Choose Your Path

The Medicare Secondary Payer (MSP) Act is no doubt a substantial consideration for parties seeking to settle future medical obligations in workers’ compensation and property and casualty claims.

Whether monies need to be set aside in each settlement to “protect Medicare’s interest” can be an ambiguous question among the settling parties. Furthermore, circumstances surrounding the nature of the underlying claim, the total amount of the settlement, and the injured person’s life expectancy and future needs all can make the future settlement picture more confusing. Additionally, claims payers may have different risk tolerances and budget objectives with settlement.

Workers’ Comp Versus P&C

In some respects, the path for protection of Medicare’s future interest in workers’ compensation claims is a clearer path compared to property and casualty claims. The Centers for Medicare & Medicaid Services (CMS) has set forth a voluntary process and procedure for review of Workers’ Compensation Medicare Set-Aside Arrangements (WCMSA) since 2001. If the workers’ compensation settlement involves a Medicare beneficiary and the total amount of the settlement is greater than $25,000, then Medicare will review a proposed WCMSA. Further, if the injured worker has a “reasonable expectation” of Medicare entitlement within 30 months of the settlement, and the total amount of settlement is greater than $250,000, CMS will also review a proposed MSA. If these review thresholds are not met, then parties can include a non-submitted WCMSA with their settlement if they so choose.

On the flip side, in property and casualty claims (known in the MSP/Medicare world as general liability claims), the path to protection of Medicare’s interests is more nebulous. There is no clear direction or review procedure by CMS for review of Liability Medicare Set-Asides (LMSA). However, since 2012, CMS has been sending warning signals that it would soon provide parameters/guidelines around LMSAs. The contractor at CMS that reviews WCMSAs—the Workers’ Compensation Review Contractor (WCRC)—is currently contracted to review LMSAs once CMS sets forth a procedure for its review of such. Further, CMS has flirted numerous times over the last decade with setting forth a legislative rulemaking on MSP and future medicals as they relate to general liability claims. Most recently, although delayed several times, the Office of Management and Budget (OMB) website listed that the intent to set forth a proposed rule on MSP and future medicals was set for February 2022. Whether this rulemaking will move forward in 2022 is not known for sure, but as a 2012 Government Accountability Office (GAO) study directed CMS to provide guidance on LMSAs, we know it is an eventual task for CMS to check off its to-do list.

Different Paths

What are the varying paths to future medical allocations in both workers’ compensation and general liability settlements? Arguably parties have a choice between submission to CMS versus non-submission, lump sum or annuity funding for the MSA, or professional administration or self-administration. The remainder of this article will cover these varying paths and which circumstances might dictate the benefit of the usage of these tools.

Submit/Non-Submit. Proponents of non-submits cite that CMS’s allocation methodology provides for a “worst case scenario,” resulting in over-funding due to not considering, among other things, weaning or tapering of treatment; defaulting instead to inclusion of certain unlikely high-cost items/services and extrapolating a current course of treatment over the entire lifetime of an individual. In a recent update to the WCMSA Reference Guide, CMS took a policy stance that the agency views non-submit MSAs as a potential cost-shift. It should be noted, however, that CMS submission, as indicated above, is an entirely voluntary process.

Advocates of CMS submission point to the certainty obtained by the agency when receiving an approved MSA figure. When an MSA is submitted and approved, CMS stands behind the allocation figure and, assuming proper expenditure of funds and resulting attestation reporting, Medicare will step in as primary once the MSA funds have exhausted.

Risk management and cost-containment are the primary factors behind the decision-making process in this arena. Claims payers have developed approaches to incorporating both into programs, while others have maintained adherence to one or the other. Determining which method will predominate likely will hinge on the actions by CMS and how any potential denials are resolved through the appeals process.

Annuity/Lump Sum. A central decision in future medicals is determining how to fund an MSA: whether lump sum or structured annuity. Most MSAs are funded via structure given the potential cost-savings and extending the life of the MSA fund. In any given year, if the account temporarily depletes in between annual funding periods, Medicare will pay primary—assuming attestation occurs that reflects proper expenditure. Lump-sum funding is self-explanatory and simply involves a single up-front payment. In certain low-dollar MSAs, there may be short-term advantages to lump-sum funding when utilization is expected to exhaust the account quickly.

Professional Administration/Self-Administration. One of the most important decisions in settling a claim with future medicals is determining how the MSA will be administered. For all the thought, expense, and effort that went into the MSA, if the funds are mismanaged, then all is for nothing. Individuals are permitted to administer their own MSA. However, CMS “highly recommends” professional administration in general—and, specifically, they highly recommend it when an individual has been prescribed frequently abused drugs, i.e., opioids and benzodiazepines.

A professional administrator handles CMS compliance obligations, including ensuring funds are utilized towards Medicare-covered items causally related to the underlying industrial injury, as well as record-keeping and attestation reporting requirements. Attestation reporting involves transmitting an annual accounting of expenditures and balances to Medicare, evidencing proper administration of the funds. Moreover, professional administrators may be aligned with network partners to avail individuals to potential discounted prescription drugs and treatments, thereby extending the life of the fund.

In an ever-changing landscape, boiling down compliance to key decisions and understanding the ramifications and risks/benefits will provide settling parties with better outcomes. These key decisions will be that much more important when it comes to dealing with any potential regulatory changes on the horizon.