In Alvarenga v. Scope Industries, et. al., the Workers’ Compensation Appeals Board (WCAB) for the State of California granted an insurance company’s petition for reconsideration of an order approving a compromise and release. (2016 Cal. Wrk. Comp. P.D. Lexis, ADJ8873556). Scope Industries argued the compromise and release should be rescinded since it was entered into by mutual mistake. The mistake argued by Scope Industries was that the Medicare Set-Aside (MSA) incorporated into the settlement was required to be submitted to and approved by CMS. The WCAB correctly noted that CMS does not require its review and approval of MSA. Since the parties correctly understood that CMS review of an MSA is not required, it did not grant the petition to rescind based upon these grounds.
Instead, the petition for reconsideration was granted based upon two substantial findings: (1) it appeared to the WCAB that the applicant was not adequately advised about the risks associated with not obtaining CMS approval of the settlement’s MSA by CMS; and (2) the compromise and release was inadequate as the claimant did not receive enough funds to cover the MSA nor provided consideration for non-Medicare covered expenses. The WCAB noted the claimant only received $22,110.00 after attorney fees and permanency advances while the MSA amounted to $24,079.23
The WCAB, in its decision to set aside the compromise and release, recited parts of CMS’ recently published WCMSA reference guide that highlight CMS’ position that CMS review of a proposed MSA amount is not required. If however CMS does not review and approve the parties proposed WCMSA, CMS is not bound by the amount stipulated by the parties and may refuse to pay for future claim related Medicare covered medical expenses. Although this potential exposure to CMS is a known risk in the industry, the language in the compromise and release did not adequately advise the claimant of the potential consequences in foregoing CMS review. The WCAB rescinded the Order approving the compromise and release and returned the matter to the trial level.
The Alvarenga decision underscores the need for well drafted settlement documents that reflect the parties’ agreement to the settlement terms. When CMS review is not pursued, the documents should clearly outline the manner in which the non-submitted MSA gives Medicare’s interest reasonable consideration at time of settlement. The documents should also reflect the parties understanding of the potential risk associated with non-submission of the MSA proposal to CMS, i.e. that Medicare may find the entire amount of the settlement should be considered a future medical allocation. Proper administration of a reasonably funded MSA allocation at time of settlement and the availability of the Medicare benefit appeal process for denied bills minimizes the potential risk. Although well drafted settlement language is important, the language does not replace the need for meaningful discussions with the parties about the MSA.