LMSA - Solutions for Workers' Compensation and Liability Settlements

21/Dec/2020

As we enter the final weeks of 2020, Medicare Secondary Payer Act (MSP) stakeholders will have to continue to wait for Liability Medicare Set-Aside (LMSA) Regulation/Guidance to be released. The last time the Centers for Medicare & Medicaid Services (CMS) mentioned the LMSA Regulation/Guidance it was scheduled to be released in August 2020. Professionals in the MSP industry have speculated that new regulations or guidelines are not likely to be published until March 2021, however as of December 17, 2020 no announcement date has been set. CMS first announced a Notice of Proposed Rulemaking (NPRM) to be issued in September of 2019 but has delayed the announcement multiple times over the past two years. The NPRM would “clarify existing Medicare Secondary Payer (MSP) obligations associated with future medical items and services related to liability (including self-insurance), no fault insurance, and workers’ compensation settlements, judgements, awards or other payments. Specifically, this rule would clarify that an individual or a Medicare Beneficiary must satisfy Medicare’s interest with respect to future medical items and services related to such settlements, judgements, awards, or other payments. This proposed rule would also remove obsolete regulations.”

Injured individuals, their attorneys, and entities settling liability claims, including consultants that assist in the settlement process such as structured settlement and MSP compliance planners/consultants (Settlement Professionals) interested in complying with the MSP and ensuring that Medicare will not make payments for injury related and Medicare covered medicals post settlement, have regularly read and interpreted the CMS Stalcup Handout dated 05/25/2011, characterizing the obligation of considering and protecting Medicare’s interests in liability and Workers’ Compensation settlements as being one and the same (see below). Furthermore, in the absence of specific regulations or guidance directed toward liability settlements, Settlement Professionals have also read and interpreted the guidance issued by CMS in its Workers’ Compensation Medicare Set-Aside Arrangement (WCMSA) Reference Guide v 3.2.

The WCMSA Reference Guide of course only gives examples of situations where Workers’ Compensation settlements fall outside the workload review thresholds allowing for review by CMS but in the two examples it provides in Section 8.1 titled Review Thresholds, it indicates that “not establishing some plan for future care places settling parties at risk for recovery from care related to the WC injury up to the full value of the Settlement.” In the same section of the Reference Guide, CMS indicates in another example, “The settling parties must consider CMS’ future interests even though the case would not be eligible for review.” Because of the double damages provision allowed for recovery actions under the MSP, and regardless of what CMS’ enforcement position has been in the past, insurance carriers, Self-Insureds, and attorneys representing injured plaintiffs have taken precautions to reduce the likelihood of any recovery against them for future conditional payments. Many have surmised that this is only a plaintiff issue and have argued insurance companies and Self-Insured need not worry about Medicare covered futures. Nobody knows exactly where the future guidance in this area is going to fall but it is clear that Medicare’s Trust Funds need protecting because as recently as 2018, Congress predicted Medicare’s Part A Trust Fund to be depleted in 2026.*

Highlights from the CMS Stalcup Handout 05/25/2011

…“Medicare’s interests must be protected; however, CMS does not mandate a specific mechanism to protect those interests. The law does not require a ‘set-aside’ in any situation. The law requires that the Medicare Trust Funds be protected from payment for future services whether it is a Workers’ Compensation or Liability case. There is no distinction in the law.”

…here is no formal CMS review process in the liability arena as there is for Workers’ Compensation. However, CMS does expect the funds to be exhausted on otherwise Medicare covered and otherwise reimbursable services related to what was claimed and/or released before Medicare is ever billed. CMS review is decided on a case by case basis.

…“Each attorney is going to decide, based on the specific facts of each of their cases, whether or not there is funding for future medicals and if so, a need to protect the Trust Funds.”

Click here to download entire memo

Office of Management and Budget (OMB) issued the following Notices of Proposed Rule Making (NPRM) regarding RIN 0938-AT85:

To stay up to date regarding any changes with LMSA Regulations/Guidance, please visit Medivest’s blogs::

Take Aways:

Considering Medicare’s interests in any settlement with some type of analysis regarding the protection of those interests has become the industry standard for all NGHP settlement types – liability, self-insurance, No Fault, and Workers’ Compensation.
Whether the announced guidance comes out soon or not, doesn’t it make sense to help ensure that Medicare’s future interests are considered and protected in accordance with existing federal law – i.e. the MSP?
Helping to ensure that Medicare is not prematurely billed for injury related future Medicare covered medicals for any settlement type is the right thing to do and helps protect the Medicare Trust Funds.

Medivest will continue to monitor the OMB website for any NPRM updates in order to keep you informed. Count on Medivest to help guide you through some of the complexities associated with MSP compliance.

* Medicare has two Trust Funds. One for Part A that covers hospital insurance for the aged and disabled and one for both Part B that mainly covers doctors’ visits and Part D that covers prescription medications, for the same population of Medicare enrollees. It was announced in June 2018 that the Part A Hospital Insurance (HI) Trust Fund is projected to be depleted in 2026, three years earlier than predicted just a year ago. The Part B and D Trust Fund is not as bad off due to a financing system with yearly resets for premium and general revenue income and is projected to have adequate funding for the next ten years and beyond.

Total Medicare expenditures were reported to be $710 billion in 2017. Medicare expenditures were projected to increase at a faster pace than either aggregate workers’ earnings or the economy, and to increase from approximately 3.7 percent in 2017 to between 6.2 percent and 8.9 percent as a percentage of Gross Domestic Product (GDP) by 2029, causing substantial strain on our nation’s workers, the economy, Medicare beneficiaries, and the Federal budget.

A 2018 Annual Report of the Boards of Trustees of the two Medicare Trust Funds recommended a legislative response [2] to help protect the Part A Trust Fund. However, instead of waiting years for Congress to act, if parties to third party or workers’ compensation settlements involving Medicare beneficiaries [3], proactively address both past and future interests of Medicare, that could help slow Medicare Trust Fund depletion, in line with the above-described intent of the MSP.

Medivest

08/Jul/2020

Click here for a downloadable copy of this blog

Once again, the Centers for Medicare & Medicaid Services has provided an indication that while regulations and/or guidance is on its way regarding the protection of Medicare’s future interests for liability and No Fault settlements, the proposed rule regarding these have been moved to August 1, 2020 or perhaps further into the future (again). Technically, the information indicates that the Notice of Proposed Rule Making would “clarify existing Medicare Secondary Payer (MSP) obligations associated with future medical items services related to liability insurance (including self-insurance), no fault insurance, and worker’s compensation settlements, judgments, awards, or other payments. Specifically, this rule would clarify that an individual or Medicare beneficiary must satisfy Medicare’s interest with respect to future medical items and services related to such settlements, judgments, awards, or other payments. This proposed rule would also remove obsolete regulations.” The information is also indicating that regulations CMS determines to be obsolete will be removed. See the disclosure published in the Spring 2020 Federal Register Unified Agenda here.

Many in the MSP compliance industry believe that while the regulations and guidance could be focused on clarifying both the need to protect Medicare’s future interests and the way to protect those interests for each of the Non Group Health Plan (NGHP) primary plan types (Liability, Self-Insurance, No Fault, and Workers’ Compensation), it seems more likely that this particular group of regulations and/or guidance will focus primarily on liability and No Fault settlements. This is because both regulations and guidance have already been published specific to protecting Medicare’s future interests in Workers’ Compensation settlements in both the Code of Federal Regulations and via the Workers’ Compensation Medicare Set-Aside Arrangement – WCMSA Reference Guide Version 3.1.

Medicare Set-Aside Report

Take Aways

Considering and protecting Medicare’s past interests has become the industry standard and quite honestly a “no brainer” for all NGHP settlement types – liability, self-insurance, No Fault, and Workers’ Compensation.
Whether the announced guidance comes this August or not, doesn’t it make sense to help ensure that Medicare’s future interests are protected in accordance with existing federal law, i.e. the MSP?
Helping to ensure that Medicare is not prematurely billed for injury related futures for any settlement type is the right thing to do and helps protect the Medicare Trust Funds.

Count on Medivest to help guide you through some of the complexities associated with MSP compliance.

Natt Reifler, Esq., CMSP, VP of MSP Compliance

18/Apr/2018

Injured Medicare beneficiaries or those with a reasonable expectation of becoming enrolled in Medicare within 30 months of settlement (claimants) have a legal responsibility under the Medicare Secondary Payer statute enacted in 1980 (MSP)[1], to not prematurely bill Medicare for injury-related otherwise Medicare allowable, medical expenses (future medicals). Because many claimants and even their attorneys still don’t know the MSP law exists or how to comply with it, many settlements for claimants don’t properly consider and protect Medicare’s interests as a secondary payer for future medicals. Medicare Set-Aside (MSA) compliance programs consider Medicare’s MSP interests and implement actions to protect those interests. MSP compliance companies rely heavily on two valuable tools that work best in conjunction to achieve MSP compliance goals; a MSA allocation report (also known as a Set-Aside arrangement) estimating future medicals, and administration of MSA funds, with spending restricted to applicable future medicals. If administration of MSA settlement funds is handled by the injured claimant, it is referred to as self-administration and when performed by a company like Medivest Benefit Advisors, Inc., it is known as professional administration.

With a federal law on the books prohibiting premature billing of future medicals to Medicare and the potential for those not complying with the MSP being denied Medicare benefits for the claimed/released injury, is it wise to allow injured parties to manage and administer post settlement future medicals? The National Council on Compensation Insurance, Inc. (NCCI) recently published a research brief updating its 2014 study on Workers’ Compensation MSAs (WCMSAs) and WCMSA reviews and reported that between 2010 and 2015, approximately 98% of all WCMSAs from the study’s 11,000 MSA data sample were self-administered. That seems outrageous when injured parties are notorious for quickly spending money received from lump-sum settlements. Statistics in a personal injury practice guide by The Rutter Group indicate that somewhere between 25 and 30% of accident victims spend all settlement money within two months of receiving the funds and that up to 90% of accident victims use all settlement proceeds within five years.[3] Spending sprees seem common with lottery winners, some professional athletes, and most likely other people that come into money quickly. Congress considered the poor spending habits of settlement recipients when it enacted the Periodic Payment Settlement Act of 1982 (PPSA)[4],[5], and in subsequent related legislation.[5] Because annuity payments paid under the PPSA are paid tax-free and injured parties can often be irresponsible with their spending when they receive lump-sum settlements, structured settlements are often a wise choice to help injured parties preserve settlement funds for their needs.

Irresponsible spending of settlement funds by injured parties is sad, but when settlement funds are misspent by people other than the injured parties, it can be tragic. A Wall Street Journal article recently highlighted this risk.[7] In 1980, Nicole Herivaux lost the use of one of her arms due to alleged medical malpractice at the time of her birth in New York. In 1983, the minor’s family settled a malpractice lawsuit in exchange for a structured settlement that paid monthly annuity payments and a few hundred thousand dollars in lump sum money that could be used for Nicole’s education, among other things. The company that started making settlement payments initially deposited the annuity checks in Nicole’s mother’s name, “as guardian” of Nicole directly into a bank account. That company later transferred the responsibility for making those payments to a different insurance company in 1995, when Nicole was 15 and still a minor. Nicole Herivaux is now an adult with student loan debt and alleged in a 2018 lawsuit that the new company sent the annuity payments directly to her mother without any payment restriction or oversight and that her mother misused and inappropriately exhausted Nicole’s settlement funds. If the settlement had included professional administration of a custodial account, money intended for the minor could have paid off Nicole’s education expenses and provided her a better chance to live with peace of mind, dignity and security.

The Centers for Medicare & Medicaid Services (CMS), the regulatory body running the Medicare program and charged with the responsibility of interpreting the MSP has promulgated regulations and issued memos helpful to determining reasonable and appropriate measures to comply with the MSP. A 2011 memo from CMS’s Regional Office in Dallas from Sally Stalcup, as MSP Regional Coordinator, announced that Medicare Set-Aside is CMS’s “method of choice and the agency feels it provides the best protection for the program and the Medicare beneficiary.”[8] From the context of the Stalcup memo, it is clear the use of the term “Set-aside” included a MSA arrangement described above, and that Set-asides (MSAs) would apply in both workers’ compensation and liability cases. The Stalcup Memo also announced that “each attorney is going to have to decide, based on the specific facts of each of their cases, whether or not there is funding for future medicals and if so, a need to protect the Trust Funds.”

However, it is one thing to set money aside for the intended purpose and quite another to properly administer the money. Even when an injured claimant hires an attorney to represent them to obtain a settlement, judgment or award (“settlement”), settlement funds reserved for future medicals can be misspent. For example, attorney misconduct was found in a South Carolina Bar disciplinary case where an attorney representing a claimant failed to properly administer funds set aside to protect Medicare’s interests (MSA funds) as a secondary payer for future medicals.[9] In another bar disciplinary case, an Illinois licensed attorney used trust funds for improper purposes when the trust funds were to be maintained in trust until it was determined whether they belonged to the attorney’s client or Medicare.[10]

Did the attorneys in these matters know how to report settlements to CMS’ Benefits Coordination & Recovery Center (BCRC) contractor, how to request Medicare conditional payment amounts, perform bill review and potentially dispute and finalize conditional payment lien amounts? Did they consider whether their client’s injury and/or financial condition might lend itself to a conditional payment lien compromise or waiver request? Furthermore, did the attorneys know how to properly administer the MSA funds that were set aside for their clients’ future medicals? If the attorneys had sought the advice of a competent company that performs these functions regularly, they would have been in a better position to protect their clients, protect the Medicare Trust Funds and protect their professional standing.

Allowing incompetent, injured claimants to self-administer their own MSA accounts cannot be a prudent way to protect Medicare’s interests in preserving the nation’s Medicare Trust Funds. Even competent claimants likely experience difficulties attempting to self-administer MSA funds. While CMS makes resources available to individuals intending to self-administer an MSA account including a WCMSA Reference Guide and a Self-Administration Tool Kit, but what percentage of injured claimants will read and follow the protocol of the 127-page WCMSA Reference Guide and the 31-page Self-Administration Tool Kit?

Self-administration is surely harder than filing a standard federal income tax return. Plenty of people find it helpful to use professional assistance or digital software to help them file their tax return. [11] A self-administering claimant needs to evaluate bills for medical items and expenses, including prescription drug expenses, to verify that they are both injury-related, Medicare allowable and otherwise reimbursable. Once bills are reviewed, a decision still needs to be made as to how much should be paid. Is the provider a Medicare-approved provider? Should the amount be the Medicare allowable rate, the provider’s bill rate or the usual and customary rate? Is there a Group Health Insurance plan involved? Does it matter if the case stems from a liability case versus a workers’ compensation claim? Does the Code of Federal Regulations say anything about these distinctions? Does CMS provide guidance in this area via its website, its Medicare Learning Network, or WCMSA Reference Guide? Have there been any cases evaluating these issues and was the claimant’s injury in a jurisdiction where case law might affect the amount of money to be set aside for those future medicals? Will a claimant be able to keep records on their own sufficient to withstand CMS scrutiny to determine whether MSA account spending is MSP compliant? Will the claimant remember to prepare and transmit required annual attestations of MSP accounting compliance? Because the answer to these questions is only part of the MSP compliance puzzle, it is little surprise that CMS announced professional administration as recommended for MSA fund administration. In addition to providing a full array of Professional Administration services, Medivest also offers a Self-Administration Kit service that provides customer service and claims support as well as discounts on durable medical equipment and prescription medication to help competent claimants take on self-administration.

[1] 42 U.S.C. § 1395y(b).

[2] The Rutter Group, “California Practice Guide: Personal Injury” Chapter 4.

[3] Re: Section 130 Qualified Assignments, 2003 WL 22662008, at *3 (legislative history to the PPSA detailed that additions to the law helped provide certainty that periodic payments of personal injury damages are excluded from the gross income of the recipient. S. Rep. No. 97-646, 97^th Cong., 2d Sess. 4 (1982)).

[4] Periodic Payment Settlement Act of 1982 (PL 97–473 (HR 5470), PL 97–473, January 14, 1983, 96 Stat 2605) (through tax benefits, the PPSA encourages use of structured settlements to resolve personal physical injury and physical sickness cases).

[5] Re: Section 130 Qualified Assignments, 2003 WL 22662008, at *18 (The public policy encouraging use of structured settlements by providing a tax subsidy was affirmed in JCX-15-99, the Joint Committee on Taxation, Tax Treatment of Structured Settlement Arrangements from March 16, 1999 (pointing out perils of lump sum settlements when “. . . the individual may, by design or poor luck, mismanage his or her funds so that future medical expenses are not met.” JCX 15-99 accompanied H.R. 263, “The Structured Settlement Protection Act,” 106^th Cong., 1^st Sess. Section 5891 of the Code enacted by a subsequent version of that bill, H.R. 2884, on January 23, 2002).

[6] Under Section 104(a) of the Internal Revenue Code (I.R.C.), personal injury settlement proceeds are tax-free, but when paid in a lump sum, any investment earnings or interest paid on those funds as they grow over time is taxable. Pursuant to Section 104(a)(2) of the I.R.C., each structured settlement payment over the entire period of payment of the annuity stream is tax-free to the victim. The details of taxable consequences associated with interest gained after receipt of each annuity should be evaluated with a licensed tax professional in conjunction with a structured settlement advisor.

[7] Leslie Scism, Lawsuit Alleges MetLife Mistake Helped a Woman Keep Settlement Money From Her Daughter Insurer faces lawsuit over structured-settlement annuity related to old business, WALL STREET JOURNAL., February 21, 2018.

[8] Sally Stalcup, MSP Regional Coordinator, Region VI (May 25, 2011, Handout).

[9] In the Matter of Morris, 343 S.C. 651, 653-54, 541 S.E.2d 844, 845 (2001).

[10] In the Matter of: Charles Augustus Boyle, Attorney-Respondent, No. 268739, 2014 WL 10505032, at *2. (Attorney voluntarily relinquished his license to practice law after an investigation revealed among other misconduct, that he failed to pay his client’s medical bills from settlement proceeds in one case, failed to deposit settlement proceeds into a guardianship account established on behalf of a minor in another case, failed to notify Medicare that four other cases settled and failed to pay the Medicare conditional payment liens for those four cases).

[11] Excluding those individuals who responded “none of the above” to the question of how they file their taxes, gobankingrates.com reports from an internet poll that of just over 5,000 people, 36.8% said they use either an accountant (28.5%) or a brick and mortar tax company like H&R Block (8.3%) and 34.5% responded that they use tax filing software.

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