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California: Compromise and Release and Medicare Set-Aside: Informed Consent and Assumption of Risk

June 15, 2016 (3 min read)

Liability for future medical treatment for a work related condition cannot be transferred to Medicare without its permission

In Alvarenga v. Scope Industries, 2016 Cal. Wrk. Comp. P.D. LEXIS --, the WCAB panel rescinded the WCJ’s order approving the parties’ Compromise and Release, which included a Medicare Set-Aside (MSA) of $24,079.23 that the parties did not submit to the Centers for Medicare & Medicaid Services (CMS) for approval.

The WCAB panel did not adopt the defendant’s position that at the time the order approving Compromise and Release was issued there was a mutual mistake by the parties regarding whether or not the MSA required CMS approval. The WCAB panel explained that, while CMS does not require review of an MSA, if the MSA settlement has not been approved by CMS, CMS is not bound by the amount the parties stipulated to for the MSA and could refuse to pay for future claim-related medical expenses, which is a significant consequence of failing to have the CMS review the MSA. However, if the parties receive CMS approval and the amount is later properly spent, Medicare will pay Medicare-covered, claim-related medical bills regardless of the amount of care the applicant continues to require. The WCAB panel further noted that $25,000.00 is the minimum settlement amount for which the CMS will actually conduct review, and that, while not requiring review, the CMS recommends review of an MSA under certain conditions.

Here, although there was no showing of mutual mistake in this case, the fact that the applicant was not adequately advised of the effect of the parties’ failure to conduct CMS review of the MSA and the fact that the Compromise and Release did not include enough funds to cover the MSA or provide any consideration for non-Medicare covered expenses, constituted good cause to rescind the order approving Compromise and Release. 

Commentary by Robert G. Rassp, Esq.:

The opinion by the WCAB speaks for itself. A C&R is about informed consent and assumption of risk. Here, the injured worker assumed the risk by not submitting the proposed WCMSA to CMS for approval, most likely because the overall settlement amount was not that high. The injured worker assumes the risk that a proposed WCMSA is too low to satisfy CMS' rule that workers’ compensation is primary to Medicare for treatment of work related injuries, and if the set-aside amount is too low, then Medicare will not cover future medical treatment for the work related parts of body injured. In short, the insurer should not have insisted this settlement and proposed WCMSA be submitted to CMS for approval. The WCAB panel's decision was spot on since the parties failed to agree on the terms of the C&R, the parties erred on the level of CMS's threshold of review, and they failed to agree to either submit or not submit the WCMSA to CMS for approval.

If the parties are now submitting the proposed WCMSA to CMS for approval, the insurer is taking a chance that the proposed WCMSA was too low and that CMS will now require the insurer to pony up more money to cover CMS' determination of adequate consideration of its interests in the settlement. Also, the C&R erroneously stated that the settlement did not meet the CMS review threshold, which is false. The CMS review threshold is $25,000.00 gross settlement which is the overall C&R amount and not just the set-aside proposed amount.

This case is very helpful for the workers’ compensation community because it quotes verbatim from CMS’ Medicare Secondary Payer handbook, which was updated in April 2016, and the WCAB panel quoted the most important sections of the handbook. Basically, you cannot transfer liability for future medical treatment for a work related condition to Medicare without Medicare's permission. This is true even if the gross settlement is under $25,000.00 and the injured worker is a Medicare beneficiary. However, CMS will not review low settlements for "adequate consideration" of Medicare's interests.

Read the Alvarenga noteworthy panel decision.

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