Issue #39 May
1, 2006
BASICS OF MEDICARE CONDITIONAL PAYMENTS AND MEDICARE SET ASIDE ARRANGEMENTS
By John J. Campbell, CELA, MSCC
Medicare Conditional Payments
The Medicare Secondary Payer statute was originally enacted in 1980 and is codified under federal law at 42 U.S.C. §1395y(b). The statute was amended by the Omnibus Budget Reconciliation Act of 1989 (OBRA ‘89); and again by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA).
The OBRA ‘89 provisions became the subject of significant controversy for several years recently, due to conflicting federal court decisions regarding the interpretation of the amended statutory language. The language at issue, contained in 42 U.S.C. §1395y(b)(2)(A) & (B), stated:
(2) Medicare secondary payer
(A) In general
Payment under this subchapter may not be made, except as provided in subparagraph (B), with respect to any item or service to the extent that . . .
(ii) payment has been made or can reasonably be expected to be made promptly (as determined in accordance with regulations) under a workmen's compensation law or plan of the United States or a State or under an automobile or liability insurance policy or plan (including a self-insurance plan) or under no fault insurance.
In this subsection, the term "primary plan" means . . . a workman's compensation law or plan, an automobile or liability insurance policy or plan (including a self-insured plan) or no fault insurance, to the extent that clause (ii) applies.
42 U.S.C. §1395y(b)(2)(A); and
(i) Primary Plans
Any payment under this subchapter ... shall be conditioned on reimbursement to the appropriate Trust Fund established by this subchapter when notice or other information is received that payment for such item or service has been or could be made under such subparagraph. ...
(ii) Action by United States
In order to recover payment under this subchapter for such an item or service, the United States may bring an action against any entity which is required or responsible (directly, as a third-party administrator, or otherwise) to make payment with respect so such item or service (or any portion thereof) under a primary plan ..., or against any other entity (including any physician or provider) that has received payment from that entity with respect to the item or service, and may 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)(A).
In 2002, the U.S. Court of Appeals for the 5th Circuit decided the case of Thompson v. Goetzman, 315 F.3d 457 (5th Cir. 2002), aff'd en banc, 337 F.3d 489 (5th Cir. 2003). In that case the 5th Circuit held that a payment by the defendant directly to the plaintiff did not constitute a "self-insurance plan" under the federal MSP statute, since the defendant did not have formal claims procedures in place similar to those used by an insurance company. The Goetzman Court also found that the existing language of the MSP statute limited the government’s right to recover its MSP claim to those situations in which a third party payer was expected to pay promptly (within 120 days according to the MSP regulations) for the plaintiff’s medical claims. Thus, the defendant in Goetzman was held not to be a "third party payer" under the MSP statute and was permitted to completely avoid repayment of Medicare's considerable MSP claim in that case.
The following year, the U.S. Court of Appeals for the 11th Circuit arrived at the opposite conclusion regarding the meaning of the language in 42 U.S.C. §1395y(b)(2)(A) & (B). United States v. Baxter Int'l, Inc., 345 F.3d 866 (11th Cir. 2003). The 11th Circuit concluded that it was the clear intent of the statute that Medicare always be secondary, regardless of whether prompt payment could be expected from a third party payer. The Baxter Court also rejected Goetzman’s holding that a setting aside of funds and the existence of formal claims procedures are necessary to the existence of a “self-insurance plan.”
The MMA, which was enacted by Congress in 2003, contained significant revisions to the MSP statute which were clearly directed at setting this controversy aside. Specifically, the MMA made the following changes to the MSP statute (new language is underlined and language that was removed is stricken through):
(2) Medicare secondary payer
(A) In general
Payment under this subchapter may not be made, except as provided in subparagraph (B), with respect to any item or service to the extent that . . .
(ii) payment has been made or can reasonably be expected
to be made promptly (as determined in accordance with regulations)
under a workmen's compensation law or plan of the United States or a
State or under an automobile or liability insurance policy or plan
(including a self-insured plan) or under no fault insurance. . .
. . . An entity that engages in a business, trade, or profession shall be deemed to have a self-insured plan if it carries its own risk (whether by a failure to obtain insurance, or otherwise) in whole or in part.
(B) Repayment required
(i) AUTHORITY TO MAKE CONDITIONAL PAYMENT- The Secretary may make payment under this title with respect to an item or service if a primary plan described in subparagraph (A)(ii) has not made or cannot reasonably be expected to make payment with respect to such item or service promptly (as determined in accordance with regulations). Any such payment by the Secretary shall be conditioned on reimbursement to the appropriate Trust Fund in accordance with the succeeding provisions of this subsection.
(ii) Primary plans
Any payment under this subchapter with respect to any
item or service to which subparagraph (A) applies shall be conditioned
on reimbursement to the appropriate Trust Fund established by this
subchapter when notice or other information is received that payment for
such item or service has been or could be made under such subparagraph.
A primary plan, and an entity that receives payment from a primary
plan, shall reimburse the appropriate Trust Fund for any payment made by
the Secretary under this title with respect to an item or service if it
is demonstrated that such primary plan has or had a responsibility to
make payment with respect to such item or service. A primary plan's
responsibility for such payment may be demonstrated by a judgment, a
payment conditioned upon the recipient's compromise, waiver, or release
(whether or not there is a determination or admission of liability) of
payment for items or services included in a claim against the primary
plan or the primary plan's insured, or by other means. If
reimbursement is not made to the appropriate Trust Fund before the
expiration of the 60-day period that begins on the date such notice
or other information is received on the date notice of, or
information related to, a primary plan's responsibility for such payment
or other information is received the Secretary may charge interest
(beginning with the date on which the notice or other information is
received) on the amount of the reimbursement until reimbursement is made
(at a rate determined by the Secretary in accordance with regulations of
the Secretary of the Treasury applicable to charges for late payments).
(iii) Action by United States
In order to recover payment under this subchapter for
such an item or service, the United States may 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, and may join or intervene in any action related to the
events that gave rise to the need for the item or service.
In order to recover payment made under this title for
an item or service, the United States may bring an action against any or
all entities that are or were required or responsible (directly, as an
insurer or self-insurer, as a third-party administrator, as an employer
that sponsors or contributes to a group health plan, or large group
health plan, or otherwise) to make payment with respect to the same item
or service (or any portion thereof) under a primary plan.. . .
42 U.S.C. §1395y(b)(2)(A) & (B) (2004).
Thus, Congress essentially legislated Goetzman out of existence in passing the MMA's amendments to the MSP statute. Brown v. Thompson, 374 F.3d 253 (4th Cir. 2004). Medicare’s status as secondary payer and its rights to recover any overpayments or conditional payments are now clear. Any third party who is liable for payment of Medicare covered services is considered primary to Medicare. By agreeing to settlement of a WC or TPL claim, the WC or liability insurance carrier (or self-insured defendant) establishes its liability under the MSP statute.
Any payments Medicare may have made for the plaintiff’s injury related medical expenses prior to settlement, even if payments were made by mistake, will result in an MSP claim which must be satisfied as part of the settlement. If not, the Centers for Medicare and Medicaid Services (CMS) can bring suit for repayment of Medicare’s claim against the WC or liability insurance carrier, a self-insured defendant or employer, or any entity which receives proceeds from the settlement, including the plaintiff and his or her attorney.
In a suit against an insurance carrier to recover its MSP claim, CMS can seek double damages. A similar private right to sue the carrier for double damages is also granted under federal law to the WC claimant who is eligible for Medicare benefits.
Medicare’s claim, which is referred to by CMS as a “right of recovery,” is always first in line for repayment from settlement proceeds, even before any state Medicaid liens that may exist.
Medicare will reduce its claim to take into account the plaintiff’s costs and attorney’s fees in procuring the settlement. In addition, there are essentially three methods that can be employed to seek full or partial waivers of Medicare’s claim. The MSP claim can be either compromised or waived, pursuant to 31 U.S.C. §3711 (the Federal Claims Collection Act), under the MSP statute (42 U.S.C. §1395y(b)(2)(B)(iv)), or under 42 U.S.C. §1395gg(c).
The bases for a compromise under 31 U.S.C. §3711 are: 1) the claimant does not have the money to repay the claim within a reasonable period of time; 2) CMS would find it difficult to prevail on the claim in a court of law; or 3) the costs to CMS of collecting the claim exceeds the value of the claim. Under 42 U.S.C. §1395gg, claims can be compromised for economic hardship, for equity and good conscience, and for reasons beyond the fault of the claimant.
Under the MSP statute, claims can be waived, in whole or in part, if waiver is determined to be in the best interests of the MSP program. 42 U.S.C. §1395y(b)(2)(B)(iv). A denial of a waiver request under this provision is not appealable.
Medicare Set-Aside Arrangements
Under federal law, a worker’s compensation plan is a primary payer with respect to services also covered under Medicare. Medicare is not likely to make any secondary payments at all until all worker’s compensation benefits and remedies, including any lump sum settlement, have been exhausted by the beneficiary. (42 C.F.R. §411.43(b); 42 C.F.R. §411.46(b)(1).) The regulations also specifically provide that Medicare will not pay for any future medical expenses after a lump sum settlement is received until the total future medical expenses related to the employee’s injury equals the amount of the lump sum settlement which was allocated to future medical expenses. (42 C.F.R. §411.46(d)(2).)
Medicare will resist any attempt by the worker’s compensation carrier to shift liability for the claimant’s future medicals to Medicare. Because of Medicare’s requirement that no attempt be made to shift liability without reasonably considering Medicare’s interests, the first Medicare Set-Aside Trust was submitted to and approved by the Dallas Regional Office of HCFA (now CMS) in 1995. Since that time, Medicare Set-Aside Trusts and other Medicare Set-Aside arrangements, such as professionally administered and self-administered Medicare Set-Aside Custodial Agreements, have come to be recognized as the best vehicles for reasonably considering Medicare’s interests in worker’s compensation settlements.
Currently, CMS requires that every worker’s compensation settlement and a proposed Medicare Set-Aside arrangement must be submitted to CMS for approval whenever the settling claimant meets the following criteria: 1) The claimant is already a Medicare beneficiary and the total value of the settlement, including indemnity, exceeds $25,000; or 2) the claimant is reasonably expected to become eligible for Medicare within 30 months of the settlement and the total value of the settlement, including indemnity, is more than $250,000. In these cases, some part of the worker’s compensation settlement will need to be set aside to pay for future medicals until the requirements of 42 C.F.R. §411.46(d)(2) are satisfied and Medicare will again pay the claimant’s medical expenses.
In either a commutation or a compromise, the settlement must allocate an amount roughly equal to the amount of the lump sum settlement allocated to future medicals. (42 C.F.R. §411.46(d)(2).) When a Medicare Set-Aside Trust or other arrangement has not yet been created and the worker’s compensation settlement itself does not allocate a specific dollar amount or a specific percentage of the lump sum settlement to future medical expenses, the actual amount to be allocated can often be negotiated with CMS based upon projections of future medical expenses that would otherwise be covered by Medicare over the worker’s remaining life expectancy. The negotiated amount will not necessarily need to be equal to all future medical expenses, but must at least be sufficient to demonstrate that Medicare’s interest has been reasonably considered. CMS will require the beneficiary to place the negotiated amount into a Medicare Set-Aside Trust or other arrangement to insure that Medicare will pay future benefits once the set aside amount is gone. The earlier CMS can be involved in the settlement process, the better the prospects are for a reasonable set-aside amount.
In order to be able to safely complete any worker’s compensation settlement where the claimant meets CMS’s review criteria, it is necessary to secure CMS’s approval of the Medicare Set-Aside Trust or other arrangement and the amount to fund the arrangement before the settlement is finalized. To accomplish this, practitioners should involve CMS in the settlement process as early on as possible.
It is important to note here that every worker’s compensation case is different. Each claimant will have different needs. A proper Medicare Set-Aside Trust or Custodial Agreement must be customized to fit the individual needs of each worker’s compensation claimant. A so-called “form” trust or custodial agreement should never be used. No form can possibly cover every foreseeable contingency for every possible worker’s compensation claimant. Further, it is vital that the Medicare Set-Aside Trust or other arrangement be modified to consider Medicaid and tax consequences, depending on the circumstances of each individual case. (For example, where Medicaid eligibility is also an important settlement issue, a trust that also complies with federal and state Medicaid law must be used rather than a custodial agreement.)
More and more, life care planners and other medical professionals are going about the business of submitting worker’s compensation settlements to CMS for approval. Typically, their submissions are based solely upon what they project to be the claimant’s expected future medical expenses. For smaller settlements in situations that do not have complex legal or benefit eligibility issues, this is often adequate. However, these entities are not in the position to be able to draft custom trust or custodial documents; nor are they able to recognize and advocate complex legal and public benefit issues that may justify a smaller set aside amount or may require compliance with laws other than those governing Medicare. In larger and more complex settlements, a proper arrangement really requires the involvement of experienced counsel to prevent overfunding of the Medicare Set-Aside arrangement and to prevent potentially disastrous consequences outside of Medicare.
Medicare Secondary Payer Compliance – Step-by-Step
The following is a general description of the procedure recommended, on a step-by-step basis, for compliance with the Medicare Secondary Payer provisions regarding both conditional payments and payments for future medical expenses:
1. Begin by sending a comprehensive intake questionnaire and a “Consent to Release Medicare Information” form to the client in order to obtain complete information on the worker, the claim history and the settlement. Also request a copy of any life care plan, IME or comprehensive medical assessment.
2. Upon receiving the requested information, review this information and schedule a conference with the client to identify issues and recommend needed actions.
3. If the client wishes to engage to perform specific services in connection with settlement, send the client an engagement letter, quoting fees and outlining the services to be performed.
4. As soon as you are engaged, contact the Medicare Coordination of Benefits (COB) Contractor by telephone and send a copy of the Consent to Release Medicare Information form to the COB Contractor at the following address with a follow up request in writing to determine whether a Medicare secondary payer (MSP) claim exists:
MEDICARE – COB Contractor
MSP Claims Investigation Project
P.O. Box 5041
New York NY 10274-5041
(800) 999-1118
Provide the COB Contractor with the information it will require to initiate a search for a potential MSP claim and to identify the settlement and the claimant in Medicare’s Common Working File to prevent future overpayments. The COB Contractor will refer the matter to the Medicare Secondary Payer Recovery Contractor (MSPRC), who will develop the information on any conditional payments and pursue recovery of any MSP claim.
Follow up with the MSPRC:
Address liability or no-fault MSP recovery inquiries to:
MSPRC Auto/Liability
PO Box 33828
Detroit, MI 48232-3828
Address Workers' Compensation MSP recovery inquiries to:
MSPRC WC
PO Box 33831
Detroit, MI 48232-3831
If a Medicare secondary payer claim does exist, have experienced counsel negotiate with CMS to obtain appropriate reductions or compromises to the claim amount; and make arrangements to obtain a release from CMS upon satisfaction of the final claim amount out of settlement proceeds.
5. Perform a preliminary analysis of the case and, where the complexities of the case justify it, draft a preliminary analysis letter to the client. The preliminary analysis offers the client a projected range for funding of the Medicare Set-Aside Trust or other arrangement; pinpoints special issues in the case that require attention; identifies the type of arrangement (i.e., a trust or custodial agreement) that is recommended in the particular situation; and identify documentation that client will need to provide. That additional documentation will include copies of the Compromise & Release or settlement proposal; medical expense history for the claim and complete medical records for the past 2 years or from the date of injury if less than 2 years before; a statement regarding the client’s life expectancy or age rating. and any other information pertinent to the services you are being retained to provide.
6. Recommend preparation of a Medicare Set-Aside allocation report or cost projection to provide acceptable documentation to support the proposed Medicare Set-Aside arrangement and amount. This work should be referred to a life care planner or other medical professional with knowledge and experience in preparing medical care and cost projections under CMS’ policy guidelines.
7. Review the Compromise & Release agreement that describes the terms of settlement. If the C&R does not contain proper allocations between indemnity and future medical expenses, have an experienced MSA or special needs attorney advise WC counsel and recommend changes to the C&R.
8. Once settlement terms have been agreed to, although not necessarily finalized by the state workers’ compensation judge, have an experienced MSA or special needs attorney draft the Medicare Set-Aside Trust or Custodial Agreement based upon the information supplied in the initial intake questionnaire and in subsequent communications and documents.
9. Prepare a detailed history and analysis of the worker’s injuries, how they were incurred, what permanent disabilities have resulted, what medical services (and expenses) have been necessary in the past and, finally, what medical services (and expenses) related to the injury are likely to be in the future, based upon the remaining life expectancy of the worker. This history and analysis is usually based upon the Medicare Set-Aside cost projection or allocation report.
10. Have an experienced MSA or special needs attorney prepare a detailed “pleading” letter to CMS, outlining your analysis and the medical history of the claimant’s work related injury and treatments; exploring the legal issues in the case that may impact the reasonableness of the proposed Medicare Set-Aside amount; and requesting approval to fund the Medicare Set-Aside Trust or other arrangement with a proposed amount that the MSA team determines to be reasonable.
11. Send a draft version of a packet to the client for review and approval. The packet contains the history, analysis and proposal to CMS in written form; copies of necessary supporting documentation, e.g. a life care plan or Medicare Set-Aside Allocation report, medical expense history for the WC claim, etc.; a copy of the Medicare Set-Aside Trust or Custodial Agreement itself; and a copy of the proposed settlement agreement.
12. Once the packet of documents is approved by the client, prepare a final version and forward it to the COB Contractor at the following address:
CMS
c/o Coordination of Benefits Contractor
P.O. Box 660
New York, NY 10274-0660
ATTN: WCMSA Proposal
The COB Contractor then will forward the packet to the Worker's Compensation Review
Center Joint Venture. The WCRCJV will review the submission and forward it to the
appropriate CMS Regional Office with a recommendation for or against final approval.
13. If the parties have already obtained settlement approval from the appropriate state worker’s compensation agency, there may be a partial distribution of proceeds, but a prudent amount should be held back or set aside by the carrier or the claimant’s attorney to fund the Medicare Set-Aside Trust or Custodial Agreement upon approval by CMS. It is usually advisable to hold back funds in addition to the amount proposed to CMS in this situation in the event CMS requires a greater set-aside amount than originally proposed.
14. Follow up with the COB Contractor and WCRCJV to provide any further information or documentation that may be required and remain in touch periodically through the approval process.
Worker’s Compensation Review Center– Joint Venture
10830 Guilford Rd., Ste. 307
Annapolis Junction, MD 20701
Telephone: (240) 554-1200
15. In cases where CMS does not agree to the initial set-aside amount, have an experienced MSA or special needs attorney continue to communicate and negotiate with CMS to arrive at an amount that is reasonable. Obtaining CMS’s approval of the proposed settlement and Medicare Set-Aside Trust or other arrangement provides the safety and finality necessary to accomplish settlement and prevent future liability exposure for claims from CMS for future secondary payments by Medicare, while insuring that Medicare will pay for future medical expense once the set aside amount is spent.
16. Once CMS approval is obtained, forward the original Medicare Set-Aside Trust or Custodial Agreement to the funding party (usually the employer or carrier) along with a copy of CMS’s letter approving the set-aside proposal, and instructions to sign the Medicare Set-Aside Trust or Custodial Agreement (as “Settlor”) and return the signed originals with a check made out to the Trustee or Custodian in the amount to fund the trust or custodial agreement.
17. Forward the original Medicare Set-Aside Trust or Custodial Agreement and funding check to the Trustee or Custodian along with instructions to: 1) sign the Medicare Set-Aside Trust or Custodial Agreement; 2) fund the Medicare Set-Aside Trust or Custodial Agreement; and 3) return a copy of the signed Medicare Set-Aside Trust or Custodial Agreement and the original of the signed Receipt and Distribution form.
18. Counsel should send a letter to the trustee or custodian outlining the basics of the trustee’s or custodian’s duties and setting forth the criteria by which the trustee will need to administer the trust funds. For self-administered custodial agreements, counsel should provide a copy of CMS' guidelines for self-administration and an annual self-attestation form.
19. Send the Beneficiary a letter recommending consideration of the purchase of Medigap insurance, although the premiums for Medigap insurance may not be paid from the assets in the Medicare Set-Aside Trust or Custodial Agreement.
20. Once the final Settlement Agreement has been signed and approved by the state WC judge, obtain copies and forward them to the COB Contractor. At this point, the involvement of all but the MSA fiduciary ends.
21. A trustee or custodian will provide annual accountings to the appropriate CMS Medicare Lead Contractor; a claimant who is administering his or her own MSA submits an annual self-attestation letter. The trustee, custodian or self-administering claimant also provides a final accounting to that entity once the assets in the Medicare Set-Aside Trust or Custodial Agreement have been exhausted on the Beneficiary’s medical expenses.
22. Once the final accounting is provided to the appropriate CMS regional office and that accounting has been accepted by CMS, the claimant/Beneficiary can begin receiving Medicare benefits for treatment of work-related conditions.