FEDERAL BAILOUT? MSA STRATEGIES AND DEVELOPMENTS
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FEDERAL BAILOUT?
MSA STRATEGIES AND
DEVELOPMENTS
Presented and Prepared by:
Bradford J. Peterson
bpeterson@heylroyster.com
Urbana, Illinois • 217.344.0060
The cases and materials presented here are in
summary and outline form. To be certain of their
applicability and use for specific claims, we Heyl, Royster, Voelker & Allen
recommend the entire opinions and statutes be read PEORIA • SPRINGFIELD • URBANA • ROCKFORD • EDWARDSVILLE
and counsel consulted.
© 2009 Heyl, Royster, Voelker & Allen
J-1FEDERAL BAILOUT?
MSA STRATEGIES AND DEVELOPMENTS
I. MEDICARE SET-ASIDE OVERVIEW ...................................................................................................... J-3
A. Conditional Payments/Medicare Lien ................................................................................ J-4
II. RECENT DEVELOPMENTS ....................................................................................................................... J-4
III. MEDICARE SET-ASIDE STRATEGIES .................................................................................................... J-5
A. Physician’s Bailout ...................................................................................................................... J-5
B. Settlement/Dismissal Involving Multiple Claims ............................................................ J-6
C. Zero Allocation ............................................................................................................................ J-6
D. Concurrent Civil Claim .............................................................................................................. J-7
IV. SETTLEMENT BELOW THRESHOLDS .................................................................................................. J-7
V. MANDATORY MEDICARE REPORTING REQUIREMENTS............................................................ J-7
A. SCHIP Extension Act .................................................................................................................. J-7
B. Responsible Reporting Entities ............................................................................................. J-8
C. Registration .................................................................................................................................. J-8
D. Triggers to Reporting ............................................................................................................... J-9
E. Reporting Thresholds ............................................................................................................... J-9
1. Medical Expenses ........................................................................................................ J-9
2. Total Settlement ....................................................................................................... J-10
3. Closed Cases .............................................................................................................. J-10
F. Medicare Resources ............................................................................................................... J-11
J-2FEDERAL BAILOUT?
MSA STRATEGIES AND DEVELOPMENTS
I. MEDICARE SET-ASIDE OVERVIEW
The intent of the Medicare Secondary Payer Statute 42 USC § 1395y(b)(2) is relatively straight
forward. It provides that Medicare is not required to pay for medical services to the extent that
payment has been made or can reasonably be expected to be made under a workers’
compensation law or plan. See 42 CFR § 411. The Medicare Secondary Payer Act is administered
by the Center for Medicare and Medicaid Services which is a subdivision of the Federal
Department of Health and Human Services.
Where future medical care is reasonably anticipated for the work-related injury, a settlement
with a Medicare eligible claimant will need to protect Medicare’s interests under the Medicare
Secondary Payer Act. Where future medical care is reasonably anticipated, Medicare requires
that funds for future Medicare covered expenses be Set-Aside to pay for future medical bills
incurred as a result of the work related condition. These funds are referred to by the Center for
Medicare and Medicaid Services as “Set-Aside arrangements.” The Set-Aside should be funded
in an amount sufficient to pay for reasonably expected, causally related medical expenses for the
life expectancy of the petitioner. See CMS Memo (April 22, 2003) Q & A5.
If future medical treatment is not “reasonably anticipated” then a settlement may be reached
without an allocation for future medical expenses or a Medicare Set-Aside account. If future
medical treatment is not reasonably anticipated, then a written statement from the individual’s
treating physician should be acquired and state that future medical treatment is not reasonably
anticipated. See CMS Memos (April 22, 2003) Q & A20.
Set-Aside arrangements may be funded through lump sum payments and/or structured future
payments. Similarly, the Medicare Set-Aside account may be either independently administered
or self administered. Where self administered, Medicare requires that the claimant comply with
formal rules and requirements as to payments from the Set-Aside and accounting for those
payments. See CMS Memo (April 22, 2003) Q & A8.
Medicare approval for a proposed Medicare Set-Aside is required in two instances. If the
claimant is Medicare eligible they are deemed a Class I beneficiary and Medicare approval for
the Set-Aside is required where the total settlement is $25,000 or more. CMS states that the
total settlement amount for purposes of the threshold includes but is not limited to wages
(TTD), attorney’s fees, future medical expenses and repayment of any Medicare conditional
payments. CMS Memos (July 11, 2005) and (April 25, 2006). If the claimant is not currently
Medicare eligible but there is a reasonable expectation of Medicare enrollment within 30
months of the settlement date, then the CMS approval threshold is $250,000. These types of
future beneficiaries are referred to as Class II beneficiaries.
J-3Where Class I and Class II beneficiaries do not meet the respective thresholds, then Medicare
approval is not required for the Medicare Set-Aside. It is important to note, however, that CMS
considers these thresholds as “work load review” thresholds and not safe harbor thresholds. In
other words, although Medicare does not require approval for the Set-Aside amount, this does
not waive any of Medicare’s rights, including enforcement, under the Medicare Secondary Payer
Act.
A. Conditional Payments/Medicare Lien
If Medicare determines the workers’ compensation insurer will not pay promptly (within 120
days), providers and suppliers may submit claims to Medicare and Medicare will make a
conditional payment. This conditional payment becomes a Medicare lien with regard to the
pending workers’ compensation action. The Medicare Secondary Payer Act places a
responsibility on insurers to reimburse the government when it has paid conditional Medicare
benefits for an injured party. 42 USC § 1395y(b)(2)(B)(ii). The term “super lien” applies to
Medicare liens as the insurer is not entitled to notice from Medicare of the conditional payment.
Furthermore, it takes priority over other liens.
Medicare is subrogated to any right of an individual or entity to recover payment from an
insurer for medical bills. 42 USC § 1395y(b)(2)(B)(iv). Medicare also has the right to sue an insurer
in order to recover benefits they paid out that the primary insurer should have covered. In
addition to recovering reimbursement, they may also have a right to collect double damages
against the insurer. 42 USC § 1395y(b)(2)(B)(iii).
As Medicare is not required to give notice of conditional payments, it is incumbent upon
insurers and their counsel to identify any claims involving Medicare beneficiaries and in such
instances determine whether Medicare has paid any of the medical expenses related to the
workers’ compensation injury. Upon written request, Medicare will perform a conditional
payments search and confirm whether Medicare has paid any medical expenses and, if so,
identify the amount of their lien. Where Medicare liens exist, the settlement contract should
include language identifying the liens and confirming satisfaction of the lien through settlement.
Although an indemnification clause would provide a remedy for an insurer, the indemnification
clause will not be binding on Medicare. When satisfying a Medicare lien, payments should be
made directly to Medicare and not the claimant.
II. RECENT DEVELOPMENTS
In the last twelve months, CMS has issued additional Memoranda setting forth policy with
regard to Medicare Set-Aside accounts. In its Memorandum of May 20, 2008, CMS asserted that
the only life expectancy table they would recognize is the CDC Table 1 (All American Tables).
This was in response to some vendors relying upon highly conservative life expectancy tables in
an effort to reduce the amount necessary to fund the Medicare Set-Aside account. Medicare still
J-4recognizes, however, that parties may still calculate a Medicare Set-Aside amount based upon a
claimant’s rated age.
Prior to August 25, 2008, Medicare beneficiaries who had a change in condition such that future
medical treatment was no longer anticipated could petition CMS for the release of the Medicare
Set-Aside funds to the claimant. This policy changed with the CMS Memorandum of August 25,
2008. As of August 25, 2008, early termination of a Medicare Set-Aside account secondary to an
improved condition is no longer permitted.
The pricing for prescription drugs was addressed in CMS’s Memorandum of April 3, 2009. The
Memorandum provides that beginning June 1, 2009, all Medicare Set-Aside submissions must
calculate prescriptions utilizing the average wholesale price. After June 1, 2009, CMS will not
recognize any other pricing, discounting or calculation methods when determining the
adequacy of the prescription drug amounts in Medicare Set-Aside proposals.
Prior to 2008, all of CMS’s regional offices participated in the approval process for Medicare Set-
Aside proposals. The Center for Medicare Services has since reduced the number of regional
offices evaluating Medicare Set-Asides to six. The Chicago Regional Office of CMS still
participates in the review and approval of Illinois Set-Aside proposals. Additional regional offices
handling the review of Medicare Set-Asides are Boston, Philadelphia, Dallas, San Francisco and
Seattle. Regional offices in Denver, Atlanta, Kansas City and New York will no longer be handling
Medicare Set-Asides. The Chicago regional office, division for Medicare Set-Asides, can be
contacted at (312) 353-1801.
III. MEDICARE SET-ASIDE STRATEGIES
Several strategies may be considered when handling a workers’ compensation claim with
potential Medicare Set-Aside issues. Careful analysis must be undertaken as to whether the
Medicare Secondary Payer Act, in fact, applies to your claim and whether a Medicare Set-Aside
account must be established. One must always remain cognizant, however, that the Secondary
Payer Act includes enforcement and penalty provisions where it is determined the parties
improperly attempt to intentionally shift liability for medical expenses to Medicare. 42 CFR
§ 411.24(c)(2) (2006).
A. Physician’s Bailout
On many occasions claims handlers and attorneys overlook perhaps the most straight forward
issue in the Medicare Set-Aside analysis. That issue is whether future medical treatment is
reasonably anticipated. Oftentimes the analysis can be mired in addressing more complex
nuances of the Secondary Payer Act without first assessing whether future medical treatment is,
in fact, reasonably anticipated.
J-5In many cases involving the most serious injuries, the need for future medical treatment will be a
given. In many instances, however, establishing a Medicare Set-Aside account may not be
necessary as the possibility of future medical treatment does not meet the standard set by
Medicare. The standard is, in fact, whether future medical treatment is “reasonably anticipated.”
The standard is not whether the petitioner “might” need future medical treatment or whether
the petitioner “could” need future medical treatment. The standard is whether such future
treatment is “reasonably anticipated.” In my practice, I view the “reasonable anticipation”
standard as ‘whether it is more likely than not that the claimant will need future medical
treatment.’ In order to avoid establishment of a Medicare Set-Aside account, a statement from
the petitioner’s treating physician must be secured and set forth an opinion that future medical
treatment is not “reasonably anticipated” for the condition. When presenting the issue to the
treating physician it is best to inquire as to whether future medical treatment is reasonably
anticipated, i.e., is it more likely than not that the claimant will need future medical treatment.
B. Settlement/Dismissal Involving Multiple Claims
Oftentimes we face petitioners who have filed multiple claims for different accidents and
resulting injuries. Many such instances may involve some claims that are clearly compensable
while others are highly disputed. Furthermore, some of the claims may involve a likelihood of
future medical treatment whereas others may not. When presented with such situations,
consideration should be given to settling the claim(s) on that case where future medical
treatment is not reasonably anticipated. The claimant may have another claim where future
medical treatment is reasonably anticipated, but that claim could be dismissed with prejudice
without payment of any benefits. Remember, the need for a Medicare Set-Aside is only
triggered if there is a settlement closing out the petitioner’s future medical rights under the Act.
With a dismissal of such claims, there is no settlement involving that claim. Rather, proceeds are
paid on the separate claim where future medical treatment is not reasonably anticipated.
C. Zero Allocation
In claims where a substantial dispute exists as to compensability, one may consider a zero
allocation with regard to the Medicare Set-Aside trust. This strategy may prove successful in
those cases where substantial evidence exists in support of a defense of non-compensability. It
is most likely to be successful where evidence contradicts a causal connection between the
alleged injury and the workplace. In such instances, care should be taken to insure that the
vendor preparing the Set-Aside allocation is acutely aware of the disputed nature of the claim
and the need to acquire a “zero allocation proposal.” When thresholds are met the zero
allocation will be submitted to Medicare for their approval. Again, it will be incumbent upon the
vendor to highlight for CMS the disputed nature of the claim and the evidence in support of
non-compensability or lack of causal connection.
J-6D. Concurrent Civil Claim
There are rare instances in which a workers’ compensation claim can be resolved without
payment of future medical or permanent partial disability benefits. One such rare situation arises
when the claimant has a concurrent civil action on file for the occurrence leading to the work-
related injury. Thought should at least be given to a possible settlement of the workers’
compensation case with the only consideration being a waiver of the workers’ compensation
lien. The settlement would not be placed on settlement contracts and approved by the
Commission, but rather would be consummated with a written lien waiver and dismissal of the
pending workers’ compensation claim. Compensation for the petitioner’s “disability” and future
medical expenses would subsequently be funded through a civil verdict or settlement. A caveat
must be noted, however, as the Medicare Secondary Payer Act also applies to liability cases. 42
USC § 1395(y). Ultimately the insurers for settling defendants in the civil action would be
responsible for protecting Medicare’s interests.
IV. SETTLEMENT BELOW THRESHOLDS
When the need for a Medicare Set-Aside account has been determined, it must then be
evaluated as to whether the Medicare Set-Aside will need to be approved by CMS. Settlement
thresholds are established at $25,000 for claims involving current beneficiaries and $250,000 for
claimants who meet the standard for future beneficiaries. If the settlement value of the claim
(including the Set-Aside amount) is near one of these thresholds an effort should be undertaken
to get the petitioner to accept an amount below the applicable threshold. The benefit to the
petitioner is that he will not have to await receipt of settlement funds pending CMS approval of
the Set-Aside. Of course, the benefit for the respondent is a lower overall settlement amount.
V. MANDATORY MEDICARE REPORTING REQUIREMENTS
A. SCHIP Extension Act
The Medicare/Medicaid and SCHIP Extension Act, P.L. 110-173, 121 Stat. 2492, became effective
in December 2007. The new statute created mandatory reporting requirements for claims
involving Medicare eligible individuals. The statue places specific obligations on group health
plans, liability insurers (including self insurance), no fault insurers and workers’ compensation
insurers. These reporting requirements constitute a further effort by Medicare to enforce the
Medicare Secondary Payer Act. 42 USC § 1395y(b)(2). The reporting requirements will assist
Medicare in the enforcement of their liens and further protect Medicare’s interests with respect
to future medical expenses.
Section 111 of the Medicare/Medicaid and SCHIP Extension Act of 2007, contains the new
mandatory reporting requirements. Initially, on August 1, 2008, proposed guidelines were
published in the Federal Register, Volume 73 at 45013. CMS then published through their
website a “supporting statement for the Medicare Secondary Payer (MSP) Mandatory Insurer
J-7Reporting requirements . . .” http://www.cms.hhs.gov/MandatoryInsRep. It must be noted that
the supporting statement is a proposed guideline and amendments to the proposals continue.
Since August 2008, additional publications and alerts have been published by Medicare with
regard to the implementation process for the SCHIP Extension Act. These include the March 16,
2009, “Medicare Secondary Payer Mandatory Reporting User Guide version 1.0.
The entities responsible for complying with the reporting requirements for § 111 are referred to
as responsible reporting entities (RREs). Responsible reporting entities include, but are not
limited to, workers’ compensation, auto liability and liability insurers. The information provided
through the notice will allow CMS to identify “primary payers” that Medicare’s payments would
be secondary to. In addition to Medicare claims processing, the information is also acquired for
possible MSP recovery actions and identifying claims where Medicare may, in fact, hold a lien for
prior conditional payments. Notification to Medicare will be undertaken by the responsible
reporting entity and provided to the CMS coordination of benefits contractor (COBC). Technical
aspects of the data submission process will be managed by the COBC.
B. Responsible Reporting Entities
Responsible reporting entities are defined as follows:
In this paragraph, the term ‘applicable plan’ means the following laws, plans, or
other arrangements, including the fiduciary or administrator for such law, plan or
arrangement:
i. Liability insurance (including self insurance).
ii. No fault insurance.
iii. Workers’ compensation laws or plans.
42 USC 1395y(b)(8)(F)
Third-party administrators may be contractually assigned to meet the reporting requirements on
behalf of insurers or self insureds. Any contractual assignment by the RRE to a third party
administrator does not, however, limit the overall responsibility of the RRE for compliance with
the Act.
C. Registration
RREs are required to register with CMS and begin testing prior to June 30, 2009. Testing will be
undertaken through December 31, 2009, and compliance through the production of data will
begin in January 2010.
J-8D. Triggers to Reporting
The responsible reporting entities are to report only with respect to Medicare beneficiaries. If a
reported individual is not a Medicare beneficiary or CMS is unable to validate a particular SSN or
HICN then the reporting will be rejected by CMS.
Triggers to the reporting requirement also vary depending upon the type of primary plan
(insurance). For liability cases, the trigger will be the settlement, judgment, award or other
payment to a Medicare beneficiary. Claims will need to be reported regardless of whether or not
there is an admission or determination of liability. Once again, the obligation to report does not
exist if the claimant is not a Medicare beneficiary as of the assigned reporting date.
Claims involving workers’ compensation claimants will have an obligation to report when there
is an ongoing payment responsibility for medical expenses. Where the RRE has an ongoing
responsibility for medical bills, they must report two events. They must report when that
responsibility has been assumed and when that responsibility has been terminated. CMS has
indicated the RRE may submit a termination date for ongoing responsibility for medical (ORM) if
they acquire a signed statement from the injured individual’s treating physician that they will
require no further medical items or services associated with the claimed injuries. MMSEA Section
111 “Medicare Secondary Payer Mandatory Reporting User Guide version 1.0, March 16, 2009.”
E. Reporting Thresholds
1. Medical Expenses
Medicare publications refer to the insurer’s ongoing responsibility for medicals (ORM). For
liability insurance there is no diminumus dollar threshold for reporting the
assumption/establishment of ORM. All such claims will need to be reported.
For workers’ compensation claims the ongoing responsibility for medicals are excluded from
reporting through December 31, 2010, when all of these criteria are met:
a. “Medicals only.”
b. “Lost time” of no more than 7 calendar days.
c. All payment(s) has/have been made directly to the medical provider.
d. Total payment does not exceed $600.00.
Id.
For Illinois workers’ compensation claims please note that TTD would be paid after the three-day
waiting period. 820 ILCS § 305/8(b). If payment of TTD is commenced on the fourth day of the
claim, then the claim would not qualify for the exception under subsection (b) above.
J-92. Total Settlement
Medicare publications do not refer specifically to the “total amount of settlement” but rather to
the “total payments” obligations to the claimant (TPOC). See MMSEA Section 111 “Medicare
Secondary Payer Mandatory Reporting User Guide version 1.0, March 16, 2009.” Reporting
thresholds for liability and workers’ compensation with regard to the total payment obligations
to the claimant are as follows:
a. For TPOCs dates July 1, 2009 through December 31, 2010, TPOC amounts of
$.0.00 - $5,000.00 are exempt from reporting except as specified in “d”
below.
b. For TPOCs dates of January 1, 2011, through December 31, 2011, TPOC
amounts of $.0.00 - $2,000.00 are exempt from reporting except as
specified in “d” below.
c. For TPOCs dates of January 1, 2012 through December 31, 2012, TPOC
amounts of $0.00 - $600.00 are exempt from reporting except as specified
in “d” below.
d. Where there are multiple TPOCs reported by the same RRE on the same
record, the combined TPOC amounts must be considered in determining
whether or not the reporting exception threshold is met. For TPOCs
involving a deductible, where the RRE is responsible for reporting both any
deductible and any amount above the deductible, the threshold applies to
the total of these two figures.
CMS Alert for Liability Insurance (including self insurance), no fault, and workers’
compensation, March 20, 2009.
3. Closed Cases
If an insurer had an ongoing responsibility for medical (ORM) that was assumed prior to July 1,
2009, and continued as of that date then the RRE must report this individual. Medicare
recognizes, however, that RREs may not have collected necessary data elements for individuals
where responsibility was assumed prior to July 1, 2009. For these individuals an extension was
allowed until October 2010, to report. This extension only applies where the RRE has accepted
ongoing responsibility for medical after July 1, 2009, but the original claim resolution or partial
resolution was prior to July 1, 2009.
If the ORM was assumed prior to July 1, 2009, and the claim was actively closed or removed
from current claims records prior to January 1, 2009, the RRE is not required to identify and
report that ORM under the requirement for reporting ORM assumed prior to July 1, 2009. If,
J-10however, this claim is later reopened it then must be reported. CMS MMSEA Section 111
“Medicare Secondary Payer Mandatory Reporting User Guide version 1.0, March 16, 2009.”
F. Medicare Resources
Resources are available through the CMS website with regard to the SCHIP Extension Act and
reporting requirements. These resources include links to the MMSEA § 111 User Guide as well as
Memoranda regarding implementation of § 111.
http://www.cms.hhs.gov/MandatoryInsRep/Downloads/NGHPUserGuide031609.pdf
http://www.cms.hhs.gov/MandatoryInsRep/Downloads/NGHPInterim120508.pdf
http://www.cms.hhs.gov/MandatoryInsRep/03_Liability_Self_No_Fault_Insurance_and_Workers_C
ompensation.asp#TopOfPage
The website contains downloads of User Guide and Interim Record Layout of December 5, 2008.
Additional information can be found at http://www.medicareapproval.com.
J-11J-12
© Copyright 2006-2009 James M. Voelker • All Rights Reserved
Heyl, Royster, Voelker & Allen • Suite 600 • 124 SW Adams St. • Peoria, IL 61602 • (309) 676-0400 • www.heylroyster.comBradford J. Peterson
- Partner
Brad has spent his entire career with Heyl Royster Public Speaking
beginning in 1987, in the Urbana office. He became a • “Medicare Set-Asides and the SCHIP Extension
partner with the firm in 1997. Brad concentrates his Act”
practice in the defense of workers' compensation, Illinois State Bar Association Advanced
construction litigation, auto liability, premises liability Workers' Compensation Seminar 2008
and insurance coverage issues. In recent years, Brad • “Medicare Set Aside Issues and Update”
has become a leader in the field on issues of Medicare 22nd Annual HRVA Claims Handling Seminar
Set-Aside trusts and workers' compensation claims. 2007
He has written and spoken frequently on the issue. He • “Workers’ Compensation and Medicare Set Aside
was one of the first attorneys in the State of Illinois to Proposals”
publish an article regarding the application of the Illinois State Bar Association Hot Topics and
Medicare Secondary Payer Act to workers' Workers’ Compensation 2005
compensation claims: "Medicare, Workers' • “Aggressive and Successful Workers’
Compensation and Set-Aside Trusts," Southern Illinois Compensation Defense Strategies for Today’s
Law Journal (2002). Industrial Commission”
19th Annual HRVA Claims Handling Seminar
Brad is a member of the Champaign County, Illinois 2004
State, and American Bar Associations. He currently
serves on the Illinois State Bar Association Assembly Professional Associations
and has also served several previous terms. He has • Champaign County Bar Association
also been a member of the ISBA Bench and Bar • Illinois State Bar Association
Section Council and served as its chairman 2000-2001. • American Bar Association
Currently, he serves as a member of the ISBA Workers' • Illinois Association of Defense Trial Counsel
Compensation Council and is past editor of the
Workers' Compensation Section Newsletter. Court Admissions
• State Courts of Illinois
Significant Cases • United States District Court, Central District of
• West v. Kirkham, 207 Ill. App. 3d 954 (4th Dist. Illinois
1991) Recognized that trial court may find • United States Court of Appeals, Seventh Circuit
plaintiff contributorily negligent as a matter of • United States Supreme Court
law.
• Propst v. Weir, 937 F. 2d 338 (7th Cir. 1991) Education
Application of qualified immunity for university • Juris Doctor, Southern Illinois University, 1987
officials in First Amendment Retaliatory • Bachelor of Science (with honors), Illinois State
Transfer claim. University, 1984
Selected Publications
• "Medicare, Workers' Compensation and Set
Aside Trusts," Southern Illinois Law Journal
(2002)
• "Survey of Illinois Law-Workers'
Compensation," Southern Illinois Law Journal
(1991)
J-13 Learn more about our speakers at www.heylroyster.comYou can also read
