New rules create controversy over Medicare set-asides 

Posted: 1:00 am Mon, February 1, 2010
By Sylvia Hsieh

New rules requiring insurance companies to report information about lawsuit settlements to Medicare are stirring up a heated controversy among personal injury and insurance defense attorneys.

The rules took effect on Jan. 1.

The debate is over whether lawyers should be creating Medicare set-aside trusts in personal injury settlements to protect Medicare’s secondary payer interest for future medical expenses.

Liability insurers, including self-insurers, must track certain information about Medicare-eligible plaintiffs’ claims, including personal information about the plaintiff and the plaintiff’s attorney.

Insurers will begin submitting their reporting to Medicare on April 1.

The reporting requirements now give Medicare a way to track settlement payments that some attorneys believe is intended to enforce secondary payer rights against future medical payments, not just past payments.

They predict official Medicare set-asides, à la workers comp set-asides, are just around the corner. Many are not waiting for a rule; they are doing Medicare set-aside trusts now.

“I think it is advisable. If you don’t do a Medicare set-aside, you take the risk of exposing the entire settlement,” said John J. Campbell, an elder law attorney in Denver, Colo.

But some adamantly dispute this approach, noting that there is no law imposing liability for future medical payments, never mind a rule mandating set-asides.

“There is no liability for future medicals. To read [the reporting requirements] as extending obligations that never existed before in the area of future medicals is to read something into the law,” said Sally Hart, an attorney at the non-profit Center for Medicare Advocacy in Tucson, Ariz.

She added that setting up an expensive and unnecessary set-aside trust is not in a plaintiff’s best interests and could pose ethical concerns.

Matthew Garretson, president of The Garretson Firm in Cincinnati and author of “Negotiating and Settling Tort Cases,” agreed.

“Absent guidance from Medicare, I think a lawyer would be committing malpractice to automatically set aside a sum of money and tell clients it is mandated,” he said.

Further fueling the debate are mixed signals from the Centers for Medicare and Medicaid Services.

For example, some regional offices are reviewing and approving proposed Medicare set-asides; others are not responding to lawyers who ask about Medicare set-asides in pure liability cases.

Sally Stalcup, the Secondary Payer Regional Coordinator for CMS in Dallas, did not return a call seeking comment.

“It’s still in a state of confusion,” said Bradley J. Frigon, an elder law attorney in Englewood, Colo.

New reporting

The new reporting requirements, passed as part of the Medicare, Medicaid and SCHIP Extension Act of 2007, require insurance companies to provide information on settlements, including the name, address and phone number of the plaintiff and his or her attorney.

The starting date for insurers was delayed from July 1, 2009 to Jan. 1, 2010, to allow more time for testing.

Fines for insurers failing to report are steep: $1,000 per day.

This new ability to keep track of settlement data gives the agency tools to enforce its rights with future medical bills, not just past medical bills, some experts warn.

“Why in the world would an insurer paying in a personal injury case want to talk to Medicare about this? So Medicare can track recoveries. What it’s going to do is enable Medicare to track those liability cases where there was a recovery from a tortfeasor and the person has future medicals as well,” said Patricia Sitchler, an elder law attorney in San Antonio, Texas.

Medicare’s rights as a secondary payer are broad. Medicare can reach back six years and get double damages from anyone who touched the settlement money, including plaintiffs’ and defense lawyers.

Some lawyers say it only takes a few connecting dots to conclude that set-asides are the surest way to protect those interests — they are not waiting for an official rule from CMS.

“For people with significant settlements who are on Medicare’s doorstep, we are recommending it,” said Campbell.

Not only is the plaintiff at risk of losing Medicare benefits for future medical services related to the injury, but he or she is liable to turn around and blame his or her own lawyer and/or the defense attorney for losing coverage, Sitchler warned.

But others say these concerns are exaggerated and that set-asides can even detrimental to elderly plaintiffs.

“How can it be a good idea when it costs [a plaintiff] to set it up and administer and takes away money to spend [elsewhere]?” said Hart.

Garretson, who blames vendors of set-aside services for peddling “fear-mongering” to attorneys, said that only in rare cases would he consider a set-aside, such as where there’s a clear allocation to future medicals in a settlement, or where the only explanation for the size of a settlement is future medical expenses.

“There’s a limited fact pattern of cases where Medicare’s future interest needs to be protected,” he said.

Steps some are taking

There are a number of steps lawyers are taking right now in the absence of regulatory guidance.

Plaintiffs’ attorneys should start the process of Medicare reimbursement claims much earlier than they have been, to account for the minimum of 90-100 days to process a claim, said Garretson.

David Rosenbaum, a defense attorney at McDowell Cotter in San Mateo, Calif., who represents third party insurers, calls plaintiffs’ counsel early on to obtain the reimbursement codes (ICD-9) for the plaintiff’s treatment.

“From the defense perspective, we advocate being very specific about the ICD-9 codes,” said Rosenbaum.

If an injury is entered into Medicare’s computers as a more specific injury, such as a sprained ankle, as opposed to a more general injury, such as a traumatic leg injury, it is less likely Medicare will deny benefits to a plaintiff who needs future care for an unrelated leg injury.

Seana Thomas, an attorney at Hall Hieatt & Connely in Santa Barbara, Calif., who advises both sides on this issue, recommends that defendants in catastrophic cases where significant future medical care is clearly anticipated — such as a future surgery or ongoing care for a paraplegic — make sure it’s clear in the release signed by the plaintiff that a specific amount is allocated for future care.

Lacking a judgment from a trial court, such a release is the next-best thing, said Thomas.

“My hope is that it will give my defense clients … something to hold up and wave in front of Medicare,” she said, adding that she also attaches the release and the plaintiff’s medical records and sends them to Medicare.

To calculate the appropriate amount, she generally refers to the workers’ compensation criteria for set-asides.

Some attorneys have attempted with mixed success to send CMS proposed set-aside arrangements, hoping to get Medicare to sign off on them.

Attorneys can
also include a release that protects themselves, in which the plaintiff releases any right to sue over the loss of his or her benefits.

Rosenbaum, the defense attorney, uses such a release.

“It’s an attempt to put a barrier of success against a plaintiff later coming back and suing me,” said Rosenbaum, who has shared his release with other attorneys.

This article originally appeared in Lawyers USA, Minnesota Lawyer’s national sister publication.