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In today’s hypersensitive Medicare secondary payer act compliance climate, settling cases can be difficult without a firm understanding of what is necessary. There is a tremendous amount of confusion that persists regarding what to do when a case involving a Medicare beneficiary is settled (see Florida Bar article). The Centers for Medicare and Medicaid Services (“CMS”) hasn’t been very helpful in terms of providing guidance in the past. That changed in May of 2011 when Sally Stalcup, CMS MSP Regional Coordinator for Region 6, released a memo regarding liability Medicare set asides addressing the many questions her office had fielded about what to do with settlements involving Medicare beneficiaries with future medical services covered by Medicare.

Before getting into the substance of the Stalcup memo, it is first important to understand Social Security Disability (“SSDI”) benefits and Medicare. Medicare and SSDI benefits are not income or asset sensitive like Medicaid or SSI. If a person meets Social Security’s definition of disability and has paid in enough quarters they can receive disability benefits without regard to their financial situation. SSDI is funded by the workforce’s contribution into FICA (Social Security) or self-employment taxes. Workers earn credits based on their work history and a worker must have enough credits to get SSDI benefits should they become disabled. Medicare is a federal health insurance program for the aged and disabled. Medicare entitlement commences two years after a disabled individual begins receiving SSDI benefits.

A key detail about the Stalcup memo it isn’t a “CMS official statement of policy”. According to Ms. Stalcup, the memo “is intended to provide consolidated guidance to those attorneys, insurers, etc., working liability, no-fault and general third party liability cases for any Medicare beneficiary residing in Oklahoma, Texas, new Mexico, Louisiana and Arkansas.” Despite these limiting statements, the memo provides the first formal written guidance of any type issued by any CMS regional office regarding Medicare set asides in liability settlements. In addition, while this is just one CMS Regional Coordinator’s viewpoint, it is consistent with statements made by CMS officials during town hall conference calls regarding Medicare mandatory insurer reporting. During these town halls, many questions were asked about the requirement to set aside monies for future Medicare covered services and CMS officials provided limited comments on the responsibilities.

The central premise of the memo authored by Ms. Stalcup is that Medicare’s “interests” must be protected. However, CMS does not mandate a specific mechanism to do so and the law doesn’t require a “set aside”. What the law requires, according to the memo, is that Medicare trust funds be protected from payment for future services whether it is a workers’ compensation or liability settlement. There is no distinction between liability and workers’ compensation cases under the law. The memo does state that a set aside is CMS’s method of choice for protecting the Medicare trust fund as it provides the best protection for the Medicare beneficiary and the agency.

According to the memo, the legal basis for set asides is 42 USC 1395y(b)(2). That section of the United States Code precludes Medicare from making payment for services to the extent payment has been made or can reasonably expected to be made promptly under all forms of insurance including liability insurance. Accordingly, anytime a settlement, judgment or award provides funds for future medical services, it can reasonably be expected that those monies are available to pay for future services related to what was claimed and/or released in the settlement, judgment or award. Medicare should not be billed for future services until those funds are exhausted by payments to providers for services that would otherwise be covered and reimbursable by Medicare.

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