Medicare Set Asides in Denied Workers’ Compensation Settlements
As workers’ compensation professionals, we are all too familiar with Medicare Set Asides (MSAs) in settlements. But are we required to include a fully-funded MSA in a compromise settlement? According to the Centers for Medicare & Medicaid Services (CMS), the answer is no.
CMS Approval of Zero-Dollar Allocation
We know that CMS will issue Zero Set-Aside Letters. But the formal approval process is not always simple. At one point, CMS had forecasted it would make the process more challenging, requiring a court order indicating the employer had no further medical liability, a physician’s note indicating no further need for treatment, or medical records showing claimant is no longer treating for the injury. CMS quickly announced there had been no such procedural change in the way it reviews zero-dollar proposals.
Zero-dollar requests submitted to CMS must include essentially the same supporting documentation as full WCMSA proposals, including the carrier’s complete payment ledger (showing no indemnity or medical payments), verification of denial, medical records (if requested), and a Consent to Release form completed by the claimant. Failure to include any documentation may delay a determination or result in a denial. CMS also reserves the right to not only deny the request, but also generate its own counter-higher WCMSA demand.
CMS Submission is Voluntary
The parties may elect to participate in the CMS voluntary submission program, but it is never required.
There are no statutory or regulatory provisions requiring that you submit a WCMSA amount proposal to CMS for review. If you choose to use CMS’ WCMSA review process, the Agency requires that you comply with CMS’ established policies and procedures in order to obtain approval. 
The parties may always fulfill their obligation to consider Medicare’s interests through alternatives that do not involve formal submission, even with zero-dollar proposals.
Compromise Settlement (Not Commutation)
If the settlement is a true compromise, then an MSA may not be indicated. CMS has long recognized the right of parties in workers’ compensation claims to resolve denied claims by compromise settlement, as follows:
Lump sum compromise settlements represent an agreement between the WC carrier and the injured individual to accept less than the injured individual would have received if he or she had received full reimbursement for lost wages and lifelong medical treatment for the injury or illness. In a typical lump sum compromise case between a WC carrier and an injured individual, the WC carrier strongly disputes liability and usually will not have voluntarily paid for all the medical bills relating to the accident. Generally, settlement offers in these cases are relatively low and allocations for income replacement and medical costs may not be disaggregated. Such agreements, rather than being based on a purely mathematical computation, are based on other factors. These may include whether there was a preexisting condition, whether the accident was really work related, or whether the individual was acting as an employee, or performing work-related duties at the time the accident occurred.
According to the Code of Federal Regulations, Medicare has different responsibilities for payment of medicals depending on the type of settlement. “If a lump-sum compensation award stipulates that the amount paid is intended to compensate the individual for all future medical expenses required because of the work-related injury or disease, Medicare payments for such services are excluded until medical expenses related to the injury or disease equal the amount of the lump-sum payment.”
To the contrary, “if a lump-sum compromise settlement forecloses the possibility of future payment of workers’ compensation benefits, medical expenses incurred after the date of the settlement are payable under Medicare.”
A fully-funded MSA is only indicated when admitted claims with ongoing medical exposure are settled. If a denied claim is settled on a compromise basis, meeting the criteria recognized by CMS, then a zero-dollar allocation may be appropriate.
Daniel Hayes is a Partner in Teague Campbell’s Asheville office. He provides Medicare Secondary Payer settlement consultation, including MSA reports and legal opinion letters.
 Workers’ Compensation Medicare Set-Aside Arrangement (WCMSA) Reference Guide, Version 3.2, pp. 57, 78 (Centers for Medicare & Medicaid Services, October 5, 2020.
 Announcement regarding Current Workers’ Compensation Review Contractor Procedures and Request for Approval of Zero-Dollar Medicare Set-Aside Amounts (October 31, 2016).
 WCMSA Reference Guide, p. 8 (emphasis in original).
 CMS Memorandum, July 23, 2001.
 42 C.F.R. § 411.46 (a).
 42 C.F.R. § 411.46 (d).