If it Sounds Too Good to Be True, It Probably Is: Medicare Set-aside Guarantee Agreements
In a world filled with uncertainty, who doesn’t like the sound of a guarantee? But are Medicare Set-aside “guarantees” really what you think? Are they a valuable option or a good sales tactic? This article discusses provisions contained in several guarantee, or indemnification, agreements and asks critical questions to help you decide.
Do Guarantee Programs Provide Strong Incentives for Over-allocating MSAs?
While saving money and preventing future uncertainty may be the goal of entering into guarantee agreements, savings may not be what many such agreements actually produce. If an MSA is priced excessively high, there is very little chance that it will be rejected or questioned by CMS. Accordingly, no duty to indemnify as a result of CMS requiring additional funds would ever kick in. In our experience, many guaranteed allocations are well in excess of what CMS would require. Over-allocating MSAs puts a lot of extra money on the table unnecessarily.
Clients’ best interests are served when MSA allocations are priced aggressively and the facts and circumstances of each case are taken into account. Pricing in an aggressive manner does not equate to CMS rejections, though. We have found that a very careful review of medical records and focused attention on the specific facts and available legal arguments can usually land CMS on the same page with regard to the funding of future treatment. The practice of allocating only the amount necessary to cover related, future medical expenses that Medicare would otherwise cover is fair to Medicare, the claimant and clients. Millions of dollars have been saved by following this practice. It is never appropriate from a financial perspective to prepare an MSA with the main purpose of just getting CMS approval or never being subject to scrutiny by CMS. The goal should be to prepare an MSA that is reasonable and withstands that scrutiny.
Are Substantial Conditions Placed on When Indemnification Obligations Would Apply?
When reviewing several different guarantee agreements, we discovered that some indemnification obligations would only apply when a claimant has “at all times” complied with directions contained in the CMS Workers’ Compensation Medicare Set-aside (WCMSA) User Guide and Self-Administration Toolkit when making payments for medical treatment. Other agreements indicate that indemnification would not extend to a claim that may be attributable to the acts, omissions or negligence of the claimant that violate the self-administration requirements of Medicare. However, expecting a claimant to read, understand and keep up with changes in the WCMSA User Guide, or many of the other Medicare documents regarding MSA administration, is a stretch, at best. Further, there is no practical way to ensure that a claimant with a self-administered MSA has actually used the funds as they should be used. As such, any obligation to pay under this type of indemnification program could easily be denied and the agreement would be of little to no actual value for self-administered MSAs.
Have Limitations Been Placed on the Amount of Indemnification Available?
While the word indemnification oftentimes signals that one party will be “made whole” upon a certain condition being met, that does not really happen when significant limitations are applied. In many agreements, the indemnification obligation is limited to the settlement amount minus the MSA amount. Given the amount of MSAs in many cases in comparison with the total settlement amount, this limitation could result in little actual benefit being realized if the duty to indemnify was called into play.
To What Type of Claims Does the Indemnification Obligation Apply?
When indemnification agreements are signed, many clients expect that they will be covered should anything go awry with regard to Medicare and the settlement. However, many agreements do not extend coverage to Medicare Advantage Plan (MAP) or Prescription Drug Plan (PDP) claims and are limited only to certain claims asserted by Medicare or for Medicare’s denial of payment for treatment. As we have learned over the past year, there is more litigation surrounding MAPs and PDPs than any other Medicare issue. As such, this type of exclusion provides little protection for clients where it may be needed the most.
Are Unrealistic Time Limitations Imposed in the Agreement?
Failure to meet a condition of a contract usually relieves the other party of performing obligations they would otherwise be required to perform. Some indemnification agreements that purport to cover Medicare conditional payment claims require that notification of such claims must occur within five business days. As most know, there are events and processes outside of a clients’ control which could make meeting that obligation impossible. Under the language of the agreements, however, failure to comply with very short, oftentimes unmeetable timeframes would negate any obligation to actually indemnify.
To Whom Would the Benefit of a Guarantee Flow?
Another issue to consider is to whom the benefit of a guarantee would extend. Many agreements only provide protection for claimants. This is likely not what many clients are expecting when they sign indemnification agreements.
Even for the agreements purporting to provide protection for claimants, there are issues. For example, many agreements place a burden on claimants to notify the guarantee vendor of claims by Medicare within ten days of receipt. Though they may have the absolute best of intentions and desire to be as compliant as possible with every requirement, the fact is that many claimants do not recognize or understand conditional payment letters and other similar correspondence from Medicare. They do not recognize that those letters are Medicare claims and they are unaware of the consequences of failure to timely respond. Expecting a claimant, especially years after agreements are executed, to be able to identify and forward documents that sometimes excellent, experienced claim handlers miss is not always reasonable. However, under many guarantees, the failure of a claimant to meet that burden would result in a denial of indemnification.
Further, language in some agreements indicates that a guarantee vendor will assist a claimant with an appeal of injury-related, Medicare-covered bills after an MSA account is properly exhausted and will pay for a claimant’s treatment if Medicare denies payment after the claimant’s appeals are exhausted. This language should be carefully considered. First, there is no definition or description in these agreements of the actual assistance that would be provided to a claimant. Would it include employing or hiring someone to handle those appeals completely on behalf of the beneficiary? Would it consist of merely providing copies of documents to the claimant to forward? Does it extend to complete exhaustion of every level of appeal? The entire administrative appeals process can take several years. Who would pay for the claimant’s treatment before all of the levels of appeal are exhausted? What sounds really good on the surface may not actually provide the benefits anticipated.
Can the Obligation to Indemnify Easily be Denied if Invoked?
Even if an indemnification agreement would cover an actual client, attention must be paid to limitations placed on the guarantee vendor’s obligations. Some agreements only agree to indemnify clients for claims asserted by CMS related to the guarantee vendor’s negligent or intentional act or omission when completing an MSA allocation report. One would be hard-pressed to find a situation in which CMS ever made a claim stating that a vendor was negligent or made a wrongful, intentional act or omission when preparing such reports. Even if such a claim was made, it would be virtually impossible to prove given how subjective the CMS review process can be. As such, one has to wonder if this type of guarantee has any actual value.
The more likely scenario would involve CMS refusing to pay for future medical treatment or paying and requesting reimbursement if the amount of an MSA was less than CMS thought should have been included. This scenario would most often arise in the non-submit context. We have not seen a single indemnification agreement, however, that provides the guarantee vendor will either pay the amount CMS refuses to pay or reimburse CMS for amounts it pays and subsequently asserts a claim for in the future that should have arguably been included in an MSA.
Nor have we seen an agreement that promises to indemnify a client if Medicare asserts a claim against the claimant on the basis that an MSA is insufficient and the claimant, in turn, files a private cause of action lawsuit against the client seeking double damages. In reality, this is one of the most likely scenarios that could occur, yet protection from such is noticeably missing from guarantee agreements.
Is the Ability to Challenge a Medicare Claim Limited by the Agreement?
Some agreements provide that the actual client may have no contact whatsoever with CMS with regard to claims asserted against it by Medicare. In this situation, the guarantee vendor is the only entity allowed to challenge and defend claims asserted by Medicare. CMS may assert claims against a primary payer client without regard to the terms of a private contract, though. A private indemnification agreement would have no bearing whatsoever on whether a client would remain liable for actually paying claims asserted by Medicare, plus double damages. Any mistakes or overlooked defenses or missed deadlines by a guarantee vendor in challenging a Medicare claim would dramatically impact and be binding on the client. Particularly since many vendors have automated so much of the conditional payment claim process, it is dangerous for a client to limit their ability to internally challenge or hire outside counsel to challenge an inappropriately asserted Medicare conditional payment claim.
Do Exceptions and Conditions Swallow the Perceived Benefit?
When exceptions are really significant, perceived benefits shrink. Some indemnification agreements will not cover a claim related to anything that arises after the MSA allocation is prepared. That may not sound unreasonable at first. However, if a claimant receives treatment after actual preparation of an MSA, which happens in most cases, it could result in the guarantee vendor legitimately refusing to provide for indemnification. There are other conditions contained within many indemnification agreements that seem to render the guarantee inapplicable in many circumstances. Careful attention should be paid to the exact wording used in these agreements to determine whether they are truly beneficial.
Is There a Catch-22 with Custodial Administration Requirements?
One of the issues frequently appearing in indemnification agreements is a requirement that the MSA funds be administered by a custodian, a service that many guarantee vendors also provide. The cost of administration must be factored into the overall savings anticipated by utilizing a guarantee program, though, as that cost can be quite substantial. While fees charged by some independent custodial companies are nominal, when a client is required to use a more expensive custodian, the actual value of the guarantee option should be examined.
Conclusion
Deciding whether to participate in a guaranteed MSA program is much more complicated than one may think. Careful reading and scrutiny of the language used in these indemnification agreements, and the implications of that language, should be considered. Whether they provide actual benefits or protection can hinge on one of many factors. If the cost of MSAs is much higher overall and contractual limitations and exceptions render indemnification inapplicable in most cases, the end result is potentially more harm than good.
