Better Late Than Never – CMS Establishes $1,000 Safe Harbor

Medicare Set-Aside Blog on February 19, 2014
Posted by Jennifer Jordan, JD, MSCC

Pursuant to Section 202 of the Smart Act, the Secretary is supposed to determine the average settlement amount where the cost of recovery most closely meets the recovery amount and set the reporting threshold to that amount annually. By no later than November 15th of each year, the Secretary is supposed to report to Congress and the Comptroller General of the United States this amount for review and implementation in the following year. Well on February 18, 2014, only 3 months late, CMS has officially announced that the new threshold is $1,000. Physical trauma based liability settlements that settle for $1,000 or less no longer need to be reported via Section 111 reporting and recovery of conditional payments from these settlements will not be pursued. Note however that any demands issued prior to the date of this Alert will continue to be pursued.

In arriving at this amount, CMS determined that the average cost of collection in a NGHP settlement, based on 2012 data, is $335/case. CMS then examined the total settlement amounts in cases where the demand was closest to $335. In settlements ranging from $750 and $1,000, CMS’ data showed that the average demand amount was $354. Based upon this information, CMS set the threshold to $1,000. That was certainly complicated. It is obvious that totally disregarding the statutory deadline established by the SMART Act was absolutely necessary.

So how many cases do you think will settle for $999 this year (I am aware that it is $1,000 or under but I know in my heart that the magic number will be $999)? In cases with significant conditional payments and low policy limits, I can hear the negotiations now: “Since you’re not getting the money either way, why don’t we just settle for $1,000?” It will never cease to amaze me just how short sighted our government can be…

The Alert can be found here.

Computation analysis can be found here.