MSP Compliance: Is it Workers’ Compensation or Liability

By Guest Author Rasa Fumagalli, J.D., MSCC, CMSP-F – Director of MSP Compliance Services

Netflix’s new baking competition show “Is it Cake” challenges judges to identify which of two identical objects is edible and which is not. Attorneys settling cases involving work-related injuries may find themselves similarly perplexed when it comes to whether a work-related injury will be treated as a workers’ compensation or liability case for purposes of the Medicare Secondary Payer Act (“MSP”). Depending on who the employer is at the time of a work-related injury, some injured employees may be covered by programs that are required under federal law. Depending on the nature of the program, the MSP compliance obligations will either be handled as a workers’ compensation or liability settlement.  For example, the Longshore and Harbor Workers’ Compensation Act (“LHWCA”) that provides benefits for work-related injuries sustained by certain maritime and dock workers is viewed as workers’ compensation insurance when it comes to MSP compliance issues. On the other hand, the Federal Employers Liability Act (“FELA”) which provides benefits for railroad employees, who sustain injuries due to the negligence of a railroad carrier, is viewed as liability insurance when it comes to MSP compliance issues.  (See MSP Manual, Chapter 1, Section 10.4)

Both liability and workers’ compensation settlements are impacted by the MSP Act. The MSP is comprised of a series of statutory provisions intended to reduce federal health care costs. The MSP provides that if a primary payer exists, Medicare only pays for medical treatment relating to an injury to the extent that the primary payer does not pay. The MSP Act and supporting regulations specifically state that Medicare is precluded from making payments for services “to the extent that payment has been made or can reasonably be expected to be made promptly under any of the following (i) workers’ compensation; (ii)liability insurance; (iii) no-fault insurance. (42 U.S.C.§1395y(b)(2)(A)(ii), 42 C.F.R.§411.20 (a)(2)). A primary payer’s responsibility for payment may be demonstrated by “a judgment, payment conditioned upon the beneficiary’s compromise, waiver, or release (whether or not there is a determination or admission of liability) of payment for items or services included in a claim against the primary payer or the primary payer’s insured or by other means…” (42 C.F. R§411.22(b)). The parties first and foremost should ensure that pre-settlement injury-related payments (conditional payments) made by Medicare are reimbursed to the appropriate Medicare Trust Fund. In addition, and in light of the MSP, settlements that close out future injury-related medical benefits should avoid cost shifting the post-settlement injury-related care onto Medicare.

The MSP compliance distinction between a liability settlement and a workers compensation settlement is an important one since it may impact the way parties address post settlement injury related care. The Centers for Medicare and Medicaid Services (“CMS”) has issued a great deal of guidance when it comes to workers’ compensation settlements that close out future injury related medical. The Workers’ Compensation Medicare Set-Aside Arrangement (“WCMSA”) Reference Guide (“Guide”), Version 3.7, 6/6/2022, explains that parties should take Medicare’s interest, with respect to future medicals, into account by including a WCMSA into the settlement terms. The WCMSA should contain sufficient funds from the settlement to cover the total cost that will be incurred for future injury related Medicare covered treatment. CMS encourages parties to seek CMS approval of the proposed WCMSA when the settlement meets CMS’ internal workload review thresholds. The benefit to CMS’ review and approval of the proposed amount is the certainty in knowing that Medicare will become the primary payer for any injury-related services that exceed the properly exhausted CMS determined WCMSA. Although the Guide also states that CMS approval of a proposed WCMSA amount is not required, Section 4.3 notes that CMS may treat the use of non-CMS approved products as “a potential attempt to shift financial burden by improperly giving reasonable recognition to both medical expenses and income replacement.” Non-CMS approved products are MSA reports that are not submitted to CMS for review.

If CMS concludes that there was an improper cost shift, it may deny payment for injury-related services until it is provided with attestation of appropriate exhaustion equal to the total settlement, less procurement costs and paid conditional payments.  The parties may overcome this denial by showing   CMS, at the time of the WCMSA exhaustion, that both the initial funding of the MSA was appropriate and the funds were used properly.

To understand the importance of the differences between whether a work injury is treated as workers’ compensation versus liability case in the context of the MSP, consider a FELA settlement.  FELA is treated as a liability settlement for purposes of the MSP due to its differences from the typical workers’ compensation case.  Although a FELA settlement involves a work-related injury, the railroad employee must show that his/her injuries were, due in whole or in part, to the negligence of the railroad. This burden of proof is different than the burden of proof in a typical workers’ compensation case. In most jurisdictions, for a workers’ compensation case, a worker must only show that he suffered an accidental injury, which arose out of and in the course of his employment.  There is no need to show negligence.

Once a settlement agreement is reached in a FELA case, the parties should consider the potential impact of the MSP Act on the settlement. If the railroad employee is a Medicare beneficiary at time of settlement, Medicare will be given notice of the settlement under Section 111’s Mandatory Insurer Reporting obligation. The notice of settlement may result in the potential risk of Medicare denying post-settlement injury-related care. If the railroad employee has completed his injury-related treatment and no further treatment is indicated, the beneficiary may wish to obtain a written certification from the treating physician to that effect. Pursuant to CMS’ 9/30/2011 Memo, there is no need for a liability MSA when the treating physician makes this certification.

If, however, the beneficiary continues to treat for his injuries, or will need future injury-related care, an MSA might be considered to avoid any potential issues with Medicare denying post-settlement injury-related care.  While a workers’ compensation settlement will usually fully fund the WCMSA, the liability MSA may at times consider the relative value of each of the elements of damage being compensated in the settlement (pro-rata apportionment).  This apportionment approach considers the ratio between the total potential case value and the net settlement. Parties may also choose to fully fund the liability MSA. The decision of how much, or how little, risk to assume when it comes to post-settlement injury-related care is one that should be made by the beneficiary and documented in the attorney’s file.

Conditional payments, payments made by Medicare for injury-related care provided prior to settlement, must also be addressed in connection with a settlement. In a workers’ compensation case, conditional payment recovery is handled by the Commercial Repayment Center (“CRC”). The CRC seeks to pursue recovery directly from the workers’ compensation insurer carrier while the case is open. Once the case settles, the conditional payment recovery will move from the CRC to the Benefits Coordination and Recovery Center (“BCRC”) since the beneficiary is now the identified debtor. Since a FELA settlement is viewed as a liability settlement, the BCRC will handle the conditional payment recovery and seek recovery from the beneficiary debtor. Payments made by a Medicare Advantage Plan (“MAP”) must also be addressed. Information regarding the MAP payments is provided by the relevant insurance carrier themselves and not the BCRC/CRC.

While one work injury case may look just like any other, your MSP compliance approach may depend on whether CMS views the case as liability or workers’ compensation. A thorough understanding of the differences and risks of various approaches is necessary in order to avoid any unexpected consequences of inaction.

Contact Synergy Settlement Services to discuss the way our MSP compliance team may assist you.