/Medicare Set-Asides in Third-Party Liability Cases
Medicare Set-Asides in Third-Party Liability Cases 2016-06-01T22:02:26+00:00

A recent development in the settlement of civil lawsuits involves the implementation of Medicare Set-Asides (MSAs) in third-party liability cases. After parties settle a lawsuit or claim, defendants and their lawyers have recently begun requesting the creation of an MSA.

While Defendants may condition the implementation of an MSA as a negotiated term of settlement, there is no law, statute, regulation, code or statute that requires MSAs in third-party liability cases. Currently, the Centers for Medicare and Medicaid Services (CMS) has not taken the position that MSAs are required in third-party liability cases. In fact, CMS has no formal procedure that would allow it to review proposed MSAs in third party liability cases.

Unless and until regulations require the use of MSAs in third-party liability cases, any argument or suggestion by defendants that MSAs are mandated in third-party liability cases is unfounded. As the United States Supreme Court has held: “No rule, requirement or other statement of policy that establishes a substantive legal standard…shall take effect unless it is promulgated by the secretary by regulation….” 42 U.S.C. § 1395hh(a)(2)(2012). See also, Vitarelli v. Seaton, 359 U.S. 535,539-40 (1959).

There is no regulation or law that provides any guidance or affirmative support from CMS that Medicare Set Asides are necessary or even recommended in third-party liability cases. With respect to the settlement of third-party liability cases, CMS has not identified with ascertainable certainty what is expected of litigants when it comes to protecting any future Medicare interest. As a result, parties and their attorneys should not be punished for not establishing MSAs in third party liability cases. In Gen. Elec. Co. v. U.S. E.P.A., 53 F.3d 1324, 1329 (D.C. Cir. 1995), the United States Court of Appeals, District of Columbia Circuit, held as follows:

If, by reviewing the regulations and other public statements issued by the agency, a regulated party acting in good faith would be able to identify, with “ascertainable certainty,” the standards with which the agency expects parties to conform, then the agency has fairly notified a petitioner of the agency’s interpretation. Gen. Elec. Co., at 1329.

Where, as here, the regulations and other policy statements are unclear, where the petitioner’s interpretation is reasonable, and where the agency itself struggles to provide a definitive reading of the regulatory requirements, a regulated party is not “on notice” of the agency’s ultimate interpretation of the regulations, and may not be punished. Gen. Elec. Co., at 1334.

See also, Trinity Broadcasting of Florida, Inc. v. F.C.C., 211 F.3d 618 (D.C. Cir. 2000)(“we have repeatedly held that ‘[i]n the absence of notice—for example, where the regulation is not sufficiently clear to warn a party about what is expected of it—an agency may not deprive a party of property by imposing civil or criminal liability.’”).

Because neither Medicare regulations, nor CMS’ manuals, letters and memoranda, require an MSA in third-party personal injury settlements, CMS has not yet provided the public with fair notice that MSAs are required in personal injury settlements. In 2012, a federal court in New Jersey correctly found that MSAs are not required in third-party liability cases, and it still stands as one of the best-reasoned orders on the topic. According to that Court:

Indeed, no federal law requires set-aside arrangements in personal injury settlements for future medical expenses. To be sure, Medicare set-asides are prudent in settlements for future medical expenditures in the worker’s compensation context because, under the MSP, Medicare becomes a secondary payer for such expenditures to the extent a “compensation award stipulates that the amount paid is intended to compensate the individual for all future medical expenses,” 42 CFR § 411.46(a), or “the settlement agreement allocates certain amounts for specific future medical services,” 42 CFR § 411.46(d)(2).

The settlement in this case, however, does not arise in the worker’s compensation context. And it does not indicate a particular amount to compensate Mr. Sipler for future medical expenses arising out of the accident. Nor should it. In contrast to the worker’s compensation scheme that “generally determine[s] recovery on the basis of a rigid formula, often with a statutory maximum …. [t]ort cases … involve noneconomic damages not available in workers’ compensation cases, and a victim’s damages are not determined by an established formula.” Zinman v. Shalala, 67 F.3d 841, 846 (9th Cir.1995) (citation omitted). Thus, to require personal injury settlements to specifically apportion future medical expenses would prove burdensome to the settlement process and, in turn, discourage personal injury settlements.2 See McDermott, Inc. v. AmClyde, 511 U.S. 202, 215, 114 S.Ct. 1461, 128 L.Ed.2d 148 (1994) (noting that “public policy wisely encourages settlements”). In sum, the parties in this case need not include language in the settlement documents noting Mr. Sipler’s obligations to Medicare or fashion a Medicare set-aside for future medical expenses.

Sipler v. Trans Am Trucking, Inc., 881 F. Supp. 2d 635, 638-39 (D.N.J. 2012).

While there is no law requiring MSAs in third-party liability cases, it should be noted that CMS has been considering regulations regarding the use of MSAs in the context of third-party liability cases. In July 2012, CMS issued an Advanced Notice of Proposed Rulemaking (ANPRM) on Medicare Secondary Payer (MSP) and Future Medicals. See 77 FR 35917, wherein CMS sought public comment regarding the use of MSAs in third party liability cases. To-date, CMS has not further indicated whether it will promulgate new regulations on the subject. Note that any regulation that would mandate the implementation of MSAs in third party liability cases is opposed by many, including the American Association of Justice.

In summary, while a Defendant can certainly seek implementation of an MSA as a negotiated term of settlement, there is no law, statute, regulation, or code in current effect that mandates MSAs in third-party liability cases. There may be circumstances where agreeing to an MSA should be considered, but make no mistake about it: despite what defense counsel may suggest, an MSA is not legally required.