By Douglas W. Gott
Chief Administrative Law Judge
Kentucky Department of Workers’ Claims
I. Overview of MSAs.
Congress established the Medicare program in 1965 to pay medical expenses for the elderly and disabled. It paid those expenses without regard to whether the treatment was also covered by an employer group health plan. Congress made Medicare a secondary payer to such plans with enactment of the Medicare as Secondary Payer Act in 1980. The purpose of the statute is to prevent shifting of liability for medical treatment from a primary payer to the Medicare system.
Applied to workers’ compensation, the MSP statute precludes Medicare from paying for medical services to the extent that they fall under, or can reasonably be expected to be fall under, an applicable workers’ compensation law. 42 USC 1395y(b)(2)(A); 42 CFR §411.20(a)(2). This prevents an injured worker from spending settlement proceeds allocated to future medical treatment on anything other than that designated purpose, and then seeking to have taxpayer-funded Medicare pay for treatment when he or she becomes eligible for it.
42 CFR §411.46 requires all parties to a workers’ compensation case protect Medicare’s interests if a settlement resolves future medical benefits. If Medicare’s interests are ignored, it may disregard the settlement and refuse to pay an injured worker’s medical bills; and the federal agency that administers Medicare, the Central Office of the Centers for Medicare and Medicaid Services (CMS), “has a direct priority right of recovery against any entity…” – which would appear to include beneficiary, insurer, and attorney – “…that has received any portion of a third-party payment directly or indirectly. CMS also has a subrogation right with respect to any such third-party payment.” 42 USC §1395Y(b)(3)(A); 42 CFR 411.24; CMS WCMSA Reference Guide v3.2, §3.0, (“Ref Guide,” infra).
The only method recognized by CMS to allocate a portion of a settlement for future injury-related medical expenses that are covered by Medicare, and to require the funds be used for that purpose (essentially placed in trust), is a Workers’ Compensation Medicare Set-Aside Arrangement (WCMSA or MSA). An MSA attempts “to estimate, as accurately as possible, the total cost that will be incurred for all medical expenses otherwise reimbursable by Medicare for work-related injury conditions during the course of the claimant’s life…” Ref Guide §3.0. A properly funded MSA must be exhausted, and the funds appropriately spent, before Medicare becomes a primary payor for treatment of the work injury.
The mandate to protect Medicare’s interests in a settlement of medical benefits has existed for many years now, but reporting requirements, enforcement warnings, and recent reimbursement actions by CMS to recover benefits have caused parties to take it more seriously. Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 added mandatory insurer reporting requirements to the MSP statute. Insurance providers and plans are now required to notify Medicare when they accept a claim filed by a Medicare beneficiary, and when “the injured party is a Medicare beneficiary and payments for medical care are claimed and/or released, or the settlement, judgment, award, or other payment has the effect of releasing medicals.” MSP Non-Group Health Care Plan User Guide, Chapter II, Version 6.2, page 3-2 (more commonly referred to as “Section 111 reporting”).
II. MSAs are not required, but…
All settlements with funds allocated to future medical expenses must adequately consider Medicare’s interests. 42 CFR 411.46. Period. Exclamation point. (And it doesn’t matter whether the amount of settlement satisfies the CMS review criteria. See Ref Guide §8.1 and “IV” below.)
But no statute or regulation requires use of an MSA to protect Medicare’s interests. Nevertheless, CMS solely identifies MSAs as a means to protect Medicare’s interests. In guidance memos issued prior to release of the Reference Guide, CMS said submission of an MSA proposal to it for review and approval is “the recommended method to protect Medicare’s interests.” CMS Memos 7/24/06, 5/11/2011.
Separately, CMS says an MSA is “unnecessary” if all the following conditions are present, because they indicate Medicare’s interests are already protected:
- The facts of the case demonstrate that the injured individual is only being compensated for past medical expenses (i.e., for services furnished prior to the settlement);
- There is no evidence that the individual is attempting to maximize the other aspects of the settlement (e.g., the lost wages and disability portions of the settlement) to Medicare’s detriment; and
- The individual’s treating physicians state in writing that to a reasonable degree of medical certainty the individual will no longer require any Medicare-covered treatments related to the work injury. Ref Guide4.2.
Thus, MSAs are not required, but recommended to the point of seeming that they are. Nothing says they are “necessary,” or “required,” but there are specific circumstances under which they are “unnecessary.” Clear enough?
My conclusion is that MSAs should more often than not be considered as “required” even though no statute or regulation states it. A Medicare compliance attorney who spoke at a Kentucky conference in 2013 said in an outline: “You need a Medicare Set Aside every time you settle the medical portion of a workers’ compensation claim and the injured claimant is anticipated to require future medical care for the work injury.” I generally agree with that statement – an exception being for the younger claimant who has returned to work and whose injury and treatment history suggests he or she is highly unlikely to still be treating for the work injury upon becoming a Medicare beneficiary. (But even in that situation the agreement should include language demonstrating that Medicare’s interests have been considered.)
A preference for MSAs does not mean I will not approve a settlement of future medical benefits that lacks an MSA. I might find that the injured worker has not jeopardized entitlement to future Medicare benefits if the terms of the settlement are such that Medicare is not likely to find its interests were not adequately considered. Especially for an unrepresented claimant on the Frankfort motion docket, I most likely will schedule a phone conference to alert the claimant to the requirement to protect Medicare’s interests, and the consequences for not safeguarding those funds and using them for the intended purpose.
III. CMS recommends its review of MSAs, but…
Just like there is no requirement to obtain an MSA, there is no required review or approval process for an MSA if you choose to use one. Ref Guide §1.0, §4.2, §8.0. And just like CMS says MSAs are the “recommended” method to protecting Medicare’s interest in settlements of future medical benefits, it says its review process for MSAs is also “recommended” for establishing them. Ref Guide §4.2. But while there is no limitation on the cases for which an MSA can be used, CMS limits its review of them to cases in which:
- The claimant is currently a Medicare beneficiary and the total settlement amount is greater than $25,000; or
- The claimant has a reasonable expectation of Medicare enrollment within 30 months of the settlement date and the anticipated total settlement for future medical expenses and disability/lost wages over the life or duration of the settlement agreement is expected to be greater than $250,000.
CMS says, “These thresholds are created based on CMS’ workload, and are not intended to indicate that claimants may settle below the threshold with impunity. Claimants must still consider Medicare’s interests in all WC cases and ensure that Medicare pays secondary to WC…” Ref Guide, §8.1. In other words, there is no “safe harbor” in these thresholds.
The “total settlement amount” referenced in the first threshold is a single lifetime number that includes indemnity, medical, attorney fees, total payout of annuities, any prior settlement funds on the same injury claim, and the amount of any Conditional Payment Liens. (It is not the settlement amount minus attorney fees and costs.) Ref Guide §10.5.3.
For the second review threshold, CMS says the following are among the circumstances that constitute a “reasonable expectation” of enrollment in Medicare within 30 months:
- The individual has applied for social security disability benefits;
- The individual has been denied social security disability benefits but anticipates appealing that decision;
- The individual is in the process of appealing and/or re-filing for social security disability benefits;
- The individual is 62 years and 6 months old (i.e., may be eligible for Medicare based upon his/her age within 30 months); or
- The individual has end-stage renal disease. Ref Guide, §8.1
The $250,000 amount in the second threshold again includes indemnity, medical, attorney fees, total payout of annuities, any prior settlement funds relative to the same injury claim, and the amount of any existing Conditional Payment Liens.
In settling future medical expenses with a claimant who is a Medicare beneficiary but whose total settlement amount is less than the CMS review threshold, the employer or carrier should still obtain an MSA estimate and allocate at least that much consideration for future medical benefits as demonstration of protecting Medicare’s interests.
IV. More on “protecting Medicare’s interests.”
My impression is that many people confuse the above review threshold criteria with whether an MSA is “required,” but such is apples to oranges. Again, an MSA is never required. But Medicare’s interests have to be taken into account in any settlement involving future medical benefits, so it is erroneous to conclude that “you don’t need an MSA” because it falls below the review threshold criteria; falling below the thresholds only means that CMS will not review it, not that you don’t need to protect Medicare’s interests by having one. The safest way to protect Medicare’s interests is to have an MSA whose funding is based on a professional MSA estimate or allocation.
The latest version of the CMS Reference Guide leaves little doubt on this point. The Guide discusses two examples of cases that do not meet the review thresholds, but allocate money to future medical benefits. It states: “The settling parties must consider Medicare’s future interests even though the case would not be eligible for review. Failure to do so could leave the settling parties subject to future recoveries for payments related to the injury up to the total value of the settlement.” (Ref Guide, §8.1, emphasis added) Since the “settling parties” include both sides to the claim, Medicare thus believes it can recover from the carrier in addition to the claimant and his or attorney. The significance of this is that it leaves the carrier at risk for twice the exposure – payment to the claimant and then reimbursement to Medicare. As stated in 42 CFR 411.24(i)(1): “If Medicare is not reimbursed as required by paragraph (h) of this section, the primary payer must reimburse Medicare even though it has already reimbursed the beneficiary or other party.”
I used to regularly see agreements that said something like this (fortunately not so much anymore): “The plaintiff is not enrolled in Medicare and has no reasonable expectation of being enrolled in Medicare. Thus, Medicare’s interests have been considered and protected.” Again, these are incongruous concerns. Statements that an injured worker does not meet the review thresholds, is not enrolled in or eligible for Medicare, or has no reasonable expectation of becoming enrolled or eligible for Medicare has nothing to do with whether Medicare’s interests are being protected; further, saying that Medicare’s interests have been considered without explaining how that has been done seems to me an empty statement that CMS may more readily disregard.
V. Effect of CMS review, non-review, approval.
After CMS approves an MSA in a settlement involving an injured worker not yet on Medicare, it will regularly check the National Medicare Enrollment database to determine when the injured worker becomes enrolled or eligible. It will not monitor the money spent from an MSA until the claimant becomes Medicare-eligible (a beneficiary). Ref Guide §18.0.
If funds are exhausted in an MSA that was approved by CMS, and the funds were appropriately spent, Medicare will pay ongoing medical bills for the work injury that are otherwise covered and reimbursable by Medicare regardless of the amount of care the injured worker continues to require. 42 CFR §411.46(a), Ref Guide §8.0. (“When CMS reviews and approves a proposed WCMSA amount, CMS stands behind that amount.” Ref Guide §4.2)
If funds from a self-administered MSA are used for other than Medicare-allowable medical expenses related to the work injury, Medicare will deny all work injury related claims until the injured worker can demonstrate appropriate use equal to the full amount of the MSA. Ref Guide §17.3.
For a settlement funding future medical care that is not reviewed by CMS (regardless of whether placed in an MSA), Medicare may reject the settlement as not adequately protecting its interests. If Medicare makes that determination, it may refuse to pay for medical treatment until the entire proceeds of the settlement have been exhausted. Ref Guide §3.0, §4.1.4.
(The MSA management company Ametros conducted a study that found over 30,000 claims were denied each year from 2018-2020 because MSA funds were deemed responsible for their payment.)
VI. Effect of ALJ decision on future medical benefits.
The Reference Guide says: “…when a state WC judge…approves a WC settlement after a hearing on the merits, Medicare generally will accept the terms of the settlement, unless the settlement does not adequately address Medicare’s interests. Ref Guide, §4.1.4.
The reference to “a settlement after a hearing on the merits” is a bit confusing to me. Perhaps it is referring to a procedure like that used by our neighbors in Tennessee, for example, where, unlike in Kentucky, hearings are conducted over approval of settlements. Perhaps the CMS language suggests that if the ALJ finds certain treatment non-compensable in an Opinion following a “hearing on the merits,” then Medicare will honor that. But as to those partial settlements where the parties ask the ALJ to decide compensability of future medicals, a question arises as to whether the “hearing on the merits” language requires a formal hearing instead of submission on the record before CMS will recognize? My Medicare compliance sources tell me that their experience is that CMS equates a “hearing on the merits” to “zealous” representation and argument by both sides – that the judge cannot appear to be rubber stamping a predetermined decision.
(Speaking of our friends in Tennessee, its judges issued a post on their agency blog that said: “…the Court has determined that we must require CMS approval for closed-med settlements involving employees who meet the CMS review thresholds.” And: “…the Court may require professional administration in some cases where the medical treatment is particularly extensive or complex, or there are questions about the employee’s ability to attest to appropriate exhaustion of the funds to CMS.” (10/20/22)
VII. Requirements on administration of MSAs – both self-administered and professionally administered.
CMS guidelines on administration of an MSA require:
1) Funds deposited into an interest-bearing account.
“You must deposit the total WCMSA amount (future medical treatment and future prescription drug treatment) in an interest-bearing account, separate from any other account such as a personal savings or checking account.” Ref Guide §17.2. (The interest is taxable and may be paid from MSA funds.)
2) Funds to be used only for Medicare covered expenses.
“WCMSA funds may only be used to pay for medical services and prescription drug expenses related to your work injury.” Ref Guide §17.3.
3) Bills paid according to the appropriate fee schedule (since any MSA will be based on fee schedule versus full retail rate).
“CMS uses either the WC fee schedule or the full actual charges for its review of a proposed WCMSA based on whichever methodology is used by the individual or entity submitting the proposal….The administrator of the WCMSA (both professional administrators and self-administrators) should make payments from the WCMSA on the same basis.” Ref Guide §10.5.2.
4) Annual report submitted to CMS.
“Every year, beginning no later than 30 days after the 1-year anniversary of settlement, the administrator must sign and send a statement that payments from the WCMSA account were made for Medicare-covered medical expenses and Medicare-covered drug expenses related to the work-related injury, illness, or disease.” Ref Guide §17.5.
These requirements apply whether the MSA is self-administered or professionally administered; and whether the individual is a Medicare beneficiary or not. Ref Guide §17.4.
An MSA must be “registered” with CMS only if the claimant is already a Medicare beneficiary (or becomes one after the onset of the MSA).
VIII. Professional administration versus self-administration.
Professional administration is preferred over self-administration because:
1) It is in the best interest of the injured worker. The other items that follow all relate back to this. Professional administration prevents the injured worker from, unintentionally or not, squandering the funds from a self-administered MSA payout and incurring problems with Medicare.
2) If an injured worker acknowledges the requirements to place MSA funds in a separate account; use them to pay bills only for Medicare-covered expenses; and submit annual reports and the ultimate depletion report to CMS, then why wouldn’t he or she want someone else to do that at no cost to them? If the injured worker does not intend to abide by the MSA requirements, then the settlement shouldn’t be approved in the first place.
3) The unsophisticated injured worker attempting to self-administer an MSA will likely face higher costs than if an MSA is professionally administered. When an employer or carrier calculates costs needed to fund an MSA, it uses current costs based on Kentucky’s workers’ compensation fee schedule. A claimant on his or her own is subject to billing by providers at out-of-network, higher retail rates (a “cash pay” patient, with inflation increasing those costs each year), and will exhaust the funds quicker. Suppose an injured worker exhausts a $20,000 MSA sooner than he or she otherwise would have because he or she overpaid the fee schedule by $2,500. In that instance, CMS may determine the $20,000 paid to have been insufficient to protect Medicare’s interests, in turn prompting it not to assume primary payer status until the injured worker pays the next $2,500 in medical bills.
Some companies that offer professional administration market themselves as having associations with certain providers or networks that accomplish savings below the fee schedule rate at which the MSA was calculated. That allows the MSA funds to stretch further for the injured worker, which in turn increases the protection of Medicare’s interests.
4) Professional administration is inexpensive. From my experience, a carrier is readily willing to pay a nominal fee of around $1,000 to set up professional administration if it settles a claim and closes a file.
5) The professional administrator somewhat assumes the role of the adjuster or nurse case manager with whom, ideally, the injured worker has had a positive, supportive relationship. The worker is not turned loose with an unfettered sum of money and no continued support system.
(A benefit of an MSA to the injured worker whose relationship with the carrier has been less than ideal is that he or she gets out of ongoing challenges to treatment by way of medical disputes. MSA funds can be used for any treatment as long as related to the injury and covered by Medicare. Ref Guide 3.0. So, for example, the worker does not have to battle the carrier over whether further recommended injections, therapy, or diagnostic studies are reasonable and necessary.)
6) CMS says self-administration is “subject to the same rules and reporting requirements as any other WCMSA.” Thus, CMS “highly recommends” professional administration, especially in cases where the injured worker continues to take opioids. Ref Guide §17.1. CMS first included this “highly recommended” language in its October 10, 2019, revision to its Reference Guide (version 3.0), and there must be a reason it did that.
7) When an MSA is submitted to CMS for review, the injured worker is required to sign a Consent to Release form. As of April 1, 2020, the CTR form must “include language indicating that the beneficiary reviewed the submission package and understands the WCMSA intent, submission process, and associated administration. This section of the CTR must include at least the beneficiary’s initials to indicate their validation.” (Ref Guide §10.2). This new requirement would seem to further enable CMS’s ability to seek recourse against the injured worker who does not self-administer his or her MSA by the rules.
8) Last but not least for the lawyers…professional administration protects attorneys on both sides of a settlement. If the self-administering claimant misappropriates funds or happens to get Medicare to pay for work-related treatment, Medicare’s targets in seeking reimbursement can include the lawyers involved in the settlement.
IX. Funding of MSAs – lump sum and structured:
What happens when funds for a given year are depleted during the term of a structured MSA?
When an MSA is designated as a lump-sum “commutation” settlement, Medicare will not make any payments for expenses related to the work injury until all funds within the MSA have been exhausted, including interest earned on the funds in the account. Ref Guide §3.0, §4.1.1.
An MSA can also be structured – where payments are made to the account on a defined schedule to cover expenses projected for future years. The initial deposit (seed money) must equal the first surgical procedure and two years of annual payments. Unused funds in a given year carry forward and are added to the next annual deposit. If funds in a given year are exhausted, Medicare will pay primary for further injury-related medical expenses during that period if the claimant is already a Medicare beneficiary. (Unused funds for a given year include any roll-over amount. Ref Guide §19.3.1.) If the claimant is not a Medicare beneficiary, he or she must pay out-of-pocket for treatment until the MSA is funded again the next year. Ref Guide §5.2; CMS Self-Administration Toolkit for WCMSAs, §11.
X. Evidence-Based MSAs.
In reviewing an MSA to determine whether Medicare’s interests have been adequately considered, CMS says, “Reviewers use evidence-based rationale for their determinations, taking into account both published guidelines and current peer-reviewed medical literature.” Ref Guide, §9.4.3. However, advocates for employers and insurance carriers argue that CMS does not really apply evidence-based medicine, or does so inaccurately, resulting in higher cost projections than should reasonably be expected. For example, in projecting future cost of prescriptions, CMS bases its allocation on the injured worker’s usage rate over a life expectancy regardless of whether the worker will, or should, continue taking the drug for that long. Perhaps traditional MSAs submitted for CMS review are sometimes overpriced, but that is the result of CMS being motivated to guard against having Medicare prematurely assume the role of primary payer.
Enter a “Non-Submit” product called an Evidence-Based MSA. The projection for future medical costs in an EBMSA is based on information that may include: a retained or consulting physician review; opinions of a retained medical evaluator; communication with a treating physician over ongoing care; or assurances from a physician or patient that certain treatment or prescriptions will cease, be limited, or not be billed to Medicare. An EBMSA cannot be submitted to CMS for approval because CMS will not consider these sources in a review, and, thus, will not approve an MSA based on them. (See “X.4.”, infra)
It cannot be disputed that an EBMSA is an effort to limit, or downgrade, the allocation of dollars into an MSA. Viewed at its worst, an EBMSA seeks to inappropriately reduce the settlement amount by arbitrarily removing otherwise compensable and anticipated costs. In most any instance, the EBMSA will be funded with fewer dollars than would be expected in an allocation for an MSA approved by CMS. From the carrier/defense perspective, that’s a good thing in that a more realistic (i.e., lower cost) projection frees up more money to put in an injured worker’s pocket in settling a claim.
But the EBMSA projection seems to allow a carrier to summarily resolve a lifetime’s worth of medical disputes in its favor. Usually a carrier is willing to pay a premium to rid itself of an ongoing claim for medical expenses. So what benefit is it to the injured worker to concede these potential medical disputes on the front end; have an MSA funded with less money than one reviewed by CMS; and risk a determination by CMS that the EBMSA is inadequate? And if the worker is represented, what risk is his or her lawyer taking by relying on a carrier’s expert in determining the MSA amount, which, again, is not being approved by CMS?
The carrier’s response to that will be that even though the MSA is limited to treatment foreseen by evidence-based medicine, the injured worker is free to spend the funds on whatever work related Medicare-covered treatment he or she wishes. Further, the MSA vendor will contract with the injured worker to indemnify him or her and hold them harmless from any claims made by Medicare if the funds in the EBMSA are depleted (underfunded) or if CMS should find that the MSA had not adequately protected its interests. (The MSA vendor will usually extend separate indemnification agreements for the injured workers’ attorney and a defense attorney, as applicable.)
But what if the vendor’s carrier presents a defense or “slow plays” the injured workers’ claim for indemnification while he or she is dealing with Medicare? Or what if the vendor or carrier is no longer in business, or bankrupt, by the time such a claim is made? An indemnification agreement I reviewed said a condition precedent to the obligation to indemnify was “proper administration of the EBMSA,” so a failure to abide by the rules of self-administration voids that obligation and causes a potentially harsh result (another reason professional administration is preferred). I continue to have concerns about EBMSAs, especially when the settlement involves an unrepresented claimant. The skeptic in me says that the EBMSA is not a legally based solution – grounded in a statute or regulation – to the requirement to protect Medicare’s interests. (I have had a defense firm tell me it refuses to be involved in settlements using an EBMSA.)
Parties wishing to use an EBMSA might see its chances of approval increase if professional administration is used. If the EBMSA is a realistic estimate of future medical costs, and a professional administrator is able to stretch the settlement fund dollars (as discussed in VIII, 3.), then the product becomes more palatable.
This paper has been a work in progress for nearly four years. The fundamentals of the MSA process remain steady, but there has been a substantive change on “non-submits.” (It took me a while to recognize that “non-submit” was synonymous with EBMSAs.) Version 3.5 of the Reference Guide (1/10/22) added a new section, 4.3, addressing the use of “non-CMS-approved products” including EBMSAs. This section startled the MSA world with its pronouncement that “non-submits” would be considered a presumptive effort of cost shifting in contravention 42 CFR 411.46. CMS said it “will” deny payment for medical services in a non-submit up to the amount of the settlement. (Referring back to the discussion at “II” and “III,” if MSAs and CMS review is voluntary, how can CMS say medical payments “will” be denied if an MSA lacks CMS approval? And, remember, you can’t get CMS approval for an MSA that doesn’t meet the review thresholds.) But after a firestorm, version 3.6 of the Reference Guide (3/21/22) softened that language to “may” instead of “will”; and it provided that the parties could still show that “both the initial funding of the MSA was sufficient and utilization of MSA funds was appropriate.” (You can bet that CMS will review an exhausted EBMSA for original sufficiency of funding.)
XI. Effect of new 780-week limitation on medical expenses on MSA allocation.
Among the changes to KRS Chapter 342 in 2018 was a 780-week limitation on medical benefits for injuries occurring on or after July 14, 2018; previously, an award of medical benefits was for a lifetime. KRS 342.020(3). This new limitation begs the general question of whether Medicare will recognize a state law that abbreviates liability for a primary payer and transfers it to Medicare? And, specific to Kentucky, whether CMS will permit a reduction of an MSA to 780 weeks (or the balance thereof) since KRS 342.020(3) allows an injured worker to request an extension of medical benefits payments beyond 780 weeks?
The Reference Guide states at §9.4.5: “CMS will recognize WC state-specific statutes addressing the limits of future treatment regarding the length or nature of future treatment, provided that the submitter has demonstrated that Medicare’s interests have been adequately protected…Submitters requesting alteration to pricing based upon state-legislated time limits must be able to show by finding from a court of competent jurisdiction, or appropriate state entity as assigned by law, that the specific WCMSA does not meet the state’s list of exemptions to the legislative mandate.”
Thus, the answer to the first general question above appears to be “yes,” Medicare may recognize a state statute that limits the liability of a primary payer; but the answer to the second question specific to Kentucky appears to be “no.” You probably cannot reduce an MSA to the balance of the 780-week award of medical benefits because KRS 342.020(3) provides for the request for an extension of medical benefits. If parties cannot obtain a decision that no exception in the law allows for additional benefits, then CMS will likely take the position that an exception (here, the ability to request an extension) allows for additional benefits and thus require an MSA to be fully funded for the life expectance.
XII. Non-Medicare covered medical expenses.
Often lost in the negotiation for a buy-out of future medical benefits are non-Medicare covered medical expenses. The carrier’s request for a vendor to quote an allocation for future medical treatment is usually limited to Medicare-covered treatment, while compensable non-Medicare covered treatment has often been reimbursed by the carrier leading up to a settlement. Examples of non-Medicare covered expenses are: certain medications, typically off-label prescriptions; over-the-counter supplies; attendant/non-skilled home care; certain chiropractic treatment; hearing aids; acupuncture; cosmetic surgery; some dental and eye care; mileage; transportation; and home modification.
A settlement involving a waiver of future medical benefits should alert the reviewing ALJ as to whether the claimant’s past medical benefits have included those that are not covered by Medicare, and, if so, how provision is being made for those expenses beyond the money used to fund the MSA.
1. In a settlement in which the claimant is represented and has counsel able to negotiate the term, I will respect a provision in an MSA that allows the carrier to capture unused funds at the claimant’s death; however, I typically frown on a reversionary clause if the claimant is unrepresented. If a carrier’s desire to close a file is strong enough to buy-out its obligation for continuing medical benefits, then it should be willing to pay appropriate consideration for that without an expectation of receiving unused funds upon the injured worker’s death. Payments made in these settlements should inure entirely to the claimant, and to his or family if there are unused funds at death.
2. An MSA does not need to be indexed for inflation and may not be discounted to present-day value. CMS Memo 10-15-04, p.
3. If a settlement does not specify past versus future medical expenses, the amount allocated to medical benefits will be considered entirely for future medical expenses once Medicare has recovered any conditional payments it made. This means that Medicare will not pay for work related medical expenses that are otherwise reimbursable under Medicare until the entire settlement is exhausted. Ref Guide §10.5.1.
4. Parties cannot reduce an MSA by waiving certain treatment or agreeing that certain treatment will not be billed in the future. CMS will not recognize settlements that promise not to bill Medicare for certain services in lieu of not including them in an MSA. Ref Guide §15.2.2. (See also EBMSA discussion above.)
5. The protection of Medicare’s interests in settlements funding future medical care has included prescription drug treatment since January 1, 2006. CMS Memo 7/24/06.
6. “If it is necessary for CMS to take legal action to recover from the primary payer, CMS may recover twice the (primary payment amount)…” 42 CFR 411.24.
7. The Reference Guide is updated frequently. CMS is now on version 3.7. I do not go back through this paper and change the references unless there has been a substantive change. When I started this project in 2019, CMS was on version 1.9.
8. This paper is long enough, but I thought I would acknowledge the lack of discussion of the “Zero Dollar MSA.” These are a frequent topic of discussion with the MSA world. Essentially, if a carrier has paid nothing in a denied claim or a treating doctor states the injury has resolved and no future treatment is expected, then CMS may approve an unfunded MSA – the purpose of which is to allow a carrier to settle a claim without dealing with Medicare concerns. As much as some may deal with them, they just don’t come up very often in Kentucky.
9. When I got into this project I found myself contacting two Medicare compliance attorneys I had heard speak so well on these issues at national conferences. My thanks to Rafael Gonzalez of Tampa, Florida, and Christine Hummel of Ferdinand, Indiana, for being generous with their time to me. Over the last few years I have invited them to speak at various Kentucky conferences and both were very well received.
XIV. Preferred attachments to a Form 110 Agreement as to Compensation.
An agreement involving an MSA should include the following language or attachments:
1. For a self-administered MSA where an allocation has been done, the report documenting the projected amount of future medical expenses. If an allocation has not been done, the best practice is not just to say “X” dollars are being provided for future medical care, but to explain the basis for that amount in the agreement. If done even in the most general terms, that will better support a later challenge to whether Medicare’s interests were adequately considered at the time of settlement.
2. For the injured worker’s reference in self-administering an MSA:
a) the instructional form titled “Administering Your Lump Sum Workers’ Compensation Medicare Set-Aside Arrangement” or “Administering your Structured Workers’ Compensation Medicare Set-Aside Arrangement.” (attached)
b) the attestation form titled “Workers’ Compensation Medicare Set-Aside Arrangement – Account Expenditure for Lump Sum Account.” (attached)
3. Language on who is responsible for reimbursing Medicare for any conditional payments made by Medicare after settlement.
4. Language that an MSA cannot be charged more than the fee schedule. This is more relevant to an agreement being reviewed by CMS, but the added language can only assist an unrepresented claimant who is self-administering an MSA in dealing with billing matters with his or her provider.
5. An agreement with a professionally administered MSA should include an allocation report and the agreement with the administrator. (That agreement does not need to be executed before the Form 110 is approved.)