Monopolistic Washington's Workers Comp System - The Next To Fail?

An internal audit by the State of Washington's Workers Compensation Department of Labor and Industry (L&I) may be the start of another Workers Comp system converting from a monopolistic system to a private system. West Virginia recently converted their state-run system into a free market.

Washington's L&I issued an immediate press releases indicating that their monopolistic system was doing fine. There was a large draw on the contingency reserve which according to the L&I was a normal course of business that has occurred numerous times in L&I's history.

Regardless of the type of Workers Compensation, a very low contingency reserve will cause the respective state's Department of Insurance to immediately put the insurance company into receivership or at least into a probationary watch period. The Insurance Commissioner will not allow a carrier with inadequate contingency reserves to write any more coverage.

I will review the auditor's report and post my opinion next time.

Premium Audits - 10 Things To NOT Do

As most Workers Compensation policies renew on January 1st of each year, I thought I would post on what NOT to do from the time that the premium auditor calls to set up an appointment to the time your company receives the premium audit bill.

1. Ignore the premium auditor's request for appointments. The premium auditor can assess a severe state-mandated penalty for not setting an appointment. This will also cause the auditor to raise a yellow/red flag of what is the company trying to hide?

2. Keep changing the premium audit appointments at the last minute. See #1.

3. Just handing the auditor a big pile of records and letting he/she sift through them. See my last post on what to do for record presentation.

4. Being argumentative with the auditor. Please remember that this person is just doing their job.

5. Not asking questions of the auditor. The worst time to discover a premium auditor's opinion/thoughts is when you receive the premium audit results and billing. They are supposed to answer your questions as much as you owe them answers.

6. Ignoring the premium audit results or bill. Your state may have a specified time limit on how long you have to question the premium audit bill. If you wait too long, you will owe the bill.

7. Just writing a check. We see this so many times. The business owner or risk manager sends the check with the premium audit bill even though they may have questions. Question the auditor while they are at your business or when you receive the bill. Your company loses a large amount of leverage once the bill is paid.

8. Letting the audit bill sit on your desk. If your company cannot afford the premium audit bill, call their billing department immediately. Insurance carriers are somewhat flexible if you contact them early in the process.

9. Using the dispute process as a way to lengthen the time to pay. Always make sure that your point of dispute is solid. If you feel you have been overcharged, it may be a good time to call in an expert.

10. Not documenting everything. Always follow up a phone conversation with a letter, email or fax. Document all phone calls.

These are not all of my recommendations on handling the premium audit process. Most of these items came from premium auditors. The main thing to remember is for your company to not stand out from other companies.

Workers Comp Audits - Five Ways To Prepare

If you are a company that is large enough to not self-report your Workers Compensation payroll, you will experience the insurance company audit process. There are many ways to prepare for an audit. I will list five that will make the process smoother for your company and the premium auditor.

1. Organize your payroll using back up reporting to justify all payroll. QuickBooks and any other accounting package will be a great way to provide the premium auditor with concise and organized reports. Making the auditor's job easier will always increase the accuracy of your Workers Comp premium.

2. Have a designated person to answer all of the premium auditor's questions. That person should be present the complete time the auditor is at your place of business. This will enable the auditor to receive consistent answers and have a "go to" person for follow up questions or request for more information.

3. Do not have the audit off-site. This is one of the main reasons that we find inaccurate premium audits. Your accountant's office may not help the auditor with figuring out what you do in your business. A plant tour is usually a good idea.

4. Make sure that all subcontractors are noted and pointed out to the auditor.

5. Make sure that you obtain all contact information from the auditor before they arrive at your place of business.

There are many other ways to prepare. The bottom line is that your records and reports represent your business to the auditor. Neatness counts.

Medicare Set-asides - Possible No Statute of Limitations

We have received a large number of questions on my last post. I thought it was best to post the excerpt from the town hall meeting to make sure all of my readers know CMS's position on MSAs. The following is a transcript from a Town Hall teleconference. The most important part is in bold. That was a tough place to end the teleconference as the six year statute of limitations question was being addressed by CMS.


TOWN HALL TELECONFERENCE
SECTION 111 OF THE MEDICARE, MEDICAID & SCHIP EXTENSION ACT OF 2007
42 U.S.C. 1395y(b) (8)

DATE OF CALL: December 15, 2009

SUGGESTED AUDIENCE: Liability Insurance (Including Self-Insurance), No-Fault Insurance, and Workers’ Compensation Responsible Reporting Entities- Question and Answer Session.


Question: Okay. And is there any - do you have any type of statute of limitations? I was told in a seminar that there’s a six year statute of limitations. Is that correct? I hadn’t heard that before.

CMS: This could be another one of those instances where the answer is maybe yes, maybe no depending on what you want to tie to it. Generally, there is a statute of limitations in terms of how long you have to bring a litigation action. But there’s different rules in terms of when it runs from. And generally, anything we have doesn’t start to run until we have knowledge of the claim. And certainly in a liability situation it’s not the date of accident that controls. What we’re looking at is when there was any settlement, judgment, award or other payment. So we would have at least six years from that date.

Question: And after six years then you would no longer pursue recovery?

CMS: That’s not necessarily true. What I said is the six year statute of limitations is generally tied to when we can pursue action in court. But there are other recovery actions that we have that we can take as well.

Moderator: Okay Operator, I’m sorry but we’re going to have to close this call off now. Thank you everybody who was on it. We appreciate your questions. And for those who didn’t - we didn’t get your questions we’re sorry. We’ll be doing this call again - a call like this next month.

CMS May Have No Statute Of Limitations On Medicare Set-aside Arrangements

Recently, I had posted a few times on the Centers for Medicare/Medicaid Services (CMS). One question that remained in my mind was how many look-back years CMS would be allowed for their enforcement of MSA's. I was under the impression the statute of limitations was six years from the original claim date. A recent townn hall teleconference by CMS may have changed my conclusion.

One of the CMS representatives indicated the six year statute actually runs from the date of settlement. When questioned further, CMS said that there were other actions that they could take even if the six year statute had expired. The six year statute of limitations only applies to court actions. I paraphrased the exact quote somewhat.

One has to wonder what this actually meant. With a Federal Government that is sorely short on funds, would pursuing all files for all years where CMS's interests were not protected end up as a cash cow? I definitely think so.

Workers Comp Premiums And Buying Out A Business

We have received a few calls on this situation in the last few months. A company or individual decides to buy another company. The deal is cut. A premium auditor then arrives some time later. The business receives a premium bill for a large amount of money. Is there any way to avoid paying the bill or should the previous owner have to pay the bill?

I do not wish to give legal advice. However, from the Workers Compensation angle, the bill is due and payable by someone IF the premium audit bill is accurate. If the buyout contract does not specify the previous owner should pay the bill, the current liability is owed by the current owner. The new business owner very likely had some length of coverage under this policy.

The best way to avoid the situation is to have an expert look over the current Workers Compensation policy in place to make sure there are no lingering liabilities. Our most recent inquiry was on a $600,000 bill.

Workers Compensation and Changes of Company Ownership

I received a question last week concerning ownership liabilities when a company is acquired by another company or individual. There are actually very long and somewhat complicated rules on Experience Modification Factors (E-Mods or X-Mod in California) when there is a change in company ownership. I will leave that for another time. The question was more centered around premiums and the audit bill.

Without giving legal advice, a company's change of ownership will not affect the premium audit and billing process. The new owner will owe the premiums as if the company had not changed. If an individual is going to purchase a company, the liability of an upcoming premium audit and billing should be factored into the current and future liabilities.

We had a client call us into this very situation a few years ago in California. They were under the impression that the previous owner would be responsible for the billing. The premium auditor assessed a $25,000 premium audit bill against the new owner. Unfortunately, the new owner had to pay the bill. We were able to reduce the bill due to a classification error by the auditor. However, the new owner did have to pay an unexpected bill.

CMS And the Dreaded Medicare Set-aside Arrangement Memo - What Did It Mean?

Over the past week, I have covered the Centers for Medicaid/Medicare Services (CMS) Medicare Set aside agreements and how CMS changed the playing field with its 7/1/09 memo to each state's department of insurance. The memo should have set off a few alarm bells for the Workers Comp carriers, TPA's, and employers.

The memo switches the reporting of all Workers Comp data to CMS from voluntary to mandatory. The CMS will now be able to access almost all Workers Compensation claims data for any claim in the United States.

If the CMS's interests have not been protected or if claims that should have been reported to them have been ignored, a very simple search and analysis software package should let them know what claims should have been reported to them, but have not as required by federal law.

What will CMS do if they find that a claim should have been reported to them for approval by way of a Medicare Set-aside Arrangement (MSA)? I think employers and carriers will receive very heavy fines. TPA's may not be subject to the fines as the self insured employer has the ultimate financial responsibility for their claims.

How does an employer feel assured that all of their claims subject to the CMS's thresholds have been properly handled? It may behoove an employer to contact their TPA concerning this situation. Employers may want to have a MSA expert look over their claims to make sure they are protected. From what I have seen the CMS is going to hold the employer responsible whether or not they are self insured.

There are many companies available to analyze a claim for an MSA requirement and to properly report those to the CMS. Please feel free to contact me at jmoore@cutcompcosts.com if you have any further questions on this issue such as time limits, reporting thresholds, or MSA vendors.

CMS And the Dreaded Medicare Set-aside Agreement Memo

On July 1, 2009 the Center for Medicaid/Medicare Services (CMS) issued an innocuous looking memo that will likely result in sanctions by the Federal Government and many lawsuits. In fact, a landmark Alabama lawsuit had been filed concerning an employee that was turned away by the CMS.

The carrier/TPA should have properly filed a Medicare Set-aside arrangement (MSA). The carrier did not file the MSA. A large number of future lawsuits can be expected, especially on closed Workers Comp files where no MSA's were filed.

Check on my next post to see what all of this means to employers, TPA's, and carriers. The letter issued on July 1, 2009 is as follows:

Workers’ Comp Data Match Cancellation Letter

Dear –

[State name] has been participating in a voluntary data exchange program between [state’s Workers’ Comp division] and the Centers for Medicare & Medicaid Services (CMS). Through this program [State name] has been submitting certain Workers’ Compensation program information to CMS electronically. The information provided by the state has been assisting CMS in determining the nature of the Medicare program’s responsibility in the payment of Workers’ Compensation claims.

This voluntary reporting arrangement has now ended. On July 1, 2009, Section 111 of the Medicare, Medicaid, and SCHIP Extension Act (the MMSEA) became effective for Workers’ Compensation insurance coverage. As of that date, the reporting of Workers’ Compensation information in support of Medicare Secondary Payer (MSP) determinations by CMS became mandatory. All existing voluntary reporting arrangements involving Workers’ Compensation programs are now null and void.

July 1, 2009, is the date Section 111 reporting became effective, but it is not the date that states will begin to report Workers’ Compensation information under the Section 111 requirements. In summary, states that will be reporting Workers’ Compensation data through the Section 111 process are required to register for Section 111 reporting by September 30, 2009. The testing of the electronic data exchange process will start January 1, 2010. The first “production” file exchanges will start April 1, 2010.

The process for arranging Section 111 reporting, and all the reporting timeline benchmarks that have been established are described in full on the Section 111 Website, www.cms.hhs.gov/mandatoryinsrep . The current version of the “NGHP User Guide” and additional instructions needed to report Workers’ Compensation information are located on the Website’s “Liability Insurance, Self-Insurance, No-Fault Insurance and Workers Compensation (NGHP)” page.

Thank you for your participation in the voluntary workers’ compensation data information sharing program with CMS. If you have questions about your state’s responsibilities under the mandatory Section 111 reporting requirements, please contact William Decker of my staff at (410) 786-0125.

Sincerely,
Sherri McQueen
Director
Division of Medicare Benefit Coordination

Workers Compensation Medicare Set-aside Arrangements

It is the responsibility of all parties to protect Medicare’s interests when resolving cases with future medical expenses. Forecasting future Workers Compensation medical benefits can be very complicated.

The recommended method for doing this is a MSA, which allocates a portion of the settlement for future medical expenses. The amount of the set aside is determined on a case-by-case basis and is mandated to be reviewed by the Centers for Medicare and Medicaid Service (CMS) when appropriate. Once the CMS determined amount is exhausted and properly accounted for to CMS, then Medicare/Medicaid will agree to be the primary payer for future Medicare covered expenses related to the injury.


Evidence has shown that there are five key factors organizations should be focused on in 2009 and 2010 to settle and manage these cases.

• Continuous review of their cases to establish MSA thresholds for minimizing risks and maximizing compliance.

• Reserves should be carefully reviewed and benchmarked on a case-by-case basis to be certain they are optimal and segmented to each area of future expense.

• Retention of an experienced team of multi-disciplinary medical, financial, claim, and legal resources with significant experience in settling high value cases.

• A “Zero Approval” goal for each case by removing co-morbidity factors, and only relating the subject injury to the proximate cause.

• Service quality and technology dedicated to carefully managing and ensuring excellence throughout the process.

While many organizations have qualified representatives who are capable of managing the smaller cases, only a few have the dedicated resources to focus on the complex laws and regulations surrounding MSA’s.

The CMS is continually changing their rules and opinions, and it requires a consistent team of practice professionals to provide organization and clarity for each case. With this team, the organization can be assured of a careful and thoughtful approach which will receive final approvals and future certainty for the cases.

The CMS had produced a memo earlier this year that changed the rules on MSA's. If your company has not heard of MSA's from your carrier or Third Party Administrator (TPA) and you have had serious claims in the last 10 years, you may want to start inquiring NOW.

PLEASE NOTE THAT IF YOU SELF INSURE OR HAVE A HIGH DEDUCTIBLE PROGRAM - YOU AS THE EMPLOYER AND NOT THE TPA BEARS THE RESPONSIBILITY OF REPORTING THIS INFO PROPERLY TO THE CMS. With so many government funding shortfalls, this is an area where the Federal Government is going to increase their enforcement.

Next Up - The New CMS Memo

States Without Workers Compensation Medical Bill Fee Schedules - I Stand Corrected

A few weeks ago, I posted a blog on the States that have no medical fee schedules. I stand corrected as I left Virginia out as a state without a fee schedule. The states without a medical fee schedule are Delaware, Indiana, Iowa, Missouri, New Hampshire, New Jersey, Virginia, and Wisconsin. This comes from an advisory memo from the CMS (Centers for Medicare and Medicaid Services)on errors made when submitting Workers Compensation Medicare Set-side Agreements (WCMSA or MSA - more on that in a later post).

I do not go back and redo corrections in the original posts. My prior blog post left out Delaware and Virginia as not having fee schedules. Virginia is a one of a kind state on their Workers Comp medical fee schedules. Medical providers in Virginia bill using rates based on medical charges that prevail in the same community for similar treatment. That would make Virginia a non-fee schedule state.

However, Delaware does have a fee schedule. I am looking at it as I type this post. I will research and see why the Federal Government thinks that Delaware does not have a fee schedule.

I will post the next time on MSA's which employers that have serious claims should be very familiar with overall. If you are reading this and you have not heard of MSA's, please check out my next post. Employers can be hung out to dry on this part of a claim.

Waived Premium Audit May Not Be A Great Sign

I have come across situations lately where the insurance carrier has decided to waive a Workers Comp premium audit and not even attempt to audit the payroll and premiums. Almost all the employers think this is a great relief on the level of avoiding a tax audit.

I would suggest taking a step back before agreeing to this type of audit. Insurance carriers are very adept at collection premiums for their services. If a carrier decides to waive a premium audit, does that mean that your company has been charged the correct premium? Does it mean that the carrier has decided to not collect additional premium? The answer is usually no in both cases.

Most states REQUIRE the insurance carrier to perform a year audit unless the employer signs off on a waiver. Some states do not allow waivers of the premium audit. How does a company know whether or not to waive a premium audit? It is best to call in a non-agent professional to look over the situation. Your company may be leaving money on the table.

As I have said very often, almost all insurance carriers and premium auditors are very honest and upstanding parts of the insurance process. Would licensing premium auditors help in this situation? I would have to say yes.