On June 3, 2014, the Centers for Medicare and Medicaid Services (“CMS”) released version 2.2 of its CMS WCMSA Reference Guide dated May 29, 2014 (the “Guide”). While the Guide contains multiple updates and revisions (primarily with respect to medical payment records), the most critical update lies in Section 4.1.4 (Hearing on the Merits of the Case). CMS has identified that where parties identify which proceeds of the workers’ compensation (“WC”) award represent non-medical damages as compared to medical damages, and that allocation is approved by a court or other adjudicator (e.g., a state WC board or commission) on the merits, then CMS will accept that allocation. Sophisticated and diligent parties can now use this as means to further limit related exposure on the MSA issue while the traditional WCMSA report (which only calculates medical expenses) no longer represents best practices in the Medicare Secondary Payer (“MSP”) compliance context.
Introduction
On June 3, 2014, the Centers for Medicare and Medicaid Services (“CMS”) released version 2.2 of its CMS WCMSA Reference Guide dated May 29, 2014 (the “Guide”). Since its first release in March 2013, the Guide has become the one source of the truth in the Workers’ Compensation Medicare Set-Aside (“WCMSA”) world. The Guide consolidates all previous guidance from CMS about WCMSAs in one place, and then updates the Guide periodically as CMS guidance changes. Version 2.2 represents the fourth published version of the Guide. Over the past fifteen months, the workers’ compensation (“WC”) community has learned that the Guide is the place to read not only what CMS expects from parties resolving WC claims involving Medicare interests but also what steps CMS directs parties to take to properly consider its interests in remaining a secondary payer post-settlement.
Garretson Resolution Group (“GRG”) has always believed that when it comes to Medicare Set-Asides (“MSAs”), settlement values drive MSA obligations, not vice versa. Instead of what a claimant is anticipated to incur for future injury-related care otherwise covered by Medicare, what really matters is how many dollars are available within the gross award to pay for those future medical expenses. For years, we have spoken about how parties could minimize MSA obligations if they were able to identify those proceeds payable for non-medicals versus those payable for medicals. Then, by funding the MSA for the amount earmarked for medicals, parties could adhere and comply fully with any MSA obligation imposed by the Medicare Secondary Payer (“MSP”) provisions. In version 2.2 of the Guide, CMS validates that methodology.
Hearings on the Merits of the Case
In Section 4.1.4, CMS discusses Hearings on the Merits of the Case. There, it 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. If Medicare’s interests were not reasonably considered, Medicare will refuse to pay for services related to the WC injury (and otherwise reimbursable by Medicare) until such expenses have exhausted the dollar amount of the entire WC settlement. Medicare also will assert a recovery claim if appropriate.
If a court or other adjudicator of the merits (e.g., a state WC board or commission) specifically designates funds to a portion of a settlement that is not related to medical services (e.g., lost wages), then Medicare will accept that designation.” (emphasis added)
Section 4.1.4, specifically the bullet portion of the statement, represents a significant development for all parties attempting to resolve a WC claim while trying to minimize its exposure on the WCMSA issue.
The allocation concept is not a new one, either for CMS, the judiciary or GRG. CMS’ own policy manual has addressed the concept of judicial allocations on the merits for years, though that has been limited to the conditional payment context.[1] The MSP body of case law that has developed over the past 20 years has also recognized the value, when determining the scope of CMS’ recovery rights, in identifying that portion of an award for non-medicals versus that portion for medicals.[2] As CMS has moved forward in recent years to provide greater clarity around how to address its future interest, including the allocation concept as part of the discussion only makes sense. For our part, GRG has been speaking about and applying allocation concepts to MSA issues for close to a decade.
The addition of Section 4.1.4 to the Guide may fundamentally change how parties resolve WC claims. Historically, when an employer or carrier received an MSA report from its trusted vendor containing an exceedingly high figure for the MSA, the parties were, most likely, stuck. Thinking that the entire amount of the MSA would need to be funded as part of any WC settlement and being advised that they must “consider and protect Medicare’s interest”, the parties would not close future medicals. Instead, they would close the indemnity portion of the WC claim and leave medicals open.
While that remains an option, CMS has now provided available, compliant alternative for those interested in closing medicals and keeping the file closed. Instead of the MSA figure driving the potential amount needed to complete a settlement, parties can now agree on a settlement figure then calculate that portion of the award for medicals versus non-medicals. When such analysis is conducted pre-settlement, one can understand with clarity how a potential settlement value affects the MSA obligation which results.
It is important to note that the Guide does not address nor does Section 4.1.4 change any currently existing reporting obligations linked to MMSEA Section 111 mandatory insurer reporting. [3]
Conclusion
In the Guide, CMS has now provided the WC community critical guidance about WCMSAs. Sophisticated and diligent parties will be sure to incorporate the allocation concept into every WC situation that needs to be resolved. Based on this new CMS guidance, a simple MSA report is no longer sufficient as that has the potential to lead to parties overfunding a WCMSA (increasing parties’ exposure on the issue in turn). Instead, to be compliant, any WCMSA guidance provided to parties attempting to resolve a WC claim should contain both an analysis of future cost of care needs going forward as well as an analysis of the non-medical component to the claim (using state specific WC statutes to identify factors such as disability rating, body part, number of weeks allowed and dollars per week).
GRG will continue to monitor this rapidly developing area closely and provide updates as warranted. In the meantime, please reach out to John Cattie, our MSA subject matter expert, with questions or concerns about this and other MSA issues by calling (704) 594-1778 or emailing him at jcattie@garretsongroup.com.
[1] See CMS MSP Manual, Chapter 7, Section 50.4.4 (Designations in Settlements). There, CMS advises, “The only situation in which Medicare recognizes allocations … to nonmedical losses is when payment is based on a court order on the merits of the case. If the court or other adjudicator of the merits specifically designate amounts that are for payment … not related to medical services, Medicare will accept the Court’s designation.”
[2] See, for example, Zinman v. Shalala, 67 F.3d 841, 846 (9th Cir. 1995) and Benson v. Sebelius, 2011 U.S. Dist. LEXIS 30438 (Decided March 24, 2011) (“…if a settlement covers both medical and nonmedical costs, CMS’s reimbursement may be apportioned so as to reach only the portion of the settlement allocated to cover medical costs.”).
[3] Pursuant to Section 6.5.1, Chapter III of the MMSEA Section 111 User Guide: ““No medicals”—If medicals are claimed and/or released, the settlement, judgment, award, or other payment must be reported regardless of any allocation made by the parties or a determination by the court.
• The CMS is not bound by any allocation made by the parties even where a court has approved such an allocation. The CMS does normally defer to an allocation made through a jury verdict or after a hearing on the merits. However, this issue is relevant to whether or not CMS has a recovery claim with respect to a particular settlement, judgment, award, or other payment and does not affect the RRE’s obligation to report.
• RREs are not required to report liability insurance (including self-insurance) settlements, judgments, awards or other payments for “property damage only” claims which did not claim and/or release medicals or have the effect of releasing medicals.”
Leave a Comment