Hearing on the Merits

CMS, Medicare Set-Aside Blog, MSP Litigation on June 6, 2014
Posted by Jennifer Jordan, JD, MSCC

Although I’m sure you’ve seen the abundant posts this week regarding the new WCMSA Reference Guide and are aware that CMS has added a new section, it looks like this:

4.1.4 Hearing on the Merits of a Case

When a state WC judge approves a WC settlement after a hearing on the merits, Medicare generally will accept the terms of the settlement, unless the settlement does not adequately address Medicare’s interests. If Medicare’s interests were not reasonably considered, Medicare will refuse to pay for services related to the WC injury (and otherwise reimbursable by Medicare) until such expenses have exhausted the dollar amount of the entire WC settlement. Medicare also will assert a recovery claim if appropriate.

• If a court or other adjudicator of the merits (e.g., a state WC board or commission) specifically designates funds to a portion of a settlement that is not related to medical services (e.g., lost wages), then Medicare will accept that designation.

While not a new policy, this is the first time that CMS has used a bold title and drawn such attention to it. But regardless of the bold title and explanation, the fact of the matter is that even if you held a hearing of any type and obtained a court order approving a settlement, Medicare only “generally” accepts the terms and leaves to its own discretion when to decide that the settlement did not adequately address its interests (i.e., under any circumstances in which the allocation runs out).

All CMS is trying to say is that it will not accept a rubber-stamped court approval, as is evidenced in so much case law to date, particularly that out of the State of Louisiana. But even if evidence is presented to the court, what basis does the adjudicator have to dispute it? They certainly do not know what constitutes an appropriate MSA evaluation, as has come to be a fairly national standard practice, and particularly not one that meets CMS’ standards. Essentially any future medical allocation that is approved by a court, but not done in a manner in which CMS would have otherwise approved, had it been submitted, that exhausts prior to claimant’s death, will run the risk of CMS later second guessing it.

A recent case reported out of the Western District of Virginia illustrates just such a dilemma. Richard Stach was injured in an auto accident with a tractor trailer in September 2013, landing him in a coma for several weeks with a traumatic head injury. At the settlement hearing, “Mr. Slack testified that, although he is far from fully recovered from his injuries, he has made significant progress, and has good reason to believe that he will continue to make additional progress in the future. Mr. Slack’s medical expenses related to the accident total over Five Hundred Fifty Thousand Dollars ($550,000.00).” His medical expenses were paid by both Medicare and Medicare Advantage and Wake Forest Baptist Health asserted a lien, but all of it was compromised to about $180,000. There is no indication of his medical status or his age so there is no way to tell what kind of treatment or medication he may still require.

On May 8, 2014, the claim settled for $740,000. The tractor trailer carried only the federally mandated $750,000 limit in coverage, so the settlement represents nearly full value of the available insurance. After medical reimbursements and the approved attorneys’ fees plus expenses of about $80,000, there is $490,000 remaining net to the plaintiff. From that the parties agreed to allocate $50,000 as an MSA. The opinion reads as follows:

The parties further agreed to allocate Fifty Thousand and 00/100 Dollars ($50,000.00) in a Medicare set aside account, for any potential future medical treatment that Medicare deems related to this incident. These funds will be deposited into an annuity with Northwestern Life Insurance Company, for a period of thirteen years, with an annual payment of approximately Four Thousand Three Hundred Thirty Six and 25/100 Dollars ($4,336.25). See Dkt. No. 41-10. This amount represents a good faith estimate of future care, treatment and/or expenses based upon Mr. Slack’s age, date of entitlement to Medicare benefits, type and severity of injuries, prior medical expenses and current treatment. Counsel for both parties represented that it was not the intention of this settlement to shift responsibility for future payment of claim-related medical expenses to Medicare, but rather to consider and protect fully any rights or interests that Medicare, Optum or any other Medicare Advantage Organization may have in this settlement. I find that, based upon the evidence presented in open court and the representations of counsel regarding the negotiation and establishment of the trust for the payment of any future Medicare obligations, the parties have taken into consideration and accounted for the interests of Medicare in this settlement.

In that statement, I did not find where any medical records were submitted to the court or that any medical professionals testified. I didn’t even see that maybe an MSA professional was contacted for some free advice or maybe that one of the lawyers sent their paralegal to a certification program to understand what an MSA even was. So I am supposed to believe that when the time comes where this man’s settlement proceeds are gone and he turns to Medicare, that this will meet the Section 4.1.4 definition of a Hearing on the Merits? The structured settlement industry reports that most insurance proceeds are completely gone within the first five years so we really won’t have to wait very long to see.

So I guess the real question is what are the chances of CMS having the law on its side when it comes time to disregard a state court order. I grow tired of the default supremacy clause answer so don’t immediately jump there. State laws govern both workers’ compensation and torts, and state courts have jurisdiction over those claims. Federal law can’t supersede state law just “because”, and promoting settlements is in the interest of public policy and not to just frustrate federal Medicare laws. The fact that these parties even burdened the court with this silly exercise to appease Medicare demonstrates that they are operating in good faith, yet at the end of the day, it will likely not hold up to CMS’ policy, as unregulated and arbitrary as it may be. Absent creating a special court to adjudicate all MSP matters nationally, I guess we will just have to continue to do the best we can and wait for the inevitable litigation to begin.


RICHARD M. SLACK, Plaintiff, v. RAUL ROJAS DA SILVA a/k/a HUESLA ROJAS DA SILVA, et al., Defendants.
Civil Action No.: 4:13-cv-64
2014 U.S. Dist. LEXIS 75430
May 15, 2014, Decided