Over the years, Medicare Secondary Payer compliance professionals have worked hard to insure that funds placed into a Medicare Set-Aside (MSA) are fully funded and properly administered either professionally or by the individual claimant. However, issues of divorce and child support enforcement matters have given rise to cases where the safekeeping and proper allocation of the MSA funds are placed into jeopardy. A recent case from the Illinois Court of Appeals highlights these perils.

FACTS OF THE CASE

In In re Marriage of Christopher Washkowiak, Christopher and Rosana Washkowiak were married on Sept. 1, 2004. Four years later, the Petitioner/Appellant suffered a low back injury while under the employ of Northern Pipeline Construction. In 2009, the parties filed a petition for dissolution of their marriage, which came up for hearing on Aug. 31, 2010. At that time, the trial court entered a judgment of dissolution. According to the penitent provisions regarding the division of marital property in the dissolution decree:

The Respondent (Rosana Washkowiak) is awarded 17.5% of the net proceeds from the Petitioner’s workers’ compensation settlement as and for her interest in the same. Net proceeds are defined as the agreed award amount less workers’ compensation attorney’s fees and usual and customary litigation fees and expenses. The Petitioner is ordered not to receive any funds from his settlement without first directing his attorney to provide a draft check to the Respondent for her portion herein. Net shall include any reimbursement for unemployment which he actually pays and medical payments he actually pays. (Emphasis added — handwritten text in dissolution decree.)

Following the issuance of the divorce decree, the Illinois Workers’ Compensation Commission approved a settlement regarding Christopher Washkowiak’s workers’ compensation claim. Under the settlement that closed out all future workers’ compensation benefits, including medical benefits, Mr. Washkowiak was awarded the total sum of $435,000, of which $70,000 was allocated for an MSA. This MSA was not reviewed or approved by the Centers for Medicare and Medicaid Services (CMS). Following the workers’ compensation settlement, the parties agreed that the Respondent was entitled to 17.5% of the $296,330 received in the workers’ compensation settlement. However, there was a dispute as to the entitlement of the $70,000 allocated for the MSA.

ANALYSIS BY THE COURT

According to the Illinois Appellate Court, the terms of the settlement were to be analyzed as “any other contract.” The Court noted that the “‘net proceeds’ include reimbursement for medical payments actually paid by the petitioner.” (Emphasis added). The Court then analyzed the Medicare Secondary Payer Act (MSP) and the nature of an MSA. The Court noted that under 42 C.F.R. §411.46, all parties to a workers’ compensation claim have a duty to protect Medicare’s interest, including future medical expenses. Regarding the MSA created in the case at bar, the Court determined that the Petitioner presented “no evidence that the funds in the MSA are not ‘net proceeds.’” The Court went on to state that the money in the MSA is not Medicare’s or Pipeline’s (the employer). Accordingly, the Court stated that the “dissolution decree defines ‘net proceeds’ to include payment for future medical costs, the funds in the MSA are net proceeds. The trial Court then determined that respondent is entitled to 17.5% of the entire settlement.”

On the other hand, Justice McDade was the sole dissent in the three-judge panel. In the dissent, it was noted that the majority focused on the definition of “net proceeds” and an ambiguity that was created in the divorce “contract.” The dissenting opinion also asserted that the award of MSA funds should have been found to be void on public policy grounds. An extensive analysis of Medicare policy of MSAs was also taken into consideration in the minority opinion.

COMMENTARY

Issues of divorce and child support collections are ticking time bombs for injured workers with MSAs. In re Marriage of Christopher Washkowiak represents one of the first instances where MSA funds have been removed from an account and determined to be “marital assets” and subject to a judicial decree.

Regardless of how one feels about the decision in this case, it is worth noting that many unanswered questions remain. Among these questions is whether CMS could require Christopher Washkowiak to replenish the $12,250 in MSA funds awarded to his former spouse.

There is also the unanswered question as to whether Rosana Washkowiak could also be subject to a direct cause of action by CMS if the MSA monies are not properly disbursed. The Medicare Secondary Payer act confers upon CMS a direct cause of action against “any entity that has received payment from a primary plan or from the proceeds of a primary plan’s payment to any entity…,” which also includes the possibility of a “double damages” penalty. The Federal Government also retains its rights of subrogation against such individuals who misappropriate designated Medicare funds. In other words, by receiving funds from the Petitioner’s MSA account, Rosana Washkowiak has not only benefited from the settlement and the MSA, but also received proceeds from a primary plan’s payment. While it may seem incomprehensible, the United States did use a similar theory in the recent past when it sued a number of unsuspecting parties in United States v. Stricker.

Issues like those addressed in Washkowiak could happen with greater frequency in the future in divorce proceedings and the aging U.S. population. They are also likely to occur in instances of an MSA “trustee” having a levy placed on their account in child support actions. Under the current Financial Institution Data Match (FIDM) program, state child support agencies have the ability to locate funds deposited in financial institutions and levy accounts if certain criteria are met. While no published case exists on the matter, it certainly raises the question as to whether funds in an MSA are exempt for purposes of child support collections.

PRACTICE TIPS & POINTERS

Each case rests on its own unique facts. Various state laws also complicate matters and make matters unpredictable. However, practitioners should be careful when guiding their clients through settlements involving an MSA and consider the following factors:

1. Words mean things—be careful when drafting an MSA. This case is not unique in how an MSA has been interpreted by courts. As noted in In re Marriage of Christopher Washkowiak, the court interpreted the MSA in a classic contractual analysis and looked within the four corners of the document. Based on these factors, it is imperative that attorneys carefully draft their settlement agreements and MSA Agreements to protect the true intent of set-aside monies and the claimant’s future medical care and treatment. It is also important to recognize the special circumstances a client may be in at the time of the settlement or in the reasonably foreseeable future and take these matters into consideration.

In Washkowiak, the initial divorce decree made several references to the workers’ compensation settlement and issues concerning attorney’s fees and medical liens. However, there are no references whatsoever regarding the pending MSA or the need for future medical care and treatment Christopher Washkowiak could reasonably require for his injuries with Pipeline. It can only be left to speculation why the divorce decree failed to make any references to the MSA account.

Regarding the Court’s interpretation of these matters, it is correctly noted that a “net proceed” is a medical payment “actually” paid, and at the same time recognized that monies placed in an MSA are for future medical care and treatment — modalities that have not actually been paid. However, the Court jumps to the conclusion that notwithstanding this distinction, the MSA account fell within this definition of a net proceed. Based on this, it is unclear if the majority correctly understood the true essence and rationale behind the Medicare Secondary Payer Act and the purpose of using an MSA to protect and consider Medicare’s future interests despite acknowledging the adverse ramifications of shifting the burden on Medicare per 42 C.F.R. §411.46.

2. Special circumstances sometimes require special considerations. As noted in the above case, the MSA was not prepared and finalized until after the dissolution and decree. By providing the MSA funds to Christopher Washkowiak, the funds were exposed to the ongoing dissolution proceedings. Special precautions can be taken under the circumstances that provide parties facing these unique circumstances to include actual possession of the funds. This can include various trust mechanisms or having a law firm hold the funds in an individual firm trust account to ensure proper disbursement.

3. What is the significance of Washkowiak? The jury is still out on the significance of this case. Some argue that this case has limited value and is merely a case that calls into question the ability of a party in an Illinois divorce proceeding to attack collaterally MSA assets. On the other hand, others argue that the case is significant in that it sets a precedent for parties to view the MSA as a source of income given this Court’s unwillingness to recognize the sanctity of the MSA, which is a recognized administrative mechanism to provide injured workers with “guaranteed” future medical care and treatment. Time will only tell which camp is correct as Medicare has not been asked to reimburse Christopher Washkowiak’s care at least to this point.

4. Beware of the interaction of state law on Medicare compliance. Medicare Secondary Payer compliance has a lot to do with the federal MSA law. However, legal practitioners and Medicare professionals often ignore state law when it comes to resolving their claims. When settling a claim that could potentially involve a collateral attack on a Medicare Set-Aside, it is important to determine if state law can prevent such an attack on the account from other sources.

CONCLUSION

On its face In re Marriage of Christopher Washkowiak appears to be of limited significance, however, this is not the case. Based on a review of the case and the number of important unanswered questions it raises, this case represents another emerging area of Medicare Secondary Payer compliance that attorneys and the courts will wrestle with in the years to come. These issues include the misallocation of MSA funds, and questions as to who or whom may be responsible if CMS at some point raises concerns regarding the premature depletion of funds and whether CMS can bring a direct cause of action against a former spouse in a divorce proceeding. The case also raises issues about the role of attorneys in the process and not only explaining the special nature of MSA funds in dissolution proceedings, but also better educating the judiciary on this ever-evolving area of the law.

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Aaron Frederickson is an attorney and founder of MSP Compliance Solutions, which is based in Minneapolis/St. Paul. This article was originally published in the Volume IV, October 2012 newsletter for the Workers’ Compensation Institute and reprinted here with his permission.