Medicare is a Federally-sponsored health care plan that is available to individuals who are 65 or over 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. Since 1980, the Medicare Secondary Payer Act (“MSP”) has made clear that if medical expenses could be covered under either workers’ compensation or Medicare, workers’ compensation, and not Medicare, should pay. In other words, Workers’ compensation is primary and Medicare is secondary.
Medicare is administered by the Centers for Medicare and Medicaid Services (CMS). This agency was previously known as the Health Care Finance Administration. CMS delegates some of its work, especially work dealing with the collection of overpayments, to private contractors that vary by region and state.
The MSP seeks to protect Medicare funds by making sure that Medicare does not pay for services when another primary source of coverage – including liability insurance, no fault insurance, and self-insurance, as well as workers’ compensation insurance – is available. Under the MSP, all parties to a settlement are potentially liable to Medicare for reimbursement of medical payments it has made on behalf of a settling claimant.
Medicare’s position, that its coverage is ‘secondary’ to workers’ compensation, was strengthened by amendments to the Act in December of 2003. The amendments came with the “Medicare Prescription Drug Improvement and Modernization Act” which expanded medicare’s power to enforce the MSP through the Center for Medicare and Medicaid Services (“CMS”). The amendments authorize CMS to seek recovery “against any entity, including a beneficiary, provider, supplier, physician, attorney, state agency, or private insurer that has received any portion of a third-party payment directly or indirectly” if the funds were part of a settlement from a primary insurer.
In the past, workers, their attorneys, employers, and even insurance companies have ignored or attempted to evade the fact that workers’ compensation and some civil settlements should be considered ‘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 (by way of Section 20) and the worker asked, “What about my future medical expenses?” To which a presumed response was, “Just submit it 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 it can 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 more aggressively enforce its right to have workers’ compensation insurers pay Medicare back when required. 2009’s “Affordable Care Act” passed Congress and removed $500 Billion in Medicare funding. That leaves a significant deficit in Medicare’s revenues and will likely provide more motivation for CMS to aggressively pursue reimbursement.
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. The situation becomes much more complicated with regard to settlements. When a worker receives a lump sum (Section 20 or Section 32) and an employer is relieved of its liability for future benefits, in most cases, some of the lump sum is for the payment of future medical benefits. Until that amount is exhausted Medicare should not be expected to pay for medical expenses for the covered condition. When that amount is gone, Medicare should begin paying. The problems concern how to determine how much of a settlement should be allocated for future medical expenses and when is that amount exhausted.
In July 2001 CMS issued a memo to its regional offices. It suggests that under certain circumstances parties to workers’ compensation claims should not settle those cases until after CMS has had an opportunity to review the settlement and approve the allocation to future medical expenses. The memo discusses the circumstances under which the regional offices will “pre-approve” such an allocation. It discusses pre-approval in two categories of cases:
(1) Cases in which the workers’ compensation claimant is currently entitled to Medicare benefits.
(2) 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 (Patel 2001, Question 1).
Medicare announced that the ‘threshold’ for reviewing cases was to be set at $25,000. Medicare refuses to provide a pre-approval of set-aside unless the lump-sum payment to the claimant exceeds $25,000. This does not mean that the parties do not have to consider Medicare’s future interest – it just means that Medicare will not review the final determination of the parties. Self-insured and carriers are encouraged to formulate a cost projection for future medicals and allocate a portion of the settlement toward future medical.
After a case is settled, CMS wants the parties to create some form of “set-aside” arrangement in which the funds for future medical expenses that would be covered under Medicare are placed in a trust or deposited in a separate account. Medicare will begin paying medical bills for the work-related condition only when set-aside is depleted and the funds are accounted for.
This has caused considerable difficulty for the workers’ compensation system. If a case is settled for more than $250,000, it is reasonable to devote the time and resources necessary to obtain pre-approval and create some form of set-aside agreement. However, the vast majority of workers’ compensation claims are settled for much smaller amounts. The time and effort that pre-approval and set-asides require is very substantial when compared to the amounts involved. The suggested procedures have served to create a serious burden on workers’ compensation.
An insurance company who fails to make certain that CMS approval has been obtained is on the hook for double the amount of the settlement.
You should expect your defense team to: Review the medical situation and prepare a defensible estimate of how much of a lump-sum settlement should be allocated to future medical expenses. This is sometimes called a “life care plan.” More foten, we call this Medicare’s “Set Aside.”
1) Obtain pre-approval from CMS of the amount of the settlement that will be allocated to future medical expenses.
Create a Medicare set-aside arrangement. These are sometimes formal trusts, sometimes less formal agreements, that pay or keep track of the expenditure of the portion of the settlement that is allocated to future medical expenses. These vendors have played a significant role in the situation.
Often, a defense attorney will merely monitor the claimant’s counsel’s progress in achieving the milestones discussed above.
Figure 1 shows that the need for a Medicare set-aside arrangement or waiver depends on the type of file closure. The status of conditional payments or payments for medical treatment by Medicare which should have been paid for by the carrier/ self-insured remain the province of Medicare in every case.
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.
Figure 2 shows a decision flowchart to be used when a claim has reached settlement. The flowchart first requires and answer to the question: “Has Medicare paid for treatment for the disability/injury alleged in the claim?” The answer to this initial query should be provided by petitioner’s counsel. As experience shows that Medicare is most likely to pay for treatments in occupational claims, which are likely to be denied claims, special attention should be paid when dealing with occupational claims.
If Medicare has provided treatment, then Medicare’s interest must be considered.
If Medicare has not paid for treatment for the disability/injury alleged in the claim petition, then the next query must be reached. Simply put, the type of closure must be known. As shown above, in figure 1, closure reached via Order Approving Settlement does not foreclose the possibility of medical remaining open, as respondent may be required to provide medical treatment to the claimant for the disabilities alleged for up to two years after entry of the Order.
As Medicare will treat the judgment of a workers’ compensation judge as final as to compensability and causal relationship, closure by way of Judgment with dismissal does not trigger a Medicare interest. Closure of a claim by way of Section 20 does foreclose the possibility of respondent paying for future (related) medical treatment. See figure 1. Therefore, and following the decision flowchart found at figure 2, if the claimant is “Medicare Eligible” then Medicare’s interests should be considered.
Figure 2 begs the question: Just what does it mean to be “Medicare Eligible”?
In other words, “Medicare eligible” identifies any claimant who could receive Medicare benefits currently.
Which in turn, begs the question, Just what is a “Reasonable Expectation” for entitlement to Medicare?
As shown in figure 4, 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) Is currently appealing a decision of denial for SSDI, (4) has end-stage renal disease, and (5) is 62.5 years old (and therefore will be entitled to Medicare in 30 months.
This set of fact prerequisites establishing a “reasonable expectation” is not likely to be known by the respondent in a pending workers’ compensation case. Defense counsel should have answers to these questions from our adversary when a lump-sum dismissal is considered.
Figure 5 presents the decision flowchart to be employed and combines the previous concepts together. While the previous flowcharts (see figure 2) identified whether Medicare may have held an interest in the lump-sum closure of a claim, the decision process in figure 5 identifies when Medicare review of a claim is required.
The difficulty for carriers and self-insured is that identifying whether your case meets either the $25,000 or $250,000 threshold (thereby triggered submission to CMS for approval or waiver of set-aside) requires looking at both the amount of indemnity to be paid PLUS the amount of medical. This can be tricky, especially in a workers’ compensation context, where a case can settle, and then be ‘re-opened’ much later (and multiple re-opener claims are possible for one date of loss. In the workers’ compensation context, it is the value of the current settlement, PLUS the prior settlement, PLUS the prior medicals paid (all added together) which equal the total value for the purpose of establishing which threshold applies.
When there is a possibility that Medicare may become responsible for additional (prospective) medical care for an injury or disability which is resolved in New Jersey Workers’ Compensation Court by way of Section 20, Medicare demands that the claimant set-aside money to pay for the future medical costs. If Medicare determines that no set-aside is necessary, then a waiver will be issued.
Best Practices for Dealing with Center for Medicare Services
On September 26, 2009 Medicare issued guidance as to how Set-Aside proposals “could” be submitted to Medicare. This formalized review process should be considered the ‘current’ ‘best practices’ for dealing with Set-Aside arrangements.
Medicare has issued a 38-page ‘checklist’ including sample forms that it ‘recommends’ submitters utilize.
According to CMS, “cases using this or similar format can generally be processed more quickly with fewer errors – resulting in faster determinations at less cost to submitters and the government.” The ‘recommended’ submission form is divided into numbered sections to correspond to the electronic folders in which CMS scans and files documents for review. For submissions by CD-ROM, grouping and naming documents by the CMS conventions is the preferred method of delivery.
CMS recommends the following numbered sections:
Section 05 – Cover Letter;
Section 10 – Consent Form;
Section 15 – Rated Ages;
Section 20 – Life Care/Treatment Plan;
Section 25 – Court/WC Board Documents;
Section 30 – WCMSA Administration Agreement;
Section 35 – Medical Records;
Section 40 – Payment Information;
Section 50 – Supplemental – Additional Information.
Medicare has also instructed that it will respect a judicial determination “after a hearing on the merits.” In other words – CMS will accept fact findings made after significant testimony has been produced. “Sham trials” are to be avoided. A recent NJ case (decided May 24, 2010) arose from a plaintiff demanding the trial court ‘allocate away’ Medicare’s lien (the court declined).
Need More Guidance?
We expect that increased enforcement of the MSP will continue to impact the litigation we are handling.
We are here to help. Over the past several years, we have counseled our clients on Secondary Payer compliance issues. We have also traveled to our clients to present seminars and meet face-to-face to answer your questions. If you would like arrange training for your office call Greg Lois at 201-880-7213 or email contact.
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