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On November 28, 2017, the United States District Court for the District of New Mexico published its opinion in Silva v. Burwell, concluding that the uncertainty created by CMS’s repeated failure to clarify its position on requiring MSAs in personal injury settlements generally and in specific cases is proving burdensome to the settlement process. The Court further finds this case is not ripe for review because no federal law mandates CMS to decide whether Plaintiff is required to create a MSA. The Court reiterates that just because CMS has not responded to Plaintiff’s requests to clarify whether an MSA is required in personal injury claims is not reason enough for this Court to step in and determine the propriety of its actions. There may be a day when CMS requires the creation of MSA’s in personal injury cases, but that day has not arrived.

New Mexico Federal District Court Finds CMS Failure to Clarify

Facts of the Case

In 2011, Fabian Silva (“Plaintiff”) was injured as a result of a medical malpractice incident, leaving him with severe, permanent brain damage and debilitating physical problems. Plaintiff filed suit in state court against the hospital and physicians who provided him medical treatment. The case was settled by agreement of the parties in December 2015.

Because Medicare paid for some of Plaintiff’s medical expenses arising from the incident, Medicare had a claim for payment with regard to the past medical care, according to the Medicare Secondary Payer Act (“MSP”), 42 U.S.C. § 1395y(b). Plaintiff paid Medicare’s claim in full.

The defendants in the malpractice case (“Hospital Defendants”) assert that Plaintiff must create a Medicare set-aside (“MSA”) from the settlement funds for future medical expenses because Medicare could come back after the Hospital Defendants for future medical expenses. The concern arises because CMS has promulgated regulations for set-aside arrangements in workers’ compensation cases when “the settlement agreement allocates certain amounts for specific future medical services.” 42 C.F.R. § 411.46(d)(2). CMS issued guidelines for the use and approval of MSAs in workers’ compensation cases through a series of policy memoranda.

Plaintiff asserts that there is no legal support for Medicare to request a set-aside in his case, because the guidelines relate to workers’ compensation settlements and do not extend to liability or personal injury settlements. Plaintiff asked CMS to state its position as to whether funds must be set-aside from the settlement of a personal injury claim to cover unknown, unspecific future medical expenses. CMS has not responded and has refused to take a position regarding (1) the legal basis of their claim for repayment or future medical care, and (2) whether a set-aside is required with respect to Mr. Silva’s future medical care.

Procedural Background

To protect all parties, the Hospital Defendants have agreed that they would release the money in trust to Plaintiff’s Trustee for his health and welfare if Plaintiff obtains a federal court order containing a finding that no federal law or CMS regulation requires the creation of a Medicare set-aside from Plaintiff’s personal injury settlement. During the state-court approval of the settlement, it was determined that a certain amount of the settlement would be kept in trust to meet any Medicare set-aside, while Plaintiffs pursued the instant federal court action.

Consequently, Plaintiff filed suit under the Declaratory Judgment Act, 28 U.S.C. § 2201(a), the federal question statute, 28 U.S.C. § 1331, the Mandamus Act, 28 U.S.C. § 1361, and the MSP, 42 U.S.C. § 1395y(b), against Sylvia Burwell, the Secretary of Health and Human services (“the Secretary”), seeking (a) a declaration that no set-aside is required in Plaintiff’s state court settlement to pay for his future medical expenses, (b) that Defendant CMS may not in the future decrease or refuse to pay for medical bills Plaintiff may incur or otherwise penalize him or his trust, and (c) that MSAs are not required under the law for personal injury or medical malpractice damages.

The Secretary filed a motion to dismiss for lack of subject matter jurisdiction arguing that (i) there is no justiciable case or controversy because the Secretary has no duty under the law to take a position on the controversy; (ii) the United States is immune from suit; and (iii) Plaintiff has failed to exhaust his administrative remedies under the Medicare Act.

The Medicare Secondary Payer Act

Under the MSP, “when a Medicare beneficiary suffers an injury covered by a group health plan or liability, workers’ compensation, automobile, or no-fault insurance, Medicare may conditionally pay for the beneficiary’s medical expenses.” 42 U.S.C. § 1395y(b)(2)(B)(i). The MSP provides the government a cause of action to recover conditional healthcare payments from primary plans. 42 U.S.C. § 1395y(b)(2)(B)(ii). A tortfeasor’s liability insurance company may constitute a primary plan under the MSP triggering Medicare’s right to reimbursement when it pays out settlement proceeds to a Medicare beneficiary arising from a personal injury claim that includes reimbursement for medical expenses incurred from the incident and paid by Medicare. See Humana Medical Plan, Inc. v.Western Heritage Ins. Co., 832 F.3d 1229, 1234, 1239 (11th Cir. 2016).

MSP in Workers Compensation Cases

In workers compensation cases, CMS has promulgated regulations requiring the creation of a Medicare set aside account. See 42 C.F.R. § 411.46(d)(2). The MSA allocates a portion of a workers’ compensation award to pay potential future medical expenses resulting from the work-related injury so that Medicare does not have to pay. Aranki v. Burwell, 151 F.Supp.3d 1038, 1040 (D. Ariz. 2015). No such regulations exist in liability cases.

Plaintiff Must Prove Actual Injury, Adverse Affect

In Protocols, LLC v. Leavitt, 549 F.3d 1294, 1298 (10th Cir. 2008), the Tenth Circuit determined that “when CMS refuses to recognize a settlement, the settlement does not relieve the workers’ compensation insurer of the obligation to pay post-settlement medical expenses that would otherwise be covered by workers’ compensation. If Medicare pays for such an expense, it would then be entitled to reimbursement (and could sue to collect) from anyone who received part of the settlement paid by the insurer.” Because Protocols received consulting fees out of the settlement payment, it could be liable to repay that sum. Protocols will not know whether it has a liability, however, until Medicare pays a post-settlement medical expense and then decides to seek reimbursement from Protocols. As a result, the Tenth Circuit concluded that “Protocols suffered an actual injury because it arranged settlements in the past contrary to what CMS declared to be required, and as a result, CMS may in the future demand reimbursement from Protocols’ portion of settlement proceeds.” Protocols had shown through affidavits that the potential liability was adversely affecting its financial health presently.”

Here, Plaintiff Did Not Show CMS Requires MSAs in Liability Cases

Unlike in Protocols, Plaintiff here has not shown that CMS has taken a position contrary to Plaintiff’s interpretation of the MSP. In Protocols, CMS issued the 2005 Memo that set forth a contrary interpretation of the MSP and regulations from Protocols’ past practice and interpretation. The Secretary in this case, however, has not stated a position or interpretation of the MSP that is imposing the contingent liability. Importantly, “no federal law or CMS regulation currently requires the creation of a MSA in personal injury settlements to cover potential future medical expenses.” Aranki, 151 F.Supp.3d at 1040.

Plaintiff Did Not Show CMS Likely to Seek Reimbursement if No MSA Created

The Hospital Defendants, leery of being subject to a later suit by CMS for failing to create a MSA, in an abundance of caution, want confirmation of whether they need to create a MSA before completing the settlement. The Secretary, however, has not taken any act to indicate that they are interpreting the MSP to require MSAs in non-workers compensation personal injury cases. Nor has Plaintiff shown that CMS has sought to recover funds not placed in an MSA in other similar personal injury settlements. Plaintiff has thus not shown that the Secretary is likely to seek reimbursement from either Plaintiff or the Hospital Defendants if they do not create an MSA.

CMS Has No Duty to Respond to Request Whether MSA Must be Created

Moreover, Plaintiff has not convinced the Court that the Secretary has a duty or obligation in law to respond to Plaintiff’s request for a determination of whether a MSA must be created in his case. There is no law or regulation currently in place that requires the CMS to decide whether Plaintiff is required to create a MSA for personal injury settlements. The Secretary’s inaction does not make the case ripe for consideration.

Will MSAs in Personal Injury Cases Discourage Settlements?

The Court ends its analysis by explicitly indicating its concern that “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.” The uncertainty created by CMS’s repeated failure to clarify its position on requiring MSAs in personal injury settlements generally and in specific cases is also proving burdensome to the settlement process. Nevertheless, standing is a jurisdictional requirement, and Plaintiff has not met his burden to establish a justiciable controversy ripe for review.


Using Aranki as its basis, the Court here concludes that “this case is not ripe for review because no federal law mandates CMS to decide whether Plaintiff is required to create a MSA. That CMS has not responded to Plaintiff’s petitions on the issue, is not reason enough for this Court to step in and determine the propriety of its actions. There may be a day when CMS requires the creation of MSA’s in personal injury cases, but that day has not arrived.” As a result, Defendants’ Motion to Dismiss and Memorandum in Support was granted and the case was dismissed for lack of subject matter jurisdiction. In light of the Court’s decision that it lacks subject matter jurisdiction based on lack of standing and ripeness, the Court did not consider the Secretary’s alternative arguments that it is immune from suit.

About Rafael Gonzalez

Rafael Gonzalez, Esq. Ex-President of Flagship Services Group, has over 30 years of experience in the auto, liability, no-fault, and work comp industries. He He is one of the country’s top experts on Medicare and Medicaid compliance, serving insurers, self-insureds, and third party administrators. He speaks and writes on mandatory insurer reporting, conditional payment resolution, set aside allocations, and professional administration, as well as the interplay and effect of these processes and systems and the Affordable Care Act throughout the country. Rafael blogs on these topics at Medicare Compliance for P&C Insurers at www.flagshipservicesgroup.com/blog. He can be reached at rgonzalez@flagshipsgi.com or 813.967.7598.

About Medicare Conditional Payments

42 CFR Section 411.21 indicates that Medicare conditional payments are payments made by Medicare for medical treatment where a primary payer (insurer or self-insurer) has or may have an obligation to make such payment. Primary payers must reimburse Medicare for conditional payments it has made. 42 USC Section 1395y indicates that primary payers include group health providers, workers’ compensation, liability and no-fault insurers and self-insured entities, as well as physicians, attorneys, hospitals, or clinics that receive payment from a primary payer must make reimbursement.

42 USC Section 1395y also indicates responsibility as a primary payer arises even if liability for the medical expense is contested. Such a responsibility can be demonstrated by entry of a judgment or by payment conditioned on a release or waiver of payment, even if liability is denied. 42 CFR Section 411.24 indicates Medicare has a direct right of action against all primary payers responsible for making payment. And, Medicare has a direct right of action against any person or entity that received a primary payment, including the Medicare beneficiary, medical provider, physician, attorney, state agency or private insurer.

About Medicare Advantage and Prescription Drug Plans Reimbursement

42 CFR Section 422.108(f) provides MAPs with the same rights of recovery that the Secretary of HHS has under the MSP regulations in subparts B through D of part 411 of 42 CFR. Additionally, the same MSP regulations at 42 CFR Section 422.108 are extended to PDPs at 42 CFR Section 423.462. Therefore, PDPs have the same MSP recovery rights as MAPs, which have the same recovery rights as HHS. This includes, as recent federal appellate and district court decisions have indicated, the ability to pursue double damages through MSP private cause of action pursuant to 42 USC Section 1395y(b)(3) should the primary payer deny the MAP or PDP reimbursement of any due conditional payments.

About Medicaid Third Party Liability Liens

42 USC Section 1396a mandates that all reasonable measures to ascertain legal liability for Medicaid payments and reimbursement of same be taken. The state or agency administering a Medicaid plan must take all reasonable measures to ascertain the legal liability of third parties to pay for care and services paid by Medicaid. Federal law also provides that in any case where such a legal liability is found to exist after medical assistance has been made available on behalf of the individual, the state or local agency must seek reimbursement for such assistance to the extent of such legal liability. 42 U.S.C. Section 1396a(a)(25).

The 2013 Strengthening Medicaid Third Party Liability Act, effective October 1, 2017, allows state Medicaid agencies or the insurers/managed care organizations contracted with to provide such benefits to seek reimbursement from any responsible third party of all payments made from the entirety of settlement, judgment, award funds, not just a portion thereof.

About Flagship Services Group

Flagship Services Group is the premier Medicare and Medicaid compliance services provider to the property & casualty insurance industry. Our focus and expertise has been the Medicare and Medicaid compliance needs of P&C self-insureds, insurance companies, and third party administrators. We specialize in P&C mandatory reporting, conditional payment resolution, and set aside allocations. Whether auto, liability, no-fault, or work comp claims, we have assembled the expertise, experience and resources to deliver unparalleled MSP compliance and cost savings results to the P&C industry. To find out more about Flagship, our folks, and our customized solutions, please visit us at www.flagshipservicesgroup.com. To speak with us about any of our P&C MSP compliance products and services, you may also contact us at 888.444.4125 or info@flagshipsgi.com.

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