Tag Archives: Medicare Set-Aside

Pennsylvania Bankruptcy Court Finds MSA is a Trust, Allows Claimant to Keep Funds, Away from Creditors

Stethoscope and GavelOn January 5, 2015, the United States Bankruptcy Court for the Middle District of Pennsylvania published its opinion on In Re: Jesus Arellano, concluding that property traceable to a pre-bankruptcy petition lump sum workers’ compensation settlement award may be claimed as exempt resources. The court also finds that the WCMSA established a trust for the benefit of medical providers since the express intent of the settlement agreement was to create a fund to pay for medical treatments and prescription drugs related to the work-related injury. By finding that the WCMSA funds were to be held in trust for the benefit of providers of medical services related to the workers’ compensation claim, the court determines that the WCMSA is not property of the bankruptcy estate and may not be administered by the Bankruptcy Trustee for the benefit of creditors. Therefore, the court rules in favor of exempting all proceeds from the settlement agreement and all property acquired with these proceeds.

In 2010, Jesus Arellano (Debtor) sustained a broken hip at work in Maryland. Thereafter, he filed a workers’ compensation claim. On December 1, 2011, Debtor entered into a settlement agreement with his employer whereby Debtor would receive a lump sum payment of $225,000. In addition, $72,741.88 was paid to Debtor as a Medicare set aside for Debtor’s need for future treatment for his injuries.

In January 2012, Debtor deposited both the lump sum settlement and the Medicare set aside in his bank accounts. Debtor admitted that he used to funds to make several purchases – a 2005 Ford F-150 for $17,000, real property located at 3587 Cannon Lane, York PA 17408 for $85,000, and real property located at 3887 Cannon Lane, York PA 17408  for $86,000. On November 1, 2012 Debtor sold the 3887 Property to his brother through an installment agreement for $90,000. Under the terms of the sale, Debtor’s brother is obligated to make payments of $1200 per month, which includes principal and interest at 5.5 percent, until the balance is paid in full in June 2020.

Debtor filed a Chapter 7 bankruptcy petition on March 8, 2014, claiming as exemptions  the 3587 Property, the 3887 Property, funds in 2 checking accounts established from Debtor’s workers compensation pay-out, and the Ford F-150 under 11 U.S.C. §522(d)(11)(E).

On April 30, 2014, the Trustee filed an objection to Debtor’s exemption claim asserting that §522(d)(11)(E) did not authorize Debtor to exempt property that was the proceeds of a workers’ compensation claim. On May 22, 2014, Debtor responded to the Trustee’s objection asserting that the property could be exempted under §522(d)(11)(E) and that the property claimed was reasonably necessary for Debtor and his dependents.

A hearing on the Trustee’s objection was held on September 25, 2014, at which time the issues were identified as follows: 1) whether funds or property traceable to the proceeds of a lump sum workers’ compensation settlement received prepetition may be claimed as exempt under §522(d)(11)(E); and 2) if the funds and property may be exempted, whether they are necessary for the support of Debtor and his dependents.

The Trustee based his objection on a decision rendered in 2001 by Judge Thomas in the case of In re Michael, 262 B.R. 296 (Bankr. M.D. Pa. 2001). The facts in In re Michael are similar to the facts here. The debtor received a lump-sum settlement after sustaining a work-related injury prior to filing his bankruptcy petition. On his schedule of exemptions, the debtor listed the proceeds of the settlement as exempt under 11 U.S.C. §522(d)(11)(E). Judge Thomas upheld the trustee’s objection to the exemption claim holding that workers’ compensation claims could not be exempted under §522(d)(11)(E), but must be exempted under §522(d)(10)(C). Judge Thomas cited the analysis of the court in In re Williams, 181 B.R. 298 (Bankr. W.D. Mich. 1995), and adopted the majority view that “workmen’s compensation awards, and the tracing of those awards into certain specific items, are beyond the scope of 11 U.S.C. §522(d)(11)(E).”

To avoid the injustice of finding that workers’ compensation awards paid in installments could be exempted, but those received in a lump sum could not, the bankruptcy court in In re Sanchez, 362 B.R. 342 (Bankr. W.D. Mich. 2007) decided to give the issue a fresh look. In Sanchez, Judge Hopkins looked at the plain meaning of the statute and concluded that workers’ compensation awards may be exempted under §522(d)(11)(E) if the award is traceable to a payment that is intended to compensate the debtor for the loss of future earnings and is reasonably necessary for the support of the debtor or the debtor’s dependents.

The court here agrees with the conclusion of the Sanchez court that §522(d)(11)(E) unambiguously exempts “a payment in compensation of loss of future earnings of the debtor,” including lump sum workers’ compensation payments, without restricting such payment to tort-type actions. The court therefore concludes that §522(d)(11)(E) provides a basis upon which property traceable to a pre-petition lump sum workers’ compensation settlement awarded for the loss of future earnings to the extent that the lump sum is reasonably necessary for the support of a debtor and the dependents of a debtor may be claimed as exempt.

In addition, part of Debtor’s workers’ compensation settlement was a Medicare “set aside” (WCMSA) payment. WCMSA is a “financial agreement that allocates a portion of a workers’ compensation settlement to pay for future medical services related to the workers’ compensation injury, illness, or disease.” The Center for Medicare and Medicaid Services provides that a claimant “can ONLY use a WCMSA to pay for medical treatment or prescription drugs related to his or her workers compensation injury, and ONLY if the expense is for a treatment or prescription Medicare would cover. This is true even if he or she is not yet a Medicare beneficiary.”

The court therefore concludes that the WCMSA provided as a result of Debtor’s settlement agreement established a trust for the benefit of medical providers. The express intent of the settlement agreement was to create a fund from which Debtor was to pay for his medical treatments and prescription drugs related to his work-related injury. Even though the agreement did not specifically state that Debtor is to hold the funds as trustee for the benefit of his medical providers, no such words are needed in order to create an express trust. The subject matter of the trust is the WCMSA of $72,741.88. The parties to the settlement agreement were competent to create the trust, Debtor was capable of holding the funds as trustee, and entities providing medical services to Debtor were named beneficiaries of the trust. Thus, all the requirements necessary to create a trust have been met in the settlement agreement.

By finding that the WCMSA payment was to be held in trust for the benefit of providers of medical services related to Debtor’s workers’ compensation claim, the court finds that the WCMSA is not property of Debtor’s bankruptcy estate and, as such, may not be administered by the Trustee for the benefit of creditors. The court therefore rules Trustee’s objection to Debtor’s exemptions under 11 U.S.C. §522(d)(11)(E) is overruled.

Does this case open up any liability for payers? If, in fact, MSAs are a trust for the benefit of medical and prescription providers, doesn’t the trustor, the payer funding the trust, have a fiduciary responsibility to the medical and prescription vendors providing such benefits/services? If a medical or prescription vendor provides benefits/services to the claimant, but the MSA trustee is unable to pay because funds were misused, does the medical or prescription vendor have a cause of action against the trustor, the original primary payer? At Helios, because of our extensive national resources and country-wide market strength in pharmacy, medical services, and durable equipment, our MSP compliance products, specifically our MSA professional administration services, not only take this potential liability into account, but solves it. Contact us to find out how.

CMS Publishes Self Administration Toolkit for WC Medicare Set Asides

Insurance LawOn March 21, 2014, CMS published its first Self Administration Toolkit for Workers Compensation Medicare Set Aside Arrangements (WCMSA). CMS had previously provided significant leadership on WCMSA administration matters through the several Policy Memos and Reference Guide it had published over the preceding 14 years. However, this was their first attempt at focusing on self administered WCMSAs, providing suggested or recommended letters and forms to be used throughout the process.

On January 5, 2015, CMS published a new, amended version 1.1 of the Self Administration Toolkit for WCMSAs. The Toolkit is broken down into 14 sections: Introduction, Setting Up the WCMSA Bank Account, How Your MSA is Funded, Using the Account, What to Tell Your Health care Providers, reviewing and Paying Your Bills, Keeping Records, Annual Attestation, Reporting Changes, Inheritance, Where to Get Help, Letters and examples, and Glossary.

Section 1, Introduction, makes it clear that a Medicare beneficiary may self administer his or her WCMSA. If so, the Toolkit will help him or her manage the account appropriately, satisfy Medicare’s interests related to future medical care, and assure Medicare will pay for future costs when the WCMSA is exhausted or depleted.

Section 2, Setting Up the WCMSA Bank Account, indicates that the beneficiary must deposit the WCMSA money in its own account, separate from any other accounts he or she may have. The account must be an interest bearing account, insured by the Federal Deposit Insurance Corporation (FDIC).

Section 3, How Your WCMSA is Funded, provides that the WCMSA may be funded either lump sum or structured. If structured, the first check should cover the first 2 years of treatment. All monies, whether paid lump sum or structured, should be deposited into the WCMSA account.

Section 4, Using the Account, outlines what medical and prescription expenses can be paid out of the WCMSA account. As has been communicated by CMS previously, WCMSA account funds can only be used to pay for medical treatment and prescription drugs related to the WC injury that are Medicare covered.

A beneficiary may also use the WCMSA account to pay for cost of copying documents, mailing fees and postage, any banking fees related to the account, and income tax on interest income from the account.

A beneficiary may not use the WCMSA account to pay for fees for trustees, custodians, or other professionals hired to administer the account, expenses for administration of the WCMSA, attorney costs for establishing the WCMSA, and Medicare co-payments and deductibles.

Section 5, What to Tell Your Health Care Providers, advises the beneficiary to notify his or her health care providers about the WCMSA so that such providers bill the beneficiary directly, and the beneficiary is then able to pay such bills out of the WCMSA account.

Health care providers may bill for medical care at full actual charges, or work comp fee schedule, depending on how the WCMSA was set up. Prescription medications should be billed based on Red Book Average Wholesale Price.

If a health care provider bills Medicare for work related treatment, the health care provider is responsible for refunding any payments received from Medicare for bills related to the treatment of the work comp injury. Such bills may then be paid to the health care provider from the WCMSA account.

Section 6, Reviewing and Paying Your Bills, reminds beneficiaries that they should review health care provider bills to make sure they are billing only for those items and services related to the WC injury and covered by Medicare.

Section 7, Keeping Records, makes it clear that the beneficiary needs to keep clear and accurate records of everything done with the WCMSA account, as these records will be used to determine if account funds were spent properly.

It is recommended that the beneficiary keep track of transaction date, check number, health care provider name, date of service, description of service, amount paid, deposit amount, and account balance.

Although beneficiaries should keep itemized receipts or proof of each payment, bank statements, and tax records, he or she will not submit these annually unless Medicare request such proof.

Section 8, Annual Attestation, requires the Medicare beneficiary to send an attestation every year, no later than 30 days after the anniversary date of the WC settlement, to Medicare Benefits Coordination & Recovery Center (BCRC) stating that the WCMSA funds were used appropriately.

The attestation must include the total spent for medical services, the total spent for prescription drugs, grand total of expenditures, total of interest income the account earned, and the balance of the WCMSA account at the end of the calendar year.

When the WCMSA account has no money left in it and there are no further deposits expected, the account is depleted or exhausted. Within 60 days of such depletion, the beneficiary must send the BCRC a final attestation letter indicating that the account has been completely exhausted. If Medicare is satisfied that the WCMSA funds have been spent appropriately, Medicare will pay for future treatment related to the work injury.

Section 9, Reporting Changes, reminds beneficiaries that if they move, he or she should send the new address to the bank that holds the WCMSA funds. If beneficiaries do not feel confident administering the WCMSA, they may seek advice from a lawyer or organization, or may appoint a representative to administer the account.

If for whatever reason Medicare entitlement is lost, the WCMSA funds may not be released, as such funds may be only be used to pay for future medical care related to the claim until exhausted.

Section 10, Inheritance, indicates that if death occurs before the WCMSA account is exhausted, the estate must pay for medical services provided before death so long as such expenditures are related to the work comp claim and are Medicare allowable. If there is money left after all bills are paid, the funds may be distributed according to the last will and testament, the settlement agreement, or state inheritance laws.

Section 11, Topics Unique to Structured WCMSA Accounts, provides that if there are structured funds left at the end of the year, such funds must remain in the account and carried forward to the following year, so that the beneficiary will then be able to use all funds to pay for medical care related to the WC claim.

If there is excess money any year thereafter, those funds must be carried forward too, on an ongoing basis, until all funds accumulated over the beneficiary’s life are appropriately used up, or inherited upon beneficiary’s death.

If however funds run out before the next structured payment or deposit is received, the beneficiary must send an attestation letter to the BCRC indicating that the account is temporarily depleted. The beneficiary should communicate this to his or her health care provider so they can then send the outstanding bills to Medicare until the next annual deposit to the WCMSA account is received.

If not yet a Medicare beneficiary, but have other insurance, the beneficiary should submit such bills to that insurance to pay for the WC injury until the WCMSA is funded again. If there is no other insurance, the beneficiary will have to pay out of pocket for such bills until the WCMSA is funded again.

Section 12, Where to Get Help, provides telephone numbers and web sites to assist beneficiaries with this process.

Section 13, Letters and Examples, offers sample documents and letters on all components of the WCMSA administration process, including letters for medical providers, pharmacy providers, lump sum annual attestation, exhausted lump sum account, structured annual attestation, temporary exhaustion structured attestation, permanent exhaustion structured attestation, and transaction record.

Section 14, Glossary, introduces terms and definitions commonly used or found throughout the WCMSA administration process.

The toolkit can be found at http://cms.hhs.gov/Medicare/Coordination-of-Benefits-and-Recovery/Workers-Compensation-Medicare-Set-Aside-Arrangements/Downloads/Self-Administration-Toolkit-for-WCMSAs.pdf. Accurate and proper administration of WCMSA funds is key to the success of the MSP program. It is clear, based on these latest attempts by CMS, that administration of WCMSAs is becoming a more significant component of the larger and always evolving and complex landscape of MSP compliance. As a result, adherence to these rules is highly encouraged.

29106aeRafael Gonzalez is Vice President of Strategic Solutions at HELIOS in Tampa, Fl. HELIOS is a national leader in MSP settlement solutions, including Mandatory Insurer Reporting, Conditional Payment Resolution, and Medicare Set Asides. HELIOS is the only national MSP compliance company providing pharmacy, medical providers, and durable medical equipment services as part of its MSA Professional Administration program services, thereby offering comprehensive, total-care solutions that mitigates risk and controls costs throughout the lifecycle of the claim. You may contact Rafael at rafael.gonzalez@helioscomp.com, or at 813.612.5592.

Another Year Without Appeal Rights in Workers Compensation Medicare Set Asides

Insurance LawFrom the very beginning of the Workers’ Compensation Medicare Set-Aside (WCMSA) process, one of the consistent requests by both claimants and employer/carriers has been the inclusion of a review process that would allow both sides the opportunity to challenge Medicare’s decision on a set aside allocation. As Medicare began to require inclusion of prescription medications in WCMSAs, parties began to see their MSAs rejected by CMS more frequently and instead began receiving more and more counter-higher demands from Medicare, sometimes asking for double and triple the amount previously submitted to CMS for approval, and oftentimes even larger than the settlement amount reached by the parties and approved by the workers compensation judge or state commission.

For more than ten years, many of us involved in the MSA industry have been asking CMS for an appeals process that would allow the parties to question the reasonableness of Medicare’s counter-higher demands, and allow the parties to explain the rationality of their proposal. As a result, when the Centers for Medicare and Medicaid Services (CMS) announced its proposed expansion of the WCMSA Re-Review process on February 11, 2014, indicating that all requests for re-review would be handled by the Workers’ Compensation Review Contractor (WCRC) and resolved within 30 business days, I, along with many of our industry professionals, thought we were finally going to have an appeals process in the WCMSA program.

The announcement indicated that “the WCRC would direct the request for re-review to an internal group of experts skilled to review the identified issue. The experts that perform the re-review would not be the same specialists involved in the original determination. In certain situations, a re-review may be elevated by the WCRC to a CMS Regional Office. This level of review would occur in situations such as: failure to adhere to court findings; CMS policy disputes; carrier maintains Ongoing Responsibility for Medicals for treatment that has been included in approved WCMSA, etc.”

The announcement indicated that “CMS proposed to keep the limited current process, allowing for re-review requests to the WCRC at any time if a mathematical error was identified in the approved set-aside amount, or if the original submission included case records for another beneficiary.” In addition, CMS proposed to allow request for re-review submitted to the WCRC if “the original WCMSA was approved within the last 180 days; the case had not settled; no prior re-review request had been previously submitted for the at issue WCMSA; and, the re-review requested a change to the approved amount of 10% or $10,000 (whichever is more) for any of the following reasons:

  • Submitter disagreed with how the medical records were interpreted.
  • Medical records dated prior to the submission date were mistakenly omitted.
  • Items or services priced in the approved set-aside amount were no longer needed or there was a change in the beneficiary’s treatment plan.
  • A recommended drug should not have been used because it may be harmful to the beneficiary.
  • Dispute of items priced for an unrelated body part.
  • Dispute of the rated age used to calculate life expectancy.”

CMS asked for comments on all aspects of its proposal, “including comments on the timeframe, threshold and reasons for granting a re-review.” Comments on each of these were received by the March 31, 2014 deadline. However, although CMS indicated it would “schedule a Town Hall Teleconference and post implementation dates and detailed instructions on its website,” almost a year later, MSP stakeholders are still without a valid and meaningful appeals process to challenge CMS’ rejection of their proposed WCMSAs. Almost 14 years after the WCMSA approval process started, claimants and employer/carriers in work comp cases are still waiting for a re-review or reconsideration process that would allow them the opportunity to be heard, to disagree with and examine CMS’ counter-higher demands, present evidence, including medical records, depositions, and live testimony from medical professionals that can explain the reasonableness of medical services included or omitted in the WCMSA, as well as MSA professionals hired to create such allocations.

As we approach the end of 2014, with yet another year without appeal rights in work comp Medicare set asides, perhaps it is time to give up on the inconsistent CMS approval mechanism and the lack of a meaningful appeals process and instead begin to focus on finding alternative ways to make sure Medicare’s interests are properly considered and taken into consideration when settling entitlement to future medical care and prescription medications related to a work comp claim. Perhaps the time has come for the work comp industry to find a financially sound, secure and trusted way to make sure that by responsibly allocating for such future medical and prescription needs, every allocated dollar toward future medical care and medications related to the claim are in fact spent on such future needs.

At Helios, we assist our clients in taking control of the costs associated with MSP compliance. Whether a self insured, a third party administrator, or insurance carrier, we help our clients assure Medicare compliance by creating products and a process that will make sure such future medical and prescription needs related to the claim are appropriately taken care of at a reasonable and affordable cost.

Rafael Gonzalez is Vice President of Strategic Solutions at Helios. With over 25 years of experience in the workers compensation, liability, Medicare and Medicaid industry, Rafael serves as thought leader on all aspects of Medicare and Medicaid compliance, including mandatory reporting, conditional payments, and set asides. You may contact Rafael at rafael.gonzalez@helioscomp.com or 813.612.5592.

Louisiana Appellate Court Dismisses Claim Brought Almost 3 Years After Approved Settlement Based on CMS Demanding Higher MSA

LawOn November 5, 2014, the Louisiana Court of Appeal, 3rd Circuit, published its opinion on Hunter v. Rapides Parish School Board, denying Ms. Hunter’s claim to have the employer fund the higher-than-proposed MSA approved by CMS. The Court concluded:

  • Ms. Hunter admitted she knew that the School Board was going to send the Medicare Set Aside to CMS for approval; and
  • Acknowledged there was nothing in the settlement paperwork obligating the School Board to fund a more expensive MSA if CMS did not approve the MSA that she and the School Board had agreed upon; and
  • Ms. Hunter failed to point to any error in the judgment dismissing her claim.

Eliza Hunter injured her low back on March 20, 2001, when she missed a step and fell at the school where she worked. She later filed a workers’ compensation claim against her employer, the Rapides Parish School Board (RPSB), and Claims Administrative Services (CAS), RPSB’s third-party administrator. Over the next several years, RPSB paid Ms. Hunter indemnity benefits totaling $63,786.80 and medical benefits totaling $80,792.54.

More than 9 years later, in October of 2010, Ms. Hunter and the RPSB agreed to settle the matter in return for the RPSB paying Ms. Hunter a lump sum of $19,000.00 and establishing a Medicare Set-Aside Account (MSA) valued at $79,937.77. The parties then presented the Workers Compensation Judge (WCJ) with a Joint Petition and Compromise Settlement Agreement. The WCJ signed an order approving the agreement on October 12, 2010.

Although the opinion does not indicate whether Ms. Hunter was a Medicare beneficiary at the time of settlement, as per the Centers for Medicare and Medicaid Services’ (CMS) recommendations, the RPSB submitted the proposed MSA to CMS for approval. CMS rejected the proposed MSA, instead requiring that the MSA be valued at $94,265.00. Although the opinion does not spell out the exact terms of the agreement, the RPSB opted to keep medical care open and continue to pay Ms. Hunter’s medical expenses as they accrued rather than fund the $94,265.00 MSA.

Without any mention of what had transpired in the interim period of time, almost three years after the WCJ had approved the settlement agreement, on November 6, 2013, Ms. Hunter filed a Disputed Claim for Compensation against the RPSB and CAS seeking to force them to establish the $94,265.00 MSA approved by CMS. The RPSB and CAS responded by filing an exception of no cause of action and/or no right of action. After a hearing, the WCJ granted the exception and dismissed Ms. Hunter’s claim by judgment dated February 3, 2014. She timely filed an appeal.

Pro se, on June 23, 2014, Ms. Hunter filed a pleading with the appellate court entitled “BRIEF REQUESTING AN ORDER TO ENFORCE JUDGMENT.” Therein, she sought to have the court enforce the order signed by the WCJ on October 12, 2010, approving the Joint Petition and Compromise Settlement Agreement entered into by Ms. Hunter, the RPSB, and CAS. In her brief, Ms. Hunter did not assign any error in either the October 12, 2010 order or the February 3, 2014 judgment. Instead, she alleged that CAS “ceased paying her medical expenses” in 2009. She also alleged that CAS denied her request to authorize one of its approved pharmacies to approve a prescription written by her primary care physician in March of 2014.

Although the opinion does not indicate whether the School Board (or its TPA) or Medicare had denied any medical care related to the industrial low back injury, in essence, on appeal, Ms. Hunter seeks to have the court review and enforce the October 12, 2010 order. However, the appeal rights on that order have long expired. Consequently, although Ms. Hunter failed to include any assignments of error in her brief, because Ms. Hunter timely appealed the February 3, 2014 judgment granting RPSB’s and CAS’s exception of no cause of action and/or no right of action pro se, the court decided to “consider the merits of her appeal despite the improper form of her appellant brief.”

Appellate courts are courts of record that neither can receive new evidence nor review evidence that is not in the record. Evidence attached to memoranda and that is not properly and officially offered and introduced does not constitute evidence and cannot be considered, even if it is physically in the record. Accordingly, the court is precluded from considering the exhibits attached to Ms. Hunter’s appellant brief to the extent that the information contained therein was not otherwise a part of the appellate record.

In Williamson v. Liberty Mutual Insurance Co., 12-148 (La. App. 3rd Cir. 6/6/12), 92 So.3d 1218, the court affirmed, as amended, a judgment rendered by a WCJ in favor of a workers’ compensation claimant awarding him penalties and attorney fees after his employer failed to provide him with the money to purchase a MSA within thirty days of the approval of the parties’ settlement by the Office of Workers’ Compensation (OWC). The court noted that “there was no requirement to obtain CMS’s approval of the settlement agreement. Quite the opposite, the settlement agreement stated that the “employee understands that the receipt of this workers’ compensation settlement without CMS pre-approval may result in a loss of Medicare benefits for the work-related injury.”

According to the transcript of the January, 27, 2014 hearing on RPSB’s and CAS’s exception, Ms. Hunter admitted that she knew that the RPSB was going to send the settlement agreement to CMS for approval. She further acknowledged that there was nothing in the settlement paperwork obligating the RPSB to fund a more expensive MSA if CMS did not approve the settlement that she and the RPSB had signed. The court therefore concludes that the jurisprudence supports the February 3, 2014 judgment. As a result, the judgment rendered in favor of the Rapides Parish School Board, granting its exception of no cause of action and/or no right of action and dismissing Eliza Hunter’s claims is affirmed.

This is yet another example of how unclear settlement language can create havoc, even many years after the claim has been settled and approved. It is also another example of how CMS’ optional submission approval process fails to protect litigants. Helios can assist with specifically tailored settlement language and viable compliance alternatives to submitting your MSA to CMS for approval.