C&R Rescinded Because Applicant was not Informed of Risks Associated with not Obtaining CMS Approval

Medicare Set-Aside Blog on June 21, 2016 | Posted by Jennifer Jordan, JD, MSCC

A noteworthy panel decision was reported out of California this week involving the WCAB rescinding the WCJ’s order approving the parties’ C&R due to an alleged “mutual misunderstanding” regarding the MSA. The case involved a $39,000 settlement with $11,040 permanent disability advances and $5,858 worth of attorney fees, leaving the applicant with a net recovery of $22,110 and a $24,079.23 MSA that was not submitted to CMS for approval. The case was not originally believed by the defendant to meet the CMS threshold for review, however the carrier’s MSA vendor later corrected them that it was in fact reviewable. At that point, the carrier believed that CMS approval was “required” but the opinion was unclear whether they believed that to be a legal requirement or simply a requirement of the defendant. Regardless, the defendant contends that the parties entered into the C&R by mutual mistake and petitioned to have the C&R rescinded. The applicant did not answer the petition and the WCAB granted the motion.

It is important to note that the WCAB did not grant the motion because CMS approval was not obtained. The opinion is very clear, citing the CMS WCMSA Reference Guide as authority, that CMS approval is voluntary and although provides some assurance that the MSA is sufficient in the government’s opinion, is not required by any law. Therefore there was no mutual mistake with regard to whether or not CMS needed to review the MSA because CMS does not require review of any MSAs. The WCAB instead found two other significant issues in this particular case that constituted good reason to rescind the C&R.

First, the language of the C&R did not advise the applicant of the risks associated with not obtaining CMS approval of his MSA. Although not required by any law, CMS does say that if approved, it will allow Medicare to resume coverage once applicant can demonstrate that the MSA was properly exhausted. If not approved, then CMS is not bound by the amount stipulated in the C&R and could refuse to pay future claim related medical expenses. The C&R should have stated this as well as explain how that applicant was still expected to maintain and exhaust his MSA in accordance to CMS recommendations for self-administration. Because the applicant carried the risk of potential future dealings with CMS, the WCAB felt he should have been better informed.

But what the WCAB did not mention was that the CMS WCMSA Reference Guide does not say, and that is that this informal opinion is not subject to an appeal because this program is in fact voluntary and not mandated by any law or regulation. However at the time the MSA is exhausted, an actual benefit determination will need to be made either denying treatment due to CMS maintaining the secondary payer exclusion or seeking reimbursement from settlement funds of payments made conditionally. Either way, that decision will be entitled to an administrative appeal under the Medicare Act at which time legal defenses can be made justifying the amount of the MSA. 42 C.F.R. 411.46 states clearly that Medicare is only excluded to the extent that an allocation for future medical expenses is made from a workers’ compensation settlement, so as long as the settlement meets the state workers’ compensation law requirements for termination of medical benefits, then there should be no arguments from the federal government as to the adequacy of the allocation. But for the  compensability under state law, there is no Medicare exclusion. CMS’ opinion is comforting but is not required and comes at an inherent cost baked into the approval program procedures.

The second issues is that the WCAB found the settlement to be inadequate given the MSA was $24,079.23 and the net settlement to the applicant only $22,110.00 after deductions for advances and fees. The WCAB found that the “C&R did not include enough funds to cover the MSA, nor did it provide any consideration for non-Medicare covered expenses.” Because the opinion does not provide any insight into what non-Medicare covered items are needed, I cannot comment as to the total settlement amount. However with regard to the MSA, I disagree with the assessment. The total settlement was for $39,000.00. That provides nearly $15,000 beyond the MSA as calculated by the MSA vendor, which means likely to CMS standards. Defendant is not responsible for applicant’s retention of an attorney nor it is responsible for the fact that applicant already received and likely spent a good portion of his settlement in the form of advances. The C&R was originally approved for that amount, meaning that the parties put before the WCJ a set of facts that met the state law requirements for entering into a C&R. There is no reason the settlement should have been greater simply based upon the fact that the net proceeds were not sufficient to cover the MSA.

The C&R should have addressed the deficiency by stating that because the applicant had received such a large advance and had an attorney to pay that, that he acknowledged and understood that he was still expected to exhaust the MSA amount as projected, regardless of the source of those extra funds. CMS policy states that attorney’s fees cannot be paid from an MSA but that only means that the MSA may not be reduced for purposes of lifting the MSP exclusion for that reason, in the agency’s opinion which remains to be tested. The Secondary Payer exclusion only prevents Medicare from making related payments until the MSA amount is exhausted on related medical treatment. There is no federal law or regulation that states what the applicant may or may not do with the settlement funds once in his possession. If used for some other purpose, the applicant simply needs to understand that the MSP exclusion does not go away until the MSA amount is spent on related treatment regardless of where the funds come from. If this were a fair settlement amount made pursuant to state law, then the WCAB should not have rescinded the C&R for this reason.

Given that applicant was represented and that the only mistake made here was made by the defendant over an issue with no legal basis, this settlement should have remained final. If applicant accepted that CMS approval was not being obtained, regardless of why, then that was a term of settlement. If defendant failed to seek approval that it wanted because it made an error and failed to include a contingency for such a mistake in its settlement agreement, then it should have been held to the terms of the C&R. But given the great misunderstanding by attorneys, judges, applicants, etc. nationwide, it is not surprising to see this outcome. Regardless, it is important for everyone to understand that it was not because CMS approval was not obtained that this C&R was rescinded. At least the WCAB was clear on that point.

Alvarenga v. Scope Industries, 2016 Cal. Wrk. Comp. P.D. LEXIS ______

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