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C&R Set Aside Over MSA Defects: Attorney Fee Made Proceeds Insufficient to Fund MSA

Happy Friday, dear readers!

Your humble blogger has heard many-a-whispers of a case making the rounds (Alvarenga v. Scope Industries) discussing the interplay of Medicare Set-Asides (MSA) and Compromise and Release settlements.  From the looks of it, the parties entered into a C&R which was approved, but then defendant sought to set aside the Order Approving on the grounds of mutual mistake, to wit, that the MSA did not require Centers for Medicare & Medicaid Services (CMS) approval.

The case is an interesting one for many reasons.  The WCAB provided a discussion of CMS procedures and ultimately did rescind the order approving compromise and release, but not because of any allegations of mutual mistake – the WCAB found the settlement inadequate and that applicant was not properly advised of the impact the C&R would have on his Medicare benefits going forward.

With respect to CMS and MSA the WCAB panel noted that if the injured worker is (1) a Medicare beneficiary; or (2) has a reasonable expectation of becoming a Medicare beneficiary in the next 30 months, the parties must protect CMS’s interests.  In other words, you can’t just shift the obligation to pay for medical treatment for an industrial injury onto the federal government.  (42 USC sec 1395y(b)(1); identifying Medicare as secondary payer to workers’ compensation).

CMS, out of a workload consideration, won’t even review (and thus won’t approve) settlements for under $25,000 where the injured worker is a Medicare beneficiary, or $250,000 where the injured worker may become a Medicare beneficiary.

Accordingly, the WCAB pointed out that there is no requirement of CMS approval at all, and that approval by CMS of a Medicare set-aside will only be available to the parties when the workload threshold is met as above.

However, the settlement was still set aside on adequacy grounds.  The MSA came back at $24,079.23, and the C&R was for $39,000, less $11,040 for PDAs and $5,850 for attorney fees.  So the applicant was left with less than enough to cover the medical expenses as projected by the MSA.  But, had applicant’s counsel waived the attorney fee on the MSA portion of the settlement, the “new money” would have been $24,079.23 for the MSA and an additional $1,642.66 for applicant.

But… isn’t the attorney supposed to take a fee out of the MSA amount?  The WCAB has held that attorneys get a piece of the MSA as part of their fee.  Let’s take a case where the parties are five years out past the date of injury (so no chance of a new and further claim) and all TTD and PD has been paid (prior to representation of the injured worker).  All that’s left if the future medical care and for whatever reason, applicant is not entitled to a voucher.  If the MSA comes back at $24,000, and there’s no other benefit to settle, either the applicant’s attorney is entitled to a fee off the  $24,000 C&R, in which case there’s not enough money left to fund the MSA (leaving just $20,400/$24,000) or the attorney is not entitled to a fee.  Which one is it?

Additionally, the panel held that the C&R is inadequate because “based on the language contained within the C&R, it does not appear that applicant was adequately advised of the effect of the parties’ failure to conduct CMS review of the MSA.  If the parties wish to enter into a C&R with an MSA arrangement without obtaining CMS review, applicant should be advised of the fact that CMS may withhold future Medicare benefits if CMS deems the settlement to be inadequate.”   Well… in that case… why is there an attorney fee at all?

The injured worker is ponying up 15% of his settlement for a reason – the attorney is there to advocate for his interest and to advise him of his rights and risks in litigating his case.  If the burden is on the defense to advise a represented applicant of the effects of a settlement, should the WCAB award that 15% right back to the defendant for doing the applicant’s attorney’s job?

As a workers’ compensation defense attorney, I have the privilege of working with lots and lots of applicant’s attorneys.  Some are nice, some are jerks.  Some are competent, and some aren’t.  There are some that put the injured worker’s interests first, and some that will guide their clients by the nose to the operating table for needless but crippling surgeries.  But in all of these cases, the injured worker has his remedy: if the applicant’s attorney breaches his duty of loyalty and competency, there are available actions such as (1) state bar discipline; and (2) malpractice actions.

It’s hard enough being a defendant in California’s workers’ compensation system – let’s not make defendants serve the role of a second applicant’s counsel as well!

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  1. Larry Whiting
    July 15th, 2016 at 16:54 | #1

    Not only do I think the C&R was inadequate for the reasons stated, there also appears to be no consideration for the non-Medicare covered costs that may be related to the injury.
    As an applicant’s attorney, I am a firm believer that we cannot take a fee out of the Medicare funds or else the applicant runs the risk of falling short of the approved sum. That being said, I insist the defendants include enough additional money to cover the fee. If the defendant says no way then I say no settlement. They usually blink. If not, they continue on the liability for future medical.

    • Gregory Grinberg
      July 16th, 2016 at 15:59 | #2

      Hi Larry – very good point. Of course, that is the issue – if the fee is not coming out of the MSA, then the defendant is being asked to pay for attorney fees on top of, rather than out of, the benefits to be provided. I don’t know the answer to this one, but I imagine that, depending on the global strategy of the defendant, you might not always win the game of chicken. Thanks for sharing your thoughts!

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