Key Takeaways:

• CMS presumes non-submit and/or evidence based MSAs are an attempt to shift liability to Medicare.

• CMS will only recognize Medicare Set-Asides submitted, reviewed, and approved by CMS.

• Claimants’ attorneys are likely to demand CMS approval when settling with Medicare beneficiaries.

The Centers for Medicare and Medicaid Services issued an update to their WCMSA Reference Guide on January 10, 2022, and it contained some distressing news for the workers’ compensation community.  Section 4.3 of the Reference Guide states as follows, in regard to evidence-based and other non-submit Medicare Set-Asides:

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 end result is that evidence-based and other non-submitted MSAs will not be recognized by CMS. The Reference Guide does not provide an effective date, so we must treat the policy as effective immediately. Where the claimant has a CMS approved MSA in hand, CMS will require that the claimant exhaust the MSA amount before paying for future medical treatment related to the workers’ compensation claim as has been the custom. But where there is no CMS approval, CMS will require exhaustion of the entire net settlement amount.

In theory, there is no direct impact to carriers and self-insured employers with CMS issuing this policy statement. The same statutory obligation remains to reasonably protect Medicare’s interests. In terms of actual impact, it could be significant. With the threat of having to spend down an entire settlement, one assumes the claimants’ bar will begin insisting on CMS approved MSAs from this point forth. This will likely have a chilling effect on many settlements, as CMS approval adds both time and expense to the process, while often overvaluing future medical expenses.

Interestingly—and somewhat amusingly—Section 4.1 notes “approval of a proposed WCMSA amount is not required,” as does Section 4.2. One could argue Section 4.3 attempts to make WCMSAs mandatory, in direct conflict with CMS’ own statements.

For more information on how this could impact your business, please contact:

• S. Philip Unwin
• Jennifer B. Santoro
• Damon M. Gruber
• Sean J. McKinley
• Esther F. Omoloyin
• Or another member of our Workers’ Compensation practice