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On January 10th, 2022, CMS released Version 3.5 of its Workers’ Compensation Medicare Set-Aside (“MSA”) Reference Guide that included an important “clarification” regarding workers’ compensation MSA allocations.

To make this clarification, CMS added a new section – Section 4.3 – to the Guide. Here is the language from this new section:

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.

Here is a summary of the most important points from this new section:

  • CMS has noticed that companies in the Medicare compliance industry offer various Workers’ Compensation MSA allocation products these companies claim will protect insurance carriers and Medicare beneficiaries against recovery by CMS of conditional payments CMS makes after settlement. These products are most commonly called “evidence-based MSAs” and “non-submit MSAs.”
  • CMS reminds us that 42 C.F.R. 411.46 authorizes them to refuse to pay for treatment related to injuries which are the basis of a workers’ comp settlement.
  • If a WCMSA allocation amount is determined but NOT submitted to CMS for review, CMS cannot be certain that their interests have been adequately protected.
  • Because of this, CMS considers non-submitted MSAs – potentially – as an attempt to shift the cost burden of such medical treatments from the workers’ compensation insurance provider and the Medicare beneficiary … to CMS.
  • As a matter of policy AND practice, CMS WILL deny payments for such treatments from non-submitted MSAs up to an amount equal to the TOTAL settlement, less procurement costs (i.e. the net settlement to claimant).
  • The claimant will have the burden of demonstrating to CMS complete exhaustion of the net settlement amount.

Our observations:

  • In Section 4.2 of the same WCMSA Reference Guide – literally on the same page as the new Section 4.3 – it states: “Submitting a WCMSA proposed amount for review is never required.”

This, in our opinion, means one of two things:

  1. The drafter of this new section failed to look through the rest of the Reference Guide to delete or modify language contradictory to the new section; or
  2. The new section was drafted in a sloppy manner, not meaning to imply that ALL workers’ comp MSA amounts must now be submitted to CMS for review in order to have any indemnifying effect.

Perhaps the drafter meant to state that an WCMSA amount must be calculated AS IF it were going to submitted to CMS for review. This seems, to us, the more likely intent, given CMS’s past issues with having sufficient capacity for reviewing MSA allocations.

Because of this lingering ambiguity, I believe CMS will likely provide additional clarification. Until such further clarification, it seems the prudent course of action is to submit all WCMSAs that meet the dollar-value thresholds to CMS for review.

  • In introducing the new section in Section 1.1, CMS uses the following language:

Clarification has been provided regarding the use of non-CMS-approved products to address future medical care (Section 4.3).

Because CMS clearly positions this new language as “clarification” rather than a “change” to the Reference Guide, CMS could hypothetically apply this rule to unsubmitted WCMSA amounts calculated prior to the date of this clarification.

  • IMPORTANT NOTE: CMS already has the information it needs from Medicare Section 111 reporting (mandatory for insurance carriers, self-insureds and TPAs) both to deny Medicare benefits to claimants AND to seek to recover post-settlement conditional payments.
  • Although this language only applies specifically to WCMSA amounts, it seems likely that CMS would apply this same rule to LMSAs … once CMS finally releases its long-awaited LMSA rules.

CP Resolutions, as a matter of both policy and practice, has always recommended that our clients calculate WCMSA amounts according to the guidelines set forth in the WCMSA reference guide. We have NOT always recommended submitting WCMSAs to CMS for review BECAUSE IT WAS EXPLICITLY NOT REQUIRED in the Reference Guide. We, like virtually everyone else in the industry, relied on that language to decide not to submit MSA allocations to CMS for review. In our opinion, CMS’s “clarification,” especially if applied to allocations made in good faith prior to the date of this clarification, is open to legal challenge.

Ultimately, what we do as advisors is lay out the options and the risks we understand are associated with each choice and allow our clients to make that informed choice.

If you have any questions about this, or would simply like to talk through the implications of this, just give us a call at 303-848-3232.