Casualty Litigation

Medicare Set Asides and Their Application to Liability Litigation

Medicare Set Asides and Their Application to Liability Litigation

The Medicare Secondary Payor Act (“MSPA”) defines the federal government’s rights to recover benefits it has paid in the past or may reasonably be expected to pay in the future as a result of injuries for which claimants are involved in litigation. The MSPA provides the federal government with subrogation rights for all amounts paid in the past and requires the plaintiff to establish a Medicare Set Aside to protect Medicare from the payment of future benefits. The MSPA includes stringent reporting requirements for defendants involved in litigation with plaintiffs who are, or may potentially be, Medicare recipients. The federal government has a cause of action for double damages against the attorney representing the plaintiff and the settling defendant for violations of its requirements. This newly revised legislation is wreaking havoc with many corporate defendants as they attempt to navigate through the key provisions and requirements. As they do so, corporate clients are looking to counsel for advice as to how MSPA affects all stages of litigation-from conducting discovery to determine whether a plaintiff is, or may potentially be, a Medicare recipient, to drafting a Release that adequately protects the client following settlement. 

In the context of settlement, one concern is whether a defendant is liable under the MSPA if a plaintiff fails to establish a Medicare Set Aside for payment of future benefits. Unfortunately, there are no clear guidelines dictating the need for a MSA in the context of a liability claim. There is also no statute or regulation specifying the circumstances under which a MSA is required. Thus, a corporate client evaluating a potential settlement is uncertain whether a MSA is required and, more importantly, whether they are subject to liability in the event a MSA is required, but the plaintiff fails to establish the set aside. In most cases, this will be an impediment to reaching a settlement since the defendant may be subject to a post-settlement claim by the federal government to recover monies paid for the plaintiff’s future medical care. 

Including hold harmless and indemnification language in the Release was thought to be one potential solution for resolving the potential risk for a settling defendant. The provisions would specifically require plaintiff’s counsel to hold harmless and indemnify a defendant from third party claims arising out of defendant’s settlement payments to plaintiff, including all potential claims by Medicare resulting from liability under the MSPA. However, Florida Bar Staff Opinion 30310, issued on April 4, 2011, prohibits attorneys from agreeing to this type of provision and deemed it unethical for an attorney to request the inclusion of such provisions in a Release.

The basis for the Florida Bar’s decision is Rule 4-1.8(e) of the Rules Regulating The Florida Bar, which prohibits a lawyer from providing financial assistance to a client, except in limited circumstances. The Bar reasons that an agreement by counsel to hold harmless and indemnify a defendant from third party claims is tantamount to providing financial assistance to a client. Since none of the exceptions apply, such activity is prohibited. 

In addition to finding a plaintiff’s attorney is barred from entering into indemnification agreements on behalf of clients, the Florida Bar opined that it is unethical for a defense attorney to propose such a provision in a release. The Bar suggests that this request could violate Rule 4-8.4(a), which provides that a lawyer shall not “violate or attempt to violate the Rules of Professional Conduct, knowingly assist or induce another to do so, or do so through the acts of another.”

For additional information regarding Medicare Set Asides in general, and their application to liability litigation, please refer to the following sites: