And We Wonder Why CMS Won’t Touch Equitable Apportionment

Medicare Set-Aside Blog on June 27, 2012
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The issue that has most obviously not been addressed in the proposed future medical rules CMS offered in CMS-6047-ANPRM is an approach on handling compromised or limited recovery situations in personal injury and workers’ compensation settlements. CMS stands firmly behind its belief that Medicare is entitled to full priority reimbursement from an insurance settlement, judgement or award. While I acknowledge that there is a strong legal argument supporting that claim, I can’t help but wonder if the agency purposely avoids opening this can of equitable apportionment worms because it foresees ridiculous requests to reduce its recovery. For example, the most common request today is that Medicare has to waive its MSP rights because the parties have agreed to allocate all proceeds to everything but medical, so there’s just nothing left for Medicare to take. And yet we continue to wonder why CMS won’t play.

A recent opinion from the Supreme Court of Appeals of West Virginia provides an excellent example of what a hassle it is to decide who is entitled to what portion of a tort recovery that is severely compromised by policy limits. The case involves a med mal claim stemming from the delivery of a baby in Ohio. Combining the policies covering the OBGYN, her practice, the nurse and hospital, there were policy limits of $3,600,000 provided in settlement of all claims. The State of Ohio had paid $698,225.24 in Medicaid benefits related to this claim. The plaintiff argued that the “true value” of the case was $25,373,937.20, which included $1,255,329.95 for past medical expenses, $19,118,608 for future medical expenses, and $5,000,000 for noneconomic loss, and that the $3,600,000 settlement thus represented a recovery of 14.19% of the claim’s value. This would infer a recovery by the state of $79,053.16. The balance of the proceeds will be placed in a special needs trust to supplement the child’s quality of life while the State of West Virginia absorbs the cost of his life time care (so really the parties propose to screw two states in this transaction but that is a debate for another time).

Now this is a Medicaid situation and subrogation principles, state law and Ahlborn apply, so please do not attempt to apply this outcome to support MSP related waiver or compromise requests. The case is only being used to illustrate some of the problems that we face in settling claims with limited recoveries, particularly while trying to provide public comments to CMS that will need to deal with similar issues. There will absolutely be situations just like this where Medicare will eventually have to provide payment again at some point, so why not cooperate with the parties to secure itself a fair share of the recovery rather than risk the all or nothing approach it currently uses. However, if the parties are not reasonable with their valuations, CMS will certainly not voluntarily participate in such an exercise.

It is obvious that this infant is severely disabled as a result of his birth; however, he has been determined to have a 50 year life expectancy. The $19 million dollar life care plan provides for 24/7 in-home nursing, handicapped home and vehicle, numerous DME and supplies, and a cell phone – just to name some of the items that caught the court’s attention. The assumptions were all based upon remaining in his home without even discussion of a residential facility that provides all of this care and equipment much more cost effectively. The expenses were claimed with little to no supporting documentation verifying need or pricing. The nursing services were calculated at the billed rate in Chicago even through the child lives in West Virginia. Then there are the $5.0 million in claimed non-economic damages with the election of Ohio law because plaintiff thought the statutory cap would be more favorable, yet in reality was limited to $500,000. While I cannot speculate what the “true value” of this claim really is, the point is that even the court looked upon the demand questionably, and if you cannot convince the court, you are certainly not going to get CMS to accept such a valuation voluntarily. Because Medicare has both a priority right of recovery and a separate subrogation right, the pro-rata affect Ahlborn had on this case is not going to happen in an MSP recovery case unless CMS permits it. This is why the legal and insurance industries had better be formulating some reasonable standards to propose to CMS; otherwise, we could be facing CMS’ all or nothing recovery model in all aspects of MSP enforcement, past and future, indefinitely.

IN RE: E.B., A MINOR; Michael J. Lewis, Secretary, West Virginia Department of Health and Human Resources, Petitioner
No. 101537
2012 W. Va. LEXIS 314
September 20, 2011, Submitted
June 21, 2012, Filed