About this Presentation
This article and accompanying video presentation addresses the January 10, 2022 changes to the Center for Medicare & Medicaid Service’s Workers’ Compensation Medicare Set-Aside Arrangement Reference Guide, Version 3.5 and applies to all jurisdictions where “full-and-final” settlements (including future medical exposure) are allowed.
The Set Aside Reference Guide was updated on January 10, 2022 to state that Medicare no longer gives “non submit” set aside allocations the same deference as “submitted and approved” set aside allocations. This will have a big impact on workers’ compensation settlements. This is new and conflicts with other guidance issued by the Center for Medicare & Medicaid Service regarding both required pre-approval and the review thresholds.
- This presentation intends to fully explain what the carriers/self-insured obligations are under the Medicare as Secondary payer Act (the “Act”).
- This presentation will explain the options available to carriers and self-insured who want to remain in compliance with the Act.
- This presentation will explain the costs and tradeoffs between the various options for remaining in compliance with the Medicare as Secondary Payer Act.
- The presenter will explain the legal precedence and authority that CMS has and explains the litigation risks of various methods of compliance.
- We will also discuss the contradictions inherent in the new Reference Guide which makes compliance with the new guidance impossible in some situations.
Key references
Center for Medicare & Medicaid Service “Medicare as Secondary Payer” Page: https://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/Workers-Compensation-Medicare-Set-Aside-Arrangements/WCMSA-Overview
Workers’ Compensation Medicare Set-Aside Arrangement Reference Guide, Version 3.5 (Updated January 10, 2022) https://www.cms.gov/files/document/wcmsa-reference-guide-version-35.pdf
All videos & articles from Lois Law Firm on Medicare Set-Asides: https://loisllc.com/?s=medicare
How the Medicare as Secondary Payer Act Impacts Settlements: General Overview
§1. The Federal Statutory Framework
[1] What is Medicare?
Medicare is a federally sponsored health care plan that is available to individuals who are 65 or older and to individuals who have received Social Security Disability Insurance (SSDI) benefits for more than two years. This includes a significant number of workers’ compensation claimants.
[2] Historically, Medicare was Exposed for Improperly Shifted Medical Expenses
In the past, workers, their attorneys, employers, and even insurance companies have ignored or attempted to evade the fact that workers’ compensation is primary to Medicare. There were undoubtedly some instances in which a worker would go into a hospital for treatment of a work-related problem and show a Medicare card, and the hospital would bill Medicare. No one on behalf of the employer or its insurer went out of the way to tell the hospital that the bill should have been sent to workers’ compensation or to reimburse Medicare after it had paid the bill. There were also, undoubtedly, situations in which a worker and an employer agreed to settle a workers’ compensation claim and the worker asked, “What about my future medical expenses?” The employer, insurer, attorney, or even Judge responded by saying, “Just charge them to Medicare.”
Medicare expenditures represent about 25 percent of the total budget of the federal government. There is tremendous pressure to reduce Medicare expenses. On several occasions in the last few years Medicare has, for example, arbitrarily reduced the amount it pays doctors by four percent or more. Medicare has been searching for every way to control its costs. In 2000 and 2001, studies by the General Accounting Office pointed out that Medicare was losing money by paying for certain services that should have been covered under workers’ compensation. At about the same time (perhaps in response to the GAO), CMS began to enforce more aggressively its right to have workers’ compensation insurers pay Medicare back when required.
[3] What is the Medicare As Secondary Payer Act?
Since the mid-1980s, the Medicare Secondary Payer Act[1] has made clear that if medical expenses could be covered under either workers’ compensation or Medicare, then workers’ compensation, and not Medicare, should pay. Workers’ compensation is primary, and Medicare is secondary. The position of Medicare was further strengthened by amendments to the Act in December of 2003. Medicare is administered by the Centers for Medicare and Medicaid Services (CMS).
[4] Penalties for Noncompliance with the Secondary Payer Act.
The Secondary Payer Act contains penalties for noncompliance. For failing to reimburse Medicare for a conditional payment, the penalty is double the amount of the Government’s damages.[2] For failing to set aside enough funds to prevent Medicare from making a future payment, the penalty is double the Government’s damages.[3] For failing to report under the “Medicare, Medicaid and SCHIP Extension Action of 2007” (“MMSEA”) the penalty is $1,000 per day, up to $365,000 per year.
§2. Lump-Sum Settlements and the Medicare Secondary Payer Act
Lump-sum payments to close claims are attractive as a speedy alternative to protracted litigation and trial. The Medicare Secondary Payer Act requires the parties to consider Medicare’s potential interest in resolving disputes in which future medical costs may become the responsibility of Medicare. This is especially important in full-and-final settlements (lump-sum dismissals).
With regard to ongoing care when a worker is currently entitled to workers’ compensation, the situation is fairly straightforward: Workers’ compensation should pay, and Medicare should not. This means that current medical related to the workers’ compensation case should be paid for by the carrier. It also means that future medical costs avoided by the carrier when the case is settled by way of a lump-sum dismissal (Section 32 in New York, Section 20 in New Jersey, Section 8i in Longshore/DBA, and Full and Final Stipulations in Connecticut) then the parties must protect Medicare by making sure that future medical costs are not charged to Medicare.
[1] Lump Sum Settlements Must Resolve Conditional Payments.
For current medical costs improperly paid by Medicare (we call these “conditionally paid”) the parties must reimburse Medicare at the time of the lump-sum settlement. That is because the cost of improperly-paid for medical is known (you can look to the medical bills paid for by Medicare and compare the medical coding to the body parts established in the workers’ compensation case). See §3, below infra.
[2] Lump Sum Settlements That Include Future Medical Must Protect Medicare.
How do we do this for future medicals? We answer that question in the next part, “The Set Aside Workaround.”
§3. Resolving Conditional Payments
The Medicare statute does not allow Medicare to make a payment if a workers’ compensation policy should be the proper primary payer. In the case of a denied claim, the workers’ compensation carrier will not pay for medical treatment. In such cases Medicare pays for the medical treatment conditioned on the premise that the workers’ compensation carrier must reimburse Medicare if the workers’ compensation carrier has or had the responsibility to make primary payment.
If Medicare has provided treatment, then Medicare’s interest must be considered. Where Medicare has paid for medical care later determined to be compensable under the New York Workers’ Compensation Law, then the claimant, carrier or employer is required to reimburse Medicare.
§4. What it Means to be “Medicare Eligible”
“Medicare eligible” identifies any claimant who could receive Medicare benefits currently. They are currently entitled.
§5. “Reasonable Expectations” for Entitlements to Medicare
A workers’ compensation carrier has a “reasonable expectation” that a claimant will become entitled to Medicare when (1) the claimant has already applied for SSDI, (2) the claimant was denied SSDI but may appeal that decision of denial, (3) the claimant is currently appealing a decision of denial for SSDI, (4) the claimant has end-stage renal disease, or (5) the claimant is 62.5 years old (and therefore will be entitled to Medicare in 30 months.
This set of prerequisites establishing a “reasonable expectation” is not likely to be known by the employer/carrier in a pending workers’ compensation case. Defense counsel should be expected to ask these questions of claimant’s attorney during the settlement process.
The Set-Aside Workaround
§6. Considering Medicare’s Future Interest
When there is a possibility that Medicare may become responsible for additional (prospective) medical care for an injury or disability which is resolved by way of a lump-sum dismissal, a set-aside may be used to reserve money to pay for future medical costs.
A set-aside is just that: money that is reserved for future medical costs. The money so reserved is said to be “set-aside” for only that purpose. The claimant in a workers’ compensation case who resolves their claim is expected to use this set aside money to pay for any further medical care rather than charge that care to Medicare.
[1] How a Set-Aside is Created.
Money reserved for future medical care can come from any source, including the claimant, the employer, insurance carrier, or the settlement proceeds. Medicare has no rules or restrictions governing how the funds are segregated or managed.[4]
The set-aside can be professionally managed for the claimant. It can also be under the control of the claimant (self-administered). A set-aside can also be funded with an annuity or any other installment payment scheme.
[2] When a Set-Aside is Necessary.
Set-Asides are appropriate for:
- Cases in which the workers’ compensation claimant is currently entitled to Medicare benefits.
- Cases in which the injured individual has a “reasonable expectation” of Medicare entitlement within 30 months of the settlement date and the settlement is over $250,000.
§7. Frequently Asked Questions on Secondary Payer Issues:
[1] When Must Medicare’s Interest Be Considered? When Do I Have a Potential Secondary Payer Issue?
Medicare’s interest must always be considered whenever:
(A) Medicare has paid for treatment for a disability/injury alleged in the claim petition; and/or
(B) Petitioner is Medicare entitled (regardless of the settlement amount); or
(C) Petitioner has a reasonable expectation of becoming a Medicare beneficiary within 30 months of the settlement date and the settlement totals more than $250,000.00.
[2] When is a Petitioner Considered “Medicare Entitled”?
A petitioner is Medicare entitled if he or she is:
- 65 years or older (assuming sufficient work quarters); or
- On Social Security Disability (SSD) for 24 months or longer; or
- Suffering from End Stage Renal Disease (ESRD).
[3] Is Repayment of Conditional Payments Required if the Petitioner is Medicare Entitled?
Yes.
[4] Is CMS Approval of a Medicare Set-Aside required?
No. CMS review and approval of a proposed set-aside is purely voluntary.[5]
§8. Avoiding MSP Complications – Our Checklist
Each carrier and self-insured must establish protocols to comply with the Medicare reporting requirements imposed by the “Medicare, Medicaid and SCHIP Extension Action of 2007” (“MMSEA”). Each carrier and self-insured is left to its own devices to come up with these protocols. We have seen many of our clients turn to vendors to review claims and communicate with Medicare.
- Carriers must determine which claimants are Medicare beneficiaries and those non-Medicare beneficiaries who have a reasonable expectation of entitlement within 30 months of the settlement date.
- A claims representative should determine entitlement to Social Security and Medicare as early as possible in the file’s life. Warning flags include:
(a) Has the claimant been out of work more than six months (SSD)?
(b) Has the claimant been off work for 30 months or longer (Medicare)?
(c) Was there a catastrophic injury?
(d) Is the settlement value over $250,000 (including the cost of medicals paid)?
(e) Does the claimant admit to applying for SSD and getting denied or is the SSD denial on appeal?
(f) Is the claimant aged 62 and six months old or older?
(g) Does the claimant have end-stage renal disease?
- Our rule of thumb is that when the parties negotiate a settlement that terminates the obligation of the self-insured or carrier to pay for future medicals, even if the claimant denies being on Social Security Disability, independent verification should be obtained.
- If the claimant is on Medicare but the settlement is less than $25,000 (and forecloses the possibility of the carrier/self-insured being responsible for future medicals), CMS will not review the settlement and either approve a proposed set-aside or waive Medicare’s set-aside requirement. In such an instance, the carrier/self-insured can prepare their own set aside agreement with the claimant. At settlement, appropriate consent and/or testimony should be obtained from the payee, making sure they understand that the payee must spend down the allocable amount with medical bills prior to submitting bills for the compensated injury to Medicare.
One way of verifying that a payee is not on Medicare is to ask for copies of recent pay stubs. If the pay stubs are less than six months old, they (generally) cannot be a Medicare beneficiary.
2022 Changes to the Reference Guide
§9. What the Changes Mean
[1] What the Changes Say
Last Week (January 10th), Medicare issues Workers’ Compensation Medicare Set-Aside Arrangement Reference Guide, Version 3.5 stating that some set-asides will be viewed “as a potential attempt to shift financial burden by improperly giving reasonable recognition to both medical expenses and income replacement.” This new guidance singles out “evidence-based” and “non-submits.” Says “will deny payment for medical services related to the WC injuries or illness requiring attestation of appropriate exhaustion equal to the total settlement less procurement costs before CMS will resume primary payment obligation for settled injuries or illnesses.” This will result in the claimant needing to demonstrate complete exhaustion of the net settlement amount, rather than a CMS-approved WCMSA amount.
[2] Applying the Guidance to Current (Open) Matters
Unfortunately, applying the new Reference Guide statements to open and pending matters is problematic at best.
The Guide does not address the common situation where because of a review threshold ($25,000 for currently-Medicare entitled, $250,000 plus “reasonable expectation for others) a great number of small lump-sum dismissal settlements cannot be submitted to Medicare for a review and prior approval.
[3] Legal Analysis of Medicare’s New Position
There is no legal precedent and no statutory or regulatory authority to support the position that CMS is now taking.
It is the position of the LOIS Law Firm that without significant changes to the Code of Federal Regulations making mandatory submission of all proposed set-aside a requirement, that CMS’s position is currently unfounded in precedent or statutory authority.
Of course, should the CMS obtain changes to the Code of Federal Regulations (C.F.R.) to incorporate the viewpoint expressed in the Reference Guide, then this opinion will change.
§10. Choices Available to Carriers & Self Insureds
The following choices apply for the carrier or self-insured who wants a “full and final” settlement with medical included where the claimant is Medicare-entitled.
[1] Submission of Proposed Set-Aside for Approval Using Reference Guide Pricing Methods
This will continue to be the safest way to ensure compliance with the Medicare as Secondary Payer Act in cases where the workers’ compensation claim is closed “full and final” and future medical treatment exposure is extinguished. The downside of this process is that the set-aside allocation may be significantly higher than using other, more realistic, pricing strategies. This process also introduces delay into the settlement proceeding.
[2] Use of “Evidence Based” (Choice of Submit or no-submit)
The new guidance does not prohibit the use of evidence based strategies to price set-aside allocations. The party seeking the set-aside allocation still has the option to submit the proposal to CMS for prior approval. Depending on the amount of compliance risk the carrier/self-insured employer wants to shoulder, a choice of submission or non-submission can be made on an individual basis.
[3] Legal Opinion Set-Asides prepared by Attorney (Choice of Submit or no-submit).
Utilizing a legal opinion (incorporating evidence based medical repricing) as a strategy to reduce set-aside allocations is another option. The benefits are that the attorney writing or endorsing the opinion is exposed (via malpractice policy) for the compliance risk. Should the matter require litigation, it would be for the opinion-provider to defend.
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