Tag Archives: medicare set-asides

What’s Hiding in Your Medical Records?

Every year, organizations pay millions of dollars in settlements for workers’ compensation claims for services they often shouldn’t. I’m not talking about insurance fraud but rather an unseen problem that routinely balloons out of control.

It is vital to understand how medical cost projections are calculated in Medicare Set-Asides (MSAs) to pinpoint the root of this significant and often inflated area. Let’s explore.

Today’s Process

Projecting medical costs for MSAs is done by estimating the future treatment likely to be required over the claimant’s remaining lifetime for workers’ comp injuries as well as any illnesses or conditions accepted under or exacerbated by that injury. The projection entails figuring out what treatment is likely to be required — the number of office visits, diagnostic testing, surgeries, medications, braces, basically anything that could pertain to a specific injury — and is typically calculated by summarizing the past two years of medical records.

Once the person charged with conducting the analysis — usually a nurse, an attorney, a claims person or someone with a managed care background — receives the records, she reviews them and generates a summary of two to three pages outlining the nature of the injury; history of medical treatment; and any recommendations for specific types of treatment, such as surgeries, hospitalizations or spinal cord stimulators. From there, a treatment table is developed, outlining everything the claimant will need for the rest of his or her life as per the expectations of the Centers for Medicare and Medicaid Services (CMS).

In general, CMS expects the following for any symptomatic body part paid for under the workers’ comp claim: X-rays every three to five years, MRIs every five to seven years and 12 physical therapy sessions. This is just the basic care; any recommendations or provision for future surgeries for these body parts will increase the costs considerably. Based on this information, all future predicted care is priced out according to the current workers’ comp fee schedule within the jurisdiction of the claim. Although a time-consuming process, it seems simple enough. But there is always a catch.

See also: Why Medical Records Are Easy to Hack  

Data Hiding in Plain Sight

Suppose an adjuster is reviewing a summary of a low back injury. The expectation would be to see treatment services related to the lumbar spine in the claimant’s medical records. Then, all of a sudden, the adjuster comes upon treatment being rendered for the knee. It may be a legitimate part of the treatment plan, and the knee may be accepted under the workers’ comp claim, but what if it’s not?

It’s become more obvious over the past 10 years — particularly with the advent of increasing recovery efforts from the Commercial Repayment Center (CRC) and Benefits Coordination & Recovery Center (BCRC) — that treatment for body parts or conditions is being paid for under workers’ comp claims to which it doesn’t pertain. The treatment has not been accepted under the injury claim, and, justifiably, insurance carriers don’t want to pay for it. Yet additional, out-of-bounds care often slips through the cracks and is paid for and now documented in the claim. This is a problem because, from the MSA standpoint, once a single payment is made for a condition, the payer has effectively bought it and all future medical care that comes with it. That knee is now part of the low back injury claim for the duration of the claimant’s life expectancy and will have to have future medical services included in the MSA.

How does this happen? It is actually very easy. Right now, adjusters often manage a desk of 150 claims at any given time. They spend most of their time talking to injured workers, to medical doctors who are working on their respective cases and to any managed care people involved in the claim. In addition, adjusters have a high volume of medical bills flooding in that need to be approved for payment. Adjusters can’t scrutinize all the information coming in on medical bills and think, “Is this injection actually connected to this claim?”

In the best of all worlds, the medical bill review teams, whether internal or an external vendor, would catch what has been accepted under the claim versus what’s being billed by the provider, but, in reality, charges still routinely slip through the cracks.

Fixing the Problem

New technologies that leverage artificial intelligence (AI) to “read” medical records are on the horizon. These systems can analyze all of the body parts and conditions being treated and compare that against the medical bill payment data. As such, smart systems are becoming the new front line for establishing exactly what gets paid under the claim and alerting claims adjusters to anything that doesn’t seem quite right. The adjuster can then take a look and discuss with the physician’s office the reasons for inclusion of the treatment before the bill gets paid and the abnormality becomes part of a future MSA, generating costs associated with lifetime care for the body part or condition.

For example, it won’t be long until applications can generate reports showing an additional alleged body part is now being treated under a claim. Alerts can be automatically generated to adjusters showing the scope “creep,” as what started as a low back claim has now expanded into the neck and shoulders. The injured worker is now also having problems with hips and knees, and three new medications have been added that the adjuster may not have been aware of. Applications can identify all of these vitally important nuggets hiding in the data and place them into context, allowing a wealth of information to be delivered to the adjuster’s fingertips in real time.

See also: How to Manage Risk of Medical Malpractice  

AI-based applications show tremendous potential for flagging issues that get missed. Machine learning fills in the blanks by understanding how things fit and how they don’t, even when it’s a little murky. The cost savings as well as the time saved in managing claims will be tremendous. Hidden data will finally be brought into the light so that people can make more informed decisions about what to pay and why. This is an exciting new frontier for MSAs, as medical payments are limited to only those body parts and conditions accepted under the claim, allowing the MSAs to be based on the most accurate, up-to-date information available, while holding down potential costs.

As first published in Claims Journal.

MSAs in Denied Claims: the Facts

Medicare Set-Asides (MSAs) continue to frustrate parties resolving workers’ compensation (WC) claims. For many, the MSA is the last major hurdle to a closed file. Sometimes, the hurdle involves an MSA report from a non-legal third-party vendor that does not seem to make sense based on the facts of the case. Other times, it is the federal government’s response to a request from the settling parties that it review an MSA report which causes the frustration. The fact that the WC claim in question may be a denied WC claim only serves to intensify that frustration.

The purpose of this article is to separate fact from fiction when it comes to MSAs in denied WC claims. In short, MSAs are not needed when an employer/insurance carrier (E/C) has not accepted and does not accept responsibility for a claimant’s future medical expenses as a part of resolving the claim. Asking the Centers for Medicare & Medicaid Services (CMS) to review and approve your $0 MSA though is problematic as we all know. 2017 is the right time to find an alternate risk transfer solution that creates efficiencies in your claims handling process.

After reading this article, your goal should be to review your current process and think about the time and money being spent on denied WC claims. Instead of the problems associated with CMS reviewing $0 MSA proposals, you could instead close the file faster by relying on a legal opinion from a lawyer experienced in MSA issues.

All parties in the WC system would capitalize on a more streamlined system if they believe this one basic fact:

FACT: Medicare’s recovery rights under the Medicare Secondary Payer (MSP) Act are not automatic.

The MSP Act does not grant Medicare unlimited recovery rights. It does not even grant Medicare automatic recovery rights. Instead, two things must happen for Medicare’s recovery rights to ripen: 1) a primary plan or payer must accept responsibility for a claimant’s medical expenses; and 2) that responsibility must be evidenced by a judgment, a compromise for release or other means. Unless both occur, Medicare does not have recovery rights under the MSP, period. That also means that it does not have a right to have an MSA funded to pay for a claimant’s future medical care. In the event of a WC claim denied from the outset and the E/C never accepts responsibility for future medicals, the MSP Act is not triggered.

FICTION:  The MSP Act requires MSAs.

Nowhere in the MSP Act does it mention MSAs, Medicare Set-Asides or even future medical expenses. What it does say is that Medicare won’t pay for a beneficiary’s medical expenses where payment has been made under a workers’ compensation plan. 42 U.S.C. § 1395y(b)(2)(A)(ii). An MSA gets funded to pay for those future medical expenses a claimant anticipates incurring down the road which the E/C already paid for in the settlement. While the law does prohibit Medicare from making payment for those expenses with one exception, it does not obligate anyone to use an MSA to ensure Medicare does not pay those same items, services or expenses previously paid for by the E/C in the WC award.

FACT: An MSA might be appropriate for anyone, not just current Medicare beneficiaries.

While the MSP Act contemplates that Medicare will not pay for a Medicare beneficiary’s medical expenses when payment has already been made under a WC plan, other scenarios are conceivable. First, a claimant may not yet be Medicare enrolled but could be close. Those in the MSP industry refer to these individuals as having a “reasonable expectation” of Medicare enrollment. Typically, the time frame in play here is 30 months from settlement. So, you will see MSA issues arise if the claimant falls within this period of “reasonable expectation.”

But an MSA could also be an issue for other claimants. Since the MSP Act prohibits Medicare from making payment where payment has been made, an argument exists that the issue would need to be examined for a much larger pool of claimants. In any WC settlement, it’s possible that the E/C is paying for future medical expenses. The MSP Act prohibits Medicare from paying when payment has been made under a WC plan. 42 U.S.C. § 1395y(b)(2)(A)(ii). The claimant could take the proceeds and get on Medicare at some point post-settlement.

See also: 25 Axioms Of Medical Care In The Workers Compensation System  

Let’s assume that happens five (5) years after settlement. If the claimant still has money remaining for future medicals from the WC award, the statute would prohibit Medicare from paying for his future medicals that were paid for in the WC award. Now that the claimant is a Medicare beneficiary and has money remaining for that specific purpose, the law would kick in. To comply with the law, the claimant should spend down his remaining future medical proceeds on injury-related care otherwise covered by Medicare before billing Medicare.

Of course, all that presumes that the claim was accepted and the E/C paid future medical dollars to the claimant as part of the WC award. When a WC claim is denied and ultimately “clinchered” on a doubtful and disputed basis, no future medical dollars change hands since the E/C does not accept responsibility for future medicals. Thus, no MSA would be needed, and you would simply want to document the file appropriately.

FICTION: When future medical expenses are expected to be incurred, an MSA must be funded.

Future medical expenses ≠ MSA funding in every case. Only when Medicare’s right of recovery is triggered would an MSA need to be funded. So, those future medicals must be related to the compensable claim for the MSA to need to be funded. Even then, there are options available other than funding an MSA (such as obtaining a legal opinion) to comply with the law stating that Medicare will not pay where payment has been made under a WC plan. 42 U.S.C. § 1395y(b)(2)(A)(ii).

FACT: A denied WC claim represents a compromise situation as opposed to a commutation under the federal regulations.

Medicare explains the distinction in its regulations. A commutation occurs when the amount of the WC award is intended to compensate the claimant for all future medicals required because of the work-related injury or disease. 42 C.F.R. § 411.46(a). According to Medicare, “a lump-sum compromise settlement is deemed to be a workers’ compensation payment for Medicare purposes, even if the settlement agreement stipulates that there is no liability under the workers’ compensation law or plan.” 42 C.F.R. § 411.46(b)(1). This regulation is titled “Lump-Sum Compromise Settlement.” So, denied WC claims must be compromise situations, not commutations, under Medicare’s own regulations.

FICTION: The CMS WCMSA Reference Guide is the only place to look for how CMS handles future medical expenses.

While most will point to the WCMSA Reference Guide as the definitive statement about future medical expenses, it represents unofficial guidance from CMS on the issue. Official guidance can be found in the code of federal regulations. 42 C.F.R. §411.46. There, CMS discusses the differences between future medicals in commutation cases versus compromise cases. Since a denied WC claim would be considered a compromise case, the regulations should be the first place to start when examining the MSA issue in a denied WC claim.

FACT: The regulations, like the statute itself, do not address MSAs.

Hard to believe, but this is true. Both the statute and all regulations promulgated by CMS in support of the statute fail to mention MSAs or Medicare Set-Asides even once. Since the regulations are what provide us with any federal administrative agency’s official statutory interpretation, it is accurate to say that no substantive legal standard exists today when it comes to MSAs, even in WC. 42 U.S.C. §§ 1395hh(a)(1), (2).

FICTION: The regulations address future medicals for commutation cases exactly how they address future medicals for compromise cases.

CMS’s own regulations treat compromise cases much differently than commutations. With respect to commutations, CMS advises “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.” 42 C.F.R. § 411.46(a). Commutations are paid out (presumably) at 100 cents on the dollar. Thus, this regulation highlights the law which says that Medicare will not pay where payment has been made under a WC plan. 42 U.S.C. § 1395y(b)(2)(A)(ii). Again, if the E/C is paying dollars for future medicals, then Medicare won’t pay for those same items, services or expenses.

See also: How Politics Drives Up Your MSA Costs  

CMS treats compromise cases differently. With respect to future medical expenses in compromise cases, CMS advises,

“(1) Basic rule. Except as specified in paragraph (d)(2) of this section, if a lump-sum compromise settlement forecloses the possibility of future payment of workers’ compensation benefits, medical expenses incurred after the date of the settlement are payable under Medicare.

(2) Exception. If the settlement agreement allocates certain amounts for specific future medical services, Medicare does not pay for those services until medical expenses related to the injury or disease equal the amount of the lump-sum settlement allocated to future medical expenses.” 42 C.F.R. § 411.46(d).

Very different result in a compromise claim as compared to a commuted claim. Denied WC claims would be considered compromise claims, no matter who you ask. In those cases, CMS tells us that its basic rule is that CMS pays future medicals, except where an allocation for future medicals exists. When an allocation exists, then the claimant should spend down and exhaust before Medicare will pay. The rules for denied WC claims are different from the rules for accepted WC claims, whether CMS and its contractor admit it or not when it is reviewing the $0 MSA proposal for your denied WC claim.

FACT: Submitting MSAs is a voluntary process.

Remembering that the statute and regulations are both silent about MSAs, we can look to the CMS WCMSA Reference Guide. There, CMS tells us, “There are no statutory or regulatory provisions requiring that you submit a WCMSA amount proposal to CMS for review.” CMS WCMSA Reference Guide v2.5, Section 1.0 (April 4, 2016).

FICTION: CMS workload review thresholds provide safe harbors for those cases failing to meet threshold.

This is perhaps the biggest fiction about MSAs in the WC industry. While CMS is willing to review certain MSA proposals, it does not have the resources to review everything. Thus, it imposes certain workload review thresholds based on a claimant’s Medicare enrollment status and the gross WC award which help its contractor to determine which cases to review and which to not review.

If the case fails to meet the threshold, it does not mean that the parties can ignore the MSA issue. Medicare specifically counsels otherwise. CMS says, “These thresholds are created based on CMS’ workload, and are not intended to indicate that claimants may settle below the threshold with impunity. Claimants must still consider Medicare’s interests in all WC cases and ensure that Medicare pays secondary to WC in such cases.” CMS WCMSA Reference Guide v2.5, Section 8.1 (April 4, 2016). CMS goes on to say, “Regardless of the low dollar threshold, Medicare beneficiaries should always consider Medicare’s interest in all WC cases and ensure that Medicare is secondary to WC.” CMS WCMSA Reference Guide v2.5, Section 14.0 (April 4, 2016).

The same holds true in the event of a denied WC claim. While Medicare would not be willing to review a $0 MSA proposal in a denied WC claim when the matter fails to meet threshold, the parties should still ensure the files are documented appropriately with evidence that Medicare’s recovery rights under the MSP Act were never triggered in that case.

FACT: CMS is willing to review a $0 MSA proposal.

Not only will CMS review it, CMS provides an example of the letter you will get in return if it approves your $0 MSA proposal. See CMS WCMSA Reference Guide v2.5, Appendix 5 – Sample Letters April 4, 2016). You might be interested to know that this conclusion, just like the conclusion in any other approval letter, is not considered final by Medicare unless or until you provide Medicare with a copy of your final executed WC settlement agreement.

FICTION: It takes CMS the same amount of time to review a $0 MSA proposal as it does any other MSA proposal.

You might have experienced this. You submit a $0 MSA proposal to Medicare, but instead of an approval letter, you receive a development request seeking additional documentation related to medicals or evidence that the E/C never accepted responsibility for medical expenses. Despite your best efforts, it seems that you’re destined to either receive a development request or a close out letter, forcing you to start the process over again. While CMS has a stated goal of reviewing a matter within 45 to 60 days, it seems $0 MSA proposals take longer, sometimes much longer, to review and approve.

FACT: Once you’ve voluntarily asked CMS to review your $0 MSA, you’ve agreed to play by CMS’ own rules.

Medicare is clear with its expectation here. “If you choose to use CMS’ WCMSA review process, the Agency requests that you comply with CMS’ established policies and procedures.” CMS WCMSA Reference Guide v2.5, Section 1.0 (April 4, 2016). So, if you believe a claim is denied properly under your state law, temper your expectations if you ask CMS to review and approve a $0 MSA proposal in the case. By agreeing to bring CMS into the process and ask for its approval, you have relinquished control of the matter, and are subject to the policies and procedures CMS establishes and changes from time to time.

Remember also that no WCMSA appeals process exists. “When CMS does not believe that a proposed set-aside adequately protects Medicare’s interests, and thus makes a determination of a different amount than originally proposed, there is no formal appeals process.” CMS WCMSA Reference Guide v2.5, Section 16.0 (April 4, 2016).

While CMS does have a limited re-review process, it only applies when: 1) you believe CMS’ determination contains obvious mistakes; or 2) you have additional evidence, not previously considered by CMS, which was dated prior to the submission date of the original proposal. CMS WCMSA Reference Guide v2.5, Section 16.0 (April 4, 2016). Make absolutely sure you are willing to open that door. Once you’ve asked CMS to review, it’s a door that is quite difficult to close.

FICTION: The MSP Act always preempts state law with respect to future medical expenses.

This one might be surprising, but it’s false. There are at least three examples of cases where the court concludes that state law dictates Medicare’s recovery rights in an MSP situation, not vice versa.

In Bradley v. Sebelius, 621 F.3d 1330 (11th Cir. 2010), the Court concluded that Medicare’s recovery right was limited to that portion of the award which had been allocated to medical expenses. The allocation was based on a Florida state probate court’s allocation of a wrongful death settlement between claims of the survivors and the claims of the estate.

In Caldera v. The Insurance Company of the State of Pennsylvania, 716 F.3d 861 (5th Cir. 2013), the Court concluded that the MSP does not go as far as to eviscerate all state law limitations on workers’ compensation payments.

Recently, the Court in CIGA v. Burwell, 2017 U.S. Dist. LEXIS 1681 (decided January 5, 2017) concluded that state law creates Medicare’s recovery rights based on concepts of what is compensable versus what is not compensable. The law does not allow Medicare to recover conditional payments for items deemed unrelated to the compensable WC claim, even when bundled together with at least one code that was accepted by the E/C as compensable. This case calls into serious question CMS’ recovery practices under the MSP Act.

More examples exist. The moral here is that Medicare’s recovery rights and the need to take certain actions with respect to MSAs originate from your state law granting property rights to parties in the first place based on issues of compensibility.

FACT: Medicare is not a party to the WC claim; instead, it’s the most important potential “lienholder” to consider when resolving the WC claim.

Some think that Medicare must approve the MSA to validate the settlement. Medicare is not a party to the settlement. The parties to the settlement are the injured worker, the employer and (perhaps) its insurance carrier or TPA. Medicare does not have the power to accept an offer on behalf of the claimant. Medicare does not have the power to extend an offer to settle on behalf of the E/C. Medicare is not a party to your WC settlement.

Likewise, Medicare does not have the authority to approve a settlement once struck. That is the job of the workers’ compensation industrial commission or board in your state. Asking Medicare to review your MSA proposal is a voluntary step in Medicare’s eyes, and you should also consider it to be voluntary. If your state industrial board or commission mistakenly believes it is required to submit MSAs to CMS for review and approval or makes that a condition of its approval, it falls on you to educate members why that is not the case. 2017 is the right time to consider alternate forms of “considering and protecting” Medicare’s interests, including legal opinions.

The MSP Act is in place to help ensure that the Medicare program will be around long term. MSAs are created as a way to comply with the law enacted to ensure the longevity of the Medicare program. That being said, it does not mean that Medicare has a right on every settlement to an MSA. And on denied WC claims, it really means that Medicare never has a right to an MSA.

See also: The Looming $20 Billion MSA Train Wreck: Welcome Aboard  

FICTION: MSA vendors who only review medical records when calculating MSAs provide accurate conclusions that align with the legal requirements of the MSP Act.

You’ve likely had a report like this. Claim has been denied in full. No medicals or indemnity has been paid. The E/C hires one of its approval MSA panel members to calculate an MSA. In its report, the non-legal vendor concludes that an MSA of $X is needed since the claimant is expected to incur future medical expenses. What these non-legal vendors might not realize is that future medicals under the MSP Act are both a medical obligation as well as a legal obligation to address.

This is where most non-legal MSA vendors fall short. Their team of nurses are charged with reviewing medicals and calculating an MSA. The report that results is less that of an MSA and more along the lines of a medical cost projection. This report, when it involves a denied WC claim, bears no relation to the actual legal position taken by the E/C. As discussed above, MSAs for those cases should always be $0 since Medicare’s right of recovery never ripens under the law.

But, understand that those same non-legal MSA vendors may not be able to arrive at that conclusion. Citing and relying on the law in its MSA report comes dangerously close to the line when it comes to the issue of the unauthorized practice of law. Non-legal MSA vendors cannot issue legal opinions on MSA issues. They can issue reports based on their experience and knowledge of MSA issues involving CMS, but cannot provide those as a legal opinion unless the vendor is also a law firm that practices law. This might explain why those MSA reports say the proper MSA figure is $X when everyone on the file knows it should be $0 since the WC claim was denied.

FACT: Instead of asking CMS to review and approve a $0 MSA allocation (when thresholds are met), consider obtaining a legal opinion from a lawyer experienced in the MSP Act.

Wouldn’t it be great if we knew with certainty that CMS would agree with our $0 MSA proposal at first glance? That would alleviate a lot (but not all) of the frustration with the current system. Unfortunately, we never know that up front. In fact, as soon as you voluntarily ask CMS to review the MSA, you have lost all control of the claim. Chances are good you will receive in return either a development letter asking for more information supporting your assertion that a $0 MSA is appropriate, or you will receive a counter-higher letter. Neither result is good for the file. Now, how many times has that happened to you over the past 12-24 months?

Instead of playing CMS’ WCMSA review game, you can choose to not play by obtaining a legal opinion instead from a lawyer who has experience addressing MSA issues. You gain all the same benefits you get from CMS approving the WCMSA (i.e., ability to close the file with confidence, complete risk transfer on the future medical issue, etc.) without involving the federal government. If you had the choice, would you voluntarily ask the federal government to audit your tax return for accuracy? I didn’t think so. WCMSAs are the same. Why ask it to audit your WCMSA conclusion for accuracy when perfectly valid alternates exist and you can avoid federal scrutiny? It just doesn’t make sense in 2017.

Do you know how Albert Einstein defined ‘insanity’? He said, “Insanity is doing the same thing over and over again expecting different results.” Parties who continue to ask CMS to review and approve its $0 MSAs, in this author’s opinion, engage in just that type of activity. You can’t expect CMS to approve your $0 MSA simply because you want it to or even because it is legally appropriate for them to do so. CMS’ track record proves that. Instead, you should hire a lawyer to provide you with a legal opinion that protects you in the future in the unlikely event that CMS comes calling with its hand out.

Cattie, P.L.L.C. is a law firm that has experience with MSA issues, including how to protect parties from the federal government when a WC claim has been denied. I’d be happy to consult with you at your convenience about your claim and how a legal opinion from my law firm can be used in lieu of CMS approval of your MSA. The firm is actively accepting new cases now. For more information, please email cattielawpllc@gmail.com.

How Medicare Can Heal Workers’ Comp

Workers’ comp in every state should carve out its medical line and relinquish it to Medicare. The respective statutory systems for indemnity benefits would remain. This scenario, albeit challenging in execution, would correct the cause of many systemic workers’ comp ills.

First, we must admit that the root of most WC problems lies in the delivery of medical care. Workers’ compensation medicine inhabits its own “bizzaro-world,” often lacking both clinical science and common sense. This is not the fault of most medical practitioners themselves, but more because of the pervasive manipulations, exaggerations and legal stretching of sensibilities that defy the clinical standards used in other venues.

The ubiquitous, counter-intuitive flaw is that WC medicine often is used to expand a claim rather than provide a cure. Anyone in the WC business can agree to the following truths as just a sample of medically related frustrations:

– Most any study performed shows higher costs and worse outcomes in WC medicine than in other settings. Common injuries take longer to heal when they are WC claims.

– Hearing judges regularly disregard clinical opinions in favor of subjective evidence. A common judicial outcome is to award illogical progressions, allowing diagnoses to expand as problems progress through various body parts.

– Causal relationship has an extremely low and speculative threshold when injuries are combined with chronic overlays and co-morbidities.

– Chronic conditions are accepted as arising out of incredibly specious initial traumas.

– Multiple surgeries and lifetime narcotic regimes are embraced in the face of perpetual and repeated failures to cure, all to the general detriment of claimants’ health.

– Various entities have profit streams directly related to churning medical care.

– Most of the pendulum-swinging effort in statutory legal reform amounts to limited attempts to control medical systems already tainted by legal gamesmanship. Therefore, the results don’t always support optimal clinical perspectives or patient well-being.

WC professionals may have a jaded viewpoint and accept this nonsense as part of the game. I ask you to consider a world where WC medical care was a non-issue. How much conflict and cost could be taken out of the system?

Let’s take it another step and consider ridding the current system of Medicare Set Asides (MSAs). We all know MSAs and their surrounding requirements increase cost, require added resources and waste temporary total disability (TTD) money in process delays. MSAs are a hijacking of any given state’s ability to allow compromise settlements over unproven causal relationships. In effect, when no one has determined direct causal relationship, MSAs simply decree all future care be paid, in advance, as an addendum to a settlement. Another terrible dynamic of this hijacking is how Medicare profits from the wild abandon in WC medicine, as a litany of future responsibilities can be attached to a claim absent a clinical “reasonable and customary” test by which Medicare itself might never accept such treatment requirements.

Through the MSA process, Medicare enjoys an exceptionally advantageous position with respect to WC. However, the playing field can be leveled by giving Medicare every claim from day one.

There should certainly be a direct reimbursement requirement from WC claim payers to Medicare for related care provided. I argue that this scenario would be much less costly and more efficient and fair than the current big-picture scheme that is WC medicine.

Here are a few practical thoughts in application that require no big changes:

-Medicare uses its current rules for “reasonable and necessary” to approve all care and to formally conclude treatment. Disputes can be handled via existing channels available through Medicare.

– Medicare uses its current fee schedules.

– Medicare uses its current rules for determining “chronic” conditions as opposed to curative treatment. This is the arbiter for otherwise obstinate, litigated maximum medical improvement (MMI) arguments and sets the bar for drawing down the WC reimbursement requirement and transferring a case to group health if continuing care is necessary.

Here are additional suggested changes to support the concept:

– Questionable causation or responsibility for migrating diagnosis could be given a percentage likelihood that would be applied to Medicare reimbursements. Independent physicians from opposing sides could put forth opinions, and a review process could establish the percentage applied to the life of the medical case. For example, a clinical consensus decrees that aggravated shoulder pain is 25% likely as due to job-related issues, and therefore future Medicare reimbursements from WC are 25% of cost.

– Extent of disability and permanency could still be determined by state-sanctioned independent medical exams (IMEs) and litigation process. The difference would be limits on the opportunity to exploit medical opinion, as Medicare would refer for these opinions, and aspects of Medicare’s rules and controls and requisite threat of sanctions would govern the providers.

– Medicare would need to categorize WC-preferred providers with appropriate qualification in occupationally related medicine.

– The ability to actually settle medical costs would no longer exist in any state.

– New employer insurance products or funding mechanisms could be invented to cover “Continuing Medicare Reimbursements” on certain classes of long-term claims where indemnity is fully closed, as well as the sporadic one-off future claims that might arise as allegedly part of an initial WC claim, with a “claims made” type of trigger. No more MSAs.

In conclusion, this concept would profoundly improve WC in four ways:

1) It provides a nationally accepted level of care to injured workers.

2) It brings clinical common sense to an otherwise specious and manipulated system.

3) It ends the oppressive impact of MSAs.

4) It saves an incredible amount of direct costs, frictional costs and resources while reducing litigation.

This idea is radical, but, among the calls to revise the grand bargain, it does not totally explode the current state system. I say, let the debate begin!

Settlement of High-Exposure Workers’ Comp Claims, Part Two

(Part I of this series focused on how to identify high-exposure claims and on the factors that drive cost and duration. Part II focuses on approaches to establish the value of a case, to determine if it is a good candidate to settle.)

Three numbers are critical in the valuation and determination of whether a case is a good candidate for settlement: future value, present value and settlement value.

Future value

The analysis of future valuation provides, by reserve category, a value for the indemnity, medical and expenses projected for the future of the case. 

The indemnity exposure is driven by statutory requirements for both permanent partial and permanent total disability. Typically, permanent partial disability is a fixed number of weeks multiplied by a weekly benefit. Likewise, permanent total disability benefits are calculated at a fixed rate; however, in most instances the benefit is payable for the life of the injured worker. A complication is that each jurisdiction views permanent partial and permanent total disability differently.

Determining the future medical exposure can be even more complicated. In many instances, a calculation will be made based on the average spending on the case over the past three years, but a more thoughtful analysis is necessary to determine the true future value. The analysis should be calculated based on the normal, expected treatment that an injured worker will need over the course of the claim but also consider the irregular treatment modalities necessary or requested by the physician. These may be surgeries, replacement of motorized wheelchairs, conversion vans, etc., which occur on an irregular basis; for example, a replacement van would be required every eight to 10 years, or a motorized wheelchair may need to be replaced every five to seven years. By parsing out these items, a much more accurate and appropriate analysis will be developed. 

Even once you understand the future exposure and the present value of a case, you still should consider other factors, such as co-morbidity and the reduction in the life expectancy of an injured worker because of both industrial and non-industrial conditions (factors discussed in Part I: Settlement of High-Exposure Claims Part I). 

Co-morbidity factors can indicate whether an injured worker’s life expectancy suggests there will be a need for, perhaps, a second knee surgery (at the 30-year mark). Will the injured worker’s condition deteriorate to either create a need or expand the existing exposure for home/attendant care? 

The most significant costs in high-exposure claims typically are medical, and a calculation of settlement value should also take into account that great savings can be achieved. In many instances, savings can be realized through turning the Medicare Set Aside, presuming one is necessary, into an annuity. Assessing non-Medicare type items such as home/attendant care and “off label” medications can also produce savings.

Expenses are also sometimes difficult to quantify. Allocated expenses such as legal fees and record subpoena services may diminish over time as issues begin to resolve. Depending on the jurisdiction, continuing litigation costs may be incurred if a defendant denies a treatment modality or procedure. In addition, consideration should be given to “other” medical expenses such as bill review, utilization review and nurse case management services. These typically continue through the life of the claim and may cost thousands, if not tens of thousands, of dollars. 

Present value

When analyzing the present value (also referred to as a discounted value) of benefits, it is important to understand the time value of money and current internal rates of returns on investments. The typical internal rate of return for annuities is currently approximately 4%. This rate varies, primarily based on interest rates. Carriers and self-insured employers have greater buying power, so they might expect a return of 6% to 7%.  

Determining present value is a straightforward calculation based on whatever the right discount rate is but requires a detailed understanding of likely expenses. Is the injured worker only entitled to benefits for a specific number of remaining weeks? Or, is the benefit payable for life? Determining the present value of the consistent medical generally is a matter of calculating the average annual cost and applying the appropriate discount rate. With irregular costs, it is necessary to understand the specific items in question and the estimated frequency of each. If an injured worker needs knee replacements and will require two over her lifetime, an estimate is needed as to when those will occur (for example, in 15 years and again in 30 years) and the anticipated cost of the surgery. The present value of the surgeries can be calculated based on how many years off they are. 

Discounting expenses associated with a case is typically handled much like the medical discounting. For the regular, consistent costs, an annual amount can be calculated and discounted for present value. If intermittent litigation and other expenses may occur, estimates are created and discounted for present value.

It is safe to say there is some art associated with determining present value. Variances in the discount rate used, the manner in which exposure is calculated and other factors can greatly affect the calculation. Understanding these variables and analyzing them correctly is imperative to reaching a solid present value calculation.

Settlement value

The nature and type of insurance program (primary vs. self-insured) as well as the manner in which the defendant has analyzed his exposure will greatly affect the settlement value of a case.  Understanding the differences between the future exposure and present value calculations aid in determining the amount of money that a party is willing to spend to bring closure to a file. 

Lacking a crystal ball, reserving practices have always had an aspect of “art” to them; thus the future value will have some variation over time based on changes in treatment course, deterioration in condition and other factors.  Present value calculations are estimations or approximations based upon the changes in value of money over time.

Likewise, the settlement value of a case is the best estimate of where the future needs of the injured worker will be, with consideration of the time value of money and degree of desire to extinguish the exposure now—before there is any further potential for expansion or deterioration in the condition, creating a greater degree of expense and exposure in the future. 

A discussion of settlement value should consider that a settlement of the case-in-chief not only ends direct expenses such as litigation, utilization review and nurse case management but also brings to an end the time and energy expended to adjust the claim. Time and energy are usually disproportionately great in high-exposure cases because of the complexities.

A settlement also helps the carrier/self-insured employer by possibly allowing it to recover reserves set aside for a case and by reducing exposure to any expansion of the claim as the years go by.


Ultimately, the objective is to bring these high-exposure cases to resolution as promptly and cost-effectively as possible because, for carriers and self-insured employers, this small percentage of cases drive the majority of costs associated with a workers’ compensation program.

Part III of this series will cover Negotiation and Resolution.

The Looming $20 Billion MSA Train Wreck: Welcome Aboard

There is a $20 billion calamity on the tracks ahead, and no one seems to care. As this train hurtles ever closer to its inevitable demise, the passengers ride oblivious. A program created to protect those passengers – U.S. taxpayers — seemingly will do anything but what was originally intended. 

Medicare Set Asides were developed with the good intentions of protecting Medicare, and the taxpayers that fund it, from unnecessarily paying for injuries and illnesses that are the prior responsibility of third parties. Quite simply, people were taking settlement money received from a general liability or workplace accident—money that was supposed to pay for future medical needs from the injury—and were spending it on anything but its intended purpose. While this was great for the bass boat and travel industries, it was a less than stellar deal for the U.S. taxpayer, who wound up paying for the injured persons’ care once they were eligible for Medicare.

Enter the MSA: a vehicle designed to protect a designated portion of settlement funds by placing them aside and requiring they be used for the purpose intended. This is not new. The roots of today’s MSA lie in the passing of the Medicare Secondary Payer Act of 1980. That act was significantly strengthened in 2003, however, and this has resulted in far more activity for the workers’ compensation industry over the past decade.

True to form, the government has not made implementation easy. Extremely detailed reporting requirements, extensive fines for the Responsible Reporting Entity (even for rules not established at the time) and a complex process made for a confusing road for employers and payers. An entire industry has sprung up to manage this process. The risks of not complying are serious, and the liability for getting it wrong is huge. The Medicare Set Aside today is integral to virtually any settlement situation in the workers’ compensation industry.

All of this is done to protect the U.S. taxpayer from Joe Sixpack and his desire for a bass boat.

I am in no way an expert on MSAs. I have, however, spent time over the last two years attending conferences and talking to various experts on the topic, trying to better understand their purpose and procedure. I discovered a singular statistic that absolutely floored me. It was a fact that, in my opinion, flies in the face of logic and makes all the burdened activity around the MSA seem pointless.

What is so shocking? Only 4% of completed MSAs are professionally administered.

The rest, 96%, are given directly to the claimant/recipient and are self-managed. That means that, when all is said and done, when the calculations are made, when the submissions and approvals are complete, the money that is set aside for the purpose of protecting Medicare and the U.S. taxpayer is given right back to Joe Sixpack, the guy we were trying to protect ourselves from in the first place.

It makes no sense. None.

I am not saying Joe Sixpack is a bad guy. I am not saying his intents are not pure. I am saying that managing payments from an MSA, making sure they are properly coded and complying with mandated reporting is difficult. The process may be well beyond the ability of an injured worker turned fund manager.

Even with his best efforts, Joe could be in trouble when Medicare starts paying for his health care. If he has not dotted every “i” and crossed every “t,” as well as made sure all expenditures were classified to show appropriate care for the affected injury, he could find himself denied needed coverage by Medicare.

And when an army of Joes are pounding at the door of Medicare, because of possible denial of coverage, something is going to have to give.

So how bad is it? What are we looking at here?

For that I turned to Ken Paradis, chairman of Ametros Financial, a company that offers professional administration of MSAs. He confirmed that my suspicions were potentially accurate and provided some very interesting – make that scary – numbers.

In 2010, the Centers for Medicare and Medicaid Services (CMS) approved $1.4 billion in MSAs. Assuming a consistent approach since 2001, the inception of the current program, we can estimate that $16.8 billion have been approved for MSAs in the past 12 years. Using a straight-line estimation, this could mean that $16.1 billion is being self-managed.

Not all MSAs are reviewed by CMS—some are set up with no input or review by the government—and these Class III MSAs represent a completely unknown addition in risk to the long-term health of Medicare. Paradis indicated from experience that 20% of MSAs may be in this category. Using the base numbers from our equation, that estimate brings the total risk pool to perhaps $20 billion.

That figure represents true risk for the nation and our industry.

It seems that many are under the impression that self-administered funds are managed with some level of competence by Joe Sixpack’s counsel. However, the existence of waiver or hold-harmless indemnification language in many settlement agreements tells a different tale. The November 2013 manual on MSAs included guidance for non-professionally administered MSAs, which tells us someone out there might need that advice.

After all the convoluted effort focused on setting up MSAs to protect the interests of Medicare, the guidelines on administration offered by CMS are surprisingly simple:

  • Deposit the fund into an interest-bearing account.
  • Use the fund only for the MSA settlement injury.
  • Use the fund only for expenses covered by Medicare.
  • Pay according to the appropriate fee schedule.
  • Prepare and submit an annual account report to CMS.

The first three seem easy enough to understand. The last two, however, are where the wheels will most likely come off the bus for our wayward injured worker turned financial wizard. Fee schedule and medical classification codes are a science unto themselves, yet we expect Joe Sixpack to navigate that labyrinth with a ninja-like accounting skill set that many industry professionals themselves do not possess.

As for those detailed annual reports, anecdotal information shows CMS hasn’t actually seen many of those over the last decade or so. They, and we, are operating blind in that area.

And, as I’ve indicated, it is a damn big area.

The harsh truth is, no one knows what is out there. No one knows what is coming. We are blindly turning on faith that all this energy and effort will somehow end up doing what was intended. Trust me; this is not going to end well.

The cost of professional administration is a mere pittance when compared with the cost and complexity of setting up an MSA. It seems even smaller when we fully recognize the consequences at hand. Some in the industry are openly suggesting that the expense of professional administration could easily be offset by using it in place of the costly and slow approval process. By skipping the approval but securing the long-term health of the MSA, the greater goal of limited liability will be met. The indemnity saved by settling the case sooner would in many cases more than offset the cost of a professional manager.

Under the current scenario, the taxpayers will clearly be on the hook, but the workers' comp industry should not be foolishly complacent. There are potential clawbacks in our future, and many who think they've put these issues to bed may be again facing a call for more cash by our government.

Why the government fails to close the loop on this and secure the protection it originally intended is beyond comprehension. We are requiring the crafting of a lengthy and expensive letter, getting it reviewed, edited and approved, and then no one is putting a stamp on the envelope.

All that effort, all that expense, only to wind up where we were to begin with; with the exception of our new sense of security. Our false sense of security.

This is part of a much bigger issue: 10,000 retirees are entering the Social Security system every day. The Medicare trust fund will be broke by 2022 at its current expenditure rates, and the ability of Joe Sixpack to manage his funds has never been more critical. There is a train wreck coming, and we are all on board for the ride.  An army of angry Joes will soon be pounding on our door, and the $20 billion may be nowhere to be found.

After all the effort and fuss, I find myself wondering: Why?