It's Time to Rethink WCMSA Legislation - Insurance Thought Leadership

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July 23, 2014

It’s Time to Rethink WCMSA Legislation

Summary:

Congress is unlikely to pass the industry's attempt at reforming Workers' Compensation Medicare Set Asides. Changes are needed.

A fresh approach may be needed to address how best to protect Medicare’s interest in a workers’ compensation settlement.

Today, the Workers’ Compensation Medicare Set-Aside Arrangement (WCMSA) is a routine part of most settlements. The WCMSA takes a part of the workers’ compensation settlement and allocates it specifically for future medical expense. If this is done correctly, the Medicare beneficiary is then free to spend the non-allocated portion.

The widespread acceptance of the WCMSA is based on a recommendation by the Centers for Medicare & Medicaid Services (CMS), the agency responsible for the administration of the Medicare Trust Fund.  The WCMSA has become the de facto rule because CMS can ignore a workers’ compensation settlement agreement between parties if it believes there has been an attempt to shift responsibility to pay for future medical care to the Medicare Trust Fund.

In recent years, however, some have objected in certain types of claims because changes to the review process have increased the dollar amounts that need to be set aside for the WCMSA, to preserve the Medicare Trust Fund. Some feel that the amounts have become unreasonable.  The result has been some failed settlements, contrary to a public policy that favors settlements.

In establishing a WCMSA, information is submitted to the Workers’ Compensation Review Contractor (WCRC), and it is evaluated to provide an allocation number for the set-aside that CMS will accept. There are obvious tensions. For instance, the contractor may require extensive documentation for medical care that goes beyond what is necessary for the workers’ compensation claim. This requirement can delay the process or even require the parties to the workers’ comp claim to start over. The contractor may also increase the amount that has to be allocated for the WCMSA, as medical treatment that is unrelated to the workers’ compensation claim can make it into the set-aside.

CMS allows for the use of structures to fund the allocation that can save some money by avoiding the need for an up-front, lump sum payment. However, there is little flexibility to discuss disputes over treatment, prescription use and costs.

H.R. 1982 is the legislation, supported by the insurance industry, that represents the present attempt at reform. Introduced on May 5, 2013, by Republican Congressman Dave Reichert from Washington’s 8th Congressional District, and co-sponsored by Democrat Congressman Mike Thomas from California’s 5th District, the bill was immediately referred for consideration to two House Committees with jurisdiction over Medicare issues:  Energy and Commerce and Ways and Means. But little else has occurred. Today, as the close of the 113th Congress draws near, H.R. 1982 has 14 co-sponsors, evenly split between Republicans and Democrats, but no companion legislation exists in the Senate.

It is difficult to imagine a path for this bill to become law. Members are getting ready for the August recess, to campaign. When they return, larger issues of foreign policy and immigration will take center stage.

Passage is not impossible, and it is important to continue support through the end. It is also important to plan ahead, as about 9,170 bills are currently pending, and only about 5% are expected to become law when this congressional session ends on Dec. 31. Revisiting the strategy of H.R. 1982 is important to improve chances of success should re-introduction be necessary.

Revision would necessitate assembling likely stakeholders. This meeting should take place as early as possible to allow for an early introduction in the 114th Congress. The process should follow that adopted by the Medicare Advocacy Recovery Coalition (MARC), which led to the successful SMART (Strengthening Medicare and Repaying Taxpayers Act) at the close of 2012. Broad-based support is critical to success in a Congress that is expected to be even more divided in the next session.

The purpose of H.R. 1982 is to increase the number of workers’ compensation settlements with Medicare beneficiaries. This must be an important goal of any rewrite. Because H.R. 1982 is designed to amend the Medicare Secondary Payer Act (MSP), already considered to be “one of the most impenetrable texts within human experience” (Parra v. Pacificare of Arizona, Inc., 2013 U.S. App. LEXIS 7861), another goal must be to have it be easy to understand. A third objective must be to avoid unintended consequences, by clearly defining terms and reconciling conflicts with existing MSP terms.

There can be no doubt that H.R. 1982 favors the workers’ compensation plan. The workers’ compensation industry would go from having no ability to raise legitimate disputes to being freed from constraints. CMS, neutered by the proposed law, could do very little to seek increased protection for the Medicare Trust Fund. This is most likely the Achilles heel of the present legislation.

Congress enacted the MSP law in 1980 to stem the red ink of the Medicare Trust Fund. Congress passed the Medicare & Medicaid SCHIP Extension Act of 2007 in furtherance of that objective. Any succeeding legislation must be consistent with such protections.

This can be achieved and still provide immense benefit for all stakeholders. To see how, here is a look at the major areas covered by H.R. 1982 and how they could be revised to increase the likelihood of adoption:

Thresholds

H.R. 1982 may be too aggressive in codifying what is already well-established CMS policy for situations where Medicare’s interest need not be considered. Already, in situations where the claimant’s treating physician does not reasonably expect continuing medical treatment, the parties are free to settle without an allocation for a set-aside. All that is required is documentation from the treating physician. Similarly, no allocation can be required if medicals, as alleged or claimed, are not being released (in other words, if the medical portion of the claim is not being settled).

Rather than have legislation codify where Medicare’s interest need not be considered, a better approach would be to require CMS to adopt regulations.

One issue that can only be addressed through legislation is a value-based threshold that involves a release (or settlement) of medicals. The H.R. 1982 threshold value includes settlements of as much as $25,000; below that level, Medicare’s interest would not have to be taken into account. Today, CMS does not review such settlements but expects that they will “consider” Medicare’s interest. The necessary analysis can be expensive and so time-consuming that contractors will exceed CMS limits on workload. A way around the analysis of smaller settlements could be for Congress to authorize the CMS actuary to determine a threshold based on the cost to the government of review. The threshold should work out to at least $25,000.

Qualified Medicare Set-Aside

The term “Medicare Set-Aside” is not currently codified in the MSP law. Stakeholders should study the potential unintended consequences of codifying the term in ways that have the force of statute. CMS has established policy and procedures that it recommends on when to submit a WCMSA for approval. H.R. 1982 does not add any benefit by adding definitions and can be simplified by omitting them.

The critical component that should be discussed by stakeholders is whether the rewrite should establish a “safe harbor” settlement amount in which a certain percentage is paid to CMS by lump sum or stream of annuity payments that legally “considers” Medicare’s interests. This approach prevents codification of the WCMSA and still achieves the objective. The percentage of the settlement amount would need to be analyzed to maintain cost-neutrality of the bill. As a starting point to demonstrate neutrality, Medicare Set Aside stakeholders should be able to provide Congress data on the ratio of the MSA allocation to the amount of the settlement.

Authorizing CMS to Receive Allocation Amount

This is long overdue. While it sounds like such a feature would add revenue to Medicare, helping the bill to pass, government accounting won’t recognize this approach. The Congressional Budget Office must score each bill to determine if it costs or saves money, and the CBO doesn’t count as revenue money that is received in advance of when it needs to be paid out. This method is counterintuitive, but stakeholders must take it into consideration. Nonetheless, for the benefit of the injured worker, and non-interruption of Medicare or Social Security benefits, letting CMS receive the WCMSA allocation amount is important and would make sense to Congress.  It is important to have the legislation authorize both a lump sum and stream of annuity payments.

Limiting Conditional Payments to the Fee Schedule

Stakeholders should discuss the issue of healthcare providers that, under present CMS regulation, may collect more than is allowed under the fee schedule. H.R. 1982 is designed to deal with considering Medicare’s interest in workers’ comp settlements, and it might be wise to limit legislation to that area rather than also taking on the issue with fee schedules. Simplifying the legislation might avoid drawing unintended adversaries who might lobby against it.

Applicability of Fee Schedule

CMS already accepts the workers’ compensation fee schedule or, in its absence, the usual and customary rate. H.R. 1982 would like to extend the use of the workers’ compensation fee schedule, but some plans may already have better rates. Stakeholders should discuss how medical services and items, including pharmacy, should be priced. There must be no cost to the Trust Fund because of any legislation. In fact, there are ways in which the fee schedules could benefit the fund.

Right of Appeal

Last year, the Strengthening Medicare and Repaying Taxpayers Act (SMART) became law, providing for an appeals process for workers’ compensation laws or plans. The legislation requires appeals over any “determinations” by CMS. Because an approved WCMSA is a CMS “determination,” it would logically be subject to the appeals process. But, because the WCMSA process is recommended and not required, the appeals process may not be triggered. When parties use the WCMSA, they also waive any right of appeal. The appeals process specified by SMART therefore has no applicability unless the WCMSA is required by an actual law. Stakeholders should consider adding legislation to strengthen the SMART right of appeal. A fair, two -way process to discuss legitimate disputes is essential to increasing settlements.

Respecting State Decisions

Recently, CMS issued an updated user guide for WCMSA submissions. A section was added that has resulted in confusion on the application of state law. Section 4.4.1 states that CMS will respect the allocation of non-medical portions of a settlement by a board with appropriate jurisdiction, after a hearing on the merits. By implication, what’s left over in the settlement is for medicals, and CMS likely would respect that allocation, as well. But CMS may disagree. Stakeholders should discuss clarification of how state law should work with the Medicare Secondary Payer Act. This may require an analysis of pre-emption rules, as well as defining the types of hearings.

H.R. 1982 has both positive and negative implications, creating mixed support. CMS will most likely oppose it if it moves in the present Congress, as it prevents CMS’ ability to enforce the MSP and protect the Trust Fund. Providers, MSP compliance companies and structured-settlement companies would also line up to oppose the bill. It is not clear where beneficiaries and beneficiary organizations will line up – while, in the short run, H.R. 1982 would cause more cases to settle, the adverse impact to the Trust Fund may result in delay in the delivery of benefits as well as their reduction. Nonetheless, there are positives to H.R. 1982.

A fresh approach is needed with all stakeholders involved to secure broad-based support to resolve problems for the injured worker, CMS and the workers’ compensation law or plan.

With the right legislation, a fix can happen, and one is sorely needed.

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About the Author

Over the past two decades, Roy A. Franco has emerged as one of the principal architects of policies and practices that define the world of Medicare Secondary Payer (MSP) compliance. From his experience as director of risk management for Safeway from 1993-2010, he realized the need for greater clarity and efficiency in matters related to Medicare compliance.

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