Medicare Set-Aside Law Office of Angelo Paul Sevarino Attorneys Windsor Connecticut

This series of 71 questions and answers has been derived from the series of Regional Administrative Letters or "memorandums" issued since 2001. The original memorandums may be viewed by going to CMS' web site : http://www.cms.hhs.gov/ and clicking the Medicare tab and following Coordination of Benefits>Workers' Compensation Agency Services>Downloads.

Caveat: The answers provided are those suggested by CMS and may not reflect the opinion of the Author. Where deemed appropriate, "Author's Comments" will reflect the Author's opinion. This material is offered for general information only, while every effort is made to keep this material current there is no guarantee that the answers reflect current CMS opinion. The reader should reference http://www.cms.hhs.gov/ for the most up to date guidance provided by CMS. Additionally this material is not intended to be legal advice. Consultation with an attorney experienced in Medicare Set-aside mechanisms and Social Security Disability offset provisions is required to address individual issues.

If the practitioner is in need of general information regarding the MSAM referral process or if the practitioner has made a MSAM referral but has not yet received an acknowledgement letter regarding the submission contact 1-800-999-1118.

If the practitioner has received an acknowledgment letter regarding the MSAM referral contact 301-575-0160.

If the practitioner has received a decision regarding the MSAM referral and has a question about the case contact with the CMS Regional Office is required. A list of contract names by Region is annexed as Addendum 1 and the end of this material

Address all liability insurance or no-fault insurance MSP recovery inquires to:

Note: this includes self-insurance, automobile liability, uninsured/underinsured motorists, homeowners, malpractice, produce liability and general casualty insurance

Author's Comment: On May 4, 2006 HR 5309 entitled "The Medicare Secondary Payer and Workers' Compensation Settlement Agreements Act of 2006" was introduced to address the dysfunctional procedures for workers' compensation Medicare Set-aside proposals. This bill, while not passed, aimed to establish a clear legal basis for workers' compensation Medicare Set-asides, as well as, fast and efficient procedures for the review of Set-aside proposals by CMS. It is expected that new bills addressing this same issue will be presented and the practitioner should monitor the status of this important topic..

A2. Yes. Since 2001 a number of Regional Administrative Letters or "memorandums" have been released explaining The Centers for Medicare & Medicaid Services (CMS) (formerly known as the Health Care Financing Administration or "HCFA") policy and practice as it relates to the establishment, valuation and approval process for Medicare Set-aside mechanisms (sometimes referred to as a Medicare Set-aside "trust", "account" or "arrangement"). The primary memorandums are listed below and have been categorized into 65 numbered "questions" and "answers".

1. Patel Memorandum dated July 23, 2001 entitled "Workers' Compensation: Commutation of Future Benefits" (Parashar B. Patel, Deputy Director Purchasing Policy Group Center for Medicare Management).

2. Olenick Memorandum dated October 15, 2001 entitled "Mr. Michael G. Dileo's September 27, 2001 letter concerning Workers' Compensation Cases" (Paul J. Olenick, Director, Division of Integrated Delivery Systems).

3. Grissom Memorandum dated April 21, 2003 entitled "Medicare Secondary Payer Workers' Compensation (WC) Frequently Asked Questions" (Thomas L. Grissom, Director Center for Medicare Management). .

4. Grissom Memorandum dated May 23, 2003 entitled "Medicare Secondary Payer Workers' Compensation (WC) Additional Frequently Asked Questions" (Thomas L. Grissom, Director Center for Medicare Management).

5. Herb Huhn Memorandum dated May 7, 2004 entitled "Medicare Secondary Payer-Workers' Compensation (WC) INFORMATION.

6. Walters Memorandum dated October 15, 2004 entitled "Medicare Secondary Payer (MSP)-Workers' Compensation (WC) Additional Frequently Asked Questions." (Gerald Walters, Director Financial Services Group, Office of Financial Management).

7. Walters Memorandum dated July 11, 2005 entitled "Medicare Secondary Payer (MSP)-Workers' Compensation (WC) Additional Frequently Asked Questions" (Gerald Walters, Director Financial Services Group, Office of Financial Management).

8. Walters Memorandum dated December 30, 2005 entitled "Part D and Workers' Compensation Medicare Set-aside Arrangements (WCMSAs) Questions and Answers" (Gerald Walters, Director Financial Services Group, Office of Financial Management).

9. Walters Memorandum dated July 24, 2006 entitled "Questions and Answers for Part D and Workers' Compensation Medicare Set-aside Arrangements" (Gerald Walters, Director Financial Services Group, Office of Financial Management).

In addition to the memorandums CMS has hosted open forum conference calls allowing practitioners to participate along with CMS management and staff in an informal "Q & A" format aimed at providing the practitioner with a better understanding of CMS' requirements for the need to set up Medicare Set-aside mechanisms and the process by which that is accomplished.

A directory for the various CMS Regional Offices and contact personnel is found at the end of these questions and answers.

Additional information may also be obtained by referencing the author's text: "Settlements, Offsets & Set-asides" published by Atlantic Law Book Company, West Hartford, Connecticut 06110. Information regarding this text may be found on the Author's web page located at http://sevarino.lawoffice.com.

Additionally, CMS as a Medicare Set-aside specific website at: http://www.cms.hhs.gov/medicare/cob/attorneys/att_wc.asp.

Q3. What authority gives CMS the right to seek a Medicare Set-aside mechanism? (Note: these are oftentimes referred to as Medicare Set-aside "Accounts", "Agreements", or "Arrangements".

A3. Section 1862(b)(2) of the Social Security Act and §42 USC 1395y(b)(2)requires that Medicare payment may not be made for any item or service to the extent that payment has been made under a workers' compensation law or plan. Moreover, §42 CFR 411.46 requires Medicare to exclude its payments when an individual receives a workers' compensation settlement award that is intended to compensate the injured worker for future medical expenses required because of a work-related injury or disease. That is, Medicare must not pay for an individual's medical, services when that individual received a workers' compensation settlement, judgment or award that includes funds for future medical expenses, until all such funds are properly expended. Section 1862(b)(2) and §42 CFR 411.46 do not explicitly require individuals who are not yet Medicare beneficiaries to consult with CMS prior to settling their workers' compensation cases. However, Section 1862(b)(2) and §42 CFR.411.46 do require Medicare to exclude its payments once that injured individual actually becomes a Medicare beneficiary. Accordingly, it is in the injured worker's interest to consider Medicare's interest at the time of settlement (even though the injured worker is not actually a Medicare beneficiary at the time of settlement).

CMS further believes that once CMS agrees to a Medicare Set-aside mechanism the injured worker can be certain that Medicare's interests have been appropriately considered.

"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."

In addition the Medicare manuals (§3407.8 of the MIM, §2370.8 of the MCM) state:

"When a beneficiary accepts a lump-sum payment that represents a commutation of all future medical expenses and disability benefits, and the lump-sum amount is reasonable considering the future medical services that can be anticipated for the condition, Medicare does not pay for any items or services directly related to the injury or illness for which the commutation lump-sum is made, until the beneficiary presents medical bills related to the injury equal to the total amount of the lump-sum settlement allocated to medical treatment."

Q4. Does Medicare have "lien" rights against a workers' compensation settlement?

A4. No! But it does have a "right of recovery". Because most workers' compensation carriers typically dispute liability it is very common that Medicare later finds that it has already made "conditional payments". A conditional payment means a Medicare payment was made for which another payer e.g., the workers' compensation carrier is potentially responsible but had not made due to a pending dispute. If Medicare's conditional payments are more than $100,000 and the injured worker, known in Medicare terminology as the "beneficiary", (beneficiary means a person who is entitled to Medicare benefits § 42 CFR 400.202) also wishes Medicare to compromise its recovery under the Federal Claims Collection Act provisions of §31 U.S.C.3711, the case must be referred to CMS' Central Office and then is forwarded to the Department of Justice. It is important to note in all workers' compensation cases that all pre-settlement and post-settlement requests to compromise any Medicare recovery claim amounts must be submitted to the CMS Regional Office (for Connecticut this is The Centers for Medicare & Medicaid Services, JFK Federal Building, Gov't Center Room 2325, Boston, MA 02203).

Medicare is a "secondary" payer to workers' compensation; therefore, it is, according to CMS in Medicare's best interest to learn of the existence of a workers' compensation open case, as well as, settlements as soon as possible in order to avoid making "mistaken" conditional payments. According to CMS, the use of a Medicare Set-aside mechanism in workers' compensation cases enables Medicare to identify workers' compensation situations that would otherwise go unnoticed, which in turn prevents Medicare from making 'mistaken" payments. Author's Comment: In the opinion of the Author, Medicare has no lien rights per se. Rather, Medicare has a right of recovery for any conditional payment made for the work related injury or illness.

Q5. Does the Medicare program have a claim against a lump sum workers' compensation payment before an injured worker's Medicare entitlement?

A5. No. Medicare cannot make a formal determination until the injured worker actually becomes entitled to Medicare. However, once the injured worker becomes entitled, Medicare payment may not be made to the extent of Medicare's interests in the lump sum payment pursuant to § 42 CFR 411.46 or according to a Medicare Set-aside mechanism that adequately considers Medicare's interests. Author's Comment: If a Medicare Set-aside mechanism of some sort is not utilized in settlement of workers' compensation claims then the client's only recourse is to take an appeal to a Medicare payment denial via an Administrative Law Judge hearing.

Q6. Is it permissible for Medicare to accept an up-front cash settlement instead of establishing a Medicare Set-aside mechanism?

A6. No. An up-front cash settlement is only appropriate in certain instances when Medicare agrees to a compromise in order to recover conditional payments made when the workers' compensation carrier or liability carrier did not pay promptly (promptly generally means payment will be made within 120 days of receipt of the claim). Thus, when future medical benefits are included in a workers' compensation settlement agreement, Medicare cannot pay until the medical expenses related to the injury or illness equal the amount of the settlement allocated to future medical expenses or until the amount included for medical expenses in the Medicare Set-aside mechanism has been exhausted.

Q7. How does Medicare determine its interests in workers' compensation cases when the parties to the settlement do not explicitly state how much of the settlement is for past medical expenses and how much is for future medical expenses?

A7. A settlement that does not specifically account for past versus future medical expenses will be considered to be entirely for future medical expenses once Medicare has recovered any conditional payments it may have made. This means that Medicare will not pay for medical expenses that are otherwise reimbursable under Medicare and are related to the workers' compensation injury or illness, until the entire settlement is exhausted.

Example: An injured worker is paid $50,000 by a workers' compensation carrier, and the parties to the settlement do not specify what the $50,000 is intended to pay for. If there is no CMS approved Medicare Set-aside mechanism, Medicare will consider any amount remaining after recovery of its conditional payments as compensation for future medical expenses.

Additionally, it is the position of CMS that any allocation made for lost wages, pre-settlement medical expenses, future medical expenses, or any other settlement designations that do not consider Medicare's interests, will not be recognized by Medicare.

Q8. From whom can CMS recover funds if Medicare's interests are ignored in a workers' compensation or liability case?

A8. CMS has a direct priority right of recovery against any entity; including an injured worker, provider, supplier, physician, attorney, state agency, or private insurer that has received any portion of a third party payment directly or indirectly. CMS also has a subrogation right with respect to any such third party payment. See, for example, §42 CFR 411.24(b), (e), and (g) and §42 CFR 411.26. Author's Comment: This right of recovery clearly applies to any conditional Medicare payments made prior to the settlement, however, in the Author's opinion there is no clarity as to whether CMS has a direct right of recovery against any entity for payments Medicare may make for services provided "after" the settlement.

Q9. If a current Medicare beneficiary has outstanding workers' compensation related medical claims that were not paid prior to the settlement and are not covered in that settlement, will Medicare or the Medicare Set-aside mechanism pay those claims?

A9. No, Medicare cannot pay because it is secondary to the workers' compensation settlement and the Medicare Set-aside mechanism cannot pay because it is created solely for future medical expenses related to the workers' compensation case. Medical expenses incurred prior to the settlement need to be accounted for in the compromise portion of the settlement. These medical services should be known to the parties. The provider/supplier will typically have billed Medicare and/or the workers' compensation carrier for these medical services and the injured worker's representative will have made inquiries about outstanding related claims.

In addition, to the extent Medicare has made any conditional payments, Medicare will recover those payments pursuant to §42 CFR 411.47.

A10. A workers' compensation "settlement" is an executed settlement agreement that is approved by the court of competent jurisdiction for the applicable state.

Q11. What is the difference between a "commutated" and "compromise" settlement?

A11. Medicare's regulations §42 CFR 411.46 and manuals MIM§§ 3407.7& 3407.8 and MCM §§2370.7 & 2370.8) make a distinction between lump sum settlements that are commutations of future benefits and those that are due to a compromise between the workers' compensation carrier and the injured worker.

Workers' compensation commutation cases are settlement awards intended to compensate individuals for future medical expenses (for medical expenses after the settlement date) required because of a work-related injury or disease. In contrast, workers' compensation compromise cases are settlement awards for an injured worker's current or past but not future medical expenses (for medical expenses incurred prior to the settlement date) that were incurred because of a work-related injury or illness. Therefore, settlement awards or agreements that intend to compensate an injured worker for any medical expenses after the date of settlement (i.e., future medical expenses) are considered commutation cases.

It is important to note that a single workers' compensation lump-sum settlement agreement can possess both workers' compensation compromise and commutation aspects. That is, some single lump-sum settlement agreements can designate part of a settlement for an injured worker's future medical expenses and simultaneously designate another part of the settlement for all of the injured worker's medical expenses up to the date of settlement. This means that a commutation case may possess a compromise aspect to it when a settlement agreement also stipulates to pay for all medical expenses up to the date of settlement. Conversely, a compromise case may possess a commutation aspect to it when a settlement agreement also stipulates to pay for future medical expenses. Additionally, a settlement possesses a commutation aspect if it does not provide for future medical expenses when the facts of the case indicate the need for continued medical care related to the workers' compensation illness or injury.

It is important to note that Medicare Set-aside mechanisms are only used in workers' compensation cases that possess a commutation aspect; they are not used in workers' compensation cases that are strictly or solely compromise cases and do not provide for any work- related future medical expenses.

One of the distinctions that Medicare's regulations and manuals make between compromise and commutation cases is the absence of controversy over whether a workers' compensation carrier is liable to make payments. A significant number of workers' compensation lump-sum cases are commutations of future workers' compensation benefits where typically there is no controversy between the injured workers and the workers' compensation carrier over whether the workers' compensation carrier is actually liable to make payments. However, an absence of controversy over whether a workers' compensation carrier is liable to make payments is not the only distinction that Medicare's manuals and regulations make between compromise and commutation cases. Thus, lump-sum settlements should not automatically be considered as compromise cases simply because a workers' compensation carrier does not admit to being liable in the settlement agreement. Conversely, lump-sum settlements should not automatically be considered as commutation cases simply because a workers' compensation carrier does admit to being liable in a settlement agreement. Therefore, an admission of liability by the workers' compensation carrier is not the sole determining factor of whether or not a case is considered a compromise or commutation.

Q12. Does Medicare give written advisory opinions on the sufficiency of a Medicare Set-aside mechanism even if the injured worker is not as yet entitled to Medicare?

A12. The CMS Regional Office has established case review thresholds and will review a proposed settlement including a Medicare Set-aside mechanism and can give a written opinion on which the injured worker and the attorney can rely, regarding whether the workers' compensation settlement has adequately considered Medicare's interests pursuant to §42 CFR 411.46. These proposed settlements are handled on a case-by-case basis, as each situation is different. If there are several years prior to Medicare entitlement, the CMS Regional Office will use its best judgment regarding what Medicare utilization might be once there is Medicare entitlement. Once the CMS Regional Office has given its written opinion that the Medicare Set-aside mechanism is sufficient to satisfy the requirements at §42 CFR 411.46, when the Medicare Set-aside mechanism is established and the workers' compensation proposed settlement is approved, the CMS Regional Office, will follow-up on confirming the Medicare Set-aside mechanism has been established according to the authorization provided.

Q13. When an injured worker's workers' compensation settlement does not meet the current review thresholds, will the CMS Regional Offices provide the settling parties with "verification" letters confirming that approval of a Medicare Set-aside mechanism is unnecessary?

A13. No, the CMS Regional Offices will not provide "verification" letters. However the CMS will honor threshold levels that are in effect as of the date of a workers' compensation settlement.

Q14. Once the Medicare Set-aside mechanism has been approved by the CMS Regional Office what is the subsequent role of the CMS Regional Office?

A14. When the CMS Regional Office approves a Medicare Set-aside mechanism, the CMS Regional Office will check the National Medicare Enrollment database on a monthly basis in order to determine when an injured worker actually becomes enrolled in Medicare. Once the CMS Regional Office verifies that the injured worker has actually been enrolled in Medicare, the CMS Regional Office will assign a contractor responsible for monitoring the injured worker's case. The CMS Regional Office will assign the contractor based on the injured individual's State of residence.

When the injured worker has actually been enrolled in Medicare, the CMS Regional Office must provide the Coordination of Benefits Contractor (COBC) with identifying information to add a workers' compensation record to their file known as a "Common Working File." The CMS Regional Office must exercise one of the following options: 1) fax the information to the COBC; or 2) submit through an Electronic Correspondence Referral System (ECRS) inquiry. At a minimum, the CMS Regional Office must indicate that this is a workers' compensation Medicare Set-aside mechanism case, and include the following information:

● DX code(s): If dx codes are not readily available the CMS Regional Office must include a description of the illness/injury

The administrator of the Medicare Set-aside mechanism, whether it is self-administered or administered by a third party, must forward annual accounting summaries concerning the expenditures from the Medicare Set-aside mechanism to the contractor responsible for monitoring the injured worker's case. The contractor responsible for monitoring the injured worker's case is then responsible for insuring/verifying that the funds allocated to the Medicare Set-aside mechanism were expended on medical services for Medicare covered services only. Additionally, the contractor responsible for monitoring the injured worker's case will be responsible for ensuring that Medicare makes no payments related to the illness or accident until the Medicare Set-aside mechanism has been exhausted.

Currently in Connecticut the contractor is Empire Medicare Services. For injured workers whose last name begins with A-L the address is P.O. Box 69214 Harrisburg, PA 17106-9216 (fax 717-565-3434). For injured workers whose last name begins with M-Z the address is P.O. Box 4751 Syracuse, NY 13221 (fax 315-442-4382).

Q15. Does a "system of records" exist for the documentation that the CMS Regional Office receives and or collects concerning the proposed Medicare Set-aside mechanism?

A15. Yes. CMS' Division of Benefit Coordination is in the process of establishing a "system of records" via the Federal Register process, which will provide legal authority to maintain records on injured workers that are not enrolled in Medicare. The CMS Regional Office will be responsible for maintaining or "housing" the records for every Medicare Set-aside mechanism on which the CMS Regional Office provides a written opinion. Please note that these records are not subject to Freedom of Information Act requests and may not be disseminated to the public.

Q16. What types of measures should the CMS Regional Office and the contractors take to ensure that Medicare makes no payments for work related injury or illness until the Medicare Set-aside mechanism has been exhausted?

A16. If the contractor monitoring the injured worker's case discovers that payments from the Medicare Set-aside mechanism have been used to pay for medical services that are not covered by Medicare or for administrative expenses then the contractor will not pay the Medicare claims. The contractor must provide the evidence of the unauthorized expenditures to the CMS Regional Office for investigation. If the CMS Regional Office determines that the expenditures were contrary to the CMS Regional Office's written opinion on the sufficiency of the Medicare Set-aside mechanism, then the CMS Regional Office will notify the administrator of the Medicare Set-aside mechanism the CMS Regional Office's approval of the Medicare Set-aside mechanism is withdrawn until such time as the funds used for non-Medicare expenses and/or administrative expenses are restored to the Medicare Set-aside mechanism.

Q17. What impact will Medicare Set-aside mechanisms have on Medicare payment systems and procedures?

A17. Because a Medicare Set-aside mechanism's purpose is to pay for all medical services related to the injured worker's work-related injury or illness, Medicare will not make any payments (as a primary, secondary or tertiary payer) for any medical services related to the work-related injury or illness until nothing remains in the Medicare Set-aside mechanism. Medicare Set-aside mechanisms are established in order to pay for all medical expenses resulting from work-related injuries or illnesses; Medicare Set-aside mechanisms are not designed to simply pay portions of medical expenses for work-related injuries or diseases.

When Medicare Set-aside mechanisms are designed as lump sum funding (i.e., the Medicare Set-aside mechanism is designed in a manner that the workers' compensation settlement is paid into the Medicare Set-aside mechanism all at once), Medicare would not make any payments for that injured worker's medical expenses (for work-related injuries or illnesses) until all the funds (including interest) within the Medicare Set-aside mechanism have been completely exhausted. These same basic principles also apply to structured settlements.

When providers, physicians and other suppliers submit claims to Medicare related to the injured worker's work-related injury or illness, claims processing contractors should deny those claims and instruct the entity or injured worker to seek payment from the Medicare Set-aside mechanism. Since the injured worker will be a Medicare beneficiary at the time when the provider, physician, or other supplier submits the claim to Medicare, the contractor responsible for monitoring the injured worker's case will have already updated its file to indicate that the injured worker's claims should be denied. However, when a provider, physician or other supplier submits any claims that are for injuries or illnesses that are not work-related, then contractors should process those claims like they would any other claim for Medicare payment.

When the injured worker, in the case of a self-administered Medicare Set-aside mechanism or administrator in the case of a third-party Medicare Set-aside mechanism, refuses to make payment on a provider's, physician's or other supplier's claim because the injured worker or administrator of the Medicare Set-aside mechanism asserts the medical services are for injuries or illnesses that are not work-related (or when the injured worker or administrator of the Medicare Set-aside mechanism denies the claim for any other reason), and the provider, physician or other supplier, subsequent to the injured worker or administrator's denial, submits the claim to Medicare, then the contractor should consult the CMS Regional Office in order to determine whether Medicare should pay the claim. If a determination to deny the claim is made, then Medicare's regular administrative appeals process for claim denials would apply to the claim.

Q18. May a beneficiary self-administer his or her own Medicare Set-aside mechanism?

A18. Yes. While §42 CFR 411.46 requires that all workers' compensation settlements consider Medicare's interests it does not mandate what particular type of administrative mechanism be used to "Set-aside" monies for Medicare e.g., self-administered vs. third-party administered. The self-administration of a MSAM is, however, considered by CMS as the preferred method. CMS requires a self-administered mechanism to follow the same rules and guidelines as those required of a third-party administrator. Third party administration of the Medicare Set-aside may be warranted, however, if the injured worker is incompetent, a minor or there is a need for a Special Needs Trust due to Title 19/Medicaid issues.

A.19. Medicare Set-aside mechanisms must be administered by a competent administrator. This can be the beneficiary, a representative payee for Social Security purposes pursuant to 20 C.F.R. §§ 404.2010 and 404.2015 (e.g., because the individual is legally incompetent, mentally incapable of managing benefit payments, etc.), an appointed guardian or conservator or a professional administrator. Moreover, when an individual has a designated representative payee, appointed guardian/conservator, or has otherwise been declared incompetent by a court then the party submitting the Medicare Set-aside mechanism proposal must include that information as part of their proposal to CMS.

Q20. Is there a means by which an injured worker can permanently waive his or her right to certain specific medical services related to a workers' compensation case, and thereby reduce the amount of a Medicare Set-aside mechanism?

A20. No, the CMS Regional Offices cannot approve settlements that promise not to bill Medicare for certain medical services in lieu of including those medical services in a Medicare Set-aside mechanism. This is true even if the injured worker offers to execute an affidavit or other legal document promising that Medicare will not be billed for certain medical services if those medical services are not included in the Medicare Set-aside mechanism.

Q21. Does CMS require that a Medicare Set-aside mechanism in third party liability claims?

A21. CMS' position is that Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (PL 110-173) amends the Medicare Secondary Payer (MSP) provisions of the Social Security Act (Section 1862(b) of the Social Security Act; 42 U.S.C. 1395y(b)) to provide for mandatory reporting for group health plan arrangements, liability insurance (including self-insurance), no-fault insurance, and workers' compensation. The provisions will be implemented January 1, 2009, for information about group health plan arrangements, and July 1, 2009, for information about liability insurance, no-fault insurance, and workers' compensation. CMS has reported that it will design a new and separate Webpage for information regarding these requirements.

In the case of a settlement of a purely liability case it is likely CMS will interpret this as a commutation case requiring the establishment of a Medicare Set-aside mechanism. In the case of a civil judgment where no future economic damages are awarded for future medical treatment it would suggest no Medicare Set-aside would be warranted. Careful drafting of the settlement documents is warranted and in the case of court side verdicts the transcript should reflect no future medical costs have been awarded and in the case of jury verdicts special interrogatories to the jury should be submitted to confirm no award for future medical costs.

Author's Comment: As with workers' compensation settlements there is no statutory authority for CMS' position other than the Regional Director Memorandums interpreting the statutes and regulations to mandate the Medicare-Set-aside process. In the opinion of the Author there is no such authority, however, the reality is that it will be the client who suffers when a Medicare Set-aside mechanism is not utilized since Medicare may well deny coverage and payment for injury related medical bills leaving the client with the long arduous process of appealing a Medicare payment denial to the ALJ.

Q22. Does CMS require that a Medicare Set-aside mechanism be established in situations that involve both a workers' compensation claim and a third party liability claim?

A22. To the extent that a liability settlement is made that relieves a workers' compensation carrier from any future medical expenses, a CMS approved Medicare Set-aside mechanism is appropriate. "Relief" could come in the form of a full and final settlement of the workers' compensation claim or a moratorium on future workers' compensation until the liability proceeds are exhausted. This Medicare Set-aside mechanism would need sufficient funds to cover future medical expenses incurred once the total third party liability settlement is exhausted.

The only exception to establishing a Medicare Set-aside mechanism would be if it can be documented that the injured worker does not require any further workers' compensation claim related medical services. A Medicare Set-aside mechanism is also unnecessary if the medical portion of the workers' compensation claim remains open, and workers' compensation carrier continues to be responsible for work-related medical services once the liability settlement is exhausted. However, a Medicare Set-aside mechanism is appropriate even where the resolution of the workers' compensation claim permanently closes the medical aspects of the claim but where the medical records document that the injured worker will require future medical services related to the workers' compensation claim that Medicare would otherwise reimburse.

Q23. Can you settle just the indemnity portion of a workers' compensation claim while awaiting a CMS determination on a proposed Medicare Set-aside mechanism?

A23. Yes, however, this will normally require two appearances before the workers' compensation administrative body approving the settlement with the first resolving the indemnity portion and the second upon receipt of the CMS approval.

Q24. Can the parties proceed with the settlement of the medical expenses portion of a workers' compensation claim before CMS actually reviews the proposed Medicare Set-aside mechanism and determines an amount that adequately considers Medicare's interests?

A24. The parties may proceed with the settlement, but any statement in the settlement of the amount needed to fund the Medicare Set-aside mechanism is not binding upon CMS unless/until the parties provide CMS with documentation that the Medicare Set-aside mechanism has actually been funded for the full amount as specified by CMS that adequately considers Medicare's interests as a result of its review.

If CMS does not subsequently provide approval of the funded Medicare Set-aside mechanism amount as specified in the settlement and proof is not provided to CMS that the CMS approved Medicare Set-aside mechanism amount has been fully funded, CMS may deny payment for medical services related to the workers' compensation claim up to the full amount of the settlement. Only the approval of the Medicare Set-aside mechanism by CMS and the submission of proof that the Medicare Set-aside mechanism was funded with the approved amount, would limit the denial of related medical claims to the amount in the Medicare Set-aside mechanism. This shall be demonstrated by submitting a copy of the final, signed settlement documents indicating the Medicare Set-aside mechanism is the same amount as that recommended by CMS.

As a reminder, the injured worker may be at risk if the Medicare Set-aside mechanism is funded for less than the amount that CMS determines to be adequate to consider (CMS uses the word "protect") Medicare's interests.

There are some options (with associated risk to the client) that can be considered if the parties do not wish to wait for CMS approval. These are:

Option 1: Advance. With the consent of all proposed signatories to the settlement the parties enter into a Stipulation to Date for 10-20% of the gross settlement plus attorney fees subject to referring the case to CMS. Upon approval of the submission by CMS the workers' compensation insurance carrier or self-insured employer would pay the difference of what was advanced under the Stipulation to Date and the original settlement figure. Under this option the workers' compensation insurance carrier or self-insured employer remains primarily liable for all work related medical expenses up to the date of CMS approval and subsequent approval of the final Stipulation.

Option 2: Post-settlement approval from CMS. With the consent of all proposed signatories to the settlement the parties proceed to obtain settlement approval by the workers' compensation adjudicatory body and injured worker's counsel disburses the settlement funds before receipt of CMS approval so long as the injured worker's counsel holds two times the proposed Set-aside figure in a secured client fund account until CMS approval is obtained. Should CMS then require a higher Set-aside amount than that proposed in the Set-aside provisions of the settlement the injured worker's counsel must then require the injured worker to promptly fund the difference

Option 3: Reversionary Set-aside. This option is the same as Option 2, except the full proposed Set-aside amount as indicated in the settlement document is held in the client fund account and the parties agree that should CMS comes back with a requirement that the Set-aside figure be greater than that proposed in the Set-aside provisions of the settlement the injured worker agrees to fund an agreed to additional amount from the settlement proceeds which additional sum has been held in the injured worker's attorney's client fund account. However, if the Set-aside amount required by CMS exceeds the original proposed Set-aside amount plus this additional sum held in the client's fund account then the workers' compensation insurance carrier or self-insured employer agrees to fund the excess (amount of Set-aside required by CMS less the amount of the original proposed Set-aside amount plus additional sum committed to by injured worker). Should this excess not be fully exhausted at the death of the injured worker (or for any other reason the Set-aside is terminated with the consent of CMS) the remainder of the excess reverts to the payor workers' compensation insurance carrier or self-insured employer and not the injured worker or his/her estate.

Q25. If the injured worker receives a Form I099-INT for the interest income earned on the Medicare Set-aside mechanism, may the injured worker charge the income tax on that amount against the Medicare Set-aside mechanism?

A25. Assuming that there is adequate documentation for the amount of incremental tax that the injured worker must pay for the interest earned on the Medicare Set-aside mechanism funds, the injured worker or his/her administrator may withdraw an amount equal to the additional tax as a "cost that is directly related to the account" to cover the additional tax liability. Such documentation should be submitted along with the annual accounting.

Q26. Does CMS provide an example of an acceptable format for a Medicare Set-aside mechanism or CMS referral?

A26. Yes. A sample Medicare Set-aside mechanism and proposal may be found at http://www.cms.hhs.gov/WorkersCompAgencyServices/Downloads/samplesubmission.pdf

Q27. In a workers' compensation settlement, is a Medicare Set-aside mechanism recommended where the injured worker is covered under a group health plan or a managed care plan, or has coverage through the VA?

A27. Yes, a Medicare Set-aside mechanism is still appropriate because such other health insurance or health service could in the future be canceled or reduced, or the injured worker may elect not to take advantage of such medical services. It is important to remember that workers' compensation is always primary to Medicare and many other types of health insurance coverage for expenses related to the workers' compensation claim or settlement. If the injured worker belongs to a HMO that may not be coordinating benefits based on workers' compensation entitlement, the settlement should still Set-aside funds for Medicare covered services in case the injured worker converts to a fee for service plan.

Q28. Does a Medicare Set-aside mechanism have an effect on Medicaid resources for purposes of eligibility for Medicaid?

A28. Medicare Set-aside mechanisms are not subject to any special treatment under Medicaid resource rules. These funds should be evaluated to determine if they meet the legal definition of a resource for Supplemental Security Income (SSI), and therefore Medicaid, purposes, i.e., "cash or other assets that an individual owns and could convert to cash to be used for his or her support and maintenance." These funds may meet the SSI Medicaid resource definition.

There may be cases in which funds in a Medicare Set-aside mechanism are placed into trusts, possibly trusts that would satisfy the definition of "special needs trusts" under Section 1917 of the Social Security Act. In those cases, the funds might not be a countable resource, but that result would be solely on the basis of Medicaid, not Medicare, rules. Consultation with an Elder Law specialists should be sought.

Q29. Is a Medicare Set-aside mechanism appropriate when resolution of the workers claim leaves the medical aspects of the claim open?

A29. No, since the workers' compensation carrier remains primary on work related medical expenses a Medicare Set-aside mechanism would not be necessary.

Q30. If the settling parties of a workers' compensation case contend that a workers' compensation settlement is not intended to compensate an injured worker for future medical expenses, does CMS still require that a Medicare Set-aside mechanism be established?

A30. It is unnecessary for the injured worker to establish a Medicare Set-aside mechanism for Medicare if all of the following are true:

a) The facts of the case demonstrate that the injured worker is only being compensated for past medical expenses (i.e., for medical services furnished prior to the settlement);

b) There is no evidence that the injured worker is attempting to maximize the other aspects of the settlement (e.g., the lost wages and disability portions of the settlement) to Medicare's detriment; and

c) The injured worker's treating physician(s) conclude (in writing) that to a reasonable degree of medical probability the injured worker will no longer require any Medicare covered treatments related to the workers' compensation injury or illness.

However, if Medicare made any conditional payments for work-related services furnished prior to settlement, then Medicare would require recovery of those payments. In addition, Medicare will not pay for any medical services furnished prior to the date of the settlement for which it has not already paid.

A31. All workers' compensation regardless of amount must be considered for current Medicare beneficiaries. For civil liability settlements refer to Q18.

Author's Comment: CMS is fond of using the term "protected" in discussing the Medicare Set-aside process, e.g. Medicare's interests must be protected. In the opinion of the Author there is no requirement for attorneys to "protect" the interests of Medicare. Rather, the obligation is to give Medicare's interests due consideration. The attorney's sole obligation is to protect the interests of his or her client.

The thresholds for review of a Medicare Set-aside mechanism proposal are only CMS workload review thresholds, not substantive dollar or "safe harbor" thresholds for complying with the Medicare Secondary Payer law. Under the Medicare Secondary Payer provisions, Medicare is always secondary to workers' compensation and other insurance such as no fault and liability insurance. Accordingly, all injured workers or individuals must consider Medicare's interest when settling any workers' compensation or liability case. The current review thresholds are subject to adjustment and CMS reserves the right to modify these guidelines.

Workers' compensation settlement at or below $25,000. Effective April 26, 2006 CMS no longer reviews new Medicare Set-aside mechanism proposals for current Medicare beneficiaries where the total settlement amount is $25,000.00 or less. Previously, as of July 11, 2005 this threshold was $10,000.00.

Workers' compensation settlement above $25,000. To the extent a workers' compensation settlement meets both of the following criteria:

•- the total settlement amount for future medical expenses and impairment/wage loss over the life or duration of the settlement agreement is greater than $250,000 (not discounted to present cash value); and

•- the injured worker is reasonably expected to become a Medicare beneficiary within 30 months of the settlement date

For example, if the injured worker is designated by workers' compensation carrier as a Permanent Total disabled individual, has filed for Social Security disability, and the settlement apportions $25,000 per year (combined for both future medical expenses and disability/lost wages) for the next 20 years, then the CMS Regional Office should review that workers' compensation settlement because the total settlement amount over the life of the settlement agreement is greater than $250,000 ($25,000 x 20 years = $500,000) and the injured worker has a "reasonable expectation" of Medicare enrollment within 30 months of the settlement date. If the injured worker in this example fails to consider Medicare's interests, then Medicare may preclude its payments pursuant to §42 CFR 411.46 once the injured worker actually becomes entitled to Medicare.

Note that the computation of the "total settlement amount" includes, but is not limited to, wages, attorney fees, all future medical expenses, repayment of any Medicare conditional payments and the value of any previously settled portion of the workers' compensation claim.

Author's Comment: It is the Author's opinion that "previously settled portion of the workers' compensation claim" will be difficult to calculate since many aspects of a workers' compensation claim may be "settled" or compromised during the life of a claim. To include the value of any previously settled portion of a workers' compensation claim is unworkable. What does this mean? It would be appropriate to include a previously settled portion of the workers' compensation claim if it was contemporaneous to the full and final settlement, otherwise only those amounts which constitute the actual settled claim as of the date of settlement should properly be included. .

Also note that payout totals for any annuity utilized to fund the Medicare Set-aside and not the cost or present values of the annuity is considered in the total settlement amount calculation.

Q32. When an annuity is included in a settlement for an injured worker (who is not yet a Medicare beneficiary), how does Medicare determine whether the value of the annuity meets the $250,000 monetary threshold?

A32. Medicare determines the value of an annuity based on how much the annuity is expected to pay over the life of the settlement, not on the present cash value or cost of funding that annuity.

Example: A settlement is to pay $15,000 per year for the next 20 years to an injured worker who has a "reasonable expectation" of Medicare enrollment within 30 months. This settlement is to be funded with an annuity that will cost $175,000.

The CMS Regional Office will review this settlement because the total settlement to be paid is greater than $250,000 ($15,000 per year x 20 years = $300,000). In CMS' view it is immaterial for Medicare's purposes that the present cash value or cost ($175,000) to fund this settlement is less than $250,000.

A33. A "reasonable expectation" of Medicare enrollment is not an extreme, immoderate, or excessive chance that the injured individual will become enrolled in Medicare. A "reasonable expectation" of Medicare enrollment may be where:

b) The individual has been denied Social Security Disability Benefits but anticipates appealing that decision;

c) The individual is in the process of appealing and/or re-filing for Social Security Disability Benefits;

d) The individual is 62 years and 6 months old (i.e., may be eligible for Medicare based upon his/her age within 30 months); or

e) The individual has an End Stage Renal Disease (ESRD) condition but does not yet qualify for Medicare based upon ESRD.

Q34. Assuming an injured worker is not a Medicare beneficiary at the time of settlement; if in the future the injured worker requests Medicare benefits will Medicare provide the benefits?

A34. Yes. When an injured worker's settlement does not meet both thresholds Medicare will make payment for workers' compensation work-related medical services that are otherwise reimbursable under Medicare once the injured worker enrolls in Medicare. This is so, according to CMS, since CMS assumes that when a non-Medicare eligible injured worker's workers' compensation settlement does not meet the 30-month and $250,000 thresholds, typically that injured worker will completely exhaust his/her settlement by the time Medicare e1igibility is reached. Therefore, the amount of money in the settlement that is actually being provided for an injured worker's medical care normally will be appropriately exhausted before the injured worker becomes a Medicare beneficiary.

Q35. What is the procedure to submit proposed Medicare Set-aside mechanisms to CMS?

A35. When CMS first started the Medicare Set-aside mechanism review process the submission process went something like this: The first report of attorney representation of a Medicare beneficiary for a workers' compensation claim should be made to the CMS Coordination of Benefits (COB) Contractor.

The inquiry would be directed to the attention of the Regional Office Medicare Secondary Payer Coordinator, who then would forward the inquiry to the appropriate CMS Regional Office. Workers' compensation Medicare Set-aside mechanism responsibilities were generally, but not always, assigned based upon CMS Regional Office responsibility for contractor oversight over the lead fiscal intermediary for workers' compensation recoveries for a particular state. This could or could not have been the same CMS Regional Office as the one with general responsibilities for a particular state.

Starting in 2004, instead of direct submission to the CMS Regional Office, Medicare Set-aside mechanisms was submitted to the Coordination of Benefits (COB) contractor in New York. As of August 27, 2007 they are now referred to Detroit. If Medicare Set-aside mechanisms are sent directly to the CMS Regional Office, the instructions are to send it on to the COB contractor.

The COB contractor will catalog the submissions and forward them to the applicable CMS Regional Office for decisions. CMS explained that the contractor will NOT make determinations. The purpose of this new procedure is to help CMS establish a "centralized case control" system. Purportedly, one of the purposes of the centralized data collection initiative was to establish the average lifespan of the Medicare Set-aside mechanism, the experience with medical fee schedules versus actual charges, and similar questions. The data will eventually be made public but there is no timeframe for such a step.

Q36. Are there documentation requirements that must be satisfied before the CMS Regional Office can provide a written opinion on the sufficiency of a Medicare Set-aside mechanism?

A36. Yes. CMS has provided a checklist of requirements that are necessary to conduct a review of the proposed Medicare Set-aside proposal which can be found at:

At a minimum, the following documentation must be obtained by the CMS Regional Office prior to the approval of any Medicare Set-aside mechanism:

b) A copy of the life care plan (if there is one), and, if the life care plan does not contain an estimate of the injured worker's estimated life span, then a "rated age" may be obtained from life insurance companies for injuries/illnesses sustained by other similarly situated injured workers.

c) Documentation which gives the basis for the amounts of projected expenses for Medicare covered services and services not covered by Medicare (this could be a copy of letters from doctors/providers documenting the necessity of continued care).

d) 2 years medical claims history related to the injury which period should be after t he injury or illness has stabilized

f) Signed authorization for injured worker authorizing CMS and agents/contractors to discuss the case with the submitter or other entities

According to CMS the most efficient method for submission of a Medicare Set-aside proposal is on a CD-ROM in PDF format, The file extension must be .pdf. Upon receipt, the documentation is electronically transmitted into the CMS system and, provided all required information is included, it is then sent to a centralized database for review.

The information should categorize the files based on the following codes and use the associated code as the prefix in the naming convention:

05 - Submitter Letter or Other Summary Documentation
10 - Consent Form
15 - Rated Age Information or Life Expectancy
20 - Life Care Plan
25 - Settlement Agreement or Proposed Court Order
30 - Set-aside Administrator or Copy of Agreement
35 - Medical Records
40 - Payment History
45 - Future Treatment Plan
50 - Supplemental or Additional Information

Q37. What are the criteria that Medicare uses to determine whether the amount of a lump sum or structured settlement has sufficiently "considered" Medicare's interests?

A37. The following criteria will be used by the CMS Regional Office in evaluating the amount of a proposed Medicare Set-aside mechanism to determine whether there has been an attempt to shift liability for the cost of a work-related injury or illness to Medicare. Specifically, is the amount allocated for future medical expenses reasonable? If Medicare has already made conditional payments their repayment also has to be taken into account.

b) Basis for Medicare entitlement (disability, ESRD or age). If the injured worker has entitlement based on disability and would also be eligible on the basis of ESRD, this should be noted since the medical expenses would be higher. This would also be true for injured workers who are over 65 but had been entitled prior to attaining that age.

c) Type and severity of injury or illness. Obtain diagnosis codes so injury or illness related expenses can be identified. Is full or partial recovery expected? What is the projected time frame if partial or full recovery is anticipated? As a result of the injury or illness is the injured worker an amputee, paraplegic or quadriplegic? Is the injured worker's condition stable or is there a possibility of medical deterioration?

d) Age of injured worker. Acquire an evaluation of whether his/her condition would shorten the life span e.g., "rated age".

e) Workers' compensation carrier's classification of the injured worker (e.g., temporary total disability, temporary partial disability, permanent partial impairment, permanent total disability).

f) Prior medical expenses paid by the workers' compensation carrier due to the injury or illness in the 2 year period after the condition has stabilized. If Medicare has paid any amounts e.g., conditional payments, they must be recovered. Also, this would indicate that the case may not purely be a commutation, but may also entail some compromise aspects, e.g., the workers' compensation carrier may have taken the position that the medical services were not covered by workers' compensation.

g) Amount of lump sum or amount of structured settlement. Obtain as much information as possible regarding the allocation between income replacement, loss of limb or function, and medical benefits.

h) Is the commutation for the injured worker's lifetime or for a specific time period? If not for lifetime, what is the basis? Medicare will insist that there is a reasonable relationship between the respective allocation for medical services covered by Medicare and medical services not covered by Medicare. For example, is it reasonable for the settlement agreement's allocation for medical services not covered by Medicare to be based on the injured worker's life time while the agreement's allocation for medical services covered by Medicare is based on a lesser time period? Here, the practitioner may wish to educate CMS on the State law regarding how long workers' compensation is obligated to cover the items or medical services related to the accident or illness.

i) Is the injured worker living at home, in a nursing home, or receiving assisted living care, etc.? If the injured worker is living in a nursing home, or receiving assisted living care, it should be determined who is expected to pay for such care, e.g., (for life time or a specified period) from the medical benefits allocation within the lump sum settlement, e.g. , Medicaid, etc.

j) Are the expected medical expenses (as of January 1, 2006 expenses for prescription drug therapy must also be disclosed) for Medicare covered items and services appropriate in light of the injured worker's condition? Although each case must be evaluated on its own merits, it may be helpful to ascertain for comparison purposes the average annual amounts of Part A, B and D spending for a disabled person in the appropriate State of residence. Keep in mind that these Fee-for-Service amounts are for all Medicare covered services, while CMS' focus here only deals with medical services related to the workers' compensation injury or illness. Therefore, the CMS Regional Office will use appropriate judgment and seek input from a medical consultant, of their own choosing, when determining whether the amount of the lump sum or structured settlement has sufficiently taken Medicare's interests into account. NOTE: Before evaluating whether the Medicare Set-aside mechanism reasonably considers Medicare's interests, the CMS Regional Office must know whether the Medicare Set-aside mechanism is based upon the workers' compensation fee schedule in a particular state or full actual charge amounts.

The amount of the lump sum is typically established by using a life care plan and

actuarial methods to determine the injured worker's life expectancy. If a life care plan is not used to justify the injured worker's future medical expenses, then the injured worker or his/her representative must present other alternative competent evidence that sufficiently justifies the amounts Set-aside for Medicare.

Q38. What is the expected time frame for the CMS Regional Office to review and make their decisions regarding proposed Medicare Set-aside mechanism?

A38. CMS Regional Offices seek to review and make a decision regarding proposed Medicare Set-aside mechanisms within 60 days, from the time that all necessary/required documentation has been submitted to CMS. Author's Comment: Assuming the submission is complete when sent to CMS it is more likely that from the time the submission leaves your desk a decision will not be received for a period of 90-120 days.

Q39. If the injured worker or his/her representative disagrees with the amount that CMS has determined for the Medicare Set-aside mechanism, is there any appeal process?

A39. No. CMS has no formal appeals process for rejection of a proposed Medicare Set-aside amount. However, injured worker or their representative and submitters have several other options available to them.

a) An injured worker or submitter may always contact the CMS Regional Office that issued the CMS determination for a clarification.

b) If the injured worker, representative or submitter believes that a CMSdetermination contains obvious mistakes, such as mathematical errors or failure to recognize that medical records already submitted how that a surgery that CMS priced has already occurred, then the injured worker, representative or submitter may "challenge" the original CMS decisions should contact the CMS Regional Office that issued the CMS determination for a correction of the errors.

c) If the injured worker, representative or submitter believes that there is additional evidence not previously considered by CMS that would warrant a change in the CMS determination, the injured worker, representative or submitter may again "challenge" the original decision and resubmit the case with the additional evidence and request a re- evaluation. The re-evaluation request should be clearly marked as such, and submitted CMS c/o Coordination of Benefits Contractor, PO Box 33849, Detroit, Michigan 44232- 5829, Attn.: WCSA Challenge Proposal, and must be accompanied by the additional evidence not available at the time of the original submission. It will then be considered a new submission and shall be processed in order of receipt.

If the additional information does not convince the CMS Regional Office to approve the Medicare Set-aside mechanism as proposed, and the parties proceed to settle the case despite the CMS Regional Office's objections, then Medicare will not recognize the settlement. Medicare will exclude its payments for the medical expenses related to the work-related injury or illness until such time as the entire workers' compensation settlement funds are expended for medical services otherwise reimbursable by Medicare.

Although an injured worker has no formal appeal rights with respect to the Medicare Set-aside mechanism process, beneficiaries do have appeal rights with respect to specific denied claims. If CMS denies a submitted claim for a service on the basis that CMS determined the Medicare Set-aside mechanism amount has not been exhausted, the injured worker may appeal that specific claim denial through the regular administrative appeal process.

Q40. Will CMS treat workers' compensation cases that were settled prior to the issuance of the July 23, 2001 Patel memorandum in the same manner as those settled after the review threshold guidelines were established?

A40. Yes. For workers' compensation settlements that do not meet the thresholds, Medicare will make payments for workers' compensation related medical services that are otherwise reimbursable under Medicare, once the injured worker becomes enrolled in Medicare. This will be done regardless of when the sett1ement actually occurred. However, a reopening of claims (see 42 C.F.R. §§405.750 and 405.841) that Medicare previously denied for these injured worker's will not be granted, nor will CMS change any decisions already made with respect to settlements which pre-date July 23, 2001. According to CMS, when the Patel Ju1y 23, 2001 memorandum was released, it established review thresholds for workers' compensation cases settled by injured workers who are not yet Medicare beneficiaries. This was done in order to organize and prioritize workloads for the CMS Regional Offices and to convey to those offices that it is not in Medicare's best interests to review workers' compensation settlements that do not meet the review thresholds.

A41. CMS has contracted with a "joint venture" contractor reviewing pre-October 1, 2003, cases (which CMS refers to as "the backlog") starting on November 10, 2003. The cases were sent to the CMS Regional Offices office with a recommendation or additional information requested. Once this joint venture contractor has provided a recommendation to the CMS Regional Office, acknowledgement of the receipt of the Medicare Set-aside mechanism proposal is sent to the submitter, usually within a 2 - 3 day period, or additional information will be requested from the submitter.

According to CMS this joint venture contractor is not actually making determinations as to the acceptability of the Medicare Set-aside amount. Rather, according to CMS this joint venture contractor is merely giving the CMS Regional Office recommendations (including suggestions for "more adequate" allocations). The CMS Regional Office continues to be responsible for making any formal determinations. Author's Comment: Many practitioners, including the Author, believe this to be "a nice legal distinction", since in the Author's opinion the CMS Regional Offices seldom act contrary to the Joint Venture Contractor's recommendation.

CMS is assessing both the joint venture contractor and CMS Regional Office experience and best practices to continue identifying and establishing national standard procedures to improve the consistency and the timeframe for reviewing proposed Medicare Set-aside mechanism and enable more logical and consistent submissions.

Note: CMS is using one joint venture review contractor for all backlogged cases nationwide and there is concern that one contractor cannot get up to speed on all 50 state laws. CMS is aware of the concern and the use of compromises but there is no easy answer. The CMS Regional Office is the decision maker and any questions should be directed there (not the review contractor). The joint venture contractor's address is: 10830 Guilford Road, Ste. 307, Annapolis Junction, MD 20701. Tele: 301-575-0160 Fax: 646-458-6745

Q42. May workers' compensation settlement funds attributable to future medicals be used prior to Medicare entitlement?

A42. As of July 11, 2005, for injured workers who are not yet Medicare beneficiaries and for whom CMS has approved a Medicare Set-aside mechanism, the Medicare Set-aside mechanism may be used prior to becoming a beneficiary because the amount was priced based on the date of the expected settlement. Use of the Medicare Set-aside mechanism is limited to medical services (and as of January 1, 2006 prescription drug therapy) that are related to the workers' compensation claim or settlement and that would be covered by Medicare if the injured worker were a Medicare beneficiary. The same requirements that Medicare beneficiaries follow for reporting and administration are to be used in the above cases. Medicare will not pay for any expenses related to the workers' compensation illness or injury until a self-attestation document or a full accounting of all monies expended from the Medicare Set-aside mechanism are sent to the lead contractor upon Medicare entitlement. At that time, the lead contractor will adjust the Medicare Set-aside mechanism record to reflect the expenses paid prior to entitlement.

Even if there is no CMS approved Medicare Set-aside mechanism, any funds from a workers' compensation settlement attributable to future medical services and prescription drug therapy that are remaining at the time an injured worker becomes a Medicare beneficiary must be used for Medicare covered medical services and prescription drug therapy related to the workers' compensation claim or settlement until such funds are exhausted. Only then will Medicare pay for Medicare covered services related to the workers' compensation claim or settlement.

Previous to July 11, 2005 CMS' policy was until the injured worker actually became entitled to Medicare, the Medicare Set-aside mechanism fund could not be used to pay the injured worker's medical expenses. That is, an injured worker's medical expenses had to be paid from some other source besides the Medicare Set-aside mechanism when the injured worker was not a Medicare beneficiary. Once the injured worker actually became entitled to Medicare, then the injured worker (if a self-administered Medicare Set-aside mechanism or in the case of a third-party Medicare Set-aside mechanism, the administrator) was permitted to make payments for the injured worker's medical care (for Medicare-covered services only) from the Medicare Set-aside mechanism.

Q43. How do providers and suppliers obtain payment for the services covered by the Medicare Set-aside mechanism and at what rate may they charge?

A43. There are two distinct methods for providers, physicians and other suppliers to obtain payment for workers' compensation covered services when funds are held in a Medicare Set-aside mechanism. Determining which distinct payment method applies depends on two factors: a) how the Medicare Set-aside mechanism is constructed e.g., self-administered or third party administered; and b) whether the Medicare Set-aside mechanism was constructed by contemplating full actual charges or a workers' compensation fee schedule amounts.

When a Medicare Set-aside mechanism contains specific provisions establishing that the administrator will ensure that the Medicare Set-aside mechanism cannot be charged more thanwhat would normally be payable under the State's workers' compensation fee schedule, and when the CMS Regional Office reviews and approves the sufficiency of the Medicare Set-aside mechanism based on the State's workers' compensation fee schedules, then, providers, physicians and other suppliers will be paid based on what would normally be payable under the State's workers' compensation fee schedule. Therefore, providers, physicians and other suppliers would not be permitted to bill the arrangement more than the State's workers' compensation fee schedule rate.

For example, if a provider's full charge for a particular service is $100 and the workers' compensation carrier normally pays $65 for that particular service, then the Medicare Set-aside mechanism should only pay $65. However, when the Medicare Set-aside mechanism does not contain specific provisions ensuring that the Medicare Set-aside mechanism cannot be charged more than what would normally be payable under the State's workers' compensation fee schedule, then providers, physicians and other suppliers are permitted to bill the Medicare Set-aside mechanism their full charges. It is important to note that when a Medicare Set-aside mechanism does not contain specific provisions ensuring that providers, physicians and other suppliers cannot bill the Medicare Set-aside mechanism more than the State's workers' compensation fee schedule amounts, then the CMS Regional Office must review the sufficiency of that particular Medicare Set-aside mechanism based upon full actual charge estimates.

Author's Comment: Realistically, use of the State's workers' compensation fee schedule is improbable with a self-administered Medicare Set-aside mechanism since injured workers do not have ready access to these schedules and if they did would probably not properly interpret them. Accordingly, in the opinion of the Author use of the State's medical practitioner fee schedule would mandate use of a professional administrator knowledgeable in Medicare coverage and coding, as well as, the State's workers' compensation medical practitioner fee schedules. Additionally, since the case has now been settled the State's workers' compensation adjudicatory body or the civil court no longer has jurisdiction over the matter fee disputes would seem not to be readily resolvable short of an appeal to the ALJ.

If the Medicare Set-aside mechanism is constructed based upon full actual charge estimates, then the CMS Regional Office must determine whether the proposed amount to be placed in the Medicare Set-aside mechanism for future medical expenses is sufficient to cover the actual charges for the medical services at issue (rather than an amount equal to what would have been the Medicare approved amount for a particular service).

Q44. In a structured Medicare Set-aside mechanism where payments are made at regular intervals to cover expenses incurred during those periods, how should an administrator account for unspent funds during a given period?

A44. Generally, Medicare Set-aside mechanisms that are designed as lump sums (i.e., the Medicare Set-aside mechanism is funded by the workers' compensation settlement all at once) present less of a problem to monitor than structured arrangements. Medicare would not make any payments for injured worker's that possess lump sum funded Medicare Set-aside mechanisms until all of the funds within the Medicare Set-aside mechanism have been depleted. For example, if a Medicare Set-aside mechanism were established for $90,000, Medicare would not make any payments until the entire $90,000 (plus interest) were exhausted for the injured worker's medical care and prescription drug therapy (for Medicare covered services and formulary only).

Structured Medicare Set-aside mechanisms generally apportion settlement monies over a defined period of time. For example, a structured Medicare Set-aside mechanism may be designed to disburse $20,000 per year over the next ten years for an injured worker's medical care and prescription drug therapy (for Medicare-covered services and formulary only). If the $20,000 allocated on January 1 for year one were fully exhausted on August 31, Medicare may make payments for the services performed after August 31 once the contractor responsible for monitoring the injured worker's case can verify that the entire $20,000 (plus interest) is exhausted. However, when the structured arrangement allocates money for the start of year two (i.e., on January 1) Medicare would not make any payments for services performed until year two's allocation was completely exhausted.

If funds are not exhausted during a given period then the excess funds must be carried forward to the next period. The threshold after which Medicare would begin to pay claims related to the injury would then be increased in any subsequent period by the amount of the carry-forward.

Example: A structured Medicare Set-aside mechanism established in 2008 is designed to pay $20,000 per year over the next 10 years for an injured worker's Medicare covered services. Medicare would begin paying covered expenses in any given year after this $20,000 is exhausted. In 2008 the injured individual needs only $15,000 to cover all related expenses. The administrator would need to carry-forward the excess, $5,000 into 2009. Therefore, in 2009 a total of $25,000 of Medicare covered expenses would need to be spent for services otherwise reimbursable by Medicare before Medicare would begin to cover workers' compensation related expenses, but only for the balance of 2009. This carry-forward process continues until the accumulated carry-forward plus the payment for a given year is exhausted.

Once a Medicare Set-aside mechanism has been established Medicare does not make any payments until the contractor responsible for monitoring the injured worker's case can verify that the funds apportioned to the period, including any carry-forward amount, have been completely exhausted as set forth in the Medicare Set-aside mechanism.

Q45. May the Medicare Set-aside mechanism contemplate only three to five years of estimated Medicare covered items or services?

A45. No. To consider Medicare's interest, a Medicare Set-aside mechanism should be funded based on the expected life expectancy of the injured worker unless the State law specifically limits the length of time that the workers' compensation carrier covers work-related medical conditions. If an estimate of the injured worker's estimated longevity is not submitted, one will be requested by CMS.

Q46. May the Medicare Set-aside amount be reduced due to changed circumstances?

A46. The administrator of the CMS approved Medicare Set-aside mechanism should not release Medicare Set-aside mechanism funds for any purpose other than the purpose for which the Medicare Set-aside mechanism was established without approval from CMS. However, if the treating physician concludes that the injured worker's medical condition has substantially improved, then the injured worker or his/her representative may submit a new Medicare Set-aside mechanism proposal covering future expected medical expenses. Such proposals must justify at least a 25% reduction in the outstanding Medicare Set-aside mechanism funds. In addition, such proposal may not, according to CMS, be submitted until at least five years after a previous CMS approval letter and should be accompanied by all supporting documentation not previously submitted with the original Medicare Set-aside mechanism proposal. If CMS determines that a 25% or greater reduction is justified, CMS will issue a new approval letter. After CMS issues a new approval letter, any funds in the current Medicare Set-aside mechanism in excess of the newly calculated amount may be released to the injured worker. As with the original decision, CMS' decision on the new proposal is final and not subject to administrative appeal.

Q47. If an injured worker dies before the Medicare Set-aside mechanism is completely exhausted, what happens to the remaining money?

A47. Once the CMS Regional Office and the contractor responsible for monitoring the injured worker's case ensure that all of the injured worker's claims have been paid, then any amount left over in the Medicare Set-aside mechanism may be disbursed pursuant the terms of the settlement agreement and if none then according to state law, once Medicare's interests have been considered. This may involve holding the Medicare Set-aside mechanism open for some period after the date of death, as providers, physicians, and other suppliers are permitted to submit their initial bill to Medicare for a period ranging from 15-27 months after the date of service.

Q48. Is the injured worker entitled to a release of the Medicare Set-aside mechanism funds if the injured worker loses his or her Medicare entitlement?

A48. No. However, the funds in the Medicare Set-aside mechanism may be expended for medical expenses specified in the Medicare Set-aside mechanism until Medicare entitlement is re-established or the Medicare Set-aside mechanism is exhausted. Use of the Medicare Set-aside mechanism is limited to services that are related to the workers' compensation claim or settlement and that would be covered by Medicare if the injured worker were a Medicare beneficiary. The same requirements that Medicare beneficiaries follow for reporting and administration are to be used. CMS will not pay for any expenses related to the workers' compensation claim or settlement until a self-attestation document or a full accounting of all monies expended from the Medicare Set-aside mechanism are sent to the lead contractor upon the re-establishment of Medicare entitlement. At that time, the lead contractor will adjust the Medicare Set-aside mechanism record to reflect the expenses paid prior to entitlement. Author's Comment: If, in fact, the injured worker's Medicare entitlement is lost, and there is no reasonable likelihood that it will be re-established then, in the opinion of the Author, this will constitute a substantial change in circumstances justifying petitioning CMS to dissolve the Medicare Set-aside mechanism allowing release of the MSA funds pursuant to the terms of the settlement agreement.

Q49. What types of "investment" vehicles may be used to fund the Medicare Set-aside mechanism?

A49. The only guidance CMS provides here is that the account used to fund the Medicare Set-aside mechanism must be "interest bearing". Author's Comments: In the opinion of the Author CMS will not approve any Medicare Set-aside mechanism that is funded with other than "liquid" funds e.g., bank accounts of any FDIC insured bank, CDs, money market funds of any bank and U.S. Treasury bills or notes.

Q50. Is the Medicare Set-aside mechanism indexed to account for inflation or reduced to present cash value?

A50. This was initially a consideration and there was a requirement that the Medicare Set-aside mechanism be indexed consistent with how Medicare calculates its growth in spending. However, as of October 15, 2004 the Medicare Set-aside mechanism does not need to be indexed for inflation and may not be discounted to present cash value.

Q51. Should the settlement agreement provide for items and services that are not covered by Medicare but later become covered?

A51. No. CMS had at one time contemplated and ultimately rejected a suggestion that an additional allocation within the Medicare Set-aside mechanism be provided so that medical services that were not covered by Medicare at the time the Medicare Set-aside mechanism was submitted, but later become covered, were transferred from the amount specified for non-Medicare covered items and services to the Medicare Set-aside mechanism. It is, however, a prudent course of action to have a separate medical allocation (not a Medicare Set-aside mechanism) for non-Medicare covered items that the injured party may incur in the future and which are related to the injury or illness. This certainly can assist in the calculation of any Social Security Disability offset since this separate medical allocation would still be deemed an excludable medical expense. These funds do not have to be transferred to a separate Medicare Set-aside mechanism bank account or be included in the annual Medicare Set-aside mechanism accounting. Initially Of course, those medical expenses contemplated in the separate medical allocation may not be paid from the Medicare Set-aside mechanism.

Q52. May administrative fees/expenses for administration of the Medicare Set-aside arrangement and/or attorney costs specifically associated with establishing the Medicare Set-aside arrangement be charged to the Medicare Set-aside mechanism?

A52. Initially, CMS answered this question in the affirmative if the following were found to be true. a) they are related to the Medicare Set-aside itself; b) they are reasonable in amount; and c) they are included in the proposed Medicare Set-aside mechanism submitted to CMS and incorporated into the Medicare Set-aside mechanism approved by CMS. CMS further previously held that it was important to note that all administrative fees and other costs and expenses associated with the disability/lost wages portion of the settlement and/or the portion of the settlement that provides for medical services that are not covered by Medicare cannot be charged to the Medicare Set-aside arrangement. A reasonable fee for establishing and administering the Set-aside could previously be included in the allocation.

However, as of May 7, 2004 administrative fees/expenses for administration of the Medicare Set-aside mechanism and/or attorney costs specifically associated with establishing the Medicare Set-aside arrangement cannot be charged to the Medicare Set-aside mechanism. CMS will no longer be evaluating the reasonableness of any of these costs because the payment of these costs must come from some other payment source that is completely separate from the Medicare Set-aside mechanism funds.

Q53. Is a Life Care Plan absolutely necessary for submission to prepare a Medicare Set-aside mechanism for submission to CMS?

A53. No. However, the referral must include an analysis of the future exposure and how it was calculated. Utilization of a certified life care planner is probably the most accurate method to prepare this data for presentation to CMS. A life care plan is a document based upon published standards of practice, comprehensive assessment, data analysis and research, which provides an organized, concise plan for current and future needs, with associated costs, for individuals who have experienced injury or illness and have future Medicare covered medical services or prescription drug therapy expenses. The rates for each item are researched and reported for the client's geographical area. There are numerous commercial vendors and in-house insurance industry individuals who prepare life care plans. The quality and costs of these entities varies greatly. Note, that such a life care plan or evaluation is not automatically conclusive. CMS may not credit the report if there is information that calls the evaluation or plan into question for some reason, such as contrary evidence, internal conflicts, or if the plan is not credible on its face.

Q54. Does CMS compromise or reduce future medical expenses related to a workers' compensation injury or illness?

A54. No. Some submitters have argued that §42 C.F.R. §411.47 justifies such are deduction to the amount of a Medicare Set-aside mechanism. The compromise language in this regulation, however, only addresses conditional (past) Medicare payments. CMS does not allow the compromise of future medical expenses related to a workers' compensation injury or illness.

Q55. Can a Medicare Set-aside mechanism be established as a structured arrangement, where payments are made to the Medicare Set-aside mechanism on a defined schedule to cover expenses projected for future years?

A55. Yes. However, CMS will approve a payout amount for medical services and prescription drug therapy that would otherwise be reimbursable by Medicare from the Medicare Set-aside mechanism in the following manner:

a) The "seed money" (up front cost) for the Medicare Set-aside mechanism must include an amount equal to the amount of monies calculated to cover any surgery procedure(s), costs of replacement of durable medical equipment and costs for the first two years of annual medical services and prescription drug therapy.

•b) The remainder of the approved amount should be divided by the remainder of the injured party's life expectancy (or a shorter defined period of time e.g., over the "rated age" if CMS has agreed to a shorter time period) which are then designated as "annual deposits".

c) Subsequent annual deposits into the Medicare Set-aside mechanism are to be based upon a set "anniversary date" which cannot be more than one year after the settlement date.

Note: Medicare's reference to prescription drugs is limited to those prescription drugs that are for the treatment of the workers' compensation or liability related injury(es) or disease(s), and those where Medicare provides coverage under any prescription formulary plan.

Q56. What is CMS' policy regarding the inclusion of prescription drugs in a Medicare Set-aside mechanism with the implementation of the Medicare Modernization Act of 2003 (MMA)?

A56. All workers' compensation settlements that occur on or after January 1, 2006 must consider Medicare's interests when future treatment includes prescription drugs along with the future medical services that would otherwise be reimbursable by Medicare. The recommended method, according to CMS, to properly consider Medicare's interest is to include a Medicare Set-aside as part of the worker's compensation settlement. However, if the workers' compensation claim is settled prior to January 1, 2006, the Medicare Set-aside proposal does not need to include an amount for future prescription drug treatment. Note that CMS defines "settlement" as an executed settlement agreement that is approved by the court of competent jurisdiction for the applicable state.

Author's Comment: Prior to January 1, 2006 CMS had not decided yet how the new Part D benefit should be addressed. The fact that enrollment in the drug benefit is optional makes the decision more complicated, because at the time of the settlement the injured worker may not have made a decision regarding enrollment. If it is included in the Medicare Set-aside mechanism, the injured worker may be forced to enroll in the drug program to use the funds set aside in the Medicare Set-aside mechanism, thereby taking money out of the injured worker's liquid funds. Prior to January 1, 2006 CMS' advise was to "continue to march as you've been marching" and not to include prescription drugs in the Medicare Set-aside mechanism. Any future policy decision as respects prescription medications would be applied only on a going forward basis, not retroactively to previously approved Medicare Set-aside mechanisms.

Q57. Should submitters provide an explanation in the cover letter when the injured worker

has not been prescribed drugs for the work-related injury, illness/disease or

A 57. Yes. Submitters should provide such an explanation in the cover letter when submitting their Medicare Set-aside proposals to CMS.

Q58: Where a workers' compensation claim settled prior to January 1, 2006, can the injured worker use the Medicare Set-aside funds to pay for prescription drug expenses related to the workers' compensation injury?

A58: No, the injured worker cannot use the Medicare Set-aside funds to pay for prescription drug expenses related to the workers' compensation injury. If the workers' compensation settlement included an allocation for non-Medicare covered medical and/or prescription drug expenses, the injured worker must exhaust those funds prior to billing Medicare for prescription drugs. However, the injured worker does not have to transfer these funds to the existing Medicare Set-aside account or include them in the annual Medicare Set-aside accounting. After exhausting these funds, if the injured worker enrolls in a Part D plan, Medicare may be billed for prescription drug expenses related to the workers' compensation injury, assuming that the injured worker does not have any other coverage primary to Medicare.

Q59. What are CMS' submission requirements if the WC claim did not "settle" prior to January 1, 2006?

A59. If the workers' compensation case did not "settle" prior to January 1, 2006 and the Medicare Set-aside proposal is received by CMS on or after January 1, 2006, then the submitter must include separate amounts for future medical treatment and future prescription drug treatment in the cover letter. In addition, the cover letter must include an explanation as to how the submitter calculated the future prescription drug treatment amount (i.e., actual costs, average

wholesale price, etc.).For structured Medicare Set-aside proposals, the submitter must also indicate whether any portion of the future prescription drug treatment amount has been included in the initial deposit (i.e., seed money). The seed money for a structured Medicare Set-aside proposal must include a sum equal to the amount of monies calculated to cover the first surgery procedure and/or replacement of durable medical equipment and two years of annual payments (which must include prescription drug treatment). The remainder of the approved amount should be divided by the remainder of the claimant's life expectancy or rated age. Note that the amount for future prescription drug treatment should not be a separate annuity from the future medical portion of the Medicare Set-aside proposal.

Q60. What happens if the Medicare Set-aside proposal received after January 1, 2006 does not include an amount for future prescription drug treatment?

A60. If the cover letter does not include an amount for future prescription drug treatment, and the current treatment records indicate that the injured worker has been prescribed drugs and/or may need prescription drugs related to the workers' compensation injury in the future, CMS will deem the submission as not adequately considering Medicare's interests.

If the cover letter does not include an amount for future prescription drug treatment, and there is no indication in the current treatment records that the injured worker will need future treatment with prescription drugs related to the workers' compensation injury, then CMS will accept that Medicare's interests have been adequately considered. Medicare will then pay primary for future prescription drugs if the injured worker has enrolled in a Medicare prescription drug plan and does not have any other coverage that is primary to Medicare.

Q61: What happens if CMS closes its case because the submitter failed to provide requested information in a timely manner?

A61: If the workers' compensation case did not "settle" prior to January 1, 2006, and the submitter provides additional documentation with regard to the closed case on or after January 1, 2006, the case is considered a new Medicare Set-aside submission and the requirements related to: (1) future medical treatment; and, (2) future prescription drug treatment will be applied to the new Medicare Set-aside submission. If , however, the workers' compensation claim settled prior to January 1, 2006 and the submitter provides additional documentation with regard to a closed case, the case is considered a new Medicare Set-aside submission; however, the Medicare Set-aside proposal does not need to include an amount for future prescription drug treatment.

Q62: Should submitters include an amount for future prescription drug expenses if the injured worker has not enrolled in a Part D plan?

A62. Yes. Injured workers who have not enrolled in a Part D plan need to include future

prescription drug expenses in their Medicare Set-aside proposals if the current treatment records

indicate that the injured worker has been prescribed drugs and/or may need future prescription

Q63. Will CMS' review of a Medicare Set-aside proposal change with the implementation of the Medicare Modernization Act of 2003 on January 1, 2006?

A63. No. CMS will not change its current procedures and will not independently price for future prescription drug treatment in the Medicare Set-aside proposal. At one point the independent pricing of prescription drug costs was to commence on January 1, 2007 but this date came and went. CMS will provide advanced notification when it plans to begin to independently price for future prescription drug treatment in Medicare Set-aside proposals.

The cover letter to CMS must, however, now include separate amounts for (a) future medical treatment, and (b) future prescription drug treatment. In addition, the cover letter must include and explanation as to how the amounts were calculated e.g. actual costs, average wholesale price, etc.). In addition the cover letter must include with the submission a payment history of the prescription drugs paid by the workers' compensation carrier, as follows:

1. If the injury occurred less than 2 years from the date of the submission, a payment history should include those prescription drugs paid from the injury date through the date of the submission.

2. If the injury occurred more than 2 years from the date of the submission, a payment history should include the last 2 years of payments for prescription drugs.

3. CMS will review the Medicare Set-aside proposal based on the (a) required payment history, (c) anticipated future prescription drug treatment information, and (c) Medicare Part D data.

4. If the cover letter fails to provide a payment history or the payment history reflects that the workers' compensation carrier did not previously pay for prescription drugs indicated for the injured worker's future treatment, CMS will price the Medicare-covered prescription drugs using CMS information available from current Medicare Part D data.

For a Medicare Set-aside proposal received by CMS on or after January 1, 2006, CMS will provide in its written opinion the total set aside amount that adequately considers Medicare's interests with regard to the injured worker's future medical treatment. In addition, (a) CMS's written opinion will note the submitted prescription drug amount, and (b) CMS' written opinion will provide the total Set-aside amount, which is a combination of the future medical treatment reviewed by CMS and the future prescription drug costs noted in the cover letter. The parties to the workers' compensation settlement must note the total Set-aside amount in the settlement agreement.

The injured worker (in a self-administered Account) or the administrator (in a third party mechanism) must forward an annual accounting, separately identifying the expenditures for the medical treatment and prescription drug treatment to the Medicare contractor responsible for monitoring the injured worker's case.

For example, if the total Set-aside amount in CMS' written opinion is $10,000 ($7,000 identified for future prescription drug treatment and $3000 identified for future medical expenses) then the injured worker/administrator must forward an annual accounting that separately identifies how much of the $10,000 was spent for medical expenses and prescription drugs.

Exhaustion of the total set -aside amount is not limited to the separate amounts Set-aside for future medical expenses and future prescription drug treatment. As long as the annual accounting shows bona fide payments were made from the total Set-aside amount, CMS will consider the account appropriately exhausted e.g. final actual expenditures may be $6000 for future prescription drug treatment and $4000 for the future medical expenses that may appropriately exhaust the $10,000 set aside

Q64. Should funds for future prescription drug treatment be included in the calculation of the total settlement amount to determine if the Medicare Set-aside proposal should be reviewed by CMS.

A64. Yes, the total settlement amount calculation should include an amount for prescription drugs if the future treatment indicates that the injured worker has been prescribed drugs and/or may need drugs in the future.

Q65. Do injured workers have to resubmit the Medicare Set-aside proposal after January 1, 2006 if CMS has already issued a written opinion as to the total Medicare Set-aside amount?

A65. No. A previously submitted Medicare Set-aside proposal does not have to be resubmitted (a) if CMS has already issued a written opinion as to the total Medicare Set-aside amount for settlements occurring prior to January 1, 2006, or (b) where the Medicare Set-aside proposal was reviewed prior to January 1, 2006. Note, if the workers' compensation settlement occurred prior to January 1, 2006, and the workers' compensation settlement included an allocation for future prescription drug treatment, then the injured worker must exhaust those funds before Medicare can be billed for those future prescription drugs. For example, if the workers' compensation settlement allocates $5,000 for prescription drugs related to the workers' compensation injury, then the injured worker must exhaust that amount from the settlement funds before Medicare can be billed for prescription drug costs incurred on or after January 1, 2006. However, the injured worker does not have to transfer these funds to the existing Medicare Set-aside account or include them in the annual Medicare Set-aside accounting.

Q66. Has CMS published any guidelines about how to price for future prescription drug expenses in Medicare Set-aside mechanisms?

A66. No. CMS has not published any guidelines regarding the pricing for future prescription drug expenses in Medicare Set-aside proposals.

Q67. When a state workers' compensation Commissioner, Judge orAdministrator approves a workers' compensation settlement, will Medicare accept the terms of that settlement?

A67. Medicare will generally honor judicial decisions issued after a hearing on the merits of a workers' compensation case by a court of competent jurisdiction. If a court or other adjudicator of the merits specifically designates funds to a portion of a settlement that is not related to medical services (e.g., lost wages), then Medicare will accept that designation.

However, a distinction must be made where a court or other adjudicator is only approving a settlement that incorporates the parties' settlement agreements. Medicare cannot accept the terms of the settlement as to an allocation of funds of any type if the settlement does not adequately consider Medicare's interests. If Medicare's interests are not reasonably considered, Medicare will refuse to pay for medical services related to the workers' compensation injury (and otherwise reimbursable by Medicare) until such expenses have exhausted the amount of the entire workers' compensation settlement. Medicare will also assert a recovery claim, if appropriate.

Q68. Does CMS recognize or honor any State-specific statutes that conflict with CMS policy?

A68. If a copy of the applicable statute is made part of the submission CMS will recognize or honor any non-compensable medical services and CMS will separately evaluate any special situations regarding workers' compensation cases.

Q69. What are an attorney's ethical and legal obligations when his or her client effectively ignores Medicare's interests in a workers' compensation case?

A69. Attorneys should consult their national, state, and local bar associations for information regarding their ethical and legal obligations. Additionally, attorneys should review applicable statutes and regulations, including, but not limited to, §42 CFR 411.24(e) and §42 CFR 411.26. Author's Comment: At the very least the attorney must advise his or her client of the consequences of the client's action, obtain an informed consent as to the client's direction and/or withdraw from the case pursuant to the judicial rules governing such withdrawal should the situation warrant. It is not the opinion of the Author that attorneys have any obligation to "protect" Medicare's interest. It is their obligation to protect their client's interests within the ethical and legal boundaries such representation provide.

Q70. What happens if one of the parties settling a workers' compensation case refuses to involve CMS, even though Medicare has an interest in the case?

A70. In the opinion of CMS, in these situations, the "cooperative" settling party should notify the appropriate CMS Regional Office. Where the CMS Regional Office believes it is appropriate, the CMS Regional Office will then send the "uncooperative" party a letter (via certified mail) conveying that Medicare's interests must be considered in the workers' compensation settlement.

The CMS Regional Offices should inform the "uncooperative" settling party that: "Pursuant to 42 CFR 411.24(g), CMS has a right of action to recover its payments from any entity, including a beneficiary, provider, supplier, physician, attorney, state agency, or private insurer that has received a third party payment. Moreover, pursuant to 42 CFR 411.26, CMS is subrogated to any individual, provider, supplier, physician, private insurer, state agency, attorney, or any other entity entitled to payment by a third party payer. Therefore, pursuant to 42 CFR 411.24(b), CMS may initiate recovery against the parties listed under 42 CFR 411.26 as soon as it learns that payment has been made or could be made under workers' compensation."

Author's Comment: This "suggestion" is not workable. If both parties wish to settle a case regardless of CMS' guidelines they are certainly free to do so! Each party must be guided by their own State's ethical guidelines and act in the best interests of their respective parties. Each party must effectively communicate the possible ramifications for not complying with CMS guidelines and insure their respective client's have entered into the settlement with informed consent

Q71. What information should the attorney review with the client to insure the client understands his or her obligations under the Stipulation?

A.71. There are a number of areas the attorney needs to discuss with the client and these include:

a. Settlement documents. These are not boilerplate documents and each is tailored to the individual situation to include provisions dealing with social security offset, Medicare Set-aside (self-administered or professional administration) coverage, Medicare or other repayment obligations and accounting responsibilities

b. Informed Consent. The client must make an informed consent as to the implications the settlement will have on future entitlement to Medicare, Medicaid, group health insurance or other available health coverage, short/long term disability coverage or pension plans, etc...

c. Notice of Consequences of the Settlement. The client must understand the entire settlement as to past, current or future indemnity, as well as, medical benefits and any repayment obligations which must be paid from the settlement.

d. Other documents provided by CMS. Normally, CMS will provide a sample accounting form to be used by the Claimant in a self-administered Set-aside as well as an instruction sheet for either a self-administered or professionally administered Set-aside.

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