Author: WorkCompAcademy

Congress is again being asked to amend the Medicare Secondary Payment Act, just six months after enacting reform legislation dealing with the issue, which took five years to pass congressional muster. The Medicare Secondary Payer and Workers’ Compensation Settlement Agreements Act of 2013 was introduced this month in the House, sponsored by Rep. Dave Reichert, R-Wash., and Mike Thompson, D-Calif. The new legislation seeks to reform the processes and procedures used by Centers for Medicare and Medicaid Services (CMS) in its review of workers’ compensation settlement agreements.

According to the story in Property Casualty 360, strong supporters include members of the American Insurance Association and the Coalition for Medicare Secondary Payer Reform. The bill seeks to resolve the serious delays and confusion in the review of workers’ compensation Medicare set- asides by CMS, says to Melissa Shelk, AIA vice president for federal affairs, and Douglas Holmes, president of Strategic Services on Unemployment and Workers’ Compensation (UWC) and coordinator of the Coalition for Medicare Secondary Payer Reform.

“The CMS workers’ compensation Medicare Set-Aside (WCMSA) review process is broken, and this legislation seeks to fix the costly delays and problems within the system,” Shelk said. “We believe that the CMS review process needs clear and consistent standards, timely resolution of coverage decisions and the ability to enable appeals when necessary.”

Holmes said reform is being sought because the current procedure for review of workers’ compensation settlements provides no effective recourse. He said, “There is no avenue to compel a timely decision or appeal a bad one. The legislation introduced by Representatives Reichert and Thompson corrects this situation and many other costly problems and delays, for the benefit of all parties involved.”

In December, Congress passed legislation sought by the insurance industry and other stakeholders since late 2008 that streamlines enforcement of the Medicare Secondary Payment program. The legislation is H.R. 1063, the SMART Act, or The Strengthening Medicare and Repaying Taxpayers Act. The bill is example of how difficult it is to get special interest legislation through Congress is so difficult. The SMART Act was first introduced in Congress in the fall of 2010, but momentum for passage was not generated until last September, when the House Energy and Committee staff coalesced on a rewritten bill crafted with bipartisan support and passed it in late September.

The reason that bill finally got through Congress is that supporters included plaintiffs and defense attorneys, brokers, insureds, insurers, insurance and trade associations, self-insureds and third-party administrators.

The DWC published the following update on the processing of QME panels

“The Department of Industrial Relations (DIR) and the Division of Workers’ Compensation (DWC) are commencing a thorough review of the existing delays in processing represented injured workers’ requests for Qualified Medical Examiner (QME) panels. DIR is committed to addressing the root cause of the delays and is taking steps to ensure that it is addressed systemically .

The delays were eliminated in the past through significant amounts of overtime work by DWC staff as well as the use of temporary student assistants. While those efforts were successful in the short-term, they were not sustainable, leading to reoccurring problems in processing QME panel requests for represented injured worker cases.

All available resources are currently being directed towards reducing the timelines in represented cases. We are conducting a thorough review of the work processes and the applicable regulations, and exploring long-term solutions to reduce the amount of staff time required to process panel requests and make the process more efficient. A technological infrastructure repair is underway.

We further estimate a reduction in the rate of incoming panel requests after July 1, 2013, when Independent Medical Review becomes applicable to all dates of injury. We are confident that the combination of re-directing resources, implementing new technology and the expected IMR – related decrease in panel requests will result in the permanent elimination of the processing delays . Thank you for your patience during this transition.”

CorVel Healthcare, a workers’ compensation system MPN, terminated the contract of Douglas J. Roger M.D., an orthopedic surgeon for two reasons: First, he was unreachable by independent reviewing physicians hired by the network to evaluate four nonstandard treatments he was regularly prescribing for his workers’ compensation patients. Second, he was prescribing those nonstandard treatments on a wholesale basis, and not taking the time to justify their application to particular patients. The Court of Appeal in the unpublished case of Roger v. CorVel Healthcare held that CorVel was well within its rights in terminating his contract.

The case becomes more complicated. The MPN did not comply with the contract as regards the process of termination. The contract provided for a graduated, three-step disciplinary process based on first, second, and third offenses: first a warning letter, second a set of counseling “sessions,” and only then, third, actual termination. And that did not happen. The network terminated the physician after one lengthy telephone discussion with one independent reviewing physician about one patient. The record is clear that Dr. Roger was not about to change his practice to conform to the network’s utilization review procedure, either by making himself readily accessible for peer review consultations, or by taking the time and effort to justify his nonstandard treatments on a patient-specific basis.

Dr. Roger regularly prescribed four nonstandard treatments for his workers’ compensation patients. The first is known as a “surface EMG.” An EMG can be done by needle, which is considered a separate procedure from surface EMGs, or it can be done by surface electrodes – hence the term “surface EMGs.” Surface EMG’s are controversial. Insurers, generally speaking, don’t like them. The other nonstandard treatments were two ointments and one “medical food.” The two ointments were a capsaicin compound referred to by the parties as wasabi-rub, the other a compound of various ingredients called Gaba-2K rub. The “medical food” was theramine tablets.Dr. Roger did not dispute that none of these four treatments are recommended for use in the medical treatment utilization schedule (MTUS) adopted by California Division of Workers’ Compensation. He prescribed them over 90 times, either individually or in some combination, over the course of the year following his sign-up with CorVel. And in each of those more than 90 cases, the proposed treatment was not “certified” for payment. Dr. Roger denigrates the non-certification memos as “cut and paste jobs” performed by nurses rather than actual doctors (even though they were signed by doctors), but cites no evidence to that effect. But Dr. Roger made himself practically unreachable during his tenure with CorVel. He testified he operated four offices during this period, and he had a personal policy of never returning any phone call from an independent reviewing physician unless he was at the office where the patient’s file was kept.

Even worse – and “worse” is the precise word the trial judge used for it – Dr. Roger resorted to the unethical practice of upcoding in order to be paid for the surface EMGs he prescribed.

Dr. Roger’s main theme, which is that a network like CorVel has no business telling fully qualified physicians – under the guise of utilization review – that they can’t prescribe what they think is best for their patients if it is otherwise perfectly legal. The Court of Appeal noted that “Dr. Roger himself was perfectly willing to accept denial of a prescribed treatment and simply assert a workers’ compensation lien later.”

The Court of Appeal affirmed the trial court judgment that Dr. Roger take nothing by his breach of contract action. The Court noted that “While Dr. Roger’s workers’ compensation business may have declined considerably as a result of his termination, we cannot say that his termination was as a result of CorVel’s failure to follow the three-step termination process. Termination was inevitable, independent of that process.”

The Baird Formula is a method of reducing EDD liens proportionately, when a worker’s compensation claim is settled for less than its full amount. The formula was approved by the California Supreme Court in California-Western States Life Insurance Co. v. Industrial Accident Commission (Baird), 59 Cal.2d 257, 28 Cal.Rptr. 872, 379 P.2d 328 (1963). It seeks to assure fairness in proportional reductions of EDD liens by showing a reasonable estimate of the full value of the claims as if the worker had prevailed. The EDD lien is reduced so that the EDD does not receive a greater percentage of full recovery then does the injured worker. So, the question becomes, is it similarly possible to reduce the amount allocated to protect the interests of Medicare in a Workers’ Compensation Medicare Set Aside (WCMSA) situation so that CMS does not receive a greater percentage recovery than the claimant? While there are no cases on this point in the world of workers’ compensation claims, there are some new cases that may seem to agree with this concept in cases where a Liability Medicare Set Aside (LMSA) is required during the settlement of a liability case.

The United States District Court, W.D. Louisiana decided Benoit v. Neustrom, 2013 U.S. Dist. LEXIS 55971. on April 17, 2013. Michael Benoit suffered injuries while incarcerated. Michael Neustrom, as Sheriff of Lafayette Parish was sued for allegedly not recognizing his health condition, causing a delay in medical care leading to disabling neurologic injury. The Parties agreed to a settlement of $100,000 and Medicare claimed $2,777.78 for conditional payments it made related to the claim. Although the Parties did not contest what was owed to Medicare, there was concern regarding future Medical and CMS statements that its future interests must be protected. To do so, Plaintiff secured a LMSA with cost projections in the range of $277,758.62 – $333,267.02. Based on the settlement amount of only $100,000, an issue of how to fund the LMSA was obvious.

CMS was served notice of a Motion for Declaratory Judgment asking the Court how to proceed, but declined to appear. In lieu of its appearance, the U.S. Attorney sent its standard letter which included a handout from the MSP regional Coordinator for CMS in Region VI. According to such handout, Medicare’s interests must be protected, but CMS does not mandate a specific mechanism to protect those interests. It goes on to state the law does not require a “set – aside” in any situation, but it is [CMS] method of choice for workers’ compensation settlements .The law makes no distinction between workers’ compensation and liability cases. The implication therefore is that the LMSA would be a vehicle, but CMS has no approval mechanism in place. Absent a CMS approval, the LMSA could be later challenged by CMS.

Since CMS provides no other procedure to determine the adequacy of protecting Medicare’s interest for future medical, the Court decided it must act to fill the vacuum that is left. In doing so, the U.S. District Court made several important findings of fact, important to its determination which covered: 1) Jurisdictional basis; 2) Agreement that both liability and medical issues were contested; 3) The potential damage elements plaintiff would have recovered for had the case been tried; 4) The settlement amount of $100,000 represents a reasonable compromise; 5) Plaintiff will take more than 30 months to reach age 65; 6) A calculation of the allocation based on the settlement amount; 7) The need for Plaintiff’s wife to administer the fund, based on Plaintiff’s incapacitation; 8) The requirement to reimburse Medicare its conditional payment claim in full; and 9 ) No Party is attempting to maximize the settlement.

To arrive at the appropriate figure, the Court took the net settlement proceeds, after reimbursement of conditional payments to Medicare, attorneys’ fees and costs and divided it into the mid – point of the LMSA range that was presented to the Court, arriving at a ratio of 18.2%. That ratio was then applied to the net proceeds where the Court arrived at the $10,138 figure to fund the set-aside. The Court looked to the 11th Circuit decision in Bradley v. Sebelius for guidance. 621 F.3d 1330 (11th Cir. 2010). Bradley was an allocation case under the MSP with respect to conditional payments, holding that CMS must respect a judicial allocation based on the merits of the case.

Based upon the logic of these new federal decisions, perhaps it is time for the judicial creation of a “Baird” type formula for the resolution of conditional payments and set-aside allocations under California workers’ compensation law.

The United States Court of Appeals for the Fifth District (Texas) ruled that a claim for reimbursement of the costs for treatment for the effects of an industrial injury paid by Medicare, cannot circumvent the requirements of state workers’ compensation law. In other words, federal law does not preempt state law procedural requirements. Here is what happened in the case of Guadalupe Caldera vs The Insurance Company of the State of Pennsylvania.

Caldera injured his back at work in 1995. Workers’ compensation carrier Insurance Company of the State of Pennsylvania (“ICSP”) initially paid Caldera benefits pursuant to Texas state law. Still suffering from the injury, Caldera applied for and obtained Medicare benefits in 1998.

He then had two back surgeries: one in 2005 and another in 2006. Medicare paid for both, with costs totaling $42,637.41. Although Caldera did not seek preauthorization for either surgery from ICSP (a prerequisite for payment under Texas workers’ compensation law), he filed a claim with ICSP for these expenses, arguing that ICSP – not Medicare – was responsible for payment. An “Agreed Judgment” between ICSP and Caldera established that Caldera’s 1995 injury was the producing cause of the conditions that gave rise to his surgeries, but it did not liquidate any damages or require any payment.

Caldera filed a Medicare Secondary Payer Statute (MSP) reimbursement claim against ICSP in the state court action, seeking double-damages. At the time Caldera suffered no out-of-pocket loss for these costs. Medicare had taken no steps to recover these funds from ICSP or Caldera. His motivation – MSP contains a private right of action to incentivize citizens to aid the government in recovering funds erroneously paid by Medicare. (See 42 U.S.C. § 1395y(b)(3)(A)). A Medicare beneficiary may recover from his workers’ compensation carrier twice the amount that Medicare paid on his behalf if, among other things, the carrier qualifies as a “primary plan” – that is, if it “can reasonably be expected” to cover the expense “under a workmen’s compensation law or plan.” Id. § 1395y(b)(2)(A). To succeed, then, Caldera had to state a plausible claim that ICSP “can reasonably be expected” to pay for his surgeries under Texas workers’ compensation law.

ICSP answered that Caldera could not recover under the MSP because – regardless of the extent-of-injury issue – ICSP had no obligation to pay for surgeries that were not preauthorized in accordance with Texas workers’ compensation law. Caldera filed and lost a declaratory judgment action to determine whether the MSP preempts ICSP’s state-law defense. The United States Court of Appeals for the Fifth District (Texas) affirmed the dismissal in favor of ICSP.

The Court of Appeals noted that “Medicare serves as a back-up insurance plan to cover that which is not paid for by a primary insurance plan.” But, Caldera admits that he failed to obtain preauthorization for his surgeries, a state-law prerequisite for the receipt of workers’ compensation benefits from ICSP. Nevertheless, Caldera argues that ICSP qualifies as a “primary plan” that “can reasonably be expected” to pay because the MSP preempts the Texas preauthorization requirement. Caldera broadly argues that the MSP preempts any state laws that “impede the intent of recouping monies from primary payers” like ICSP.

The Court of Appeals agreed that “Congress explicitly prohibited workers’ compensation and other insurers from subordinating their payment obligations to those of Medicare.”. However, the court went on to state “[t]he MSP and its implementing regulations do not, however, extend so far as to eviscerate all state-law limitations on payment, as Caldera suggests. ….Indeed,numerous MSP regulations (indeed, an entire subchapter) presuppose the application of state workers’ compensation laws. …. In sum, we conclude that Congress intended the MSP to complement, not supplant, state workers’ compensation rules. This includes the preauthorization requirement that Caldera failed to meet before he filed suit.” The Court of Appeals concluded that Texas has gone to great lengths to craft a statutory structure that “carefully constructs rights, remedies, and procedures” to provide adequate coverage for injured workers…..That structure “contains detailed procedures and penalties for failures of the various interested parties to comply with statutory and regulatory requirements.” Id. at 440. “We will not upset this well-oiled machine absent a clear directive from Congress.”