You may recall that a federal court in Florida recently denied a party’s motion to allow the court to determine the need for and amount of a liability Medicare set-aside in the Early v. Carnival Cruise case, stating that it is not the court's place to write in terms of an agreement nor issue advisory opinions. Well, this week a Mississippi federal court decided that since the Centers for Medicare and Medicaid Services provides no procedure for determining the adequacy of protecting Medicare's interests for future medical and considering the strong public policy interest in resolving lawsuits through settlements, that it would be willing to make such a determination. Funny thing about this one is that the judge actually made determinations of his own and the outcome was probably not what the parties were hoping for.

This case is Welch v. American Home Assurance, No. 3:11-cv-668-FKB, U.S. District Court for the Southern District of Mississippi, Jackson Division.

The case started as a workers' comp claim for an elbow injury denied by American International Group because the physician noted in his records that claimant was suffering symptoms prior to the date of injury. Claimant was eventually granted benefits, but sued the carrier for bad faith among other things for the delay in treatment which caused him to progress to Stage III chronic regional pain syndrome. He asserted that he could have been healed if treatment had been received in time. On Jan. 9, 2013, the parties agreed to a global settlement of all claims, inclusive of the work comp, with one term being that this court determine the Medicare set-aside. In furtherance of this effort, the plaintiff's physician provided a $456,657.35 lifetime medical cost projection priced at 50% of national values listed in the American Medical Association's Physicians' Fee Reference. Then a life care planner carved out the non-Medicare items and repriced them at the fee schedule (with the exception of the spinal cord stimulator surgeries which she raised by $8,312.00) to conform to the CMS workers' compensation Medicare set-aside standard rate and determined the MSA to be $174,762.85.

Now here's where it all went wrong if the parties were expecting a Big R Towing or Schexnayder-like outcome and that this judge would rubber stamp the set-aside as presented. While the court accepted the life care planner's reductions for items not covered by Medicare and her increase of the spinal cord stimulator surgeries, it did not accept the fee schedule reductions. It stated that "[a]lthough $174,762.85 may be accepted by CMS as an appropriate and sufficient MSA if submitted to CMS for approval, the Court is unwilling to use that amount in a Court-determined MSA." The court ruled that $278,019.08 represented plaintiff's total future medical expenses and would adequately protect Medicare's interests.

So why am I laughing? Because this is a case where the parties would have been better off going to CMS for approval and I rarely support that course of action. The opinion contained considerable discussion as to how CMS approval was not available and how the U.S. attorney and DHHS refused to participate. However, they were wrong; CMS would have absolutely reviewed this as a WCMSA had it been presented that way. There was a WC claim being settled as part of the settlement and claimant was in the middle of an SSDI appeal; therefore, the situation would have met the reasonable expectation test and the total settlement would have had to exceed $250,000.00 if they were giving him any compensation beyond the MSA. The parties and the court clearly believed an LMSA to be appropriate here and failed to understand that it is still just a future medical expense allocation with a workers' compensation claim release as well. By placing these labels on the MSA, the parties and Court failed to see that the case clearly met the limited circumstances in which CMS is willing to review a settlement. And if they had, they would have been better off by $103,256.33.

Ordinarily when parties take their MSA issues to federal court, they generally end up better than they would have going to CMS.  Similar opinions published to date are usually cases where all the parties agree to the MSA amount and seek judicial approval because CMS approval wasn't available. In these cases, the judges have always just accepted what was presented. Now some of those would have met CMS's standards while others were ludicrously low – but it didn't matter because the parties were just looking for the comfort of a judicial order in lieu of the CMS letter and the judges had no point of reference to really render an opinion. Wonder what judges will do now with this precedent??? At least it may curb the wasting of judicial resources that our country can't afford to spare because DHHS refuses to allocate its budget towards the effort.

So the lesson always remains the same – take control of the MSA issue without CMS or judicial intervention and fight that fight if and when it needs to be fought years in the future when the MSA is exhausted appropriately and more related treatment legitimately needed. Paranoia is expensive and unnecessary if you take the time to truly understand the MSP exposures.

Jennifer Jordan is general counsel for Medval, a Maryland-based Medicare set-aside consulting firm. This column was reprinted with her permission from the firm's Official Medicare Set Aside blog.