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Bradley J. Frigon, JD, LLM (Tax), CELA Patricia F. Sitchler, JD, CELA

Recovering for Personal Injury: Successful End or Just the Beginning Medicare’s Interest in a Personal Injury Settlement?. Bradley J. Frigon, JD, LLM (Tax), CELA Patricia F. Sitchler, JD, CELA Certified Elder Law Attorney Certified Elder Law Attorney

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Bradley J. Frigon, JD, LLM (Tax), CELA Patricia F. Sitchler, JD, CELA

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  1. Recovering for Personal Injury: Successful End or Just the Beginning Medicare’s Interest in a Personal Injury Settlement? Bradley J. Frigon, JD, LLM (Tax), CELA Patricia F. Sitchler, JD, CELA Certified Elder Law Attorney Certified Elder Law Attorney 6500 S. Quebec St., Suite 330 112 E. Pecan Street, Suite 3000 Englewood, CO 80111 San Antonio, Texas 78205 (720)-200-4025 (210) 224-4491 (720)-200-4026 fax (210) 224-7983 fax bfrigon@bjflaw.compfsitchler@scs-law.com bjflaw.com scs-law.com

  2. Scope of This Presentation Will Focus on the Aspect of: • Post Settlement Factors Attorneys Must Consider And • Medicare Set Aside requirements in a Personal Injury Settlement.

  3. Post Settlement Factors the Attorneys Must Consider • Maintain eligibility for government benefits • Medicaid lien • Medicare claim • Medicare’s expanded position that it is a secondary payor in a pure personal injury context • Subrogation claims/ERSIA • Protective proceeding with Guardian/Conservatorship – Court approval of settlement • Allocation of settlement among parties • Income and estate tax issues • Using a Qualified Settlement Trust under § 468B of the IRC • Protecting the damage award after the settlement with structures and trusts.

  4. Alphabet Soup • Social Security Disability Income (SSDI) • Dependent/Disabled Adult Child Benefits (DAC) • Social Security Income (SSI) • TANF/Food Stamps • HUD/Section 8 Housing • Medicaid -SSI • Medicare –after 24 monthly payments of SSDI • State Medicaid Waiver Programs • Centers for Medicare and Medicaid Services (CMS) • Medicare set- aside fund (MSA)

  5. Public Benefits • Not Affected by Settlement (at least not yet?) • SSDI- except in a WC recovery • Medicare- except for set-aside requirements for future injury- related medicals and worker’s compensation. • This does not mean you are not required to resolve the Medicare claim prior to the settlement • Affected by Settlement • SSI • Medicaid • TANF/Food Stamps • Section 8 Housing • VA Benefits

  6. Medicaid - SSI • In most states, the receipt of SSI gives automatic Medicaid qualification • Eligibility Requirements: • Earned and unearned income limitations • Countable resources under $2,000 • Exempt resources • Home • Car • Personal Property • Deeming rules between parent/child and between spouses

  7. Value of Benefits • SSI - $674/month • Medicaid • Medical/hospital care • Prescription drugs • Residential/institutional coverage • TANF/Food Stamps • Section 8 Housing

  8. Medicare- SSDI • Not a means tested benefit program • Unlimited assets and unearned income • Limitation on the amount of earned income • After 24 monthly payments of SSDI, qualify for Medicare • What does Medicare pay for: • Hospital/Doctor • Prescription drugs • Rehab • Does not pay for residential needs (housing, group homes, nursing home)

  9. Medicare Set Asides – A Little History • Federal Law provides Medicare which is administered through the Center for Medicare Services (CMS), expansive rights with regard to claimants who are, or will become eligible for Medicare benefits. The Medicare Secondary Payer (MSP) statute 42 U.S.C §1395y, and regulations 42 C.F.R §411.20 et. seq. make Medicare a secondary payer for any medical services for which payments have been made, or can reasonably be expected to be made promptly under a workers’ compensation (wc) law or insurance plan. • Medicare Prescription Drug, Improvement and Modernization Act of 2003, expanded Medicare’s recovery and enforcement powers.

  10. Medicare Set Asides – A Little History • CMS has an interest in the portion of the settlement intended to cover future medical benefits since, prior to the settlement, the workers’ compensation carrier was the responsible party for paying the injured party’s medical expenses for his or her lifetime. Once the settlement is complete, CMS does not want the injured person looking to Medicare as the primary payer of the injured party’s medical expenses related to his or her injury unless the injured party has exhausted proceeds from the settlement on his or her medical care.

  11. Medicare Set Asides – A Little History • CMS protects its interests in workers’ compensation settlements by requiring a certain amount of a settlement be specifically be set aside for payment of future medical benefits that Medicare otherwise would pay. • If no amount of the settlement is set aside from the settlement, or too little of the settlement is set aside, CMS may refuse to provide any Medicare-covered services related to the injury until the entire amount of the settlement is exhausted.

  12. The CMS Solution • On July 23, 2001, the Central Office of CMS issued written guidelines in an attempt to provide some form of uniform guidance on the application of the MSP regulations. CMS has published eight additional memoranda defining and refining CMS’s policies and procedures for the use, submission, approval and administration of MSA’s related to WC cases. • All CMS memoranda can be found at http://www.cms.hhs.gov/WorkersCompAgencyServices/

  13. For a WC Case, MSA Minimum Review Criteria • The claimant is currently eligible for Medicare and total uncommuted value of the WC settlement exceeds $25,000; or • The claimant is reasonably expected to become eligible for Medicare within 30 months of a WC settlement with total uncommunted value of more than $250,000. • Total value of settlement includes past and future medicals, indemnity, attorney fees and costs and Medicare overpayments.

  14. Calculating the Set Aside Amount • The set aside amount is determined by evaluating the claimant’s past course of medical treatment, current condition, the reasonable probability of future medical needs and other factors. • Future medical expenses that Medicare would pay for that are related to the injury including prescription drug expenses. • Based upon claimant’s life expectancy (actual or rated age). • Use medical history, life care plan, physician statement. • Set Aside amount is not reduced by procurement costs. • MSA’s are submitted through COBC.

  15. Medicare Set-Aside Options • Medicare Set-Aside Trusts (MSATS) • Formal Trust with Trustee • Fiduciary rules apply • Trustee may hire third party administrator • Usually for large accounts or used in combination with SNT • Medicare Set-Aside Custodial Accounts • Administered by Custodian • Less formal smaller accounts • Self-administered accounts • Administered by Claimant, no agreement necessary • Same accounting rules apply • Most claimants will not comply

  16. Working with MSAs • Usually funded with a qualified structured annuity with initial seed money; • Usually administered by a third party administrator; • For the life of the beneficiary; • Use to pay Medical expenses related to the injury that Medicare would reimburse; • Must include prescription drug coverage; • Must provide accountings to CMS; • Cannot pay fees and cost to establish the MSA from set aside amount.

  17. Medicare Set Aside in Personal Injury Cases • CMS asserts that Medicare is still a secondary payer after the settlement of a personal injury claim. • Authority is based upon 42 U.S.C §1395y (b)(2)(A): Payment under this subchapter may not be made . . . with respect to any item or service to the extent that. . (ii) payment has been made or can reasonably be expected to be made promptly (as determined in accordance with regulations) under a workmen’s compensation law or plan of the United States or a State or under an automobile or liability insurance policy or plan (including a self-insured plan) or under a no fault insurance plan.

  18. Medicare Set Aside in Personal Injury Cases • Section 1862(b)(2)(A)(ii) of the Social Security Act precludes Medicare payment for services to the extent that payment has been made or can reasonably be expected to be made promptly under liability insurance. Anytime a settlement, judgment or award provides funds for future medical services, it can reasonably be expected that those funds are available to pay for Medicare covered future services related to what was claimed and/or released in the settlement, judgment, or award. Thus, Medicare should not be billed for future services until those funds are exhausted by payments to providers for services that would otherwise be covered by Medicare. Sally Stalcup, Region 6, MSP Regional Coordinator, UTSNT 2007 Conference, Medicare Set- Asides, February 2007.

  19. Medicare Set Aside in Personal Injury Cases • “The fact that a settlement/judgment/award does not specify payment for future medical services does not mean that they are not funded. The fact that the agreement designates the entire amount for pain and suffering does not mean that future medicals are not funded.” Sally Stalcup, Region 6, MSP Regional Coordinator, UTSNT 2007 Conference, Medicare Set-Asides, February 2007.

  20. Statutory Problems • No statutory authority to determine what portion of the settlement represents payment for future “item or service” absent an allocation in the settlement itself. • Currently, CMS has no procedure to review MSA in PI cases. Parties must “reasonably consider Medicare’s Interest in a PI settlement. • CMS indicated they are working on new FAQs to provide guidance for PI cases.

  21. API recovery is different than a WC settlement • There may be an issue if the claim is job related in a WC case, but no issue of fault. With a PI case, comparative negligence rules apply. • WC damages related to medical and indemnity. PI cases can involve more complicated damage award or recovery issues with multiple party derivate claims.

  22. Current Policy from CMS Regional Office • Expect any funds that are allocated for future medicals to be spent before any claims are submitted to Medicare for payment. The beneficiary will be asked on the initial enrollment questionnaire that is system-generated. • CMS has no current plans for a formal process for reviewing and approving liability MSAs. However, there is an obligation to inform CMS when future medicals were a consideration in reaching the judgment, award or settlement as well as any instances where a settlement specifically provides for medicals in general or future medicals.

  23. Case Example • Client suffered a closed head injury that left him in a wheelchair.  As result of a lawsuit, client received $4,000,000 of which a portion is structured and another portion is used to fund a Supplemental Needs Trust.  Client is eligible for Medicare coverage.  A third party analyst was hired and calculated a set-aide amount of $175,000 representing injury related future medicals that Medicare would normally cover.  The set-aside amount will be paid into a Medicare Set-Aside fund embedded within the SNT and administered by the Trustee.   The Trustee has authority to hire a third-party administrator to assist in the MSA management, including assistance with annual and final reports to CMS.  The MSA set-aside was funded by seeding it with about $50,000 and also purchasing a structured annuity costing approximately $40,000 that will pay out over a fixed number of years. 

  24. New Reporting Requirements • Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (PL 110-173) amends the Medicare Secondary Payer (MSP) provisions of the Social Security Act (Section 1862(b) of the Social Security Act; 42 U.S.C. 1395y(b)) to provide for mandatory reporting for group health plan arrangements, liability insurance (including self-insurance), no-fault insurance, and workers' compensation. The provisions will be implemented January 1, 2009.

  25. Enforcement • To recover payments described in the MSP statute, the United States is authorized to bring an action “against any entity” including a beneficiary, provider, supplier, physician, attorney, state agency or private insurer that has received any portion of a third party payment directly or indirectly if those third party funds – rather than Medicare should have paid for the injury-related medical expenses. 42 U.S.C. §1395y(b)(2)(ii). • The statute provides that double damages plus interest may be collected from the primary payer.

  26. Enforcement (continued) • It is important to remember that regulations specifically provide that, “[i]f a settlement appears to represent an attempt to shift to Medicare the responsibility for payment of medical expenses for treatment of a work-related condition, the settlement will not be recognized. 42 C.F.R.§411.46(b)(2). • In addition, Medicare has the option, under the MSP statute, to simply refuse to pay the injured person’s medical expenses.This could occur if the injured employee has previously reached a lump sum settlement with the primary payer regarding future medical benefits. 42 C.F.R. §411.46.

  27. Attorney Liability • In an unreported Texas WC case, neither the Plaintiff nor his attorney took steps to protect Medicare’s interest in a 2003 settlement.  In 2008, Medicare sent a demand to the attorney for reimbursement to Medicare for injury-related payments made after receipt of the personal injury award.  The demand included the treatment costs plus interest from the time of Medicare’s payment.  Again, anecdotally, CMS conceded that it only pursued this claim against the attorney because of a complaint to CMS that the attorney did not attempt to protect Medicare’s interest in the settlement of the 2003 claim.

  28. MSA and SNTs • MSA is an available resource for SSI/Medicaid eligibility purposes • Unless combined with SNT, MSA funds will disqualify claimant for SSI/Medicaid eligibility • Must use combination SNT/MSA with payback provision in trust • See July 1, 2005 CMS memorandum.

  29. Protecting the Settlement When Needs Based Government Benefits are Involved • Special Needs Trust (SNT) • Allows public benefits eligibility without interruption • Management of the settlement is out of the control of the disabled beneficiary and family. Allows for fiduciary oversight. • Allows flexibility of assets including structures, investment accounts and home ownership. • Customized to beneficiary’s needs and changing circumstances.

  30. Special Needs Trust Requirements • Codified at 42 U.S.C. § 1396p(d)(4)(A) • Established by: • Parent • Grandparent • Guardian/Conservator • Court • Beneficiary must be under the age of 65 • Pay Medicaid lien prior to funding • Must be for the sole benefit of the beneficiary • Beneficiary must be disabled as defined under Social Security Rules; • Payback provision - Death • Moving out of state? • No longer disabled?

  31. Medicare Set- Aside Fund Sub-Account within SNT • Fund can be self-administered by the Trustee. • Trustee can hire third- party administrator to administer the Fund. • Trustee may have to refrain from reimbursing the State for up to 27 months following the death of the Beneficiary. • No rules exist but administration of the Set-Aside fund can be analyzed to the administration under Workers’ Compensation Rules and Memoranda: www.cms.hhs.gov/WorkersCompAgencyServices.com

  32. Allocating Damages • CMS states that it is not bound by a damage allocation made by the parties, but see Arkansas Dept of Health and Human Services v. Ahlborn, 126 S.Ct. 1754 (2006). • CMS memorandums are not regulations but CMS believes they are the law. • Will a court rule on an allocation of damages? • Multiple party allocations? • Life care plan?

  33. Recommendations • Disregard Medicare set-aside issue because CMS is not enforcing the MSP statute and there are no rules for guidance (not recommended) • Document file showing that Medicare’s interest was considered and was reasonably protected: ➤Calculate a set aside amount based on current WC regulations; ➤Submit proposed set aside amount to CMS for approval. May need to create IRC §468B Qualified Settlement Fund if necessary to avoid constructive receipt of funds to plaintiff; ➤Fund Medicare Set-Aside amount even if CMS refuses to respond; ➤Advise client to submit annual accountings to CMS even if CMS refuses to respond.

  34. Recommendations (continued) • In all cases, inform client that the law is unsettled; advise client about third party and self-administration of MSA; advise client of the potential of the denial of injury-related Medicare coverage and the necessity to appeal the denial; obtain release and indemnity from client or client’s legal representative (guardian, guardian ad litem, attorney-in-fact) in Settlement Documents and enter into the court record. • What does your fee agreement say?

  35. Protect Yourself • Determine if the plaintiff is receiving any government benefits. • Make sure that the plaintiff has been advised about protecting his/her benefit eligibility. See sample letter. • You cannot advise a person without capacity without the appointment of a guardian/conservator.

  36. It’s all about Documenting Your File For a list of attorneys who practice in this area in each state go to: http://www.specialneedsalliance.com

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