State Workers’ Compensation Laws and Medicare’s Interests in Settlements; Inherent Conflict of Interest?

State Workers’ Compensation laws are designed to provide a remedy for workers who sustain injuries that arise out of and in the course of their employment. The laws and related case law in the jurisdictions outline the workers’ burdens of proof as well as the employers’ defenses in the claims. Defenses may include, but are not limited to: challenges to the underlying employee relationship, accident, causation and the reasonableness and necessity of the proposed medical treatment. In accepted claims, workers are generally provided with a combination of medical, lost time and permanent disability benefits. Disputed claims often settle on a compromise basis in order to avoid the time, expense and uncertainty associated with trial.

Most settlements extinguish all of the workers’ rights for past and future medical benefits under the Workers’ Compensation laws once finalized. In light of this, these settlements may affect Medicare’s rights since Medicare is a secondary payer when a primary payer, such as a workers’ compensation plan is available in a claim. Primary payers may also include group health insurance plans, automobile or liability insurance plans, self-insured plans and no-fault insurance plans. If Medicare made a conditional payment in order to allow the beneficiary to receive timely medical care, the Medicare Trust Fund expects reimbursement. A primary payer’s reimbursement obligation may be “demonstrated by a judgment, a payment conditioned upon the recipient’s compromise, waiver, or release (whether or not there is a determination of liability) of payment or otherwise” (42 U.S.C. § 1395y (b) 2(B). Medicare remains a secondary payer for further injury related medical treatment until the settlement proceeds or future medical treatment allocation within the settlement is properly exhausted.

Although Medicare’s determination that a primary payer’s reimbursement obligation is demonstrated by its payment in a claim is straightforward, Medicare acknowledges that state Workers’ Compensation laws impact the employer’s liability in a claim. The July 23, 2001 CMS “Patel Memo” mentioned state law when it noted that a set-aside arrangement should be funded for life “unless the State law specifically limits the length of time that WC covers work related conditions”. Section 10.4.2 of the January 2015 WCMSA Reference Guide elaborated further on this by adding :“ The key is that both the principal amount that is to be set aside and the anticipated interest that it will earn must be sufficient to provide for the worker’s future medical treatment and administration fees for the worker’s lifetime.” This addition acknowledges the shorter State law period of time for future medical benefits, yet still requires the total payout to cover lifetime funding.

The impact of judicial decisions was also addressed in CMS’ subsequent April 22, 2003 Memo. CMS advised that “Medicare will generally honor judicial decisions issued after a hearing on the merits of a WC case by a court of competent jurisdiction. If a court or other adjudicator of the merits specifically designates funds to a portion of a settlement that is not related to medical services (e.g., lost wages) then Medicare will accept that designation” ( emphasis added). It further notes the distinction between a court and other adjudicator’s mere approval of the parties’ settlement agreement. This provision was subsequently rephrased in Section 4.1.4 of the January 2015 WCMSA Reference Guide. It now states in part: “When a state WC judge approves a WC settlement after a hearing on the merits, Medicare generally will accept the terms of the settlement, unless the settlement does not adequately address Medicare’s interests.” Although CMS discusses deference to judicial decisions in these sections, it does add the caveat that the settlement or judicial decision should “adequately address Medicare’s interests.”

CMS’ true deference to state law and adjudicator’s determinations will become evident in the way that it continues to review treatment projections in WCMSA proposals that are based on final Utilization Reviews (UR) and/or Independent Medical Reviews (IMR). These reviews are available under many state Workers’ Compensation laws as a means for resolving disputes pertaining to requests for specific medical treatment. States that have UR procedures have very detailed guidelines that must be followed for their use. The UR recommendations also have varying degrees of authority over the parties and courts in their jurisdictions.

The UR process in California for example, begins with a physician’s request for authorization for treatment (RFA). If the claims administrator denies the treatment, the case must be reviewed by a physician who relies on evidence based medicine standards to either approve or deny the requested treatment. The UR decision to deny or modify the treatment request is effective for 12 months from the date of the decision. Further action by the claims administrator with regard to any further recommendations by the same physician for the same treatment is unnecessary unless the further recommendation is supported by a “documented change in the facts material to the basis of the utilization review decision”. (Title 8, California Code of Regulations, Chapter 4.5 Division of Workers’ Compensation, Section 9792.9.10) The UR may consider concurrent, prospective or retrospective treatment requests.

If the UR results in a denial of the requested treatment, the worker may request an appeal through an “Application for Independent Medical Review”. The appeal process requires that certain timelines be followed and specific documents be submitted for review. California’s current IMR organization is Maximus Federal Services. Once Maximus receives an eligible IMR request, it assigns the case to one of its physician reviewers and requests medical records. It may take up to 80 days to issue the determination from the date of the request for the IMR and receipt of complete documentation. The IMR decision is final on the issue of the specific medical treatment being addressed in it. It is deemed to be the determination of the Administrative Director (AD) and is binding on all the parties. (Title 8, CCR Section 9792.10.6) The worker has 20 days to appeal the IMR determination by filing a petition with the Workers’ Compensation Appeal Board (WCAB). The final determination is presumed correct and the WCAB may not make a finding of medical necessity that is contrary to the final determination. The following are the only grounds for appeal: the AD acted without power, the final determination was procured by fraud, the medical reviewer was subject to a material conflict of interest or the final determination was the result of bias or a plainly erroneous mistake of fact. If the final determination is reversed by the WCAB, the dispute is remanded to the AD, who shall submit the dispute to another independent review organization if available or to a different reviewer in the original organization.

Given the final and binding nature of the California IMR, it may provide strong support for the exclusion of a specific treatment from the WCMSA proposal. It is however important to view the IMR finding as but one piece of evidence that CMS will consider when reaching its WCMSA determination in the claim. For example, CMS may be far more accepting of an IMR opinion that denies the placement of a spinal cord stimulator in a situation where there is none as opposed to an IMR opinion that disputes the need for the replacement of a spinal cord stimulator. An IMR that denies the ongoing use of opioids as against evidence based medicine recommendations may not result in CMS’ exclusion of opioids when the pharmacy history shows they continue to be used but unpaid. CMS does after all require evidence that the treating physician’s weaning recommendation has been successfully implemented before it is followed by CMS. Another factor to consider is the worker’s ability to request authorization for the same treatment that was previously denied when there is a material documented change in his condition. This request may result in authorization for a treatment that was previously denied by UR and IMR.

State law defenses should be raised in connection with the submission of WCMSA proposals. Parties should however realistically evaluate the potential exposure for the WCMSA should CMS reject the arguments. An informed decision about the potential exposure will allow the parties to better determine their strategy in the claim.

Leave a Reply