Introduction – WCMSA

If you have decided to self-administer your CMS-approved Workers’ Compensation Medicare Set-Aside Arrangement (WCMSA), this Toolkit can help you manage your account appropriately and satisfy Medicare’s interests related to future medical care. Following this Toolkit will also ensure that if you are entitled to Medicare and you have Medicare-covered and otherwise reimbursable (“Medicare covered”) costs related to your workers’ compensation (WC) claim, Medicare will pay those costs when your WCMSA is used up (“exhausted” or “depleted”).

Every year, no later than 30 days after the anniversary date of your Workers’ Compensation settlement, you must send an attestation to Medicare’s Benefits Coordination & Recovery Center (BCRC) stating that you have used the funds in the account correctly. An attestation is a signed statement: you are “attesting to” your appropriate use of the money. You can find the BCRC’s contact information in the Where to Get Help section of this Toolkit.

You will use the letter titled “Workers’ Compensation Medicare Set-Aside Arrangement (WCMSA)—Account Expenditure for Lump-Sum” or “Workers’ Compensation Medicare Set-Aside Arrangement (WCMSA)—Account Expenditure for Structured Account.” You must do this even if you are not yet a Medicare beneficiary. The attestation will include:

Billing Guidelines for WCMSA arrangement

The CMS considers whether the amount allocated for future medical expenses is reasonable. In addition, the repayment of conditional payments made by Medicare should be taken into account. Consequently, CMS considers the following criteria when reviewing Workers’ Compensation Medicare Set-aside Arrangement (WCMSA):

  1. Date of entitlement to Medicare.
  2. Basis for Medicare entitlement [disability, End-stage Renal Disease (ESRD) or age] — If the claimant has entitlement based on disability and would also be eligible on the basis of ESRD, this should be noted since the medical expenses would be higher. This would also be true for claimants who are over 65, but had been entitled prior to attaining that age.
  3. Type and severity of the injury or illness– Obtain diagnosis codes so injury or illness related expenses can be identified. Is full or partial recovery expected?
    What is the projected time frame if partial or full recovery is anticipated? As a result of the accident is the claimant an amputee, paraplegic or quadriplegic? Is
    the claimant’s condition stable or is there a possibility of medical deterioration?
  4. Age of the claimant– Acquire an evaluation of whether his/her condition would shorten the life span.
  5. Workers’ Compensation (WC) classification of the claimant (e.g., permanent partial, permanent total disability, or a combination of both).
  6. Prior medical expenses paid by WC due to the injury or illness in the one or two year period after the condition has stabilized—Any conditional payments made by Medicare must be recovered. Also, this would indicate that the case may not purely be a commutation case, but may also entail some compromise aspects, e.g., the WC carrier or agency may have taken the position that the services were not covered by WC.
  7. Amount of the lump sum or structured settlement– Obtain as much information as possible regarding the allocation between income replacement, loss of limb or function, and medical benefits.
  8. Whether the commutation is for the claimant’s lifetime or for a specific time period? If not for lifetime, please provide basis.
  9. Whether the claimant is living at home, in a nursing home, or receiving assisted living care, etc. If the claimant is living in a nursing home, or receiving
    assisted living care, it should be determined who is expected to pay for such care, e.g., WC (for life time or a specified period) from the medical benefits
    allocation of lump sum settlement, Medicaid, etc.
  10. Whether the expected expenses for Medicare covered items and services are appropriate in light of the claimant’s condition?– Estimated medical expenses should include an amount for hospital and/or SNF care during the time period for the commutation of the WC benefit. (Just one hospital stay that is related to the accident could cost $20,000). For example, a quadriplegic may develop decubitus ulcers requiring possible surgery, urinary tract infections, kidney stones, pneumonia and/or thrombophlebitis. Although each case must be evaluated on its own merits, it may be helpful to ascertain for comparison purposes the average annual amounts of Part A and Part B spending for a disabled person in the appropriate State of residence. Keep in mind that these Fee-for-Service amounts are for all Medicare covered services, while our focus here only deals with services related to the WC accident or illness. Therefore, the RO should use appropriate judgment and seek input from a medical consultant when determining whether the amount of the lump sum or structured settlement has sufficiently taken Medicare’s interests into account.

Making Sense of Medicare Set-Asides

Political and popular pressure to preserve the Medicare Trust Fund is mounting. The population of beneficiaries that Medicare is intended to cover–older people and the severely disabled1 –is on the rise. Statistics about the growing number of retiring baby boomers are now cliché. At least 54 million Americans are disabled and more than 41 million receive Medicare.

To reduce Medicare costs, Congress enacted a collection of statutory provisions in the 1980s called the Medicare Secondary Payer, or MSP, statute, largely in recognition that workers’ compensation carriers should be the primary source of medical insurance coverage for people injured on the job.3 The statute says the government serves as a secondary insurance provider when another source of primary coverage exists.

Interpreting the statute’s requirements, however, can be difficult, and critics say the system is inefficient and the law has not succeeded in substantially lowering Medicare costs. As early as 1990, one U.S. senator commented, “Failure to follow the MSP law is costing the taxpayer billions of dollars,” and as recently as 2003, a court was still citing the senator’s statement as relevant.4

Medicare’s role undeniably is evolving. In December 2003, President Bush signed the Medicare Prescription Drug, Improvement, and Modernization Act,5 which further defined Medicare’s recovery rights and clarified its enforcement powers. As a result, no matter how a particular settlement agreement is worded and no matter whether the tortfeasor is covered by a commercial insurance plan or a self-insured plan, or is just paying the claim out of its general assets, any payments Medicare makes are considered conditional. The Centers for Medicare and Medicaid Services (CMS) has a right to seek recovery “against any entity, including a beneficiary, provider, supplier, physician, attorney, state agency, or private insurer that has received any portion of a third party payment directly or indirectly” if those third-party funds–rather than Medicare–should have covered injury-related medical expenses.6 The plaintiff attorney and defendant can be held responsible for twice the amount owed to the agency.7 Complicating matters, a plaintiff lawyer cannot wait to receive a notice of a potential claim from CMS before taking action. The agency is not required to give notice, so lawyers must proactively identify, verify, and satisfy Medicare’s interests before distributing any settlement proceeds. Medicare’s right to reimbursement is superior to almost all other claims, including those of the injured individual.8

While the Medicare Prescription Drug Improvement and Modernization Act erased all doubt regarding a lawyer’s affirmative duty to verify and resolve conditional Medicare payments made from the date of injury through the date of settlement, some issues remain unclear. Do Medicare’s interests extend beyond settlement? Does Medicare require parties who settle liability claims to calculate a “set-aside” amount that the injured client must spend on injury-related care before Medicare picks up the tab again?

Personal injury lawyers, frustrated with growing Medicare-related requirements, also legitimately may be asking, How did I get left holding the bag? After all, isn’t protecting Medicare’s interests a statutory obligation shared equally among attorneys, defendants, beneficiaries, and insurance companies?

Some fundamental principles of §301 of the Medicare Prescription Drug Improvement and Modernization Act are important to comprehend. First, Medicare does not pay for any medical services for which payments have been made, or can reasonably be expected to be made promptly, under a workers’ compensation law or insurance plan. Second, §301 makes clear: “A primary plan, and an entity that receives payment from a primary plan, shall reimburse [Medicare] . . . if it is demonstrated that such primary plan has or had a responsibility to make payment with respect to such item or service.”10

Basically, if another source of coverage is immediately available for someone’s injury-related care, he or she should use it. If no other source of coverage is available (and the person is eligible for Medicare), Medicare will begin paying for injury-related care. But if some other source of funding is later found that should have been paying all along, Medicare gets repaid for past expenses–and perhaps is let off the hook for future expenses while such funding continues.

In the workers’ compensation arena, this means that if a workers’ comp carrier is settling its future obligation to pay for injury-related care, the settlement must properly recognize the shift of this future burden to Medicare by allocating a portion of the settlement proceeds to cover those costs of care.11 Medicare does not pay for care– before or after a settlement–until the beneficiary has exhausted his or her remedies under workers’ compensation. This includes spending the portion of any settlement earmarked for future medical expenses.

If a settlement does not specifically account for separate past and future injury-related medical expenses, CMS will consider the balance remaining after addressing the Medicare reimbursement claim for past payments to be entirely for future medical expenses.14 If no allocation is made for future expenses, Medicare will not pay until the entire settlement is exhausted.

With a Medicare set-aside, however, the claimant does not have to spend the whole settlement before Medicare resumes payment.15 The set-aside acts as the primary coverage for post-settlement treatment–an amount the beneficiary must spend before Medicare picks up the tab.

A properly administered Medicare set-aside should pay for reasonable injury-related medical expenses, including doctor bills, hospital care, skilled and intermediate care, skilled rehabilitation, home health care, hospice care, durable medical equipment, and any other items or services that would otherwise be covered by Medicare. Setaside proceeds should not be used for items that are not ordinarily covered by Medicare, such as some prescription medications and attendant care costs.16

Medicare Part D

Medicare’s recently expanded coverage directly translates into expanded reimbursement obligations for plaintiff attorneys and their Medicare-entitled clients, creating a “bigger bite” of the proverbial apple for Medicare and further eroding the clients’ net proceeds. Before December 31, 2005, Medicare’s interest was focused only on the reimbursement of injury-related care in the form of primary physician care and hospital treatment. Effective January 1, 2006, Medicare expanded its reimbursement interest to include prescription drugs under its Part D program. Unquestionably, this change further complicates Medicare’s role in all settlements.

As the scope of Medicare’s recovery rights evolves, the form of the recovery process also will become more complicated. Via the Medicare Secondary Payer Division of CMS, Medicare recovers its past “conditional” payments for Part A and B injury-related care by outsourcing the recovery effort to the Coordination of Benefits office–which, in turn, appoints one of the approximately two dozen lead contractors (fiscal intermediaries) to work the file.

However, Part D is covered by a different entity: Prescription Drug Plans (PDP). PDP is similar to Medicaremanaged plans (supplemental and replacement plans) and has a similar yet separate right of recovery. Based on recent discussions with CMS officials, this author understands that reimbursement for Part D coverage (prescription drugs) will be addressed through an additional, separate recovery effort.

In other words, PDP will share the same recovery right as Medicare-managed plans but will need to seek recovery on its own, rather than working in concert with the traditional Medicare recovery effort. Consequently, future personal injury settlements involving Medicare beneficiaries will require consideration of two reimbursement obligations: diagnosis codes related to the primary injury and prescription drugs associated with the management of the injury (such as drugs for disease treatment and pain management).

The impact of Part D doesn’t end there. In addition to Medicare’s recovery of injury-related prescription drug treatment from the date of injury to the date of settlement, CMS is also adding the future costs of injury-related prescription drug coverage to allocations crafted for Medicare set-asides. In a December 30, 2005, memorandum, CMS commented that all workers’ compensation settlements that occur on or after January 1, 2006, must consider and protect Medicare’s interests when future treatment includes prescription drugs and future medical services that would otherwise be reimbursable by Medicare.17 CMS noted in the memorandum that its review process of Medicare set-aside proposals will not change until it begins to independently price prescription drug treatments for the set-asides it receives on or after January 1, 2007. Until that review of future prescription drug treatment begins, CMS will continue to review and independently price future Medicare-covered medical expenses in set-asides by following its published policy memoranda.

Calculating the set-aside amounts
The general standard for calculating a set-aside is a “reasonable allocation.”18 Set-aside calculations are determined by evaluating the client’s past course of medical treatment, current condition, future medical needs, life expectancy, and other factors. Some practitioners, however, are concerned that CMS holds all the cards when measuring reasonableness–no future procedure is discounted, and any future expense that is “reasonably probable” will be included, regardless of the chance that the procedure will be needed. This process does not provide an objectively reasonable way to consider the present value of the cost of future procedures.

Requirement or recommendation?

Apparently, allowing CMS to review and approve a workers’ compensation settlement is the only way to ensure that Medicare will deem its interests adequately protected. But, as Welch noted, beyond the Patel memorandum, nothing in the case law or the published regulations requires parties to seek approval of set-aside calculations before settlement.

In any case, a Medicare beneficiary (whether setting aside settlement proceeds or not) must document the use of settlement proceeds for appropriate medical expenses before Medicare will resume payment. Although CMS approval of the set-aside calculation may not be required, it helps avoid problems with future Medicare coverage. It also ensures that only a predefined portion of the settlement–rather than the entire settlement–must be spent before Medicare takes over payment again.

If CMS approves the set-aside, you can be certain Medicare will resume primary coverage after the claimant demonstrates that the set-aside proceeds were properly depleted. While such certainty gives some peace of mind, obtaining it often comes at a price of additional time and money. Parties are forced to accept CMS’s methodologies for calculating the set-aside without any right of appeal, and the agency may take six months or longer to review and approve the calculations submitted.

Common-sense solutions could include new legislation requiring CMS to publish regulations and example-based guidelines and occasional audits to ensure compliance–as the IRS does with the tax code. CMS also could consider giving injured people the option to reimburse Medicare in one lump sum–the present value of the Medicare set-aside–at the time of settlement. Certainly, this would ameliorate much of the present problem associated with forcing injured parties to deal with the ongoing responsibilities, costs, and reporting requirements associated with set-aside accounts.

Not everyone is crediting CMS memoranda with the force and effect of regulations. For example, in a recent complaint against the Department of Health & Human Services/CMS in Colorado, a Colorado law firm and a settlement consulting firm argued that CMS approval of a set-aside is not required and that the approval process, as currently implemented, may be unconstitutional.25 In general, parties who have argued against the approval process note that the Medicare regulations have been vetted through a standard process, but the CMS memoranda have not. Parties have argued that certain assertions made in the July 2005 memo appear to contradict the plain language of the MSP statute.

Other parties have challenged the lack of due process. For example, the July 2005 memo states that no appeal process exists for a Medicare-entitled beneficiary who disagrees with CMS’s determination. Also, parties have argued that the agency unconstitutionally shifted to the claimant the burden of proving that the set-aside was
funded in the amount CMS specified. This challenge is based on the proposition that CMS does not have the authority to determine one “appropriate” amount and then require the parties to a settlement to either pay that exact amount or have the settlement disregarded.

To date, none of these common-sense solutions have been considered, and none of the challenges has succeeded. Like so many government agencies that operate in a vacuum, CMS may be trapped in its own depths and not unaware of its limited perspective.