the set-aside issue. The     medical bills. One such example occurs            nia, Louisiana, Florida, Missouri, Texas and
company will assist you in navigating         when the original settlement with a plain-        Ireland. He graduated, cum laude, from South-
through this complex medical and Medi-                                                          ern Methodist University in 1976 and from
                                              tiff constitutes one payment, and the pay-        Louisiana State University Paul M. Hebert
care bureaucracy. Under some circum-          ing party has been subject to a penalty of        Law Center in 1979. He has been active in the
stances, CMS may waive recovery if ei-        two times the medical bills. This would           Louisiana State Bar Association, having
ther the probability of recovery or the       result in the “three-fold” payment.               served as treasurer and in the House of Del-
amount involved is considered by CMS                                                            egates and on the Board of Governors. He is
                                                  The plaintiff’s counsel should have           active in the Southwest Louisiana Bar Asso-
to be insignificant.12                        worked out the set-aside issue prior to a         ciation (president, 1996-97) and is associ-
    The CMS will consider procurement         mediation or settlement. This will help           ated with Stockwell, Sievert, Viccellio,
expenses when certain factors have been       the client to understand that the entirety        Clements & Shaddock, L.L.P., in Lake Charles
met. First, the third-party payment must                                                        and with Perry, Dampf, Watts & Associates,
                                              of the settlement fund does not necessar-         a statewide mediation company. (P.O. Box
have been made as a result of a settlement    ily get “pocketed.”                               2900, Lake Charles, LA 70602-2900)
or judgment. Secondly, the procurement            The purpose of the MSPA is to en-

                                                                                     Louisiana Bar Journal Vol. 54, No. 3                 175

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