The January 2019 issue of the National Association of Workers' Compensation Judiciary's Lex and Verum includes an intriguing article regarding attorney fees: How Many Slices are in a Twelve Inch Pie? The author is one of the Virginia Worker's Compensation Commission members, and former chair, Wesley Marshall. The theme of the article is the increasingly ubiquitous Medicare Set-Aside, and the question of obtention of benefits.
The article provides an overview of the advent of Medicare's involvement in the world of workers' compensation, the delineation of Medicare as a "secondary payer" (as in anyone else involved should be the “primary payer”), and the "duty to protect Medicare's interests when resolving" cases. Though this is a workers’ compensation (WC) focus, the same “Medicare interests” appear in a variety of other examples involving some entity with “primary” responsibility for medical care.
Commissioner Marshall discusses two conflicting California decisions. One concluded the part of the WC settlement proceeds apportioned to the Medicare Set Aside (MSA) should not be included in the attorney fee calculation. The California Board reasoned "the claimant did not necessarily place herself in a more advantageous position by settling her medical award." In other words, as America put it in Tin Man in 1974: "Oz never did give nothing to the Tin Man That he didn't, didn't already have." That is, perhaps it is valid to question: "what did the injured worker gain?"
He contrasts that conclusion to a later decision from the same California Appeals Board. It concluded the MSA funds were a benefit and should be included in the "obtained benefits" to calculate the attorney fee. The Board there cited treatment obtained with the funds in the MSA would be more readily usable at the patient/worker's discretion. The constraints of the state workers' compensation system were eliminated by the settlement of the case, and funding of the MSA. Also, the Board noted that should the worker pass away, medical benefits under the state workers' compensation law would cease. However, in such an event, the remainder in an MSA account "would be payable to the injured workers' estate," at least in some circumstances. Other state decisions are discussed by the Commissioner, but these two serve as examples.
Commissioner Marshall concludes that "there is no federal guidance on whether an attorney's fee for settlement" may or should include the MSA funds in the calculation. He notes that it might be equitable to include these amounts in order to avoid "giving Medicare a 'free ride' either directly or indirectly." He also contends that declining to include these amounts in the calculation could prove a disincentive to the representation of workers whose cases would likely involve an MSA. In this regard, he sees an unintended consequence of such exclusion.
He concedes that some might conclude that inclusion of that figure in the calculation, a figure that can only be used to pay specific medical costs, might result in "most or even all" of the non-MSA settlement funds (the indemnity portion of the settlement) being depleted through attorney’s fees. Commissioner Marshall suggests that some formula might be contrived as a compromise regarding fees for the MSA portion of a settlement, but cautions that such a formula would have to "balance carefully the need for attorneys in the system and for them to be compensated fairly against the ultimate conclusion that a settlement is in an injured worker’s best interest."
This discussion was interesting for several reasons. First, from the "Tin Man" argument perspective, perhaps every settlement in workers' compensation is similarly only what the injured worker "has coming." That is, is an allocated amount for future medical care really that different from an allocated amount for any other benefit category? Often, indemnity benefits in workers' compensation are formulaic. Absent a settlement, those benefits are generally paid periodically. They are calculated based upon various statutory criteria such as: loss of function or ability, impairment rating, or lost wages. Many formulae for such income benefits have been engaged across the country over the last hundred years. But what they all have in common is that they are largely mathematical.
Mathematical that is in the sense that those who pay benefits (employers and their insurance carriers) can reasonably calculate the probable volume of benefits that will be due any particular injured worker. Whether with assumptions regarding impairment or economic loss, or with actual figures and facts, the payers may reach educated conclusions about the probabilities of the exposure cost. Generally, armed with the knowledge of that probable expense, the employer or carrier offers settlement by payment of something less to the injured worker. From the payer's perspective, perhaps that savings is the motivation for settlement in the first instance?
Certainly, there is also perceived benefit in claims closure generally; it means one less file to monitor, to reserve, to manage. Certainly, the closure of a claim reduces the payer’s transaction costs. For each open file, there is some expenditure for an adjuster or other claims professional to both periodically review and process various ongoing payments therein. Thus, reduction in the number of open claims, through settlement, represents a reduction in payer overhead. But, generally speaking, there is nonetheless likely a desire of the payer to pay less than it otherwise predicts or anticipates based upon the statute and the mathematically calculated payments over time.
Thus, one might validly argue that in a variety of settlements the negotiation is not to obtain what a statutory scheme provides, or greater than what it provides, but instead to obtain less than the injured worker is otherwise likely entitled. Notably, there is corresponding benefit to the worker in settlement. Similarly to the second California logic above, settlement proceeds remain the injured workers' property following death, when death would otherwise likely truncate the payers obligation to pay periodic workers' compensation benefits.
Second, the "closure" so valued by the payer may also represent a value to the injured worker (or even Medicare as discussed below). The worker obtains closure, certainty, and peace of mind as well as the payer. Anyone who has been involved in workers’ compensation settlements understands that some claimants do not consider only their economic self-interest in deciding whether or not to settle. Litigants care about fairness, not just money. Thus, the "Tin Man" analysis is perhaps less persuasive.
That non-inclusion argument, that the injured worker is getting in the MSA only that to which she/he is undoubtedly and otherwise entitled is an arguably accurate description of what is occurring. But, in contrast, the other settlement value (the indemnity and other incidentals) is often, and perhaps always, less than that to which the worker is entitled. Historically, workers' compensation systems have never been concerned with attorneys earning a fee based upon their negotiation of the obtention of such a settlement, for less than the worker is otherwise entitled.
Why would that same system express concern that a fee was similarly calculated on what experts and soothsayers conclude is the exact value of what would otherwise be provided? If anything, that alone might convince some that the MSA portion is more of a benefit than the non-MSA portion?
The second flaw in the logic of treating the MSA settlement portion differently is simpler. Though the California Board touched on its perceptions of why a settlement is beneficial to an injured worker, with all due respect, who should decide if a settlement is what an injured worker really wants? This is where Commissioner Marshall's analysis of the Virginia Board's role is critical. He notes that in Virginia the Commission is charged with making a determination that "a settlement is in the claimant’s best interest." In a multitude of jurisdictions that is the case. And, if the particular injured worker is in one of those jurisdictions, then that determination will necessarily be a holistic one by some regulator or regulatory process.
What has driven legislatures to include that “best interest” statutory analysis? There is some perception that review is fundamental to the preservation of the “grand bargain” of workers’ compensation and the Constitutional guarantees of due process in such an administrative system. Some perceive settlement of workers’ compensation as deleterious to what they characterize as a public commitment to “redistributive justice,” and thus a process in which protection or review is necessary and appropriate. Still others believe that injured workers and payers have decidedly unequal bargaining power, and they perceive the “best interest” analysis as a check and balance on the inequity perceived.
I note these perceptions and add that in Florida most settlements no longer require such a judicial or regulatory “best interest” finding or conclusion. Before 2001, all settlements required such a finding in Florida. But, then the legislature removed that requirement for judicial oversight if an injured worker is represented by counsel. In a Florida case in which the worker is represented, the attorney is thus making the “best interest” determination. Whether this analysis is judicial, regulatory, or by an attorney, it has to include a fair and reasoned consideration of all the circumstances of a case.
For example, perhaps the employer is uninsured and teetering on bankruptcy, then maybe a smaller settlement than otherwise anticipated is nonetheless in the workers' best interest. Or, the worker suffers from some unrelated and yet serious or life-threatening medical condition, perhaps a smaller settlement than otherwise anticipated. Or, if the worker continues to require significant care and treatment beyond what such an injury might reasonably be expected to need, perhaps the settlement is larger than otherwise anticipated. Or, the complexity, medical or legal, of some aspect of a worker's condition or allegations results in additional administrative time and attention, perhaps the settlement is therefore larger than otherwise anticipated. Thus, the injury, medical or vocational, is not necessarily settled in isolation. The value is not necessarily mathematical. The case is settled, and in arriving at what consideration will be sufficient, the totality of circumstances must be considered.
That remains true whether a governmental agency or an attorney is analyzing the "best interest." Regardless, the analysis may be challenging. The analysis itself may not be mathematical or formulaic. At the end of the day, regardless of whether an attorney is making the "best interest" analysis for the worker or whether the attorney is building the case for the settlement in order to demonstrate "best interest" to some adjudicator or regulator, that "best interest" process must be fulfilled. Whether stated in a statute or not, the worker's attorney must be focused upon the client's best interest.
Thus, either the injured worker is successful in settling or she/he is not. Similarly, the attorney delivers value in that process or she/he does not. Either her/his fee is thus reasonable or it is not. And that is a holistic decision that compels the consideration of what has been obtained, in exchange for what has been foregone. The effort of the attorney and the benefit to the client are important considerations. To suggest that such a "best interest" analysis should ignore or exclude certain facts, such as the value of medical benefit determined, potentially raises more questions than it answers.
I would suggest that the Tin Man argument perhaps applies most logically to Medicare itself. Commissioner Marshall notes that Medicare should not enjoy a “free ride.” However, I perceive Medicare has nothing to lose, or frankly to gain in the settlement process.
Commissioner Marshall disagrees. He contends that through settlement, Medicare’s reimbursement regarding certain treatment or care becomes a known and fixed amount. He argues certainty in itself is a benefit, whether it is certainty of a full measure of expense recovery, something more, or less. In considering whether there is or is not benefit in that certainty, the touchstone may be that Medicare will not “profit,” that is “gain” income, from any over-estimate of probable future expense, but may face unreimbursed expense if it under-estimates that future probability. In approving a set-aside, does Medicare gain or lose?
Perhaps there is a benefit at least as regards the Medicare “transaction costs,” similar to the corresponding benefit to the payer (or worker, as discussed above)? In this regard at least, perhaps there is substantiation for Commissioner Marshall’s contention that the benefits to Medicare are a “free ride” if those future medical payment estimates are not included in the calculation of the attorney fee?
But, in no regard is Medicare paying an attorney fee, whether the MSA value is included in the fee calculation or not. The fee being paid to the attorney is either being paid by the employer (or its carrier) or the injured worker. Thus, if you accept Commissioner Marshall’s argument that it receives value, Medicare is benefiting at the expense of the payer. Or, if you accept that Medicare neither gains nor loses in the process of settlement, the fact remains that it pays no portion of the fee regardless.
There are various potential scenarios worth mentioning. In a denied case, one in which the employer resists paying any benefits, a settlement might be the only process through which Medicare enjoys any benefit. Certainly, such a case might be tried to conclusion. In that outcome, a victory for the employer (payer) means no recovery or forbearance for Medicare. But, a victory for the worker is likely also a significant victory for Medicare, leading to recovery of expended funds. But, Medicare would similarly have no liability for attorney fees in that litigation process, and could be as accurately characterized there as enjoying a “free ride.”
But, in a case in which an employer is providing benefits, Medicare will usually receive its reimbursement from the employer (or its carrier), the “primary payer.” If such a non-disputed case is settled, then Medicare will receive some avoidance of future payment, during the time the worker provides for her/his care from the MSA proceeds, significantly similar to Medicare receiving reimbursement. Arguably, the settlement changes only whether the “payer” as regards that care is the employer (or its carrier) directly or the injured worker (indirectly, with money from the settlement portioned into an MSA). Arguably, in the non-denied case, the payment is not changed, only the identity of the payer.
Perhaps Medicare has no interest as between these two. In the settlement of an accepted and compensable case, with the MSA, Medicare gets nothing that it did not already have. And thus, it seemingly has no interest in a case settling. It arguably has no interest whatever in whether attorney fees are paid or not paid regarding any or all of such a settlement, or whether they are sufficient or insufficient. Medicare may simply have no interest, and is thus absolutely the inappropriate entity to discuss or regulate attorney fees as regards those MSA funding amounts.
At the end of the analysis, it seems that interesting arguments have been made both for inclusion and exclusion. That there are seemingly conflicting decisions in that regard may reflect differences in adjudicator perspective or in various lawyering skills demonstrated in the prosecution of the arguments or perspectives. What is clear, is that there remains discussion and debate regarding the complexity of the MSA questions. Time will perhaps bring clarity to that discussion.
Note: Commissioner Marshall was provided a draft of this post and commented on it significantly. His contribution thus to the discussion, perspective and debate cannot be overstated. His participation is gratefully acknowledged and appreciated.