In the personal injury world, and in particular workers’ compensation cases, Workers’ Compensation Medicare Set-aside Arrangements (WCMSAs), better known as “Medicare set-asides” (MSAs) are an issue few lawyers enjoy dealing with. But how they are accounted for and dealt with in connection with clients’ settlements will have a significant impact on clients’ future medical care and their financial situations.
Earlier this year, the Centers for Medicare & Medicaid Services (CMS) issued new guidelines regarding MSAs that sent shockwaves through the workers’ compensation community. While CMS clarified those new guidelines within a few months, injured workers and their advocates still face uncertainty about what CMS requires when it comes to MSAs.
An MSA primer
When a worker suffers an injury for which they receive workers’ compensation benefits, workers’ compensation insurance is the primary payor for those benefits. Medicare, on the other hand, is a secondary payor. Under federal law, Medicare will not be responsible for paying for medical care when another entity, such as a workers’ compensation insurer, has made or can reasonably be expected to make such payments.
When the settlement of a workers’ compensation claim includes future medical care for a Medicare beneficiary or someone likely to enroll in Medicare within 30 months of settlement, the parties must protect Medicare’s interests to prevent it from becoming a primary payor of that medical care. Enter MSAs.
MSAs provide an estimated accounting of how much medical care an injured worker will need throughout the rest of their life for which Medicare would otherwise be responsible for. In connection with this analysis, the amount of money needed to pay for future medical treatment is set aside from the worker’s settlement and placed in a separate, interest-bearing bank account to pay for medical bills. Only when these MSA funds are exhausted will Medicare begin paying for the worker’s continued medical care as the primary payor.
CMS has established a process for parties to submit MSA proposals for its approval. According to CMS’s Workers’ Compensation Medicare Set-aside Arrangement Reference Guide (the “MSA Reference Guide”), “submitting [an MSA] for review is never required.” However, CMS makes it awfully attractive to do so.
According to the MSA Reference Guide, the CMS approval process is “the only process that offers both Medicare beneficiaries and Workers’ Compensation entities finality, with respect to obligations for medical care required after a settlement, judgment, award, or other payment occurs.” According to CMS, the primary benefit of approval “is the certainty associated with CMS reviewing and approving the proposed amount with respect to the amount that must be appropriately exhausted.”
When CMS approves an MSA, it stands behind that amount as the correct amount required to reasonably fund an injured worker’s future medical care before Medicare steps in. However, according to CMS, when an MSA is not approved, “Medicare may deny related medical claims, or pursue recovery for related medical claims that Medicare paid up to the full amount of the settlement, judgment, award, or other payment.” In other words, Medicare may attempt to recoup the money it paid for the worker’s medical care that it believes it should not have had to pay in the first place.
Thus, because submitting an MSA to CMS is not technically required, the decision of whether to do so is based on “risk tolerance” of the Claimant and his/her attorney. On the one hand, failure to obtain formal approval from CMS could theoretically result in the denial of payment of future medical care by Medicare if CMS does not believe the non-submitted MSA did not adequately protect its interests. On the other hand, submitting an MSA proposal to CMS can be a costly, time-consuming process, often in the setting of negotiations and settlements, which are time-sensitive. Furthermore, if CMS rejects the proposal submitted by an MSA vendor, it is possible that an entire deal to resolve an injured worker’s case could be compromised.
CMS updates the MSA Reference Guide this past January, causing shockwaves
Despite CMS making it clear in its MSA Reference Guide that submitting an MSA for approval “is never required,” CMS updated the guide on January 10, 2022. In that version, version 3.5, CMS added a new section that addressed MSAs that are not submitted to CMS. In new section 4.3, CMS said (with our emphasis added):
“Unless a proposed amount is submitted, reviewed, and approved using the process described in this reference guide prior to settlement, CMS cannot be certain that the Medicare program’s interests are adequately protected. As such, CMS treats the use of non-CMS-approved [MSAs] products as a potential attempt to shift financial burden by improperly giving reasonable recognition to both medical expenses and income replacement.
As a matter of policy and practice, CMS will deny payment for medical services related to the [workers’ compensation] injuries or illness requiring attestation of appropriate exhaustion equal to the total settlement less procurement costs before CMS will resume primary payment obligation for settled injuries or illnesses. This will result in the claimant needing to demonstrate complete exhaustion of the net settlement amount, rather than a CMS-approved [MSA] amount.”
While CMS did not at the same time revise the MSA Reference Guide’s statement that approval of MSAs is “never required,” nor explicitly prohibit the use of non-submitted MSAs, CMS’s addition here seemed to serve as a de facto ban on non-submitted MSAs.
As you could have guessed, these revisions unsettled the workers’ compensation community. Stakeholders, including workers’ compensation lawyers, workers’ advocates, medical practitioners, and companies that provide administrative services related to the payment of injured workers’ medical care were up in arms. Seemingly overnight, with no advance warning to stakeholders, no ability for those stakeholders to publicly comment on these changes before they were published, and perhaps without the necessary statutory and regulatory authority to do so, CMS unilaterally decided that it would now deem non-submitted MSAs to automatically—and impermissibly—shift the burden of paying for future medical care to Medicare. At a CMS town hall meeting soon after the revised guide was published, CMS heard an earful from stakeholders about why its revisions were problematic.
Two months later, CMS clarifies its January changes
The stakeholders were heard, and on March 15, 2022, CMS released yet another version of the MSA Reference Guide. In this version, version 3.6, CMS clarified its January changes and revised Section 4.3. For our purposes, the pertinent changes were (our emphasis added):
“As a matter of policy and practice, CMS may at its sole discretion deny payment for medical services related to the [workers’ compensation] injuries or illness, requiring attestation of appropriate exhaustion equal to the total settlement . . . before CMS will resume primary payment obligation for settled injuries or illnesses, unless it is shown, at the time of exhaustion of the MSA funds, that both the initial funding of the MSA was sufficient, and utilization of MSA funds was appropriate.”
Clearly, CMS softened its stance from claiming it “will” deny payment for medical services in the absence of a non-submitted MSA to that it “may” deny payment. But just as importantly, CMS makes clear with its revisions that an injured worker or its advocate may later demonstrate that a non-submitted MSA was sufficient by allocating funds in a way that protected Medicare’s interests. In other words, just because an MSA was not submitted and approved at the time of a workers’ compensation settlement does not prevent the MSA from being deemed appropriate if audited at a later date by CMS itself.
Where to from here for non-submitted MSAs?
In its current state, the amended CMS regulations seem to put injured workers and their advocates in roughly the same place they were at the end of 2021 with respect to submitting MSAs.
Injured workers and their advocates still must determine what level of risk they’re willing to tolerate when deciding whether to formally submit an MSA proposal to CMS. Additionally, the spirit of CMS’s January revisions suggest it might hold non-submitted MSAs to a higher bar when it reviews them at the time of exhaustion (as explained in CMS’s March clarification) as compared to when it reviews MSAs submitted in connection with a proposed settlement.
Even before CMS’s 2022 revisions to the MSA Reference Guide, many advocates for injured workers suggested MSA funds from a non-submitted MSA be professionally administered by a third-party administrator. Given CMS’s guidelines for spending MSAs funds and complying with its regulations for maintaining MSA accounts, an MSA administrator could help a worker reduce the chances that an administrative misstep triggers an investigation from CMS into the payments Medicare made for the worker’s medical care and whether it ever served as the primary payor.
For injured workers and their advocates who do not want to deal with the administrative delays created by submitting an MSA and are comfortable with the risks involved with not doing so, in light of CMS’s January and March revisions to the MSA Reference Guide, professional administration of MSA funds is likely still the best way to reduce those risks. For all other injured workers and their advocates, it would appear—for now—that submitting an MSA to CMS for approval is still the least risky option.
Leslie Schumacher is the founder and president of PlanPoint MSA, a consulting firm serving insurance carriers, attorneys, self-insured entities, and all parties working towards case resolution in both the workers’ compensation and liability spectrum. Keld R. Wenge is a partner at Pond Lehocky Giordano LLP. They can be reached at lschumacher@planpointmsa.com and kwenge@pondlehocky.com, respectively.
Reprinted with permission from the October 18, 2022 edition of The Legal Intelligencer © 2022 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.
