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New case highlights how LMSA issues and questions continue to complicate liability claim settlements

By Mark Popolizio  |  December 7, 2020

Doctor holding cell phoneAs the industry waits for the Centers for Medicare and Medicaid Services (CMS) to release its “future medicals” proposals for liability settlements, a new case out of Pennsylvania highlights the continuing challenges and questions parties face regarding liability Medicare set-aside (LMSA) issues as part of claim settlement.  

Summary

In Abate v. Wal-Mart Stores East, L.P., 2020 WL 7027481 (W.D. Pa. November 30, 2020), the court found, in part, that CMS’s September 30, 2011 memorandum (commonly referred to as CMS’s “LMSA memo”) did not mandate that the plaintiff in this case obtain a letter from her treating physician certifying that her medical treatment was completed, nor required that settling parties create a LMSA where treatment is ongoing. As part of its analysis, the court also noted that the settlement in this case contained several other provisions which took into account Medicare’s interests. Based on these reasons, the court granted the defendant’s motion to enforce the settlement. 

In the bigger picture, this action reflects the continuing uncertainty parties may have concerning their obligations and expectations regarding Medicare and the future medicals question as part of liability claim settlement, and the latest case where the courts have been called upon to address LMSA issues. 

On CMS’s end, the agency has released several notices indicating plans to release specific “future medicals” proposals, which are widely expected to focus on liability settlements and LMSAs. These proposals were initially scheduled for release in September 2019, but were then pushed back to October 2019, Febuary 2020, and then August 2020. They were then further delayed by CMS until March 2021. Despite these notices, to date, CMS has not released its proposals.

While CMS has not given any indications where it may be headed, many remain hopeful that the agency’s forthcoming proposals will clarify how CMS proposes parties address future medicals in liability settlements. Absent such clarity and guidance, parties will continue to face challenges in navigating how best to address the matter, with the courts then called upon to address disputes and questions regarding the LMSA issue.

In the interim, for those interested in a more detailed breakdown, the following overview is presented:

Background

This liability case arose from an October 15, 2015 incident when the plaintiff was allegedly injured in the defendant’s store. In fall 2019, the parties engaged in a round of settlement discussions, culminating in a purported settlement for $250,000.00. The defendant then forwarded a release agreement to plaintiff’s counsel, with the court noting that the plaintiff signed the last page of the agreement on November 23, 2019.[1] Plaintiff’s counsel then returned the executed release to the defendant on November 26, 2019.

Plaintiff required to obtain a doctor letter under the settlement agreement

A particular provision in the release agreement, which became a main part of the ultimate dispute and court ruling, was paragraph 2(d) (i), which contemplated that the plaintiff demonstrate she had “satisfied Medicare’s interest” by securing a letter from her treating physician “certifying in writing to a reasonable degree of medical certainty that treatment for any alleged injury relating to the Incident and this settlement has been completed as of the Effective Date and that future medical items or services for the injury will not be required.”[2] Further, this letter had to be “acceptable to Walmart and in compliance with and contain specific certifications required in the September 30, 2011 memorandum from CMS, which memorandum is attached to this Agreement as Exhibit B… “[3]

It turned out that the plaintiff was ultimately unable to secure this statement from her treating physician; in fact, one of her physicians issued a letter indicating that she was “still being treated” and “will continue to have further treatments.”[4] 

CMS’s September 30, 2011 memo

As referenced, the above settlement provision was based on CMS’s September 30, 2011 policy memorandum. The full terms can be viewed here.

In general, this memo states:

Where the beneficiary’s treating physician certifies in writing that treatment for the alleged injury related to the liability insurance (including self-insurance) “settlement” has been completed as of the date of the “settlement”, and that future medical items and/or services for that injury will not be required, Medicare considers its interest, with respect to future medicals for that particular “settlement”, satisfied. If the beneficiary receives additional “settlements” related to the underlying injury or illness, he/she must obtain a separate physician certification for those additional “settlements.”

If this statement is obtained, CMS in the memo then states that, “there is no need for the beneficiary to submit the certification or a proposed LMSA amount for review.”

Plaintiff tries to back out of the agreement – the defendant moves to enforce the settlement

Shortly after the release agreement was executed, the plaintiff attempted to back out of the settlement, terminated her counsel, and hired new counsel. The plaintiff argued that the settlement was unenforceable on several grounds, including allegations that she was never permitted to review the agreement, was forced to sign the agreement under duress from her counsel, and never expressly authorized its terms.[5] Regarding Medicare, the plaintiff argued that paragraph 2(d) which, as noted above, required her to obtain a written certification from her treating physician that her treatment was completed and no future medical services were required, was a material term of the agreement, and since she was unable to obtain this statement the settlement was rendered unenforceable.[6] The defendant moved to enforce the settlement.

Court enforces the settlement – finds that CMS’s memo did not require a physician statement or LMSA, and that the settlement contained provisions considering Medicare’s interests

The court ruled that the release agreement was enforceable, finding, in part, that the plaintiff’s inability to secure the doctor’s letter certifying her medical treatment had concluded did not render the settlement unenforceable.

In reaching its decision, the court rejected the plaintiff’s argument that securing the doctor letter as contemplated under the agreement was a material term finding as follows: 

Central to Plaintiff’s argument is her assumption that a doctor’s letter certifying the termination of her medical treatment is an “essential component” or “material term” of the Release Agreement, in the absence of which substantial performance is impossible. In this Court’s view, that assumption is mistaken. To be sure, the ongoing nature of Plaintiff’s medical care does make it “impracticable” for her to obtain a letter certifying that treatment has been completed and that future medical services will not be required. But the doctor’s certification was merely the means by which Walmart contemplated that Plaintiff would demonstrate that she had “satisfied Medicare’s interest” in the settlement proceeds… The letter was not, in and of itself, a central term of the parties’ bargain. Rather, the essence of the parties’ agreement is Walmart’s agreement to pay money in exchange for Plaintiff’s agreement to terminate the litigation and release claims.[7]

Further, the court found  that the “central objectives” of the release agreement could still be achieved -- consistent with the requirements of the MSP, even if the plaintiff’s medical care is ongoing based on other provisions in the settlement which allowed Medicare’s interests to be considered with respect to future health care costs and Medicare liens.[8]

For example, under paragraph 3(f) of the agreement, the plaintiff agreed to use the settlement proceeds to satisfy “any and all existing and potential obligations to pay for, or to reimburse the payer (including...Medicare...) of any health care treatment and any other benefits received or that may be received by Plaintiff with respect to claimed injuries, actual or potential, arising out of or related to the [October 15, 2015] Incident.”[9] Further, per paragraph 3(g), the plaintiff expressly agreed to use the settlement proceeds to satisfy “any and all liens, claims or demands...relating to or arising out of any health care treatment and any other benefits...that may be received by Plaintiff with respect to claimed injuries, actual or potential, arising out of or related to the Incident.” (court’s emphasis).[10] In addition, pursuant to paragraph 4, the plaintiff agreed to indemnify and defend the defendant from, among other things, “any and all liens, claims, lawsuits, demands, proceedings or actions with respect to health care treatment… .”[11]

Thus, based on these provisions, the court found the agreement allowed for Medicare’s interests to be considered, noting that:

In short, the plain language of the Release Agreement contemplates that future medical liens or claims might arise, that Plaintiff is obligated to use the settlement proceeds to satisfy those obligations to the extent required by the MSPA, that Walmart can require proof of such compliance, and that, if Medicare later sues Walmart based upon Plaintiff’s failure to abide by her obligations under the MSPA, Plaintiff would have to defend and indemnify Walmart. The Release Agreement thus allows for Medicare’s interests to be taken into account with respect to future health care costs, albeit by shifting the burden onto Plaintiff satisfy future Medicare liens or claims from the settlement proceeds.[12]

Turning its attention to CMS’s September 30, 2011 memo, the court found nothing in CMS’s memo would preclude the type of agreement and approaches noted above, or require a Medicare beneficiary to obtain a doctor’s letter stating that:

The express purpose of the CMS Memorandum is to “provide information regarding proposed Liability Medicare Set-Aside Arrangement (LMSA) amounts related to liability insurance...settlements, judgments, awards, or other payments....” The memorandum does not require that a settling Medicare beneficiary acquire a letter certifying the completion of his or her treatment. Instead, it merely advises that, “[w]hen the treating physician makes such a certification, there is no need for the beneficiary to submit the certification or a proposed LMSA amount for review.” (court’s emphasis).[13]

Moreover, the court found that CMS’s memo did not mandate “that the settling parties create a LMSA where treatment is on-going” finding “[i]nstead, the memorandum alludes to the fact that such set-aside arrangements are a proposal.” (court’s emphasis).[14]  

On this point, the court referenced Sipler v. Trans Am Trucking, Inc., 881 F. Supp. 2d 635 (D. N.J. 2012) where the United States District Court for New Jersey concluded that the MSP doesn’t mandate LMSAs LMSAs in personal injury cases that involve liability insurance settlements.[15] The court quoted a lengthy passage from Sipler in which the court in that case noted that while a LMSA may be a recommended method to protect Medicare’s interests, it sided with a line of prior decisions in other contexts finding that “opinion letters-like interpretations contained in policy statements, agency manuals, and enforcement guidelines lack the force of law” leading the court in Sipler to conclude that “no federal law requires set-arrangements in personal injury cases.”[16]

Bringing it back full circle, the court in Abate explained that what this all meant “in the context of the present case is that Plaintiff is still in a position to render ’substantial performance’ under the Release Agreement, notwithstanding her inability to provide the [doctor’s certification letter] that was contemplated [as part of the settlement agreement].”[17] Accordingly, the court concluded that, as a matter of law, the plaintiff’s inability to obtain a letter from her treating physician that her medical treatment had concluded did not render the settlement agreement unenforceable.

Navigating the LMSA issue in the dark

With the release of CMS’s future medical proposals delayed, the types of questions and issues highlighted in Abate will likely continue. On this point, the court in Silva v Burwell, 2017 WL 5891753 (D. N.M. 2017) recognized the frustration that CMS's lack of guidance is creating in the claims context remarking that "[t]he uncertainty created by CMS' repeated failure to clarify its position on requiring MSAs in personal injury settlements generally and in specific cases is proving burdensome to the settlement process."  

Looking ahead to CMS’s actual proposals, it will be interesting to see exactly what the agency proposes in terms of applicability and scope, and how they plan to address certain aspects unique to liability claims, such as policy limits and caps, comparative fault, and other considerations that make liability settlements significantly different from workers' compensation settlements. Further, as occurred with CMS’s previous LMSA proposals back in 2012, questions will likely be raised in some quarters concerning CMS’s right to regulate future medicals from a statutory or authoritative standpoint, and whether CMS policy statements should be afforded the force of law. 

On these latter points, as noted above, the court in Abate did not view CMS’s current LMSA memo to require parties to obtain a physician statement certifying that a plaintiff’s medical treatment has concluded or that LMSAs are required when treatment is ongoing. In this regard, the court in Abate agreed with other recent decisions such as Sipler v. Trans Am Trucking, Inc., 881 F. Supp. 2d 635 (D. N.J. 2012), Silva v Burwell, 2017 WL 5891753 (D. N.M. 2017), and Bruton v. Carnival Corporation, 2012 WL 1627729 (S.D. Fla. 2012), which found, in general, that no specific federal law or current CMS regulation requires LMSAs. It is unknown to what extent (if any) these decisions may impact or influence CMS’s proposals.

While it is unclear where CMS is headed next regarding LMSAs, what is becoming increasingly clear (and frustrating) is that the status quo is leaving many parties in limbo in terms of addressing the future medical issues as part of liability claim settlements.


[1] Abate v. Wal-Mart Stores East, L.P., 2020 WL 7027481 (W.D. Pa. November 30, 2020), at *1.

[2] Id. at *10.

[3]  Id. 

[4] Id.

[5] Id. at *1. Regarding these allegations, which are beyond the scope of this article’s focus on the Medicare aspect of the court’s decision, the court ultimately found that the claimant’s original lawyer had express authority to accept the defendant’s settlement proposal, that the terms of the agreement were sufficiently definite to permit specific enforcement, the agreement was supported by adequate consideration, and that there was no clear showing of fraud, duress, or mistake in relation to the plaintiff’s execution of the settlement agreement. Abate v. Wal-Mart Stores East, L.P., 2020 WL 7027481, at *7.

[6]  Abate v. Wal-Mart Stores East, L.P., 2020 WL 7027481, at *11. 

[7]  Id.

[8] Id. at *12.  

[9] Abate v. Wal-Mart Stores East, L.P., 2020 WL 7027481, at *12.

[10]  Id.

[11] Id.

[12] Id.

[13] Abate v. Wal-Mart Stores East, L.P., 2020 WL 7027481, at *12.

[14] Id.

[15] Sipler v. Trans Am Trucking, Inc., 881 F. Supp. 2d 635, 638-39 (D. N.J. 2012).

[16]  Id.

[17] Abate v. Wal-Mart Stores East, L.P., 2020 WL 7027481, at *13.


Mark Popolizio, J.D., is vice president of MSP compliance and policy at ISO Claims Partners, a Verisk business. You can contact Mark at mpopolizio@verisk.com.