Author Archive for: Douglas L. Shaw, CPA, CMSP


CMS Announces Potential Upcoming LMSA Reviews

The Centers for Medicare and Medicaid Services (CMS) confirmed yesterday that they are considering expanding their voluntary Medicare Set-Aside review process to include Liability Medicare Set-Asides (LMSAs) and no-fault insurance MSAs.

Here is the announcement as it appeared on the CMS website:

“June 8, 2016 – Consideration for Expansion of Medicare Set-Aside Arrangements (MSA)

The Centers for Medicare and Medicaid Services (CMS) is considering expanding its voluntary Medicare Set-Aside Arrangements (MSA) amount review process to include the review of proposed liability insurance (including self-insurance) and no-fault insurance MSA amounts. CMS plans to work closely with the stakeholder community to identify how best to implement this potential expansion. CMS will provide future announcements of the proposal and expects to schedule town hall meetings later this year. Please continue to monitor this website for additional updates.”

This announcement is big news in the Medicare Set-Aside community, but not completely unexpected. In June 2012, CMS published an Advanced Notice of Public Rulemaking (ANPRM) in the Federal Register, seeking public comment on implementing formal LMSA reviews. The ANPRM received dozens of comments, including one from Medivest. However in October 2014, CMS withdrew its proposal because it failed to gain approval from the Office of Management and Budget (OMB). At that time, CMS said that they would revisit LMSAs at a later time. It seems that time has come.

As we contemplated in an April 2016 blog, it looks like the delay in the WCRC contract bid, was in fact, caused by CMS considering expanding into LMSA reviews.

We will keep you informed as further developments unfold.

Florida Supreme Court Declares Statutory Workers’ Comp Attorney Fee Schedule Unconstitutional

On April 28, just 540 days after oral arguments, the Florida Supreme Court, issued its highly anticipated decision in the Castellanos v. Next Door Company case, declaring that the attorney fee schedule in the Florida Workers’ Compensation statute is unconstitutional.

The claimant in this case, Marvin Castellanos, injured his neck, back and shoulders while working at Next Door Company in Miami, Florida and was eventually awarded $822.70 in benefits.

Castellanos’ lawyer worked 107 hours on the case and billed $36,817.50 in fees. Under a 2009 statute, plaintiff attorney’s fees are limited to: 20% of the first $5,000 in benefits, 15% of the next $5,000, 15% of the next $5,000, 10% of the remaining during the first 10 years of the claim and 5% percent after 10 years. So accordingly, the attorney received $164.54 for his work, which amounted to $1.54 per hour.

The high court struck down the fee schedule part of the statute as unconstitutional on the grounds that:

  • The claimant must be able to obtain a competent attorney “to navigate the thicket” of the complex workers’ compensation system.
  • The statutory attorney fee schedule is so low, in some cases, that it can prevent the injured person from hiring an attorney and from receiving benefits.
  • Therefore, the statutory fee schedule is unconstitutional because it denies the claimant due process and it violates the intent of the statute, which from the onset, is to provide disability and medical benefits to the injured worker.
  • The mandatory fee schedule “precludes any consideration of whether the fee award is reasonable to compensate the attorney”.

The long, fascinating history of this Florida attorney fee issue, with twists and turns like a trip down Lombard Street, is explained in detail in the Court’s 55-page opinion. Basically, from 1941 to 2009 the law provided for “reasonable attorneys fees”. In 1968, the Lee Engineering case outlined “reasonable fee factors, that were later codified in the statute in 1977. Fast forward to 2008, to the highly publicized case of Emmy Murray v. Mariner Health, where the Florida Supreme Court refused to rule on the constitutionality issue but upheld the “reasonable attorneys fees” part of the statute. Then in 2009, the Florida Legislator struck the “reasonable attorneys fees” language from the statute, leaving only the mandatory fee schedule.   And now, in 2016, in Castellanos v. Next Door Company, the Florida Supreme court struck down the mandatory fee schedule.

This decision in Castellanos v. Next Door Company is seen as a victory for the injured workers and their attorneys and a crushing defeat for the business and insurance communities who fear the return of higher workers’ compensation costs. One thing I think is certain: This is not the last we will hear of this issue.

To view, Castellanos v. Next Door Company, SC13-2082 April 28, 2016, click here.

To view a 2.17.2011 Medivest blog on the Florida claimant attorney fee issue click here.


CMS Extends WCRC Bid Solicitation Timetable to Include Additional MSA Reviews

The Centers for Medicare and Medicaid Services (CMS) has extended its original competitive bidding timetable for the Workers’ Compensation Review Contractor (WCRC) contract by a few months. This is a very important contract because the WCRC is the contractor responsible for reviewing all of Workers’ Compensation Medicare Set-Asides (WCMSAs).

The new WCRC contract bid dates are now extended, as follows:

  • Release of the bid solicitation – formerly 3.8.16, extended to 6.27.16
  • Proposal due date – formerly 4.8.16, extended to 7.27.16
  • Contract award date – formerly 6.20.16, extended to 11.7.16

Curiously, CMS stated that the reason for the extension is due to updates that are currently being made to the Statement of Work (SOW) to include the processing of other Non-Group Health Plan (NGHP) Medicare Set-aside Arrangements”. Does this mean that CMS is changing the WCMSA review thresholds, as we have heard? Or could it mean that CMS is formalizing the review of Liability Medicare Set-Asides (LMSAs), as they started to do in July 2012? We don’t know, but we will soon find out.

The other, non-timetable oriented, provisions of the WCRC contract solicitation remain unchanged, such as it being:

  • A Firm Fixed Price contract
  • For a twelve month base period with four, one-year renewal options
  • Set aside for a Section 8(A) minority-owned small business.

We will watch this issue closely and let you know as soon as something develops.

To view our previous blog about the original pre-solicitation notice, click here.

To review the original and the updated WCRC contract pre-solicitation notices, click here.


A Call for Medicare Set-Aside Reform

Currently, CMS focuses its post-settlement, MSP enforcement on the proper calculation of the Workers Compensation Medicare Set-Aside (WCMSA) amounts by paying about $5 Million per year to a contractor to review about 29,000 WCMSA arrangements. That contract is currently being sent out for competitive bids. But, as we mentioned in our previous blog, we think there is a better way to achieve the goals of MSP compliance.

First, it’s important to understand that the primary objective of the Medicare Secondary Payer (MSP) statute is to prevent Medicare from paying medical bills that insurance settlement money is supposed to pay for. Medicare Set-Aside (MSA) accounts are commonly used to protect Medicare from paying certain post-settlement medical bills by setting aside future medical treatment settlement monies in a separate bank account to be used later to pay those related medical bills.

However, about 95% of MSA money is “self-administered” by the injured person and the sad truth is that the majority of that money is being misspent, leaving Medicare to pick up the tab. The bottom line is that is does not matter how much cost, effort, expertise or scientific precision is poured into the MSA cost projection calculations. In the end, if a competent, accountable, neutral third party does not administer that money, MSP compliance fails.

For that reason, it seems to me that there is a much better, more common sense approach, to MSP compliance that would help the MSA industry and save billions of dollars for the Medicare Trust Funds:

1. MSA Professional Administration should be encouraged – If CMS were to recommend professional administration, require a self-administering claimant to attest to his/her competence and allow the professional administration fees to be paid from the MSA funds, professional administration would expand and Medicare would save billions of dollars.

2. Limit CMS MSA reviews – Most laws in the U.S. are not enforced by a comprehensive pre-audit, because it’s too expensive. CMS should adopt a more IRS-like model to reviewing WCMSAs, by publishing more detailed MSA compliance rules and then greatly reducing the number of WCMSAs that are reviewed to a fraction of what they are reviewing today. This would free up resources and would not affect accuracy of the calculations because the MSA compliance industry would comply with CMS’ published rules.

3. Encourage Structured Settlements – Currently, CMS allows MSAs to be funded by either structured settlement annuity payments or a lump sum payment, or a combination of both. However, structured settlements save more money for Medicare because the MSA account is funded by future periodic payments that make it much more difficult for an injured, self-administering, claimant to misspend. In addition, structured settlements are tax-free to the claimant and save money for the payer. CMS and the structured settlement industry should work together to find a way to increase the use of structured settlements with MSAs because it benefits them both.


CMS to Solicit Competitive Bids for Medicare Set-Aside Review Work

The Centers for Medicare and Medicaid Services has announced that it intends to release a solicitation for competitive bids for the Workers’ Compensation Review Contractor (WCRC) on or about March 8, 2016, with an award date of June 20, 2016. It will be a Firm Fixed Price contract with a 12-month base period plus four one-year renewal options. The contract will only be available to Section 8(A) minority owned, small businesses.

The current WCRC contractor, Provider Resources, Inc (PRI), reviews about 29,000 Medicare Set-Asides (MSAs) per year under what appears to be a $5,124,084 per year contract, for an astonishing modest revenue amount of $180.00 per MSA review. They began on July 1, 2011 when the MSA settlement industry was grinding to a crawl with 7-month turn around times. Kudos to Shawn Keogh-Harz, President and CEO of PRI, for successfully reducing turnaround times to 2-4 weeks, while also increasing customer service and improving first-pass approvals. CMS also deserves praise. They did a great job in selecting PRI and working closely with them to improve performance. While we hope that PRI will continue, we are optimistic that whoever the next contractor is will resume the good outcomes of the past few years.

Although the current WCRC contractor has done a great job, we believe that there is a better way to achieve the goals of MSA compliance (which again is to save Medicare money), than focusing so many resources on reviewing WCMSAs. We will address that in our next blog post.

To view the 2.22.2016 CMS WCRC pre-solicitation notice click here.

To view our 2011 blog post announcing the WCRC contract award to PRI, click here.


Medicare Secondary Payer Double Damages Imposed on Employer

The Medicare Secondary Payer (MSP) statute allows private citizens to collect double damages if they prevail in a “private cause of action” claim where they show that a “primary plan” did not reimburse Medicare for conditional payments previously made by Medicare. Congress authorized this to encourage private parties, who may be more aware of a Medicare reimbursement failure, to help enforce Medicare’s reimbursement rights.

Specifically, the MSP private cause of action language states the following:

42 USC 1395y(b)(3)(A) Private cause of action.—There is established a private cause of action for damages (which shall be in an amount double the amount otherwise provided) in the case of a primary plan which fails to provide for primary payment (or appropriate reimbursement) in accordance with paragraphs (1) and (2)(A).

Hull v. The Home Depot was a workers’ compensation case that resulted in double damages being awarded when a Michigan State Court determined that The Home Depot did not reimburse Medicare until after the plaintiff filed a private cause of action claim. Also, The Home Depot’s denial of the claim was no excuse for them to not reimburse Medicare. As a result, The Home Depot was ordered to pay an additional $42,233.16 to the claimant to reward him for his collection efforts on behalf of Medicare. If this case is appealed, we will follow it and let you know the result.

A very similar result occurred in a Kentucky case decided in 2014, The Estate of Clinton McDonald v. Indemnity Insurance, where O’Reilly Auto Parts was the employer. Click here to read our previous blog about that case.

Click here to read the 2.17.2016 Hull v. The Home Depot opinion.


CMS Acknowledges Conditional Payment Processing Backlog

On February 9, 2016, the Centers for Medicare and Medicaid Services (CMS) posted a notice on their website acknowledging that they were experiencing a backlog in processing Conditional Payment Letters (CPLs) and Conditional Payment Notices (CPNs). They stated that their Commercial Repayment Center (CRC) has issued 33,000 CPLs and CPNs since the October 5, 2015 transition to CRC and that they are actively engaged with the CRC to improve responsiveness and eliminate the backlog.

CMS has undergone quite a few changes recently regarding its conditional payment processing. On October 5, 2015, they transitioned responsibility for conditional recovery activities in Non-Group Health Plan (NGHP) situations to a newly formed group called the CRC. The Benefits Coordination and Recovery Contractor (BCRC) will continue to do recovery activities directly from the beneficiary.

Also on October 5, 2015, CMS began issuing CPNs, instead of their usual CPLs when the BCRC is notified of a settlement, judgment or award from a beneficiary, his or her attorney or other representative, or by Section 111 reporting.

To view a little cheat sheet I put together regarding past CMS Medicare Secondary Payer contractors Click here.

To view the February 9, 2016 CMS notice click here.


Florida Supreme Court Rules on Medicare Payments and the Collateral Source Rule

The Florida Supreme Court, in Joerg v. State Farm (October 15, 2015), decided an important case that will have a significant impact on settlements in Florida. They ruled that the Florida collateral source rule prohibits the defense from introducing evidence of future Medicare and Medicaid benefits in a personal injury trial, overturning their previous ruling in Florida Physician’s Insurance Reciprocal v. Stanley, 452 So. 2nd 514 (Fla. 1984) (Stanley), which carved out a limited exception for free, or low cost future collateral benefits.

For further details, I am re-posting below, with permission, an excellent blog article written by four Florida attorneys from the national law firm Wilson, Elser et al.

Florida Supreme Court Rules Defendants May Not Admit Evidence of Potential Collateral Source Benefits Provided by Social Legislation, Such as Medicare and Medicaid
October 23, 2015 by Authors: Nicholas D. Freeman, Rod Janis, Anthony P. Strasius and Kathy Arline

In John Joerg, Jr., etc., et al. v. State Farm Mutual Automobile Insurance Co., No. SC13-1768 (October 15, 2015), the Florida Supreme Court held that defendants are precluded from introducing evidence regarding collateral source benefits that plaintiffs may receive in the future from social legislation, such as Medicare and Medicaid. The decision receded from the court’s prior decision in Florida Physician’s Insurance Reciprocal v. Stanley, 452 So. 2d 514 (Fla. 1984), which had allowed limited admission of evidence concerning certain free or low-cost future collateral source benefits. The Joerg decision has significant ramifications because it removes a tool that could be used to diminish the jury award for the plaintiffs’ future damages.

Florida law generally holds that evidence of collateral source benefits is not admissible because it will likely confuse the jury. However, Florida Statute §768.76 requires the court to reduce the jury verdict by any collateral source benefits received by the plaintiff. There is no reduction of collateral source benefits for which a subrogation or reimbursement right exists, and the reduction shall be offset to the extent of any amount that has been contributed on behalf of the plaintiff to secure the benefits. The statute specifically notes that benefits received under Medicare and similar federal programs are not considered collateral sources.

In Florida, evidence that a claimant is qualified to receive benefits from social legislation such as Medicare or Medicaid is considered highly prejudicial and is typically not admissible. However, the Stanley decision created a potential narrow exception. In Stanley, the plaintiffs alleged that the defendants’ medical negligence resulted in the intellectual disability and cerebral palsy suffered by their son. In that decision, the Court determined the defendants were permitted to introduce evidence of “free or low-cost charitable and governmental programs available in the community” to pay portions of the son’s future health care. The Court held that the evidence was admissible because it was relevant to the issue of determining damages for the plaintiffs’ future expenses. Since the Stanley decision, the trial courts have wrestled with the issue of whether future benefits that may be provided by Medicare and similar programs are “free or low-cost” benefits that are relevant admissible evidence.

In Joerg, the plaintiff was struck by a car while riding his bicycle. He was considered a developmentally disabled adult who lived with his parents his entire life, and as a result of his disabilities he was entitled to reimbursement from Medicare for his medical bills. He sued State Farm Mutual Automobile Insurance Company, and received a judgment at trial. The trial court did not permit the introduction of evidence concerning the plaintiff’s future Medicare benefits, and State Farm pursued an appeal.

Supreme Court’s Rationale
On appeal, the Supreme Court held it is improper to introduce evidence concerning Medicare benefits because plaintiffs are required to reimburse Medicare for any future benefits that are provided, and because the future benefits are uncertain. The Court explained that the Centers for Medicare and Medicaid Services have several tools to require the plaintiff to repay future Medicare benefits pursuant to the Medicare Secondary Payer Act. Thus, regardless of whether an individual paid for the benefits, the Court found they are not “free” benefits that should be admissible under the rationale in Stanley.

The Court further noted it was speculative to attempt to calculate damage awards based on benefits that a plaintiff had not yet received and may never receive. This is particularly true should the plaintiff’s eligibility or the benefits become insufficient or cease when they are dependent on limited public funding and unpredictable legislative action. Thus, the Court receded from the Stanley decision to the extent that it supported admission of evidence of future benefits potentially available through social legislation.
The Court bolstered its decision, saying that it was consistent with public policy concerns. It pointed out that excluding evidence of the collateral source benefits avoids the inherently prejudicial effect on the plaintiff. Further, the Court concluded that exclusion was also proper to ensure that tortfeasors do not enjoy a windfall at the expense of taxpayers who fund social legislation benefits.

The result will have a significant impact for tortfeasors and their insurers. The tortfeasors have lost a tool to establish there will be limited future damages based on the probable existence of benefits that will reduce the cost of the plaintiff’s future medical expenses. Defense attorneys will have to find creative ways to protect their clients from this ruling and its impact on the changing face of litigation. These could include using experts to address reasonable anticipated costs of future medical treatment; aggressively deposing the billing employees of medical providers to find errors in the use of CPT codes that inflate past charges; or obtaining admissions that the providers never actually received payment for full amounts.


The History of ICD-10 Codes

Forbes, and others, are reporting that Medicare’s October 1, 2015 rollout of the new ICD-10 medical codes is going smoothly for large insurers. Also, from everything I have heard, the Medicare Secondary Payer compliance industry, which has been preparing for this for years, is experiencing few problems switching from ICD-9 to ICD 10.

Much has been written about the much-anticipated switch to ICD-10, but very little about the origin and purpose of the ICD medical coding system. So, this piqued my curiosity and here is what I found out.

In 1763, the first attempt to classify diseases is credited to a French physician, François Boissier de Sauvages de Lacroix, who identified 2,400 individual diseases. Many physicians updated the list to add diseases as more were discovered. In 1855, the first revision of standards for classification was published in Paris, which established a model for how the coding process should work. In 1948, the United Nation’s World Health Organization (WHO) created a Sixth Revision International Classification list. By 1955, the seventh revision of this list was called, the “International Classification of Diseases (ICD)”.

ICD is the WHO’s standard diagnostic tool for classifying diseases and other health problems. It is used for many types of health records, death certificates, mortality and morbidity statistics and for reimbursement and resource allocation decision making.

ICD-9, the 9th revision, uses 3-5 digits and has been used in the United States and internationally since about 1979. ICD-9-CM Volume 3 was added in the United States for procedural codes for hospitals.

ICD-10 codes, which use a 3-7 digit alphanumeric scheme, came into use by the WHO countries in 1994. The United States is one of the last developed countries to adopt ICD-10. After several delays, the U.S. finally begin using ICD-10 codes on October 1, 2015. ICD-10 will expand the number of diagnostic codes, more than fivefold, from the previous 13,500 found in ICD-9 to about 69,000 codes IN ICD-10.

In addition, the Centers for Medicare and Medicaid Services (CMS) has developed a completely new procedural coding system for reporting hospital inpatient procedural services to Medicare called ICD-10-PCS which will expand the number of hospital inpatient procedure codes from 4,000 to 71,000, bringing the total new ICD-10 codes to about 144,000.

Work on ICD-11 is well underway and a final draft is expected in 2018.

Medicare Set-Aside Bill Introduced in House and Senate

On June 4, 2015, Senators Rob Portman (sponsor, R-OH) and Bill Nelson (co-sponsor, D-FL) introduced Senate Bill 1514 into the U.S. Senate to amend the Medicare Secondary Payer Statute. An identical bill, HR 2649, was also introduced in the House the same day by Representatives Dave Reichert (sponsor, R-WA) and Mike Thompson (co-sponsor, D-CA). These bills are identical to S 2731, introduced in 2014, which did pass. It is also very similar to House Bill 1982, which was introduced in 2013 and also did not pass.

S 1514 and HR 2649 primarily limit the application of the Medicare Secondary Payer (MSP) statute and provide for a “Qualified Medicare Set-Aside” as a way to comply with the statute, as follows:

Threshold for MSP Treatment
These identical bills amend the Medicare Secondary Payer (MSP) statute to provide an exemption for workers’ compensation settlements for any of the following:

  • The total settlement is $25,000 or less
  • The claimant is not eligible for Medicare at settlement date and is unlikely to become eligible for within 30 months
  • The claimant is not eligible for post-settlement payment of medical expenses by a workers’ compensation plan
  • The settlement agreement does not limit or extinguish the right of the claimant to have his medical bills paid by the workers’ compensation insurance plan.

Qualified Medicare Set-Aside
They amend the MSP Statute to provide that if a workers’ compensation settlement includes a “qualified Medicare set-aside” (QMSA) then that settlement will satisfy any obligation, with respect to future payment reimbursement obligations under Section 1395y(b)(2) of the MSP statute. MSA submissions to CMS would remain optional, however there would be new approval deadlines and appeals options added.

Requirements of a Qualified Medicare Set-Aside:

  • Reasonably takes into account the full payment obligation for present and future medical payments.
  • It must be determined based on the Illness or injury giving rise to the workers’ compensation claim involved, The age and life expectancy, reasonableness of and necessity for future medical expenses, duration of and limitations on benefits payable under the workers’ compensation law or plan, regulations and case law relevant to the state workers’ compensation law or plan
  • It must include payment for items and services that are covered by the workers’ compensation law or plan
  • It must be based on the applicable workers’ compensation state fee schedule
  • In the case of a compromise settlement, a QMSA can be calculated using a proportional adjustment that reduces the QMSA by the same proportion that the total settlement was reduced.

Approval of a QMSA
The two new proposed bills maintain the current optional submission and CMS review process, however they give the submitter some new and significant appeals rights. They give CMS 60 days to review the QMSA. If CMS fails to meet that deadline, the submitter has 30 days to appeal to CMS or to an administrative law judge. If CMS meets the deadline, the submitter can still appeal CMS’ decision within 30 days to CMS, an administrative law judge or a judicial review. CMS again has 30 days to respond to this appeal. If CMS responds to the appeal with a decision within 30 days, the submitter can appeal that decision, within 30 days to an administrative law judge. If CMS does not respond within 30 days, the submitter can appeal to an administrative law judge. If the administrative law judge does not respond within 90 days, the submitter can request a judicial review.

Optional Direct Payment of Medicare Set-Aside
A claimant or payer of a workers’ compensation settlement agreement may elect, upon written consent of both parties, to transfer to the Secretary a direct payment of the QMSA. This election will satisfy any payment obligations under Section 1395y(b)(2) of the MSP Statute.

Protection from Certain Liabilities
No one shall be liable for any payment amount established under a Medicare set-aside for an item or service provided to the claimant that is greater than the related workers’ compensation fee schedule amount. In addition, a provider may not bill a Medicare set-aside more than the payment rate used in the Medicare set-aside or the Secretary may apply sanctions.

Election of Professional or Beneficiary Self-Administration of an MSA
Nothing in these amendments prevents an individual from electing to utilize professional administration services or to self-administer payments of their MSA.

Treatment of State Workers’ Compensation Law
If a workers’ compensation settlement agreement is accepted in accordance with the workers’ compensation law of a jurisdiction, then that acceptance shall be deemed conclusive. That includes determination of reasonableness of the settlement value, any allocation of funds, the projection of future indemnity or medical benefits that may be payable under state workers’ compensation law.


There are many positives with this bill, but one major concern. On the positive side, I think most agree that a $25,000 threshold, time limits for CMS approval and appeals rights are much needed in the MSA process.

However, the most controversial provision is the Direct Payment Option, where with the written consent of both settling parties, the MSA can be paid directly to Medicare to satisfy the payment provisions of the Medicare Secondary Payer provisions. This apparently would mean that, if that option is chosen, any conditional payments would not have to be repaid to Medicare and no MSA account would need to be set up. Many concerns have been voiced about this option, because the current system of funding an MSA has many benefits over paying that money to the federal government. Some of those concerns include:

    • Structured settlements would not be available if parties pay the full MSA amount to Medicare and therefore the present value discounts, tax benefits and conservation of principle benefits of structures would also be lost.
    • Future inheritance of any remaining MSA funds of the claimant, upon the death, would not be available because all the MSA funds were paid to the federal government.
    • Medicare deductibles and co-pays may have to be paid sooner by the claimant, because Medicare would start paying injury related medical bills right away. This would cost the claimant more money.
    • Professional administration, a vehicle that has worked very well for many years to save Medicare money and help the claimant conserve his MSA money, would not be available on these cases.
    • Medicare may not have the resources and systems in place to pay injury related medical bills because currently they only pay Medicare allowable medical bills.

Medivest will continue to monitor the progress of these bills and will keep you informed as news develops.


Medicare Advantage Plan Awarded Double Damages in MSP Private Cause of Action Case

An interesting Medicare Secondary Payer (MSP) private cause of action case has just been decided that involves a Medicare Advantage Plan (MAP) and double damages.

Medicare Part C established Medicare Advantage Plans (MAPs) in 1997 to give Medicare beneficiaries the option of receiving Medicare benefits through private insurers. The goal was to harness the power of private sector competition to hopefully create a less expensive Medicare system.

The pertinent facts in this case are that Mary Reale was enrolled in a Humana Gold Plus Medicare Advantage Plan (MAP) when she sustained injuries in a slip-and-fall accident at a condominium complex. Humana paid $19,155.41 for her injury related medical expenses. Ms. Reale later filed a personal injury claim with the condo’s liability carrier, Western Heritage, in state court. While that state court case was awaiting an appellate court decision, the Humana v. Western Heritage action was filed in the United States District Court for the Southern District of Florida by Humana to recover $19,155.41 in conditional payments plus another $19,155.41 in double damages.

The U.S. District Court found that:

  • The Third Circuit’s analysis in In re Avandia 685 F.3d was persuasive that the statutory text of the MSP clearly indicates that MAPs can bring a private cause of action.
  • Western Heritage was a primary payer under the MSP Act and is responsible for reimbursing Humana.
  • Humana was statutorily entitled to recover double the amount that it paid on behalf of Ms. Reale.

The U. S. District Court granted the plaintiffs Motion for Summary Judgment and ordered Western Heritage to pay $38,310.82 to Humana.

To read Humana v. Western Heritage, 2015 U.S. Dist. Lexis e31875 click here.


The Special Needs Trust Fairness Act is Reintroduced in the House and Senate

The Special Needs Trust Fairness Act of 2015 was introduced into the U.S. House (H.R. 670) by Representatives Glenn “GT” Thompson (R-PA) and Frank Pallone (D-NJ). It was also introduced into the Senate (S. 349) by Senators Chuck Grassley (R-IA) and Bill Nelson (D-FL). A previous version of the bill, The Special Needs Trust Fairness Act of 2013, failed to become law in the previous session of Congress.

Special needs trusts (SNTs), also called a supplemental trust, were established by Congress in 1993 to help individuals with disabilities remain eligible for means-tested government benefit programs like Medicaid, even if they get a cash insurance settlement or an inheritance, etc. that would otherwise disqualify them from these means-tested programs. The general rule is that the SNT cannot pay for food, clothing or shelter because Social Security Income is designed to pay for that. However, the SNT can pay for “supplemental needs” like: physical therapy, medications, medical treatment, transportation, education, furniture, etc. Also, no direct payments to the beneficiary are allowed.

Also under current law, an SNT can only be established by a parent, grandparent, legal guardian or court. Supporters of the Special Needs Trust Fairness Act of 2015 hope to change that by adding the words “the individual” to the beginning of that list.

Supporters of this bill say that individuals with disabilities should be allowed to establish their own SNT if they are otherwise competent and capable of doing so. In a case where the individual has no parent, grandparent or guardian, it is an undo hardship to have to petition a court and an undue burden on the court system. Also, supporters argue that this bill corrects an almost certain oversight when the law was drafted.

Supporters of the bill include: the National Council of Elder Law Attorneys (NEALA), the Academy of Special Needs Planners (ASNP) and the American Association of People with Disabilities (AAPD).

Mark Perriello, the President and CEO of the American Association of People with Disabilities (AAPD), the nations largest disability rights organization, endorses the bill, saying, “The AAPD strongly supports the SNT Fairness Act of 2015 because the legislation eliminates discrimination against people with disabilities in creating special needs trusts and therefore promotes our self-sufficiency and independence”.

Click here to view H.R. 670
Click here to view the press release from Congressman Glenn Thompson



CMS Updates WCMSA Reference Guide

On January 5, 2015, the Centers for Medicare and Medicaid Services (CMS) updated its Workers’ Compensation Medicare Set-Aside Arrangement (WCMSA) Reference Guide to version 2.3. The initial version of this guide was published on March 1, 2013, which started a welcomed initiative to publish a resource to help users understand the process used by CMS for approving WCMSAs.

Version 2.3 of this guide listed the following changes in Section 1.1:

  • Updated some language to clarify and to correspond with recent changes to letters.
    • Corrected a reference from 42 CFR 411.46 to Section 1862(b)2) of the Social Security Act.
    • Clarified reference to costs related to the workers’ compensation claim, rather than the compensable injury.
    • Clarified reference to future medical items and services as “Medicare covered and otherwise reimbursable”.
    • Clarified that CMS approves the WCMSA amount, not the WCMSA upon submission of a request.
    • Correspondingly, clarified language referring to submission of a proposed WCMSA amount, rather than a WCMSA proposal.
    • Restated the comparison of fee-schedule vs. full-and-actual-costs pricing as the basis of pricing the proposed amount, rather than the basis of payment from an approved WCMSA account.
    • Clarified attestation vs. accounting wording.
    • Clarified procedural results when Medicare is not provided with information in response to a development request.
    • Removed the word “form” from references to documents that are not forms.
  • Added language to address schedule change for hydrocodone compounds from schedule III to schedule II. See Section
  • Changed deadline for responding to development requests for submission through the WCMSA Portal to 20 from the previous 10 days. See Sections 9.4.1 and 9.5.

The inclusion of language to address hydrocodone compounds changing from schedule III to schedule II corresponds to a previous announcement CMS published on November 17, 2014 titled, Notice of Hydrocodone Combination Product Coverage Changes in Medicare Part D Effective for WCMSA Proposals Submitted on or after January 1, 2015. It is also important to note the users now have 20 days to respond to development requests through the WCMSA Portal instead of the previous 10 days.

We applaud CMS for its continuing efforts to provide and update this valuable reference guide, and we will keep you informed as changes are made.


U.S. Bankruptcy Court Decides WCMSA Funds are Exempt from Chapter 7 Bankruptcy

The United States Bankruptcy Court for the Middle District of Pennsylvania has decided that assets in a Workers’ Compensation Medicare Set-Aside (WCMSA) are exempt property and therefore not available to creditors in a Chapter 7 bankruptcy case (In Re: Jesus Arellano, Debtor Steven M. Carr, Chapter 7 Trustee Objectant v. Jesus Arellano, Respondent. Decided January 5, 2015).

Mr. Arellano sustained a broken hip at his place of work in 2010. In 2011 he received a settlement from his employer and from the Worker’s Compensation Fund for the State of Maryland for a lump sum of $225,000 plus $72,741.88 for a WCMSA. The WCMSA was for the estimated amount of his future medical treatment for his injuries.

Although Mr. Arellano acknowledged in the settlement agreement that he was to only use the funds to pay for his medical expenses, he promptly bought a 2005 Ford F-150 for $17,000, some real property for $85,000 and another piece of real property for $86,000. In 2012 he sold the first property to his brother for $90,000 and took back an installment note, which will pay him $1,200 per month for eight years.

Mr. Arellano then filed for Chapter 7 bankruptcy in March of 2014 and claimed exemptions for the Ford 150, both pieces of real property and the workers’ compensation settlement monies including the WCMSA. He failed to disclose the installment note receivable as income or as an asset.

The bankruptcy trustee, who represents the creditors, objected to these exemptions, claiming that federal bankruptcy law does not allow Mr. Arellano to exempt property that was purchased with the proceeds of a workers’ compensation settlement.

Court’s Discussion
In a well-reasoned 21-page opinion, the court reached the following conclusions:

  • The property was “traceable to payment in compensation of loss of future earnings of the debtor… To the extent reasonably necessary for the support of the debtor and any dependent of the debtor” under 11 U.S.C. §522(d)(11)(E).
  • Because the WCMSA funds were held in an “express trust” for the benefit of medical services related to Mr. Arellano’s workers’ compensation claim, they were not property of his bankruptcy estate.
  • Converting the WCMSA funds to real and personal property does not mean that they were not necessary for the support of the debtor.
  • Whether or not the debtor may have misused the WCMSA funds was not an issue before the Court and in any event the WCMSA funds are not property of the estate.

Court Opinion
The Court decided in favor of the debtor, Mr. Arellano, allowing all of the proceeds from the settlement and all property acquired with those proceeds (including the subsequent installment note receivable) to be exempt from the claims of the creditors in the Chapter 7 bankruptcy.

This case provides some much needed guidance on an often-discussed topic in our industry, namely, what happens to MSA funds in a bankruptcy? Clearly, this court held that MSA funds are exempt from bankruptcy proceedings.

The concept that a WCMSA is an express trust where settlement monies are held for the benefit of medical providers is one that I have not heard before. The purpose of a WCMSA is not to protect the medical providers. They will likely be paid without the WCMSA. The purpose of the WCMSA account is to protect Medicare by making sure that Medicare is secondary to insurance settlement money.

It’s interesting the U.S. Bankruptcy court did not address the issue of the misspent “trust” funds. If these monies were held in trust for the benefit of the future medical providers, then wouldn’t converting them to a truck, real estate and later an installment note receivable be a breach of fiduciary duty? Perhaps that is outside the purview of a bankruptcy court. But, how can you pay a doctor bill with a truck?

Medicare has a severe penalty for the misuse of WCMSA funds, which is the loss of Medicare benefits until the money is restored to the WCMSA account. It would be a tragedy if this claimant were to lose Medicare benefits in the future and not be able to get medical care. This is just another example of why the settling parties should consider professional administration in every WCMSA settlement.


McCarroll v. Livingston Parish Council – After Review, the Ruling on the Field Stands

Reading this case reminds me of instant replay in football. The Louisiana Court of Appeal, First Circuit, upheld the Office of Workers’ Compensations (OWC) finding that the entire settlement should be vacated by saying, “Based on our thorough review of the record, we cannot say that the OWC manifestly erred in vacating the Order of Approval… Accordingly, we find no error in the OWC’s finding… For these reasons, the OWC judgment vacating the settlement is affirmed”. In other words, there was no indisputable, conclusive evidence to reverse the OWC’s ruling so the ruling on the field stands.

The facts in this case are rather intricate. Basically, a settlement agreement was approved by the OWC on March 9, 2009 with a misunderstanding as to who would pay for a February 16, 2009 cervical fusion surgery. Mr. McCarroll thought that Medicare and the insurer would pay. Medicare did not pay, apparently because, it was a pre-settlement expense that was the responsibility of LWCC. LWCC refused to pay because it believed the surgery would be paid out of the MSA settlement monies that it awarded to McCarroll, which specifically included monies to pay for the surgery.

The matter went to trial on April 24, 2013 with the sole issue of who was responsible for the surgery bill that occurred prior to the settlement date. The trial court judge vacated the settlement finding LWCC misrepresented, although unintentionally, that Medicare would pay for the cost of the surgery that exceeded the MSA funds.

The defendants appealed and The Louisiana Court of Appeal, First Circuit, affirmed the trial courts decision to vacate the settlement, finding that there was no indisputable evidence to reverse the ruling.

Click here to view McCarroll v. Livingston Parish Council and LWCC, Court of Appeal, First Circuit decision.


OMB Rejects CMS’ Liability MSA Rule

Last week, the Centers for Medicare and Medicaid Services (CMS) withdrew its recently submitted Notice of Proposed Rulemaking (NPRM) related to protecting Medicare’s interests as a secondary payer with respect to future medical obligations in liability settlements, because it failed to gain approval from the Office of Management and Budget (OMB).

Although the exact reasons for the OMB’s disapproval are not known, the OMB can reject a proposed rule for a variety of reasons, including costs v. benefits, conflict with other agencies or other rules, economic impact, etc.

In June of 2012, CMS took the first step in this process by releasing an Advanced Notice of Proposed Rulemaking (CMS-6047-ANPRM) to solicit public comment on how to implement an MSP process for liability settlements. This ANPRM received many public comments, including one from Medivest, where we strongly encouraged CMS that it is a “practical necessity” that CMS allow an equitable reduction of a liability Medicare Set-Aside (MSA) whenever a liability claim settled for less than full value.

On August 1, 2013, CMS took the next step by sending a Notice of Proposed Rule Making (NPRM) to OMB for their approval. The NPRM was never made public because OMB did not approve it, and on 10/8/2014, CMS withdrew it.  So unfortunately, we do not know what CMS’ specific plan was regarding liability MSAs. However, we fully anticipate that CMS will submit another NPRM to the OMB in the near future.

So while it seems we came very close, nothing has changed regarding how settling parties should consider and protect Medicare’s interests as a secondary payer in liability claims.  We still have a 1980 Medicare Secondary Payer (MSP) statute to deal with, and the existing best practice of analyzing each case to determine if a liability MSA is the best risk assessment decision should still continue.

To view Medivest’s blog announcing the June 2012 CMS-6047-ANPRM click here.

To view Medivest’s response to CMS-6047-ANPRM click here.

To view official OMB notification of withdrawn the NPRM click here.




NCCI Releases Workers’ Compensation Medicare Set-Aside Research Paper

The National Council on Compensation Insurance (NCCI), the nation’s most experienced provider of workers’ compensation information, has released its much-anticipated report on Medicare Set-Asides and Workers’ Compensation.  In one of the most comprehensive research projects on this topic to date, NCCI examined 2,200 WCMSAs submitted by Gould and Lamb to CMS between September 2009 and November 2013.

Some of the key findings are as follows:

  • After a period of dramatic lengthening, CMS’s processing time for MSAs has recently declined.
  • The ratio of CMS-approved MSA amounts to submitted MSA amounts has declined over time.
  • The differences between proposed and approved MSA settlements have been largely due to prescription drug costs.
  • Most MSAs are for claimants who are Medicare-eligible at the time of settlement.  Most of these claimants are Medicare-eligible because they have been on Social Security Disability for at least two years.
  • MSAs make up about 40% of total proposed settlements.  Of this 40%, prescription drugs make up half of proposed MSA cost.
  • CMS approved $1.8 billion of WCMSAs in FY 2013.
  • Of the WCMSAs reviewed in the study:
    • 71% were for claimants between 50-70 years old
    • 59% were for settlements greater than $100,000
    • 45% had MSA amounts of less than $25,000
    • 54% involved musculoskeletal impairments
    • 56% were paid as a lump sum
  • From Q2 2010 through Q2 2012, a little less than half of the MSAs submitted to CMS were approved as submitted.
  • In Dec 2012, there was a large one-time spike where 92% of the MSAs submitted were approved as submitted.

In May of 2014, these findings were presented by Mr. Barry Lipton, Practice Leader and Senior Actuary, NCCI Holdings, at the NCCI Annual Issues Symposium in Orlando, FL.  We appreciate this important analysis by NCCI on WCMSAs submitted to CMS, and thank them for their efforts.


MSP Broadens Possibilities for Private Causes of Action

On Monday,  a U.S. District Court in Michigan denied a request to dismiss a private cause of action motion brought under the Medicare Secondary Payer (MSP) Act in a no-fault, motor vehicle accident case (Nawas v. State Farm) where the claim has not yet settled or been established by judicial determination.

Nawas, (Plaintiff) alleged that, since State Farm (Defendant) refused to pay a no-fault insurance claim following an automobile accident, Medicare stepped in and paid conditionally.  Thus, the Plaintiff seeks to recover from the Defendant double the amount of these conditional payments.

The Defendant’s sole argument was that the Plaintiff’s claim that it refused to pay is premature since there has been no judicial determination or settlement establishing the defendant’s “responsibility to make payment”, as required by the MSP Act.

After analyzing several other court cases and the statute itself, the U.S. District Court held that the “demonstrated responsibility” provision of the MSP Act limits only lawsuits against tortfeasors, not lawsuits against private insurance companies. For that reason, it denied the Defendant’s motion to dismiss the case.

It will be very interesting to see what happens as this case moves forward.

The purpose of the MSP private cause of action clause is to allow double damage recovery to private parties to encourage them to file suit against insurance carriers to collect money owed to Medicare. A few days ago in the McDonald v. Indemnity case, the court awarded the claimant’s estate $184,514 for their efforts in successfully filing a lawsuit to collect the same amount for Medicare.  Now, in Nawas v. State Farm, the court denied a motion to dismiss a private cause of action suit in a no-fault auto insurance case prior to a settlement or judicial determination.

It sure seems like this up-to-now, little-used MSP provision is becoming popular.  Also, these two cases should be a strong signal for carriers to make sure they promptly take care of paying the conditional payments that they owe. Stay tuned.  We will follow these two cases and let you know what develops.


CMS Allows Partial Social Security Numbers on Future Reporting

In accordance with Section 204 of the Strengthening Medicare and Repaying Taxpayers Act of 2012 (SMART Act), the Centers for Medicare and Medicaid Services (CMS) has issued an Alert that allows Responsible Reporting Entities (RREs) to report partial Social Security numbers to CMS.

Specifically, effective January 5, 2015, when a Non-Group Health Plan (NGHP) cannot obtain Medicare beneficiaries Health Insurance Claim number (HICN) or full Social Security number (SSN), they may instead report the following information instead to enable CMS to properly identify a Medicare Beneficiary:

  • Last five digits of SSN
  • First initial
  • Surname
  • Date of Birth and
  • Gender

If NGHP RREs are unable to obtain or do not provide the HICN, full SSN, or any of the above listed data elements, they must document their attempts to obtain this information.


MSP Private Cause of Action opens doors for claimants

The Medicare Secondary Payer Act (MSPA) allows a private party who is aware of non-payment by a primary plan to file a civil action to enforce Medicare’s rights.  It allows double damages to be recovered by the plaintiff as an incentive to file the lawsuit so that they can pay back the government and have money left over as a reward for their efforts.  The statute at 42 U.S.C. 1395y(b)(3)(A) specifically reads as follows, “Private cause of action – There is established a private cause of action for damages (which shall be in an amount double the amount otherwise provided) in the case of a primary plan which fails to provide for primary payment (or appropriate reimbursement) in accordance with paragraphs (1) and (2)(A).”

Clinton McDonald (McDonald) was injured in a motor vehicle accident while at work in 2007, and in 2010 the Kentucky Workers’ Compensation Board found that his death was caused by the accident and ordered Indemnity Insurance (Indemnity), or his employer, to pay for his medical expenses.

On September 13, 2012, the Estate of Clinton McDonald (the Estate) filed a suit in the US District Court for the Western District of Kentucky (District Court) against Indemnity, alleging that Indemnity failed to reimburse Medicare for the medical expenses of Mr. McDonald that Medicare paid from the time of his motor vehicle accident on May 10, 2007 and his death on November 5, 2007.   The Estate also claimed that it was entitled to double recovery of that sum under the private cause of action provision in the MSPA.  A week after the lawsuit was filed on September 13, 2012, Indemnity received a Conditional Payment Letter from Medicare and then a Final Demand Letter came three weeks after that asking Indemnity to pay $184,514.24.  Indemnity promptly paid Medicare and filed a motion to dismiss the Estate’s  complaint.  After all, Medicare had been paid so the Estate had no case, correct?  Well, not so fast.

In the motion volley that followed, the Estate claimed that it was entitled to summary judgment because its complaint “spurred Indemnity to pay Medicare, and that its suit accomplished what the MSPA private cause of action was meant to accomplish – an errant workers’ compensation carrier has now paid Medicare what it owed Medicare for the past two years”.

Indemnity claimed, among other things, that since it paid Medicare, it did not fail to provide appropriate reimbursement as set forth in 42 U.S.C. 1395y(b)(3)(A).

The District Court did not accept Indemnity’s “no harm: no foul” argument saying that it disregarded the two years between the order for payment from the Workers’ Compensation Board and the filing of the lawsuit.  The court also stated that “once a private cause of action has been lodged against a defendant, a defendant cannot escape the double damages provided for in that provision by paying single damages to Medicare.”

So, on August 28, 2014, the District Court concluded that the Estate was entitled to a summary judgment against Indemnity for $184,514.24.

This is an important decision in the Medicare Secondary Payer compliance world because it opens the door, and gives claimants an incentive, to file private cause of action lawsuits, making it even more important that Medicare’s conditional payments are paid promptly by the employers/carriers.