Avoiding Medicare Secondary Payer Compliance Settlement Term Traps
Medicare is a secondary payer when a primary payer is available and has a demonstrated responsibility to make payment. Under the Medicare Secondary Payer statute and regulations, a “primary plan’s responsibility for payments may be demonstrated by a judgment, a payment conditioned upon the recipient’s compromise, waiver of release (whether or not there is determination or admission of liability) of payment for items or services included in a claim against the primary plan or the primary plan’s insured, or by other means.” (42 U.S.C.S. Section 1395 y(b)2 (B) (i). Given Medicare’s potential interest in a settlement, a proactive approach to Medicare Secondary Payer compliance issues allows parties to take appropriate steps to mitigate Medicare’s potential interest in the settlement. Similarly, reviewing and addressing interim conditional payments during the life of the claim may help to prevent any post settlement surprises.
Far too often Medicare’s potential interest in the claim comes up as an afterthought once a settlement agreement has been reached. The dreaded call from Claimant’s counsel usually goes like this: “Oh by the way, I just found out my client applied for Social Security Disability benefits and may be on Medicare,” and is one most adjusters/defense attorneys have experienced. Parties who are caught off guard by Medicare’s interest in the settlement or are unfamiliar with the nature of Medicare’s interest in a settlement may unwittingly draft settlement terms that can result in unintended consequences. A few of the more common scenarios involving settlement language provisions are addressed below.
Scenario One: Settlement terms which keep medical rights open in the claim until CMS review is completed and the CMS determination is funded.
It is perfectly acceptable to settle indemnity benefits while keeping medical rights open until such time CMS review is secured and the CMS determination is funded. Before this type of settlement language is used however, the parties should first consider whether the settlement will actually meet CMS’ internal workload review threshold. Currently, CMS is willing to review a settlement involving a Medicare beneficiary if the proposed settlement exceeds $25,000.00. If a Claimant has a reasonable expectation of Medicare entitlement within 30 months of settlement, CMS review is available provided the proposed settlement exceeds $250,000.00. Before using settlement language agreeing to or requiring CMS review prior to closing medical rights, it is imperative the parties consider whether CMS review is even available in the case. If it isn’t, medical rights may never close in this case with this type of settlement language.
Similarly, settlement language requiring the employer or carrier to fund the CMS determination may inadvertently limit the employer/carrier’s ability to seek a review of an unacceptable or error-filled CMS determination. More appropriate settlement terms would provide the employer/carrier with the right to: choose to fund the CMS determination; dispute the determination; seek re-review of errors made; seek amended review in the future; or keep medical rights open subject to the available defenses in the claim.
Scenario Two: Ambiguous settlement terms which do not clearly specify whether the dollar amount of the settlement includes the amount of the Medicare Set Aside (MSA) or if the MSA amount is to be funded in addition to the settlement amount.
Ambiguous settlement terms involving an MSA were considered by the Appellate Court of Illinois, First District, Third Division in the case of Paluch v UPS. (2014 IL. App (1st) 130621) In the Paluch case, a dispute arose as to whether the settlement of $400,000.00 included the amount to be paid for an MSA annuity or if the MSA annuity was to be paid in addition to the $400,000.00. Although one section of the contract stated “Respondent agrees to pay and Petitioner agrees to accept $400,000.00 in a lump sum plus payment of a MSA in annuity form,” other sections of the contract itemized the various damage elements to be paid which when added amounted to $400,000.00.
In examining the various provisions of the settlement contract, the Appellate Court remanded the claim for an evidentiary hearing on the settlement terms before the trial court since they were open to more than one interpretation. The decision correctly cautioned: “Sloppy, imprecise drafting can lead to legal wrangling.” (Id at p139621). This caution should be heeded.
Scenario Three: Failure to address the parties’ obligations to reimburse conditional payments claimed by Medicare.
Many settlements involve disputed conditions. In light of this, settlement documents should clearly outline the parties’ responsibilities when it comes to addressing conditional payment claims that may be made by both traditional Medicare, Medicare Part C and Part D plans. If the burden will be placed on the Petitioner, a clause requiring cooperation with the employer/carrier is critical since Medicare may technically seek reimbursement from the primary plan for pre-settlement payments.
Scenario Four: Settlement terms that erroneously interpret Medicare Secondary Payer compliance obligations.
Alvarenga v Scope Industries (2016 Cal. Wrk. Comp. P.D. Lexis, ADJ8873556) addressed a situation involving a petition for reconsideration of an order approving a compromise and release. In granting the petition, the Workers’ Compensation Appeal Board (WCAB) noted several issues with the settlement documents. Although the settlement terms stated that an MSA “must” be submitted and approved by CMS, the WCAB correctly pointed out that CMS does not require review and approval of an MSA. This, however, was not the basis for the decision since the parties correctly understood that CMS review is voluntary. The WCAB instead found that the Claimant was not adequately advised about the risks associated with not seeking CMS review. It also found that the amount of the settlement was inadequate since it was less than the CMS determined MSA and voided the settlement.
Medicare Secondary Payer compliance settlement terms should be carefully drafted to meet the specifics of each settlement. Boiler plate terms can oftentimes result in unintended consequences when it comes to Medicare issues, particularly when drafted by individuals who do not thoroughly understand the intricacies of the Medicare Secondary Payer Act, MSAs or Medicare conditional payments. Should you wish assistance, our MSP compliance team is available to review your proposed contracts or draft the appropriate terms for your case. Let us know how we may help you.