MSA’s: New Options to Consider

1. MSA’s: New Options to Consider 42nd Annual South Carolina Educational Conference on Workers’ Compensation October 16, 2018, Hilton Head Island John Cattie, Esquire – Cattie, P.L.L.C. Daniel Hayes, Esquire – Teague, Campbell, Dennis & Gorham, L.L.P.

2. How We got here

3. Topics to be Covered • How We Got Here • Statutory & regulatory background • Patel Memo • Do we “need” an MSA? • WCMSA • Formal CMS workload review thresholds • Commutation vs. Compromise • Risks of non-submission • Options for non-threshold and/or non-submission settlements • Hearing on the Merits • Legal Opinion • Third-Party Liability MSAs

4. Statutory and Regulatory Background • Medicare program created in 1965 • Pay medical expenses of certain qualified individuals • To qualify for Medicare: • Age: 65 years of age or older; • Disability: • Receiving Social Security Disability benefits for 24 months or longer • (After 5 month wait for SSD benefits to actually begin) • End Stage Renal Disease or Amyotrophic Lateral Sclerosis (ALS, or“Lou Gehrig's disease”) – no wait period

5. Statutory and Regulatory Background • The Medicare Secondary Payer (MSP) Act • 42 U.S.C. 1395y(b)(2)(A)(ii) • Created by the Omnibus Reconciliation Act of 1980 • Enacted by Congress in 1981. • Purpose: Prevent primary payer of medical care from shifting responsibility to Medicare • The Centers for Medicare & Medicaid Services (CMS) is the federal agency responsible for administering Medicare and enforcing the MSP.

6. Statutory and Regulatory Background • Patel Memo – July 23, 2001 • First CMS Memo • By Parshar B. Patel – Deputy Director, Hospital & Ambulatory Policy Group, CMS • (now VP of Global Health Policy for Boston Scientific medical devices) • Twelve “questions & answers” regarding Medicare Set Asides • MSA only applicable if future medical benefits are being closed and if a “qualified individual” is involved • Identified two classes of claims impacted by the MSP • “Class I” = Medicare eligible claimant (regardless of settlement amount.) • “Class II” = “reasonable expectation” of becoming a Medicare beneficiary within 30 months of the date of settlement and a settlement amount greater than $250,000.00 • Definition of “reasonable expectation” was not explained until a subsequent memorandum dated April 22, 2003.

7. Statutory and Regulatory Background • Under MSP, Medicare will not pay for medical services if such costs have been paid or can reasonably be expected to be paid by a primary payer in one of the following categories: • Workers’ Compensation • Liability • No-Fault • Automobile • Self-Insured

8. Statutory and Regulatory Background • Prudent practitioner will consider: • Has Medicare already made payments for the condition or injury? • If so, make sure all Medicare liens for “conditional payments” are satisfied at the time of the settlement; and • Does the settlement involve any future medical expenses? • If so, then a Medicare Set-Aside (MSA) allocation may need to be considered. Depending upon whether the thresholds for review have been satisfied, CMS may or may not review the proposed settlement.

9. “Do We Need an MSA?” • Quickly became a vendor-driven business • Cheat-sheets • CMS submissions • Months without a determination

10. Workers’ compensation Medicare Set aside (WCMSA)

11. WCMSA • CMS has issued several memo’s since 2001 • Do not have the statutory enforceability of law • Original CMS memo – “Patel Memo” – July 23, 2001 • Established MSA allocation only applicable if future medical benefits are being closed and if a “qualified individual” is involved • Identified two classes of claims impacted by MSP • Class I = Claimant is Medicare beneficiary (no min. settlement) • Class II = Reasonable Expectation of Enrollment + Settlement > $250,000 • Did not define “reasonable expectation”

12. WCMSA • CMS memo - July 11, 2005: • Class I = settlement must be > $10,000 • CMS memo - April 25, 2006: • Class I = settlement must be > $25,000 • CMS memo - May 11, 2011: • Most recent CMS memo confirming CMS will ONLY review WC claims that fall within the following 2 workload review thresholds:

13. WCMSA • Current CMS Workload Review Thresholds: • Class I: Settlement > $25,000 and claimant is already a Medicare beneficiary; or • Class II: Settlement > $250,000 and“reasonable expectation” claimant will enroll in Medicare within 30 months of settlement date

14. WCMSA • CMS memo - April 22, 2003: • Defined “reasonable expectation” of Medicare enrollment within 30 months of settlement (adopted by WCMSA Reference Guide): • Claimant has applied for Social Security Disability Benefits (5 month wait period for SSD starts on next whole month; then 24 month wait for Medicare); or • Claimant has been denied Social Security Disability Benefits but anticipates appealing that decision • Claimant is in the process of appealing and/or re-filing for Social Security Disability benefits; or • Claimant is 62 years and 6 months old; (will turn 65 in 30 months) or • Claimant has ESRD condition but does not yet qualify for Medicare based upon ESRD

15. WCMSA – Total Settlement Amount • Total Settlement Amount – WCMSA Reference Guide (March 19, 2018) • Gross total settlement amount • Does Include: Attorney fees; MSA amount; payout totals for annuities (not cost of present day value); settlement advances; lien repayments (including repayment of Medicare conditional payments); amounts forgiven by the carrier; prior settlements of the same claim; and liability settlement amounts on the same WC injury (unless apportioned by a court on the merits) • Does Not Include: Prior contested awards on the merits; payment of indemnity/medicals not part of settlement; liens and other amounts claimant will pay from settlement

16. WCMSA – Date of Settlement • Date of settlement ≠ date processed by SCWCC • WCMSA Reference Guide (March 19, 2018) • 10.5 Section 25 – Settlement Agreement or Proposed or Court Order • The parties can proceed with the settlement of the medical expenses portion of a WC claim before CMS actually reviews the proposed WCMSA and determines an amount that adequately protects Medicare's interests. However, approval of the WCMSA is not effective until a copy of the final executed WC settlement agreement, which must include the approved WCMSA amount, is received by CMS. • • If the case has already settled, please provide the settlement date. • • If there is a proposed settlement date in the future, please provide that date. • • If the settlement date is unknown, CMS will default to using four months from the date of submission as the proposed settlement date.

17. WCMSA • Medicare’s interests must be considered when negotiating a final settlement of a claim involving responsibility for medical treatment. • Medicare’s past interests addressed through conditional payment liens • Medicare’s future interests addressed through WCMSA • Medicare’s interests are deemed protected upon approval by CMS • At this time, there are only formal review thresholds available in workers’ compensation settlements

18. Commutation vs. Compromise • Accepted (Commutation) vs. Denied (Compromise) Settlements • CMS Memorandum, July 23, 2001 • “Medicare’s regulations (42 CFR 411.46) and manuals (MIM 3407.7&3407.8 and MCM 2370.7 & 2370.8) make a distinction between lump sum settlements that are commutations of future benefits and those that are due to a compromise between the Workers' Compensation (WC) carrier and the injured individual.”

19. Commutation vs. Compromise • Commutation: No controversy as to carrier’s liability to make payments • Compromise: “Doubtful and disputed” clincher • Defendants strongly dispute liability • No voluntary payment of medicals • Indemnity and medicals not disaggregated • Settlement amount not a purely mathematical computation • Pre-existing condition? • Work-related accident? • Employer-employee relationship?

20. Commutation vs. Compromise • Commutation: 42 C.F.R. § 411.46 (a) • “If a lump-sum compensation award stipulates that the amount paid is intended to compensate the individual for all future medical expenses required because of the work-related injury or disease, Medicare payments for such services are excluded until medical expenses related to the injury or disease equal the amount of the lump-sum payment.”

21. Commutation vs. Compromise • Compromise: 42 C.F.R. § 411.46 (d) • “[I]f a lump-sum compromise settlement forecloses the possibility of future payment of workers' compensation benefits, medical expenses incurred after the date of the settlement are payable under Medicare.”

22. Formal Submission of Compromise Settlement • How does CMS review “compromise” settlement? Zero Dollar WCMSA • Future medical liability disputed based upon legal defense (SOL, notice, subject matter jurisdiction, apportionment/offset, etc.) • May be submitted to CMS for approval • Current CMS reasoning: if ANYTHING was paid on the claim (including initial medical care during investigation of compensability), then no $0.00 approval • Caution: If submitted and denied, CMS may issue a counter-higher demand with full WCMSA funding amount • Involves submission of all other documentation, including: • Last Two Years of Medical Records (may ask for unauthorized, but related, treatment) • Complete Payment Ledgers • Drug History

23. CMS Submission is Voluntary • WCMSA Reference Guide (March 19, 2018): • 8.0 Should CMS Review a WCMSA? • There are no statutory or regulatory provisions requiring that you submit a WCMSA amount proposal to CMS for review. If you choose to use CMS’ WCMSA review process, the Agency requires that you comply with CMS’ established policies and procedures in order to obtain approval.

24. CMS Submission is Voluntary • No requirement for submission of any settlement to CMS for review • WCMSA does not have to be submitted even if it falls within the review thresholds • Submission process is completely voluntary, but it is also the only way CMS will confirm that Medicare’s interests are adequately protected • This is a workload threshold for review, so just because a settlement does not fall within the review thresholds does not mean a WCMSA is not “necessary” • The workload review threshold has changed over time and could potentially change again

25. Risks if Medicare’s Interests Not Protected • Risk to Claimant • WCMSA Reference Guide (March 19, 2018): “The claimant may be at risk if the WCMSA is funded for less than the amount that CMS determines to be adequate to protect Medicare's interests” • Context: Formal CMS submission, but parties allocate less than amount of CMS determination • Medicare coverage suspended until Medicare costs reimbursed • This sounds like a Conditional Payment

26. Risks if Medicare’s Interests Not Protected • Risk to Carrier? • If Medicare’s interests not considered, CMS could consider any ongoing payments “conditional” in nature, in which case reimbursement may be sought against the carrier as a lien against the settlement • More likely in accepted liability cases, reimbursement pursed by Commercial Repayment Center • Seems more likely where Medicare’s interests were not considered at all (see U.S. vs. Stricker) versus MSA simply “underfunded”

27. What is the real risk? • Are we not all “considering” Medicare’s interests at this point? • Are we not actually afraid of “underfunding” the MSA, which is what drives formal CMS submissions?

28. Non-Submission – Risks? • Risk to Claimant (same as Non-Threshold Settlements): • If claimant ever uses Medicare to pay for treatment related to work injury, Medicare may investigate • Could be triggered by CPT (“Current Procedural Terminology”) and/or ICD9/10 (“International Statistical Classification of Diseases and Related Health Problems”) codes used by providers when submitting bills for payment • CMS reviews codes that appear related to MVA, work injuries, etc. • Medicare may send a questionnaire asking if the treatment is related to an MVA, work injury

29. Non-Submission – Risks? • Risk to Carrier (same as Non-Threshold Settlements) • Was Carrier the Primary Payer? • If denied claim, what shift of burden to Medicare? (different from Conditional Payment Lien) • Section 111 Mandatory Reporting: • Was Ongoing Responsibility for Medicals (ORM) established? • If so, was ORM terminated? • Was Total Payment Obligation to Claimant (TPOC) reported?

30. Non-Threshold Settlements • CMS will not accept for formal review because does not meet workload review thresholds • Still have obligation to “consider” Medicare’s interests • What Other Options?

31. Non-Threshold Settlements • Basic: Include Settlement Language Addressing Medicare’s Interests • Good: Allocate some (nominal) amount for future Medicare-covered expenses • Out of an “abundance of caution” • Avoids CMS considering entire settlement amount allocated to future medicals • Better: Show how the allocation was calculated • Use past medical payments • Estimate annual medical costs • Project future costs • Best: MSA/Legal Opinion • Legal Opinion/Analysis by Attorney • MSA prepared by a vendor • Life Care Plan ≠ MSA • Combination: Layers of Protection

32. Non-Threshold WCMSA • Non-Threshold WCMSA Report/Proposal • May be advisable if claimant is already Medicare beneficiary and settlement will be reported under Section 111 (but technically below CMS settlement review amount) • Can be included with clincher document as exhibit or incorporated by reference • Gives claimant a guideline for using MSA account to pay medical expenses • Demonstrates parties’ “good faith” effort to consider and protect Medicare’s interests • Gives flexibility in calculating realistic future exposure (compared to inflexible methodology sometimes used by CMS review contractors) • Allows parties to rely more heavily upon SCWCC Forms 14B

33. Non-Submission WCMSA • Not every settlement requires Medicare allocation • CMS Memorandum, April 22, 2003 • No set-arrangement necessary if: • (1) facts of case demonstrate claimant only being compensated for past medical expenses; • (2) no evidence individual attempting to maximize other aspects of settlement (e.g., lost wages and disability) to Medicare’s detriment; and • (3) treating physicians conclude (in writing) that to a reasonable degree of medical certainty the individual will no longer require any Medicare-covered treatments related to the WC injury

34. Non-Submission WCMSA • SCWCC Form 14B is a very strong documentation of employer/carrier’s future medical responsibility • This should satisfy element 3, written documentation from medical provider • Reality: If reviewed by CMS, will not rely on Form 14B exclusively

35. Hearing on the Merits • CMS Memorandum, April 22, 2003 • When a state WC judge approves a WC settlement, will Medicare accept the terms of that settlement? • Answer: Medicare will generally honor judicial decisions issued after a hearing on the merits of a WC case by a court of competent jurisdiction. If a court or other adjudicator of the merits specifically designates funds to a portion of a settlement that is not related to medical services (e.g., lost wages), then Medicare will accept that designation. However, a distinction must be made where a court or other adjudicator is only approving a settlement that incorporates the parties’ settlement agreements. Medicare cannot accept the terms of the settlement as to an allocation of funds of any type if the settlement does not adequately address Medicare’s interests. If Medicare’s interests are not reasonably considered, Medicare will refuse to pay for services related to the WC injury (and otherwise reimbursable by Medicare) until such expenses have exhausted the amount of the entire WC settlement. Medicare will also assert a recovery claim, if appropriate.

36. Hearing on the Merits • WCMSA Reference Guide (March 19, 2018) • 4.1.4 Hearing on the Merits of a Case • Because the CMS prices based upon what is claimed, released, or released in effect, the CMS must have documentation as to why disputed cases settle future medical costs for less than the recommended pricing. As a result, when a state WC judge or other binding party approves a WC settlement after a hearing on the merits, Medicare generally will accept the terms of the settlement, unless the settlement does not adequately address Medicare’s interests. This shall include all denied liability cases, whether in part or in full. If Medicare’s interests were not reasonably considered, Medicare will refuse to pay for services related to the WC injury (and otherwise reimbursable by Medicare) until such expenses have exhausted the entire dollar amount of the entire WC settlement. Medicare may also assert a recovery claim, if appropriate. • If a court or other adjudicator of the merits (e.g., a state WC board or commission) specifically designates funds to a portion of a settlement that is not related to medical services (e.g., lost wages), then Medicare will accept that designation.

37. Legal Opinion • Allows explanation of how Medicare’s interests were considered • May address how CMS workload review threshold was not satisfied • Claimant’s Medicare status/reasonable expectation on Date of Settlement? • Total Amount of Settlement? • Reasonable Expectation of Enrollment? • Has claimant “applied” for Social Security Disability? • Is there a difference between being 62.5 years old (based day of month, 6 months prior to 63rd birthday) vs. within 30 months (based on first day of month, 6 months prior to 63rd birthday) • May further confirm this is a voluntary submission process • May verify reliance on results of hearing on the merits • May provide detailed analysis of “compromise” vs. “commutation” • May apply apportionment consistent with compromise settlement amount compared to total cognizable damages (“best day in court”)

38. THIRD-PARTY CLAIMS: Liability Medicare Set Aside (LMSA)

39. LMSA • CMS has issued several memo’s since 2001, but no reference to liability MSA’s for 10 years • Series of CMS memo’s in 2011 • Most related to conditional payment liens • CMS referenced Liability Medicare Set Aside for the first time

40. LMSA • September 30, 2011 - “Benson” memo • In liability settlement, if treating physician certifies no future medical care is necessary related to that liability claim, then CMS will consider its interests protected with regard to future medicals (i.e., MSA) • However, CMS will not provide confirmation in writing and simply recommends the settling parties keep a copy of the physician’s letter “on file”

41. LMSA • June 15, 2012 – Advance Notice of Proposed Rulemaking (ANPR) • CMS requested comments on various options under consideration to meet obligations to protect Medicare’s interests with respect to future medicals in liability settlements • According to CMS, they already had WCMSA rules; wanted to know if they should put in place liability rules?

42. LMSA • Were new proposed LMSA rules introduced? • “Medicare Secondary Payer and ‘Future Medicals’ (CMS-60470P)” • Reviewed by the Office of Management and Budget (OMB), • Withdrawn by CMS and concluded as of October 8, 2014 • No explanation for why the proposed rules were withdrawn has been provided

43. LMSA • MedLearn Articles • CMS Medicare Learning Network • September 19, 2017 – CMS issued “MedLearn” article to medical providers • If Medicare beneficiary alerts the provider that he/she has a WCMSA, LMSA or No-Fault MSA (NFMSA), the provider must bill the MSA and not Medicare • October 3, 2017 – MedLearn article was rescinded by CMS

44. LMSA • New Workers’ Compensation Review Contractor (WCRC) • Liability MSA’s referenced in the Request for Proposal (RFP) • Would possibly require the new WCRC to manage a voluntary review process for LMSAs and NFMSAs potentially as early as July 1, 2018

45. LMSA • April 16, 2018: National Alliance of Medicare Set-Aside Professionals (NAMSAP) meeting with CMS • Disclaimer: Everything discussed in the meeting was subject to change • Program will be voluntary • Enforcement mechanism will be denial of services • Plaintiff must receive something (free and clear) through settlement • No CMS review until settlement reached • LMSA exclusively the plaintiff’s responsibility (carriers not a target) • Medicare pricing of services • Would not mandate professional administration

46. LMSA • April 16, 2018: National Alliance of Medicare Set-Aside Professionals (NAMSAP) meeting with CMS • Disclaimer: Everything discussed in the meeting was subject to change • CMS would publish LMSA Reference Guide • Workload review thresholds anticipated • $250,000.00 settlement and Medicare beneficiaries or reasonable expectation of enrollment within 30 months) • For settlements between $250,000.00 and $750,000.00 threshold, CMS would apply “a formula” to determine LMSA amount • CMS would subtract certain expenses and apply a discount factor to total settlement • For settlements above $750,000.00 level, CMS anticipated full commutation, where traditional MSA would be prepared and, if submitted, evaluated by CMS for adequacy

47. LMSA • With no formal review, what options? • Fact specific • Type of coverage • Coverage Limits • Amount of settlement • Compromise or commutation • Available defenses • Beneficiary fully compensated for all damages? • Ratio/allocation of settlement amount to “best day in court” applied to medical expenses/LMSA

48. LMSA • Same options available as non-submission WCMSA • Legal Opinion Letter • No allocation because net settlement recovery insufficient to protect Medicare • Reduced allocation based on ratio of actual recovery compared to total cognizable damages, applied to estimated future Medicare-covered expenses

49. LMSA • Consider addressing any MSA allocation globally, in the liability settlement prior to resolving WC claim • Liability settlement resolves all future medical liability to claimant/plaintiff, including under WC • No formal review because Liability MSA (not WCMSA) • Allows WC claim to then be resolved, relying upon LMSA to consider Medicare’s interests • No formal submission of WCMSA necessary