Will workers’ compensation MSA guidelines extend to personal injury cases?

As we previously reported, a CMS policy for liability Medicare set-aside (LMSA) review appears to be imminent.  The current state of confusion is depicted in a recent case involving CMS. In Silva v. Burwell, the plaintiff was injured as a result of a medical malpractice incident, after which he sustained permanent and extensive brain damage as well as physical limitations.  Plaintiff sued in state court against the hospital and the treating physicians.  The parties settled the case by agreement in 2015.  Medicare paid some of plaintiff’s medical expenses incurred in connection with the incident, so Medicare had a claim for payment under the Medicare Secondary Payer Act (MSP).  Plaintiff reimbursed Medicare for the expenses it paid.

The defendants claimed that Plaintiff was obligated to create an MSA from the settlement proceeds of the case for future medical expenses. This assertion was rooted in concern that Medicare may go after the hospital defendants for future medical expenses.  The defendants pointed to CMS’ regulations regarding the allocation of funds for future medical treatment in workers’ compensation cases to support their position that a Liability Medicare Set Aside (LMSA) should be created for the instant personal injury matter.

Mr. Silva asserted that that there was no legal support for the Medicare to request a set-aside because the CMS guidelines related to future medical treatment for workers’ compensation claims do not extend to personal injury settlements. Plaintiff went a step further and requested that CMS state its position regarding whether funds must be set aside from settlement of a personal injury claim to cover unknown, unspecific future medical expenses.  CMS neither responded nor took a position regarding (1) the legal basis of their claim for repayment or future medical care (2) whether a set aside was required with respect to the Plaintiff’s medical care.

The hospital defendants agreed to release the money in trust to the plaintiff’s trustee for his health and welfare if the plaintiff obtained a federal order containing a finding that no federal law or CMS regulation required the creation of a Medicare set-aside for his personal injury settlement. It was also determined that during the state court approval of the settlement, a certain amount of the settlement would be kept in trust to meet any Medicare set-aside needs while plaintiffs pursue the instant federal court action.

Plaintiff Silva subsequently filed suit under the Declaratory Judgment Act, which is the federal question statute, the Mandamus Act and the Medicare Secondary Payer Act (MSP) against the defendants, seeking declaration that no set-aside was required to pay for future medical expenses in the state court settlement. In addition, the plaintiff sought confirmation that defendant CMS may not in the future decrease or refuse to pay for medical bills the plaintiff may incur or otherwise penalize the plaintiff or his trust. Lastly, the plaintiff sought confirmation that MSA’s are not required under the law for personal injury or medical malpractice damages.

Defendant CMS filed a motion to dismiss for lack of subject matter jurisdiction based on the argument that there is no justiciable case or controversy because (1) the Secretary of the Department of Health and Human Services had no duty under the law to take a position on a controversy, (2) the United States is immune from suit and, (3) the plaintiff failed to exhaust his administrative remedies under the Medicare Act.

The Court in this case noted that Congress’ intention in enacting the MSP was to reduce the increasing cost Medicare incurs by making the government a secondary payer of the medical insurance coverage when a beneficiary has other sources of primary insurance coverage. The MSP also provides the government a cause of action in reimbursement to recover conditional health care payments from primary plans. Lastly, the court noted that a tortfeasor’s liability insurance company may constitute a primary plan under the MSP, triggering Medicare’s right to reimbursement when it pays out settlement proceeds to a Medicare beneficiary arising from a personal injury claim. This includes reimbursement for medical expenses incurred from the incident and paid by Medicare. The Court also observed how the Medicare set-aside is administered in workers compensation claims and the statutory and case law basis for same. The Court emphasized however, that Medicare had not established the same administrative process for liability in personal injury claims that was in place for worker’s compensation claims.

The Court applied Federal Rule of Civil Procedure 12b)(1) to evaluate the motion to dismiss for lack of subject matter jurisdiction. The approach to this case included acceptance of the complaint’s factual allegations as true. The Court explained that to establish standing, a plaintiff must show (1) an injury-in-fact that is concrete and particularized as well as actual or imminent, (2) a causal relationship between the injury and the challenged conduct; and (3) likelihood that the injury would be redressed by a favorable decision. Contingent liability can also constitute an injury in fact so long as there is an actual or imminent present impact.

The Court distinguished the defendants’ position in the instant matter from the party in Protocols, LLC V. Leavitt, 549 F. 3d 1294, 1298 (10th Circ. 2008), by highlighting that the defendant CMS in the instant matter had not taken any action to indicate they were interpreting the Medicare secondary payer act to require MSAs in a non-Worker’s Compensation personal injury case. Further, Plaintiff Silva had not shown that CMS sought to recover funds not placed in an MSA or other similar personal injury settlements. The Court therefore concluded that the plaintiff did not show the federal defendants were likely to seek reimbursement from either the plaintiff or the hospital defendants. The Court explained that the plaintiff did not convince the Court that the federal defendants had a duty or obligation to respond to plaintiff’s request for determination of whether an MSA must be created in his case. The Court reasoned that there was no law or regulation in place that required CMS to decide whether plaintiff was required to create an MSA for his personal injury settlement. The Court also noted that the defendants in action did not make the case ripe for consideration.

Interestingly, the Court noted concern for the potential impact of requiring personal injury settlements distress specifically apportioned to each or medical treatment expenses. The Court stated that this requirement would be burdensome to the settlement process and in turn, discourage personal injury settlements. An obvious concern which also applies to the WC arena. The Court acknowledged that the uncertainty created by CMS’s repeated failure to clarify its position or requiring MSAs in personal injury settlements also proved burdensome to the settlement process. Despite this burden, the Court stated that standing is a jurisdictional requirement, and plaintiff Silva had not met his burden to establish a justiciable controversy ripe for review. The Court granted defendant’s motion and memorandum in support of same and dismissed the case for lack of subject matter jurisdiction.

In so holding, the court failed to consider CMS’s alerts that it planned to create a review process wherein its new MSA contractor would be responsible for reviewing LMSAs beginning July 1, 2018.  The court appeared to only account for CMS’s previous inaction and not the indications of future involvement in personal injury claims.

While CMS has taken steps that suggest that the lack of clarity on LMSA’s will be addressed soon, the issue remains unsettled. We will continue to update our readers as the issue develops.

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