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The Centers for Medicare and Medicaid Services (CMS) has released an updated Workers’ Compensation Medicare Set-Aside (WCMSA) Reference Guide (Version 3.6, March 15, 2022).

Clarification has been provided, in this new update, regarding the use of non-CMS-approved products to address future medical care (Section 4.3), as well as documentation and re-review tips (Sections 10.2, and 16.1).

By way of background, CMS added Section 4.3 into the WCMSA Reference Guide Version 3.5 in January 2022 and the agency discussed the changes as part of its recent WCMSA update webinar.

This section, titled “The Use of Non-CMS-Approved Products to Address Future Medical Care,” sets-forth CMS’s policy and position regarding what is commonly referred to as “evidenced-based” or “WCMSA non-submit” MSAs which are future medical arrangements that are not submitted by the settling parties to CMS for the agency’s review and approval, although the settlement meets CMS’s WCMSA review thresholds.

As part of Section 4.3, CMS states that they view these arrangements, as “a potential attempt to shift financial burden by improperly giving reasonable recognition to both medical expenses and income replacement” and when a settlement includes a non-CMS approved MSA, CMS may deny payment for Medicare covered medical services related to the WC injuries until it is satisfied that the entire net settlement amount was spent for claim related treatment.

After CMS introduced Section 4.3 in January, two questions that remained unclear concerned (1) whether CMS’s policy would apply retroactively or prospectively and (2) whether CMS intended this policy to apply to non-CMS approved MSAs that parties may include in settlements that do not meet CMS’s WCMSA review thresholds.

The new Reference Guide 3.6, CMS has now added language to Section 4.3 attempting to clarify these two issues.

Specifically, as to the first question, CMS has added language indicating that the policy set forth in Section 4.3 applies to “all notifications of settlement that include the use of a non-CMS-approved product received on, or after, January 11, 2022.”

Regarding the second question, CMS has added language stating that it “does not intend for this policy to affect any settlement that would not otherwise meet its WCMSA review thresholds,” although it reminds the settling parties that its “comment does not relieve the settling parties of an obligation to consider Medicare’s interests as part of the settlement.”

In the third paragraph of Section 4.3 it is noted that CMS has changed what originally read as “will” to “may at its sole discretion deny payment for medical services related to WC injuries … ”

From these changes, it appears CMS has softened the original language contained Section 4.3 released in WCMSA Reference Guide Version 3.5 which, presumably, were made to provide CMS the flexibility to assess the amount allocated in non-CMS approved MSAs.

This would seem to align with one point CMS discussed as part of its recent WCMSA webinar. Specifically, on the webinar CMS indicated that if the claimant can demonstrate that a non-CMS approved MSA was properly and fully exhausted, it may review the allocation to determine if the amount was reasonable. If the allocation is determined to be reasonable, then CMS may choose not to require full exhaustion of the net settlement amount.

However, it may be reasonable to assume that CMS is likely to apply the CMS WCMSA allocation review standards as the baseline to measure reasonableness and, consequently, unless the allocation was priced in accordance with those standards, there is significant risk that CMS would disagree with the allocation amount upon exhaustion.

CMS’s updated language in Section stating that medical records are required, even in denied cases, is a culmination of CMS’s trend to formally tighten its review process to make the approval of zero MSAs more challenging. Further, CMS’s update to its re-review process as noted in Section 16.1 may prove particularly problematic given the current absence of a formal appeals process.

In conclusion, section 4.3’s addition to the Reference Guide can be viewed as CMS essentially putting the industry on notice that it may enforce its EBMSA/non-submit policy against applicable settlements that do not include a CMS-approved WCMSA after January 11, 2022.