Author(s): David A. Wilson, M. Sean Fosmire


In the April 15, 2009 issue of LawFax, we published an article entitled “Medicare Set-Asides in Liability Cases?”, responding to inquiries that we had received from carriers who had been told that the Centers for Medicare and Medicaid Services (CMS) had adopted or was going to adopt new regulations requiring the use of Medicare set-aside arrangements (MSAs) in liability cases. The points that we made then, and which we have continued to make in other venues since that time, are:

• CMS does not mandate the use of MSAs in liability cases and has not adopted any regulations regarding MSAs in liability cases

• A voluntary MSA might be a very good idea when settling large-dollar liability cases

• The impetus for an MSA in a liability case that is settled is most likely to come from the attorney for the plaintiff, not from the defense, since the greater risk is on the plaintiff

• If an MSA is not used in connection with the settlement of a liability case, it is very unlikely based on the current state of affairs (as of March 2010) that CMS would try to “surcharge” a defendant or its insurer based on that fact alone

• We, therefore, do not see a reason for the defense to insist on a set-aside as a condition of settling a liability case

We noted in passing in the April 2009 article that a specific dollar allocation between various elements that go into a liability claim – past medical, past wage loss, future medical, etc. – is unusual in settling liability cases, but is commonly made in a jury verdict.

We want to refine our recommendations on this issue by adding one more bullet-point item to the list above:

• When a liability case goes to trial and results in a verdict that includes an award for future medical expenses, the defense may find it prudent to ask the court to require an MSA be set up in post-verdict proceedings

CMS is on record as saying that it will only try to assert a right of repayment in a settlement agreement if that agreement makes a specific allocation for medical expenses, but it also has said that it does not consider itself bound by the parties’ agreement on this point. CMS has also said that it will accept the value determination made by a jury when a verdict is rendered.

When money is paid in satisfaction of a jury verdict that incorporates an award for future medical expenses, the calculus of risk is different. The attorney representing the defendant, in consultation with the insurer, may determine that that part of the award that represents future medical expenses should be preserved, using an MSA, since the jury verdict has defined a specific sum that is awarded for that element of damages.

There are several factors that complicate the analysis and which should be carefully considered in trial planning and in post-verdict proceedings and negotiations:

1. Under Michigan law, a jury’s gross verdict for each year that future medical expenses are awarded is reduced to present cash value, using a statutory discount rate of 5% per year. 2. CMS takes the position that provisions of state law cannot defeat its rights to reimbursement under the Medicare Secondary Payer program. It could theoretically assert that its reimbursement rights should apply to the gross verdict, before reduction to present

cash value, although that would be an extreme position. 3. It is very common that insurance coverage for a particular defendant in a particular claim is insufficient to satisfy the entirety of the jury’s verdict. In that event, resolution of the case moves from satisfaction of judgment to a negotiated settlement, but with a dollar figure now attached to the value of future medical expenses.

The best approach in general is to treat CMS like a half-awake bear. Plan your steps, walk carefully but confidently, and don’t do anything to provoke or antagonize it.

Addendum: Please also note that CMS has extended the date on which MMSEA reporting is to start on January 1, 2011. This is an eight month extension from the previous April 1, 2010 start date.


Indiana Supreme Court limits challenge to “medical necessity”

On March 4, 2010, the Indiana Supreme Court handed down a decision in Sibbing v Cave, — N.E.2d —-, 2010 WL 744928 (Ind. March 04, 2010) which prohibits defendants in applicable situations from disputing the necessity of medical care. The decision now seemingly allows medical providers from rendering charges, or amounts of treatment, with impunity at trial.

In Sibbing, a rear-ended plaintiff brought suit, and at trial, the defendant admitted causing the accident, but denied the reasonableness and medical necessity of much of the medical treatment. Plaintiff’s treatment included treatment from a medical clinic and approximately 40 visits from Castleton Chiropractic in Indianapolis. Her treatment included a “nerve conduction study” ordered by a physician at the clinic. The defense retained Dr. Paul Kern, who opined that the NCV was not a valuable diagnostic tool, that the passive care after four weeks was ineffective and medically unnecessary, and that the charges for the medical treatment were unreasonable.

The trial court granted Plaintiff’s Motion in Limine barring these portions of Dr. Kern’s testimony, which was reversed by the Indiana Court of Appeals.

In Sibbing, the Court observed that while plenty of prior decisions had addressed the “reasonableness” component of the “reasonable and necessary” component to medical damages, therehadbeenveryfewdecisionsanalyzingthenecessityrequirement. TheCourtthenreversed the Court of Appeals, relying on a prior Indiana Court of Appeals decision in Whitaker v. Kruse, 495 N.E.2d 223 (Ind. Ct.App 1986). Whitaker involved a claim where plaintiff’s physical complaints were argued to be the result not of the underlying accident, but rather, from several post-accidentsurgeries. The Court of Appeals held that “an injured party may recover for injuries caused by the original tort-feasor’s negligent conduct and for any aggravation of those injuries caused by a physician’s improper diagnosis and unnecessary treatment or proper diagnosis and negligent treatment. In order to recover under this rule, the plaintiff need only show he exercised reasonable care in choosing the physician.” The rationale for the Whitaker holding was that a contrary rule would place the injured party “in the unenviable position of second-guessing his physicians in order to determine whether the doctor properly diagnosed the injury and chose the correct treatment.” Whitaker, 495 N.E.2d at 226.

The Court rejected the argument by the defense that the decision would mean that a defendant would never be able to refute a plaintiff’s claim that medical bills were reasonable and necessary, holding instead that an injured party can only recover the damages caused by a defendant. Leaving this element of the causation requirement for damages, the Court reaffirmed that a plaintiff cannot recover damages “wholly unrelated” to the defendant’s wrongful conduct. The decision is not clear as to whether defendant can challenge the necessity of claimed “future” medical treatment, since a plaintiff would not yet have incurred those charges.

The decision, while limiting challenges to unnecessary medical treatment, does not limit a defendant’s ability to challenge the reasonableness of the charges for the treatment, citing its prior decision in Stanley v. Walker, 906 N.E.2d 852 (Ind.2009). In response, one can argue that Sibbing does not preclude a defendant’s opportunity “to test in the presence of the jury the opinions of [plaintiff’s doctors]” Reliable Development Corp. v. Berrier, 851 N.E.2d 983, 989 (Ind.Ct.App. 2006). Specifically, counsel can argue that if a provider’s judgment is so poor as to render clearly unnecessary treatment, his opinions are equally capable of resulting from poor judgment or decision-making.

Overall, the decision is not favorable to defendants faced with clearly unnecessary medical treatment. In those instances where physicians and chiropractors are rendering unnecessary treatment, whether from poor medical decision-making, or worse, where providers are clearly motivated by financial benefit from unnecessary treatment, defendants are now seemingly precluded from challenging those unnecessary treatments.