CMS Gets Serious About Non-Submit MSAs

Editor's Note: This article was updated on April 27, 2022 with the following information below, in bold:

In January, the Centers for Medicare & Medicaid Services (CMS) added a section on non-CMS approved Medicare Set Asides (MSAs) to its Workers’ Compensation Medicare Set Aside (WCMSA) Reference Guide, Version 3.5. Here’s an excerpt:

A number of industry products exist with the intent of indemnifying insurance carriers and CMS beneficiaries against future recovery for conditional payments made by CMS for settled injuries. Although not inclusive of all products covered under this section, these products are most commonly termed “evidence-based” or “non-submit.” 42 C.F.R. 411.46 specifically allows CMS to deny payment for treatment of work-related conditions if a settlement does not adequately protect the Medicare program’s interest. Unless a proposed amount is submitted, reviewed, and approved using the process described in this reference guide prior to settlement, CMS cannot be certain that the Medicare program’s interests are adequately protected. As such, CMS treats the use of non-CMS-approved products as a potential attempt to shift financial burden by improperly giving reasonable recognition to both medical expenses and income replacement.  

The addition spurred questions about whether CMS will really follow through and deny payment for Medicare beneficiaries with non-submit MSAs. Now, there is proof: CMS does deny payment in these cases. Here is a direct quote from a Jan. 13, 2022, letter CMS sent to a claimant Medicare beneficiary:

Because you did not seek prior review and approval by CMS of the amount set aside in your settlement for your future medical care, Medicare will not pay for the treatment of your work-related condition until you have demonstrated the appropriate exhaustion of your "net" settlement proceeds.

Instead of requiring only the MSA amount to be spent on injury treatment, the agency is requiring the entire “net” settlement to be spent on treatment. Net settlement refers to the amount of the whole settlement—future medical costs plus any compensation for lost time, permanency, medical bills, liens, and lost wages or future wage loss minus procurement costs. Procurement costs are attorney fees and other expenses related to obtaining the settlement. The following scenario illustrates this:

Parties settle a workers’ compensation case for $50,000 that includes a $10,000 non-submit MSA. Procurement costs are $12,000 of the settlement. This leaves a “net” settlement of $38,000.

The claimant Medicare beneficiary uses all of the $10,000 to pay for injury-related treatment post-settlement and still needs treatment. Medicare receives a bill for injury-related treatment. Because the injured worker decided to bypass the CMS WCMSA review and approval process, CMS says they must spend the rest of the settlement funds on injury-related medical care. That is, they must “exhaust the net settlement”—not just the $10,000—before Medicare would start paying for the injury-related treatment.

Through Section 111 reporting, CMS knows when settlements occur and the entire amount of the settlement. However, if that MSA is not submitted for CMS approval, the agency does not “recognize” the MSA, and the Medicare beneficiary has to use funds they had not expected to use for injury-related care.

The situation is quite different with a CMS-approved MSA when the injured person only has to spend all the money in the MSA for their injury treatment, and Medicare will cover future medical expenses related to the injury. Of course, denials are not an issue if Medicare does not receive a bill for injury-related treatment. 

The reference guide’s addition sparked so many questions and comments that CMS updated the guide again in March. Version 3.6 of the WCMSA Reference Guide introduced a post-MSA exhaustion review process. This allows a Medicare beneficiary/claimant to prove to CMS that the non-submit MSA was sufficiently funded and that the funds were spent appropriately. The guide did not address the criteria it would use to determine these or the documentation it would require.

CMS launched 2022 with a significant effort to assert what it believes is its right to claim the entire settlement amount, minus procurement costs, as available to pay for future injury-related medical costs when the settlement does not include a CMS-approved MSA. Parties to settlements where the CMS WCMSA review thresholds are met and the MSA is not submitted should be wary of the risks and educate injured workers about the hazards that non-submit MSAs pose. CMS is serious about protecting Medicare from costs it should not incur.