News NOVEMBER 2011 Workboatbhbmlaw.com/wp-content/...Set-Asides_November-2011.pdf · News NOVEMBER...

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T H E I N F O R M A T I O N A U T H O R I T Y F O R T H E W O R K B O A T • O F F S H O R E • I N L A N D • C O A S T A L M A R I N E M A R K E T S

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LEGAL

The sad story repeats itself often; anemployee gets injured, argues that hecan never return to work offshore,receives a big settlement or award (thatincludes money for future medicalcare), buys a new house , truck and alot of toys. Several years later, they are

broke because they have blown all of themoney. In the past, if the employee was eligible forMedicare, he could have the government pay for his futuremedical care, even though he received a monetary awardto pay for his future medical care.

Today, however and due to budget concerns, the federalgovernment is trying to cut down on this practice. Theprocess started with workers’ compensation claims in the1980’s and has quietly expanded its reach beyond thecomp world and now includes Jones Act claims and otherthird party negligence claims.

UNDERSTANDING THE GOVERNMENT’S POSITION – AND YOURS, TOO

It is important that employers understand the govern-ment’s position when settling claims with injured employ-ees that will require future medical treatment. Failing tocomply with the government’s suggestions may expose thecompany to significant liability for the employee’s futuremedical care, despite receiving a full release of liabilityfrom the worker.

The government has mandated the use of a Medicare SetAside (MSA) that provides funding for future medical carewhen the injured employee receives an award that com-pensates him for future medical treatment. The govern-ment’s mandate for the use of MSAs arises from an infor-mal set of rules, regulations and guidelines that are prom-ulgated by the Centers for Medicare and MedicaidServices (CMS) under the authority of the MedicareSecondary Payer Act (MSP).

To reduce Medicare costs, Congress enacted a collectionof statutory provisions in the 1980’s; collectively referredto as the Medicare Secondary Payer Act. Congress recog-nized that workers’ compensation carriers should be the

primary source of medical insur-ance coverage for people injuredon the job. The MSP prohibitsMedicare from making payments,if payment has been made or isreasonably expected to be made bya workers’ compensation plan, lia-bility insurance, no-fault insur-ance, or a group health plan.

Simply put, the MSP provisionsprovide that the government serveas a secondary insurance provider when another source ofprimary coverage exists.

If another source of coverage is available for someone’sinjury-related care, he or she should use it. If no othersource of coverage is available, Medicare will still pay forinjury-related care.

If a workers’ compensation carrier settles its future obli-gation to pay for injury-related medical care, the settle-ment must protect Medicare’s interests by allocating a por-tion of the settlement proceeds to cover those future med-ical costs. Medicare does not pay for the medical care untilthe beneficiary has exhausted his or her remedies underworkers’ compensation, including spending the portion ofthe settlement earmarked for future medical expenses.

In 2001, Medical Set-Asides were officially recognized asa procedural option for workers’ compensation cases. In amemorandum, CMS announced that compliance withthe MSP required claimants to set aside a portion of theirsettlement for future Medicare-covered expenses when thesettlement closed out future medical expenses. The new“set aside” requirement was designed to prevent attempts“to shift liability for the cost of a work-related injury or ill-ness to Medicare.”

The MSA must account for the future medical needs ofthe injured worker related to the work injury that are “rea-sonably foreseeable.” These medical expenses include doc-tor bills, hospital care, skilled and intermediate care,skilled rehabilitation, home health care, hospice care,durable medical equipment, and any other items or serv-ices that would otherwise be covered by Medicare.

By Lawrence DeMarcay, III

The Jones Act, Medicare Set Asides & You Despite settling a personal injury claim with full release, can you stillhave future liability?

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With an MSA, a claimant does nothave to spend the entirety of a settle-ment before Medicare will pay forinjury-related medical expenses. Theset-aside portion acts as the primarycoverage for post-settlement treat-ment – an amount the beneficiarymust spend before Medicare willbegin paying for the medical care.

The CMS also requires an MSA onmatters governed by the FederalEmployees’ Compensation Act, theLongshore and Harbor Workers’Compensation Act and the FederalCoal Mine Health and Safety Act of1969.

CAUTIONARY NOTESOne of the major problems with

MSAs is that they are not required byfederal statute, even in workers’ com-pensation cases (where they havebecome commonplace). Instead,CMS dictates the procedure and rulesfor MSAs through “memorandum,”“guidelines,” and “FAQs” on its web-site. Without the formal codificationof set asides, there are no clear-cutappellate procedures from arbitraryCMS decisions. Although there isnothing in the law or the publishedregulations that require parties to seekpreapproval, CMS has indicated thatthey can impose penalties if the par-

ties do not obtain preapproval. CMS suggests that workers’ comp

claims should not be settled untilCMS can review the settlement andapprove the set-aside allocation. CMSapproval is only binding if it is a validapproval is generated after full disclo-sure of all reasonably foreseeablefuture medical needs and complica-tions necessitated by the injury.

Per its website, CMS has issued cer-tain “threshold requirements” forworkers’ compensation medical set-asides that must be met in order tohave CMS consider the plan:

• The claimant is currently aMedicare beneficiary and the totalsettlement amount is greater than$25,000; OR

• The claimant has a “reason-able expectation” of Medicare enroll-ment within 30 months of the settle-ment date and the anticipated totalsettlement amount for future medicalexpenses and disability/lost wagesover the life or duration of the settle-ment agreement is expected to begreater than $250,000.

In a memorandum issued on July11, 2005, CMS indicated that thethresholds are “workload review”thresholds, not “safe harbor” thresh-olds. The CMS reiterated that, underthe Medicare Secondary Payer provi-sions, Medicare is always secondary toworkers’ compensation and otherinsurance such as no-fault and liabili-ty insurance. Accordingly, all benefi-ciaries and claimants must considerand protect Medicare’s interest whensettling any workers’ compensation

LEGAL

One of the major problems with MSAs is that they are not required by federal statute, even in workers’ compen-sation cases (where they have become commonplace). Instead, CMS dictates the procedure and rules for MSAs

through “memorandum,” “guidelines,” and “FAQs” on its website. Without the formal codification of set asides,there are no clear-cut appellate procedures from arbitrary CMS decisions.


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case; even if review thresholds are not met. In other words,if the total settlement amount is $25,000 or less, the par-ties to the settlement are still required to considerMedicare’s interests or face consequences for noncompli-ance. Medicare recommends a MSA to protect these inter-ests, even though CMS will not review the proposal.

CMS REVIEWS AND PENALTIES FOR NON-COMPLIANCEIn summary, allowing CMS to review and approve a

workers’ compensation settlement is the only way toensure that Medicare will deem its interests adequatelyprotected. The ramifications of non-compliance can besevere. Among these, the CMS may: • Deny the claimant future medical care. • Designate its own allocation (which may be the entiresettlement amount) if an allocation is unreasonable ornon-existent at the time of settlement. • Sue the claimant, the claimant's attorney, employer,and/or the insurance carrier for payment. In a suit againstan insurance carrier to recover its MSP claim, doubledamages may be sought.

In addition, a claimant may file a malpractice suitagainst his/her attorney after the case has been settled.Beyond this, Medicare is improving its ability to uncovernon-compliance. In 2001, the U.S. government hired anoutside contractor to help hunt down – largely throughthe use of trauma-related diagnosis codes – medical pay-ments made by Medicare that a workers’ compensationcarrier or other primary payer should have paid for.

Unlike workers’ compensation claims, CMS provides noguidelines for liability settlements involving Medicarebeneficiaries with regards to MSAs. A personal injury filedunder either the Jones Act or the general maritime lawwould fall within this category. Although it may beargued that federal regulations and the CMS memos aresilent as to the need for an MSA arrangement in third-party settlements, CMS has indicated that it believes theworkers’ compensation regulations mandating MSAs canbe applied to liability cases as well. Although federal lawdoes not contain any codification of the obligation to cre-ate an MSA in liability cases, companies and their insur-ers should assume that Medicare is always secondary tono-fault and liability insurance and consider Medicarewhen funding any settlement or judgment, especially ifthe money award is large.

DEVELOPING AN MSA ARRANGEMENTThe development of an MSA arrangement is complex.

The following general components are involved in estab-lishing a comprehensive MSA: • Review of medical records, including billing records • Verification of eligibility for Social Security and/orMedicare benefits • Secure rated age, if applicable • Obtain treating provider recommendations andresearch applicable standards of care and clinical practiceguidelines • Conduct a Medicare lien inquiry • Identify future medical needs, Medicare-covered items,and costs charged to Medicare within the injured individ-ual’s geographic region

The funds for the MSA must be placed into an interestbearing account with distributions made only for medicalexpenses related to the injury that would otherwise becovered by Medicare. MSAs can be administered by acompetent administrator or the claimant may also self-administer his or her own MSA, if permitted under Statelaw. Either the administrator or the self administeringclaimant should submit an annual accounting to the CMSshowing the disposition of the funds.

MSA SETTLEMENTS: A NECESSARY EVIL?The increasing review of Medicare charges will increase

the need for considering MSAs in settlement negotiations,as the parties will have to account for the fact thatMedicare may be entitled to, and will likely pursue, reim-bursement for its payments for future medical costs.Therefore, MSAs become more common. Although set-tling on an MSA amount can be costly and time-consum-ing, it may become a necessity now that reporting require-ments have significantly strengthened Medicare’s right ofand ability to collect reimbursement.

LEGAL

Mr. DeMarcay is a partner in the law firm of FowlerRodriguez Valdes-Fauli. Based in New Orleans, LA, Larryis admitted to practice in Louisiana, Texas and Florida.His areas of practice include Commercial Litigation,Admiralty, Personal Injury, Transportation, Real Estate,Construction and Corporate Law. Mr. DeMarcay receivedhis B.A. from the University of Florida, M.B.A. from TheGeorge Washington University and his law degree fromLoyola University. Prior to attending law school, Mr.DeMarcay served on the Washington based legislative staffof Congressman Jimmy Hayes.

On the WEB: www.frvf-law.com


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