Medicare Set-Asides

6. What is a conditional payment?

In the context of a workers’ compensation (WC) case, the employer is considered the primary insurer because it is responsible for all medical expenses associated with the WC-related injury. Because there is a primary insurer involved, Medicare becomes a secondary payer and is not responsible for any medical expenses associated it the WC-related injury. There are some instances, however, where the employee/claimant improperly uses Medicare benefits to pay for treatment related to the injury that should have been covered by the employer. Medicare calls these payments “conditional payments” because Medicare has paid these benefits on the condition that it will be reimbursed at the time of settlement.

Therefore, when a WC case settles, there are two components that involve Medicare (or CMS). The first component is making sure that Medicare/CMS is reimbursed for any conditional payments that it made on behalf of the employee/claimant between the time of the injury and the time of settlement. The other component, which is discussed elsewhere on this website, is the establishment of a Medicare Set-aside (MSAs) which protects Medicare from having to pay for those future medical expenses that are reasonably foreseeable at the time of settlement.

For more information on obtaining conditional payment information please click here. This will take you to CMS’ official website that explains the process. CMS has retained a third party (the MSPRC) to process conditional payment requests.

There is one very important thing to keep in mind when requesting conditional payment information. CMS’ right to recovery does not attach until after the underlying WC case settles. Therefore, before the WC case settles the parties can obtain an estimated conditional payment amount only. CMS will not provide the final amount, under any circumstances, until it is provided with a copy of the duly executed settlement agreement. This means that there is always uncertainty at the time of settlement as to what the final conditional payment amount will be. (CMS calls the final amount the “final demand” because that is when CMS demands payment for the conditional payments made on behalf of the Medicare beneficiary.)

Let’s look at an example based upon a real case:

During the pendency of WC litigation, the Employer makes a conditional payment request to CMS. It takes about 2 to 3 months, but the Employer eventually receives a letter from CMS that states the estimated conditional payment is zero dollars. Based on this information, the parties move toward settlement and even have an MSA established and approved for the claimant/employee/Medicare beneficiary. After the case settles, the Employer wants to make sure there are no outstanding liabilities and submits the final settlement documents to CMS (through the MSPRC) to obtain the final demand amount. In response to this request, CMS issues a final demand in the amount of $12,000. Unfortunately, the parties did not contemplate this and no provision was made in the settlement documents as to which party was responsible for the amount demanded by CMS.

The reason there can be such a variation between the conditional payment and the final demand is that medical providers have 22 months in which to invoice Medicare for services rendered. This leaves the door open for additional charges to hit Medicare’s system between the time CMS generates the conditional payment information and the time the final demand amount is calculated.

The lesson to be taken from this example is that the parties should not rely on the conditional payment amount because it is always an estimate of what CMS may eventually demand. Instead, the parties should anticipate the worst case scenario (like the one mentioned above) and make provisions in the settlement agreement for the payment of the final demand amount.

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All of the content was prepared by Michael R. Merlino II, an attorney in Georgia who focuses on his practice primarily on MSAs. He prepares MSAs for many large self-insureds and insurance companies. If you have questions, he can be contacted at 770-374-3697 or mmerlino@gmail.com. He also has a website devoted to MSAs, which is updated frequently: www.wcmsainfo.com