It has been just about a year and half since the Centers for Medicare and Medicaid Services (CMS) created quite the stir with the addition of Section 4.3 to its Workers’ Compensation Medicare Set-Aside (WCMSA) Reference Guide in early 2022. As many will recall, through Section 4.3, CMS outlined its policy and the potential risks associated with settling a workers’ compensation claim with an Evidence-based Medicare Set-Aside (EBMSA) or Non-Submit MSA. While the initial maelstrom created by Section 4.3 has subsided, questions remain regarding the continued use of these allocations, and particularly indemnified EBMSAs, with potential risks and liability hanging in the balance.
Since Section 4.3 was released, I continue to interact extensively with insurers and other WCMSA stakeholders on this issue as the industry navigates the changes. Most recently, it seems I have been receiving an increasing number of questions about indemnified EBMSAs post-Section 4.3, specifically reports that claimants, their representatives, and courts have been proceeding more cautiously and asking more questions regarding the potential risks of settling with an indemnified EBMSA or Non-Submit MSA in workers’ compensation settlements. As Section 4.3 continues to generate questions, it may be a good time to reevaluate the issue and revisit critical questions to ask if you are still using (or considering) indemnified EBMSAs. As part of this, we will also revisit how strategic and proactive WCMSA cost-mitigation strategies can often help reduce WCMSAs and enhance getting allocations approved by CMS with less risk – important points often lost in the non-submission discussion.
Level-setting the issue
As a refresher, Section 4.3 focused on the industry’s use of EBMSAs and Non-Submit MSAs. In general, EBMSAs and Non-Submit MSAs are future medical allocations calculated to cover a claimant’s projected post-settlement Medicare covered expenses related to the workers’ compensation claim, but which are not submitted to CMS for approval but designed to calculate injury related future medical treatment based on sound medical principles and clinical guidelines within the intent and obligations of 42 CFR § 411.46.
For a variety of reasons, use of these allocations increased over time, and as this practice evolved some MSA vendors later supplemented their EBMSA and Non-Submit MSA offerings with indemnification language to protect parties if CMS later determined the EBMSA or Non-Submit amount was insufficient.
Against this backdrop, CMS as part of Section 4.3 took direct aim at EBMSAs and Non-Submit MSAs. Specifically, CMS, while acknowledging its WCMSA review and approval process is voluntary, stated that it viewed “the use of non-CMS-approved products as a potential attempt to shift financial burden by improperly giving reasonable recognition to both medical expenses and income replacement.” As such, CMS stated it “may at its sole discretion deny payment for medical services related to the WC injuries or illness, requiring attestation of appropriate exhaustion equal to the total settlement as defined in Section 10.5.3 of this reference guide, less procurement costs and paid conditional payments, before CMS will resume primary payment obligation for settled injuries or illnesses, unless it is shown, at the time of exhaustion of the MSA funds, that both the initial funding of the MSA was sufficient, and utilization of MSA funds was appropriate.” While CMS did clarify that it may consider and accept evidence that an EBMSA or a Non-Submit MSA funding was sufficient, it has not provided any metrics or guidance regarding how that is evaluated. Indeed, my concern is that CMS would judge sufficiency simply by using the current allocation practices already in place for the WCMSA review and approval process at the time an EBMSA or Non-Submit MSA exhausts. Also, since the parties will not know if CMS considers the allocation sufficient until exhaustion, the pending risk may exist for years after settlement.
In a nutshell, based on the above, CMS can, at its “sole discretion,” view an EBMSA or non-submit MSA as not adequately protecting its interests and, in that case, require the claimant to exhaust the full net settlement amount (not just the amount allocated as part of an EBMSA or non-submit MSA) before assuming responsibility for paying the claimant’s accident-related medical expenses post-settlement. From a wider view, with the release of Section 4.3, CMS has shifted the burden and primary analysis away from the EBMSA work product by expressly stating it views EBMSAs and other non-CMS approved allocations “as a potential attempt to shift financial burden by improperly giving reasonable recognition to both medical expenses and income replacement.” While some may argue that CMS will not treat the use of EBMSAs and Non-submit MSAs as a de facto financial burden shift, I remain cautious since this language remains in the text of Section 4.3 over a year and a half later after its initial release. Additionally, CMS further indicated during their February 2022 webinar that it considered Medicare’s payment of claim related treatment due to the exhaustion of an EBMSA or Non-submit MSA as evidence of the financial burden shift to Medicare. If we consider CMS’s position, then logically the only way to be completely confident that CMS will consider the funding of the allocation to be sufficient is to either obtain CMS approval of the MSA or to allocate enough funds in the EBSMA or Non-submit MSA to ensure that it does not exhaust.
Post-Section 4.3 observations
As noted above, I continue to receive many questions regarding Section 4.3 and indemnified EBMSAs, and here I will share some of my anecdotal observations. A common question I receive is “what are you seeing out there?” On one level, I have seen some parties continue to use non-submit MSA, both with and without indemnified EBMSAs. However, overall, in my experience I have seen more WCMSA stakeholders move away from using indemnified EBMSAs and non-submit MSAs since Section 4.3’s release.
One interesting observation here, is that many claimant lawyers with whom I have interacted, and who were aware of Section 4.3, have reported that they will now only settle claims with a CMS approved WCMSA given the potential liability Section 4.3 poses for their clients. Many of these lawyers expressed concerns regarding indemnified EBMSAs in terms of coverage, enforceability, and other factors.
Likewise, I have observed some insurers that were using non-submission approaches halt the practice either due to questions regarding potential liability, concerns about possible reopener actions down the road if the indemnification insurers failed to provide coverage, or because the claimant/claimant lawyer refused to settle unless a CMS approved WCMSA was obtained. On another front, most recently, as noted above, I have received reports of some judges refusing to approve Medicare indemnification language as part of a workers’ compensation settlement, which has led to unexpected complications and uncertainties.
Revisiting critical questions – make sure you are really protected
In my view, for those still using indemnified EBMSAs (or for those who may be considering them), it all comes down to whether you will, in fact, be protected if necessary. In many respects, the critical questions I outlined last year on this are worthy of continued evaluation today by insurers, claimants (and their lawyers), workers’ compensation courts, and others involved in workers’ compensation settlements going forward. In fact, in some ways, these questions may be of even greater importance today for those who have continued to use indemnified EBMSAs post-Section 4.3 given the potential risks.
These key questions and considerations for re-evaluation include:
Who does indemnification cover?
Indemnification should continue to adequately consider the risks for all parties involved. On this point, CMS as part of Section 4.3 states that “42 C.F.R. 411.46 specifically allows CMS to deny payment for treatment of work-related conditions if a settlement does not adequately protect the Medicare program’s interest” and that “CMS may at its sole discretion deny payment for medical services related to the WC injuries or illness, requiring attestation of appropriate exhaustion equal to the total settlement … before CMS will resume primary payment obligation for settled injuries or illnesses, unless it is shown, at the time of exhaustion of the MSA funds, that both the initial funding of the MSA was sufficient, and utilization of MSA funds was appropriate. This will result in the claimant needing to demonstrate complete exhaustion of the net settlement amount, rather than a CMS-approved WCMSA amount. Since the injured worker solely bears the risk and consequences of non-compliance with the regulation, the indemnified EBMSA should ideally protect the claimant against this scenario and promptly pay if it occurs.
What is indemnified?
Prior to Section 4.3, indemnification language typically focused on protecting against Medicare’s determination that the calculation of the EBMSA amount is inadequate and the proximate cause of CMS’s denial of payment, rather than whether the parties obtain CMS approval of a WCMSA amount. If CMS currently takes the position that the act of simply using an EBMSA or other non-submission allocation may result in CMS’s denial of payment, then indemnification language and insurance coverage may factor in the same. Thus, while it’s notable that CMS may later choose to accept an EBMSA as sufficient rather than require the full expenditure of the net settlement amount, CMS potential denial of payment simply based on the fact that a non-CMS approved allocation was used and exhausted would create another potential area of liability. Therefore, it would be prudent for the settling parties to formalize if, and when, coverage applies.
How does insurance back indemnification after Section 4.3?
Specifically, if Section 4.3 places the industry (and parties) on notice that the use of a non-CMS approved MSA may trigger Medicare to require the full and proper expenditure of the net settlement amount, the indemnification language may need to be specifically tailored to protect the parties, since insurance is typically not intended to cover intentional acts.
Should parties obtain confirmation or consent from the insurer that the EBMSA scenario is covered?
Obtaining confirmation or consent from the insurer that the insurance policy will cover EBMSA scenarios may help to set expectations and clear up potential coverage issues.
What is the exposure if insurance doesn’t pay?
While indemnification language may provide a basis for reimbursement and coverage for loss, if insurance denies the claim, the parties - especially the claimant, may be exposed to significant risk and costs if the indemnitor doesn’t maintain sufficient funds.
What happens if the court will not approve Medicare indemnification provisions?
As noted above, there have been reports of some courts refusing to review and approve Medicare indemnification provisions. In addition to complicating the settlement process, this could also raise issues and concerns regarding enforceability and coverage of indemnified EBMSAs.
Protecting yourself - steps to consider
Given the above questions, its critical to assess how CMS’s stated position on EBMSAs impacts risk and potential liability when indemnification is leveraged to mitigate WCMSA costs in general, and as weighed against the certainty provided by CMS approval.
If indemnified EBMSAs continue to be part of your settlements, consider protecting yourself by taking the follow steps:
- Confirm in writing that the insurer backing the indemnification is aware of the use of EBMSAs under their E&O policy.
- Request to be added as an additional insured on the indemnification policy.
- Document the process of presenting a claim to retain indemnification protections if CMS denies benefits to claimant.
- Ensure the indemnification language protects all parties to the settlement, not just the insurer.
As EBMSAs and Non-submits MSAs are intended for lifetime medical consideration, the risks may not materialize until several years post settlement when the allocation exhausts and, therefore, anticipating issues by asking detailed questions, reviewing the indemnification language, and ensuring there is proper funding may assist in mitigating risk and exposure for the settling parties.
Reducing WCMSAs strategically – and with less risk
The potential ability to calculate lower future allocation costs is the main factor which has led some WCMSA stakeholders to use non-submission approaches (including indemnified EBMSAs) over the years. Frustrated with CMS’s often formulaic approaches and higher WCMSA allocation amounts, some look to non-submission to achieve lower costs by removing CMS’s allocation requirements from the equation by using more realistic projections based more on realistic medical principles.
However, in my experience, many times I have seen parties move toward non-submission, frustrated by high CMS approved WCMSA amounts, without understanding the various cost-mitigation opportunities they had to reduce WCMSAs (at the individual case level and more programmatically) within CMS’s review process, and the ability to push back against CMS. From my experience, an aggressive and proactive WCMSA cost-mitigation many times can result in lower CMS WCMSA amounts than expected allowing parties to achieve significantly lower WCMSAs with CMS approval. This is where Verisk can serve as an invaluable partner. Our WCMSA teams are experienced with CMS’s allocation practices, our Quality Assurance program constantly monitors and applies CMS trending, and we have a proven track in reducing WCMSA allocation amounts (with CMS approval).
For example, in 2022 as part of our WCMSA cost mitigation program we saved our customers over $90 million in WCMSA costs through proactive cost mitigation, CMS Amended Reviews, CMS rebuttals, and our RX/provider outreach program! We look forward to helping you reduce your WCMSA costs!
With the above noted, we also recognize that there are times when non-submission may make sense – and we can work with you to strategically identify those opportunities to create a tailored approach to your specific situation to meet your objectives.
In conjunction with this article, please also see our “one-pager” resource on this topic: Indemnified EBMSAs – are you really protected?
Please do not hesitate to contact the author if you have any questions regarding the above or learning more about how Verisk can help you create strategic and proactive WCMSA cost-mitigation approaches.
 CMS first added Section 4.3 to the WCMSA Reference Guide Version 3.5 in January 2022. See, CMS WCMSA Reference Guide, Version 3.5 (January 11, 2022). Section 4.3 was then amended as part CMS’s WCMSA Reference Guide 3.6 (March 15, 2022).
 42 CFR § 411.46 (b)(2) states: “If a settlement appears to represent an attempt to shift to Medicare the responsibility for payment of medical expenses for the treatment of a work-related condition, the settlement will not be recognized. For example, if the parties to a settlement attempt to maximize the amount of disability benefits paid under workers’ compensation by releasing the workers’ compensation carrier from liability for medical expenses for a particular condition even though the facts show that the condition is work-related, Medicare will not pay for treatment of that condition.” Id. (Author’s emphasis).
 In full, Section 4.3 reads as follows as currently contained in CMS’s WCMSA Reference Guide, Version 3.9 (May 15, 2023):
4.3 The Use of Non-CMS-Approved Products to Address Future Medical Care
A number of industry products exist for the purpose of complying with the Medicare Secondary Payer regulations without participation in the voluntary WCMSA review process set forth in this reference guide. Although not inclusive of all products covered under this section, these products are most commonly termed “evidence-based” or “non-submit.”
42 C.F.R. 411.46 specifically allows CMS to deny payment for treatment of work-related conditions if a settlement does not adequately protect the Medicare program’s interest. Unless a proposed amount is submitted, reviewed, and approved using the process described in this reference guide prior to settlement, CMS cannot be certain that the Medicare program’s interests are adequately protected. As such, CMS treats the use of non-CMS-approved products as a potential attempt to shift financial burden by improperly giving reasonable recognition to both medical expenses and income replacement.
As a matter of policy and practice, CMS may at its sole discretion deny payment for medical services related to the WC injuries or illness, requiring attestation of appropriate exhaustion equal to the total settlement as defined in Section 10.5.3 of this reference guide, less procurement costs and paid conditional payments, before CMS will resume primary payment obligation for settled injuries or illnesses, unless it is shown, at the time of exhaustion of the MSA funds, that both the initial funding of the MSA was sufficient, and utilization of MSA funds was appropriate. This will result in the claimant needing to demonstrate complete exhaustion of the net settlement amount, rather than a CMS-approved WCMSA amount.
Notes: This official policy shall apply to all notifications of settlement that include the use of a non-CMS-approved product received on, or after, January 11, 2022; however, flags in the Common Working File for notifications received prior to that date will be set to ensure Medicare does not make payment during the spend-down period.
CMS does not intend for this policy to affect any settlement that would not otherwise meet review thresholds. This comment does not relieve the settling parties of an obligation to consider Medicare’s interests as part of the settlement; however, CMS does not expect notification or submission where thresholds are not met.
 See e.g., 42 CFR § 411.46 (b)(2). This section states: “If a settlement appears to represent an attempt to shift to Medicare the responsibility for payment of medical expenses for the treatment of a work-related condition, the settlement will not be recognized. For example, if the parties to a settlement attempt to maximize the amount of disability benefits paid under workers’ compensation by releasing the workers’ compensation carrier from liability for medical expenses for a particular condition even though the facts show that the condition is work-related, Medicare will not pay for treatment of that condition.” Id. (Author’s emphasis).