On January 11, 2022, CMS released new guidelines regarding “Non-Submit” Medicare Set-Aside Allocations. Under §1.1, of Version 3.5 of its Workers’ Compensation Medicare Set-Aside Arrangement Reference Guide (Guide) “Clarification has been provided regarding the use of non-CMS-approved products to address future medical care (Section 4.3)” as follows:
“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. As a matter of policy and practice, CMS will deny payment for medical services related to the WC injuries or illness requiring attestation of appropriate exhaustion equal to the total settlement less procurement costs before CMS will resume primary payment obligation for settled injuries or illnesses. This will result in the claimant needing to demonstrate complete exhaustion of the net settlement amount, rather than a CMS-approved WCMSA amount.”
The most often used non-CMS approved product is routinely referred to in the industry as a “Non-Submit” MSA. The logic proffered by Insurance Carriers and Defense MSA Vendors is that the CMS Submission Process for MSAs is voluntary. To save money, an amount less than what would normally be approved by CMS is calculated by the Defense Vendor and then set-aside in either a self-administered MSA (with extremely dangerous waiver provisions) or professionally administered by a Defense Vendor through a guarantee or indemnification program. The lower amount allocated in the “Non-Submit” MSA is sometimes justified by calling it an “Evidence Based” or “EBMSA.” An “EBMSA” justifies the treatment projection using medical treatment, case management tools and drug formularies. The use of evidence-based medicine applies standardized recovery periods and treatment caps and often results in much lower future allocation of treatment than what historical treatment patterns show. Because of the cost savings to Insurance Carriers, there has been a big push in the last few years for “Non-Submit” MSAs.
However, it seems that CMS has noticed the pitfalls Claimants and taxpayers face with regard to “Non-Submit” MSAs. CMS states that the use of “Non-Submit MSAs” will be seen as an attempt to “shift financial burden by improperly giving reasonable recognition to both medical expenses and income replacement.” The language referencing an “improper shift” mimics the language of the Medicare Secondary Payor (MSP) statute. Specifically, 42 CFR Section 411.46 (b)(2) reads: “If a settlement appears to represent an attempt to shift to Medicare the responsibility for payment of medical expenses for the treatment of a work-related condition, the settlement will not be recognized.” In essence, CMS is treating: “Non-Submit” MSAs as a de facto attempt to improperly shift the financial burden in workers’ compensation, and is signaling its willingness to use the MSP’s statutory authority to set aside the term of the settlement and refuse payment for injury related care.
CMS goes on to state that if a “Non-Submit MSA” is used, the Claimant will need to show that the entire amount of the “net settlement” was properly spent on injured related care before Medicare will pay bills. CMS does not define the “net settlement.” However, the “total settlement” is defined in Section 10.5.3 of the Guide as:
“the computation of the total settlement amount includes, but is not limited to, an allocation for future prescription medications of the type normally covered by Medicare, in addition to allocations for other Medicare covered and non-covered medical expenses, indemnity (lost wages), attorney fees, set-aside amount, non-Medicare medical costs, payout totals for all annuities rather than cost or present values, settlement advances, lien payments (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).”
Moreover, Section 411.57 of the MSP Statue allows procurement costs, i.e. attorneys’ fee and litigation costs, to be deducted from the settlement amount before repaying any conditional payments. Therefore, the “net settlement” will likely include all lost wage payments even those paid years before in a prior indemnity settlement, and all medical expenses whether they represent Medicare or non-Medicare treatment. In addition, Medicare will likely count the total payment expected under an annuity rather the present-day value or cost of purchasing the annuity. This can lead to an unsurmountable burden for a Claimant who must prove that they properly spent funds on injury related care greater than they actually received.
The burden to prove that the net settlement proceeds were properly spent is onerous for several reasons. First the amount that must be spent will not have lost wage and non-Medicare covered medical expenses deducted. Nor will it be reduced to the cost to purchase the annuity. In addition, any attempt to prove to Medicare that an amount lower than the net settlement should be accepted will require the Attorney’s involvement (and potentially the Carrier and Defense Vendor) years after the settlement. Do you as the Attorney really want to keep your file open until Medicare voluntarily begins paying bills or your client dies? Finally, your Client still has to prove that the funds were properly spent. This means your Client must only pay for treatment for the work injury that would normally be covered by Medicare, keep receipts, and file annual attestations.
Even the Insurance Carriers have realized how risky a non-submission may be and for that reason many offer a guarantee or indemnity program, where they promise that if “Non-Submit” MSA funds are exhausted, they will pay for your Client’s future injury related medical care. However, proceed with caution. Many of these contracts have clauses releasing them from all liability if your Client makes any improper payments. An improper payment could be your Client not understanding that a service is not covered by Medicare for a particular ICD 10 code or that a medication was prescribed for a non-FDA approved indication. In addition, many guarantee/indemnification programs require Clients’ funds to be administered by a Vendor hired by the Insurance Carrier. This creates an inherent conflict-of-interest. The Vendor who is either providing the guarantee/indemnification or dependent on future referrals from the Insurance Carrier who is providing the guarantee/indemnification is the one who makes the decisions regarding what treatment your Client may receive. Why would you place your trust in a Vendor to fairly administer the MSA account when they have a financial interest in ensuring that funds are never exhausted? It is clear by the language contained in §4.3, that CMS is not a fan of these so-called guarantee/indemnification programs either.
The best way to protect your Client and your practice is to submit the MSA to CMS for approval and hire a Professional Administrator (chosen by you) to ensure that all MSA funds are properly spent and reported.