Liability Medicare Set-Aside Arrangements

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LMSAs: Liability Medicare Set-Aside Arrangements
Presented by:
Amy E. Goyette
West Bend Mutual Insurance Company
Wisconsin Defense Counsel’s Summer Conference 2010
Disclaimer:
This outline contains no legal advice. Nothing in this outline is intended to be used for,
and none of the information in this outline may be used for, the development of a legal
strategy, the formation of an attorney-client relationship, or the adoption of a legal
position or legal opinion. Use of the acronyms "MSA" and "MSAs" in this outline is
intended to generally refer to Medicare Set-Aside Trusts, Medicare Set-Aside Custodial
Accounts, and Self-Administered Medicare Set-Aside Arrangements, unless otherwise
specifically designated.
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TABLE OF CONTENTS
I.
MSAs: Medicare Set-Aside Arrangements Overview
3
II.
LMSAs: Liability Medicare Set-Aside Arrangements
5
A.
"Do I need an LMSA?"
6
1.
2.
3.
4.
6
7
8
8
B.
"Hot"
"Warm"
"Cool"
"Cold"
"If I need an LMSA, what next?"
9
1.
2.
3.
9
10
11
Funding
Administration
Review and Approval
III.
Additional Considerations
11
IV.
Conclusion
13
Glossary
14
2
I.
MSAs: Medicare Set-Aside Arrangements Overview
An MSA is a separate, interest-bearing bank account, or a trust, established for future
DOL/DOI related items and/or services, of the type that Medicare would normally cover.
An MSA is established to obtain certainty and finality. Only when an MSA is submitted
and approved by CMS do you get certainty that such set-aside amount will be deemed
sufficient so that Medicare will cover future medicals once the set-aside is exhausted, and
finality that CMS will not seek reimbursement your client in the future, if additional
medical expenses are incurred after the set-aside amount is exhausted.
If an MSA is not established and future DOL/DOI related medical expenses are
submitted to Medicare for payment, Medicare could deny coverage to the beneficiary. Or
Medicare could pay the claim(s) and seek reimbursement from your client. And any
future MSP recovery action could be a substantial, unexpected cost to your client when
you consider that after paying the full settlement amount to the claimant, your client
could risk paying double damages, plus interest to Medicare. Any reliance on an
indemnification agreement and/or hold harmless language in the settlement documents
would not be useful against a recovery action by CMS since such agreements are not
binding as to the federal government.
However, if an MSA is established, the parties to a settlement may be able to define and
limit their exposure for payment of future DOL/DOI related medical expenses, preserve
the beneficiary's future Medicare coverage, and avoid future MSP recovery actions.
That being said, MSAs are not in the MSP Act. MSAs were not even created by CMS.
CMS does not require MSAs. CMS does not require review of MSAs; the review is a
"voluntary" process. Yet, the MSP Act itself sets forth the requirement that Medicare's
interest be reasonably considered and protected.
“(2) Medicare secondary payer.—
(A) In general.—Payment under this title may not be made, except as provided in
subparagraph (B), with respect to any item or service to the extent that—
(i) payment has been made, or can reasonably be expected to be made,
with respect to the item or service as required under paragraph (1), or
(ii) payment has been made or can reasonably be expected to be made
under a workmen's compensation law or plan of the United States or a State or
under an automobile or liability insurance policy or plan (including a self-insured
plan) or under no fault insurance."
42 U.S.C. §1395y(b)(2)(A).
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Specifically, the MSP Act prohibits Medicare from paying for an item or service that has
already been paid for by "an automobile or liability insurance policy or plan (including a
self-insured plan) or under no fault insurance." Id. A settlement that closes out liability
for future DOL/DOI related medical expenses constitutes a payment for that care.
Therefore, Medicare may not pay for future DOL/DOI related medical expenses until the
entire payment for future medical expenses from the settlement, or the entire settlement
amount if there is not a specific allocation, is exhausted on that care.
Again, while it is true that neither the MSP Act nor its MMSEA Amendments create an
explicit duty to set-aside settlement funds to pay for future DOL/DOI related medical
expenses in an MSA, the duty is certainly implied. How else is the primary payer to
prevent Medicare from being billed for such DOL/DOI related medical expenses in the
future? How else do we reasonably consider Medicare's interest - past, present, and
future?
And WC versus liability? Since 1980, WC and liability have been in the same boat. The
MSP Act expanded the original exclusion from Medicare coverage of claims covered
under WC insurance by also excluding claims covered by other forms of insurance, such
as automobile, liability, and no-fault. And as of 2003, that included self-insurance plans.
Again, the MSP Act itself does not treat WC or liability plans any differently. The
language applies equally to both plan types. See MMSEA Sept. 30, 2009 NGHP
Transcript at 25 (CMS representative Barbara Wright stating "[t]here is not … the same
formal process for liability set asides that there is for Workers' Compensation set asides.
However, the underlying statutory obligation is the same.")
And while MSAs are not mentioned in Section 111, the new electronic reporting
requirements, arguably, in an indirect way, Section 111 is very important to any
discussion of MSAs from now on. Why? Because CMS will soon be able to easily spot
and enforce cases where an MSA may be needed by harnessing technology rather than
requiring and relying on human power - something CMS is short on. It is no secret that
the lack of human power has long plagued MSP recovery efforts.
That being said, no one is really sure how CMS will leverage the enormous amount of
information it will be receiving shortly with electronic reporting, but the fact that
Medicare trustees are predicating insolvency of the Medicare Trust Fund in 2017, should
be a red flag. They are and should be looking for ways to remain solvent, and one way is
to ensure that Medicare's future interest is reasonably considered and protected through
the use of LMSAs.
Additionally, it has been noted how "strikingly similar" the Section 111, MIR required
data elements are to the information already required for submission of an WCMSA.
John J. Campbell, Medicare Set-Asides in Liability Settlements Now?, The Medicare Set
Aside Bulletin, Nov. 19, 2008.
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MSAs may not be the only way to reasonably consider and protect Medicare's future
interest, but it is the preferred method. See Patel Memo, July 23, 2001 at footnote 1,
available at http://www.cms.hhs.gov/WorkersCompAgency Services/. Use of an MSA
can achieve certainty and finality so your client obtains a safe harbor against future MSP
recovery actions, even if the MSA is exhausted and additional DOL/DOI related
Medicare covered items and/or services are needed in the future.
II.
LMSAs: Liability Medicare Set-Aside Arrangements
"Set-aside arrangement - [a]n administrative mechanism, used to allocate a
portion of a settlement, judgment or award for future medical and/or future
prescription drug expenses. A set-aside arrangement may be in the form
of a Workers' Compensation Medicare Set-Aside Arrangement
(WCMSA), No-Fault Liability Medicare Set-Aside Arrangement (NFSA)
or Liability Medicare Set-Aside Arrangement (LMSA)."
CMS MSP Manual, Rev. 65, 03-20-09 at § 20 (emphasis added).
A recent update of the MSP Manual included specific reference to set-asides in the
liability context. Namely, CMS formally defined and named liability set-asides
(LMSAs). Why would CMS come up with a name, and even an acronym, for something
they would never require?
Furthermore, CMS representative Barbara Wright
acknowledged the existence of LMSAs in 2008, even prior to formal recognition in the
MSP Manual. See MMSEA Oct. 29, 2008 NGHP Transcript at 18 (stating "I don't
believe there is a General Counsel Memo that says there are no liability set asides.") In
fact, several CMS Regional Offices, or "ROs," have been accepting and reviewing
LMSAs on a discretionary basis since at least 2006. See John J. Campbell, Medicare SetAsides in Liability Settlements Now?, The Medicare Set Aside Bulletin, Nov. 19, 2008.
Again, our legal obligation may terminate upon settlement, but our obligation as primary
payer under the MSP Act with regard to future DOL/DOI related medical expenses
arguably may not. An MSA is one way to reasonably consider and protect Medicare's
interest as it relates to future DOI/DOL related Medicare covered items and/or services.
And what is at stake for the failure to address Medicare's future interest? Medicare may
refuse to pay covered claims on behalf of the beneficiary until the entire settlement
amount is exhausted. However, there is no reference in any regulation as to the denial of
payment for future medical expenses for a personal injury case, only for a "work-related
injury." 42 C.F.R. §411.46. That only means Medicare may not deny the claim(s), but
pay the claim(s), and then seek reimbursement from your client.
What is the appropriate LMSA case? What is the right level of LMSA funding? How is
an LMSA administered? Should the LMSA be formally reviewed and approved by
CMS? These are all important issues to consider when the claimant involved is a
Medicare beneficiary and there may be DOL/DOI related future medicals that may
include items and/or services of the type Medicare would normally cover.
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A.
"Do I need an LMSA?"
Does the settlement include compensation for future DOL/DOI related medical expenses?
Will Medicare be called on to pay for future DOL/DOI related medical expenses,
including items and/or services normally covered by Medicare?
What do the beneficiary's medical providers say about the nature, extent, and duration of
future DOL/DOI related medical expenses?
1.
"Hot"
Scenario No. 1:
"Third party liability insurance proceeds are also primary to
Medicare. To the extent that a liability settlement is made that relieves a
Workers' Compensation (WC) carrier from any future medical expenses, a
CMS approved Workers' Compensation Medicare Set-aside Arrangement
(WCMSA) is appropriate. The WCMSA would need sufficient funds to
cover future medical expenses incurred once the total third party liability
settlement is exhausted. The only exception to establishing a WCMSA
would be if it can be documented that the claimant does not require any
further WC claim related medical services. A WCMSA is also not
recommended if the medical portion of the WC claim remains open, and
WC continues to be responsible for related services once the liability
settlement is exhausted."
WCMSAs in Cases Where There are Both a WC Claim and a Third Party Liability Claim
(Ref: 4/21/03 Memo Q19) available at
http://www.cms.gov/WorkersCompAgencyServices/08_setasiderelatedtopics.asp
(emphasis added).
Scenario No. 2:
Unlike WC, there is no statutory authority to determine what portion of a liability
settlement represents payment for medical expenses. Unless there is an specific
allocation in the settlement itself. When a settlement includes specific compensation
for ongoing or future medical expenses, Medicare's position is that "payment has been
made" by the primary payer and Medicare should not and cannot be required to pay for
such items and/or services. See John J. Campbell, Medicare Set Aside Arrangements for
Future Medical expenses in Third Party Liability Settlements, The Medicare Set Aside
Bulletin, Feb. 14, 2005. Therefore, the expectation is that those funds, allocated for
ongoing or future medicals, should be spent before any claims are submitted to Medicare
for payment.
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2.
"Warm"
Despite a lack of developed policies and procedures, LMSA = 0 and WCMSA = no less
than 11 separate policy memoranda to date, some argue that CMS has started to assert its
interest where future medical expenses are considered as a part of any personal injury
settlement, even when there is no specific allocation. See Robert T. Lewis & Patty
Meifert, Considering Medicare's Interest in Liability Cases, NAMSAP Newsletter, April
2005 at 4.
"[T]here is an obligation to inform CMS when past or future medicals
were a consideration in reaching the liability settlement, judgment, or
award whether or not specifically provided for in the settlement, judgment,
or award in cases involving a Medicare beneficiary. In addition, CMS
expects that any settlement funds that were intended to compensate for
future medicals be spent for that purpose before any claims related to the
settlement, judgment, or award are submitted to Medicare for payment."
Id. (emphasis added).
In other words, if your settlement closes out liability for future DOL/DOI related medical
expenses, then you have made a payment and Medicare cannot pay. It is all too common
to allow Medicare to pay for post-settlement medical items and/or services despite the
beneficiary already having been compensated for the items and/or services as a
component of the settlement. An LMSA is one way to ensure Medicare does not pay for
future DOL/DOI related medical expenses that are being compensated by a primary payer
as part of a settlement.
This is problematic though. In reality, virtually every settlement contains a release of any
and all claims, past and future. This creates a possible source of future reimbursement
liability as a primary payer to Medicare since arguably a payment has been made for
those future DOL/DOI related medical expenses, and therefore, Medicare cannot pay for
those medical expenses.
Setting aside the administrative difficulty in determining whether parties "considered"
futures or "intended" to compensate for futures, if there is an agreed upon need for future
DOL/DOI related medical expenses, including items and/or services of the type Medicare
would cover, well then, why would you not consider an LMSA? In addition to
protecting your client's interest in obtaining certainty and finality, an LMSA can
document how Medicare's future interest was reasonably considered and protected, even
if it is not agency reviewed and approved. Do not try to outsmart your conscience.
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3.
"Cool"
Scenario No. 1:
If the beneficiary never claimed future DOL/DOI related medical expenses, and there are
no medical records that document a need for DOL/DOI related future medical care and
treatment, memorialize that in the file. Watch for the removal of future damages as a
claim though. Do not let Plaintiff's counsel's conscience fool you.
Scenario No. 2:
As mentioned above, there is no statutory authority, nor are there any regulations
developed, on how to determine what portion of a liability settlement represents payment
for future medical expenses, absent an allocation in the settlement itself. Therefore, some
have argued that if you do not specifically allocate for future medical expenses, CMS
cannot require, or review the appropriateness of, an LMSA.
That being said, applicable statutory authority and regulatory direction is no doubt
forthcoming at this point. Therefore, an omission is not a good place to hang your hat
when past changes to the MSP Act regarding recovery and enforcement action have been
viewed as "merely clarifi[cation]", and therefore, were effectively retroactive. Brown v.
Thompson, No. 03-1588 (4th Cir. July 7, 2004)(holding that "MMA merely clarified the
meaning of MSP as it existed before those amendments and thus are not applying MMA
retroactively.")
4.
"Cold"
Scenario No. 1:
An MSA has already been established. Only need one MSA, whether WCMSA or
LMSA.
Scenario No. 2:
On the WCMSA side, Medicare has stated that an MSA is not necessary where all of the
following apply:
(1)
The facts of the case demonstrate that the injured individual is only being
compensated for past medical expenses; and
(2)
There is no evidence that the individual is attempting to maximize the other
aspects of the settlement to Medicare's detriment; and
(3)
The individual's treating physicians conclude in writing that, to a reasonable
degree of medical certainty, the individual will no longer require any Medicare covered
items and/or services related to the workers' compensation incident, injury, and/or illness.
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Therefore, if there was never a claim for futures and it is undisputed that the beneficiary
will not require future DOL/DOI related medical items and/or services of the type
normally covered by Medicare, memorialize that undisputed fact in the file. And make
sure you have the medical opinions to support it.
B.
"If I need an LMSA, what next?"
The process and procedure for use of an LMSA is very informal and limited. See
MMSEA Oct. 29, 2008 NGHP Transcript at 18 (CMS representative Barbara Wright
stating "we have a very informal, limited process for liability set asides. We don't have
the same extensive ones we have for worker[s'] comp[ensation.]") However, if you have
decided that you need an LMSA, one thing to consider is funding - how it will be funded
and how much to fund it.
1.
Funding
a.
How will it be funded?
Lump sum? Or structure?
b.
How much to fund it?
An MSA Allocation Report can be obtained from a professional Medicare Set-Aside
Consultant Certified, or "MSCC," to help determine how much to fund it. However, you
should know enough to tell if the allocation seems appropriate given the facts of your
case. For instance, an MSA should not be a funded life care plan. You are only funding
an MSA for items and/or services of the type that would be paid for by Medicare. That is
because Medicare has a medical necessity test to determine whether an item or service is
covered.
In order to be covered, an item or service must be reasonable and necessary for the
diagnosis or treatment of an illness or injury, or to improve the functioning of a
malformed body member. Medicare also allows for hospice care. However, for certain
conditions there is a list of automatically denied items and/or services. For a copy of the
list, look to local and national coverage determinations that are available on the CMS
website in the Medicare Coverage Database. If you are uncertain whether something is
covered, you can also look to the Medicare Guide available at
http://www.medicare.gov/Publications/Pubs/pdf/10050.pdf.
Once you have determined whether the alleged items and/or services are covered, how do
you determine whether it should be funded? It has been said that Medicare will base
"relatedness" on the beneficiary's claims. However, they will look at the medical reports
and medical records. Also, it is important to have already collected information on the
past conditional payments because that can help establish a pattern of care and treatment,
as well as provide cost estimates.
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You can also look to the WCMSA policies. According to the WCMSA policies, the setaside amount should be the reasonable allocations for future medical expenses and future
drug expenses for DOI/DOL related injuries, which would normally be covered by
Medicare, based on the claimant's life expectancy per CDC Table 1 for the entire
population (based on actual or rated age).
2.
Administration
This decision needs to be made by the beneficiary, and his or her representative.
However, it helps to be familiar with the options so you can converse on the topic with
counsel, and potentially help spot issues.
a.
Self-Administered Medicare Set-Aside Arrangement
These accounts are usually smaller accounts, and are administered by the beneficiary,
unless incompetent, or an appointed representative. No formal agreement is necessary.
However, the beneficiary must follow the same accounting rules as a professional
administrator. Since the effective management of an MSA requires some competency in
healthcare claims administration, a clear understanding of what items and services are
Medicare covered, and good record keeping skills, most claimants are unable to comply.
b.
Medicare Set-Aside Custodial Account
These accounts are usually larger accounts administered by a custodian. These are
professional organizations that have expertise in medical claims administration.
However, they are not trustees. They charge a fee, and are recommended where
financially justified. It should be noted that professional fees may not be paid for out of
the MSA account. This results in additional, and sometimes significant expense, to the
beneficiary.
c.
Medicare Set-Aside Trust
A Medicare Set-Aside Trust is a formal trust administered by a trustee. These are usually
only used for significantly larger accounts. They are also used in connection with Special
Needs Trusts if the beneficiary is receiving means-tested public benefits such as SSI,
Medicaid, Food Stamps, or Veterans Benefits. These trusts are usually cost-prohibitive
for most settlements.
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3.
Review and Approval
After you have decided you need an MSA, and you have decided how to fund and
administer it, you need to consider whether you are going to submit it for review and
approval. Look to the WCMSA workload thresholds for guidance. These thresholds
state that an MSA is "recommended" if the claimant is a current beneficiary and
settlement is greater than $25,000; or the claimant will be eligible within 30 months, and
the settlement amount for future medical expenses, disability, and lost wages is greater
than $250,000. Again, these are workload thresholds are informative only.
Moreover, the review and approval process is "voluntary," and it can be lengthy and
expensive. Yet, that is the price paid to get the approval letter from CMS. A reviewed
and approved MSA obtains certainty as to the finality of the claim for your client.
Remember that you could end up submitting an MSA for review, and CMS may never
approve it. Or they may kick it back because of errors, or to adjust the set aside amount,
always upward.
Alternatively, an allocation report and an informal MSA could be prepared to document
the file as to how the parties reasonably considered Medicare future interest, but
ultimately, not submitted for review and approval. Again, as defense counsel you should
be savvy enough to know if the allocation is appropriate to rely on for these purposes.
Will you be able to defend your actions or omissions?
Finally, when an allocation report, and perhaps an LMSA is prepared but not submitted,
you should consider sending a letter to the RO notifying them of the beneficiary's
information and that he or she is going to be receiving a liability settlement, but because
it is not a workers' compensation case, no MSA is being established. Ask to be contacted
within a certain time limit if they disagree. This will not be a safe harbor, but it will help
you document your file as to how Medicare's future interest was reasonably considered
and protected. Just in case you have to defend your actions or omissions.
III.
Additional Considerations
The U.S. Attorney's office cannot be involved in the MSA review and approval process.
This is solely an administrative function. However, since Medicare has not yet
formalized or established uniform procedures for using MSAs outside the WC setting
some ROs will review them and some will not. Each RO is independent, and absent any
national policy, how the law is enforced depends on the region involved. See MMSEA
Oct. 22, 2009 NGHP Transcript at 65 (CMS representative Barbara Wright stating each
CMS regional office makes its own decisions whether to review or not.)
So contact the appropriate RO to find out whether they are taking submissions. Note that
the beneficiary's state of residence controls which RO is appropriate, rather than the
venue state.
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However, if the RO declines to review, or just completely ignores you, that is not a safe
harbor. Specifically, the "fact that they decline to review in a particular case does not
create any type of safe harbor. So you're back to an obligation that has existed essentially
since 1980." See MMSEA Oct. 22, 2009 NGHP Transcript at 65.
Again, even though nothing agreed to by the parties, solely, will bind the federal
government, I still recommend that the parties enter into agreements on the timeline for
reimbursing Medicare, responsibility for reimbursement, and the manner in which
Medicare will be reimbursed will not be binding. Specifically, when establishing an
LMSA, document in the release language that the beneficiary has sole responsibly for
establishing and maintaining the LMSA, either with or without formal assistance in its
administration.
You should also document if Plaintiff has continuing health care coverage or WC
coverage, as a way to show that Medicare's future interest has been considered and
protected. However, Medicare recognizes that present eligibility for such coverage does
not guarantee that it will be available to the beneficiary in the future, so this approach
should not be the only basis for not considering an LMSA.
Additionally, if the claimant is a beneficiary, any release should document that the
claimant has been advised of Medicare's potential interest and that the claimant
knowingly agreed to assume any risk if no set-aside is going to be established and/or
submitted for agency review and approval.
If the beneficiary is represented, his or her counsel may still prepare an allocation report
and an informal LMSA, but not submit and defense counsel should be savvy enough to
know if the allocation is appropriate to rely on.
As discussed above, MSAs are not in the MSP Act. MSAs were not even created by
CMS. CMS does not require MSAs. CMS does not require review of MSAs; the review
is a "voluntary" process. They are, however, discussed and developed in policy
memoranda as to CMS recommendations on "how to." At least as to WCMSAs. WC
policy and procedure has been developed, but just because it has not yet been developed
for LMSAs does not mean we can ignore Medicare's future interest. Look to the
WCMSA policies for guidance.
And because CMS considers it a voluntary program, and because review is not
mandatory, the policies are not considered rules, and therefore, not subject to publication
in the regs or subject to public comment. So read the policy memoranda, and check the
site
periodically.
The
memoranda
are
available
online
at
http://www.cms.hhs.gov/WorkersCompAgencyServices.
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Finally, don't let your hard work go to waste. Remember, “[a]lthough five years is
generally recognized as the standard for record retention in the industry” CMS
recommends a record retention period of ten years for MSP related information.
Supporting Statement for the MSP MIR Requirements of Section 111 of the MMSEA of
2007; CMS-10265. “Absence of related information does not constitute a valid defense
against an MSP recovery action.” Id.
IV.
Conclusion
As defense counsel what is your objective? Your objective is to protect your client's
interests. For purposes of this article, you want to protect your client against the risk of
liability for future medical expenses. Since your client's obligation is to reasonably
consider and protect Medicare's future interest, you should be able to demonstrate to
CMS how its interest was reasonably considered and protected when there is a reasonable
likelihood of future medical expenses. An LMSA is one way to reasonably consider and
protect Medicare's future interest, while obtaining certainty and finality on behalf of your
client.
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GLOSSARY
Term/Acronym
Description
CMS
CENTERS FOR MEDICARE AND MEDICAID SERVICES
DOI
DATE OF INCIDENT
DOL
DATE OF LOSS
LMSA
LIABILITY MEDICARE SET-ASIDE ARRANGEMENT
MIR
MANDATORY INSURER REPORTING
MMA
MEDICARE MODERNIZATION ACT OF 2003
MMSEA
MEDICARE, MEDICAID AND SCHIP EXTENSION ACT
OF 2007
MSA
MEDICARE SET-ASIDE ARRANGEMENT
MSCC
MEDICARE SET-ASIDE CONSULTANT CERTIFIED
MSP
MEDICARE SECONDARY PAYER
NAMSAP
NATIONAL ALLIANCE OF MEDICARE SET-ASIDE
PROFESSIONALS
NFSA
NO FAULT LIABILITY
ARRANGEMENT
RO
REGIONAL OFFICE
SECTION 111
MMSEA SECTION ON MIR
WC
WORKERS' COMPENSATION
WCMSA
WORKERS' COMPENSATION MEDICARE SET-ASIDE
ARRANGEMENT
MEDICARE
SET-ASIDE
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