Recent Issues Affecting Medicare Set Aside Arrangements In Workers' Compensations Settlements

Published on: 9/22/2005

Centers for Medicare & Medicaid Services ("CMS') recently made several significant changes and clarifications with regard to current set-aside requirements.  These developments will affect the way you currently handle settlements subject to CMS approval.  The current rule is that a carrier/employer or claimant must submit a settlement for CMS approval when (1) a claim settles for a sum in excess of $250,000.00 and the claimant has a reasonable expectation of Medicare eligibility within thirty months, or (2) a claimant is a current Medicare beneficiary.

CMS considers these review thresholds "workload review thresholds," consistently emphasizing that settling parties must consider Medicare's interests in any settlement.  While Medicare does not require CMS approval of all settlements they continue to assert that there is no safe harbor.

In practice, set-aside procedure and standards continue to evolve.  CMS issued another policy memorandum on July 11, 2005 which signified some significant changes in set-aside approval.  This alert will call your attention to upcoming CMS policy changes and changes/clarifications indicated in the July 11, 2005 memorandum.

 1.  Prescription Drug Inclusion
The Central Office of CMS recently confirmed that they will consider expected costs of prescription drugs in determining approval of set-aside arrangements submitted after January 1, 2006.  They are currently in the process of drafting a written memorandum on this specific issue.  This development may significantly increase the amounts of set-asides in many cases after January 1, 2006.

 2.  Low Dollar Threshold
The July 11, 2005 Memorandum establishes a "workload review threshold" for small settlements.  CMS will no longer review set-aside proposals where the total settlement amount is less than $10,000.  Of course, settling parties should still consider Medicare's interests in these settlements.  CMS notes that all thresholds are subject to adjustment.

3.  Avoiding Continuation of Indemnity Payments
While Waiting for CMS Approval
This is a constant problem expressed by many carriers and employers.  Settling carriers or employers often agree to fund the set-aside recommended by CMS, even if over the allocated amount, when submitting settlement documents initially to avoid continuing indemnity payments while waiting for a potentially lengthy CMS review.  Carriers would therefore assume the risk of a potentially higher CMS allocation to avoid continued indemnity payments.

 A more attractive alternative is available and recommended by CMS in the July 11, 2005 Memorandum.  Settling parties should draft two settlements, one for indemnity and one for medical benefits.  The parties should immediately submit the indemnity settlement documents to the Commission for approval, withholding the medical settlement documents pending CMS approval of the set-aside. 

Remember, CMS considers the value of all settlements on a claim when determining whether the settlement meets their thresholds necessitating review.  This includes any previous settlements of any portions of the claim, no matter when those settlements occurred.




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