You’ve settled the file, taken Medicare’s interests into account by having a Medicare Set-Aside (MSA) put together, sent it to the Center for Medicare and Medicaid Services (CMS) for approval, and received CMS approval. You are done, right? You can put the file away and know it will never come back to haunt you.
Not so fast. What if the claimant is unable to manage his own funds? What if the claimant has an appointed guardian or has been declared incompetent? What if the ongoing medical treatment expected is lengthy, complicated, or difficult to price? What if the claimant has moved or anticipates moving to another state and as a result new physicians are or will be involved, demanding a different fee than originally anticipated? What if the account value is such that the potential for improper use is a worry for all involved? What if the claimant has a very limited educational experience or is unable to read/write in English?
Have the parties really taken Medicare’s interests into consideration by allowing individuals with such limitations to self administer such an account? In all of these circumstances, the preferred method of administrating such MSA accounts is through a professional administrator or custodian.
The following is an introduction to the role of the professional administrator when dealing with MSA accounts. It is presented not as legal advice or counsel, but rather as educational in purpose, designed to assist all parties involved with the determination of when to hire a professional administrator to administer the MSA account.
MSPs and MSAs
The Medicare Secondary Payer (MSP) laws provide that Medicare shall not make payments with respect to any item or service to the extent that payment has been made, or can reasonably be expected to be made, under a workers’ compensation law or plan of the U.S. or a state under an automobile or liability insurance policy or plan, including a self-insured plan or under no-fault insurance.
In order to recover payment under the MSP laws for such items or services, the government may bring an action against any entity that is required or responsible to make payment (first party, third-party administrator, or otherwise) with respect to such items or services or any portion thereof under a primary plan and may, in accordance with paragraph (3)(A), collect double damages against that entity. It may also bring action against any other entity, such as a physician or provider, that received payment from that entity with respect to the items or services, and may join or intervene in any action related to the events that gave rise to the need for the items or services.
Therefore, if CMS determines that the parties’ settlement represents an attempt to shift responsibility from the responsible primary party/carrier to Medicare, CMS can disregard the settlement provisions. Consequently, if the parties are settling a claim where there is a reasonable expectation that Medicare-covered medical attention will be needed in the future, the parties must make a reasonable allowance for such future projected medical costs.
If such an allowance is not made in the form of an allocation or set-aside arrangement, Medicare may claim the entire settlement amount as an allowance for medicals, meaning that Medicare will pay no benefits to the claimant for any medical services that may be linked to the claimed or resulting injury until the entire settlement amount is exhausted.
CMS Policy on Administration of MSAs
CMS policies created through published memorandums since 2001 restrict the use of MSA funds. Payment of fees for trustees, custodians, and administrators, as well as those of any other professionals engaged to assist in the administration of the MSA—including any medical claims administrator or third-party administrator—may not be made from the funds in the MSA. Separate arrangements must be made for payment of such fees as part of the settlement or independently. Also, the funds in the MSA may not be used to pay premiums for Medicare supplemental insurance (“Medigap”) for the beneficiary.
An MSA administrator is required to account to CMS annually for all deposits and expenditures. Trustees and professional custodians administering MSAs are also required to submit an accounting to both the beneficiary and to the appropriate Medicare lead contractor, indicating and verifying that to the best of their knowledge, all expenditures were for the accident-related medical expenses and of the type normally covered by Medicare. Below is a summary of the published memorandums.
A claimant may self-administer his own MSA, if permitted under state law. It should be noted, though, that a self-administered arrangement is subject to the same rules/requirements as any other set-aside arrangement. (4/21/03 Memo Q8)
MSAs can also be administered by a competent administrator (the representative payee, a professional administrator, etc.). When a claimant designates a representative payee, appointed guardian/conservator, or has otherwise been declared incompetent by a court, the settling parties must include that information in their MSA arrangement proposal to CMS. (10/15/04 Memo Q2)
In professional administrative situations, the administrator of the set-aside arrangement must forward annual accounting summaries concerning the expenditures of the arrangement to the CMS Medicare contractor responsible for monitoring the individual’s case. Additionally, the Medicare contractor is responsible for verifying that no payments from Medicare are made for medical expenses related to the injury or illness/disease until the MSA is exhausted. (7/23/01 Memo Q3)
Administrative fees/expenses for administration of the MSA and/or attorney costs specifically associated with establishing the MSA cannot be charged to the set-aside arrangement. CMS will no longer be evaluating the reasonableness of any of these costs because the payment of these costs must come from some other payment source that is completely separate from the MSA funds. (5/7/04 Memo)
If a claimant receives a Form 1099-INT for the interest income earned on his MSA account, the claimant or his administrator may withdraw an amount equal to the additional tax as a “cost that is directly related to the account” to cover the additional tax liability. This assumes that there is adequate documentation for the amount of incremental tax that the claimant must pay for the interest earned on this MSA. Moreover, such documentation should be submitted along with the annual accounting. (7/11/05 Memo Q6)
The administrator of a CMS-approved MSA should not release set-aside funds for any purpose other than the purpose for which the MSA was established without review from CMS. However, prior to Aug. 25, 2008, if the treating physician concluded that the claimant’s medical condition had substantially improved, the claimant (or the claimant’s representative) was allowed to submit a new MSA proposal warranting a reduction in future expected medical expenses that would justify at least a 25 percent reduction in the outstanding MSA funds. This July 11, 2005, memorandum entitled “Beneficiaries that Request Termination of a MSA Account,” was rescinded on Aug. 25, 2008. (7/11/05 Memo Q10 and 8/25/08 Memo)
Once the regional office (RO) and the contractor responsible for monitoring the claimant’s case verify that all claims have been paid, the amount left in the claimant’s MSA may be disbursed pursuant to state law. This may involve holding the MSA open for some period after the date of death, as providers, physicians, and other suppliers are permitted to submit their initial bill to Medicare for a period ranging from 15-27 months after the date of service. (4/21/03 Memo Q21)
Items and Services Not Covered by Medicare.
If the contractor monitoring the case discovers that payments from the set-aside arrangement have been used to pay for services that are not covered by Medicare or for administrative/legal expenses, then the contractor will not pay the Medicare claims. The contractor must provide the evidence of the unauthorized expenditures to the RO for investigation. If the RO determines that the expenditures were contrary to the RO’s written opinion, then it will notify the administrator of the arrangement that the RO’s informal approval of the arrangement is withdrawn until such time as the funds used for non-Medicare expenses and/or unapproved administrative expenses are restored to the set-aside arrangement. (7/23/01 Memo Q4)
Should a MSA provide for items and services that are not covered by Medicare but later become covered, those funds should then be considered part of the set-aside and treated accordingly, i.e., used to pay for any services as they were designated in the non-Medicare portion of the set-aside included in the settlement. These funds do not have to be transferred to a separate MSA bank account or included in the annual MSA accounting. (7/11/05 Memo Q15)
When the administrator of an arrangement refuses to make payment on a provider’s, physician’s or other supplier’s claim because the administrator of the arrangement asserts that the services are for injuries or diseases that are not work-related (or when the administrator of the arrangement denies the claim for any other reason), and the provider, physician or other supplier, subsequent to the administrator’s denial, submits the claim to Medicare, then the contractor should consult the RO in order to determine whether Medicare should pay the claim. If a determination to deny the claim is made, then Medicare’s regular administrative appeals process for claim denials would apply to the claim. (7/23/01 Memo Q12)
Payments and Unspent Funds
There are two distinct methods for providers, physicians and other suppliers to obtain payment for covered services when funds are held in a set-aside arrangement. Determining which distinct payment method applies depends on two factors: How the set-aside arrangement is constructed, and whether the arrangement was constructed by contemplating full actual charges or workers’ compensation fee schedule amounts. In other words, were the injured individual’s medical expenses determined based on full actual charge estimates or workers’ compensation fee schedule estimates. (7/23/01 Memo Q9)
If funds are not exhausted during a given period, then the excess funds must be carried forward to the next period. The threshold after which Medicare would begin to pay claims related to the injury would then be increased in any subsequent period by the amount of the carry-forward. This carry-forward process continues until the accumulated carry-forward plus the payment for a given year is exhausted. (4/22/03 Memo Q10)
Use of Settlement Funds Prior to Medicare Entitlement.
For claimants who are not yet Medicare beneficiaries and for whom CMS has approved a MSA, the MSA may be used prior to becoming a beneficiary because the amount was priced based on the date of the expected settlement.
Use of the MSA is limited to services that are related to the workers’ compensation claim or settlement and that would be covered by Medicare if the individual was a Medicare beneficiary. The same requirements that Medicare beneficiaries follow for reporting and administration are to be used in the above cases. CMS will not pay for any expenses related to the workers’ compensation illness or injury until a self-attestation document or a full accounting of all monies expended from the MSA are sent to the lead contractor.
Even if there is no CMS-approved MSA, any funds from a settlement attributable to future medicals that are remaining at the time a claimant becomes a Medicare beneficiary must be used for Medicare-covered services related to the claim or settlement until such funds are exhausted. Only then will CMS pay for Medicare-covered services related to the claim or settlement.
The above answer replaces the first paragraph of the note at the end of answer four in the July 23, 2001 memorandum, and question three in the May 23, 2003 memorandum. (7/11/05 Memo Q3)
Claims Settled Prior to Jan. 1, 2006 and Prescription Drug Expenses
The claimant cannot use MSA funds to pay for prescription drug expenses related to the workers’ compensation injury if the original MSA approved by CMS did not include monies for such prescription drug expenses. If the settlement included an allocation for non-Medicare covered medical and/or prescription drug expenses, the claimant must exhaust those funds prior to billing Medicare for prescription drugs. However, the claimant does not have to transfer these funds to the existing MSA account or include them in the annual MSA accounting.
After exhausting these funds, if the claimant enrolls in a Part D plan, Medicare may be billed for prescription drug expenses related to the injury, assuming that the claimant does not have any other coverage primary to Medicare.
The above clarifies question and answer five of the July 11, 2005 memorandum. (7/24/06 Memo Q6)
Professional administrators must be familiar with workers’ compensation and liability claims handling procedures, as well workers’ compensation medical fee schedules and usual and customary medical charges for such medical services in order to assist the claimant with properly paying for such related medical expenses.
In addition, and perhaps most important, professional administrators must be familiar with the Medicare system and the medical services it covers and does not cover.
This article is meant to serve as an introduction to the role of the professional administrator when dealing with MSA accounts. The information presented here, which is not meant as legal advice or counsel but rather educational in purpose, will assist all parties involved with the determination of when to hire a professional administrator to administer a MSA account.
Rafael Gonzalez is director of Medicare compliance and post-settlement administration at Gould & Lamb, LLC. He has been a CLM fellow since 2011 and can be reached at www.gouldandlamb.com.