16 Apr 2017

California: Medicare Settlement Agreements: The Perils of Unanticipated Problems After Settlement

What exactly is the role of the WCAB, not to mention the parties to the C&R, in addressing unanticipated problems that come up with an MSA after settlement?

In Muniz Villalpando v. Doherty Brothers, 2017 Cal. Wrk. Comp. P.D. LEXIS --, the WCAB, in a split panel opinion, rescinded the WCJ’s order denying the applicant’s request to transfer the administration of his Medical Set-Aside Account (MSA) from Bridge Pointe/NuQuest (Bridge Pointe) to himself, when the applicant wished to replace Bridge Pointe based on his claims that he had problems obtaining medical services through the current arrangement.

The WCAB panel majority believed it was premature for the WCJ to consider the applicant’s request to modify the terms of the Compromise and Release Agreement where the WCJ had not considered the nature of the agreement between the State Compensation Insurance Fund, applicant and Bridge Pointe.

The WCAB remanded the matter to the WCJ to allow her the opportunity to review the formal agreement setting up the MSA between the defendant State Compensation Insurance Fund and Bridge Pointe to determine whether the agreement provided for a change of administration based on the request or the finding of good cause, and, if no such provision exists, to determine the applicant’s contractual rights with respect to the administration of the MSA and the applicant’s competence to self-administer the MSA.

Commissioner Zalewski, dissenting, would have affirmed the WCJ’s decision because she believed that the applicant’s evidence of his dissatisfaction with the agreed upon administrator was not good cause to set aside the parties’ agreement regarding the administration of the MSA as reflected in the Compromise and Release.

Commentary:

There have unquestionably been some significant developments in workers’ compensation over the last 15 years. Arguably, none have been more significant than the role protecting Medicare’s interests now plays when settling a workers’ compensation case. Indeed, it is now hard to remember a time when the Compromise and Release (C&R) negotiations did not begin by first determining what Medicare would either accept or was likely to accept in terms of a Medicare Set-Aside Trust.

The increased prevalence of MSA’s has brought about a number of issues for the Workers’ Compensation Administrative Law Judge (WCJ) to look at when he or she is presented with such a settlement. First, has Medicare approved the amount of the proposed MSA? If Medicare has not signed-off on the amount of the MSA, what happens if Medicare does not agree with the proposed MSA and wants additional funding? Is there language in the settlement that wherein defendant agrees to cover the under-funding or that applicant is willing to bear the risk of such a determination?

There are also issues that have to be considered once the settlement is approved. A C&R which includes an MSA also places future obligations on the employee. There are MSA’s that are funded with one lump sum and there are MSA’s that are funded with seed money and then annual payments over a specified number of years. Thus, there are significant responsibilities being assumed by the employee involving not only the receipt of the money, but also in the establishment of an interest bearing bank account, as well as annual accountings that have to be made to Medicare.

This is why Muniz Villalpando is so interesting. Per the terms of the C&R, applicant agreed to have a third party administer the MSA. After the settlement was approved, however, he changed his mind and decided he wanted to self-administer. Unfortunately, there was no language in the C&R addressing this contingency. Applicant argued that he was not getting the treatment he needed as a result of the arrangement. What exactly is the role of the WCAB, not to mention the parties to the C&R, in addressing unanticipated problems that come up with an MSA after settlement?

In a time where MSA’s are the norm and where the MSA’s and the lengthy C&R addendums that accompany them are sometimes hurriedly put together, this case should give pause to all of the practitioners. A C&R that incorporates an MSA is a complicated contractual proposition. When drafting these agreements, the parties would be well advised to proceed with caution and have a complete understanding of both the rights and obligations that are being created by the agreement.

Read the panel decision.