Medicare Secondary Payer Update PRESENTED BY: Timothy K. Michels, Esq. Chief Operations Officer Jennifer C. Jordan, Esq. General Counsel 2012 All Rights Reserved
A National Look at WCMSAs Many procedural improvements at CMS during past 12 months (New WCRC and MSPRC contractors & web portals) Supreme Court clarification on recovery rights forthcoming? (Hadden cert. petition scheduled for discussion on Sept. 24th) Official Regulations regarding future medicals proposed after 11 years of administration by memo (CMS-6047-ANPRM) 2 bills sitting before Congress attempting to resolve MSP issues (HR1063/SB1718 and HR5284) Widespread confusion continues as to MSP obligations v. CMS recommendations
A National Look at WCMSAs MSAs Approved by CMS: Year # MSAs Total Approved 2008 20,255 $905,202,448 2009 24,203 $1,125,261,415 2010 26,296 $1,443,739,397 2011 28,847 $1,102,662,414 Impossible to track WCMSAs funded but not submitted to CMS CMS approval is voluntary, so cases not submitted cannot be assumed to be non-threshold MEDVAL submitted only 22.8% of cases evaluated in 2011 CMS likely reviews less than half WCMSAs funded annually, meaning $2.5-$3 billion annually could be funded in WCMSAs alone Administration industry estimates that 85% of that is self-administered
New contractor effective 7/2/12 Provider Resources, Inc. Cases submitted after 7/2/12 have average turn around of 28 days Estimated that backlog exceeds 10,000 cases Average turn around time for backlog cases exceeds 180 days New contract did not include responsibility for the backlog CMS blames backlog on MD emergency regs and 2010 computer system problem so long as no similar influx of cases or inhibited productivity, there is little reason to believe problem will be repeated Note: WCMSAP (web portal) can also be attributed to improved TAT 2 mail handling contractors no longer required in process
WCMSAs Approved by CMS Represents essentially a WC carrier s lifetime exposure under state law of the worse possible medical scenario Drugs are unrealistically projected based upon regime at time of settlement projected over life expectancy and priced at AWP without consideration of anticipated patent expirations No considerations for evidence of malingering or fraud No refund for post-settlement miracles Essentially tendering reserves to close the claim (if even adequately reserved to cover the unreasonable MSAs recommended by CMS)
Cost Considerations of CMS Approval: MSA Vendor Fees (update information/submission fee) Approval Time (9 month average in 2011) Ongoing Indemnity & Medical Expenses During Wait Additional Defense Costs (particularly if bifurcated) Opportunity for Claimant to Back Out of Settlement Risk of Adverse CMS Determinations
Injured Workers Insurance Fund Leading writer of WC in Maryland / 23% market share $190M in annual premium / 20,257 in force policy count Settled: Year # Cases Total Settlement Amount 2008 2873 $64,789,446 6/1] 2009 2678 $71,801,195 [no CMS submissions after instituted] 2012 1270 $48,930,226 [MD emergency regs 2011 1296 $62,794,511 2012 632 $28,286,477 [year to date through July]
IWIF Sample MSA Set Evaluated 135 randomly selected cases settled with MSAs between 1/1/11 and 6/1/12 and funded with structured settlements. Of the sample: 64 cases were not submitted (47%) 29 cases were approved as submitted (41%) 28 cases were countered higher (40%) 9 cases were countered lower (12%) 5 cases CMS declined to review (7%)
MSA Figures $17,084,795.00 total proposed MSAs [$6,316,977.00 medical / $10,767,817.37 Rx] $15,070,481.25 in corresponding annuity premium (inclusive of any indemnity & custodial fees 11.75% savings from just lump sum funding of corresponding MSAs) Of the $12,437,499.47 approved by CMS: counter higher = $1,552,767.85 counter lower = $44,575.58 [low: $3,426.21 (8%) from $41,204 to $44,631] [high: $237,425.30 (56%) from $409,795 to $647,221] [low: $12,941 (9%) from $137,995 to $125,054] [high: $106,160 (56%) from $190,415 to $84,265 ] Note: CMS tolerance is 5% so no counter if proposed MSA is +/- 5% of WCRC independent review. Counters primarily due to Rx addition or AWP changing between submission and CMS review.
Turn Around Time Of the 66 cases reviewed by CMS, turn around time ranged from 4* to 390 days (179 days on average) Once approved by CMS, days to MD WCC approval ranged from 13 to 352 days (98 days on average) $1,016,475.44 paid in ongoing WC benefits between date MSA submitted to CMS and approved by the MD WCC $394,600.21 medical / $621,875.23 indemnity *Reflective of test phase of web portal / only 10 participants
Rx Pricing Considerations Evaluated 200 IWIF MSAs calculated between 8/1/10 and 8/11/11 Compared Rx cost at AWP v. mail-order pharmacy program Total MSAs AWP Total MEDVAL Rx $50,089,412.96 $39,799,341.64 $29,190,096.97 Difference = $10,609,244.67 Conclusions: 1) Rx expense made up 79% of total MSA spend 2) CMS approved WCMSAs average 27% more than a reasonable/defensible future medical cost projection using pharmacy program available to the public
Professional Administration Of 135 IWIF cases evaluated, 19 are professionally administered (14%) Cost ranged from: $10,278 ($500/19yrs) - $33,749 ($1750/25yrs) 6 claimants have never submitted a bill 1 account was arranged for and paid by claimant 1 account ordered by the Maryland WCC due to mismanagement IWIF maintains a reversionary interest in unused funds Examples of Post-settlement treatment changes: $142K/27yrs of OxyContin => now using Methadone at $8.46/mo. (overfunded by $139K) $13K/40yrs of Morphine Sulf. ER => Exalgo 8mg at $651.77/mo. (underfunded by $300K) $70K/47yrs of Tizanidine (AWP=$1.3917) => Carisoprodol 350mg (AWP=$0.0478) (overfunded by $67K)
MEDVAL Administered MSA Account Trends 2003-2012 Have Never Submitted a Claim Average 25% Surplus Every Year Treat In Accordance with MSA Projections Exhaust Every Year 0 5 10 15 20 25 30 35 40 45 % of total book of claims under professional administration
Funding MSAs with Annuities CMS approved method of funding MSAs at present value If self-administered, a protection from unrelated total dissipation As life expectancy increases, savings increases due to longer payout period, but so does exposure to medical cost inflation Annuity can be used to maintain a reversionary interest MSA funds projected beyond death of claimant Savings of funding with annuity v. lump sum averages 34% Total MSA Total Cost Savings % Annual Deposit LE $89,097.35 $56,792.08 $32,305.27 36% $3,556.94 18 $134,041.83 $83,082.13 $50,959.70 38% $4,062.79 30
Conclusions about CMS Approval You are paying between 25% and 35% in additional MSA expense to obtain CMS opinion, frequently in excess of your state law obligations.
Does Funding an MSA End Your MSP Exposure? CMS states it will cover treatment beyond the amount of an approved MSA, but what if: CMS approval was not available? Claimant used the funds for other needs? Medicare gets billed anyway & makes payment? Medicare coverage changes? Physicians refuse to bill at calculated rate? Medical records CMS based its decision upon prove to be suspect? CMS revises its WCMSA approval letter post-settlement?
Purpose of an MSA To avoid post settlement recovery actions by the federal government for reimbursement of Medicare overpayments made for excluded treatment related to the insurance settlement. [Protection of Medicare s interests is incidental]
This is a Risk Management Issue, Not Compliance What happens if you: Fund MSA & Claimant never treats again Elect self-administration & Claimant goes shopping Fund MSA not approved by CMS but professionally administer Fund MSA w/life only annuity & Claimant dies next day Don t/can t get CMS approval & Claimant s condition worsens Promise to pay whatever CMS says & it counters higher Do nothing & government never catches you
5 things that are NOT true about MSAs: The MSP expressly obligates parties to an insurance settlement to protect Medicare s interests. MSAs are only necessary when established thresholds are met CMS approval of MSAs is required if certain thresholds are met CMS approval of a WCMSA is binding A claim exists under federal law for failing to protect Medicare s interests with an MSA in an insurance settlement.
Medicare May: Seek reimbursement for related Medicare payments Deny benefits/payments for related treatment Suggest an amount that protects its future interests Medicare May Not: Demand a certain settlement allocation for future medicals Demand funding of a debt not actually incurred Demand medical reimbursements in excess of state law and/or contractual obligations
Actual Obligations Under the MSP That Medicare not make payment when an insurance payment has been, or should be, made (statute silent to timing in relation to settlement so applicable post settlement?) If Medicare makes a conditional payment & there is insurance coverage or a settlement, judgment or award inclusive of medical damages, then Medicare must be reimbursed by the primary payer or anyone in receipt of the insurance payment (statute silent to order of recovery so joint & several?)
Settlement Goal Take measures to reasonably provide for future medical expenses so that Medicare will not make any related post-settlement payments that would require reimbursement. Options to Avoid Medicare Exposure: Seek CMS approval of & fully fund a WCMSA Allocate a reasonable portion of settlement funds and use the same to pay for future medicals Create alternative means of providing for medical payments as they occur (custodial admin, trust, captive, etc.) Provide alternative medical coverage Leave medicals open
Remember There is no legal claim for failing to fund an MSA [MSA represents unliquidated, inchoate damages Frazer v. Transcontinental Insur., 374 F. Supp. 2d 1067 (N.D. Al. 2004)]. No debt exists until related treatment has been obtained and paid by Medicare Don t put too much faith in CMS overreaching tendencies [An administrative agency s interpretations such as those in opinion letters, like interpretations contained in policy statements, agency manuals and enforcement guidelines, do not warrant deference under Chevron, but instead are only entitled to respect under Skidmore (Christiansen v. Harris Co., 529 U.S. 576 (2000))].
And Before MSA Related Debt Becomes a Federal Claim for Double Damages MSA must exhaust (preferably on related treatment) Related conditional payments must be made by Medicare Reimbursement demands must be made and not paid Medicare appeal process must be exhausted (4 steps) Judicial review of the Medicare appeal is available (through to the Supreme Court if necessary) The debt must still remain unpaid and the DOJ must file suit for the double damages to attach, and then potentially navigate the entire federal court system AND DON T FORGET, the claims will be for actual payments made and NOT the entire lifetime of unknown treatment
Some Parting MSP Thoughts Treat MSP with a holistic approach / incorporate into the entire claims process from acceptance to settlement Conquer the fear / make informed MSP decisions Evaluate potential future exposures from a financial & risk management perspective Consider alternative solutions & case by case considerations Avoid buying assurances from CMS that are not commensurate with your risk
Questions? Timothy K. Michels tmichels@iwif.com Jennifer C. Jordan jjordan@medval.com