Meeting of the Minds Imperative in WC Settlements Involving MSAs

Medicare Set-Aside Blog on January 25, 2011
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A good portion of the MSP case law lately involves parties attempting to enforce settlements where MSAs are involved. Regardless of who did what or why, or what makes it more attractive to leave the claim open, inevitably, the courts just defer the substantive issue. Since there was meeting of the mind, it is unnecessary to evaluate the merits of the claim.

On January 20, 2011, the Supreme Court of Kentucky affirmed a determination not to enforce a workers’ compensation settlement in Hudson v. Cave Hill Cemetery [2011 Ky. LEXIS 8] because it agreed that no complete settlement agreement had been reached. Despite a significant proffering of evidence that confirmed the communications between the adjuster and claimant’s attorney, it was found that the terms of the settlement were not sufficiently agreed upon, let alone properly memorialized and approved pursuant to state law. MSAs have legal and financial consequences, so the offer for full and final resolution of the claim for $500,000 to “include a set-aside” was found to be incomplete in the eyes of the court.

Interestingly, there was clearly a settlement agreed upon; however, no settlement agreement was drawn up immediately, probably because they were waiting on an MSA evaluation. There are two possibilities as to why the carrier elected to claim there was no settlement, and they both revolve around not knowing what the MSA was before they agreed to the settlement. 

Here we have a 30 year old claimant taking $1,500 to $2,000 per month in pharmaceuticals. Without knowing if a diminished life expectancy would apply, claimant potentially had a 49 year life expectancy to evaluate.
Given those two facts alone, the MSA would have contained up to $1,176,000 in Rx alone. Clearly there was an element of drug abuse in play as the ALJ ultimately ordered detox, a course of action that is virtually meaningless in the eyes of CMS. So the first flaw in the settlement was an MSA that ended up being in excess of the agreed settlement amount.

Now whether the carrier knew the MSA amount at the time or not, the second flaw in the case was that no one notified the ALJ that a settlement had been agreed upon. Note that the ALJ was involved to resolve a motion to compel the employer to pay disputed medical expenses following a 2003 indemnity settlement. The parties had received 30 days to file briefs prior to the matter being submitted for decision on October 21, 2007.
The settlement was agreed upon between October 16th and 19th, but no one notified the ALJ. The ALJ opinion was rendered on November 15, 2007 in the carrier’s favor as the disputed psychiatric treatment and medications were deemed not the employer’s responsibility and instead ordered rehab, a much more palatable financial outcome than the $500,000 in play, with or without fully funding the unknown MSA.

Lessons to be learned from this case are many, but first and foremost, you MUST know what your MSA picture looks like before you reach any binding agreements. This is extremely dangerous territory if you are not familiar enough with the process to estimate your exposure or need for an MSA opinion.
 All parties to settlements have to stop treating the MSP issue like a minor annoyance and recognize the significant financial implications that it carries. I continue to see adjusters focused on indemnity and recognize that an MSA would be appropriate, so agree to fund whatever that may be. They are then genuinely shocked when we later tell them what that number is likely to be after CMS review. That may be fine if the agreement was contingent on an acceptable number from Medicare. However, I also still see attorneys attempt to expedite approval by their workers’ compensation agency with an agreement to fund whatever CMS says, and then are stuck funding CMS counter approvals no matter how unreasonable. In this respect, I have to agree with the courts that there can clearly be no meeting of the minds when the parties could not possibly have known or understood what they agreed to.

2011 Ky. LEXIS 8
January 20, 2011, Rendered