When Can I Use My WCMSA? Misunderstanding As to “When” the WCMSA Becomes Effective Ends Up Vacating Settlement

November 17, 2014 / 5 min read

In McCarroll v. Livingston Parish Council, 2014 WL 5439624, -- So.3d – (La. App. 1^st Cir., October 27, 2014), the parties believed that the claimant could use his approved WCMSA fund to cover a surgery prior to the court actually approving the settlement agreement.Thus, he had the surgery.

Surgery costs

However, at some point after the court approved the settlement, the claimant learned that Medicare would not pay for the surgery, and that he could not use his WCMSA monies to cover the costs since the surgery occurred before the court approved the settlement.

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After learning this, the claimant sought a court order requiring that the carrier reimburse the surgical costs, or an order nullifying the settlement since the parties both believed that the WCMSA could be used prior to the court’s approval of the settlement.

The workers’ compensation court ruled for the claimant, and vacated the order approving the settlement. Carrier appealed. On appeal, the Louisiana court of appeals affirmed the WC court’s order.

This interesting case can be outlined as follows:

Background

This case arose from a compensable workers’ compensation claim. The parties reached a settlement in principle, which included a WCMSA to be funded via a structure. The WCMSA contained a specific allocation for a recommended cervical fusion (which up until that point the claimant had declined). The parties then submitted the WCMSA to CMS prior to finalizing the settlement, and the agency approved the proposal as submitted.

Shortly after CMS approved the WCMSA (and before the parties had even executed the settlement agreement) the claimant changed his mind and advised the carrier that he wanted to proceed with the surgery. The carrier refused to pay for the surgery in light of the pending settlement, and the fact that these costs were included in the WCMSA. Ultimately, the claimant had the surgery since the parties believed that the WCMSA could be used to cover the surgery (and that Medicare would cover any expenses above the seed amount) prior to the settlement being approved by the court.

A few weeks after the surgery, the parties executed the settlement agreement, and it was formally approved by the Office of Workers’ Compensation (OWC) via an order.

Sometime after the court approved the settlement agreement, the claimant learned that CMS would not pay for any medical expenses incurred prior to the OWC's order, and would not allow him use his WCMSA for this purpose. The carrier also refused to pay for these expenses on grounds that the WCMSA included monies for the surgery.

Thus, the claimant filed a motion seeking a court order to force the carrier to pay for the outstanding medical bills, or in the alternative, an order nullifying the settlement altogether, alleging that both parties had settled under the mistaken belief that the WCMSA could be used prior to the court’s approval of the settlement, and therefore, the settlement did not reflect a meeting of the minds.

How did the court rule?

The OWC court ruled for the claimant and vacated the order approving the settlement.

At hearing, the evidence revealed that both sides believed, incorrectly, that the WCMSA could be used prior to the court’s approval of the settlement agreement. On this point, the OWC noted:

[The adjuster] testified … that she thought and ‘everyone thought’ at that time that the MSA amount for $21,000 for future surgery could be used to pay for the surgery even if the surgery was done prior to the judge signing the settlement. No one involved in this case at that time envisioned that Medicare would deny coverage because the surgery was done before the settlement was signed by the [OWC].” (Emphasis in original.)

Therefore since the defendant[s] and [Mr. McCarroll] clearly envisioned that the $21,000 could be used to pay for the surgery at issue even if the [OWC] had not yet signed it, and since [Mr. McCarroll] is now prohibited from using the $21,000 in the MSA to help pay for the surgery that was done, and Medicare will not pay for the surgical costs that exceeded the $21,000, this was not the settlement terms that anyone thought they had negotiated or that they were getting.

On appeal, the Louisiana appeals court upheld the OWC’s ruling. In reviewing the record, the appellate court reasoned that the OWC must have concluded that this misunderstanding amounted to a “misrepresentation” (albeit unintentional) on the carrier’s part which, per applicable Louisiana law, thereby provided the legal basis for the OWC to set aside the order approving the settlement.

In the bigger picture

The McCarroll case highlights a few important MSP principles and CMS policies operating in real time.

On the one hand, CMS’ refusal to pay for the claimant’s surgery prior to the court’s approval of the settlement is a classic example of CMS asserting a secondary payer status under the MSP. Specifically, CMS still viewed the carrier as the primary payer, since the carrier was still arguably (and very likely legally) responsible for the claimant’s compensable medical treatment up until the point that its liability was extinguished by the court’s order approving the settlement.

From another angle, this case calls into focus the question of “when” CMS actually deems an approved WCMSA “effective.” In this regard, CMS’ WCMSA approval letters have long stated that the WCMSA is not considered “effective” until the agency actually receives a copy of the final executed WC settlement agreement, which must include the approved WCMSA amount therein. (See also, CMS’ WCMSA Reference Guide, Section 10.5 as to CMS’ stated requirements).

These important principles and policies must be kept in mind when settling cases involving a WCMSA, with special attention being afforded to any specific settlement provisos or language that may be applicable based on the particular facts of your case.

When can I use my WCMSA?

Surgery costs

Background

How did the court rule?

In the bigger picture