Employer Ordered to Continue to Pay Medical Benefits Despite Settlement of Same Where CMS Declines to Accept Proposed MSA Trust Allocation
ArvinMeritor, Inc. v. Clifton Johnson:
On February 25, 2011, the Alabama Court of Civil Appeals released an opinion concerning the responsibilities of an employer when CMS fails to accept a proposed Medicare Set Aide (MSA) trust allocation. Initially, the matter proceeded to trial and the employee was held to be permanently and totally disabled as the result of an occupational disease. The employee later entered into a confidential settlement against a third party tortfeasor for an amount that significantly surpassed the employer’s financial obligations as a result of the P&T verdict. As a result, the employer asserted its rights under Section 25-5-11(a) which gives an employer the right to credit any third party proceeds against its liability for workers’ compensation (WC) benefits and the right to subrogation as to the employee’s recovery of medical expenses from a third party. The employer and employee later entered into a settlement of his WC benefits. In the settlement agreement it was noted that the employer would pay up to $65k to fund an MSA trust the remainder of which was to be paid by the employee. The agreement also noted that the trust would require funding of $83,936.17.
The Center for Medicare and Medicaid Services (CMS) later determined that additional sums would be required to fund the MSA trust and both parties looked to the other for the additional contribution. The Alabama Court of Civil Appeals held that neither party was required by the terms of the settlement to pay additional sums but that the employer would have to continue to pay for medical treatment until either an MSA trust was established or until the employer requested a hearing in the third party matter and seek a judicial determination as to how much of the confidential settlement was allocated for the payment of medical expenses. Once that amount was determined, then the employer would be relieved of paying medical expenses until the amount allocated in the third party case was exhausted.
My Two Cents: It is clear from this case that you should not enter into a settlement based on a proposed allocation unless you either first seek the approval of CMS or you include a contingency plan in the agreement that considers the possibility that CMS will either increase or decrease the amount necessary to satisfy its interests.