When MSA Surgery Occurs Between Settlement and State WC Approval

CMS, Commentary, Medicare Set-Aside Blog, Medicare Set-Asides, MSP Litigation on October 29, 2014 | Posted by Jennifer Jordan, JD, MSCC

One of the frustrating things about waiting for CMS approval is watching a carrier pay for ongoing medical expenses that are included in the proposed MSA and then fully fund the MSA once approved. Because of the method CMS uses to calculate MSAs, the current full calendar year is always included unless the claimant is so close to his or her next birthday that even CMS can’t justify not adjusting life expectancy. But where this becomes most frustrating is when a surgery is involved. In reality, an MSA is only really appropriate after MMI, when the claimant is stable and the future maintenance treatment foreseeable. Future anticipated MSA surgeries should only include things like revisions or removals, not a fusion pending within the first year that could vastly improve the overall condition in consideration. Regardless, parties to a settlement are free to negotiate within the limits of the state law permitting the termination of workers’ compensation benefits whether it makes sense or not. Unfortunately, here is what can happen when the parties are too anxious to settle a claim.

Wendell McCarroll was injured in Louisiana in December 2003 and began receiving WC benefits soon thereafter. Mr. McCarroll treated with various doctors, one of whom recommended cervical fusion in July 2008, which Mr. McCarroll declined. In November 2008, LWCC began negotiating a settlement with Mr. McCarroll’s attorney and in early January 2009, the parties agreed to the terms of a settlement, including a $98,684 Medicare Set Aside (MSA), inclusive of $21,793.00 for that same recommended, yet declined, surgery. The MSA was submitted to CMS for review and was miraculously approved on February 2, 2009.

Now interestingly the cost of the declined surgery was always an issue. During the settlement negotiations, Mr. McCarroll’s attorney had expressed his concerns to LWCC of whether the costs of Mr. McCarroll’s surgery would be covered if they were over the estimated amount in the MSA and his desire that LWCC pick up any excess. Mr. McCarroll’s attorney asked LWCC for an additional $10,000.00, and on February 10, 2009, $5,000.00 was agreed to for “non-covered Medicare expenses.” Then most interestingly of all, Mr. McCarroll underwent the cervical fusion surgery on February 16, 2009.

On March 2, 2009, Mr. McCarroll executed the Settlement Agreement and Release, apparently signed with an “X” as he was having trouble signing his name after the surgery. Thereafter, LWCC received the settlement documents signed by Mr. McCarroll and approved by the OWC on March 9, 2009. The attorney for the Council and LWCC signed the agreement on March 10, 2009. In accordance with the Order of Approval, LWCC funded the $110,000 indemnity settlement and $32,045 MSA seed.

Two years later, on March 10, 2011, Mr. McCarroll filed a Petition to Enforce Settlement Agreement or, in the Alternative, to Nullify Court Approval of March 9, 2009, asserting that Medicare has refused to pay for any medical expenses that were incurred prior to the March 9, 2009 approval of the workers’ compensation settlement and that LWCC refused to pay for any medical treatment from late January 2009 up to the March 9, 2009 approval of the settlement, which included Mr. McCarroll’s surgery and the costs thereof. Mr. McCarroll requested an order from the OWC ordering the payment by LWCC of all medical expenses incurred prior to March 9, 2009, and the payment of all weekly compensation benefits through March 9, 2009, or, in the alternative, an order annulling the March 9, 2009 settlement agreement. The OWC found that LWCC’s misunderstanding regarding the MSA was a misrepresentation sufficient to set aside the settlement.

At trial, the LWCC claims specialist testified that she did not know that if Mr. McCarroll had his surgery before the MSA had been approved by the OWC, that the seed money could not be used to pay the bill, inferring that she knew he had decided to undergo surgery. Mr. McCarroll testified that when he signed the settlement agreement, he thought that his medical expenses would all be paid, stating that he would not have signed had he known he would have been responsible for the payment of any of his medical expenses. The OWC stated in its written reasons that “[n]o one involved in this case at that time envisioned that Medicare would deny coverage because the surgery was done before the settlement was signed by the OWC.” Since everyone clearly envisioned that the $21,000 could be used to pay for the surgery at issue, even if the OWC had not yet signed it, and since Mr. McCarroll is now prohibited from using the $21,000 in the MSA to help pay for the surgery that was performed, and Medicare will not pay for the surgical costs that exceeded the $21,000, these were not the settlement terms that anyone thought they were getting, so OWC vacated the settlement.

So here is what is missing from the opinion:  What happened when Mr. McCarroll appealed his Medicare determination??  There is absolutely nothing that says that services allocated in an MSA cannot be paid from an MSA regardless of the minutia of the settlement timeline. There is nothing in the WCMSA Reference Guide or the Self-Administration Tool Kit for WCMSAs that states that payments from MSAs can only be made after the settlement is approved by the state. In fact, the governing rule here should have been 42 CFR 411.46 which essentially says that once Mr. McCarroll exhausted his initial seed, the MSP exclusion should have lifted until additional insurance money specified for future medical expenses became available. However it is extremely improbable that a timely Medicare appeal was properly filed because there is little chance that the appeal would have concluded within 24 months of the surgery. The hospital would have had at least 12 months to submit the bill, the denial notices sent, response time, appeal initiation, reconsideration, the ALJ, MAC, etc. Because the testimony noted in the opinion all concludes with a “who knew”, it is likely that the parties just accepted the denial. It is not reasonable for CMS to force a beneficiary to hold and reallocate funds specifically earmarked for a specific medical expense, that the agency itself voluntarily approved the amount of, when that service is no longer needed because it already took place but prior to the state approval of the settlement. It is also not reasonable for CMS to refuse to acknowledge that the insurer funded exactly what the agency requested for said surgery and expose it to additional liability. There was a valid appeal here that was likely not properly pursued and instead, the settlement was invalidated by the state.

Unfortunately, it is not entirely clear that the parties would have prevailed in the appeal due to the provisions under 42 CFR 411.46(b)(2) which states “If a settlement appears to represent an attempt to shift to Medicare the responsibility for payment of medical expenses for the treatment of a work-related condition, the settlement will not be recognized.” Why continued to pursue this settlement with such an impending unknown unless all the parties were relying on Medicare paying for any expenses in excess of the $21,000 surgery allocation? If the surgery had occurred a year later, perhaps due to increased pain or some triggering event, it would not have looked as suspicious. But given that the CMS approval, surgery and state settlement approval all took place within 30 days, there is little that can be done to hide that all parties here were relying upon Medicare to pick up the difference here.

It is nearly impossible to predict what CMS is going to do with enforcing MSAs in the future, mainly because in situations like these, they make up their decisions as they go. Therefore it is important to understand the MSP statute and the regulations, as well as the rights and responsibilities of the beneficiary in the Medicare program itself so that you are prepared to fight back when CMS makes a questionable determination. But most importantly, the MSA exercise is an exercise in making a good faith effort to prevent the Medicare program from picking up expenses that another party is responsible for. Settlements made with purposeful express provisions that Medicare will make up the difference raise unnecessary red flags and truly defeat the idea of protecting Medicare’s interests.

 

WENDELL McCARROLL v. LIVINGSTON PARISH COUNCIL and LOUISIANA WORKERS’ COMPENSATION CORPORATION
2013 CA 2120
COURT OF APPEAL OF LOUISIANA, FIRST CIRCUIT
2013 2120 (La.App. 1 Cir. 10/27/14); 2014 La. App. LEXIS 2570
October 27, 2014, Judgment Rendered