The Perfect Storm Final Warnings From the Feds About Liability MSAs, 0917 SCBJ, SC Lawyer, September 2017, #44

AuthorBy John Cattie, J.

The Perfect Storm Final Warnings from the Feds About Liability MSAs

Vol. 29 Issue 2 Pg. 44

South Carolina Bar Journal

September, 2017

By John Cattie, J.

The Andrea Gail never had a chance. The Gloucester, MA fishing boat was old and rickety. Its grizzled crew experienced but vastly overmatched. And the storm it faced was simply perfect.

One fateful decision doomed the Andrea Gail. Instead of heeding warnings about the powerful storm, it ignored all warnings and tried to push through the storm unprepared. Getting home before its cargo of swordfish spoiled was more important than protecting themselves.

The third-party liability insurance settlement community stares today at its Perfect Storm. The combination of rapidly rising Medicare enrollment rates, a longer American life expectancy and the pending repeal/replacement of the Patient Protection and Affordable Care Act (ACA aka Obamacare) leaves government officials seeking alternate means to maintain the solvency of the Medicare Trust Funds.

Meanwhile, the Medicare

Secondary Payer (MSP) Act sits by, ready and waiting. While Medicare has considered active enforcement of the MSP Act's future medical provisions previously for liability insurance settlements, no final indication has been given to that occurring until now. Late in 2017, Medicare will begin rejecting certain repayment requests from medical providers, advising providers to seek repayment from the patient's Liability Medicare Set-aside Arrangement (LMSA) or No Fault Medicare Set-aside Arrangement (NFMSA).

The Perfect Storm is set to hit third-party liability insurance settlements. Parties settling these cases need to heed the warnings and be prepared. Addressing LMSA exposure on all cases involving future medicals is now your best chance to ride out the storm.

The storm brewing: how we got here

After World War II, birth rates in the United States skyrocketed. The resulting Baby Boomer generation came of age in the 1970s. Understanding the potential strain this generation may later place on a Medicare program in its infancy, Congress passed and President Carter signed into law the MSP Act on December 5,1980.

The MSP Act provides a broad prohibition on Medicare paying certain medical expenses. In part (and relevant to our discussion), is the following provision: Medicare will not pay for a beneficiary's medical expenses where payment has been made under a liability insurance plan (including self-insurance).[1] To the extent that a liability insurance carrier or a self-insured pays a claimant for future medical expenses related to the settlement the federal government (and the American taxpayer) will not pay those bills but for one exception.

Conditional payments represent the only exception to this broad statutory prohibition. Medic are may make a conditional payment on behalf of its beneficiary when an entity has not yet accepted responsibility to make payment.[2] Medicare pays on the condition that it will be reimbursed when an entity accepts responsibility for that payment and that responsibility is evidenced in a judgment, a compromise for release or other means.[3]

For years, most stakeholders in the liability insurance settlement community ignored these future medical statutory provisions. Settling parties rarely addressed them and Medicare never said one word about them. Only after the Centers for Medicare & Medicaid Services (CMS) provided guidance about future medicals for the workers' compensation community did parties in the liability insurance community begin asking questions.

Slowly, CMS began to address the LMSA issue publicly. In 2011, CMS released its only LMSA policy memorandum addressing use of a treating physician's letter to conclude that no LMSA was needed. In 2012, CMS released an Advanced Notice of Proposed Rulemaking (ANPRM) about LMSAs.[4] In 2013, CMS issued a Notice of Proposed Rulemaking (NPRM), though that was never released publicly. In 2014, CMS voluntarily withdrew the NPRM.

Many lobbying groups took the opportunity to congratulate each other when CMS withdrew the NPRM...

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