When is a Zero Dollar Medicare Set-Aside appropriate?

A zero dollar Medicare set-aside may arise in one of two situations:

1.)  No Future Medicare-Covered Medical Treatment

First, a zero dollar Medicare set-aside may be appropriate in a case where no future Medicare-covered medical treatment is projected for an undisputed work injury. In this case, the claimant will typically have been released from their physician’s care and will not have any reasonably foreseeable Medicare-covered medical treatment. This does not mean that the claimant does not have any projected future medical treatment, but that none of the projected care would otherwise be Medicare-covered. A zero dollar Medicare set-aside under these circumstances does not require CMS approval.

2.)  Medicare Waiver

Alternatively, a zero dollar Medicare set-aside may result from CMS’s waiver of any rights it may have pursuant to the Medicare Secondary Payer (”MSP”) statute. This is not to say that the claimant will not have any future Medicare-covered medical treatment, but that Medicare elects to forgo a Medicare set-aside allocation from a settlement. It is important to note that if Medicare waives its rights, it does so under a different law than the MSP, which is the basis for Medicare set-aside allocations.

Unlike the case where no future Medicare-covered medical treatment is projected, a zero dollar Medicare set-aside based on a waiver requires an affirmative agreement by CMS. Therefore, a zero dollar Medicare set-aside in a denied or disputed case in which a claimant will likely have future Medicare-covered medical treatment requires submission to CMS for approval – a/k/a waiver. Absent submission for CMS approval of the zero dollar Medicare set-aside, a zero dollar allocation is a clear violation of the MSP regulations. It is no defense that CMS waived its rights on other claims or similar claims, since the waiver statute can only be utilized by CMS and by the affirmative action of CMS.

What to Do – Some Examples

So what does this all mean in the real world? Here are some examples.

• An easy example is an accepted injury to the left index finger (fracture), followed by a right ankle injury years later. The ankle injury is clearly not related to the finger fracture and no future medical treatment is projected for the finger. Therefore, a zero dollar Medicare set-aside would be appropriate in this case without CMS approval since the reason of the zero dollar allocation is that the settlement does not represent a settlement of future medical costs.

• The harder example is the knee injury that then evolves into low back pain when the claimant has other issues that could cause the back pain. Here, it is possible that the low back pain was caused by the injury and it is possible that it was not. Therefore, based upon the evidence (medical records and payment history), future Medicare-covered medical treatment for the low back pain must be accounted for through a Medicare set-aside allocation.

To comply with the MSP law two options exist. First, a zero dollar Medicare set-aside (waiver) may be sought from CMS (requires approval); second, a portion of the settlement may be allocated to a Medicare set-aside under the percentage approach. The percentage approach “accounts” for all claimed injuries but then allocates the total settlement into parts, so as to give value to the compromise. The percentage approach is specifically allowed by the regulations under the MSP; a zero dollar (waiver) set-aside is not.

Please contact Robert Sagrillo for further information.

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Recently, we have been asked why we are recommending Medicare set-aside allocations that include lifetime prescription drugs when other MSA vendors are only allocating three to five years worth. Aside from the common sense answer that a medically stable claimant who has a history utilizing prescription drugs is not likely to stop in any predicable time frame, much less within the next three to five years, the answer is simple – it’s the law.

The Medicare Secondary Payer (MSP) provisions require that the settlement of a workers’ compensation claim consider Medicare’s interests and not shift the burden for future Medicare-covered medical expenses to Medicare. If, in a given case, it is reasonable to titrate or reduce prescription drug utilization over a period of time, then such an allocation would be compliant with the law. However, what we have seen in the industry is a practice of arbitrarily reducing prescription drug projections over a three to five year period, after which the projections are zero utilization or some de minimums amount. While this practice may satisfy the client with a lower MSA allocation, it is in fact a disservice to the client and may result in future problems for the client and vendor.

We have already seen a number of attempts by claimants and CMS (in collaboration with claimants) to reopen settled claims for similar practices. The theory has been that the workers’ compensation carrier knew  that  the  MSA  amount  was

insufficient to avoid a burden shift to Medicare, resulting in either a burden shift or a claimant who cannot obtain needed services. It is not a long stretch to see that a claimant or CMS could take this approach with the three to five year allocation for prescription drugs.

Another consequence of this practice will be that someone is going get caught with their guard down and cost a client money. As we have seen in the history of MSAs, CMS changes policy and guidelines rather quickly to eliminate abuses. When they do so, there is usually a backlog of cases waiting for CMS approval that get caught up in the dispute about whether the new policy should apply to pending cases. Not to mention that the corrective action usually ends up being as much punitive as it is corrective.

Apparently, CMS’ current practice is to accept without scrutiny any allocation for prescription medications, even if the projection reduces to zero in three to five years. However, CMS has indicated that it will implement a new approach in 2007, which is likely to put an end to the three to five year prescription medication projections.

Please contact Robert Sagrillo for further information.

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Our Staff Spotlight intends to help our clients get to know the people behind Protocols.  This month's spotlight focuses on Erin Wallace, who leads the Administrative Services Division at Protocols.  Erin is currently pursuing her MBA through Regis University. She graduated with honors from the University of Texas at Austin with a
bachelor's degree in psychology.  In her free time, Erin enjoys spending time with family and friends, outdoor activities such as hiking, biking, and camping, and has recently taken up rock-climbing.

Please contact Erin Wallace for further information.

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