Connecticut Decision Demonstrates Scattered Opinions with Regard to MSP Compliance in Liability Settlements


Case law as it pertains to Medicare Secondary Payer (MSP) compliance in liability settlements continues to reach different conclusions in different courts. In fact, the only aspect that appears to be consistent in these opinions is a lack of any significant trend or majority position concerning exactly how to apply the MSP Act in liability cases. More specifically, due to the ambiguous/confusing nature of the MSP in liability settlements, there has been a vast difference of opinion as to how to protect Medicare's interest through the use of Medicare Set-Asides (MSAs) under the MSP.

We have seen several cases find that a Liability Medicare Set-Aside (LMSA) is required/appropriate for compliance with the MSP in Louisiana and Mississippi (see Frank v. Gateway Insurance Co., 2012 U.S. District LEXIS 33581 and Welch v. American Home Insurance Company, 2013 U.S. District LEXIS 25948). Additionally, in a recent Florida case, Early v. Carnival Corp., 2013 U.S. District LEXIS 16711, the court refused to provide an advisory opinion on whether an LMSA was required under the MSP because to do so would have required the court to draft (rather than interpret) a key part of the settlement. However, in Sterrett v. Klebart, 2013 Conn. Super. LEXIS 245 (February 5, 2013), the court found that the settlement parties were not required to set-aside any settlement proceeds for future medical benefits, despite the fact that the injured party became a paraplegic as a result of the alleged injury in this liability lawsuit.

The facts of the Sterrett case involve the Plaintiff, Clifford Sterrett (Sterrett), who was a social invitee at the home of the defendants. Sterrett was walking down the stairs at the home when he fell backwards and was injured. Sterrett suffered a spinal cord injury that resulted in paraplegia and alleged that the defendants were negligent because the stairway did not have a handrail. The defendants countered that Sterrett was contributorily negligent because he was under the influence of alcohol at the time that he fell. The defendants also asserted a series of other special defenses.

The parties mediated and reached a settlement in the amount of $550,000. The court recognized that considering all of the facts and circumstances of the case, particularly the nature of Sterrett's injuries and all of the special defenses raised by the defendants, the defendants' agreement to settle the case for $550,000 represented a substantial compromise over the potential verdict range in a jury trial. Due to the fact that the settlement was “compromised” and settlement funds paid to Sterrett were not intended to include funds representing compensation for future medical benefits, the court found that the settlement parties were not required to set-aside any of the settlement proceeds for future medical benefits which may be paid by Medicare.

There was an acknowledgement that there was an obligation to reimburse Medicare for conditional payments and that Medicare was owed $14,448.30. The court further found that the parties “reasonably and adequately considered the interest of Medicare in the settlement, and the plaintiffs and defendants should not be subject to any claim, demand, or penalty from Medicare as a result of the settlement payment that has been agreed upon in this manner.”

What is interesting about this case is that the court acknowledged that Sterrett would incur medical bills payable by Medicare in the foreseeable future. However, because the settlement funds contemplated by this particular settlement agreement did not include any significant amount that would be used to cover the costs of future medical expenses, there was absolutely nothing to set-aside. It appears that by “creative lawyering” of the settlement allocation, the parties were able to convince the court that nothing in this settlement involved future medical costs. In this particular case, the court was more than willing to go along with this way of thinking.

The court seemed to side step the issue of the burden shift of future costs to Medicare. Obviously, in this case the plaintiff is a paraplegic and someone is going to have to pay for his medical coverage. The parties and the court appear to be simply pointing fingers to the government and saying, “Let Medicare pay.” However, in the end, the burden may end up being shifted to Sterrett, the Medicare beneficiary in this case. As this case is reportable under MMSEA Section 111, the Centers for Medicare and Medicaid Services (CMS) will flag the ICD-9 codes reported and associated with the settlement and could potentially deny Sterrett coverage for items related to the injury until the entire settlement is exhausted. The court stated that the plaintiffs in this case should not be subject to any future claim, demand, or penalty from Medicare in the future. Yet, CMS is arguably not bound by this statement or this decision and further, it appears that no determination as to Sterrett's contributory negligence was made by the court; therefore, Sterrett may be without recourse if he appeals loss of Medicare coverage through Medicare's administrative appeals process.

Even if Medicare does not deny Sterrett coverage in the end, the burden is arguably being shifted to Medicare in some form or fashion. The future medical cost has to go somewhere- and it is going to be either the Medicare beneficiary or the Medicare Trust Fund. Although CMS has not finalized “formal guidance” on how to comply with the MSP with regard to future medical treatment in liability cases, it seems that the intent behind the MSP and the protection of Medicare's interests was not accurately applied to this case and seems to have lost its way.

Hopefully in the future, courts will have a better understanding of the potential burden shift to Medicare and will find a resolution that not only protects the settlement parties, but also protects the Medicare Trust Fund and the Medicare beneficiary.


About the Author

Heather Schwartz, Esq., MSCC, CHPE, CLMP, CMSP

Heather Schwartz, Esq., MSCC, CHPE, CLMP, CMSP

Heather is Corporate Counsel for PMSI Settlement Solutions, an industry leading provider of Medicare-Set Aside Allocations. Heather's primary responsibility is the education and assistance of compliance with the Medicare Secondary Payer Act. She has lectured on this topic to the workers' compensation and liability insurance and legal communities at conferences, associations, and individual offices nationwide. 

Heather is a major contributor to PMSI's MedicareInsights blog, and also has published numerous publications on court decisions and legislative reforms involving Medicare Set-Asides, conditional payments, and Mandatory Insurer Reporting issues. Understanding that compliance with the Medicare Secondary Payer Act can be at times complex and frustrating for those that handle claims with Medicare beneficiaries, Heather's goal is to speak and write with the primary goal being simple and understandable solutions to compliance.

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