The recent passage of Arizona Senate Bill (S.B.) 1332 provides Arizona claims payers with unprecedented opportunity, finally, to close out their workers’ compensation claims. Under this new law, parties will now be able to reach “full and final” settlement of certain workers’ compensation claims beginning October 31, 2017.
S.B. 1332 opens the door to more settlements, and that is good news. To optimize settlement prospects, stay compliant, and minimize risk, it is critical to understand how the new law works and its impact on Medicare Secondary Payer (MSP) compliance
Which Claims Qualify?
A “full and final” settlement is defined under S.B. 1332 as a settlement in which the claimant, his or her estate, surviving spouse, or dependent “waives any future entitlement to benefits on the claim and any future right to change the claim…or reopen the claim.”
S.B. 1332 allows parties “to settle or release all or part of an accepted claim for compensation, benefits, penalties, and interest if the period of disability is terminated by the carrier, special fund, or self-insured employer.” Excluded from the new law are settlement of denied claims; issues resulting in total and permanent disability; and claims unrelated to the claim for compensation, benefits, penalties, and interest.
S.B. 1332 requires a written settlement agreement that must be approved by the Industrial Commission. The commission must find the settlement in the claimant’s best interests, based on whether the claimant’s injuries have stabilized and the permanency of his or her injuries. The insurer, special fund, or self-insured must notify the attending physician of the approval of the settlement if it terminates the claimant’s entitlement to medical benefits.
The settlement agreement must include, in part, the claimant’s acknowledgment that he or she had an opportunity to seek legal advice or be represented by counsel, along with a description of the medical conditions “identified and contemplated at the time of the settlement agreement.”
The agreement must also contain an "attestation" reflecting, in part, that the insurer, special fund, or self-insured has provided the claimant "with information outlining any reasonable anticipated future medical, surgical, and hospital benefits related to the claim, the projected cost of those benefits, and an explanation as to how such costs were determined." The claimant must also attest that he or she understands that the monies received for future medical treatment must be set aside and used for that purpose.
In addition, the attestation must confirm the “parties have considered and taken reasonable steps” to protect Medicare’s interests, “including establishing a Medicare savings account if necessary” and “conducted a search for and taken reasonable steps to satisfy any identified medical liens.”
Here is a more detailed breakdown of S.B. 1332’s requirements.
“Full and final” settlements under S.B. 1332 will affect MSP compliance obligations in these respects:
Section 111 Reporting
If the claimant is a Medicare beneficiary and ongoing responsibility for medicals (ORM) was previously reported (which will likely be the case given that S.B. 1332 relates to the accepted claims), ORM will need to be properly terminated at the appropriate time. Also, if the settlement is greater than $750, it must be reported under CMS’ total payment obligation to the claimant (TPOC) reporting trigger.
In cases where the claimant is a Medicare beneficiary, S.B. 1332 and the parties’ obligations under the MSP statute indicate that Medicare conditional payments should be addressed as part of the settlement.
- Take steps to address any outstanding conditional payment claims and obtain CMS’ final demand amount.
- If applicable, dispute any unrelated or questionable charges.
- If the claimant is enrolled in a Medicare Advantage Plan (MAP), determine how best to address any potential MAP lien claims.
As part of the settlement, clearly enunciate between the parties the ways these claims and issues will be addressed in terms of corresponding rights and obligations.
Medicare Set-Asides and Proactive Cost Mitigation
Under S.B. 1332, the parties must consider and protect Medicare’s future interests, including establishing a “Medicare savings account,” if necessary.
Perhaps the logical starting point here is to consider CMS’ workers’ compensation Medicare Set-Aside (MSA) “review thresholds.” CMS recommends submitting an MSA proposal for its review and approval in two scenarios:
- The claimant is a Medicare beneficiary, and the total settlement amount is greater than $25,000.
- The claimant is not a Medicare beneficiary, but he or she has a reasonable expectation of Medicare enrollment within 30 months of the settlement  and the total settlement amount is greater than $250,000.
If the settlement meets either threshold, the parties need to decide whether they will submit a formal MSA proposal to CMS for review and approval as part of CMS’ informal, voluntary MSA review process.
While adherence to the CMS review/approval process remains a standard industry practice, there is growing interest in alternative “non-submit” MSA approaches. In addition, since CMS considers its review thresholds as administrative “workload” thresholds (and not safe harbors), the parties also need to consider if and when inclusion of an MSA (or some other form of future medical allocation) may be appropriate in situations where the review thresholds are not met.
Regardless of the compliance approach pursued, proactive cost mitigation strategies should be strongly considered to reduce the MSA allocation amount and, in turn, optimize settlement prospects. This is particularly important regarding prescription drugs, which remain the main MSA cost driver in most cases. Failure to get prescription costs under control could easily derail settlement. Keeping abreast of CMS’ allocation practices, trends, and updates should also be a pivotal aspect of any MSA cost mitigation program. In addition, if applicable, CMS MSA determinations should be challenged through its re-review process, including use of CMS’ new Amended Review process as may be appropriate.
Considering Future Medical Expenses
Keep in mind that S.B. 1332’s “attestation” requirement states that the claimant must be provided with a projection of reasonable anticipated future medical expenses, including how the projected costs were determined. A strict interpretation of this requirement suggests this projection would also have to include future non-Medicare expenses as well as those expenses covered under an MSA. Further, this section appears to require that a projection of future related medical expenses must be provided in all instances, regardless of whether an MSA is applicable. It will be interesting to see how this requirement is ultimately interpreted and applied in practice.
Going Forward: Devise Case-Specific Settlement Strategies
As October 31 is quickly approaching, now is a great time for claims payers to review their current claim inventory to determine which cases may qualify for “full and final” settlement under S.B. 1332. As part of this, be sure to address Medicare’s potential interests as early as possible to ensure proper compliance under S.B. 1332 and the MSP statute.
Learn more about how ISO Claims Partners can help you address your MSP compliance obligations under S.B. 1332, including our wide array of MSA and other future medical projection services.
 S.B. 1332 is codified as Ariz. Rev. Stat. 23-941.01.
 With respect to unrepresented claimants, S.B. 1332 provides that the employee must appear before an administrative law judge who shall make factual findings that all applicable requirements of S.B. 1332 are met and the settlement is deemed “fair and reasonable to the employee.”
 Per CMS policy, “reasonable expectation of Medicare” includes, but is not limited to, the following situations where the claimant: has end-stage renal disease but does not yet qualify for Medicare; is 62.6 years old or older; has applied for Social Security disability (SSD); has applied for SSD, was denied, but anticipates appealing or refiling for SSD; or is in the process of appealing or refiling for SSD.