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Posts tagged: workers’ compensation

Workers’ Compensation Carrier Required to Pay Seed Money of an Annuitized MSA Despite Claimant’s Death

By , December 5, 2013 10:03 am

An MSA is intended to pay for future medical items which would otherwise be covered by Medicare. The intent behind establishing an MSA is to prevent the cost shifting of these future items to Medicare. It therefore logically follows that if a claimant passes away prior to disbursement of the MSA and/or finalization of the settlement agreement, that an MSA is no longer required to be paid due to the fact that there will be no future medical expenses incurred. The claimant has passed away and therefore there will be no shifting of the burden for future care to Medicare. A deceased person cannot incur medical expenses into the future.

In a recent case out of North Carolina, Holmes v. Solon Automated Services, 2013 N.C. App LEXIS 1238 (December 3, 2013), the North Carolina Industrial Commission agreed with this notion completely and found that the defendants did not have to pay for any portion of the MSA due to the fact that the claimant passed away prior to full finalization of the settlement. However, when the case was appealed to the Court of Appeals of North Carolina, the appellate court took a different direction from this logic when analyzing the parties mediated settlement agreement. The appellate court found that the defendant insurance carrier was still required to pay the seed money of the annuitized MSA, but was not required to pay for the annual payments of the MSA. Let’s take a deeper dive into the case to understand why.

As a background of the case, Mr. Holmes was an employee of defendant Solon Automated Services. Mr. Holmes sustained a compensable injury on May 16, 1990 for which he received workers’ compensation benefits. On August 26, 2010, Mr. Holmes and defendants (Solon Automated Services, employer and Specialty Risk Services, carrier) engaged in a voluntary mediation, and they “entered into an agreement to settle” Mr. Holmes’ claim. This “agreement was memorialized in an Industrial Commission Form MSC8 Mediated Settlement Agreement (“Agreement”) which was signed by all parties.”

In the Agreement, in consideration of the payments to be made by defendants, Mr. Holmes “waived the right to any further benefits under the Act” arising from his May 16, 1990 injury. Defendants agreed to pay the following: a. $250,000.00; b. Mediator’s fees; c. All authorized medical expenses to the date of the mediation; d. Funding of an MSA in the amount of $186,032.51, with ‘$19,582.37 seed money for the Medicare Set Aside for the benefit of Washington Holmes’ and payments of ‘9,247.23 annually beginning on September 15, 2011, payable 18 years only if Washington Holmes is living.'”

The defendants were to purchase an annuity to make the annual payments. The Agreement provided that “[t]he Employee understands and agrees that the monies in the Medicare Set-Aside Account will be used for the sole purpose of paying future medical expenses related to his injury which would otherwise be paid for by Medicare.'”

After the mediation, counsel for the parties began drafting a settlement agreement, but Mr. Holmes died unexpectedly of pneumonia on October 24, 2010, before the settlement agreement was completed.  Plaintiff, Mr. Holmes’ widow, was substituted as plaintiff in the action. When the defendants refused to fund any portion of the MSA, the Plaintiff requested that the Commission enforce the provisions of the Mediated Settlement Agreement which would require the defendants to fund the MSA account into Mr. Holmes’ estate. The Commission ruled in favor of the defendants, finding that an implied condition of the mediated settlement agreement was that Mr. Holmes be alive for the defendants to be required to fund the MSA. The Plaintiff appealed the Commission’s decision to the North Carolina Court of Appeals. The appellate court took a different method of analysis to determine the outcome of the case than the Commission did. Whereas the Commission looked to the intent behind of the MSA and found that the purpose was “frustrated” since the claimant had passed away, the appellate court looked more to the strict contractual language of the mediated settlement agreement rather than the intent behind the MSA.

The mediated settlement agreement stated, “$9,247.23 annually beginning on September 15, 2011, payable 18 years only if Washington Holmes is living[.]” As Mr. Holmes did not survive a single year, the appellate court concluded that Mr. Holmes had failed to meet an explicit condition precedent in the contract, survival.

However, as for the seed money, the mediated settlement agreement did provide for a guaranteed benefit in a specific sum, $19,582.37. Additionally, it did not have any specific language requiring Mr. Holmes to survive. The appellate court noted that this may have simply been “inartful wording of the Agreement,” but the parties agreed that the seed money would be for Mr. Holmes’ benefit, and that a benefit to Mr. Holmes’ estate is still a benefit to him. As a result, the appellate court required the defendants to pay the seed money of the MSA but not the annual payments portion of the annuitized MSA.

While the Commission’s logic that the purpose behind establishing the MSA had now been defeated due to Mr. Holmes’death was a correct analysis, the appellate court’s logic in taking strict construction of the settlement agreement is justified from a purely legal perspective. Unfortunately at times, analysis of the strict construction of a contract defeats logic.

The industry should be sure to take note of this case and take adequate precautions when drafting settlement agreements to ensure that the parties’ intent is clear. Payers would be wise to ensure that a condition precedent to paying any portion of the MSA would be the claimant’s survival prior to the payer having to pay for the MSA, and that would include both the seed money and annual payments if the MSA is annuitized.

CMS to Host a MMSEA Section 111 Teleconference on December 17th

By , December 4, 2013 5:54 pm

CMS has announced that they will be hosting a MMSEA Section 111 teleconference for NGHPs on December 17, 2013 from 1:00-2:00 EST. The notice states the following:

The CMS will be hosting a NGHP Policy and Technical Support related teleconference event. For this call the format will be opening remarks and a presentation by CMS, followed by a question and answer session with the audience.

This call will introduce the Benefits Coordination & Recovery Center (BCRC). Following this introduction, the call will address both policy and technical questions regarding Section 111 reporting. CMS staff and representatives of both the BCRC and the COBC EDI Department will be available throughout the call.

Date: December 17, 2013

Call-in time: 1:00 PM – 2:00 PM Eastern time. Participation is by telephone only. Call-in line: (800) 837-1935

Pass Code: Section 111

Please begin dialing in approximately 20 minutes before the call start time, due to the large number of participants.

CMS Issues New WCMSA Reference Guide (Part 2)

By , November 18, 2013 3:41 pm

On November 7th, we notified our subscribers that CMS had issued a new WCMSA Reference Guide (dated 11/1/2013). To access our prior blog which contains a high-level overview of the new Reference Guide, please click here.

Since our last blog posting, PMSI has conducted a thorough review of the WCMSA Reference Guide and would like to highlight some of the more noteworthy updates. The Reference Guide can also be found on the CMS website here.

  • In Section 8 of the Reference Guide, CMS clarified that “If the parties to a WC settlement stipulate a WCMSA but do not receive CMS approval, then CMS is not bound by the set-aside amount stipulated by the parties, and it may refuse to pay for future medical expenses in the case, even if they would ordinarily have been covered by Medicare. “

PMSI Comments: While this information is not necessarily new, it is interesting that CMS has now explicitly stated this point. CMS does go on to state within this section and acknowledge that there are no statutory or regulatory provisions requiring the submission of a WCMSA proposal to CMS for review.

  • In Section 9.4.4 of the Reference Guide, Step 5,CMS states that if a state institutes or changes a fee schedule, the WCRC will apply the new fee schedule immediately upon learning of its official publication, regardless of official effective date, for any case still in process on that date.

PMSI Comments: While PMSI supports CMS staying up to date on a state’s most current fee schedules, to adopt a new fee schedule to an MSA that is already in process for review at CMS may make the submission process unpredictable for submitters. Additionally, submitters are not aware of how often CMS checks for updates and how soon it will be able to adopt the new fee schedules, etc.

  • In Section 9.4.5 of the Reference Guide, CMS clarified frequency and/or pricing for various medical items such as MRIs, CT scans, surgical procedures and trials.

PMSI Comments: Submitters appreciate this guidance from CMS which will be helpful in understanding how CMS allocates for these items.

  • In Section of the Reference Guide, CMS clarified that the WCRC continues to price Part D drug products based on AWP and further based on brand or generic drug pricing. AWP pricing is pulled from a proprietary source, Truven Health Analytics’ Red Book database. The WCRC uses a program for drug pricing that uses Red Book flat files updated quarterly, and soon to be updated monthly. For generic drugs, the WCRC uses the lowest non-repackaged generic drug AWP.

PMSI Comments: The industry collectively has been seeking to pinpoint how often CMS was updating its Red Book pricing. While many submitters receive updates from Red Book daily, it was never published how often CMS was updating their pricing. PMSI appreciates this update from CMS and hopes that CMS will continue to keep the industry apprised of any changes to how often it updates its Redbook pricing, but remains concerned that submitted MSAs may experience a price
change during the process and erode some predictability.  PMSI encourages CMS to adopt a practice that uses pricing based on the date submitted.

  • In Section of the Reference Guide, it states the WCRC takes all evidence of drug weaning into account, although in most circumstances the WCRC cannot assume that the weaning process will be successful. Usually, the latest weaned dosage is extrapolated for the life expectancy, but again, they assess all records when making these types of determinations.

PMSI Comments: While this clarification is helpful and confirms that weaning will be taken into consideration by CMS if already underway, it does not allow for an accurate WCMSA when the physician plans to continue the weaning process.   

If you have any questions on the new Reference Guide, or if PMSI can be of further assistance, please contact us at

CMS Releases Updated NGHP User Guide Version 4.0

By , October 23, 2013 11:06 am

CMS has released an updated User Guide for NGHPs. Although the User Guide is dated October 7, 2013, it was not released to the public until October 18, 2013. Access to the updated User Guide can be found here.

User Guide 4.0 incorporates changes announced via alerts over the past several months in relation to the conversion to ICD-10 coding with respect to MMSEA Section 111 Mandatory Insurer Reporting.

PMSI encourages RREs and claim administrators to review the new User Guide in its entirety to ensure compliance.  However, we have noted the following as a summary of the more significant updates included in the new User Guide:

  • Inclusion of three June 2013 alerts regarding transition to ICD-10, testing for
    ICD-10 codes, and new ICD-9/10 excluded codes.
  • Layout changes to the claim input file detail record include repurposing of the ICD-9 fields to accommodate ICD-10 code lengths by adding spaces that were reserved for future use in previous editions of the Guide.  A new ICD indicator has also been added from reserved space and will be used to indicate which coding has been utilized within the claim.
  • Inclusion of updated hyperlinks on Medicare and COBC web pages where outdated hyperlinks existed.
  • Disposition code 50 has been clarified; CMS indicates that RREs should only expect to receive a low volume of responses with this code.
  • Computer Based Training (CBT) Modules: Users no longer need to register for CBTs and the modules can be accessed directly from the CMS website.

In addition to the updated User Guide, CMS issued a revision to the August 14, 2013 alert regarding diagnosis codes that are no longer valid for reporting as of January 6, 2014. This revision adds ICD-10 cluster codes related to diabetes to the list of invalid codes. A copy of the revised alert can be obtained here (CMS has indicated changes with a bold font for ease of reference).

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