DEPARTMENT OF HEALTH & HUMAN SERVICES
Centers for Medicare & Medicaid Services
7500 Security Boulevard, Mail Stop C3-14-00
Baltimore, Maryland 21244-1850
MEMORANDUM
DATE: May 20, 2008
FROM: Director
Financial Services Group
Office of Financial Management
SUBJECT: Medicare Secondary Payer -- Workers' Compensation -- INFORMATION
TO: Consortium Administrators for Financial Management and Fee-for-Service
Operations
The purpose of this memorandum is to include policy regarding the exclusive use of the Centers
for Disease Control (CDC) Table 1 (All American Table) when determining life expectancy in
Workers' Compensation Medicare Set-Asides (WCMSA) proposals. The Centers for Medicare
& Medicaid Services (CMS) will only accept life expectancies obtained from the CDC Table 1,
"Life table for the total population."
Effective with WCMSA submissions received by CMS' Coordination of Benefits Contract on or
after July 1, 2008, CMS will only accept life expectancies obtained from the CDC Table 1, "Life
table for the total population." The CMS will only use the CDC Table 1 in its WCMSA review
process.
Please direct questions or concerns to Frank Johnson of my staff at (410) 786-2892.
Gerald Walters
cc:
Charlotte Foster, ARA, DFMFFSO
MEMORANDUM
DATE: July 24, 2006
FROM: Director
Financial Services Group
Office of Financial Management
SUBJECT: Questions and Answers for Part D and Workers'
Compensation Medicare Set-aside Arrangements
TO: All Regional Administrators
This memorandum supersedes the Part D and Workers' Compensation Medicare Set-aside
Arrangements (WCMSA) memorandum that was published on December 30, 2005. It
includes policy regarding the inclusion of future prescription drug treatment costs/expenses
in WCMSAs.
NOTE: References to prescription drugs in this document are limited to those
prescription drugs that are for the treatment of the Workers' Compensation (WC)
related injury(ies) and/or illness(es)/disease(s), (hereinafter referred to as "WC
injury") and those where Medicare provides coverage.
Question 1: What is the Centers for Medicare & Medicaid Services' (CMS) policy
regarding the inclusion of prescription drugs in WCMSAs with the implementation of
the MMA?
Answer 1: All WC settlements that occur on or after January 1, 2006 must consider and
protect 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 to protect Medicare's interests is to include a WCMSA as part of the
WC settlement. However, if the WC claim settled prior to January 1, 2006, the WCMSA
proposal does not need to include an amount for future prescription drug treatment.
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Question 2: How does CMS define a WC "settlement"?
Answer 2: A WC "settlement" is an executed settlement agreement that is approved by the
court of competent jurisdiction for the applicable state.
Question 3: What are CMS' submission requirements if the WC claim did not
"settle" (as defined in Answer 2 above) prior to January 1, 2006?
Answer 3: If the WC case did not "settle" (as defined in Answer 2 above) prior to January
1, 2006 and the WCMSA proposal is received by CMS' Coordination of Benefits
Contractor (COBC) 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 WCMSA 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). Per Question and Answer Number 5 of the October 15, 2004 memorandum,
the seed money for a structured WCMSA must include a sum equal to the amount of
monies calculated to cover the first surgery procedure and/or replacement 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 a
shorter defined period of time if CMS has agreed to a shorter time period).
NOTE: The amount for future prescription drug treatment should not be a separate
annuity from the future medical portion of the WCMSA.
Question 4: What happens if CMS closes its case because the submitter failed to
provide requested information in a timely manner?
Answer 4: If the WC case did not "settle" (as defined in Answer 2 above) 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 WCMSA submission and the
requirements included in this memorandum related to: (1) future medical treatment; and, (2)
future prescription drug treatment will be applied to the new WCMSA submission.
If the WC 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 WCMSA
submission; however, the WCMSA proposal does not need to include an amount for future
prescription drug treatment.
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Question 5: Should submitters provide an explanation in the cover letter when the
claimant has not been prescribed drugs for the work-related injury, illness/disease or
if the drugs prescribed are excludable under the MMA?
Answer 5: Yes. Submitters should provide such an explanation in the cover letter when
submitting their WCMSA proposals to CMS.
Question 6: Where a WC claim settled prior to January 1, 2006, can the claimant use
the WCMSA funds to pay for prescription drug expenses related to the WC injury?
Answer 6: No, the claimant cannot use the WCMSA funds to pay for prescription drug
expenses related to the WC injury. If the WC settlement included an allocation for non-
Medicare covered medical and/or prescription drug expenses, the claimant must exhaust
those funds prior to billing Medicare for prescription drugs. However, the claimant does
not have to transfer these funds to the existing WCMSA account or include them in the
annual WCMSA accounting. After exhausting these funds, if the claimant enrolls in a Part
D plan, Medicare may be billed for prescription drug expenses related to the WC injury,
assuming that the claimant does not have any other coverage primary to Medicare.
NOTE: The above questions clarify Question and Answer Number 5 of the
July 11, 2005 memorandum.
Question 7: Should submitters include an amount for future prescription drug
expenses if the claimant has not enrolled in a Part D plan?
Answer 7: Yes. Claimants who have not enrolled in a Part D plan need to include future
prescription drug expenses in their WCMSA proposals if the current treatment records
indicate that the claimant has been prescribed drugs and/or may need future prescription
drug treatment related to the WC injury.
Question 8: Has CMS' review of WCMSA proposals changed with the
implementation of the MMA on January 1, 2006?
Answer 8: The CMS' review of WCMSA proposals has not changed with the
implementation of the MMA. The CMS continues to review and independently price for
future Medicare-covered medical expenses in WCMSAs in accordance with CMS'
published policy memoranda dated: July 23, 2001; April 21, 2003; May 23, 2003; May 7,
2004; October 15, 2004; July 11, 2005; and April 25, 2006.
For a WCMSA proposal received by COBC on or after January 1, 2006, CMS will provide
in its written opinion the total WCMSA amount that adequately protects Medicare's
interests with regard to the claimant's future medical treatment. However, CMS' written
opinion will also note the submitted prescription drug amount. The CMS' written opinion
will provide the total WCMSA amount, which is a combination of the future medical
treatment reviewed by CMS and the future prescription drug costs noted in the submitter's
cover letter. The parties to the WC settlement must note the total WCMSA amount in the
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final settlement agreement. Once the final settlement agreement is submitted to CMS'
COBC, the claimant and all other parties to the WC settlement can rely on CMS' written
opinion regarding whether the WC settlement adequately protects Medicare's interests.
The total WCMSA amount (future medical treatment and future prescription drug
treatment) must be deposited in an interest-bearing account. The administrator of the
WCMSA 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 claimant's case. For example, if the total WCMSA amount
in CMS' written opinion is $10,000 ($7,000 identified for future prescription drug treatment
and $3,000 identified for future medical expenses), then the 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 WCMSA 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 WCMSA account, CMS will consider the account appropriately exhausted. For
example, final actual expenditures may be $6,000 for future prescription drug treatment and
$4,000 for the future medical expenses that may appropriately exhaust the $10,000
WCMSA.
Question 9: What happens if a WCMSA proposal received by the COBC on or after
January 1, 2006, does not include an amount for future prescription drug treatment?
Answer 9: If the cover letter does not include an amount for future prescription drug
treatment, and the current treatment records indicate that the claimant has been prescribed
drugs and/or may need prescription drugs related to the WC injury in the future, the
submitter did not adequately consider Medicare's interests. In such a case, CMS, in its
written opinion, will advise the submitter that the parties to the WC settlement have not
protected 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 claimant will need future
treatment with prescription drugs related to the WC injury, then CMS will accept that
Medicare's interests have been adequately protected. Medicare will then pay primary for
future prescription drugs if the beneficiary has enrolled in a Medicare prescription drug
plan and does not have any other coverage that is primary to Medicare.
Question 10: Has CMS published any guidelines about how to price for future
prescription drug expenses in WCMSAs?
Answer 10: No. The CMS has not published any guidelines regarding the pricing for
future prescription drug expenses in WCMSAs.
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Question 11: Should funds for future prescription drug treatment be included in the
calculation of the total settlement amount to determine if the WCMSA proposal
should be reviewed by CMS?
Answer 11: Yes, the total settlement amount calculation should include an amount for
prescription drugs if the future treatment indicates that the claimant has been prescribed
drugs and/or may need drugs in the future. As stated in the July 11, 2005 memorandum, the
computation of the total settlement amount includes, but is not limited to, wages, attorney
fees, all future medical expenses, and repayment of any Medicare conditional payments.
Payout totals for all annuities to fund the above expenses should be used rather than cost or
present values of any annuities. Also note that any previously settled portion of the WC
claim must be included in computing the total settlement amount.
Current review thresholds for Medicare beneficiary and non-beneficiary WCMSA
proposals will remain in effect as stated in the following policy memoranda: July 23, 2001;
April 21, 2003; May 23, 2003; May 7, 2004; October 15, 2004; July 11, 2005; and April 25,
2006.
NOTE: Question and Answer Number 11 is not a change in CMS' policy for
determining whether a WC settlement that includes a WCMSA meets CMS' review
thresholds.
Question 12: Do claimants have to resubmit their WCMSA proposals if CMS already
issued a written opinion as to the total WCMSA amount?
Answer 12: No, claimants do not have to resubmit their WCMSA proposals if CMS has
already issued a written opinion as to the total WCMSA amount.
NOTE: If the WC settlement occurred prior to January 1, 2006, and the WC
settlement included an allocation for future prescription drug treatment, then the
claimant must exhaust those funds before Medicare can be billed for those future
prescription drugs. For example, if the WC settlement allocates $5,000 for
prescription drugs related to the WC injury, then the claimant 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 claimant does not
have to transfer these funds to the existing WCMSA account or include them in the
annual WCMSA accounting.
NOTE: The above note clarifies Question and Answer Number 15 of the July 11,
2005 memorandum.
Question 13: Will CMS begin to independently price for future prescription drug
treatment in WCMSAs beginning on January 1, 2007?
Answer 13: No. Beginning January 1, 2007, CMS will not change its current procedures
and will not independently price for future prescription drug treatment in WCMSA
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proposals. The CMS will provide advanced notification when it plans to begin to
independently price for future prescription drug treatment in WCMSAs. The CMS will
continue to review and independently price for future Medicare-covered medical expenses
in WCMSAs in accordance with CMS' published policy memoranda dated: July 23, 2001;
April 21, 2003; May 23, 2003; May 7, 2004; October 15, 2004; July 11, 2005; and April 25,
2006.
/s/
Gerald Walters
DEPARTMENT OF HEALTH & HUMAN SERVICES
Centers for Medicare & Medicaid Services
7500 Security Boulevard
Baltimore, Maryland 21244-1850
MEMORAM
MEMORANDUM
DATE: April 25, 2006
FROM: Director
Financial Services Group
Office of Financial Management
SUBJECT: Workers' Compensation Medicare Set-Aside Arrangements (WCMSAs) and
Revision of the Low Dollar Threshold for Medicare Beneficiaries
TO: All Regional Administrators
The purpose of this memorandum is to replace Q/A #2 of the July 11, 2005 Memorandum with
regard to the Centers for Medicare & Medicaid Services' (CMS') low dollar WCMSA threshold
for Medicare beneficiaries. Effective with the issuance of this memorandum, CMS will only
review new WCMSA proposals for Medicare beneficiaries where the total settlement amount is
greater than $25,000.00. The CMS wishes to stress that this is a CMS workload review
threshold and not a substantive dollar or "safe harbor" threshold. Medicare beneficiaries must
still consider Medicare's interests in all WC cases and ensure that Medicare is secondary to WC
in such cases.
Note that the computation of the total settlement amount includes, but is not limited to, wages,
attorney fees, all future medical expenses (including prescription drugs) and repayment of any
Medicare conditional payments. Payout totals for all annuities to fund the above expenses
should be used rather than cost or present values of any annuities. Also note that any previously
settled portion of the WC claim must be included in computing the total settlement amount.
Also note that both the beneficiary and non-beneficiary review thresholds are subject to
adjustment. Claimants, employers, carriers and their representatives should regularly monitor
the CMS website at www.cms.hhs.gov/WorkersCompAgencyServices for changes to these
thresholds and for other changes in policies and procedures.
/s/
Gerald Walters
MEMORANDUM
DATE: December 30, 2005
FROM: Director
Financial Services Group
Office of Financial Management
SUBJECT: Part D and Workers' Compensation Medicare Set-aside
Arrangements (WCMSAs) Questions and Answers
TO: All Regional Administrators
Beginning January 1, 2006, Medicare will begin its Part D prescription drug coverage as a
result of the implementation of the Medicare Modernization Act of 2003 (MMA). This
memorandum includes policy regarding the inclusion of prescription drugs that Medicare
will cover as of January 1, 2006, in Workers' Compensation Medicare Set-aside
Arrangements (WCMSAs).
NOTE: References to prescription drugs in this document are limited to those prescription
drugs that are for the treatment of the Workers' Compensation (WC) related injury(ies)
and/or illness(es)/disease(s), (hereinafter referred to as "WC injury") and those where
Medicare provides coverage.
Question 1: What is the Centers for Medicare & Medicaid Services' (CMS) policy
regarding the inclusion of prescription drugs in WCMSAs with the implementation of
the MMA?
Answer 1: All WC settlements that occur on or after January 1, 2006, must consider and
protect 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 to protect Medicare's interests is to include a WCMSA as part of the
WC settlement.
Question 2: Will the submission of WCMSA proposals change with the
implementation of the MMA on January 1, 2006?
Answer 2: Yes, the submission of WCMSA proposals will change with the
implementation of the MMA on January 1, 2006. For WCMSA proposals received by
CMS' Coordination of Benefits Contractor (COBC) on or after January 1, 2006, the cover
letter must include separate amounts for: (1) future medical treatment, and (2) future
prescription drug treatment. 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.).
Question 3: What happens if a WCMSA proposal received on or after January 1,
2006, does not include an amount for future prescription drug treatment?
Answer 3: If the cover letter does not include an amount for future prescription drug
treatment, and the current treatment records indicate that the claimant has been prescribed
drugs and/or may need prescription drugs related to the WC injury in the future, the
submitter did not adequately consider Medicare's interests. In such a case, CMS will
advise the submitter in its written opinion that the parties to the WC settlement may not
have protected 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 claimant will need future
treatment with prescription drugs related to the WC injury, then CMS will accept that
Medicare's interests have been adequately protected. Medicare will then pay primary for
future prescription drugs if the beneficiary has enrolled in a Medicare prescription drug
plan and does not have any other coverage that is primary to Medicare.
Question 4: Will CMS' review of WCMSA proposals change with the implementation
of the MMA on January 1, 2006?
Answer 4: The CMS' review of WCMSA proposals will not change until it begins to
independently price for future prescription drug treatment for WCMSAs received by the
COBC on or after January 1, 2007. Until the review of future prescription drug treatment
begins on January 1, 2007, CMS will continue to review and independently price for future
Medicare-covered medical expenses in WCMSAs in accordance with CMS' published
policy memoranda dated: July 23, 2001; April 21, 2003; May 23, 2003; May 7, 2004;
October 15, 2004; and July 11, 2005.
For a WCMSA proposal received by COBC on or after January 1, 2006, CMS will provide
in its written opinion the total WCMSA amount that adequately protects Medicare's
interests with regard to the claimant's future medical treatment. In addition, CMS' written
opinion will note the submitted prescription drug amount. The CMS' written opinion will
provide the total WCMSA amount, which is a combination of the future medical treatment
reviewed by CMS and the future prescription drug costs noted in the submitter's cover
letter. The parties to the WC settlement must note the total WCMSA amount in the final
settlement agreement. Once the final settlement agreement is submitted to CMS' COBC,
the claimant and all other parties to the WC settlement can rely on CMS' written opinion
regarding whether the WC settlement adequately protects Medicare's interests.
The total WCMSA amount (future medical treatment and future prescription drug
treatment) must be deposited in an interest bearing account. The administrator of the
WCMSA 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 claimant's case. For example, if the total WCMSA amount
in CMS' written opinion is $10,000 ($7,000 identified for future prescription drug treatment
and $3,000 identified for future medical expenses), then the 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 WCMSA 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 WCMSA account, CMS will consider the account appropriately exhausted. For
example, final actual expenditures may be $6,000 for future prescription drug treatment and
$4,000 for the future medical expenses that may appropriately exhaust the $10,000
WCMSA.
Question 5: Will the submission of WCMSA proposals change when CMS begins to
review and independently price for future prescription drug treatment on January 1,
2007?
Answer 5: When CMS begins to review and independently price for future prescription
drug treatment on January 1, 2007, the submitter must include in the cover letter separate
amounts for: (1) future medical treatment, and (2) future prescription drug treatment. 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.).
Moreover, the submitter must include with the submission a payment history of the
prescription drugs paid by the WC carrier, as follows:
¥ 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 submission.
¥ 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.
The CMS will review WCMSAs that include an allocation for future treatment with
prescription drugs based on the required payment history, anticipated future prescription
drug treatment information, and Medicare Part D data. If the submitter fails to provide a
payment history or the payment history reflects that the WC carrier did not previously pay
for prescription drugs indicated for the claimant's future treatment, CMS will independently
price the Medicare-covered prescription drugs using CMS information available from
current Medicare Part D data.
Question 6: Should funds for future prescription drug treatment be included in the
calculation of the total settlement amount to determine if the WCMSA proposal
should be reviewed by CMS?
Answer 6: Yes, the total settlement amount calculation should include an amount for
prescription drugs if the future treatment indicates that the claimant has been prescribed
drugs and/or may need drugs in the future. As stated in the July 11, 2005 memorandum, the
computation of the total settlement amount includes, but is not limited to, wages, attorney
fees, all future medical expenses, and repayment of any Medicare conditional payments.
Payout totals for all annuities to fund the above expenses should be used rather than cost or
present values of any annuities. Also note that any previously settled portion of the WC
claim must be included in computing the total settlement amount.
Current review thresholds for Medicare beneficiary and non-beneficiary WCMSA
proposals will remain in effect as stated in the following policy memoranda: July 23, 2001;
April 21, 2003; May 23, 2003; May 7, 2004; October 15, 2004; and July 11, 2005.
Note: Question/Answer #6 is not a change in CMS' policy for determining whether a WC
settlement that includes a WCMSA meets CMS' review thresholds.
Question 7: Do claimants have to resubmit their WCMSA proposals if CMS already
issued a written opinion as to the total WCMSA amount?
Answer 7: No, claimants do not have to resubmit their WCMSA proposals, if CMS has
already issued a written opinion as to the total WCMSA amount for settlements occurring
prior to January 1, 2006, or where the WCMSA review occurred prior to January 1, 2006,
the MMA implementation date.
Note: If the WC settlement occurred prior to January 1, 2006, and the WC settlement
included an allocation for future prescription drug treatment, then the claimant must
exhaust those funds prior to billing Medicare for those future prescription drugs. For
example, if the WC settlement allocates $5,000 for prescription drugs related to the WC
injury, then the claimant must exhaust that amount from the settlement funds before billing
Medicare for prescription drug costs incurred on or after January 1, 2006. However, the
claimant does not have to transfer these funds to the existing WCMSA account or include
them in the annual WCMSA accounting.
THE ABOVE NOTE CLARIFIES Q/A #15 OF THE JULY 11, 2005
MEMORANDUM.
/s/
Gerald Walters
Director, Financial Services Group
Office of Financial Management
DATE: July 11, 2005
FROM: Director
Financial Services Group
Office of Financial Management
SUBJECT: Medicare Secondary Payer (MSP) &endash; Workers' Compensation (WC)
Additional Frequently Asked Questions
TO: All Regional Administrators
Additional Frequently Asked Questions:
1 Clarification of WCMSA Non-beneficiary Threshold;
2 Low Dollar Threshold for Medicare Beneficiaries;
3 Use of WC Settlement Funds Prior to Medicare Entitlement;
4 Avoiding the Continuation of Indemnity Payments While Waiting for CMS to Review a WC
Medicare Set-aside Arrangement (WCMSA);
5 Settlement of WC Medical Expenses Prior to Submission to CMS;
6 Treatment of Taxable Interest Income Earned on a WCMSA;
7 Sample Submission of a WCMSA;
8 Group Health Plan (GHP) Insurance and Veteran's Administration (VA) Coverage;
9 Loss of Medicare Entitlement after CMS Approval of a WCMSA;
10 Beneficiaries that Request Termination of WCMSA Funds;
11 Compromising of Future Medical Expenses;
12 Additional Information Submission after WCMSA Case is Closed;
13 Effect of WCMSA on Medicaid Eligibility;
14 CMS Recognition of State Specific Statutes;
15 Transfer Mechanism for Items and Services Not Covered by Medicare.
The above-referenced issues are addressed below. This memorandum will be posted on the
Centers for Medicare & Medicaid Services (CMS) Coordination of Benefits website @
www.cms.hhs.gov/medicare/cob/attorneys/att_wc.asp.
Q1. Clarification of WCMSA Review Thresholds &endash; Should I establish a Workers'
Compensation Medicare Set-aside Arrangement (WCMSA) even if I am not yet a Medicare
beneficiary and/or even if I do not meet the CMS thresholds for review of a WCMSA
proposal?
A1. The thresholds for review of a WCMSA 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 beneficiaries and claimants must consider and protect Medicare's
interest when settling any workers' compensation case; even if review thresholds are not met,
Medicare's interest must always be considered.
Q2. Low Dollar Threshold for Medicare Beneficiaries &endash; Has Medicare considered a low
dollar threshold for review of WCMSA proposals for Medicare beneficiaries?
A2. Effective with the issuance of this memorandum, CMS will no longer review new
WCMSA proposals for Medicare beneficiaries where the total settlement amount is less
than $10,000. In order to increase efficiencies in our process, and based on available
statistics, CMS is instituting this workload review threshold. However, CMS wishes to
stress that this is a CMS workload review threshold and not a substantive dollar or "safe
harbor" threshold. Medicare beneficiaries must still consider Medicare's interests in all
WC cases and ensure that Medicare is secondary to WC in such cases.
Note that the computation of the total settlement amount includes, but is not limited to,
wages, attorney fees, all future medical expenses, and repayment of any Medicare
conditional payments, and that payout totals for all annuities to fund the above expenses
should be used rather than cost or present values of any annuities. Also note that any
previously settled portion of the WC claim must be included in computing the total
settlement amount.
Also note that both the beneficiary and non-beneficiary review thresholds are subject to
adjustment. Claimants, employers, carriers, and their representatives should regularly
monitor the CMS website at www.cms.hhs.gov/medicare/cob/attorneys/att_wc.asp for
changes to these thresholds and for other changes in policies and procedures.
Q3. Use of WC Settlement Funds Prior to Medicare Entitlement &endash; May workers'
compensation settlement funds attributable to future medicals be used prior to Medicare
entitlement?
A3. For claimants who are not yet Medicare beneficiaries and for whom CMS has approved a
WCMSA, the WCMSA may be used prior to becoming a beneficiary because the amount
was priced based on the date of the expected settlement. Use of the WCMSA is limited to
services that are related to the workers' compensation claim or settlement and that would be
covered by Medicare if the individual were a Medicare beneficiary. The same requirements
that Medicare beneficiaries follow for reporting and administration are to be used in the
above cases. The CMS 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 WCMSA are sent to the lead contractor upon Medicare entitlement. At that time,
the lead contractor will adjust the WCMSA record to reflect the expenses paid prior to
entitlement.
Even if there is no CMS-approved WCMSA, any funds from a WC settlement attributable to
future medicals that are remaining at the time a claimant becomes a Medicare beneficiary
must be used for Medicare-covered services related to the workers' compensation claim or
settlement until such funds are exhausted. Only then will CMS pay for Medicare-covered
services related to the workers' compensation claim or settlement.
NOTE: THE ABOVE ANSWER REPLACES THE FIRST PARAGRAPH OF THE NOTE
AT THE END OF ANSWER NUMBER FOUR IN THE JULY 23, 2001 ARA WC
MEMORANDUM AND QUESTION NUMBER THREE IN THE MAY 23, 2003 ARA WC
MEMORANDUM.
Q4. Avoiding the Continuation of Indemnity Payments While Waiting for CMS to Review a
WCMSA &endash; Is there a way to avoid the continuation of indemnity payments while awaiting a
CMS determination on a proposed WCMSA?
A4. Yes. To avoid this situation, CMS recommends that the claimant (or the claimant's
representative) close out the indemnity portion of the settlement and leave the settlement of
medical expenses open pending a determination by CMS on the proposed WCMSA. In
determining the review thresholds, the total settlement amount, including indemnity and
medicals, shall be used.
Note that the computation of the total settlement amount includes, but is not limited to,
wages, attorney fees, all future medical expenses, and repayment of any Medicare
conditional payments, and that payout totals for all annuities to fund the above expenses
should be used rather than cost or present values of any annuities. Also note that any
previously settled portion of the WC claim must be included in computing the total
settlement amount.
Q5. Settlement of WC Medical Expenses Prior to Submission to CMS &endash; Can the parties
proceed with the settlement of the medical expenses portion of a WC claim before CMS
actually reviews the proposed WCMSA and determines an amount that adequately protects
Medicare's interests?
A5. The parties may proceed with the settlement, but any statement in the settlement of the
amount needed to fund the WCMSA is not binding upon CMS unless/until the parties
provide CMS with documentation that the WCMSA has actually been funded for the full
amount as specified by CMS that adequately protects Medicare's interests as a result of its
review.
If CMS does not subsequently provide approval of the funded WCMSA amount as specified
in the settlement and proof is not provided to CMS that the CMS-approved amount has been
fully funded, CMS may deny payment for services related to the WC claim up to the full
amount of the settlement. Only the approval of the WCMSA by CMS and the submission of
proof that the WCMSA was funded with the approved amount, would limit the denial of
related claims to the amount in the WCMSA. This shall be demonstrated by submitting a
copy of the final, signed settlement documents indicating the WCMSA is the same amount as
that recommended by CMS.
As a reminder, the claimant may be at risk if the WCMSA is funded for less than the amount
that CMS determines to be adequate to protect Medicare's interests.
Q6. Treatment of Taxable Interest Income Earned on a WCMSA &endash; If I receive a Form 1099-
INT for the interest income earned on my WCMSA account, may I charge the income tax on
that amount against the WCMSA?
A6. Assuming that there is adequate documentation for the amount of incremental tax that the
claimant must pay for the interest earned on this set-aside account, the claimant 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.
Q7. Sample Submission of a WCMSA &endash; Does CMS provide an example of what a proper
WCMSA looks like?
A7. Yes, at http://www.cms.hhs.gov/medicare/cob/pdf/attwc_sample.pdf, CMS has posted a
sample WCMSA proposal. Any comments or questions regarding this sample submission
should be directed to mspcentral@cms.hhs.gov.
Q8. Group Health Plan (GHP) Insurance, Managed Care Plan, and Veterans'
Administration (VA) Coverage &endash; In a WC settlement, is a WCMSA recommended where
the claimant is covered under a GHP or a managed care plan, or has coverage through the
VA?
A8. Yes, a WCMSA is still appropriate because such other health insurance or health service
could in the future be canceled or reduced, or the injured individual may elect not to take
advantage of such 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 WC claim or settlement.
Q9. Loss of Medicare Entitlement after CMS Approval of a WCMSA &endash; Am I entitled to a
release of my WCMSA funds if I lose my Medicare entitlement?
A9. No. However, the funds in the WCMSA may be expended for medical expenses specified in
the WCMSA until Medicare entitlement is re-established or the WCMSA is exhausted. Use
of the WCMSA is limited to services that are related to the workers' compensation claim or
settlement and that would be covered by Medicare if the individual were a Medicare
beneficiary. The same requirements that Medicare beneficiaries follow for reporting and
administration are to be used in the above cases. The 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 WCMSA are sent to the lead contractor
upon the re-establishment of Medicare entitlement. At that time, the lead contractor will
adjust the WCMSA record to reflect the expenses paid prior to entitlement.
Q10. Beneficiaries that Request Termination of a WCMSA Account &endash; May a claimant have
any or all of a WCMSA released for personal purposes under any circumstances?
A10. The administrator of the CMS-approved WCMSA should not release set-aside funds for any
purpose other than the purpose for which the WCMSA was established without approval
from CMS. However, if the treating physician concludes that the beneficiary's medical
condition has substantially improved, then the beneficiary (or the beneficiary's
representative) may submit a new WCMSA proposal covering future expected medical
expenses. Such proposals must justify at least a 25% reduction in the outstanding WCMSA
funds. In addition, such proposal may not 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 WCMSA proposal. The CMS decision on the new
proposal is final and not subject to administrative appeal.
The above proposals shall be submitted to CMS c/o COBC. 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 WCMSA in excess of the newly calculated
amount may be released to the claimant.
NOTE: THE ABOVE ANSWER REPLACES QUESTION NUMBER ELEVEN IN THE
APRIL 21, 2003 ARA WC MEMORANDUM.
Q11. Compromising of Future Medical Expenses &endash; Does CMS compromise or reduce future
medical expenses related to a WC injury?
A11. No. Some submitters have argued that 42 C.F.R. §411.47 justifies reduction to the amount
of a WCMSA. The compromise language in this regulation only addresses conditional
(past) Medicare payments. The CMS does not allow the compromise of future medical
expenses related to a WC injury.
Q12. Additional Information Submission after WCMSA Case Is Closed &endash; If I disagree with
the amount that CMS has determined for my WCMSA, do I have any recourse?
A12. There are no appeal rights stemming from a CMS determination of the appropriate amount
of a WCMSA; however, claimants and submitters have several other options available to
them. First, a claimant or submitter may always contact the Regional Office that issued the
CMS determination for a clarification. Also, if the claimant or submitter believes that a CMS
determination contains obvious mistakes, such as mathematical errors or failure to recognize
that medical records already submitted show that a surgery that CMS priced has already
occurred, then the claimant or submitter should contact the CMS Regional Office that issued
the CMS determination for a correction of the errors.
Where the claimant or submitter believes that CMS has misinterpreted the evidence or
disagrees with the CMS determination for some other reason, there are two choices available.
If the claimant or submitter believes that there is additional evidence not previously
considered by CMS that would warrant a change in the CMS determination, the claimant or
submitter may resubmit the case with the additional evidence and request a re-evaluation.
The re-evaluation request should be clearly marked as such, submitted to the Coordination of
Benefits Contractor (COBC), P.O. Box 660, New York, New York 10274-660, and must be
accompanied by 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.
Although a claimant has no formal appeal rights with respect to the WCMSA 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 WCMSA amount has
not been exhausted, the beneficiary may appeal that specific claim denial through the
administrative appeal process.
Q13. Effect of WCMSA on Medicaid Eligibility &endash; Does a WCMSA have an effect on Medicaid
resources for purposes of eligibility to Medicaid?
A13. Medicare set-aside arrangements 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." The funds must be in interest-bearing
accounts. These funds may meet the SSI/Medicaid resource definition.
There may be cases in which funds in a Medicare set-aside arrangement 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.
Q14. State Specific Statutes - Does CMS recognize or honor any State-specific statutes that
conflict with CMS policy?
A14. The CMS will recognize or honor any non-compensable medical services and CMS will
separately evaluate any special situations regarding workers' compensation cases. This is
subject to a copy of the applicable statute being forwarded to the COBC, P.O. Box 660,
New York, New York 10274-660, as part of the case file.
Q15. Transfer Mechanism for Items and Services Not Covered by Medicare &endash;Is a mechanism
for items and services not covered by Medicare that may later become covered necessary?
A15. Should the settlement agreement provide for items and services that are not covered by
Medicare but later become covered, those funds should then be considered part of the setaside
and treated accordingly, i.e., used to pay for any services as they were designated in the
non-Medicare portion of the set-aside included in the WC settlement. These funds do not
have to be transferred to a separate WCMSA bank account or be included in the annual
WCMSA accounting.
NOTE: THE ABOVE ANSWER REPLACES THE ANSWER TO QUESTION 7 OF
THE JULY 23, 2001 ARA MEMORANDUM.
Please direct questions or concerns to Eve Fisher at (410)-786-5641.
/s/
Gerald Walters
DEPARTMENT OF HEALTH & HUMAN SERVICES Centers for
Medicare & Medicaid Services 7500 Security Boulevard, Mail Stop Baltimore, Maryland 21244-1850
OFM/FSG/DMSPPO
DATE: October 15, 2004
TO: All Regional Administrators
FROM: Director
Financial Services Group Office of Financial Management
SUBJECT:
Medicare Secondary Payer (MSP) --Workers' Compensation (WC)
Additional Frequently Asked Questions: 1) Use of WC Fee Schedule vs.
Full Actual Charges for WC Medicare Set-aside Arrangement
(WCMSA); 2) Self-administration of a WCMSA; 3) Up-front Settlement
of Future Medicals vs. WCMSA; 4) Inflation Adjustment/Discount to
Present Value; 5) Structured WCMSAs; 6) WC Claim Resolution Where
Medicals Remain Open.
The above-referenced issues are addressed below. This memorandum will be posted
on the Centers for Medicare & Medicaid Services (CMS) Coordination of Benefits
website.
Q1. Use of WC Fee Schedule vs. Actual Charges for WC Medicare Set-aside Arrangement &endash;
What is CMS's policy with respect to reviewing WC Medicare Set-aside Arrangement proposals
using either WC fee schedule amounts or full actual charges as the basis for the proposal?
A1. Effective with the issuance of this memorandum, CMS will use either the WC fee schedule
(for states that have such schedules) or full actual charges for its review of a proposed WC
Medicare Set-aside Arrangement based upon whichever methodology was used by the
individual/entity submitting the proposal. The administrator of the WC Medicare Set-aside
Arrangement (both professional administrators and self-administrators) should make payments
from the WC Medicare Set-aside Arrangement on the same basis. That is, if the proposal was
submitted and approved based upon full actual charges, the administrator should make payment
from the WC Medicare Set-aside Arrangement based upon full actual charges; if the proposal
was submitted and approved Page 2 &endash; Medicare Secondary &endash; Workers' Compensation
Additional Frequently Asked Questions
based upon WC fee schedule amounts, the administrator should make payment from the WC
Medicare Set-aside Arrangement based upon WC fee schedule amounts.
NOTE: THE ABOVE ANSWER REPLACES QUESTION 9 ON THE JULY 23, 2001
ARA MEMORANDUM
Q2. Self-administration of a WC Medicare Set-aside Arrangement -- If an individual has a
designated 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.), has an appointed guardian/conservator, or has otherwise been
declared incompetent by a court, may that individual self-administer his/her Medicare set-aside
arrangement?
A2. WC Medicare Set-aside Arrangements must be administered by a competent administrator
(the representative payee, a professional administrator, etc.). Moreover, when an individual does
(in fact) have a designated representative payee, appointed guardian/conservator, or has
otherwise been declared incompetent by a court; the settling parties must include that
information in their Medicare set-aside arrangement proposal to CMS.
Q3. Up-front Settlement of Future Medicals vs. WC Medicare Set-aside Arrangement --May
Medicare accept an up-front cash settlement for future medicals directly from the settling
parties instead of a WC Medicare Set-aside Arrangement?
A3. CMS currently has no process to accept up-front cash payments in lieu of a CMSapproved
WC Medicare Set-aside Arrangement.
Q4. Inflation Adjustment/Discount for Present Value/Change in Policy &endash; Must the WC
Medicare Set-aside Arrangement include an upward adjustment for inflation? May the WC
Medicare Set-aside Arrangement include a downward adjustment as a discount for the presentday
value of the total WC Medicare Set-aside Arrangement?
A4. Effective with the issuance of this memorandum, CMS's position is that the WC
Medicare Set-aside Arrangement does not need to be indexed for inflation and may not be
discounted to present-day value.
NOTE: THIS ANSWER REPLACES QUESTION 7 IN THE JULY 23, 2001 ARA
MEMORANDUM
Q5. Can a WC Medicare Set-aside Arrangement be established as a structured arrangement,
where payments are made to the arrangement on a defined schedule to cover expenses
projected for future years?
Page 3 &endash; Medicare Secondary &endash; Workers' Compensation Additional Frequently Asked
Questions
A5. Yes. However, CMS will approve a payout amount for services that would otherwise be
reimbursable by Medicare from the WC Medicare Set-aside Arrangement in the following
manner:
The seed money for the WC Medicare Set-aside Arrangement must include an amount
equal to the amount of monies calculated to cover the first surgery procedure and/or replacement
and two years of annual payments.
The remainder of the approved amount should be divided by the remainder of the
claimant's life expectancy (or a shorter defined period of time if CMS has agreed to a shorter
time period).
Subsequent annual deposits into the WC Medicare Set-aside Arrangement are to be
based upon a set "anniversary date" which cannot be more than one year after the settlement
date.
NOTE: THIS ANSWER IS INTENDED TO PROVIDE CLARIFICATION OF
QUESTION 10 IN THE APRIL 21, 2003 ARA MEMORANDUM AND FAQ #1903
Q6. WC Claim Resolution Where Medicals Remain Open &endash; Is a WC Medicare Set-aside
Arrangement appropriate when resolution of the WC claim leaves the medical aspects of the
claim open?
A6. No. However, a WC Medicare Set-aside Arrangement is appropriate where the resolution
of the WC claim permanently closes the medical aspects of the claim, and the claimant will
require future medical services related to the WC claim that Medicare would otherwise
reimburse.
Please direct questions or concerns to Eve Fisher at (410) 786-5641.
/s/ Gerald
Walters
DATE: May 7, 2004
TO: All Regional Administrators
FROM: Director
Center for Medicare Management
SUBJECT: Medicare Secondary Payer -- Workers' Compensation (WC)-- INFORMATION
THE PURPOSE OF THIS ALL REGIONAL ADMINISTRATORS MEMORANDUM IS
TO REPLACE THE POLICY THAT WAS OUTLINED IN THE ANSWERS TO
QUESTIONS IN THE ALL ASSOCIATE REGIONAL ADMINISTRATORS (ARA)
MEMORANDUM CONCERNING WORKERS' COMPENSATION COMMUTATION
OF FUTURE BENEFITS (ISSUED ON JULY 23, 2001, ATTACHED) AND IN THE
ANSWER TO QUESTION SEVEN FROM THE APRIL 21, 2003 FREQUENTLY
ASKED QUESTIONS (FAQ). The CMS replaces the policies regarding administrative fee and
attorney costs specifically associated with establishing Medicare set-aside arrangements in
question eleven of the July 23, 2001 ARA memorandum and question seven of the April 21,
2003 FAQ's with the following policy&emdash;
Administrative fees/expenses for administration of the Medicare set-aside arrangement
and/or attorney costs specifically associated with establishing the Medicare set-aside
arrangement cannot be charged to the set-aside arrangement. The 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 arrangement funds.
For example, if the settling parties submit a Medicare set-aside proposal to CMS that
claims that the injured individual will need $50,000 worth of work-related medical
expenses that would otherwise be reimbursable under Medicare and the settling parties
claim that it will cost $10,000 in administrative and attorney fees in order to both
administer and establish the Medicare set-aside arrangement proposal of $50,000, then
CMS will only evaluate/judge the reasonableness of the $50,000 figure.
The CMS will not evaluate whether or not the $10,000 in administrative and attorney
fees are reasonable nor will CMS permit the settling parties to add that $10,000 amount
to the $50,000 Medicare set-aside arrangement amount. Therefore, if CMS approves that
proposal for a $50,000 Medicare set-aside arrangement, the settling parties $10,000 in
administrative and attorney fees cannot be charged to/against the Medicare set-aside
arrangement of $50,000 because CMS considers those costs to be a separate issue for the
settling parties to negotiate.
NOTE: This policy will be implemented on a prospective basis.
If you have any questions or concerns contact Fred Grabau at (410) 786-0206.
Herb Kuhn
Attachments
DATE: MAY 23, 2003
TO: All Regional Administrators
FROM: Director
Center for Medicare Management
SUBJECT: Medicare Secondary Payer -- Workers' Compensation (WC) Additional Frequently
Asked Questions
Questions raised are paraphrased below. This memorandum will be posted on the Centers for
Medicare & Medicaid Services' (CMS) website.
1.) What are the review thresholds set by the July 23, 2001 All Associate Regional
Administrators (ARA) letter concerning WC Commutation of Future Benefits?
Answer: They state that to the extent a WC settlement meets both of the criteria (i.e., the
settlement is greater than $250,000 AND the claimant is reasonably expected to become a
Medicare beneficiary within 30 months of the settlement date), then a CMS-approved Medicare
set-aside arrangement is appropriate. However, if a WC settlement is $250,000 or less OR
where the claimant of that settlement is not reasonably expected to become a Medicare
beneficiary within 30 months of the settlement date, then a CMS-approved Medicare set-aside
arrangement is unnecessary.
Additional Information: Please note that the current review thresholds are subject to adjustment.
The CMS reserves the right to modify or eliminate its review criteria if it determines that
Medicare's interests are not being protected.
2.) When an injured individual's WC settlement does not meet the current review
thresholds, will the Regional Offices (RO) provide the settling parties with
"verification" letters confirming that approval of a Medicare set-aside arrangement is
unnecessary?
Answer: No, the ROs will not provide "verification" letters. However, the CMS will honor
threshold levels that are in effect as of the date of a WC settlement. (See the July 23, 2001 ARA
letter concerning WC Commutation of Future Benefits.)
3.) An injured individual, who does not have a "reasonable expectation" of Medicare
enrollment within 30 months of the settlement date, settles his/her WC case for less than
$250,000. Once this individual becomes a Medicare beneficiary, will CMS pay for
services that are otherwise reimbursable under Medicare, that are related to the WC
injury, even though funds still remain in the individual's settlement?
Answer: Yes. When an individual's settlement does not meet both thresholds Medicare will
make payment for WC related services that are otherwise reimbursable under Medicare once the
individual enrolls in Medicare.
NOTE: THE ABOVE ANSWER WAS REPLACED BY QUESTION 3 OF THE JULY 11,
2005 ARA MEMORANDUM
Additional Information: The CMS assumes that when a non-Medicare eligible claimant's WC
settlement does not meet the 30-month and $250,000 thresholds, typically that individual will
completely exhaust his/her settlement by the time Medicare eligibility is reached. Also,
according to various members of the WC community, most settlements for these individuals are
in the range of $10,000 to $50,000. Therefore, the amount of money in the settlement that is
actually being provided for an individual's medical care normally will be appropriately
exhausted before the individual becomes a Medicare beneficiary.
Please note that the current review thresholds (see the July 23, 2001 ARA letter concerning WC
Commutation of Future Benefits) are subject to adjustment. The CMS reserves the right to
modify or eliminate its review criteria if it determines that Medicare's interests are not being
protected.
4.) Will CMS treat WC cases that were settled prior to the issuance of the July 23, 2001
ARA letter concerning WC Commutation of Future Benefits in the same manner as
those settled after the review threshold guidelines were established?
Answer: Yes. For WC settlements that do not meet the review thresholds, Medicare will make
payment for WC related services that are otherwise reimbursable under Medicare, once the
individual becomes enrolled in Medicare. This will be done regardless of when the settlement
actually occurred. However, a reopening of claims (see 42 C.F.R. 405.750 and 405.841) that
Medicare previously denied for these individuals will not be granted, nor will the CMS change
any decisions already made with respect to settlements which pre-date July 23, 2001.
Additional Information: When the CMS issued the July 23, 2001 ARA letter, it established
review thresholds for WC cases settled by injured individuals who are not yet Medicare
beneficiaries. This was done in order to organize and prioritize workloads for its ROs and to
convey to its ROs that it is not in Medicare's best interests to review WC settlements that do not
meet the review thresholds.
All RO questions on the issues addressed in these "questions and answers" should be directed to
Fred Grabau at (410) 786-0206.
Thomas L. Grissom
cc: All ARA's for Financial Management
ARA for DHPP RO VII
All RO MSP Coordinators
bcc: Paul Olenick
Martha Kuespert
Fred Grabau
Eve Fisher
Tina Merritt
Barbara Wright
Betty Noble
Hugh Hill
Joan Fowler
Harry Gamble
Donna Kettish
DEPARTMENT OF HEALTH & HUMAN SERVICES
Centers for Medicare & Medicaid Services
7500 Security Boulevard, Mail Stop C2-21-15
Baltimore, Maryland 21244-1850
Center for Medicare Management
DATE: APRIL 22, 2003
TO: All Regional Administrators
FROM: Director
Center for Medicare Management
SUBJECT: Medicare Secondary Payer -- Workers' Compensation (WC) Frequently
Asked Questions
Questions raised are paraphrased below. This memorandum will be posted on the Centers for Medicare
& Medicaid Services' (CMS) website.
1) What statutory law, regulations, or Federal case law supports/allows CMS to review
proposed settlements of injured workers who are not Medicare beneficiaries?
Answer: Section 1862(b)(2) of the Social Security Act (the Act) (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 (WC) law or plan. Medicare does not
pay for an individual's WC related medical services when that individual received a WC
settlement, judgment, or award that includes funds for future medical expenses, until all such
funds are properly expended.
Because Medicare does not pay for an individual's WC related medical services when the
individual receives a WC settlement that includes funds for future medical expenses, it is in that
individual's interests to consider Medicare at the time of settlement. Once CMS agrees to a
Medicare set-aside amount, the individual can be certain that Medicare's interests have been
appropriately considered.
2) When dealing with a WC case, what is "a reasonable expectation" of Medicare
enrollment within 30 months?
Page 2 &endash; All Regional Administrators
Answer: Situations where an individual has a "reasonable expectation" of Medicare enrollment
for any reason include but are not limited to:
a) The individual has applied for Social Security Disability Benefits;
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.
3) How does Medicare determine its interests in WC 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?
Answer: 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 made. This means that Medicare will not pay for medical
expenses that are otherwise reimbursable under Medicare and are related to the WC case, until
the entire settlement is exhausted.
Example: A beneficiary is paid $50,000 by a WC 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 setaside
arrangement, Medicare will consider any amount remaining after recovery of its
conditional payments as compensation for future medical expenses.
Additionally, please note that any allocations 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 approved by Medicare.
4) What's the difference between commutation and compromise cases? And can a single
WC case possess both?
Answer: When a settlement includes compensation for future medical expenses, it is referred to
as a "WC commutation case." When a settlement includes compensation for medical expenses
incurred prior to the settlement date, it is referred to as a "WC compromise case." A WC
settlement can have both a compromise aspect as well as a commutation aspect.
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 WC illness or injury.
Page 3 &endash; All Regional Administrators
Example: The parties to a settlement may attempt to maximize the amount of disability/lost
wages paid under WC by releasing the WC carrier from liability for medical expenses. If the
facts show that this particular condition is work-related and requires continued treatment,
Medicare will not pay for medical services related to the WC injury/illness until the entire
settlement has been used to pay for those services.
5) When a state WC judge approves a WC settlement, will Medicare accept the terms of
that settlement?
Answer: Medicare will generally honor judicial decisions issued after a hearing on the merits
of a WC 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 address Medicare's interests. If Medicare's interests are not reasonably considered,
Medicare will refuse to pay for services related to the WC injury (and otherwise reimbursable by
Medicare) until such expenses have exhausted the amount of the entire WC settlement.
Medicare will also assert a recovery claim, if appropriate.
6) What is the expected time frame for the regional offices (ROs) to review and make their
decisions regarding proposed WC settlements?
Answer: ROs seek to review and make a decision regarding proposed WC settlements within
45 to 60 days, from the time that all necessary/required documentation has been submitted.
7) 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 set-aside arrangement?
Answer: Yes, such fees and costs may be charged to the arrangement if all the following are
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 arrangement submitted to CMS and
incorporated into the Medicare set-aside approved by CMS.
It is 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.
NOTE: THE ABOVE ANSWER WAS REPLACED BY THE MAY 7, 2004 ARA
MEMORANDUM
Page 4 &endash; All Regional Administrators
Note: This question and answer does not address attorney fees and costs in connection with
procurement of the WC settlement from the WC carrier.
8) May a beneficiary self-administer his or her own Medicare set-aside arrangement?
Answer: Yes, if this is permitted under state law. It should be noted though, that a selfadministered
arrangement is subject to the same rules/requirements as any other set-aside
arrangement.
9) In WC cases that use structured Medicare set-aside arrangements (i.e., settlement
monies are apportioned over fixed or defined periods of time), will Medicare agree to
cover the beneficiary when it has not been verified whether the funds as apportioned in
the arrangement have been exhausted?
Answer: No, Medicare does not make any payments until the contractor responsible for
monitoring the individual'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 setaside
arrangement.
Additionally, please note that any structured set-aside arrangement agreed to by the parties will
not be approved by Medicare if the settlement has not adequately considered Medicare's
interests.
10) In a structured Medicare set-aside arrangement 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?
Answer: 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 set-aside is designed to pay $20,000 per year over the next 10 years for
an individual's Medicare covered services. Medicare would begin paying covered expenses in
any given year after this $20,000 is exhausted. However, in 2003 the injured individual needs
only $15,000 to cover all related expenses. The administrator would need to carry-forward the
excess $5,000 into 2004. Therefore, in 2004 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 WC related expenses, but only for the balance of 2004. This carry-forward
process continues until the accumulated carry-forward plus the payment for a given year is
exhausted.
NOTE: THE ABOVE ANSWER WAS CLARIFIED BY QUESTION 5 OF THE OCTOBER 15,
2004 ARA MEMORANDUM
Page 5 &endash; All Regional Administrators
11) If a beneficiary or injured individual's physical condition substantially improves, may
the administrator of the Medicare set-aside arrangement release or reduce the amounts
of the set-aside?
Answer: The administrator of the CMS approved Medicare set-aside arrangement cannot
release or reduce the set-aside amounts without approval from CMS. If the treating physician
concludes that the beneficiary's medical condition has substantially improved, then the
beneficiary (or his/her representative) may submit a written request to the appropriate CMS RO
asking for a reduction of the Medicare set-aside arrangement. This request must include
supporting documentation from the treating physician(s). Once the RO receives all pertinent
documentation, the RO will then evaluate the request and make a decision. The RO decision is
final and not subject to administrative appeal.
NOTE: THE ABOVE ANSWER WAS REPLACED BY QUESTION 10 OF THE JULY 11,
2005 ARA MEMORANDUM
12) What are an attorney's ethical and legal obligations when his or her client effectively
ignores Medicare's interests in a WC case?
Answer: 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 411.26.
13) From where can CMS recover funds if Medicare's interests are ignored in a WC case?
Answer: The CMS has a direct priority right of recovery against any entity, including a
beneficiary, provider, supplier, physician, attorney, state agency, or private insurer that has
received any portion of a third party payment directly or indirectly. The 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.
14) If Medicare rejects a proposed Medicare set-aside arrangement, how can the parties to
a WC settlement appeal this rejection?
Answer: The CMS has no formal appeals process for rejection of a Medicare set-aside
arrangement. However, when CMS does not believe that a proposed set-aside adequately
protects Medicare's interests, the parties may provide the RO with additional
information/documentation in order to justify their proposal. If the additional information does
not convince the RO to approve the set-aside arrangement, and the parties proceed to settle the
case despite the ROs objections, then Medicare will not recognize the settlement. Medicare will
exclude its payments for the medical expenses related to the injury or illness until such time as
WC settlement funds expended for services otherwise reimbursable by Medicare exhaust the
entire settlement. At this point, when Medicare denies a particular beneficiary's claim, the
beneficiary may appeal that particular claim denial through Medicare's regular administrative
appeals process. Information on applicable appeal rights is provided at the time of each claim
denial.
Page 6 &endash; All Regional Administrators
15) When the parties to a WC settlement present CMS with documentation that is
intended to support and justify their proposed Medicare set-aside amounts, will
Medicare accept a "life care plan" or similar evaluation prepared by a non-treating
physician?
Answer: Yes, Medicare will consider accepting a life care plan or similar evaluation from a
non-treating physician, if the physician does all of the following:
a) Examines the WC claimant;
b) Reviews the claimant's medical records;
c) Contacts any of the claimant's treating physicians (if applicable);
d) Is available to answer CMS' questions;
e) Prepares a report that summarizes the above; and
f) Offers a written medical opinion as to all of the reasonably anticipated future medical
needs of the claimant related to the claimant's work injury.
Please note that such a life care plan or evaluation is not automatically conclusive. The 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.
16) If a current Medicare beneficiary has outstanding WC related claims that were not
paid prior to the settlement and are not covered in that settlement, will Medicare or
the Medicare set-aside arrangement pay those claims?
Answer: No, Medicare cannot pay because it is secondary to the WC settlement and the
Medicare set-aside arrangement cannot pay because it is created solely for future medical
expenses related to the WC case. Medical expenses incurred prior to the settlement need to be
accounted for in the compromise portion of the settlement. These services should be known to
the parties. The provider/supplier will typically have billed Medicare and/or the WC carrier for
these services and the beneficiary'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.
17) When an annuity is included in a settlement for an injured individual (who is not yet a
Medicare beneficiary), how does Medicare determine whether the value of the annuity
meets the $250,000 monetary threshold?
Answer: 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 Day Value (PDV) or cost of
funding that annuity.
Page 7 &endash; All Regional Administrators
Example: A settlement is to pay $15,000 per year for the next 20 years to an individual 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 RO 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). It
is immaterial for Medicare's purposes that the PDV or cost ($175,000) to fund this settlement is
less than $250,000.
18) Is there a means by which an injured individual can permanently waive his or her
right to certain specific services related to a WC case, and thereby reduce the amount
of a Medicare set-aside arrangement?
Answer: No, the ROs cannot approve settlements that promise not to bill Medicare for certain
services in lieu of including those services in a Medicare set-aside arrangement. This is true
even if the claimant/beneficiary offers to execute an affidavit or other legal document promising
that Medicare will not be billed for certain services if those services are not included in the
Medicare set-aside arrangement.
19) Does CMS require that a Medicare set-aside arrangement be established in situations
that involve both a WC claim and a third party liability claim?
Answer: Third party liability insurance proceeds are also primary to Medicare. To the extent
that a liability settlement is made that relieves a WC carrier from any future medical expenses, a
CMS approved Medicare set-aside arrangement is appropriate. This set-aside 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 arrangement
would be if it can be documented that the beneficiary does not require any further WC claim
related medical services. A Medicare set-aside arrangement is also unnecessary if the medical
portion of the WC claim remains open, and WC continues to be responsible for related services
once the liability settlement is exhausted.
20) If the settling parties of a WC case contend that a WC settlement is not intended to
compensate an injured individual for future medical expenses, does CMS still require
that a Medicare set-aside arrangement be established?
Answer: It is unnecessary for the individual to establish a set-aside arrangement for Medicare if
all of the following are true:
a) The facts of the case demonstrate that the injured individual is only being compensated
for past medical expenses (i.e., for services furnished prior to the settlement);
b) There is no evidence that the individual 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 individual's treating physicians conclude (in writing) that to a reasonable degree of
medical certainty the individual will no longer require any Medicare-covered treatments
related to the WC injury.
Page 8 &endash; All Regional Administrators
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 services furnished prior to the date of the settlement for which it has not
already paid.
21) If a beneficiary or injured individual dies before the Medicare set-aside arrangement is
completely exhausted, what happens to the remaining money?
Answer: Once the RO and the contractor responsible for monitoring the beneficiary's case
ensure that all of the beneficiary's claims have been paid, then any amount left over in the
beneficiary's Medicare set-aside arrangement may be disbursed pursuant to state law, once
Medicare's interests have been protected. This may involve holding the Medicare set-aside
arrangement 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.
22) What happens if one of the parties settling a WC case refuses to involve CMS, even
though Medicare has an interest in the case?
Answer: In these situations, the "cooperative" settling party should notify the appropriate CMS
RO. Where the RO believes it is appropriate, the RO will then send the "uncooperative" party a
letter (via certified mail) conveying that Medicare's interests must be considered in the WC
settlement.
The ROs 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."
Additionally, if Medicare's interests are not adequately considered in any settlement, then
Medicare may refuse to pay for services related to the WC injury until such time as expenses for
such services have exhausted the amount of the entire WC settlement.
23) Who should the parties settling a WC case contact in the RO?
Answer: The first report of attorney representation of a Medicare beneficiary for a WC claim
should be made to the CMS Coordination of Benefits (COB) Contractor. Attorneys can call the
COB Contractor from 8am-8pm, Monday - Friday, Eastern Time; the toll-free number is 1-800-
999-1118.
Page 9 &endash; All Regional Administrators
Settling parties should also contact the CMS RO responsible for a particular state (contact
information is provided in an attachment to these questions and answers) for approval of a
Medicare set-aside arrangement. The inquiry should be directed to the attention of the Regional
Office Medicare Secondary Payer Coordinator, who will forward the inquiry to the appropriate
RO if a transfer is necessary. (WC set-aside responsibilities are generally, but not always,
assigned based upon RO responsibility for contractor oversight over the lead fiscal intermediary
for WC recoveries for a particular state. This may or may not be the same RO as the one with
general responsibilities for a particular state.)
All RO questions on the issues addressed in these "questions and answers" should be directed to Fred
Grabau at (410) 786-0206.
Thomas L. Grissom
Attachment
cc: All ARA's for Financial Management
ARA for DHPP RO VII
All RO MSP Coordinators
bcc: Paul Olenick
Martha Kuespert
Fred Grabau
Eve Fisher
Tina Merritt
Barbara Wright
Betty Noble
Hugh Hill
Joan Fowler
Harry Gamble
Donna Kettish
NOTE: THIS REGIONAL OFFICE CONTACT LIST HAS BEEN UPDATED AND IS
AVAILABLE AS A DOWNLOAD UNDER THE WCMSA REVIEW PROCESS WEB PAGE
MEDICARE SECONDARY PAYER REGIONAL OFFICE COORDINATORS
(WORKERS' COMPENSATION CONTACTS)
NAME REGIONAL OFFICE PHONE
James Bryant I--Boston 617-565-1331
Thomas Hatchfield 617-565-1254
Sedric Goutier 617-565-1228
Jerry Kerr II--New York 212-264-3760
III--Philadelphia
Catherine McCoy 215-861-4250
Maria Kuehn 215-861-4306
Juanita Dixon IV--Atlanta 404-562-7313
Geraldine Taylor 404-562-7311
V--Chicago
Janice Edwards 312-886-3256
Barry Thomas VI--Dallas 214-767-6455
Doug Rundle VII--Kansas City 816-426-5783
Cindy Christensen VIII--Denver 303-844-7095
Rosie Sagum IX--San Francisco 415-744-3655
Tom Bosserman 415-744-4907
Jean Tsutakawa X--Seattle 206-615-2382
Jonella Windell 206-615-2385
Note: If the caller is simply contacting Medicare for the first time in order to report workers' compensation
coverage (as opposed to seeking out RO approval of a proposed Medicare set-aside arrangement), then the caller
should contact the Coordination of Benefits Contractor at
1-800-999-1118.
NOTE: THIS LIST HAS BEEN UPDATED
STATES IN EACH REGION
REGION I &endash; BOSTON Connecticut
Maine
Massachusetts
New Hampshire
Rhode Island
Vermont
REGION II &endash; NEW YORK New York
Puerto Rico
Virgin Islands
REGION III &endash; PHILADELPHIA Delaware
District of Columbia
Maryland
Pennsylvania
Virginia
West Virginia
REGION IV &endash; ATLANTA Alabama
North Carolina
South Carolina
Florida
Georgia
Kentucky
Mississippi
Tennessee
New Jersey
Louisiana
REGION V &endash; CHICAGO Illinois
Indiana
Michigan
Minnesota
Ohio
Wisconsin
REGION VI &endash; DALLAS Arkansas
New Mexico
Oklahoma
Texas
REGION VII &endash; KANSAS CITY Iowa
Kansas
Missouri
Nebraska
REGION VIII- DENVER Colorado
Montana
North Dakota
South Dakota
Wyoming
REGION IX &endash; SAN FRANCISCO America Samoa
Arizona
California
Guam
Hawaii
Nevada
REGION X &endash; SEATTLE Alaska
Idaho
Oregon
Washington
Utah
JUL 23 2001
To: All Associate Regional Administrators
Attention: Division of Medicare
From: Deputy Director
Purchasing Policy Group
Center for Medicare Management
SUBJECT: Workers' Compensation: Commutation of Future Benefits
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
(WC) carrier and the injured individual. This Regional Office letter clarifies the Centers for
Medicare & Medicaid Services (CMS) policy regarding a number of questions raised recently
by several Regional Offices (RO) concerning how the RO should evaluate and approve WC
lump sum settlements to help ensure that Medicare's interests are properly considered.
Regional Office staff may choose to consult with the Regional Office's Office of the General
Counsel (OGC) on WC cases because these cases may entail many legal questions. OGC
should become involved in WC cases if there are legal issues which need to be evaluated or if
there is a request to compromise Medicare's recovery claim or if the Federal Claims Collection
Act (FCCA) delegations require such consultation. Because most WC carriers typically
dispute liability in WC compromise cases, it is very common that Medicare later finds that it
has already made conditional payments. (A conditional payment means a Medicare payment
for which another payer is responsible.) If Medicare's conditional payments are more than
$100,000 and the beneficiary also wishes Medicare to compromise its recovery under FCCA
(31U.S.C.3711), the case must be referred to Central Office and then forwarded to the
Department of Justice. It is important to note in all WC compromise cases that all presettlement
and post-settlement requests to compromise any Medicare recovery claim amounts
must be submitted to the RO for appropriate action. Regional Offices must comply with
general CMS rules regarding collection of debts (please reference the Administrator's March
27, 2000 memo re: New instructions detailing your responsibilities for monies owed to the
government).
Medicare is secondary payer to WC, therefore, it is in Medicare's best interests to learn the
existence of WC situations as soon as possible in order to avoid making mistaken payments.
The use of administrative mechanisms1sometimes referred to by attorneys as Medicare Set-
1 Although 42 CFR 411.46 requires that all WC settlements must adequately consider Medicare's
interests, 42 CFR 411.46 does not mandate what particular type of administrative mechanism should be
used to set-aside monies for Medicare including a self-administered arrangement (State law permitting).
Of course, if an arrangement is self-administered, then the injured individual/beneficiary must adhere to
Page 2 &endash; All Associate Regional Administrators
aside Trusts (hereafter referred to as "set-aside arrangements") in WC commutation cases
enables Medicare to identify WC situations that would otherwise go unnoticed, which in turn
prevents Medicare from making mistaken payments.
Set-aside arrangements are used in WC commutation cases, where an injured individual is
disabled by the event for which WC is making payment, but the individual will not become
entitled to Medicare until some time after the WC settlement is made. Medicare learns of the
existence of a primary payer (WC) as soon as possible when Medicare reviews a proposed setaside
arrangement at or about the time of WC settlement. In such cases, Medicare greatly
increases the likelihood that no Medicare payment is made until the set-aside arrangement's
funds are depleted. These set-aside arrangements provide both Medicare and its beneficiaries
security with regard to the amount that is to be used to pay for an individual's disability related
expenses. It is important to note that set-aside arrangements are only used in WC cases that
possess a commutation aspect; they are not used in WC cases that are strictly or solely
compromise cases.
Lump sum compromise settlements represent an agreement between the WC carrier and the
injured individual to accept less than the injured individual would have received if he or she
had received full reimbursement for lost wages and life long medical treatment for the injury
or illness. In a typical lump sum compromise case between a WC carrier and an injured
individual, the WC carrier strongly disputes liability and usually will not have voluntarily paid
for all the medical bills relating to the accident. Generally, settlement offers in these cases are
relatively low and allocations for income replacement and medical costs may not be
disaggregated. Such agreements, rather than being based on a purely mathematical
computation, are based on other factors. These may include whether there was a preexisting
condition, whether the accident was really work related, or whether the individual was acting
as an employee, or performing work-related duties at the time the accident occurred.
One of the distinctions that Medicare's regulations and manuals make between compromise
and commutation cases is the absence of controversy over whether a WC carrier is liable to
make payments. A significant number of WC lump-sum cases are commutations of future WC
benefits where typically there is no controversy between the injured individual and the WC
carrier over whether the WC carrier is actually liable to make payments. An absence of
controversy over whether a WC 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 WC carrier does not admit to being liable in the settlement agreement.
Conversely, lump-sum settlements should not automatically be considered as commutation
the same rules/requirements as any other administrator of a set-aside arrangement.
Page 3 - All Associate Regional Administrators
cases simply because a WC carrier does admit to being liable in a settlement agreement.
Therefore, an admission of liability by the WC carrier is not the sole determining factor of
whether or not a case is considered a compromise or commutation.
WC commutation cases are settlement awards intended to compensate individuals for future
medical expenses required because of a work-related injury or disease. In contrast, WC
compromise cases are settlement awards for an individual's current or past medical expenses
that were incurred because of a work-related injury or disease. Therefore, settlement awards or
agreements that intend to compensate an individual for any medical expenses after the date of
settlement (i.e., future medical expenses) are commutation cases.
It is important to note that a single WC lump-sum settlement agreement can possess both WC
compromise and commutation aspects. That is, some single lump-sum settlement agreements
can designate part of a settlement for an injured individual's future medical expenses and
simultaneously designate another part of the settlement for all of the injured individual'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. Therefore, it is possible for a single WC lump-sum settlement agreement to be both
a WC compromise case and a WC commutation case.
Generally, parties to WC commutation cases agree on a lump sum amount in exchange for
giving up the usual continuing payments by WC for lost wages and for lifetime medical care
related to the injuries. Such lump sum amounts are usually requested because the beneficiary
wishes to use the funds for some specific purpose. For example, the individual's home may
need to be remodeled to accommodate a wheelchair or, more typically, he or she is so
disabled that lifetime attendant care is needed. In these latter cases, the injured individual
seeks a lump sum payment so that such care can be arranged with certainty in the future. The
amount of the lump sum is typically established by using a life care plan2and actuarial
methods to determine the individual's life expectancy. When WC has accepted full liability in
a case prior to the creation of a set-aside arrangement, the likelihood of any Medicare
conditional payments being made is reduced.
Set-aside arrangements are most often used in those cases in which the beneficiary is
comparatively young and has an impairment that seriously restricts his or her daily living
2 If a life care plan is not used to justify the injured individual's future medical expenses, then the injured
individual or his/her representative must present other alternative evidence that sufficiently justifies the amounts
set-aside for Medicare.
expenses may be.
activity. These set-aside arrangements are typically not created until the individual's
Page 4 - All Associate Regional Administrators
condition has stabilized so that it can be determined, based on past experience, what the
future medical expenses may be.
Medicare regulations at 42 CFR 411.46 state that:
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.
Questions that have been raised are paraphrased below.
Question 1:
(a) Does the Medicare program have a claim against a lump sum WC payment
before an individual's Medicare entitlement?
(b) If not, can the Medicare program give a written opinion on the sufficiency of a
set-aside arrangement even if the individual is not as yet entitled to Medicare?
(c) In WC cases involving injured individuals who are not yet Medicare
beneficiaries, when must Medicare's interests be considered before the parties can settle
the case?
Answer:
These questions have been raised by attorneys who wish to devise set-aside
arrangements, which represent amounts for medical items, and services that would
ordinarily be covered by Medicare and are specified for future medical treatment for
work-related illness or injuries. The attorneys are concerned that Medicare will not pay
once the individual becomes entitled to Medicare, because the lump-sum included
payment for future medical treatment.
Page 5 - All Associate Regional Administrators
The answer to Question 1(a) is no, Medicare cannot make a formal determination until
the individual actually becomes entitled to Medicare. However, the attorneys are correct
that once the individual becomes entitled, Medicare payment may not be made
to the extent of Medicare's interests in the lump sum payment per 42 CFR 411.46 or a
set-aside arrangement that adequately considers Medicare's interests in the lump sum
payment.
The answer to Question 1(b) is that the RO (with consultation from the Regional OGC, if
necessary) can review a proposed settlement including a set-aside arrangement and can
give a written opinion on which the potential beneficiary and the attorney can rely,
regarding whether the WC settlement has adequately considered Medicare's interests per
42 CFR 411.46. These settlements should all be handled on a case-by-case basis, as each
situation is different. If there are several years prior to Medicare entitlement, the RO
should use its best judgment regarding what Medicare utilization might be once there is
Medicare entitlement. This decision should be based on the documentation obtained as
stated in the answer to Question 10. Once the RO has given written assurance that the setaside
arrangement is sufficient to satisfy the requirements at 42 CFR 411.46, when the
set-aside arrangement is established and the settlement is approved, the RO, should then
set up a procedure to follow the case.
The answer to question 1(c) is, it is not in Medicare's best interests to review every WC
settlement nationwide in order to protect Medicare's interests per 42 CFR 411.46.
Injured individuals (who are not yet Medicare beneficiaries) should only consider
Medicare's interests when the injured individual has a "reasonable expectation" of
Medicare enrollment within 30 months of the settlement date, and the anticipated total
settlement amount for future medical expenses and disability/lost wages over the life or
duration of the settlement agreement is expected to be greater than $250,000.3
For example, if the injured individual is designated by WC 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 RO should review that WC 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 individual has a "reasonable expectation" of Medicare
enrollment within 30 months of the settlement date. If the injured individual in this
example fails to consider Medicare's interests, then Medicare may preclude its payments
pursuant to 42 CFR 411.46 once the injured individual actually becomes entitled to
Medicare.
3 Please note that the review thresholds (i.e., 30 months and $250,000) will be subject to adjustment once CMS has
experience reviewing these matters under these instructions.
Page 6 - All Associate Regional Administrators
NOTE: Injured individuals who are already Medicare beneficiaries must always
consider
Medicare's interests prior to settling their WC claim regardless of whether or not the
total settlement amount exceeds $250,000. That is, ALL WC PAYMENTS regardless
of amount must be considered for current Medicare beneficiaries.
Question 2:
Should a system of records be established for the documentation that the RO and
contractors receive/collect concerning these set-aside arrangements?
Answer:
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 individuals that are not enrolled in Medicare. The RO will be
responsible for maintaining or housing the records for every arrangement on which the
RO 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.
Question 3:
Once the set-aside arrangement has been approved by the RO (with consultation
from the Regional OGC, if necessary), what is the subsequent role of the ROs and
contractors?
Answer:
When the RO approves a set-aside arrangement (with consultation from the regional
OGC, if necessary), the RO will check on a monthly basis the National Medicare
Enrollment database in order to determine when an injured individual actually becomes
enrolled in Medicare. Once the RO verifies that the injured individual has actually been
enrolled in Medicare, the RO will assign a contractor responsible for monitoring the
individual's case. The RO will assign the contractor based on the injured individual's
State of residence.
When the injured individual has actually been enrolled in Medicare, the RO must
provide the Coordination of Benefits Contractor (COBC) with identifying information to
add a WC record to Common Working File. The RO must exercise one of the following
options: 1) Fax the information to the COBC; or 2) Submit through an Electronic
Page 7 - All Associate Regional Administrators
Correspondence Referral System (ECRS) inquiry. At a minimum, the RO must indicate
that this is a WC set-aside arrangement case, and include the following information:
Beneficiary Name Beneficiary HIC Date of Incident DX code(s): If you do not have
dx codes readily available, you must include a description of the illness/injury. Note:
Do not forward to COB without a dx or description.
Administrator of Trust
Claimant Attorney Information
The administrator of the set-aside arrangement must forward annual accounting
summaries concerning the expenditures of the arrangement to the contractor responsible
for monitoring the individual's case. The contractor responsible for monitoring the
individual's case is then responsible for insuring/verifying that the funds allocated to the
set-aside arrangement were expended on medical services for Medicare covered services
only. Additionally, the contractor responsible for monitoring the individual's case will be
responsible for ensuring that Medicare makes no payments related to the illness or
accident until the set-aside arrangement has been exhausted.
Question 4:
What types of measures should the RO and the contractors take to ensure that
Medicare makes no payments related to the illness or accident until the set-aside
arrangement has been depleted?
Answer:
Generally, set-aside arrangements that are designed as lump sums (i.e., the arrangement
is funded by the WC settlement all at once) present less of a problem to monitor than
structured arrangements. Medicare would not make any payments for individuals that
possess lump sum arrangements until all of the funds within the arrangement have been
depleted. For example, if a set-aside arrangement were established for $90,000,
Medicare would not make any payments until the entire $90,000 (plus interest, if
applicable) were exhausted on the individual's medical care (for Medicare covered
services only).
Structured set-aside arrangements generally apportion settlement monies over fixed
or defined periods of time. For example, a structured arrangement may be designed
to disburse $20,000 per year over the next ten years for an individual's medical care
(for Medicare-covered services 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 individual's case can verify that the entire $20,000 (plus interest, if applicable) is
exhausted. However, when the structured arrangement allocates money for the start of
Page 8 - All Associate Regional Administrators
Year Two (i.e., on January 1) Medicare would not make any payments for services
performed until Year Two's allocation was completely exhausted.
In every set-aside arrangement case the contractor responsible for monitoring the
individual's case (with assistance from the RO, if necessary) should ensure that
Medicare does not make any payments until the contractor responsible for monitoring
the individual's case can verify that the funds apportioned to the arrangement have truly
been exhausted.
NOTE:
Until the individual actually becomes entitled to Medicare, the set-aside arrangement
fund must not be used to pay the individual's expenses. That is, an individual's medical
expenses must be paid from some other source besides the set-aside arrangement when
the individual is not a Medicare beneficiary. Once the individual actually becomes
entitled to Medicare, then the administrator of the arrangement is permitted to make
payments for the individual's medical care (for Medicare-covered services only) from the
arrangement.
ADDITIONAL NOTE: THE ABOVE PARAGRAPH OF THIS NOTE HAS BEEN
REPLACED BY QUESTION 3 OF THE JULY 11, 2005 ARA MEMORANDUM
If the contractor monitoring the individual's case discovers that payments from the setaside
arrangement have been used to pay for services that are not covered by Medicare
or for administrative expenses that exceed those approved by the RO (see Question 11),
then the contractor will not pay the Medicare claims. The contractor must provide the
evidence of the unauthorized expenditures to the RO for investigation. If the RO
determines that the expenditures were contrary to the RO's written opinion on the
sufficiency of the arrangement, then the RO will notify the administrator of the
arrangement that the RO's informal approval of the arrangement is withdrawn until such
time as the funds used for non-Medicare expenses and/or unapproved administrative
expenses are restored to the set-aside arrangement.
Question 5:
What are the criteria that Medicare uses to determine whether the amount of a
lump sum or structured settlement has sufficiently taken its interests into account?
Answer:
The following criteria should be used in evaluating the amount of a proposed
settlement to determine whether there has been an attempt to shift liability for the
Page 9 &endash; All Associate Regional Administrators
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.
1. Date of entitlement to Medicare.
2. Basis for Medicare entitlement (disability, ESRD or age)-- If the
beneficiary 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 beneficiaries who
are over 65 but had been entitled prior to attaining that age.
3. 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 accident is the individual an amputee,
paraplegic or quadriplegic? Is the beneficiary's condition stable or is
there a possibility of medical deterioration?
4. Age of beneficiary-- Acquire an evaluation of whether his/her condition
would shorten the life span.
5. WC classification of beneficiary (e.g., permanent partial, permanent
total disability, or a combination of both).
6. Prior medical expenses paid by WC due to the injury or illness in the 1
or 2 year period after the condition has stabilized-- If Medicare has paid
any amounts, they must be recovered. Also, this would indicate that the
case may not purely be a commutation case, but may also entail some
compromise aspects, e.g., the WC carrier or agency may have taken the
position that the services were not covered by WC.
7. 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.
8. Is the commutation for the beneficiary's lifetime or for a specific time
period? If not for lifetime, what is the basis?-- Medicare must insist that
there is a reasonable relationship between the respective allocation for
services covered by Medicare and services not covered by Medicare.
For example, is it reasonable for the settlement agreement's allocation
for services not covered by Medicare to be based on the beneficiary's
life time while the agreement's allocation for services covered by
Medicare is based on a lesser time period? What is the State law
regarding how long WC is obligated to cover the items or services
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related to the accident or illness?
9. Is the beneficiary living at home, in a nursing home, or receiving
assisted living care, etc.?-- If the beneficiary 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., WC (for life time or a specified
period) from the medical benefits allocation of lump sum settlement,
Medicaid, etc.
10. Are the expected expenses for Medicare covered items and services
appropriate in light of the beneficiary's condition?-- Estimated medical
expenses should include an amount for hospital and/or SNF care during
the time period for the commutation of the WC benefit. (Just one
hospital stay that is related to the accident could cost $20,000.) For
example, a quadriplegic may develop decubitus ulcers requiring
possible surgery, urinary tract infections, kidney stones, pneumonia
and/or thrombophlebitis. 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 and Part B 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
our focus here only deals with services related to the WC accident or
illness. Therefore, the RO should use appropriate judgment and seek
input from a medical consultant when determining whether the amount
of the lump sum or structured settlement has sufficiently taken
Medicare's interests into account.
The attorney for the individual for whom the arrangement is set-up should be
advised that Medicare applies a set of criteria to any WC settlement on a
case-by-case basis in order to determine whether Medicare has an obligation
for services provided after the settlement that originally were the
responsibility of WC.
NOTE:
Before evaluating whether an arrangement reasonably covers/considers
Medicare's interests, the RO must know whether the arrangement is based
upon WC fee schedule amounts or full actual charge amounts.
Question 6:
Some attorneys have indicated that a set-aside arrangement should only
contemplate three to five years of estimated Medicare covered items or services.
Would this be reasonable?
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Answer:
No. To protect the Medicare Trust Fund, a set-aside arrangement should be funded based
on the expected life expectancy of the individual unless the State law specifically limits
the length of time that WC covers work related conditions. If an estimate of the
beneficiary's estimated longevity was not submitted, one must be obtained.
Question 7:
What other issues should be considered ?
Answer:
The lump sum amount should be interest bearing and indexed to account for inflation
consistent with how Medicare calculates its growth in spending. Provision should also be
made in the settlement agreement to provide for a mechanism so that items or services
that were not covered by Medicare at the time, but later become covered, are transferred
from the commutation specified for non-Medicare covered items and services to the setaside
arrangement. (For example if outpatient prescription drugs become more widely
covered.) If the beneficiary belongs to a Health Maintenance Organization that may not
be coordinating benefits based on WC entitlement, the settlement should still set-aside
funds for Medicare covered services in case the beneficiary converts to a fee for service
plan.
NOTE: THIS ANSWER WAS REPLACED BY QUESTION 4 OF THE OCTOBER 15,
2004 ARA MEMORANDUM AND LATER REPLACED BY QUESTION 15 OF THE
JULY 11, 2005 ARA MEMORANDUM.
Question 8:
Is it permissible for Medicare to accept an up-front cash settlement instead of a
set-aside arrangement?
Answer:
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 WC did not
pay promptly. Thus, when future benefits are included in a WC settlement agreement,
Medicare cannot pay until the medical expenses related to the injury or disease equal the
amount of the settlement allocated to future medical expenses or the amount included for
medical expenses in the set-aside arrangement has been exhausted.
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Question 9:
How do providers and suppliers obtain payment for the services covered by the
set-aside arrangement?
Answer:
There are two distinct methods for providers, physicians and other suppliers to obtain
payment for WC covered services when funds are held in a set-aside arrangement.
Determining which distinct payment method applies depends on two factors: 1.) How the
set-aside arrangement is constructed and 2.) Whether the arrangement was constructed
by contemplating full actual charges or WC fee schedule amounts (i.e., were the injured
individual's medical expenses determined based on full actual charge estimates or WC
fee schedule estimates).
When a set-aside arrangement's settlement agreement contains specific provisions
establishing that the WC carrier will ensure that the arrangement cannot be charged more
than what would normally be payable under the WC plan, and when the RO reviews and
approves the sufficiency of the arrangement based on the WC plan's WC fee schedules,
then, providers, physicians and other suppliers will be paid based on what would
normally be payable under the WC plan (i.e., under the WC fee schedule). Therefore,
providers, physicians and other suppliers would not be permitted to bill the arrangement
more than the WC fee schedule rate. For example, if a provider's full charge for a
particular service is $100 and the WC carrier normally pays $65 for that particular
service, then the arrangement should only pay $65. However, when an arrangement's
settlement agreement does not contain specific provisions ensuring that the arrangement
cannot be charged more than what would normally be payable under the WC plan, then
providers, physicians and other suppliers are permitted to bill the arrangement their full
charges. It is important to note that when an arrangement's settlement agreement does
not contain specific provisions ensuring that providers, physicians and other suppliers
cannot bill the arrangement more than the WC fee schedule amounts, then the RO must
review the sufficiency of that particular arrangement based upon full actual charge
estimates.
Before evaluating whether an arrangement reasonably covers/considers Medicare's
interests, the RO must know whether the arrangement is based upon WC fee schedule
amounts or full actual charge amounts. If the arrangement is based upon WC fee
schedule amounts, then, the RO cannot provide a written opinion on the sufficiency of an
arrangement until the arrangement's settlement agreement contains specific provisions
that establish that the WC carrier can and will ensure that the arrangement cannot be
charged more than what would normally be payable under the WC plan. The WC carrier
must require all entities and individuals that accept WC payments to agree not to charge
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the arrangement more than what the WC plan would normally pay.
If a WC carrier is unable to enforce the requirement that the arrangement can only be
charged the WC fee schedule rates, then the RO will evaluate whether an arrangement
reasonably covers/considers Medicare's interest based on whether the future medical
expenses billed to the arrangement are enough to cover the actual expenses for the
services at issue. If State WC laws do not provide a particular WC carrier with the legal
authority to enforce that requirement, then the RO can still provide a written opinion on
the sufficiency of the arrangement so long as future medical expenses are evaluated by
the RO using full actual charge estimates, not WC fee schedule amounts.
If the arrangement is constructed based upon full actual charge estimates, then the RO
must determine whether the proposed amount to be placed in the arrangement for future
medical expenses and administrative costs (see Question 11) is sufficient to cover the
actual charges for the services at issue (rather than an amount equal to what would have
been the Medicare approved amount for a particular service).
Once the arrangement has been depleted because of payments for otherwise Medicare
covered services, a complete accounting must be provided to the contractor responsible
for monitoring the individual's case and if the payments have been properly made
Medicare can then be billed.
NOTE: THIS ANSWER HAS BEEN REPLACED BY QUESTION 1 OF THE
OCTOBER 15, 2004 ARA MEMORANDUM
Question 10:
Are there documentation requirements that must be satisfied before the RO can
provide a written opinion on the sufficiency of a set-aside arrangement?
Answer:
Yes. At a minimum, the following documentation must be obtained by the RO prior to
the approval of any arrangement:
A copy of the settlement agreement, or proposed settlement agreement, 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 individual's estimated life span, then a rated age may be obtainable
from life insurance companies for injuries/illnesses sustained by other
similarly situated individuals. Also, 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).
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The RO may require additional documentation, if necessary and approved by CO.
NOTE: THE ABOVE ANSWER WAS CLARIFIED BY QUESTION 5 OF THE
OCTOBER 15, 2004 ARA MEMORANDUM
Question 11:
How does the RO determine whether or not the administrative fees and expenses
charged to the arrangement are reasonable?
Answer:
Before a proposed arrangement can be approved, the RO must determine whether the
administrative fees and expenses to be charged to the arrangement are reasonable. The
RO must be notified (in writing) of all proposed administrative fees prior to the RO
providing its written assurance that the set-aside arrangement is sufficient to satisfy the
requirements of 42 CFR 411.46. If the administrative fees are determined to be
unreasonable, the RO must withhold its approval of the set-aside arrangement. The
amount of the approved arrangement must include both the estimated medical expenses
plus the amount of administrative fees found to be reasonable.
NOTE: THE ABOVE ANSWER HAS BEEN REPLACED BY THE MAY 7, 2004 ARA
MEMORANDUM
Question 12:
What impact will arrangements have on Medicare payment systems and
procedures?
Answer:
Because an arrangement's purpose is to pay for all services related to the individual's
work-related injury or disease, Medicare will not make any payments (as a primary,
secondary or tertiary payer) for any services related to the work-related injury or disease
until nothing remains in the set-aside arrangement. Arrangements are established in
order to pay for all medical expenses resulting from work- related injuries or diseases;
arrangements are not designed to simply pay portions of medical expenses for workrelated
injuries or diseases.
When arrangements are designed as lump sum commutations (i.e., the arrangement is
designed in a manner that the WC settlement is paid into the arrangement all at once,
see Question #4 above), Medicare would not make any payments for that individual's
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medical expenses (for work-related injuries or diseases) until all the funds
(including interest) within the arrangement have been completely exhausted.
These same basic principles also apply to structured commutations (see Question
#4 above).
When providers, physicians and other suppliers submit claims to Medicare related to the
individual's work-related injury or disease, claims processing contractors should deny
those claims and instruct the entity or individual to seek payment from the administrator
of the arrangement. Since the injured individual 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 individual's case will have already updated the
Common Working File to indicate that the injured individual's claims should be denied.
However, when a provider, physician or other supplier submits any claims that are for
injuries or diseases that are not work-related, then contractors should process those
claims like they would any other claim for Medicare payment.
When the administrator of an arrangement refuses to make payment on a provider's,
physician's or other supplier's claim because the administrator of the arrangement asserts
the services are for injuries or diseases that are not work-related (or when the
administrator of the arrangement denies the claim for any other reason), and the
provider, physician or other supplier, subsequent to the administrator's denial, submits
the claim to Medicare, then the contractor should consult the RO 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.
Please note that Central Office is planning to have a contractor assist ROs in monitoring
and processing (however, not evaluating) these set-aside arrangement cases as early as
possible in Fiscal Year 2002. Further instructions will be issued at that time.
Regional Office staff's questions on these issues should be directed to Fred Grabau at (410)
7860206. We will issue additional guidance as necessary.
/s/
Parashar B. Patel
cc: Regional Administrators Gerry Nicholson, Benefits Operations Group
Liz Richter, Financial Services Group
FARD3/F.Grabau/60206/final 7/11/01 Document: /g:/ppg/dids/araWC2.doc Typist: T. Cox
x60750