Since publication of the Patel memorandum on Medicare secondary payer issues in July 2001, attorneys practicing worker’s compensation law and other interested stakeholders have made compliance a cornerstone of their programs. Frustration ensued with the further issuance of policy memoranda that constantly shifted the scope of Medicare’s involvement in worker’s compensation settlements. The creation of the Workers’ Compensation Medicare Set-Aside Arrangement (WCMSA) Reference Guide (hereinafter WCMSA Reference Guide) in 2013 provided some peace of mind until recent changes significantly altered the scope of compliance efforts.

Attorneys who practice worker’s compensation law should review how they handle claims that might affect Medicare’s interests before and after settlement. Failure to implement practical compliance standards will result in unnecessary delays and frustration for lawyers and clients.

Evolution of Medicare Secondary Payer Compliance

Before December 1980, Medicare was the primary payer in all personal injury and worker’s compensation cases. This meant that if Medicare paid for medical care for people who were injured at work or by the fault of another, Medicare would not seek to be reimbursed. This changed with the passage of the Medicare Secondary Payer (MSP) Act.¹ This statutory change meant that Medicare was now a “secondary payer,” regardless of liability. If Medicare would make payment, reimbursement was required regardless of liability.

Between December 1980 and January 2001, little attention was made to Medicare coordination-of-benefits procedures. At that point, the Centers for Medicare and Medicaid Services (CMS)² issued the Patel memorandum and became more active in enforcement and recovery efforts. In 2013, CMS withdrew the policy memoranda related to compliance matters and consolidated the interpretations into the WCMSA Reference Guide, which is modified occasionally.

For the most part, CMS has adhered to a policy that a Medicare set-aside arrangement (MSA) is the preferred tool to consider Medicare’s³ interests. Formal review and approval of MSAs generally was not required, but CMS might engage in the formal review and approval depending on settlement conditions and amounts (sometimes referred to as review thresholds). Various versions of the WCMSA Reference Guide have generally caused little change in the CMS’s view of compliance matters. This changed in the spring of 2022 with the issuance of version 3.5.

The Moving Compliance Target – Version 3.5

Version 3.5 of the WCMSA Reference Guide sent ripples through the compliance community based on newly added section 4.3 – The Use of Non-CMS-Approved Products to Address Future Medical Care. Under this new policy, CMS stated that use of a “non-submit MSA” (an MSA that otherwise meets review thresholds⁴ but is not submitted to CMS for review and approval) or using other “non-CMS approved products” that include indemnification insurance would be viewed as an attempt to make Medicare the primary payer:

“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.”

Objections to the new policy were numerous and can be summarized as follows:

• The policy represents a significant overreach from the mandates of the MSP Act, by forcing parties to submit MSAs to avoid future adverse legal actions.

• The new policy conflicts with WCMSA Reference Guide section 4.2, which states the review of an MSA is “voluntary, yet recommended.”

• The CMS did not consider situations in which parties to a settlement cannot have CMS review an MSA allocation because the MSA does not meet or exceed the review thresholds.At a townhall meeting in February 2022, John Jenkins, a CMS health insurance specialist, said that “[t]he non-approved product is not necessarily the ‘burden shift.’ It is a fact that Medicare has not made a payment period – where there is a settlement. Medicare’s interests are required to be considered because of the existence of a settlement.”⁵ This comment seemed to signal a shift from CMS’s original policy regarding MSAs and the voluntary submission process.

Important Dates in Medicare Secondary Payer Compliance

The Medicare Secondary Payer Act provides that parties to a worker’s compensation settlement and other personal injury claims must consider Medicare’s interests in their settlements. The goal is to ensure that the Medicare Trust Fund does not make a payment when there is a primary payer who is otherwise responsible. If Medicare makes payments, the Act compels repayment to Medicare for past and future Medicare-reimbursable items and services.

July 30, 1965: President Lyndon Johnson signed Title XVII of the Social Security Act into law to create the Medicare program. Medicare was “primary” in all worker’s compensation and personal injury claims – meaning Medicare would make a payment if an injured party were a Medicare beneficiary, even if an insurance carrier was involved in the claim.

Dec. 5, 1980: President Jimmy Carter signed the Omnibus Reconciliation Act of 1980, Pub. L. No. 96-499 – the Medicare Payer Act. The law was codified as 42 U.S.C. § 1395y(b)(2). The law made Medicare a “secondary payer” in all worker’s compensation and personal injury claims. This meant Medicare would not make payments if an insurance carrier were party to a claim. This law was largely unenforced by CMS and ignored by countless attorneys.

Mid-1990s: Attorneys practicing worker’s compensation law recognized that failure to consider Medicare’s interest in their settlements could expose clients to adverse action. The first Medicare set-aside arrangements were created to consider Medicare’s interests and protect parties to injury-related litigation. Attorneys who handle personal injury matters began to take note of the Act.

July 23, 2001: CMS official Parashar Patel authored the first policy memorandum in which the agency used the phrase “Medicare Set-aside.”

March 1, 2013: CMS developed version 1.0 of the WCMSA Reference Guide, which outlined CMS policy related to Medicare secondary payer compliance in worker’s compensation claims. CMS released the guide to the general public as version 1.3 on March 29, 2013.

Present: Attorneys in worker’s compensation claims continue to educate themselves regarding CMS policy. All parties should consider Medicare’s interests in a settlement and protect their client(s) – avoid making Medicare payments for reimbursable items and services related to the injury.

Courts have taken note of the Act over the years, given the retirement trends driven by the baby boomer generation. The solvency of the Medicare program remains a contentious political issue.

CMS Pivots and More Policy Uncertainties

CMS provided additional clarification – but caused more uncertainty – shortly thereafter. In March 2022, CMS issued version 3.6 of the WCMSA Reference Guide, which contained significant policy changes.

The most significant changes in wording appear to be the following: “CMS may at its sole discretion deny payment for medical services related to the WC injuries or illness requiring attestation of appropriate exhaustion equal to the total settlement. …

“CMS does not intend for this policy to affect any settlement that would not otherwise meet review thresholds.”⁶

This policy change is essential for several reasons. The new policy pronouncement realigned CMS with the previous intent to have a voluntary review and approval process for MSAs. It also calmed the fears of stakeholders about complying with the MSP Act and CMS policy when their settlement did not meet the review thresholds. Of more significance is CMS’s willingness to use discretion when denying payments. Most notable is the statement that CMS will apply the policy only to matters “requiring attestation of appropriate exhaustion.” If this is taken literally, WCMSA Reference Guide section 4.3 applies to MSAs reviewed and approved by CMS, not to non-submit MSAs.

Tips for Exemplary Compliance Programs

Insurance carriers and self-insured employers should examine how their compliance program operates, whether the program is internal or administered by outside service providers.

Continue to educate yourself when evaluating claims for all Medicare-related issues. This includes attending continuing legal education or adjuster-mandated programs. Use service providers that offer access to compliance counsel who have experience litigating worker’s compensation cases.

Use precise language when communicating about Medicare compliance issues. A standard error involves the use of the word “required.” An MSA is never “required.” Nothing is required under the Medicare Secondary Payer Act. Instead, the best word to use is “recommended.” By asking whether an MSA is “recommended” in a settlement, interested stakeholders can ensure that Medicare remains the secondary payer after case closure.

Keep in mind that CMS views an MSA as a contract between CMS and the injured employee. Although an insurance company has “deep pockets,” the real target is the employee. This is consistent with the Medicare Secondary Payer Act, given that a cause of action only arises when Medicare makes a payment that the primary payer otherwise should have paid. In most instances, the employee, not the insurance carrier, incorrectly directs payments reimbursed by Medicare for care received after settlement.

Effective Medicare secondary payer compliance requires early identification of the issue, constant claim evaluation, a reasonable analysis, and precise drafting. Whenever possible, include compliance counsel in your program. This is especially important for lawyers who want to avoid having issues when dealing with problems beyond their scope of expertise.⁷

Conclusion

Recent policy changes by CMS have caused issues for attorneys and other people affected by or involved with Medicare secondary payer compliance programs. The key to not making errors is to review the policy and understand how the Medicare Secondary Payer Act operates. Additional steps need to be taken, including having a best-in-class compliance program that includes education and the use of experienced legal and medical compliance professionals.

Endnotes

1 The Medicare Secondary Payer Act was passed by Congress and signed into law by President Carter under the Omnibus Reconciliation Act of 1980, Pub. L. No. 94-2599, on Dec. 5, 1980.

2 The Centers for Medicare & Medicaid Services (CMS) is the governmental agency that administers the Medicare program.

3 Attorneys and claim handlers sometimes refer to CMS as “Medicare.”

4 WCMSA Reference Guide § 8.1 – Review Thresholds.

5 As of the date of publication of this article, CMS had not released an official transcript of the townhall meeting.

6 WCMSA Reference Guide § 4.3.

7 Iowa Supreme Ct. Att’y Disciplinary Bd. v. Silich, 872 N.W.2d 181 (Iowa 2015); see alsoUnited States v. Angino, No. 3:17cv1193, 2019 WL 931695 (M.D. Pa. Feb. 26, 2019) (unpublished).

» Cite this article: 96 Wis. Law. 26-30 (March 2023).