James Sullivan
Settlement in Medicare suit may significantly benefit your clients

The Jimmo v. Sebelius case scuttles the Improvement Standard, opening the door to more care being paid for by Medicare.

March 4, 2013
By James Sullivan, CPA/PFS

Health care often proves to be one of the biggest expenses that a CPA’s clients face as they get older. But the outcome of a class action case, Jimmo v. Sebelius, No. 5:11-cv-17 (D. Vt. 1/24/13) (settlement agreement), opened the door to more care being covered by Medicare.

The change may have an important impact on the cash flow and budgeting of clients who have a chronic illness. If you have a chronically ill client who was denied Medicare coverage in the past (decisions made final after Jan. 18, 2011), he or she may be able to have claims reexamined under new standards resulting from the settlement of the case. This is especially important if the client ended up paying for such services out of pocket.

The class action lawsuit revolved around what’s known as the “Improvement Standard,” which was used to determine whether Medicare would pay for certain types of skilled nursing or outpatient therapy. In the past, the cost for such care would not be covered by Medicare if it only helped the beneficiary maintain his or her current condition or slow down any further deterioration. For the treatment to be covered, it had to demonstrate that some medical or functional improvement would result.

Few Medicare beneficiaries know that Medicare itself does not make decisions on which claims are paid. The Centers for Medicare & Medicaid Services (CMS), which administers the program, hires private contractors to adjudicate whether a claim submitted by a Medicare beneficiary will be paid. These contractors imposed the Improvement Standard. These decisions, however, often became the final decision of the federal government.

Denials cost clients

A denial of a claim by Medicare can cost clients thousands of dollars. Such denials, while relatively rare, do happen. According to the American Medical Association’s 2012 National Health Insurer Report Card, Medicare denied 3.78% of claims.

As a result of a denial, beneficiaries in traditional Medicare either paid out of pocket for the necessary care or went without the care. Medicare Supplement (Medigap) policies could not be a source of payment. Medigap policies can pay only for Medicare-approved costs. If a health care cost is not covered by Medicare due to the Improvement Standard, the Medigap policy would not pay for any part of the services.

The beneficiary can appeal the denial of coverage for a particular procedure by Medicare to CMS or challenge the denial in court. That’s what happened in Jimmo v. Sebelius.

Jimmo sues over Improvement Standard

Glenda Jimmo, the lead plaintiff, is an elderly woman who lost a leg and most of her remaining toes to diabetes and has been blind since age 19. She is now confined to a wheelchair.

Jimmo was repeatedly denied Medicare coverage for home health care—or home visits by nurses and physical therapy. These costs were not covered by Medicare due to the Improvement Standard, i.e., she was denied because none of these services would improve her condition. 

Jimmo filed her class action lawsuit challenging the standard in January 2011. The plaintiffs and the federal government reached a settlement, subject to the court’s approval, in October. The court approved the settlement on Jan. 24.

As part of the settlement, CMS must now revise its Medicare Benefit Policy Manual and other published guidelines to state that Medicare coverage is now available for skilled maintenance services whether they take place at home, in a skilled nursing facility, or in an outpatient setting.

The coverage for skilled care now rests on a patient’s need for skilled care, not on the Improvement Standard. Skilled care is based on criteria that include the need for the skills of a registered nurse, licensed practical nurse, or qualified therapist.

The settlement applies to both traditional fee-for-service Medicare coverage plans as well as to Medicare Advantage plans. The settlement applies immediately even though CMS has not yet complied with all the court-ordered provisions of the settlement.

For more information, clients who may be affected can contact an elder law attorney or an attorney who specializes in Medicare.

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James Sullivan, CPA/PFS, is a financial planner in Naperville, Ill., who specializes in working with individuals suffering from chronic illness and their families.

* The AICPA’s PFP Section provides information, tools, advocacy, and guidance to CPAs who specialize in providing tax, retirement, estate, risk management and investment advice to individuals and their closely held entities. PFP Section members, including PFS credential holders will benefit from additional elder planning information in the Resource section and in Forefield Advisor on the AICPA’s PFP website at aicpa.org/pfp. All members of the AICPA are eligible to join the PFP section. For CPAs who want to demonstrate their expertise in this subject matter, apply to become a PFS Credential holder.