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The new requirements are imposed by the Medicare, Medicaid and SCHIP Extension Act of 2007, §111, which requires liability (including self-insured), no-fault and workers' comp insurers to report certain information about injured parties who are entitled to Medicare.

Many trial lawyers are not aware of the new requirements.

Peter Foley, vice president of claims administration with the American Insurance Association in Washington D.C., said many attorneys think these rules apply only in workers' comp cases.

"No, no, no," Foley said. "It's coming to a world near you in liability cases."

Plaintiffs' attorneys are concerned about delays in settling cases, especially where the Medicare issues are not dealt with early on.

The new rules are also causing confusion because some view them as requiring that liability settlements now set aside a portion for future medical costs to protect Medicare's interest as secondary payor, as is currently done in workers' comp settlements.

"A lot of folks, myself included, believe this information is designed to assist Medicare under the secondary payor statute, which says Medicare will not pay for any future injury-related medical care until either the entire settlement is expended on medical care or an amount reasonably apportioned for medical care is exhausted," said Denver, Colo., elder law attorney John J. Campbell.

Some lawyers are already submitting set-asides in liability cases for review by Medicare on a case-by-case basis.

Medicare does not currently have a procedure for reviewing and approving set-aside allocations in these cases.

The new rules go into effect on July 1, 2009. The Centers for Medicare & Medicaid Services (CMS) is inviting public comment until Sept. 30, 2008. To comment, click here.

New rules

The new rules under 42 U.S.C. 1395y(b)(8) say that insurers must determine whether an injured party is entitled to Medicare and submit certain information to the CMS.

According to a CMS guidance published on Aug. 1, 2008, there are 45 pieces of data that insurers will report, including the injured person's name and Social Security number, his or her attorney's name, the type of insurance, the nature of the injuries and how the case was resolved.

All reporting will be submitted electronically. The penalties for failing to report are stiff – $1,000 per day.

The fines represent a new enforcement push by Medicare. Attorneys and insurers are also liable under existing secondary payor rules.

"If there is a settlement and Medicare doesn't know about it and mistakenly pays for services it has a right to recover, it can go after the attorneys whose fees are paid out of the settlement, doctors, hospitals, everybody who touches a penny of that settlement," said Campbell.

Lawyers could also be exposed to malpractice claims for not handling a client's benefits properly.

"If a plaintiff loses his Medicare benefits, the plaintiff may bring a legal malpractice claim against the attorney and a bad faith claim against the insurer for not making sure his benefits were protected," said John D'Alusio, vice president of MSI MSA Services, a Medicare set-aside vendor.

Some Medicare vendors are encouraging set-asides in liability settlements, but many lawyers say this is premature.

"Nothing about this piece of legislation suggests that set-asides are required in 'run of the mill' liability settlements," said Matthew Garretson, president of The Garretson Firm in Cincinnati and the author of Negotiating and Settling Tort Cases.

"Set-asides have become a red herring and this is creating a lot of havoc, because some vendors are saying you need to start doing set-asides and a lot of insurance carriers are doing that," Garretson said.

In a growing number of cases, defendants are initiating Medicare set-asides and plaintiffs are objecting.

If a defendant won't settle a case unless there's a set-aside, a plaintiff has to decide whether to go forward. If the parties agree on a set-aside, they have to determine how much is needed, Garretson said.

This can be a problem, because unlike in workers' comp cases, future medical expenses are not typically delineated in liability settlements.

Changes to make

Personal injury lawyers can do a few things immediately to prepare for the new rules.

First, "change your client intake form to ask very comprehensive health-related questions," said Garretson.

A questionnaire should ask whether the client is entitled to Medicare, which type of Medicare, and whether the client was entitled to it prior to the injury or after.

Attorneys should also have a formalized process for handling cases if a client is entitled to Medicare for a settlement-related injury, said Garretson, as well as a process for educating the client.

"The earlier attorneys start to address this issue and maintain control, the less likely they will experience delay in the settlement process," he said.

Some have speculated that the additional reporting may create a disincentive to take some smaller cases where the injured person is entitled to Medicare.

"If there is too much hassle, instead of taking a slip and fall by an elderly person where the medical payment is only $500 and not much more, attorneys may not take those claims," said Foley.

Some attorneys are submitting set-aside allocations for CMS review in certain cases, mostly large tort settlements with large future medical expenses.

"Some CMS regional offices have already undertaken a review of proposals for set-asides on a discretionary basis," said Campbell.

In some cases, CMS is approving them; in others, they are sending them back without a response, he said.

Questions or comments can be directed to the writer at: sylvia.hsieh@lawyersusaonline.com