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Should a Settlement Protect Medicare?

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Paul Brewer

Published: April 29, 2021


In a Sea Venture article from May 2009 US Medicare Requirements we reported on the then newly enacted Medicare Medicaid and SCHIP Extension Act of 2007 (“MMSEA”) and what obligations this placed upon a Required Reporting Entity (“RRE”).

This was followed by an article in May 2016 which provided guidance in relation to Controlling Medical Costs in the USA.

Following on from these articles an interesting question arises: What are a Shipowner’s obligations to protect Medicare interests when settling a seafarer or passenger claim? This article will hopefully provide some useful guidance on Medical Set Asides (“MSA”) and what an employer’s obligations are under the Medicare Secondary Payer Statute (“MSP”).

As a brief background, Medicare is a US federal health care system administered by the Centers for Medicare and Medicaid Services (“CMS”). It covers only a certain group of people, including for example those that are 65+ years old and those deemed disabled by the Social Security Administration. Although the MSP Act has been around since the 1960s, enforcement became serious following passage of the MMSEA which introduced reporting requirements in Section 111. A goal of the MSP Act is to avoid shifting medical costs to Medicare when a party settles or resolves a case in which treatment is or could be ongoing, and is or could be covered under a primary plan (liability; no-fault - such as maintenance & cure under general maritime law; and workers’ compensation).

One significant way these laws operate to protect Medicare’s interests is by deeming payments made by Medicare on behalf of Medicare beneficiaries “conditional” where a primary payer exists. Assuming that person does qualify as a beneficiary then Medicare can make payments in relation to any medical treatment where the primary insurance plan has not made, or cannot reasonably be expected to make, prompt payment with respect to the medical care which is being recommended. Where this takes place then such payments by Medicare, in advance of a settlement or judgement, are known as conditional payments for which they are entitled to seek reimbursement.

Typically, in the case of a Jones Act seafarer, such conditional payments will not arise because the employer will have paid maintenance and cure as part of their General Maritime Law obligations from the outset. However, there could be instances where a conditional payment has been made by Medicare. Examples could be where the seafarer does not report an illness or injury until sometime after the event and in the meantime has been receiving medical treatment paid for by Medicare. Alternatively, in the case of a passenger claim the claimant may have been receiving Medicare benefits from the outset (prior to the illness or injury at issue), potentially giving rise to Medicare having a claim for reimbursement of conditional payments made.

Where there exists a primary medical plan the supplier of such, and this can include a Shipowners responsibility to provide maintenance and cure, is required to reimburse Medicare for any payment made by Medicare that the plan should have paid (or was obligated by law to pay) in the first instance. The settlement of a claim, regardless of whether liability is admitted or contested, with a Medicare beneficiary for whom Medicare has made conditional payments related to the illness or injury will trigger the conditional payment repayment obligation.

In such circumstances the Shipowner or insurer needs to proactively resolve this issue by reimbursing the conditional payments pre-settlement and then accept responsibility to continue to pay for medical costs until resolution of the case. Alternatively, one could wait until the case is settled and then reimburse Medicare for conditional payments previously made. Another option could be to shift responsibility for reimbursing conditional payments to the beneficiary’s counsel as part of the settlement agreement, though this avenue should be pursued with caution as CMS’s primary target for repayment (and any recovery action) will be the Shipowner and/or insurers.

In regard to conditional payments, it is important to keep in mind that Medicare has the right to institute recovery actions to recover its conditional payments from entities who were required to have made such payments in the first instance (Shipowners, primary plans), or from anyone who may have received payment from a primary plan such as the plaintiff or their attorney.

So how does this fit in to circumstances where one is settling with a crewmember who is not at MMI and who will require additional care post settlement?

One school of thought in answer to this question is that where Medicare pays medical expenses because it does not know that insurance coverage exists, or because an employer or insurer’s payment obligations are not yet established (whether by law, settlement, judgement or award), at that time the Medicare payment is deemed by law to be a conditional payment. It is considered “conditional” because if the employer or insurer subsequently is determined responsible, or pays or settles a beneficiary’s claim that arises from the same illness or injuries for which the beneficiary received Medicare benefits, Medicare has the right under MSP Act to recover its payment from the beneficiary, or any “other party” that received some or all of the insurance payment, including legal counsel and medical providers, or the insurer.

However, once a claim with a Medicare beneficiary has been settled and reported to CMS it generally terminates Medicare’s ability to make a conditional payment for medical services. Therefore, because post-settlement medical care cannot typically trigger a conditional payment by Medicare for which the primary plan would answer for, there is presently no requirement that defendants allocate settlement funds between future medical expenses and other heads of claim, nor a requirement to establish or create a Medicare Set Aside as part of the settlement.

The MSP Act does not currently impose an explicit obligation on the part of liability or no-fault insurers to “protect Medicare’s interests” by paying or reimbursing Medicare for future medical expenses that may be incurred by Medicare beneficiaries.

Two important caveats to this. Firstly where it is deemed that the settlement is an obvious attempt by the settling party to shift the bulk of future medical care responsibility to Medicare, then Medicare could choose not to recognise the settlement and seek reimbursement from any involved party (including a Shipowner or insurer) for even post-settlement medical expenses paid by Medicare. An example being where an unrepresented seafarer requires lumbar fusion surgery, due to injury sustained on the vessel, but the Shipowner settles for $10,000 despite knowledge of future medicals far in excess of that amount.

Secondly, a proposed rule regarding the responsibilities of non-workers’ compensation plans to protect Medicare’s future interests in settlements with Medicare beneficiaries (akin to what is already in place for workers’ compensation settlements) is predicted to be released soon and so further guidance from CMS on this issue may shortly become available. Specifically, the proposed rule is advertised as clarifying whether liability/no-fault insurers and responsible parties must by law protect Medicare’s interests with respect to future medical items and services related to such settlements, judgments, awards, or other payments, and if so, the ways in which Medicare’s interests can be so protected.

Whilst not mandatory at this point a Shipowner resolving a claim with a seafarer or passenger who is a Medicare beneficiary, may determine it is in their best interests to include as part of the settlement measures demonstrating a protection of Medicare’s future interests out of an abundance of caution. Examples being (in combination, or standing alone, as warranted by the case):

  1. Allocation of future medicals in the settlement. An estimate of future treatment expenses can be based on vendor review, life care planner, attorney, or adjuster.
  2. Medicare Set-Aside can be self-administered by the beneficiary or professionally administered by a vendor.
  3. Letter from a treating physician certifying that the plaintiff will not need any further treatment related to the illness/injury.

Medicare is only officially bound to allocations made through the CMS Workers’ Compensation Medicare Set Aside (“WCMSA”) review process (available at present only for workers’ compensation claims) or a future medical allocation made by a court of competent jurisdiction reaching that determination on the merits. Absent the foregoing, if there is no allocation of future medicals in a settlement agreement, then Medicare can consider the entire settlement as the future medical fund, and refuse to pay for any services rendered to the beneficiary for any illness or injury related condition until that entire amount is exhausted. Keeping this in mind, other actions Shipowners may also wish to consider in a settlement with a Medicare beneficiary include:

  1. Settlement documents should contain protective provisions based on the facts of case/claim, such as: plaintiff representations as to Medicare status, Medicare benefits received, knowledge/diligence relative to conditional payments, commitments to pay reimbursement claims when due, related indemnity and hold-harmless clauses, cooperation clauses, waivers of any rights of action for double damages, and references to Medicare in releases/covenants not to sue;
  2. Pursuing and/or including aspects commonly interpreted as protective of Medicare’s interests as articulated in 1-3 above; and
  3. Particularly where settling with a pro se claimant who is a Medicare beneficiary – consider information available regarding potential expenses of future medical treatment in terms of settlement amount.

Additionally, it is important to remember that settlements with Medicare beneficiaries must be reported to CMS. This puts Medicare on notice of the settlement, that primary payer responsibility has ceased and triggers a sweep of its records for conditional payments (if any) outstanding.

Our thanks to Carey Gephart of Club Correspondents Legros Buchanan & Paul, Seattle for her kind assistance in preparing this article.

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