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June 2004 Conference on "MEDICARE SET-ASIDE PROGRAM" The following information was compiled by Hearing Examiner Jay Dufrechou following his attendance at the June 2004 "Medicare Set-Aside Program" co-hosted by the Centers for Medicare and Medicaid Services (CMS), the University of Florida, and MediPro Seminars, LLC. IT IS NOT INTENDED AS LEGAL ADVICE: IT IS MERELY A SUMMARY OF INFORMATION PROVIDED AT THE CONFERENCE. Any information to update, supplement, or correct the following summary is welcomed by e-mailing jdufrechou@mt.gov. Why Consider Medicare in Workers' Compensation Settlements? Though not the norm in Montana, some workers' compensation settlements close entitlement to future medical benefits in situations where the claimant may be entitled to Medicare or may become entitled to Medicare in the future. Other settlements resolve disputes over past medical expenses in situations where Medicare may have already paid some of those expenses. Although federal law has long considered a workers' compensation insurer, or self-insured employer, primarily responsible for medical expenses associated with compensable injuries (42 U.S.C. 1395y), the Medicare system has previously lacked the necessary information and infrastructure to rigorously enforce Medicare's right not to absorb workers' compensation medical costs. CMS reports that in 1999, the General Accounting Office estimated that, since its inception, Medicare has paid 40 billion dollars in medical costs that were the primary responsibility of other insurance systems.Since 2000, the Medicare system has been developing the database and procedures necessary to more actively protect Medicare's interests. If Medicare learns of a workers' compensation settlement that it believes compensates the claimant for future medical expenses that may be shifted to Medicare, or for past medical expenses that were paid by Medicare, the Medicare system may refuse to pay Medicare benefits related to the work injury until settlement proceeds are exhausted. In addition, Medicare may take action to recoup monies it has already paid from any party who has received such monies. (See 42 C.F.R. § 411.24.) Thus, the parties to workers' compensation settlements resolving past or future medical benefits are prudent to consider whether Medicare has an interest in their settlement. If Medicare may assert an interest, the parties may take steps to resolve issues with Medicare prior to the settlement. [Return to top]Medicare "secondary payer" regulations and policy memoranda create two categories of medical benefits settlements:
Medicare recognizes that some cases may involve both compromise and commutation aspects, that is, may resolve issues of both past and future medical benefits. As suggested by the terminology, the historical expectation within the system has been that "compromises" occur in disputed liability resolution of claims for current or past medical expenses, whereas resolution of future medical expenses is primarily an issue of "commuting" those expenses to a lump sum present value. Nevertheless, the system will recognize that some settlements of future medical expenses are on a disputed liability basis, that is, are compromised, though settlements of future medical expenses continue to be termed "commutation" settlements. In the case of compromise settlements of past medical expenses, Medicare expects the parties to determine whether Medicare has paid benefits relating to the industrial injury and, if so, to reimburse Medicare in accordance with regulatory provisions. (See 42 C.F.R. § 411.46(b), et seq.) Reimbursement may be accepted on a "compromised" basis, that is, taking into account that the claimant did not receive all he would have received had liability been established. In the case of commutation settlement of future medical benefits, as of August 2004, Medicare was interested in the settlement only if one of the following situations exists:
OR the settlement amount exceeds $250,000 (including total of payments over time) AND the claimant can reasonably expect to become a Medicare beneficiary within thirty months of settlement. (July 23, 2001, Memorandum from Deputy Director Parashar B. Patel, titled Workers' Compensation: Commutation of Future Benefits). Situations where an individual has a "reasonable expectation" of Medicare enrollment include, but are not limited to, situations where the individual: (1) has applied for Social Security Disability Benefits; (2) has been denied Social Security Disability Benefits but anticipates appealing that decision; (3) is in the process of appealing and/or re-filing for Social Security Disability Benefits; (4) is 62 years and 6 months old (i.e., may be eligible for Medicare based upon his/her age within 30 months) or (5) has an End Stage Renal Disease but does not yet qualify for Medicare based on that condition. (April 22, 2003, Memorandum from Director Thomas L. Grissom, titled Medicare Secondary Payer -- Workers' Compensation (WC) Frequently Asked Questions). Medicare's disclaimer of interest in other settlements of future medical benefits is a regulatory position, based on the assumption "that when a non-Medicare eligible claimant's WC settlement does not meet the 30-month and $250,000 thresholds, typically that individual will completely exhaust his/her settlement by the time Medicare eligibility is reached." (May 23, 2003 Memo from Director Grissom, titled "Medicare Secondary Payer -- Workers' Compensation (WC) Additional Frequently Asked Questions.) These thresholds are subject to adjustment or elimination if Medicare determines its interests are not being protected, though Medicare has represented that "CMS will honor threshold levels that are in effect as of the date of a WC settlement." (Id.) For further or updated information: http://www.cms.hhs.gov/medicare/cob Obtaining information. When settling disputes over past medical expenses of a claimant who may also be a Medicare beneficiary, the parties can eliminate the possibility of future disputes with Medicare over settlement funds by ascertaining whether Medicare has paid benefits it believes are related to the industrial injury. The process for obtaining such information currently begins by contacting the Coordination of Benefits Contractor (COBC). CMS requests the following information to support the research and database creation of COBC:
This information should be directed to:
Under current procedures, COBC will provide the reporting party with information about the Medicare Secondary Payer (MSP) statute and will assign the matter to the appropriate Medicare Regional Contractor based on claimant's state of residence. The Regional Contractor is then responsible for identifying any payments that Medicare believes were made for items or services related to the industrial injury. Information about the status of a claimant's Medicare entitlement may be obtained by contacting the Social Security Administration at 1-800-772-1213. Is reporting a claim and/or possibly mistaken payment required? CMS now requests that any professional who becomes involved with a workers' compensation claim provide the above-referenced information to COBC to facilitate development of the national database. With regard to an obligation to report, 42 C.F.R. § 411.25(a), states that "[i]f a third party payer learns that CMS has made a Medicare primary payment for services for which the third party payer has made or should have made primary payment, it must give notice to that effect to the Medicare intermediary or carrier that paid the claim." The notice must describe the specific situation, circumstances, and time period during which the insurer was primary to Medicare. 42 C.F.R. § 411.25(b). If an employer's workers' compensation plan is self-insured and self-administered, the employer must give the notice. Otherwise, notice must be provided by the insurer, underwriter or third party administrator. 42 C.F.R. § 411.25(c). CMS suggests that attorneys may have an ethical or legal obligation arising from a client's failure to consider Medicare's interests in a workers' compensation settlement. (April 22, 2003, Memorandum from Director Thomas L. Grissom, titled Medicare Secondary Payer -- Workers' Compensation (WC) Frequently Asked Questions, citing 42 C.F.R.§ 411.24(e) and 42 C.F.R. § 411.26.) In disputed liability settlements, what reimbursement will Medicare expect for past medical expenses it has paid? Where liability for past medical expenses is compromised on a disputed liability basis, Medicare may accept reimbursement in an amount that is less than the amount of benefits it has paid. The question becomes how much less, with the answer typically involving the question of what portion of the settlement proceeds is attributable to the dispute over past medical expenses. The regulations provide that "[i]f a compromise settlement allocates a portion of the payment for medical expenses and also gives reasonable recognition to the income replacement element, that apportionment may be accepted as a basis for determining Medicare payments." 42 C.F.R. § 411.47(a)(1). However, if the settlement "does not give reasonable recognition to both elements of a workers' compensation award or does not apportion the sum granted," Medicare will claim reimbursement based on "the ratio of the amount awarded (less the reasonable and necessary costs incurred in procuring the settlement) to the total amount that would have been payable under workers' compensation if the claim had not been compromised." 42 C.F.R. § 411.47(a)(2). The regulations provide additional details and examples of computation. 42 C.F.R. § 411.47(a)(2)-(b). Stipulation in a settlement that there is no liability under the workers' compensation law or plan is not sufficient for Medicare to abandon interest in settlement proceeds if the settlement appears to compensate for medical expenses associated with the industrial injury. 42 C.F.R. § 411.46(b)(1). The regulations provide: "[i]f a settlement appears to represent an attempt to shift to Medicare the responsibility for payment of medical expenses for the treatment of a work-related condition, the settlement will not be recognized. For example, if the parties to a settlement attempt to maximize the amount of disability benefits paid under workers' compensation by releasing the workers' compensation carrier from liability for medical expenses for a particular condition even though the facts show that the condition is work-related, Medicare will not pay for treatment of that condition." 42 C.F.R. § 411.46(b)(2). [Return to top]Who negotiates Medicare's compromise of reimbursement for past medical benefits? At the June 2004 conference, CMS representatives stated that the Regional Contractor (typically a private company such as Blue Cross/Blue Shield) negotiates compromises. If the process has not been started through the COBC, however, the Regional Contractor may not have the information it needs to discuss the case. Seeking approval from Medicare. If a workers' compensation settlement of future medical benefits is one in which Medicare claims an interest (see above), the parties may seek Medicare's approval of the settlement in order to avoid future problems. The approval process typically centers upon assuring Medicare that sufficient funds will be "set aside" for claimant's future medical care, to avoid cost-shifting to Medicare. By approving the "set-aside amount," Medicare agrees that it will pay benefits relating to the industrial injury after those funds are depleted, assuming the fund has been properly administered. As of June 2004, Medicare requested that proposed settlements, including proposed Medicare set-aside arrangements, be forwarded to the Coordination of Benefits Contractor (COBC), P.O. Box 660, New York, NY 10274-0660, labeled: WCMSA Proposal. CMS publishes a "Requirements Checklist" detailing information that should be presented in a cover letter to the proposal, as well as necessary supporting documentation (such as a life care plan or physician's projection of necessary future treatment, and proposed settlement documents). The full list of required documents may be obtained from the following site: http://cms.hhs.gov/medicare/cob/pdf/wcchecklist.pdf At the June 2004 conference, CMS representatives indicated that CMS does not want to receive more than two years of past medical records, unless the proposal is for disputed liability resolution of future medical benefits. In that circumstance, CMS will receive all records necessary to document the dispute. Under procedures in effect as of June 2004, when receiving information to support a request to approve a settlement of future medical benefits, COBC enters the information it receives into a central database, including scanning documents or transferring electronic files, then assigns the matter to the appropriate CMS Regional Office (different from the regional contractor). The Regional Office responsible for Montana cases is located in Denver, Colorado. During June of 2004, CMS followed the goal of completing the review process within sixty days of receipt of all necessary information. Proposals not reviewed within sixty days are forwarded to the "Workers' Compensation Review Center (WCRC)," which has the goal of completing review within twenty-eight days of receipt of all necessary information. The WCRC makes a recommendation to the responsible Regional Office, which retains the final responsibility for approving a settlement proposal. What about "compromised" or disputed liability settlements of future medical benefits? Though Medicare's written policies concerning settlement of future medical benefits focus upon "commutation" where liability is not disputed, representatives of the Medicare system noted orally at the June 2004 Atlanta Medicare Set-Aside Program that proposals to settle disputed liability over future medical benefits may be submitted in cases meeting the threshold amounts described above. Such proposals may include set-aside for future medical benefits in an amount less than the total future medical benefits claimant would receive if liability were established. "Significant" evidence of the dispute (reasons the claimant may not have prevailed) should be included with the proposal. According to at least one representative's oral statements, a "Zero Set-Aside Proposal" may be submitted if the insurer has never paid medical benefits for the condition at issue. Approval of such a proposal would require "significant" evidence suggesting the insurer had no legal exposure. Medicare's concern would remain whether medical costs would inappropriately fall upon the Medicare system. A history of disputed liability for the medical condition at issue, or for the injury, appears critical to approval, according to statements by representatives. Though "compromise settlements" are defined as settlements of current or past medical expenses in policy memoranda (see July 23, 2001, Memorandum from Deputy Director Parashar B. Patel, titled Workers' Compensation: Commutation of Future Benefits at 3), the "compromise" regulations themselves may allow interpretation of "compromise" to include settlement of future medical benefits, making those regulations applicable to settlements of future benefits. (See 42 CFR § 411.46, et seq.; see in particular 42 CFR § 411.46(d)(2).) If so, the ratio system described in the regulations (see 42 CFR § 411.47) would establish a guide for allocation to a Medicare Set Aside account in a proposal to settle disputed liability for future medical benefits. [Return to top]What are some complications to expect in proposing a Medicare set-aside account? The complexities of proposing settlement of future medical benefits on terms that will be acceptable to Medicare have generated a cottage industry of professionals who tend to have expertise in either law, health care, life-care planning, or related fields. An Internet search for "Medicare Set Aside" will provide links to a variety of professionals offering such services. While Montana workers' compensation professionals or injured workers with sufficient time to become familiar with the various policy statements, procedures and regulations should be able to successfully handle their own requests for approval, there are many possible complexities to expect. These include: constructing set-aside accounts where annuities are involved; whether and in what circumstances fees may be deducted from set-aside funds; handling the interplay between state fee-schedule costs, Medicare reimbursement rates, and actual costs (including knowing whether or when the set-aside may be established based on fee schedule rates); the impact of potential or established liability of another insurer or tortfeasor; handling prescription costs in a set-aside account given new federal laws offering some Medicare prescription coverage; knowing what Medicare expects from medical opinions or life care plans supporting set-asides; establishing the set aside so that funds will be appropriately used and accounted for, thereby protecting eventual Medicare coverage; and including appropriate language in settlement agreements and related documents to fully protect the interests of all parties. What if the claimant is a Medicare beneficiary or the settlement meets the monetary threshold and the claimant reasonably expects to become a Medicare beneficiary, but the settlement is NOT intended to compensate for future medical expenses? The April 22, 2003, Memorandum from Director Grissom titled "Medicare Secondary Payer -- Workers' Compensation (WC) Frequently Asked Questions" states:
What about extremely low-value settlements (nuisance value) where the claimant is a Medicare beneficiary? During the June 2004 conference, CMS representatives indicated that no policy has yet been developed for nuisance value settlements, though a policy may emerge in the future. Thus, if claimant is a Medicare beneficiary, approval of any settlement of future medical benefits was encouraged by CMS representatives to guard against future disputes. Is it possible to negotiate a lump-sum settlement with Medicare relating to future medical benefits, protecting the claimant's Medicare entitlement, but avoiding the creation of a set-aside account? At the June 2004 conference, CMS representatives indicated that Medicare may, in the future, negotiate such settlements with workers' compensation carriers, but no policies or procedures yet existed to allow such negotiations. Can a settlement circumvent the need for Medicare approval by obtaining approval of the Workers' Compensation Judge? The April 22, 2003, Memorandum from Director Grissom titled "Medicare Secondary Payer -- Workers' Compensation (WC) Frequently Asked Questions" states:
If a settlement of future medical benefits does not meet Medicare's review threshold, will Medicare issue a letter confirming that review is not necessary? The May 23, 2003, Memoranda from Director Grissom answers: "No, the ROs will not provide 'verification' letters. However, the CMS will honor threshold levels that are in effect as of the date of a WC settlement. (See the July 23, 2001 ARA letter concerning Commutation of Future Benefits.)" What appeal process exists if Medicare denies a settlement proposal? The April 22, 2003, Memorandum from Director Grissom titled "Medicare Secondary Payer -- Workers' Compensation (WC) Frequently Asked Questions" states:
The Medicare Secondary Payer (MSP) law authorizes the United States to "bring an action against any entity which is required or responsible (directly, as a third-party administrator, or otherwise) to make payment with respect to such item or service (or any portion thereof) under a primary plan (and may, in accordance with paragraph (3)(A) collect double damages against that entity), or against any other entity (including any physician or provider) that has received payment from that entity with respect to the item or service . . . ." 42 U.S.C. §1395y(b)(2)(B)(ii). The government may also "join or intervene in any action related to the events that gave rise to the need for the item or service." 42 U.S.C. § 1395y(b)(2)(B)(ii). Federal regulations implementing the MSP (42 C.F.R. § 411.20, et seq.) provide that "CMS may initiate recovery as soon as it learns that payment has been made or could be made under workers' compensation, any liability or no-fault insurance, or an employer group health plan." 42 C.F.R. § 411.24(b). The amount of recovery depends on whether it was necessary for CMS to take "legal action." If legal action was not necessary, CMS recovers the lesser of the following:
42 C.F.R. § 411.24(c). If legal action was necessary, CMS may recover twice the amount of the Medicare primary payment. 42 C.F.R. § 411.24(2). CMS may recover "by direct collection or by offset against any monies CMS owes the entity" responsible for refund. 42 C.F.R. § 411.24(d). CMS may recover from any entity responsible for making primary payment, including "an employer, an insurance carrier, plan, or program, and a third party administrator." 42 C.F.R. § 411.24(e). CMS may also recover from any party that received a third party payment, including a beneficiary, provider, supplier, physician, attorney, state agency or private insurer. 42 C.F.R. § 411.24(g); April 22, 2003, Memorandum from Director Grissom titled "Medicare Secondary Payer -- Workers' Compensation (WC) Frequently Asked Questions." The beneficiary is obligated to cooperate in any action required for recovery by CMS. If a recovery action is not successful due to a beneficiary's failure to cooperate, CMS may recover from the beneficiary. 42 C.F.R. § 411.23. As noted above, Medicare regulations and policy memoranda indicate that if Medicare believes a workers' compensation settlement did not protect Medicare's interests, Medicare may refuse to cover a beneficiary's medical costs related to the industrial injury until settlement proceeds have been exhausted. 42 CFR § 411.46, et seq. and Policy Memoranda. Since at least 2000, the Medicare system has made efforts to establish the database necessary to prevent mistaken Medicare payments and to facilitate Medicare's demand and action for reimbursement. As noted above, the Coordination of Benefits Contractor (COBC) is developing a national database to identify alternate health benefits available to Medicare beneficiaries (including workers compensation) and to prevent mistaken payment of Medicare benefits. The Medicare system has commenced efforts to "data share" with state workers' compensation regulatory agencies and insurance companies. As of June 2004, no agreement for sharing data was in place between the Medicare system and Montana's Department of Labor and Industry. An agreement was in place between California and Medicare, with negotiations in process with numerous other states. CMS representatives indicate that data sharing mechanisms with major insurance carriers are being actively explored and encouraged. Relevant Medicare Policy Memoranda.
Sample distributed at June 2004 conference: Terms and Conditions for Beneficiary Administered Medicare Set-Aside Account. |