Rafael Gonzalez, Esq. President, Flagship Services Group
On May 2, 2018, the Third Circuit Court of Appeal of Louisiana published its opinion on Mary Ortega v. Cantu Services, Inc., concluding that the settlement of the workers compensation claim at hand was conditioned on CMS approval of a Medicare Set-Aside. Because the settlement agreement did not include specific dates or amount of time within which such CMS approval should be obtained, employer/carrier were not required to pay the settlement funds prior to CMS approval of the MSA, as nonpayment was the result of conditions over which the employer/carrier had no control.
This case brings to light the never-ending questions of whether parties should submit their MSAs to CMS for approval, and whether to settle a Medicare file with an MSA continent or dependent upon CMS approval of the MSA. Time and time again CMS has indicated such submission is not mandatory, but completely voluntary. But at the same time, CMS is quick to remind litigants that without such approval, CMS is not bound by any agreement, stipulation, or settlement of the parties. If the parties are going to make approval of the MSA by CMS a centerpiece of their settlement, and are going to hold completion of settlement until such time as CMS approves the MSA, as based on this case and the many others similarly decided by courts throughout the country over the years, it is important to be as specific as possible.
Facts of the case and procedural history
This workers’ compensation case arises out of a work injury that Mary Ortega (Ortega), sustained while she was employed by Cantu Services, Inc. (Cantu). Ms. Ortega filed a Disputed Claim for Compensation on June 27, 2014. The parties reached a settlement agreement in 2016, for $120,000, with counsel for Cantu and its insurer Liberty Mutual agreeing to submit to the Centers for Medicare and Medicaid Services (CMS) a Medicare set aside (MSA) in the amount of $56,049. If CMS did not did not approve the requested MSA, Cantu and Liberty Mutual agreed to fund the MSA as directed by CMS and then adjust the amount to be paid in benefits accordingly, so that the total of the settlement still amounts to $120,000.
The agreement was judicially approved and recited in open court on September 1, 2016. The agreement was explained on the record by counsel for Cantu and its insurer, Liberty Mutual Insurance Company. The Workers Compensation Judge (WCJ), Judge Braddock, then approved the compromise and stayed the docket numbers until he heard from the parties in the future, after CMS approved the MSA, to then close out the cases.
On December 22, 2016, Ms. Ortega filed a Motion and Order to Amend, adding penalties and attorney fees for Appellees’ failure to pay the settlement within thirty days after the recitation of the agreement in open court. Ms. Ortega also filed a Motion to Enforce Settlement and for penalties and attorney fees, which was heard on June 1, 2017. The court considered the minutes from the September 1, 2016 hearing, the testimony of Ms. Ortega that she was present at the September hearing and understood the settlement was conditioned on CMS approval, and argument of counsel. The court concluded the settlement was conditioned on CMS approval of an MSA and accordingly denied Ms. Ortega’s Motion to Enforce Settlement and for penalties and attorney fees. Ms. Ortega filed a “Motion and Order for New Trial for Re-argument Only” and, after a hearing was held on August 21, 2017, this was also denied.
Ms. Ortega now appeals and asserts two assignments of error: (1) that the WCJ erred in finding the settlement of $120,000.00 did not need to be paid within thirty days of the judicial approval of the settlement agreement and therefore denying sanctions, and (2) that the WCJ erred in finding CMS approval was a suspensive condition that must be fulfilled before paying Ms. Ortega the $120,000.00 settlement.
Is need for CMS’s approval of the MSA a suspensive condition?
Ms. Ortega’s first assignment of error depends on the outcome of the second assignment of error, namely, whether the CMS approval of the MSA funding was a condition that suspended the payment of $120,000.00 to Ms. Ortega. The WCJ held that CMS approval was a suspensive condition. This court agrees and finds no manifest or legal error with this finding.
Louisiana Revised Statutes 23:1201(G) provides for penalties and attorney fees in workers’ compensation cases as follows: If any award payable under the terms of a final, non-appealable judgment is not paid within thirty days after it becomes due, there shall be added to such award an amount equal to twenty-four percent thereof or one hundred dollars per day together with reasonable attorney fees, for each calendar day after thirty days it remains unpaid, whichever is greater, which shall be paid at the same time as, and in addition to, such award, unless such nonpayment results from conditions over which the employer had no control. No amount paid as a penalty under this Subsection shall be included in any formula utilized to establish premium rates for workers’ compensation insurance. The total one hundred dollar per calendar day penalty provided for in this Subsection shall not exceed three thousand dollars in the aggregate.
A final, non-appealable judgment includes a workers’ compensation settlement agreement, and triggers La.R.S. 23:1201(G) upon court approval and entry into judgment. However, obligations may be suspended by a suspensive condition which prevents enforcement of the obligation until an uncertain event occurs. Conditions may be either expressed in a stipulation or implied by the law, the nature of the contract, or the intent of the parties. When the suspensive condition depends solely on the whim of the obligor, the obligation is null.
In Harrelson v. Arcadia, 10-1647 (La.App. 1 Cir. 6/10/11), 68 So.3d 663, writ denied, 11-1531 (La. 10/7/11), 71 So.3d 316, the first circuit found that a settlement agreement requiring CMS approval of funding for an MSA was a suspensive condition that suspended the obligation to fund the MSA account until CMS approval was received. The WCJ in this case correctly recognized that this case is factually like Harrelson. In Harrelson, the employer agreed to pay the claimant $125,000.00, with $42,010.00 of that amount to be placed in a MSA account to cover future medical expenses and $82,990.00 to be paid in one lump sum. The agreement further contained a clause stating that if CMS requires additional money be placed into the MSA, Bestaff/insurer will, at its option, pay all such additional amounts and comply with all Medicare requirements regarding such, or will withdraw the proposal for a MSA, and the claim for future medical care will remain open.
The agreement was judicially approved on December 10, 2009. The employer immediately paid the claimant $82,990.00 and withheld the remaining amount for the MSA funding while awaiting CMS approval. CMS ultimately approved the amount on January 27, 2010, and the employer issued a check for the balance of the funds on February 2, 2010, within thirty days of CMS’s approval, but over thirty days from the date of judicial approval of the agreement. The claimant then filed a motion to enforce settlement judgment seeking penalties and attorney fees pursuant to La.R.S. 23:1201(G) for the employer’s failure to pay the entirety of the settlement agreement within thirty days of the judgment. On appeal, the first circuit affirmed the WCJ, agreeing that the approval by CMS was an uncertain event that once it occurred made the WCJ’s order approving the entire settlement agreement final and enforceable.
As in Harrelson, the agreement between the parties in this case was that CMS needed to approve the funding of the MSA. The difference between this case and Harrelson, is that in Harrelson, $82,990.00 was to be paid in one lump sum regardless of the outcome of the CMS approval. In Harrelson, if CMS did not approve of the MSA funding, the employer had two options—to pay the additional amount requested by CMS or withdraw the proposal for a MSA. However, in the case before this Court, the calculation of the amount to be paid to Ms. Ortega in benefits is entirely dependent on the amount required to fund the MSA. The judicially approved agreement as evidenced by the court transcript was that if CMS does not approve the requested amount, but alters it in any way, we will fund the MSA as directed by CMS and then adjust the amount to be paid in benefits accordingly, so that the total of the settlement still amounts to $120,000.
Additionally, Exhibit P-2, submitted by Ms. Ortega and which is the affidavit of her counsel, states it was agreed that post-settlement documents would be prepared by defense counsel with the understanding that whatever amount for medical expenses was approved by CMS would be designated in the settlement documents as a full and final compromise of all claims for medical expenses and the remainder of the $120,000.00 settlement fund would be attributed to a full and final settlement of all claims for indemnity benefits, penalties and attorney fees.
Finally, the settlement documents signed by Ms. Ortega specify that Appellees would write two checks, one to Ms. Ortega, and one to the Mary Ortega MSA Account. Appellees could not possibly write these two checks without knowing the amount CMS approved to fund the MSA account. Therefore, the court agrees with the WCJ that the need for CMS’s approval of the MSA funding was a suspensive condition.
Does suspensive condition depend on the whim of the employer/carrier?
The next question is whether the suspensive condition depends on the whim of the employer/carrier, making the obligation null, or whether the employer had no control over CMS approving the MSA funding.
Ms. Ortega argues that the suspensive condition depends on the whim of the employer to file the request with CMS. This issue was also raised in Harrelson, however, in that case, the court received evidence that the request was in fact made to CMS, and therefore Appellees could not do anything more without the CMS approval. Ms. Ortega, on the other hand, asserts Appellees have not sought CMS approval and that there was no requirement in the settlement that Appellees do so within a certain timeframe. Therefore, under the WCJ ruling, Appellees can continue not funding the settlement because they were not required to obtain CMS approval by any specific date.
Ms. Ortega correctly stated that there is no evidence in the record that Appellees have sought CMS approval. The only contrary argument is just that, merely argument and not proof of fact. However, regardless of when Appellees apply for CMS approval, that approval will ultimately be beyond Appellees’ control. Therefore, the WCJ did not err in concluding that Appellees were not required to pay Ms. Ortega the settlement funds prior to CMS approval of the MSA funding.
Because the court concludes nonpayment was the result of conditions over which the employer/carrier had no control, the WCJ did not err in denying statutory penalties and attorney fees, in this case, for Appellees’ failure to pay the funds within thirty days of the final and non-appealable judgment.
This case brings to light the never-ending question of whether parties should submit their MSAs to CMS, or dispense with such approval and move forward without submitting their MSAs to CMS. It also questions whether settling a Medicare file contingent or dependent upon CMS approval of the MSA is still a worthwhile practice. Time and time again CMS has indicated such submission is not mandatory, but completely voluntary. But at the same time, CMS is quick to remind litigants that without such approval, CMS is not bound by any agreement, stipulation, or settlement of the parties. So, the answer still very much depends on the litigants’s appetite for risk. For the employer/carrier, what are the chances CMS may seek reimbursement of conditional payments made by Medicare associated with the claim a year, or two, or five down the road? For the claimant/counsel, what are the chances CMS may deny future care related to the claim; and if Medicare pays for same, what are the chances CMS may seek reimbursement of same?
Undeniably, more and more parties are choosing to forego CMS review and approval of MSAs. Coupled with professional administration of such MSA accounts, more and more litigants are finding ways to appropriately take Medicare’s future interests into account and become responsible stewards of the Medicare Trust Funds. But for those of us who still believe in total and complete closure, who never want any MSA issues to come back and create havoc, who want some measure of guarantee that CMS recognizes the parties have taken Medicare’s future interests into consideration, we continue to submit MSAs to CMS for their review and approval.
If the parties are going to make approval of the MSA by CMS a centerpiece of their settlement, as based on this case and the many others similarly decided by courts throughout the country over the years, it is important to be specific. So that you are not caught in the same situation the parties in this case were challenged by, here are a few items to think through and make sure are part of your mediation speaking points, or settlement agreement:
- Who will be submitting the MSA to CMS?
- Within how many days of settlement will the MSA be submitted to CMS?
- If CMS requests further information, additional evidence, or workup, who will be responsible for obtaining same?
- Within how many days must such information be provided? How many days to re-submit to CMS?
- What happens if CMS doesn’t respond?
- What happens if party responsible for providing updated or new evidence provides same late, or doesn’t provide it at all?
- What consequences if submission deadlines are not met or abided by?
- If CMS disagrees with MSA proposal and requests more than proposed, what happens? Who is responsible for extra funds?
- What if parties change their minds after settlement, or even after submission to CMS, about lump sum vs. structured funding of the MSA?
- Who is responsible for communicating same to CMS? Do the parties agree to seek CMS approval of this change?
- If CMS changes the seed amount or the annual amount on structured funded MSA, how will such changes be handled? Will new annuity be purchased for extra amount?
- What if claimant changes his/her mind about self-administration or professional administration?
- Is it allowed? Who is responsible for communicating same to CMS? Do the parties agree to seek CMS approval of this change?
About Rafael Gonzalez
Rafael Gonzalez, Esq. is President of Flagship Services Group. He has over 30 years of experience in the auto, liability, no-fault, and work comp industries. He is one of the country’s top experts on Medicare and Medicaid compliance, serving insurers, self-insureds, and third party administrators. He speaks and writes on mandatory insurer reporting, conditional payment resolution, set aside allocations, and professional administration, as well as the interplay and effect of these processes and systems and the Affordable Care Act throughout the country. Rafael blogs on these topics at Medicare Compliance for P&C Insurers at www.flagshipservicesgroup.com/blog. He is very active on LinkedIn, Twitter, Instagram, and Facebook. He can be reached at firstname.lastname@example.org or 813.967.7598.