Current Medicare Set Aside Trends in Workers’ Compensation Settlements

By: Christine L. Hummel, Esq., President, Hummel Consultation Services

Medicare Set Asides (MSAs) can be the turning point on which settlement negotiations succeed or fail. Recent changes issued by the federal government have had significant impacts upon the way MSA issues are addressed by parties to a settlement, and have subsequently added to the confusion already surrounding the need to account for Medicare. This article will discuss some of the more significant changes and provide a practical basis by which some of the MSA issues can be resolved.

The Necessity for a Medicare Set Aside

On July 11, 2005 the Centers for Medicare and Medicaid Services (CMS) issued a Memorandum addressing the issue of when an MSA is required in a settlement. The memo stated that no “Safe Harbor” thresholds exist which would allow the parties to a settlement to avoid complying with the Medicare Secondary Payor Statute. The memo further stated that Medicare is “always secondary to workers’ compensation and other insurance such as no-fault and liability insurance. Accordingly, all beneficiaries and claimants must consider and protect Medicare’s interest when settling any workers’ compensation case.”

The impact of this memo was to close a common loophole derived from previous memos utilized by the workers’ compensation industry to avoid having to allocate any settlement funds toward an MSA. Prior to July 2005, a procedure known as the “two-part test” was used to determine the necessity of an MSA. This memo effectively redefined the two-part test and eliminated it as a practical consideration for MSA necessity. The thrust of the July 2005 memo makes it clear that CMS requires consideration of their interests in all workers’ compensation settlements.

Items of Inclusion in a Medicare Set Aside Allocation

The memorandums issued by CMS specifically indicate that the MSA must include all medical treatment related to the work injury that would otherwise be covered by the Medicare program. Typical included treatments in most workers’ compensation claims include office visits, diagnostic testing, physical therapy, replacement of durable medical equipment, and prescription medications. In addition, the MSA must include all items projected to occur in the future that have not yet happened.

The parties to the settlement cannot avoid payment for an anticipated surgery or other invasive treatment option simply by settling the claim before the item occurs. The emphasis of the MSA directly concerns those medically necessary treatments that are expected to occur in the future. Therefore, settling a claim to avoid payment for the anticipated treatment frustrates the purpose of the MSA and fails to adequately protect Medicare’s interests in the settlement.

Means exist by which specific items of inclusion in an MSA may be removed, thereby lowering the overall total of the MSA. One method concerns a reluctant claimant to a specific recommended treatment. If the claimant is reluctant to proceed with the recommended treatment, and due to this reluctance the parties do not want to include funding for the treatment, then the parties may attempt to justify removal by obtaining sufficient written evidence to support their decision. Individually, any of the following items all help to support this assertion, though the argument may have greater support if more can be acquired:

1. A letter written and signed by the claimant clearly stating that they do not intend to proceed with the treatment now or in the future,
2. A statement from the treating physician that the claimant is no longer a good candidate for the recommended procedure,
3. A statement from the treating physician confirming that the claimant has informed the physician of their choice not to proceed with the treatment option, that the choice to not proceed with the recommend treatment or procedure is a valid medical treatment choice, and that based on these statements from the claimant the physician will treat claimant conservatively or symptomatically from this point forward.

Use of this method of reducing the MSA carries important considerations. CMS has verbally stated that any letter from the claimant will be treated as merely a “factor” in CMS’s decision as to the adequacy of the MSA, and may not be given persuasive weight. CMS will however give more weight to a claimant’s statement if the claimant is of advanced age and if the procedure is considered “high risk.” For example, a statement from an eighty-year old male stating he does not wish to proceed with a triple-level lumbar fusion is likely to be given more persuasive weight than a letter from a thirty-five year old male stating he does not wish to proceed with total knee replacement procedure.

CMS’ position regarding claimant statements is that the claimant may change their mind regarding the treatment, and should they do so nothing legally prevents them from having the treatment, thereby prematurely depleting the MSA funds. Some parties attempt to add weight to the claimant statement by including in the settlement documents language specifically prohibiting the claimant from ever proceeding with the treatment. In general, from a federal perspective, merely having this statement in the settlement documents is not adequate to bar claimant from proceeding, therefore the settlement language alone is not enough justification to exclude the treatment from the MSA.

An additional consideration regarding the use of treatment statements concerns the authors of the statements. Claimant statements have already been discussed. The strength of physician statements hinges on the physician’s relationship to the claimant. CMS tends to give far greater weight to statements from the authorized treating physician than it does to an Independent Medical Evaluator (IME) or a physician obtained for a “second opinion.” For example, if an IME physician states that the claimant is not a good candidate for a fusion surgery, but the treating physician states that the claimant is an excellent candidate, it is likely that CMS will give greater persuasive weight to the treating physician’s opinion and thereby require the MSA to include funding for the surgery. It is believed CMS takes this position because a treating physician has a greater familiarity with the specific medical needs of the claimant.

Consideration of the CMS Review Thresholds

No federal regulation, statute, or case law exists mandating that an MSA allocation be submitted to CMS for review and approval. Although CMS strongly encourages submission of a proposed set aside for approval, the July 2005 memo installed limitations upon when such approval may be requested. These limitations are now known as the “workload review thresholds.”

CMS defines two workload review threshold tests: one for Medicare-eligible persons and another for those not eligible at the time of settlement. If the claimant is eligible for Medicare at the time of settlement the only qualification is that the total value of the settlement must exceed $25,000.00.

If the claimant is not yet eligible for Medicare the qualifications are as follows; both parts of this test must be satisfied before CMS will review the proposal:

1. A reasonable expectation that the claimant will be eligible for Medicare within the next thirty months; AND
2. The total value of the settlement must exceed $250,000.00.

When computing the total value of the settlement for either threshold test, the following variables must be included in the calculation: reimbursement of any potential Medicare lien, attorney fees and costs (although not defined, it is presumed to be the claimant’s attorney), the total payouts (not the purchase price) of any annuity regardless if the stream of payments is intended to reimburse the claimant for wages or medical expenses, and any past workers’ compensation settlement funds previously paid on the claim.

Regarding the reasonable expectation of Medicare eligibility within thirty months, the following are examples of what constitutes a reasonable expectation:

1. The claimant is presently 62.5 years old,
2. The claimant is currently applying for Social Security Disability benefits,
3. The claimant is currently appealing a denial of their application for Social Security benefits.

Avoiding the Necessity for an MSA

It is important to remember that the July 11, 2005 CMS memo clearly states that there “is no safe harbor” that would allow the parties to exclude an MSA from their settlement. In practice, however, two situations exist by which the MSA requirement may be circumvented. Use of these situations is commonly referred to as utilizing a “zero-dollar” MSA.

The first situation is when the claimant has been fully discharged from treatment for the work related injury. The April 22, 2003 CMS Memo indicates that if the claimant has been fully discharged from treatment by the treating physician and the settlement does not intend to compensate the claimant for future medical expenses, then no MSA is required. However, the statement from the treating physician must be a clear and unambiguous discharge from all future care associated with the work injury. If the discharge statement indicates that the claimant should return as needed or if their symptoms return, this is not considered by CMS a full discharge from care and a nominal MSA should be established to account for the possibility that claimant may require additional medical care in the future.

The second situation is when a claim has been fully disputed or the claim is now denied by the carrier after an investigation revealed a defect in the claimant’s claim to workers compensation benefits. Disputed or denied claims are always a little tricky and even in the best of circumstances CMS may still require a nominal MSA to ensure the Medicare program is protected. If CMS disagrees with the proposed $0.00 MSA allocation, CMS will allocate an MSA it feels is reasonable. Unless CMS makes an egregious error in interpreting either the legal or medical evidence presented, the parties typically have very little recourse to request reconsideration and may be compelled to settle the claim inclusive of the MSA recommended by CMS. If a zero-dollar allocation is being considered by the parties, it is good practice to always send this proposal to CMS for review.

This article has only briefly addressed the many potential issues surrounding Medicare Set Aside allocations. For additional information regarding MSA issues please contact Christine Hummel at (603) 758-1410 or christine@hummelcs.com.