Liability Medicare Set Asides – Bracing for the stormBy Mark Popolizio | November 13, 2019
Updated December 16, 2020.
For years, the Liability Medicare Set-Aside (LMSA) issue has been the source of much debate and frustration for liability claims payers. To date, there remain lingering questions on several fronts and the Centers for Medicare and Medicaid Services’ (CMS) attempts to clarify these issues that have been generally viewed as inadequate. As a result, liability claims payers have been left to navigate the uncertainties the best they can—while preparing for where CMS may be heading next.
CMS is now expected to release its latest “future medicals” proposals in March 2021. Of note, CMS has previously slated release of these proposals for September 2019, October 2019, for February 2020, and most recently, for August 2020.
These proposals were initially scheduled for release in September 2019, then delayed to October 2019, and they are now slated for release in February 2020.
While we await CMS’ next steps, there is time to sneak in a quick level set focusing on where we have been, where we are now, and where CMS may be headed regarding LMSAs.
Toward this goal, the author provides the following overview:
Town Hall statements
Perhaps the logical starting point is to attempt to piece together how CMS views the issue. On this point, the industry forced CMS out of its silence during the early days of its Section 111 Town Hall calls almost a decade ago. Although these calls were designated to discuss Section 111 reporting (which is unrelated to the LMSA issue), CMS was barraged with questions regarding LMSAs.
These exchanges provided the first glimpses into CMS’ perspective on LMSAs. For example, in a September 2009 Town Hall, CMS expressed the view that the “underlying statutory obligation” was the “same” for liability and workers’ compensation cases when it came to protecting Medicare’s future medicals interests. Further, CMS explained that while it did not have a formal LMSA review process — or that a CMS regional office declined to review an LMSA proposal — this did not provide “any type of safe harbor.” CMS cautioned not to confuse the issue of “process” (that is, whether its MSA review process was or was not available for liability claims) with the underlying “obligation” to protect its interests.
In a January 2010 Town Hall, CMS honed its position further stating: “set-asides [in] liability situations are not required in terms of CMS being involved in…determination of how much the set-aside should be…This is not the same thing as a blanket statement that liability set-asides are simply not required or not appropriate. Regardless of the mechanism, Medicare’s interests need to be protected. The statute says that we don’t make payment where payment has already been made.”
Whether these types of agency statements should be considered authoritative, ushers in a whole litany of deeper issues and questions beyond the scope of this analysis. However, these statements, at face value at least, shed some light on CMS’ thinking (right or wrong).
LMSA memo (September 2011)
CMS’ Town Hall statements raised concerns on many levels, prompting calls for further clarification. CMS responded with its much-anticipated September 30, 2011, “LMSA memorandum.” There was guarded optimism this memo would provide better clarity and guidance; however, the release fell far short of both goals. Specifically, CMS simply outlined when it viewed an LMSA as unnecessary— situations where a claimant’s treating physician certifies in writing that treatment has concluded and no further treatment for the alleged injuries is required. This memo, which remains in effect today, was widely criticized as too limited in scope and imposing a largely unrealistic evidentiary requirement.
Proposed regulations (2012-2014)
CMS then upped the ante in 2012 by releasing its Advanced Notice of Proposed Rulemaking (ANPRM). This was an attempt to implement formal legal rules concerning future medicals for liability claims into the Code of Federal Regulations. In September 2013, CMS announced plans to release a Notice of Proposed Rulemaking (NPRM) as its next step regarding the ANPRM proposals. To date, CMS’ 2012 ANPRM has been the agency’s most serious foray into the issue.
In support of its proposals, CMS proceeded from the position that Medicare was prohibited from making payment under the MSP when payment has been made via settlement and that Medicare remained the secondary payer until the settlement was exhausted. Further, CMS stated it was entitled to recover conditional payments related to settlements “regardless of when the items and services are provided.”
As for the actual proposals, the 2012 ANPRM was a complex set of rules governing when and how CMS’ future medical interests were to be addressed as part of liability settlements, which included possible plans for a formal LMSA review process. For unknown reasons, these proposals were withdrawn in fall 2014.
Waiting for CMS’ new proposals
This long and winding road leads us to current state – waiting for CMS’ new round of future medicals proposals.
In this regard, the Office of Information and Regulatory Affairs (OIRA) released an updated notice in December 2020 indicating that CMS planned on releasing a new NPRM aimed at addressing future medicals with said notice, stating as follows:
This proposed rule would clarify existing Medicare Secondary Payer (MSP) obligations associated with future medical items services related to liability insurance (including self-insurance), no fault insurance, and worker’s compensation settlements, judgments, awards, or other payments. Specifically, this rule would clarify that an individual or Medicare beneficiary must satisfy Medicare’s interest with respect to future medical items and services related to such settlements, judgments, awards, or other payments. This proposed rule would also remove obsolete regulations.
It is widely anticipated that the forthcoming NPRM proposals will concentrate on future medical obligations concerning liability claims (i.e., LMSAs). However, the OIRA’s latest notice also references no-fault and workers’ compensation. Thus, we will need to wait to see CMS’s actual NPRM proposals to examine the exact proposals relative to the various insurance lines referenced.
After CMS releases its proposals…then what?
In conjunction with release of the forthcoming NPRM, CMS will provide a “comment period” where the public will have a certain timeframe (typically 60 days) to submit commentary response to the proposals. From there, CMS will assess and consider the received comments to help formulate its final regulations for implementation.
In terms of preparing to analyze the proposals, three questions arise:
First, “what” is CMS contemplating from substantive standpoint? That is, questions surrounding such issues as: Which party will be responsible for complying with its regulations? Which claims will be included (and excluded)? Will there be monetary thresholds? How will CMS account for specific liability claims realities – such as comparative fault, policy limits, caps, and discounted settlements? Will no-fault or med-pay claims be at play? Will there be penalties or other forms of potential liability for improper compliance?
Second, “how” does CMS plan to implement its proposals? On this question, the fact that CMS plans to issue a NPRM suggests it intends to implement formal regulations into the Code of Regulations. Outside of that, it is unknown how what CMS has in store in terms of how it will all work. For example, will CMS establish some form of review/approval process? Will there be rules around the calculation of future medical allocations, funding, or administration?
Finally, “when” does CMS plan on implement its rules? On this point, it would seem logical to assume that CMS’ rules will have prospective application.
How CMS addresses these key questions will need to be carefully analyzed and will serve as the likely focal points for commentary response.
Also, as was the case with CMS’ 2012 proposals, it is expected that many commentary responses will question CMS’ actual underlying statutory authority to regulate future medicals for liability claims. While this issue is outside the scope of this review, questions will likely be raised regarding CMS’ authority to implement future medicals regulations without Congress first amending the Medicare secondary payer statute (MSP). On this point, there have been a few case decisions over the past few years calling into question whether the MSP requires LMSAs. See e.g., Silva v. Burwell, 2017 WL 5891753 (D. N.M. 2017); Sipler v. Trans Am Trucking, Inc., 881 F.Supp. 2d 635 (D. N.J. 2012); Bruton v. Carnival Corporation, 2012 WL 1627729 (S.D. Fla. 2012); and Abate v. Wal-Mart Stores East, L.P., 2020 WL 7027481 (W.D. Pa. November 30, 2020).
Please contact the author directly if you have any questions or would like assistance in analyzing CMS’ proposals when they are released.
 CMS, Town Hall Teleconference Transcript, Section 111 of the Medicare, Medicaid & SCHIP Extension Act of 2017, Call Date: September 30, 2009, p. 25-26.
 CMS, Town Hall Teleconference Transcript, Section 111 of the Medicare, Medicaid & SCHIP Extension Act of 2017, Call Date: January 28, 2010, p. 17.
 CMS Memorandum (Charlotte Benson – Acting Director), Medicare Secondary Payer—Liability Insurance (Including Self-Insurance) Settlements, Judgments, Awards, or Other Payments and Future Medicals – INFORMATION, September 30, 2011.
 Centers for Medicare and Medicaid Services, Medicare Secondary Payer and “Future Medicals,” CMS-6047-ANRPM, 77 F.R. 3917 (June 15, 2012).
 See, Office of Information and Regulatory Affairs, Medicare Secondary Payer and "Future Medicals" (CMS-6047-P), Spring 2013.
 Centers for Medicare and Medicaid Services, Medicare Secondary Payer and “Future Medicals,” CMS-6047-ANRPM, 77 F.R. at 3918.
 Id. at p, 35919-35921.
 See, Office of Information and Regulatory Affairs, Medicare Secondary Payer and "Future Medicals" (CMS-6047-P), Fall 2014.
 Office of Information and Regulatory Affairs, Miscellaneous Medicare Secondary Payer Clarifications and Update (CMS 6047-P), Fall 2020.
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