Reading the Tea Leaves in Regard to the Medicare Secondary Payer Act and Future Medicals

Posted by Health Law Informer Author on July 16, 2012

On June 14, 2012, the Centers for Medicare & Medicaid Services (“CMS”) released an Advance Notice of Proposed Rulemaking (the “Proposed Rule”) soliciting comments on a proposal to clarify how Medicare beneficiaries and their representatives can protect Medicare’s interests and satisfy their obligations under the Medicare Secondary Payer (“MSP”) Act when “future medical care” is claimed or the settlement, judgment, award, or other payment releases claims for future medical care.[i]  The Proposed Rule represents a significant development in the MSP world because it is the first guidance from CMS on this issue.  CMS proposes seven options for handling future medical care in cases involving automobile and liability insurance (including self-insurance), no-fault insurance, and workers’ compensation . (See Cozen O Connor Alert dated  June 22, 2012 for a more detailed description of the Proposed Rule available at  Although CMS did not directly address a number of issues that have been debated for years by those who have to satisfy MSP obligations when brokering liability settlements, a close look at the Proposed Rule provides some clues as to the positions CMS may take in regard to enforcement of the MSP Act.

All parties to a settlement must participate in satisfying MSP obligations

Overall, the take-aways from the Proposed Rule are twofold: (1) future medical care must be considered by all of the settling parties, including the insurers; and (2) that a Medicare set-aside agreement (“MSA”) is not required in every situation.  Until a final rule issues, the settling parties should take into account Medicare’s interests during the settlement process by determining what options are appropriate in light of the particular facts and circumstances of the case to both properly reimburse Medicare for conditional payments made through the date of settlement and ensure that Medicare’s interest in post-settlement medical expenses is adequately considered.  Further, the parties must document their handling of their MSP obligations in the settlement agreement and release.

CMS’s rights of recovery for future medical treatment 


The MSP Act is unclear as to what enforcement rights, if any, CMS has in regard to the recovery of payments for future medical treatment.  As a result, some controversy and debate has arisen in the liability insurance industry regarding whether liability insurers must reimburse Medicare for a beneficiary’s future medical care and whether CMS has a right to recover those payments from those insurers.  For example, it has been argued that based on the language of the MSP Act, a payment by a primary plan (e.g. a liability insurer) to a Medicare beneficiary for post-settlement medical expenses does not qualify as a “conditional payment” as the statute defines that term.  It has been further argued that because Medicare’s rights to repayment from the liability insurer are limited to conditional payments (understood as pre-settlement payments), Medicare’s only option to recoup post-settlement medical expenses is against the beneficiary.

In United States v. Stricker, Case No. 09-CV-02423 (N.D. Ala. December 2, 2009) (dismissed on statute of limitations grounds), however, the government took the position that post-settlement medical expenses are subject to recoupment as conditional payments.   The underlying class action at issue was settled in 2003.  Nonetheless, in its Memorandum in Support of its Motion for Partial Summary Judgment the government argued that post-settlement medical expenses up through 2009 constituted conditional payments.  Case No. 09-CV-02423 (June 28, 2010).  Thus, according to the arguments made by the government in Stricker, post-settlement medical claims should be considered conditional payments and, therefore, are subject to the MSP Act’s recovery provisions.

CMS appears to have adopted this same approach in the Proposed Rule. During the discussion of its right to recover conditional payments, CMS states that Medicare can recover for conditional payments related to the settlement under its rights of subrogation and direct right of action “regardless of when the items and services are provided.”  77 Fed. Reg. 35917, 35919 (June 15, 2012).  Like the government’s position in Stricker, CMS seems to be taking the position that conditional payments can include post-settlement medical expenses.  Thus, in the Proposed Rule, CMS appears to be deeming payments for future medical care to be conditional payments, which, in turn, would provide Medicare with a direct cause of action against insurers that fail to take into account future medical care in settlements.   Nevertheless, until CMS provides more definitive guidance or a court rules on this particular issue, Medicare’s recovery rights in regard to future medicals remain uncertain. 



Comments on the general rule, definitions, and seven options proposed  by CMS are due August 14, 2012. 

[i] 77 Fed. Reg. 35917 (June 15, 2012).  CMS proposes to define “future medical care” as “Medicare covered and otherwise reimbursable items and services that the individual/beneficiary received after the Date of ‘Settlement.’” ”  Proposed rule available at

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