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Medicare secondary payer system hinders workers comp settlements

Medicare secondary payer system hinders workers comp settlements

Difficulties in the Medicare secondary payer system are continuing to hinder the settlement of some workers compensation claims, say service providers who specialize in handling such cases.

The system requires self-insured employers, insurers and others to notify the Centers for Medicare and Medicaid Services of all workers compensation or liability settlements that involve Medicare recipients. Those beneficiaries are then obligated to use settlement funds to repay CMS for the cost of their treatment, but employers and insurers also can be held responsible.

Although insurers understand that settlements can be used for Medicare reimbursement, sources say that long response times and higher-than-expected bills from CMS are making it difficult to resolve claims.

“You've got cases that are ready to settle, but we just can't settle them because we can't get the information we need to get it resolved,” said Michael Merlino, vp of Medicare compliance for Sedgwick Claims Management Services Inc. in Atlanta. “And that just creates frustration on everyone's part.”

Settlements that involve Medicare beneficiaries, or those who will soon become beneficiaries, require parties to include reimbursement for medical care that occurred from the date of an injury to the date of a settlement. While parties work to anticipate how much Medicare is owed before a claim's closure, CMS sends a conditional payment letter only after settlement.

Letters usually are sent to parties in a case within 65 business days after Medicare is notified of a pending settlement, according to the Medicare Secondary Payer Recovery Contractor website. A study released in March by the U.S. Government Accountability Office showed that the contractor took an average of 76 business days to issue such notices in 2011.


That timeline has stretched as long as three to five months in recent years, depending on a backlog of cases being processed by MSPRC, said Martin Cassavoy, vp of strategic services for North Reading, Mass.-based Crowe Paradis Services Corp., a Medicare secondary payer compliance company.

In waiting for a response from CMS, insurers and employers continue to pay for claims that they had hoped to settle sooner rather than later, he said.

“You need to be able to obtain the information quickly, you need to be able to potentially work with Medicare to resolve any disputes associated with that amount, and you need to have a definitive answer provided by Medicare,” said Mr. Cassavoy, who estimates that Medicare secondary payer issues affect 8% to 13% of all workers comp claims.

Since Medicare often continues to make medical payments as parties wait for a final demand letter, Mr. Merlino said the final amount owed to Medicare can often differ largely from what insurers expected to pay in a case.

“I know of one case where the estimated amount was $800, and the final demand was $8,000,” he said.

Jennifer Jordan, general counsel with MEDVAL L.L.C. in Columbia, Md., said the discrepancy leaves workers comp case parties wondering who should pick up the additional costs.

While some settlements require claimants to pay Medicare for any additional costs that are billed after settlement, Ms. Jordan said insurers are often left holding the tab.

“A lot of times...carriers accept that they have to pay these conditional payments as sort of the scope of business,” she said.

Mr. Merlino said conditional payments for Medicare treatment also can discourage some parties from wanting to settle their cases. That's because the reimbursement amount could take up most or all of a claimant's settlement, reducing the worker's incentive to close his or her case.

"Why would the claimant settle for $30,000 instead of just walking away because...they're going to have to pay it right back to the government," he said.

Further complicating matters is the issue of Medicare set-asides, where insurers place money into an account to pay for future medical expenses that otherwise would be covered by Medicare.


Experts contend that CMS is asking some insurers to pay larger-than-expected settlements by asking for set-asides that are much higher than the insurers' cost projections. In such cases, they say insurers sometimes opt to leave a claim open rather than put money into a Medicare set-aside fund.

Ms. Jordan said CMS estimates for Medicare set-asides are usually about 20% higher than what insurers or employers expect to pay for an injured worker's future medical costs, and can sometimes reach up to 150% higher.

For instance, she said she remembers a case in which an insurer expected to set aside $50,000 for a claimant's medical expenses. However, she said, CMS required the insurer to pay $150,000 toward the worker's future care, based on treatments and prescriptions that the beneficiary was expected to receive.

The difficulty, Ms. Jordan said, lies in formulas that CMS uses to predict a beneficiary's future care based on what they have already received. CMS is “trying to figure out a way to ballpark a future of unknowns,” she said.

Projected prescription costs create some of the largest leaps in set-aside costs, said Russell Whittle, senior staff counsel and vp of Medicare secondary payer compliance for consultant Gould & Lamb L.L.C. in Bradenton, Fla.

“You have to allocate for prescription drugs, but the methodology that Medicare uses isn't always consistent,” he said. “The type of formularies they use and the rules that they apply to each of the MSAs (Medicare set-asides) are not necessarily as predictable as one would expect. So what we're seeing is drugs being prescribed over a lifetime which are either medically contraindicated or not appropriate for that type of condition.”

Mr. Cassavoy said insurers and service providers are working to develop strategies that can simplify the Medicare recovery process. But he said the workers comp market has not yet been able to develop a one-size-fits-all solution.

“There's not really an easy silver bullet answer to solving that problem,” he said.