The Yin and Yang of MSP Compliance in the Disputed Claim

11.1.2018 Blog

The Medicare Secondary Payer Act provides that Medicare is a Secondary Payer when a primary payer has responsibility for payment. Responsibility for payment may be “demonstrated by a judgment, a payment conditioned upon the recipient’s compromise, waiver or release (whether or not there is a determination or admission of liability) of payment for items or services included in a claim against the primary plan or the primary plan’s insured, or by other means.” 42 U.S.C. Section 1395y(b)(2)(B)(i). The underlying state Workers’ Compensation Act however, governs the “responsibility for payment”. Although the Medicare Secondary Payer Act is a federal law, several courts have confirmed that the “responsibility to make payment with respect to an item or service is generally a matter of state law.” CIGA v Burwell, 227 F. Supp.3d 1101,1113 (C.D.Cal 2017), Caldera v Ins. Co. of the State of Pennsylvania, 716 F.3d 861 (5th Cir.2013).

Workers’ Compensation cases generally fall into three categories: those that are fully accepted; those that are partially disputed and those that are completely denied. The characterization of the claim into one of these three categories will likely drive the Medicare Secondary Payer compliance strategy for the claim. Although a fully funded Medicare Set-Aside may be appropriate for the fully accepted category, it is a less than optimal solution in the partially disputed or completely denied category of claims. So how can one give Medicare’s interests consideration when it comes to a disputed settlement? How do you balance the employer’s position that the case is not compensable with Medicare’s interest in being a Secondary Payer in a settlement?

There are several options available to the parties. If the parties choose to avail themselves of CMS’ voluntary review process when the proposed settlement meets CMS’ internal workload review threshold, the parties may ask CMS to find that it has no interest in the settlement. This is commonly referred to as a “zero dollar waiver MSA.” Historically, CMS would find that Medicare had no interest in a disputed proposed settlement, when the employer/carrier had not paid for any medical and indemnity benefits in the denied claim and the settlement agreement had not been executed prior to CMS’ determination in the matter.

Section 4.1.4 “Hearing on the merits of a Case” of the Workers’ Compensation Medicare Set-Aside Arrangement (WCMSA) Reference Guide (Version 2.8, October 2018) was originally updated in 2017 to address disputed settlements. It states: “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 will generally 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…” Given this updated provision, CMS may still grant a zero dollar waiver MSA in a proposed settlement when no medical or indemnity payments have been made and legal support for the denial is provided. If a full and final Court Order has been issued after a hearing on the merits, CMS will generally defer to the Court Order if the claim is submitted for review.

Since CMS review is purely voluntary, parties may “opt out” of it and instead choose to consider Medicare’s interest based on the Medicare Secondary Payer (MSP) Act and supporting Regulations. 42 C.F.R. Section 411.46 states that “ 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.” This analysis also applies to a disputed settlement, or lump sum compromise settlement, as long as the settlement does not attempt to cost shift future injury related expenses to Medicare. Cost shifting occurs when parties attempt to maximize other damage elements in the settlement while minimizing the future medical damages to Medicare’s detriment.

Parties should always have reasonable support for the amount of the disputed settlement that is being set aside to consider future injury related Medicare covered treatment. Because a Medicare Set-Aside is intended to prevent a future conditional payment by Medicare, it stands to reason that the formula outlined in 42 C.F.R. Section 411.47 for the apportionment of conditional payments in a lump-sum compromise settlement should apply to the apportionment of future medical as well. The formula looks to the ratio between the total potential trial exposure for both the accepted and denied conditions and the value of the MSA for both the accepted and denied conditions. The total potential trial exposure may include the value of the disputed temporary total disability benefit, disputed permanent disability, disputed medical bills, conditional payments, future Medicare covered and non-Medicare covered treatment for the accepted and disputed conditions. The ratio is then applied to the net settlement and determines the portion of the net settlement that should be “set-aside” to consider Medicare’s interests in the disputed settlement. By applying this formula, the parties can objectively support the lack of any attempt to cost shift future injury related Medicare covered expenses to Medicare in the settlement.

Disputed settlements must also address Medicare’s interest in the reimbursement of conditional payments. Interim conditional payments may be disputed with the Benefits Coordination & Recovery Center prior to settlement or after the final conditional payment figure is provided. Denied claims involving Medicare beneficiaries may also have conditional payment demands from Part C or Part D plans. Lastly, Section 111 reporting of the Total Payment Obligation to Claimant may also be required.

Medicare’s interest in a disputed claim is not the same as that in an accepted claim. Contact our team of MSP compliance attorneys for assistance in choosing the best MSP compliance approach for your claim.


The NBKL blog is provided for informational purposes; we are not giving legal advice or creating an attorney/client relationship by providing this information.  Before relying on any legal information of a general nature, you may consider consulting legal counsel as to your particular facts and applications of the law.