Viewpoint: Settlement Strategies for Workers’ Compensation Claims

Knowing how to effectively negotiate and settle cases is essential when handling workers compensation claims. To do this well, you need to know how to prepare and execute an action plan for settlement.

As defined in Webster’s Dictionary, “win” means to succeed in reaching or achieving a specified condition. In litigation, winning is about absolute “victory” on a particular issue(s) or the claim. There is usually little room for compromise. Certainly, there is a time and place for litigation, but anyone who litigates for a living knows there are risks – the solution is up to the judge, and even favorable outcomes do not always get you what you really want.

When it comes to settling claims, the definition of winning is slightly different: “winning” is a solution to the problems of the claim while satisfying your primary interests. Settlement can provide such a solution, but it is more about compromise and closure to mitigate risk. Thus, depending upon your interests for the claim, settlement can be the best route to winning.

It goes without saying one should always thoroughly prepare for settlement of a workers’ compensation case. When identifying the goals for a claim, make every attempt to include all the appropriate parties on your side, as collaboration generally ensures a united front, which maximizes the chance of successfully resolving the issues identified. Additionally, as settlement does require some level of compromise, it is equally important to discern between the areas where it may make sense to dig in your heels and those areas where compromise to achieve your primary interests is worthwhile.

In addition to identifying and prioritizing your interests, you must also understand the posture of the claim and all the associated issues. You can then evaluate the risks associated with the potential defenses, mitigation strategies, and the potential exposure based on the evidence and the applicable law. One must evaluate these issues objectively and soberly, and acknowledge the glaring realities of the claim in order to develop the leverage points. Be willing dig below the surface to root out and identify the more subtle factors, which can often provide significant leverage and have a significant impact on the outcome of a settlement.

With regard to potential exposure, you must consider all of the potential sources of benefits in the claim both in terms of past, present, and future exposure. Most often, you are considering variations of three components: income benefits, permanent partial disability benefits, and medical benefits. These components are largely a function of the nature and extent of the claimant’s injuries versus the claimant’s job responsibilities, current work restrictions, employment status, future employment prospects, the availability of suitable light duty work, and the claimant’s motivation.

Under Federal law, the parties to all workers’ compensation settlements involving the closure of medical benefits are required to consider Medicare’s future interests when settling the claim. For many claims, it is clear Medicare has little to no interest despite the closure of medical. However, for Medicare beneficiaries (age 65 or receipt of Social Security Disability) or individuals with a “reasonable expectation” of becoming Medicare eligible within the next 30 months (age 62.5 or an application for Social Security Disability), the consideration of Medicare’s interests requires consideration of additional steps to ensure the parties document their efforts to consider this interest, and set aside a portion of the settlement to fund future medical treatment otherwise covered by Medicare.

One of the most common ways to document the consideration of Medicare’s future interests and, the method “recommended” by the Centers for Medicare and Medicaid Services, is the preparation of a Medicare Set Aside. An MSA consists of an allocations report that considers the last two years of medical treatment and then projects future Medicare-reimbursable medical expenses related to the work-related injury. This projection includes estimated costs for future visits to treatment providers, diagnostic testing, and prescription medications. These costs and the frequency of those costs are typically extrapolated over the claimant’s estimated life expectancy or rated age. Under some circumstances, the projection period can be limited to caps on the treatment period under state law. Regardless, once this projection amount is determined, any settlement involving closure of medical would involve the separate funding of the MSA. The claimant would then be required to deplete these funds before Medicare would pay for treatment related to the workers’ compensation injury after the settlement.

It is important to note there is no legal requirement to prepare an MSA, although it can and often does serve as the most comprehensive means of documenting the parties’ consideration of Medicare’s interests.

These days, outside vendors usually prepare the MSAs reports and handle submission to CMS, where appropriate. Although this adds additional costs when settling a claim, it is worthwhile to mitigate the risk of complex, post-settlement issues arising when Medicare questions the extent to which the parties considered Medicare’s interests and seeks additional funds.

Once an MSA report is prepared, the parties must then determine whether to submit the MSA to CMS for review. The first prong of this determination is whether CMS will even review the MSA based on the applicable review thresholds. The second prong is whether submission is the best course if CMS review is available.

Like the decision to secure an MSA, the submission of an MSA to CMS for review is not legally required, but only “recommended” if the case meets the thresholds defined by CMS Guidelines. CMS review thresholds are a function of the claimant’s Medicare status and the total settlement amount, i.e., lump sum amount plus the MSA. Where the claimant is a current Medicare beneficiary and the total settlement amount is over $25,000, CMS will review the MSA. When the claimant has a “reasonable expectation” of becoming a Medicare beneficiary within the next 30 months and the total settlement is over $250,000, then CMS will review the MSA.

Generally, if a case satisfies the review thresholds, submission of the MSA to CMS for review is a worthwhile consideration. Once CMS reviews the MSA, it will issue a “Determination Letter” in which they will indicate the amount of the MSA they consider appropriate. If the amount differs from the amount of the submitted MSA, an appeal or reconsideration request is available.

Regardless of the amount CMS ultimately determines appropriate, the funding of the MSA using this amount provides the parties with certainty CMS will not seek future recovery of payments, which can involve amounts up to the entire value of the settlement. This level of certainty and closure makes submission of MSAs to CMS for review an attractive option for the parties.

In cases where CMS review is not available, the parties must still determine whether securing an MSA is appropriate. Regardless of whether the parties ultimately decide to secure an MSA, documenting the steps taken to consider Medicare’s interests, to the extent such interests even exist, should be included in the terms of any settlement agreement involving closure of medical benefits.

Although MSAs have become a regular part of the workers’ compensation vernacular, an equally important but often overlooked consideration related to CMS and Medicare is conditional payments. In cases where the claimant is already Medicare eligible during the pendency of the claim, it is possible Medicare covered a portion of the medical costs that would or should have been covered as part of the claim. Under such circumstances, CMS will seek reimbursement of the monies paid to cover these expenses by asserting a conditional payment lien. The failure to timely pay the appropriate expenses asserted in the lien can result in exposure beyond the amount of the lien itself based on fees and penalties. Therefore, any time a claim involves a Medicare beneficiary, the parties should secure a conditional payment search.

It is important to note CMS will not assert a final lien and issue a demand letter seeking repayment of the lien until after the claim is settled and the proper settlement documentation is submitted to CMS. With the advent of mandatory insurer reporting in workers’ compensation claims, and beneficiary’s access to the CMS portal, it is now much easier search for such liens and for Medicare to follow up on them. It behooves the parties to undertake a conditional lien search and address the alleged payments forming the basis of the lien as comprehensively as possible. This will reduce the chances of post-settlement issues arising.

Additionally, other, less obvious areas of exposure, should be considered. These areas include whether the claimant is required to resign as part of the settlement, whether the employer will require a General Release, or any other special considerations that are particular to the claim or claimant, which may fall outside of the normal exposure components in a claim.

Finally, consideration of settlement warrants calculating the best and worst alternatives to a negotiated agreement, which could include projections of potential exposure following an Award from the Administrative Law Judge, the chances of prevailing on the issues in question, and the “real” cost of not settling (Getting to Yes – Negotiating Agreement Without Giving In, Roger Fisher & William Ury, Penguin Books, 1991).

Once you have considered your interests, positions, and areas of exposure, you should consider which method of negotiating a settlement best suits the case. There are two primary methods to negotiate settlement in workers’ compensation claims. The first is to negotiate directly and “informally” with the claimant or the claimant’s attorney. The second method is mediation, where a neutral third-party works confidentially to facilitate the negotiations between the groups by identifying the disputes, arguments, interests, and areas of potential compromise each side brings to the table. Each method has its own set of benefits, but because every case is different, it is important to consider the appropriate method once you make the decision to pursue settlement.

As fear, mistrust and stress are enemies of compromise, particularly with regard to settlement, it makes sense to select a settlement structure that can help minimize these feelings. Indeed, successful settlement, whether it be through informal negotiations or mediations, demands careful consideration of the claimant, opposing counsel, and a healthy cost-benefit analysis given the circumstances of each specific case.

With regard to the manner in which you negotiate, like your evaluation of the exposure, you should tailor the approach to the circumstances of the claim. You must also adapt the style to fit what you determine will most likely be the most effective at conveying positions, arguments, and exposure to the other side. Generally, credible positions based on the evidence, law and logic are the most effective, but the emotional component of negotiations should never be discounted or discarded. The other constant should remain your preparation of a comprehensive, but flexible, plan for the negotiations.

The underlying reasons for deciding to choose settlement as a means of resolving a workers’ compensation claim are compelling. However, it is important to temper the desire to resolve a claim with the prioritized goals one hopes to achieve in the claim. Case circumstances can, and often do, change. Therefore, it is important to remain adaptable throughout the settlement process, this includes careful consideration of the type of case posture and circumstances, as well as diligent and collaborative preparation for and active participation in the mediation.

Once engaged in the settlement talks, you must keep an open mind and not be afraid to adapt to the twists and turns that will inevitably arise during the course of the negotiations. However, if you properly prepare and work to execute your plan, you can maximize the chances scoring of on the winning drive by achieving efficient, effective closure of your workers’ compensation claim.