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55 Ferncroft Road Suite 404
Danvers, MA 01923

(866) 630-CPSC Toll-free
(978) 774-0540 Facsimile

www.CPSCmsa.com

A recent decision by the California Supreme Court has re-opened the door for apportionment opportunities. This decision will allow for our clients to take advantage of significant cost saving opportunities pursuant to the Medicare Secondary Payer Statute.

BACKGROUND

The California’s workers’ compensation system was established to provide for the health, safety, and welfare of workers in the event of industrial injury by “relieving [them] from the consequences of any injury incurred by employees in the course of their employment.” Mathews v. Workmen’s Comp. Appeals Bd. (1972) 6 Cal.3d 719, 731.

The benefits provided by the system include compensation for permanent disability. “[P]permanent disability is understood as ‘the irreversible residual of an injury.’ ” Kopping v. Workers’ Comp. Appeals Bd. (2006) 142 Cal.App.4th 1099, 1111, 48 Cal.Rptr.3d 618. Permanent disability payments are calculated by first expressing the degree of permanent disability as a percentage and then converting that percentage into an award based on a table. (§ 4658.) Until April 1972, the table was straightforward: an injured worker received four weeks of benefits for each percentage point of disability. Former § 4658, added by Stats.1959, ch. 1189, § 13, p. 3280. Thus, for example, a worker determined to have suffered 10 percent permanent disability would receive 40 weeks of benefits, while one with a 90 percent disability would receive 360 weeks of benefits.

APPORTIONMENT

The most important thing to keep in mind when dealing with Medicare is that under workers’ compensation, an employer is only responsible for compensating injured workers for that portion of their permanent disability can be attributed to a current industrial injury, not for that portion attributable to previous injuries or to nonindustrial factors. Thus, the basis for apportionment, which is “the process employed by the Board to segregate the residuals of an industrial injury from those attributable to other industrial injuries, or to nonindustrial factors, in order to fairly allocate the legal responsibility.” Ashley v. Workers’ Comp. Appeals Bd. (1995) 37 Cal.App.4th 320.

PRE-1972

Under the pre-1972 table, apportionment to previous injuries was relatively straightforward. The additional compensation for each additional percentage point of disability was linear. It mattered not whether one focused on the difference in percent between the current level of disability and the previous level of disability, or the difference in dollars between the payout at the current level of disability and the payout at the previous level of disability. Either method of subtraction would lead to the same current award. However, in 1971 the Legislature amended the table to create a sliding scale of benefits and more generously compensate for more severe disabilities. Under the new table, benefits rose exponentially rather than in a linear fashion.

For example, under the revised table, a worker with a 10 percent disability would receive approximately three weeks of benefits for each percent of disability (for an award of 30.25 weeks), while a worker with a 90 percent disability would receive approximately six weeks of benefits for each percent of disability (for an award of 541.25 weeks). Former § 4658, Stats.1971, ch. 1750, § 5, p. 3776.

This amendment created a new apportionment problem in situations where a previously disabled worker suffered a new injury. Consider again the worker who was already 10 percent disabled, but following the new injury, was 90 percent disabled. Under the new tables, the difference between the award for a 90 percent disability and the award for a 10 percent disability was no longer equal to the award for an 80 percent disability, the difference between these two disability levels. Thus, it mattered whether one either (1) calculated the percentage of disability attributable to the new injury by subtracting the old rating from the new rating, then consulted the table for the award due this difference (an approach dubbed “formula A.” or (2) consulted the table for the award due at the new disability rating, then subtracted from that the amount that would have been awarded under the old disability rating ~an approach dubbed “formula C”.

FUENTES

The Court in California resolved the apportionment problem in Fuentes, concluding that based on statutory interpretation, the formula A approach was correct. In deciding how to determine compensation, the Court interpreted former section 4750, which provided: “An employee who is suffering from a previous permanent disability or physical impairment and sustains permanent injury thereafter shall not receive from the employer compensation for the later injury in excess of the compensation allowed for such injury when considered by itself and not in conjunction with or in relation to the previous disability. The employer shall not be liable for compensation to such an employee for the combined disability, but only for that portion due to the later injury as though no prior disability or impairment had existed.” Former § 4750, added by Stats.1945, ch. 1161, § 1, p. 2209.

So the law stood as settled for 28 years. Then in 2004, the Legislature enacted omnibus reform of the workers’ compensation system. Of significance here, Senate Bill No. 899 (2003-2004 Reg. Sess.) overhauled the statutes governing apportionment, repealing both section 4663 and section 4750 used in Fuentes. These changes raised the question: Is the Fuentes formula A approach still valid?

Is the Fuentes formula A approach still valid?

The Board and various Courts of Appeal reached different conclusions:

(1) Formula A is still correct.
(2) By repealing section 4750, Senate Bill No. 899 effectively superseded Fuentes, and formula C is now correct.
(3) While Fuentes has been superseded, the correct formula is a modification of formula C in which one subtracts not the actual award previously paid out in old dollars, but the award for that previous percentage disability that would be due today in current dollars.

The Supreme Court of California recently determined, after reviewing the legislative history that Formula A - the formula approved by Fuentes - remains the law. This has settled the apportionment issue in California and, in our opinion, has opened up a window of opportunity for our clients. If a portion of the claim is apportioned to non-industrial or prior injuries, the burden that can not be transferred to Medicare. Thus, the Medicare Set-Aside should factor this apportionment issue into the mix.

By way of example, we recently performed a re-allocation of a case prepared by another national MSA vendor. In that case, the opportunity for apportionment in New York was missed. The legal facts of the case outlined that the Carrier was only liable for 55% of the claim. The other vendor, however, calculated the MSA at 100% of the claim and the settlement blew up. The file was referred to us for evaluation and we were able to reduce the MSA by $112,000 and obtain approval from CMS. This highlights the importance of understanding the intricacies of workers’ compensation law and its impact on Medicare compliance in order to maximize all cost saving opportunities.

Please let us know if a free consultation of your approach from Crowe Paradis is of interest to you.

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