Don’t Forget About Us!!

Medicare was established by Congress in 1965 to pay medical expenses for persons aged 65 or disabled. Initially, Medicare paid virtually all expenses for eligible participants. However, in 1980, in an effort to curb inappropriate Medicare spending, Congress passed the Medicare Secondary Payer Act. The Medicare Secondary Payer MSP was designed to prevent cost shifting to Medicare from other parties who might be responsible for, or caused, the beneficiary’s injury or illness. Under the Medicare Secondary Payer Act, responsible parties are called “primary payers” – those that should pay before Medicare based upon their insurance coverage– and include providers of liability insurance, self-insurance, no–fault insurance and Workers’ Compensation (WC has been primary since the original 1965 Medicare Act).

In July of 2001, the Centers for Medicare & Medicaid Services CMS introduced the Workers’ Compensation Medicare Set-Aside WCMSA program, which recommended the review and approval of certain types of settlements by CMS.  While this program has been successful for CMS over the last 8 years, it has only scratched the surface of Medicare’s recovery potential under the MSP.  In search of additional revenue to fund the rapidly depleting Medicare Trust Fund, Congress created Section 111 of the Medicare, Medicaid and SCHIP Extension Act of 2007 MMSEA.  Medicare’s recovery rights under the MSP remain unchanged, but they now have the means to enforce them in all instances under this new law.

With passage of Section 111 of the Medicare, Medicaid and SCHIP Extension Act of 2007 (also referred to as SCHIP or MIR), Congress updated the rules and, beginning in January 2011, CMS required primary payers to provide data allowing Medicare to recover payments that should have been paid by primary payers (commonly referred to as conditional payments or Medicare liens) and ensure that any additional future medical costs are covered by primary payers or the claimant’s settlement proceeds, not Medicare. Failure to comply with MIR will result in significant civil penalties for the primary payer, but failure to ensure MSP compliance as part of the resolution of the claim opens one up to additional exposure and penalties post settlement.

When is a Medicare Set Aside Allocation MSA needed?

A MSA is needed on Workers’ compensation claims if a claimant is entitled to Medicare benefits AND the un-commuted value of the settlement of the claim is $25,000 or greater.  A claimant becomes entitled to their Medicare benefits when they meet one of the following  three criteria:

• Claimant is 65 years of age or older
• Claimant has been receiving Social Security Disability Income (SSDI) benefits for at least 24 months
• Claimant has End Stage Renal Failure or Lou Gehrig’s disease

Since the inception of the Medicare Query Function MQF in 2009, many in the industry have treated this tool as Medicare’s “Final Word”.  However, the MQF only identifies those individuals who are currently entitled to Medicare benefits but fails to identify another segment of claims where MSP compliance is required, thus opening themselves to additional exposure.

A MSA is also needed when a claimant is “reasonably expected” to be entitled to their Medicare benefits within 30 months of Settlement/Judgment/Award AND the un-commuted value of the settlement of the claim is $250,000 or greater.  A claimant is “reasonably expected’ to become entitled to their Medicare benefits when they meet one of the following three criteria:

• Claimant is 62 ½ to 64 years of age
• Claimant has been receiving Social Security Disability Income (SSDI) benefits for less than 24 months
• Claimant has applied for SSDI benefits (applicable even if claimant’s application is denied)

If lost time from work exceeds 12 months, request a Social Security Disability Income SSDI verification to confirm the Social Security eligibility status in conjunction with the results from the MQF.

When is a Claim Settlement Allocation CSA recommended?

A CSA is recommended on those Workers’ compensation claims when a claimant is entitled to Medicare benefits or is “reasonably expected” to be entitled to Medicare benefits within thirty months of settlement, BUT the un-commuted settlement values do not exceed $25,000 or $250,000, respectively.  A CSA is also recommended in liability settlements where the settlement exceeds $20,000.

An allocation is recommended in the above claims, but CMS approval is not required as the settlement value does not meet CMS Review Guidelines.  Many in the industry have been misguided by the CMS memorandum, often times over emphasizing the value of the settlement rather than the Medicare/Social Security eligibility to determine the level of exposure and compliance.

The July 11, 2005 CMS Memorandum clearly indicated that MSP compliance is required even though CMS’ Work Review Thresholds are not met (no safe harbors).  This is further echoed in the April 25, 2006 CMS Memorandum.

Medicare Risk Assessment Tool

Those needing assistance in determining the level of compliance in any claim may access our FREE Medicare Risk Assessment tool at www.gouldandlamb.com.  This valuable tool calculates the level of MSP exposure as well as provides recommendation for the steps which should be taken to mitigate MSP exposure.

When Is a Medicare Set Aside Required?

Recently, Gould and Lamb has seen an increase in requests for submission to the Centers for Medicare/Medicaid Services CMS of “zero allocations.” Essentially, the parties to a workers’ compensation case that is either completely contested or where a portion of the claim is disputed believe that evidence or argument can be presented that will result in Medicare’s future interests being quantified as having no value. CMS acknowledges that there are, indeed, circumstances where Medicare’s interests are not at issue and, therefore, the parties are not required to establish a Medicare set-side arrangement.  CMS also recognizes, however, that there are many situations wherein the parties believe that a workers’ compensation zero allocation is warranted, but in fact it is not.

Two Types of Workers’ Compensation Claim Settlements

Medicare has identified two types of settlements in workers’ compensation cases.

One - No future medical care is anticipated based upon the compensable injuries or accident. The second is presented where only the past medical exposure or treatment is the subject of the settlement. Medicare recognizes the second scenario as a “compromise” case. As Medicare is not exposed for future medical care or services and because medical care remains “open” the establishment of an MSA is not necessary. In its policy Memorandum dated April 22, 2003, CMS advised that in true compromise cases, a Medicare Set Aside MSA is not necessary when all of the following factors were present:

• The facts demonstrate that the injured individual is only being compensated for past medical expenses.
• There is no evidence that the individual is attempting to maximize the other aspects of the settlement to Medicare’s detriment, and
• The individual’s treating physicians conclude (in writing) that, to a reasonable degree of medical certainty, the individual will no longer require Medicare-covered treatment related to the workers’ compensation injury.

Clearly, even where medical benefits are not the subject of a claim settlement, the documentary evidence to be presented to Medicare can be extensive as all of the above elements must be satisfied.

Two - The future medical component of a case is resolved as a portion of the settlement fund but where there is evidence that Medicare’s interests are not at issue as no future medical care is reasonably anticipated. These “commutation cases” raise issues of fact and law that make the analysis by the submitter and the CMS reaction to that analysis, critical.

For commutation cases where evidence or legal arguments are utilized to demonstrate that Medicare’s interests are not at issue (and therefore that a CMS zero allocation is warranted) we normally see either an argument concerning the relatedness of treatment to the accident or a legal argument that questions the availability of medical benefits as a matter of law. Gould & Lamb has found that, in Medicare’s inquiry regarding the medical necessity of continued care is centered upon the reports and finding of the treating physician. The opinions of the treating provider will, in most instances, be considered persuasive to CMS. If the reports and physical findings show clearly that the condition or need for care is unrelated to the accident or its sequlae, a zero allocation may be approved. In contrast, if the opinions and findings to support the zero allocation are primarily based upon a records examination of an independent or court ordered evaluator, this evidence seems much less likely to provide the medical support needed for a zero finding by CMS.

Legal arguments regarding the availability of treatment in a commutation case in order to support a workers’ compensation zero allocation, many times, include the running of the statute of limitations, that the individual was not within the course and scope of employment at the time of the injury and/ or myriad other defenses. Medicare has consistently advised that they will respect an evidentiary order as binding on these types of issues. The order must be truly evidentiary, however. Gould and Lamb has seen CMS disregard transcripts of a settlement hearing because no evidence was presented other than the testimony of the parties as to their desire to settle. Certainly, the CMS desire for evidentiary orders seems inconsistent with the overriding desire of the parties to settle case without resorting to the judicial process. Nonetheless, CMS guidance is clear that only hearings where evidence was presented, argument made and an order entered will be considered persuasive support for a zero allocation.

Commutation Cases Require Submitter to Present Both Legal and Medical Analysis

Because the majority of requests for zero allocations are commutation case where both legal and causation arguments are made, the submitter must present both legal and medical analysis if the zero allocation is to be accepted by CMS. CMS has routinely approved zero allocations in commutation cases where a cogent, well supported argument is made which recognizes and incorporates the evidence and positions of the parties with regard to the overall compensability and necessity of the need for care. In the absence of an evidentiary finding, a zero allocation must, in effect, be presented as to leave little doubt regarding the legal and medical underpinnings of the failure to allocate future care dollars. When properly presented, zero allocations should include relevant medical evidence as well as an analysis of the applicable state statutory requirements and the particular factual scenario presented in the case. When including other evidentiary factors including interrogatories, depositions and medical findings, a persuasive document can be created which can significantly increase the probability that a zero allocation will be accepted by CMS and that the parties can proceed with settlement with confidence. Gould and Lamb prepares each zero allocation utilizing our team of legal, medical and claims professionals to maximize the potential of CMS approval of what is, in essence, a legal/medical argument whose form and content are crucial to successful resolution of a disputed claim.

It is apparent that self administered allocations present a greater risk than initially thought.  As litigation emerges and Mandatory Insurer Reporting becomes effective, the Insurance Industry has recognized the exposure future medical settlements represent to all parties involved, including defense and plaintiff attorneys.

If the plaintiff improperly disburses MSA funds, Medicare may deny/suspend benefits. Suspension of benefits has and will expose plaintiff attorneys to a private cause of action, pursuant to the Medicare Secondary Payer Act.  Suits may also be filed against carriers under the Unfair Claims Practices Act.

As the current population ages and the number of Medicare beneficiaries under the age of 65 increases, the Medicare program finds itself supporting more beneficiaries with fewer contributors to the program.  By 2020, the Medicare program will disburse over one trillion dollars annually. It is believed that Medicare will make all efforts to ensure that the program remains (somewhat) solvent.  As a result, The Center for Medicare & Medicaid  Services (CMS) will scrutinize allocations and focus on their Medicare Secondary Payer (MSP) rights.

Payments From Set-Aside Fund Must Follow Stringent Guidelines As Outlined In Claims Settlement Agreement

If payments from a set-aside fund are not properly distributed as outlined in the settlement agreement (i.e. MSA report; fee schedule, ICD9 codes and CPT codes), the injured party may lose their Medicare benefits.  In addition, the injured party is left without the financial resources necessary to obtain medical treatment related to the accident. The injured party is placed in a position of having to replenish and refund the misappropriated claim settlement funds.

Carriers, TPAs and Self Insured’s subject to Mandatory Insurer Reporting will provide Medicare with the necessary information to determine who is the primary payer or if a right of recovery on individual claims exists.

Self administration by unqualified individuals is prevalent and increases the risks associated with claim settlements involving Medicare eligible individuals.  Carriers, TPA’s and Self-Insureds recognize the risk and are adopting protocols to combat their exposure by providing post settlement allocation services.  Administration Support services provide all parties to the settlement with the assurance that set-aside funds are disbursed properly and give recourse to the injured party once those funds have been exhausted.  Given the cost of defending against civil court actions, the benefits of providing or funding these services is a best practice for risk adverse insurance entities.

Medicare Secondary Payer Act Sways  PA Superior Court Ruling

The Superior Court of Pennsylvania recently upheld a ruling in the Court of Common Pleas which has created somewhat of a stir in the Medicare Compliance industry in recent days. Those familiar with the Medicare Secondary Payer (MSP) Act, however, are not surprised by what the court made plain: MSP Compliance must not be merely an afterthought in tort litigation. MSP issues must be dealt with before the case goes to trial and, indeed, before settlement negotiations begin. The mere suggestion of a potential conditional payment lien is not enough, the court concluded, to hold off enforcement of a verdict. Further, the court found that a defendant cannot pursue lien rights that belong to the United States alone.

In Zaleppa v. Seiwell, defendant Seiwell backed her automobile into a vehicle occupied by plaintiff Zaleppa, causing personal injury. At the time of the accident, Zaleppa was sixty nine years of age and a Medicare beneficiary. A jury awarded Zaleppa $15,000.00, $10,000.00 of which was compensation for physical pain and suffering, mental anguish, etc.

After the verdict, Seiwell argued that the Medicare Secondary Payer Act required Medicare’s interests to be taken into account where conditional payments may have been made. On that basis, Seiwell requested that the court allow her (and her liability carrier) to include the plaintiff, her attorney and Medicare as a payee on the draft in satisfaction of the verdict or to pay the verdict into the court until Medicare notified the court that any lien was satisfied.

The trial court denied the motion, essentially finding that the defendant’s inaction regarding Medicare’s interests did not operate to stave off the enforcement of the verdict. On appeal, the Superior court nicely analyzed the MSP Act in addressing the core question: Can a private entity (Seiwell) assert the rights of the United States government regarding potential Medicare reimbursement?

Court Rules that Obligation to Reimburse was Triggered Before Tort Litigation Established

Seiwell, quite correctly, argued that as the “primary plan” she and her liability carrier were responsible for conditional payments made to Zapella, if any. What Seiwell failed to establish, however, was the existence of a Medicare lien. The court specifically recognized that if a lien existed, MSP required the primary plan to reimburse Medicare. Significantly, the court found that a recovery demand letter, issued by Medicare, triggers the primary plan’s duty to reimburse Medicare yet also acknowledged that payment to the plaintiff triggers reimbursement rights. Despite the fact that liability is established upon payment of a judgment, the mere fact of liability for MSP does not entitle a party to post trial relief until the obligation to reimburse has been triggered.

In its analysis of the MSP, the court found that there is a fundamental difference between Medicare’s right of reimbursement and the obligation of a primary plan. Nothing in the MSP, they reasoned, authorizes a primary plan to assert Medicare’s rights as a method to guard against their own liability. Only the U.S. government is authorized to pursue its own right of reimbursement.

The Pennsylvania court also added its “two cents” to the body of case law on conditional payments. Where Medicare’s interests are raised, the primary plan must show both the existence of a lien by affirmative evidence (a Medicare lien letter) but are not empowered to pursue Medicare’s interests under the private cause of action until they are actually damaged.

PA Court’s Decision Illustrates That Ignorance or Neglect of Medicare’s Interests Carries Consequences

The Pennsylvania decision again illustrates the fact that ignorance or neglect of Medicare’s interests has dire consequences. In the Seiwell case, had the primary plan taken the simple step of requesting and receiving a lien amount from Medicare, the interests of the U.S. government would have been placed at issue and addressed in the verdict phase. Instead of seeking to limit liability by raising Medicare’s interests until after a verdict is entered, parties must be aware that Medicare reimbursement must be addressed in every case. The Seiwell case is yet another example of what is becoming an increasingly clear message: Medicare’s interests must be identified and dealt with as early as possible and to ensure compliance and avoid penalties.

Medicare Set Aside Allocation Capped at $150,000 

The Georgia Subsequent Injury Trust Fund (SITF) recently instituted a new policy pertaining to the settlement of workers’ compensation claims in cases requiring Medicare Set-Aside (MSA) trusts.

The SITF has now placed a cap on MSA allocation funds as part of a workers’ compensation structured settlement. If the annuity quote, including seed money, exceeds $150,000.00, the SITF will not reimburse any amount over $150,000.00 for the MSA allocation.

In fact, the SITF settlement manager suggests that in some cases the employer/insurer consider contributing the balance above the $150,000.00 threshold if the case is one that, based upon risk analysis, should be settled.  Otherwise, the SITF recommends considering bifurcating settlements, and settling the indemnity portion of the claim while reassessing the medical component of the claim at a later time.

Employer/Insurer Funding Overage Contrary to SITF Risk Mitigation Objective

Clearly, the suggestions of the settlement manager that the employer/insurer consider funding any overage runs contrary to the entire concept of the SITF itself which is designed to mitigate risk and exposure based upon a pre-existing injury that was not completely the responsibility of the subsequent employer/carrier. In crafting settlement policy in the face of the increasing uncertainty surrounding Centers for Medicare and Medicaid Services (CMS) and MSA approval, the settlement manger appears to defeat the purpose of the fund itself.

Based upon the SITF policy and the increasing instances of counter higher demands by CMS across the industry, it is not surprising to see MSA policy being shaped that discourages settlement of medical benefits and workers’ compensation cases in general. Whether an intended consequence of Medicare policy or not, insurers now clearly recognize that the current MSA review and approval process is a significant obstacle to both the delivery of benefits to injured workers and the ability to properly identify risk and exposure in any case.

I believe that similar policies will be offered in the coming months. However, there are alternatives to the CMS / Workers’ Compensation Review Contractor (WCRC) review and approval process that can be utilized in order to ensure both Medicare Compliance and receipt of needed settlement funds to injured workers. Please contact Gould & Lamb client services for any questions regarding MSA settlement strategies and products designed to accomplish these goals.