Cases & Points Blog

Arizona Legislature Repeals Section 23-941.01 limits on closure of future medical in undisputed claims

State workers’ compensation laws define the parameters of an employer’s potential liability in a claim. As such, they play a role in determining the amount of a future Medicare Set-Aside that may be funded in connection with a complete settlement.

Arizona’s legislature recently repealed Section 23-941.01 that limited the parties’ rights to settle out future medical care in undisputed claims.  This provision prohibited the closure of active medical care, such as surgery, in undisputed claims and only allowed the release of future supportive medical maintenance benefits.

The amended Section 23-041.01 provision allows represented employees to settle future medical but requires the settlement to include the following attestations:

  1. “The employee understands the rights settled and released by the agreement and was represented by counsel.
  2. The employee has been provided information from the carrier, special fund or self-insured employer that outlines any reasonable anticipated future medical, surgical and hospital benefits relating to the claim ant the projected cost of those benefits and that provides an explanation of how those projected costs were determined.
  3. The employee understands that monies received for future medical treatment associated with the industrial injury should be set aside to ensure that the costs of such treatment will be paid.
  4. The parties have considered and taken reasonable steps to protect any interests of Medicare, Medicaid, the Indian Health Service and the United States Department of Veterans Affairs, including establishing a Medicare Savings Account if necessary.
  5. The parties have conducted a search for and taken reasonable steps to satisfy any identified medical liens.”

When a claimant is unrepresented, the Administrative Law Judge will meet with the claimant to make specific findings regarding whether the above paragraphs are satisfied. Additional requirements and provisions for handling disputed claims are also set forth in the complete amendment.

The repeal will be effective from and after October 31, 2017. (Title 23, Chapter 6, article 3, Arizona Revised Statutes)

Is the Pot Calling the Kettle Black?

The United States, on behalf of the Department of Health and Human Services (DHHS), Centers for Medicare and Medicaid Services (CMS) division, recently filed a civil fraud action under the False Claims Act (FCA) against various United Health Medicare Advantage Plans (MAPs). (Case 2:09-cv-05013-JFW-JEM Filed 5/1/17, US District Court for the Central Division of California, Western Division). The Government’s Complaint alleged that the UnitedHealth Plans received improper payments under the Medicare Advantage Programs (MA Programs) due to their failure to objectively review enrollee diagnosis code data.

In order to understand the significance of this, a review of the MA Program is in order.  Medicare Part C plans or MAPs are run by private health insurance companies and provide an alternative to the traditional Medicare Part A and B plans available to Medicare beneficiaries.  Medicare pays each Medicare Advantage Organization (MAO), a fixed amount each month, for its enrollees. The amount paid to the MAO is based on the assessment of “risk“ factors tied to the health of each enrollee in the plan. Since higher “risk” factors are associated with higher future care expenditures, MAOs are paid more for enrollees with higher risk factors than for those with lower risk factors. Diagnosis codes, pulled from the enrollees’ medical records, are used to determine the “risk” factor. CMS also requires the MAOs to certify the accuracy of the enrollees’ diagnosis codes in an effort to prevent over reporting of diagnosis codes that would lead to higher payments to the MAOs. Effective compliance programs are required in order to prevent fraud.

The Government’s complaint alleges in part that UnitedHealth used outside coding vendors to direct the chart reviews to identify information leading to a higher risk value, while ignoring information that would lead to a lower risk value. UnitedHealth’s failure to “look both ways” allegedly resulted in a violation of the FCA. In addition, UnitedHealth failed to implement an effective compliance program for internal monitoring and auditing of relevant data. A jury trial has been demanded.

CMS’s frustration with being overcharged is one that is shared by workers’ compensation plans when it comes to conditional payment demands.  A few days after the Government filed the above Complaint, the US District Court for the Central District of California, filed its decision in the case of California Insurance Guarantee Association (CIGA) v Thomas E. Price, Secretary of Health and Human Services. (2017 U.S.Dist. LEXIS 67589, May 3, 2017). This decision was issued after consideration of the parties’ briefs on the relief that should be provided to CIGA, given its motion for partial summary judgment.

Our earlier blog discussed the initial action filed by CIGA, which stemmed from CIGA’s objection to CMS’s three reimbursement demands for payments made on service dates that included both work injury related and non-work injury related treatment charges. Although CMS subsequently dropped the demands, CIGA sought a judicial declaration and permanent injunction barring CMS from calculating conditional payments in this way. CIGA argued that this practice was contrary to the MSP and Medicare’s regulations. CMS argued that the action was moot, since CMS was no longer seeking reimbursement. It also argued that CMS’s practice is based on a reasonable interpretation of the MSP and implementing regulations. The adequacies of CIGA’s pleadings were also challenged as well as their “programmatic attack” on Medicare.

The Court rejected all of CMS’s arguments and granted CIGA’s Motion for Partial Summary Judgment. Briefs outlining the relief that should be provided to CIGA were requested by the Court.

In the instant May 3, 2017 decision, the Court noted that CIGA sought the following relief:  an order vacating CMS’s conditional payment demands in the three claims, a judicial determination that CMS’s conditional payment billing process is unlawful and a permanent injunction that would prohibit CMS from sending future reimbursement demands to CIGA based on this unlawful conditional payment billing process. CMS disputed the appropriateness of the relief being sought.

The Court agreed to issue an order vacating and setting aside CMS’ conditional payment demands in the three underlying claims. It rejected CMS’s argument that the issue was moot, specifically pointing out that CMS may issue new demands based on the same underlying charges.

CIGA was also granted a limited judicial declaration that CMS’s interpretation of the MSP in regards to conditional payment reimbursement is unlawful.  It stated the following: “One ‘item or service’, as used in the Medicare Secondary Payer statute, 42 U.S.C. Section 1395 y(b)(2)(B)(ii), does not as a matter of law, equate to any medical items, devices, supplies, or services that appear under in a single line-item charge on a payment summary form issued by CMS. Rather a statutory ‘item or service’ simply refers to one indivisible medical item, device, medical supply or service, regardless of how it is billed.” It further stated: “Whether a particular line-item charge on a payment summary form contains more than one indivisible medical item, device, medical supply or service is a factual question that must be resolved on a case-by-case basis.” When a single line-item charge on a payment summary form contains multiple diagnosis codes, the presence of one code covered by the insurance policy administered by CIGA, “does not ipso facto make CIGA responsible for reimbursing the full amount of the charge.”  (p. 5) The Court however declined to prohibit CMS from continuing its practice, citing an incomplete record on summary judgment along with a mention of the possible role that HCPCS/CPT codes may play in the various line-item charges.

The Court further denied CIGAs request for permanent injunctive relief, finding that the evidence before it did not meet the four-factor test for it.  The matter was set for bench trial in September of 2017.


Billing and recovery systems that are based on data involving diagnosis codes and HCPCS/CPT codes are only as good as the underlying data. As we can see from the Government’s civil fraud action above, this type of data, is subject to manipulation by Medicare Advantage Organizations. Similarly, physicians involved in the treatment of Medicare patients may also engage in fraud by submitting bills for upcoded treatment. CMS’s practice of seeking conditional payment recovery for treatment for conditions that are unrelated to the underlying workers’ compensation claim is also inappropriate. CMS’s failure to recognize this and to continue to pursue such recovery is a bit akin to the “pot calling the kettle black.”

The judicial declaration issued in the above CIGA case provides parties with another tool to challenge CMS’s improper conditional payment recovery attempts.   As noted in our prior blog, these arguments may also apply to “future conditional payment” projections included in a CMS reviewed Medicare Set-Aside, e.g., payment for a physician’s visit that treats an accepted condition and a denied condition is not an acceptance of both conditions.

We continue to recommend that parties carefully examine the charges listed in CMS’s Statement of Reimbursement.  Since many workers’ compensation laws require parties to secure itemized bills from providers, these bills and supporting medical records should also be used to dispute over-inclusive conditional payment recovery claims. The direct right of appeal process is also available and should be used.

We will keep you advised of further developments.

Selecting the Best Funding Method for the Medicare Set Aside

Medicare is a secondary payer when a primary payer is available in a claim. A primary payer’s responsibility for payment may be “demonstrated by a judgment, a payment conditioned upon the recipient’s compromise, waiver or release (whether or not there is a determination or admission of liability) of payment for items in a claim against the primary plan, or the primary plan’s insured, or by other means.” 42 U.S.C. Section 1395 y(b).

A Medicare Set Aside (MSA) arrangement is a settlement tool that enables parties to allocate a portion of their settlement funds for future injury related Medicare covered treatment.  The purpose behind the MSA is to avoid a cost shift of this future treatment to Medicare given Medicare’s status as a secondary payer.

At times, parties may seek a review of the workers’ compensation MSA proposal from the Centers for Medicare and Medicaid Services (CMS), provided the settlement meets CMS’ workload review threshold. The review process however is voluntary. If CMS review is sought, the submission has to identify if the MSA will be funded through a lump sum or a structured arrangement. The WCMSA Reference Guide, Version 2.5  notes that in a structured arrangement, the initial “seed money” deposit is followed by subsequent annual deposits, unless CMS agrees to a reduced schedule. The CMS determination sets out the recommended initial seed deposit, the annual amount for a specific number of years and the anniversary date.    If the CMS determination is finalized by funding the WCMSA recommendation and sending in a copy of the final executed settlement agreement that reflects this, CMS has indicated that it will become primary upon proper exhaustion of the MSA.

Since CMS review of an MSA is voluntary, parties may also elect to simply fund a reasonably projected MSA and forego CMS review. The non-submitted MSA may similarly be funded by a lump sum or with an annuity. The funding of the MSA may occur at the same time as the indemnity settlement or at a later date. The benefit associated with structured annuity funding is that it costs less than lump sum funding. Rated ages secured from the structured settlement brokers may also result in further cost savings.

It is important to consider the type of structured annuity that will be used in connection with the settlement and the non-submitted MSA payout. The structured annuity funding options that parties are most familiar with involve different payout periods.  A temp life annuity guarantees annual payments over a fixed period of time, while a whole life annuity guarantees annual payments for the beneficiary’s life.  Since a settlement should avoid a cost shift of injury related Medicare covered treatment to Medicare, the indemnity and MSA components of the settlement should be funded in the same manner.  Failure to do so, may result in the appearance of an attempt to cost shift expenses to Medicare. For example, the selection of a whole life annuity to fund the indemnity payments coupled with the selection of a temp life annuity to fund the MSA, may result in an exhausted MSA account while ongoing indemnity payments are being made. CMS’ practice of allowing temp life annuity funding in their determinations is irrelevant since the non-submitted MSA is governed by MSP laws and not CMS’ voluntary review process.

Structured settlements have many benefits. The type of payout selected however should always keep the bigger picture in mind.

CMS Development Letter Delays Update

Over the past six months or so, the MSP industry as a whole has experienced significant delays in securing CMS review of proposals. Most of the delays have been due to a surge in development letters seeking reserve information and different formatting of payment histories.  These issues were brought to the attention of CMS on several occasions. We are pleased to announce that in our recent call with CMS’ management, we were advised that the WCRC would no longer seek the reserve information nor the one page payment history summaries. Files that were pending review solely due to the improper reserve requests would be promptly reviewed. Files that were pending review based on other missing items would remain in development status until CMS received sufficient information to complete their review. CMS also agreed to have a more holistic review of the information provided, focusing on substantial compliance, as opposed to pure formatting issues. New uniform development letter options were also being drafted by CMS’ counsel in order to ensure a more uniform approach to the material sought in development letters.

CMS’ willingness to address the issue is a step in the right direction. We remain cautiously optimistic and will continue to monitor the situation closely. We will keep you advised.

The California WCAB Considers the Administration of a WCMSA in Muniz Villalpando Case

The administration of a Workers’ Compensation Medicare Set Aside (WCMSA) was considered in a recent California Workers’ Compensation Appeals Board (WCAB) decision.  In the Muniz Villalpando v Doherty Brothers; Martin Dusters; State Compensation Fund  case,  ( 2017 Cal. Wrk. Comp.P.D.Lexis ADJ599176, 2396484, 795039),  the applicant sought reconsideration of the workers’ compensation law judge’s (WCJ) denial of his request to change the administration of his WCMSA funds from a professionally administered account to one that was self-administered . The WCAB returned the matter to the trial level so that the WCJ may review the terms of the professional administration contract that address a change in administration.

By way of background, applicant Muniz Villalpando settled his claims in August of 2011. The settlement terms included the funding of the CMS determined WCMSA and the parties’ agreement that the WCMSA be professionally administered through Bridge Pointe. In December of 2016, Muniz Villalpando filed a pro se Petition for Reconsideration before WCJ Ortega. The issues addressed in the hearing involved the appropriateness of the administration, the WCAB’s jurisdiction to set aside the MSA and the appropriateness of self-administration of the WCMSA.

During the hearing, the defense presented testimony from a Bridgepointe /NuQuest witness regarding the types of payments that may be properly made from a WCMSA fund. Since the payments may only be for injury related and Medicare covered services and drugs, services that did not meet this two prong test may not be paid from the WCMSA account.  In denying Muniz Villalpando’s Petition for Reconsideration, WCJ Ortega noted that Bridge Pointe/NuQuest did not inappropriately manage their custodial obligations within the Compromise and Release settlement agreement.  In light of this, no further issues were addressed by WCJ Ortega.

The WCJ Ortega recommendation highlights the challenges that some claimants may face when attempting to administer their own WCMSA accounts. Not every treatment is Medicare covered or related to the workers’ compensation claim. CMS’ specific guidelines that address the proper administration of a Medicare Set Aside (MSA) account must also be followed. We will keep you advised of further developments in this case.