As predicted, the stimulator ceased to function in May 2007 when the procedure was scheduled.  The claims adjuster then requested a report explaining the medical necessity for the procedure.  Dr. Lubenow provided this and records covering the period from September 2005 through 2006 on June 18, 2007, and requested authorization to perform the surgery on July 9^th.

Gill’s attorney filed a petition on August 2, 2007, requesting penalties and fees for failure to authorize the battery replacement procedure.  During this proceeding, the claims handler admitted that she was in possession of everything she needed to authorize the battery replacement procedure as of June 18, 2007.  Authorization was not extended until August 15, 2007—two weeks after Gill filed her petition—and surgery was performed on August 27.   Medical bills associated with this care were timely paid.  The Commission subsequently awarded $40,750.00 (50% of the medical costs) in Section 19(k) penalties; attorneys’ fees under Section 16 were denied.

Upon review, the Circuit Court reversed the Commission, finding no legal basis in Section 19(k) for awarding penalties for a delay in authorizing treatment.  The Appellate Court agreed.  The court looked to the language of Section 19(k) which provides that:

“In a case where there has been any unreasonable delay or vexatious delay of payment, or intentional underpayment of compensation…then the Commission may award compensation additional to that otherwise payable under this Act…”  (emphasis in original)

The court reasoned that the phrases “delay of payment” and “underpayment” of compensation do not refer to delay in authorizing treatment, even if there is an obligation to authorize treatment in advance.  The Court felt that the wording of the statute was clear and unambiguous, and should be given its ordinary meaning – the meaning of “payment” in Webster’s does not include giving authorization for a service.

There had been no delay in payment.  The sole reason for imposing penalties was the unreasonable delay in authorizing the replacement surgery, which the court held that the Commission had no statutory authority to do.  The court conceded that the Act is sufficiently broad to require that an employer authorize medical treatment in advance of the services being rendered, but there is no provision in the Act authorizing the assessment of penalties for delay in granting authorization.  Therefore, the Court reversed and denied the penalty award.

Two justices dissented.  Justice Stewart would have affirmed the Commission based on the employer’s obligation to “provide and pay” for all necessary medical:  Section 8(a) is clear that an employer is obligated to “provide” medical services as well as to “pay” for those services when rendered.  He cited Plantation Manufacturing, the case wherein it was held that an employer is obligated to provide prospective medical care, an obligation which for Justice Stewart includes giving authorization in advance of treatment.  Presuming the obligation to “provide” includes giving authorization, Section 19(k) is broad enough to permit an award for penalties for an unreasonable, vexatious delay in authorizing care. 

Justice Holdridge joined Justice Stewart.  He added that the concept of “authorization” was not initially contemplated by the legislature but has now become such an integral part of “payment” that a delay in authorization is equivalent to a delay in payment.  Justice Holdridge also felt that the delay was not unreasonable or vexatious until the claims handler admitted she had everything she needed to authorize treatment effective June 18, 2007.  Yet, authorization was not granted until August 15th, after the penalty petition was filed.

COMMENT:

Should there be no further appeal, Hollywood Casino will represent a significant development.  The process required for authorizing treatment can be lengthy, as it was here.  Thus, even a minimal breakdown in due diligence in obtaining the information necessary to authorize treatment could be considered unreasonable or vexatious.  How the court will handle a case involving an unjustified refusal to authorize treatment and payment will be the test of the holding in Hollywood Casino.  Should the Supreme Court agree to hear this matter we will follow its progress.

Well, after delving into the ‘story behind the story’ we learned that the Commission, whose decision awarded claimant TTD for only those weeks in dispute, gave the employer credit for all sums paid including TTD not in dispute.  Thus, the award, on its face, gave the claimant far less than what he was entitled to receive:  compensation (TTD and PPD advances) was paid from October 19, 2001 through February 14, 2003 totaling $32,357.47 and TTD was awarded from February 14, 2003 through October 20, 2003 (the date of hearing).  For reasons uncertain, the employer asserted a credit, which included undisputed weeks of TTD paid but which petitioner was not awarded, against the unpaid weeks that were awarded.  Thus, while it appeared the employer had overpaid benefits, in fact, TTD had not been paid for the weeks awarded -- February 14, 2003 through October 20, 2003.  Consequently, as matters transpired, the claimant was not overreaching as most of us in the WC community were given to think. 

As practitioners, we find that many IWCC decisions are written without clearly setting forth the credit:  petitioner is awarded TTD from July 1^st through September 1st, for example, 9 weeks; respondent is given credit for having paid TTD from March 4^th through June 30^th, the period before the TTD dispute erupted, 17 weeks.  With no explanation to the contrary, it appears as if there has been an overpayment of 8 weeks, whereas in fact petitioner is owed a total of 26 weeks, with respondent to be credited with the 17 week payment.  In the wrong hands, this methodology can cause confusion, at a minimum.

The moral to this story is that all those who practice before the Commission must vigilantly insist that the Commission write its decisions with precision, stating all relevant facts and explaining all conclusions.  The failure to do so here has caused much confusion, and an ill-begotten Appellate Court decision which is incomprehensible without the insight this errata provides.

For these and other complaints, the Arbitrator awarded 25% disability under Section 8(d)2 and not Section 8(e) of the Act which sets forth the schedule for specific loss, in this case the arm.  The Arbitrator determined, and the Commission affirmed, that an award under Section 8(d)2 was appropriate because Smothers sustained injuries which “partially incapacitated him from pursuing the duties of his usual and customary line of employment, but do not result in an impairment of earning capacity.”

The Circuit Court confirmed this ruling.

The Appellate Court did not accept this rationale and held that an 8(d)2 award was not appropriate  

1. where a claimant sustains serious and permanent injuries not covered by Section 8(c) or Section 8(e) of the Act;
2. where a claimant covered by Section 8(c) or 8(e) of the Act also sustains other injuries which are not covered by those two Sections and such injuries do not incapacitate him from pursuing his employment, but would disable him from pursuing other suitable occupations, or which have otherwise resulted in physical impairments; or 
3. where a claimant suffers injuries which partially incapacitate him from pursuing the duties of his usual and customary line of employment, but do not result in an impairment of earning capacity.”

The Court surveyed the facts and found that the Commission’s award of benefits under Section 8(d) 2 on the basis that the injury partially incapacitated him from pursuing the duties of his usual and customary line of employment was against the manifest weight of the evidence, stating “the record simply does not support this finding.”  Then, rather than remanding the case to the Commission for a determination of disability, including under what section disability should be awarded, the Court took it upon itself to determine what Section of the Act covered Smothers’ injury.  This led to a review of the scheduled loss under Section 8(e) as regards injuries to the arm.  In so doing, the Court turned to Webster’s for guidance and determined that the “plain and ordinary meaning of the Statute establishes that the arm and the shoulder are distinct parts of the body,” so that if a claimant injures the shoulder, a scheduled loss award under Section 8(e) would be improper.  The court noted the anatomical location of the injury and the structures subject to treatment (acromion, scapula, etc.) and concluded that while the injury “may impact the use of his arm,” the initial injury was to the shoulder and thus an award for loss of use of the arm would be inappropriate.

Since the shoulder injury did not qualify as a scheduled loss, the court looked to what it felt was an applicable section, namely, the first sub-part of Section 8(d)2 which provides for disability where the claimant sustains injuries not covered by Section 8(c) or 8(e).  Since the case did not involve disfigurement and did not quality under Section 8(e)10, Section 8(d)2 was the proper source for a disability award.  Therefore, the Court affirmed the Commission decision for 25% man as a whole (125 weeks of compensation). 

Comment

For those who will say that this case will be limited to its facts, your editor will kindly disagree.  All injuries to the shoulders (and, most likely, hips) where the situs of the injury is not on a structure commonly defined as part of the ‘arm’ will henceforth be subject to awards under Section 8(d)2.  What will transpire with the wrist and ankle joints is subject to conjecture, but we suspect that unless an injury is to the bones or other structures of the hand or foot, many cases previously thought to fall felt into those categories will now be arm and leg injuries.  Knee and elbow injuries are safe, for now.

More important, a PPD award for 125 weeks of compensation for an injury many feel merits perhaps half that amount seems contrary to the animus underlying the 2011 legislative changes.  Instead of the relief anticipated, the court has served Illinois employers an ‘anatomically correct’ pretext for higher awards.  This decision may serve as the source of much mischief.   

Home Depot filed motions to dismiss the application for judgment which were denied by the circuit court which then entered judgment against Home Depot for $22,798.54 plus attorney’s fees of $47,000.00, costs of $5,215.31 and interest of $13,679.08, all pursuant to Section 19(g) of the Act.

The Appellate Court affirmed this award.  The court first cited the procedure for Section 19(g) which provides that a party may present a certified copy of the Arbitrator’s award or the decision of the Commission to the circuit court and “the Court shall enter a judgment in accordance therewith.”  The section further provides that where the employer refuses to pay compensation according to the final award, the court will tax as costs against the employer  reasonable costs and attorneys’ fees in the arbitration proceedings and in the court entering judgment.  Home Depot sought dismissal of the application for entry of judgment on the basis that Home Depot owed Patel nothing – the Commission entered an award in favor of Patel, but also granted credit to Home Depot which exceeded the amount of the award.  The court disagreed with this analysis.

The court stated that “although Home Depot may ultimately obtain the credit the Arbitrator and the Commission made, it is not entitled to that credit under Section 19(g).”  The Court cited an earlier case, Illinois Graphics, wherein the Supreme Court held that an employer cannot use Section 19(g) to collect an overpayment.  The court in Illinois Graphics stated that “the plain language of Section 19(g) states that the Commission’s decision, on which any judgment is based, be one ‘providing for the payment of compensation according to this Act.’”  The Supreme Court added that the allowance of credit within a decision “merely serves to reduce the total payment of compensation benefits.”  Home Depot agreed that an employer cannot collect overpaid benefits under Section 19(g), and merely sought to offset the payments already made against the award.

The court was not moved by this argument stating that an inadvertent overpayment of benefits was “not something for which Section 19(g) provides a remedy.”  Home Depot was not entitled to use the credit as an offset against the benefits awarded to Patel under Section 19(g).  Therefore, the Appellate Court affirmed the Circuit Court’s decision denying the motion to dismiss and the judgment entered on behalf of Patel for the compensation awarded, attorneys’ fees, costs, and interest.

COMMENT:

Having been trained by the esteemed Oliver Graymatter (Frank Wiedner) your editor is loath to utter anything which could be considered as discrediting the Illinois judiciary.  Nonetheless, one observes that this may not have been the appellate court’s finest hour.  Presuming the court completely misunderstood the employer’s position--Home Depot was not seeking a judgment against Patel, but only to avoid paying twice--it blithely rendered the payment of benefits prior to trial irrelevant. 

Section 19(g) provides merely that the Circuit Court “shall enter a judgment in accordance” with the Commission decision.  The Commission granted credit for almost $10,000 more than what petitioner was awarded in benefits, which should have made the judgment to be entered nil.  The court ignored the credit in the Commission decision and ordered Home Depot to pay the TTD awarded as well as an additional $66,000 in attorneys’ fees, costs and interest for Home Depot’s alleged refusal to pay the sums due under the Commission award.  In essence, Home Depot was assessed fees, costs, and interest on an obligation it had satisfied evident by the Commission decision.  The court should have paused and considered the maxim that the law does not permit an absurd result before signing off on this decision. 

Before the first appeal wound its way through the courts, Jacobo filed a second penalty petition, the basis for which was the failure to pay the underlying award for two years.  The Commission denied the petition, but on appeal, based on the underlying award for benefits being “undisputed,” the Court awarded additional compensation under both Sections 19(k) and 19(l) and attorney fees under Section 16.

In evaluating the facts of Jacobo's case, the Court believed that the Commission's determination was contrary to the manifest weight of the evidence and that Section 19(l) sanctions were “clearly” the proper result.  Noting that the employer filed no challenges to the Commission decision regarding medical expenses, TTD, or PTD benefits, and the amount of benefits to which the claimant was entitled was no longer contested, delay in paying the award was unreasonable. 

The employer argued that Jacobo appealed the entire Commission award, making the decision a non-final judgment that it was not obligated to pay, and that Jacobo did not specify that the only issue on appeal was penalties.  The court rejected these arguments, stating that a claimant’s appeal of an issue unrelated to the substantive award is not a “legitimate reason to withhold payment of the undisputed amounts” and that the record was clear that the employer knew penalties were the only issue on appeal.  Since Jacobo did not appeal the arbitrator's decision, she waived the right to review the substantive award.  Thus, the only issue she could raise on appeal was penalties.  The Court considered the employer’s position “feigned ignorance” of the contested issues and imposed Section 19(l) penalties for the delay in paying the award without good and just cause. 

Turning to the question of Section 19(k) penalties and Section 16 attorney's fees, the Court held that the employer had no legitimate reason to delay payment of the undisputed award portions of the award, stating, “The employer simply refused to pay the undisputed portions of claimant's award until all appeals on contested issues were exhausted.”  The Court called it a “gross abuse” of discretion not to award penalties and fees – more than simply a lack of good and just cause, the employer's delay in payment of its “undisputed obligation” was intentional in this case. 

 COMMENT

Jacobo has a procedural history akin to Bleak House and teaches a Dickensian lesson for employers: do not fail to timely pay an IWCC award you do not intend to appeal.   The fact that the claimant appeals will not suspend the obligation to pay the award.  Here, the employer should have paid the award within a reasonable time after the April, 2007 Commission decision, or at least in 2008 when petitioner's attorney demanded payment.  Instead, the award was not paid until June, 2009, over two years later.  During that time, the employer was not challenging the underlying award – there could have been no decision from the courts affecting the obligation to pay the Commission award.  Thus, the employer was sanctioned for taking a tenuous position on its obligation to pay. 

Wiedner & McAuliffe advises prompt payment of all final Commission awards as the best practice, even if a claimant seeks appeal.  It is obvious that the courts will treat a decision not to take an appeal as a concession that the award is “undisputed” and subject to immediate payment.  But note, we do not consider that the holding in Jacobo applies to an arbitration award reviewed only by the claimant.  An arbitration award is not final until the Commission rules. 

At trial, the employer produced a labor market survey which identified nine cashier positions at local auto dealerships which could accommodate petitioner’s restrictions.  Per the survey, the cashier occupation was projected to increase by 9% in the State of Illinois and 6.2% in the Kankakee area over the next six years.  Clarke applied at all but none offered him a position; he continuously looked in the Sunday newspaper for a job, with no success.  Otherwise, he introduced no evidence to establish that there was no stable employment market for his services.

The Appellate Court reversed, holding that the award of a total permanent disability was contrary to the manifest weight of the evidence.  The Court emphasized that there are three methods by which total disability can be proved: 

“A preponderance of medical evidence; by showing a diligent but unsuccessful job search; or by demonstrating that, because of age, training, education, experience, and condition, there are no available jobs for a person in his circumstance.” 

The Court went on to say that: 

“an employee is totally disabled when he is unable to make some contribution to the workforce sufficient to justify the payment of wages.  The claimant need not, however, be reduced to total physical incapacity before a total permanent disability award may be granted.  Rather, a person is totally disabled when he is incapable of performing services except those for which there is no reasonable stable market.”

In Clarke’s case, there was no medical evidence to support a claim of total disability – a number of treating and examining physicians all voiced opinions that he could work with varying restrictions.  As for evidence that Clarke engaged in a diligent but unsuccessful job search, the Arbitrator found that Clarke failed to demonstrate that he made a diligent but unsuccessful attempt to find work and the Commission did not quarrel with that finding.  The court found Clarke’s effort to look for work “meager” and agreed with the Arbitrator.

Ruling out the first two methods, the court was left to decide whether Clark could have found regular employment.  The court noted that Clark was not obviously unemployable and thus had the burden of proving that he was so handicapped he could not be employed regularly in any well-known branch of the labor market.  But, whereas the employer produced the labor market survey which identified positions which would fit petitioner’s restrictions, Clarke failed to introduce evidence to the contrary.  Therefore, the court concluded that the Commission’s finding of an ‘odd-lot’ permanent total was against the manifest weight of the evidence.

Justice Stewart dissented from this holding.  The dissent focused on the Commission’s finding that there was evidence both to support and to negate a total permanent and that the Commission weighed this evidence before making its award.  Justice Stewart would have deferred to the Commission.

 COMMENT

The Appellate Court rarely reverses a Commission award favorable to a claimant.  But the job search did not pass muster, and no doctor considered petitioner unable to work.  Therefore, despite being unable to perform totally sedentary work, he had to prove there was no stable labor market for his services, something generally done with expert testimony.  Since he failed to produce an expert and the employer introduced evidence on this subject, the cashier positions available, the claim failed.  The Commission obviously discounted the labor market survey as it commonly does when no job offers are made.  But there was evidence that these types of positions would become more available over time, so perhaps the court felt that Clark should have continued to search.  Had he done so, he may have shifted the burden to his employer to show that he was employable.

The claimant had a significant disability.  There were few positions open to him and he was precluded from performing work using his prior skills.  One speculates whether the result may have been different had he maintained his employer failed to fulfill its Section 8(a) obligation to provide rehabilitation services.  A labor market survey may not suffice in all cases, but did here.

Now in its second year, the U.S. News – Best Lawyers Best Law Firms program ranks U.S. law firms nationally in 75 major legal practice areas and by metropolitan areas or states in 119 major legal practice areas.  Rankings are based on client and lawyer evaluations, peer reviews from leading attorneys in their respective practice areas and information provided by law firms as part of the formal submission process.  Clients’ feedback addresses the practice groups’ expertise, responsiveness, understanding of a client’s business and needs, cost-effectiveness, civility, and whether a client would refer another client to the firm.

 “Wiedner & McAuliffe is honored to earn this top recognition for its Workers’ Compensation Law – Employers practice in Chicago,” said Wiedner & McAuliffe Managing Partner Paul Wiedner.  “This top-tier ranking represents the highest levels of success that we consistently strive to achieve for our clients.”

The Best Law Firms rankings are intended to serve as a referral guide for law firm clients.  National first-tier rankings are featured in the U.S. News & World Report’s November 2011 Money issue, while national and metropolitan first-tier rankings will appear in the Best Law Firms standalone publication.  All rankings also are posted online at http://bestlawfirms.usnews.com.

Hastings argued that it had properly complied with Section 4(b) of the Act in canceling the policy issued to Ultimate Backyard.  Hastings alleged that the case involved statutory interpretation: whether it complied with Section 4(b) of the Act when it sent a notice of cancellation to NCCI, the organization which receives and maintains certificates of insurance and notices of termination of coverage for the Commission.  Meanwhile, the case proceeded to trial at the Commission, prompting Vasquez and Ultimate Backyard to argue that the motion to stay filed in the Circuit Court was moot and should be dismissed. 

The Circuit Court granted the motion to dismiss, holding that the Commission had valid authority to decide the coverage issue.  The circuit court found that under the doctrine of primary jurisdiction, the factual questions which needed to be determined were being properly resolved at the Commission.  The circuit court held further that whether the policy of insurance was properly cancelled was a matter uniquely suited to the specialized and technical expertise of the Commission.  Hastings Mutual took an appeal.

On appeal, the court acknowledged that both circuit courts and the Commission have concurrent jurisdiction in coverage cases.  Hastings Mutual maintained that the courts have primary jurisdiction unless the legislature has divested the courts of jurisdiction or if the Commission has the specialized or technical expertise required to resolve the controversy.  Hastings argued that the legislature had not divested the circuit court of jurisdiction to interpret insurance contracts nor did such an interpretation require the expertise of an administrative agency. 

Hastings Mutual also argued that the notice of cancellation was logged in at the Commission and that the only question to be determined was whether this complied with the statute.  Vasquez and Ultimate Backyard argued that the issue before the circuit court was a question of fact, namely, whether the policy had been cancelled. This determination was well within the authority of the Commission.

The Appellate Court reversed and ordered a stay of proceedings before the Commission on the underlying compensation claim until the issue of whether there was proper notice of cancellation was decided by the Circuit Court.   It noted that the doctrine of primary jurisdiction provides that even when the courts have jurisdiction judicial proceedings should be stayed pending referral of a controversy to an administrative agency, but this is proper only where the agency has specialized or technical expertise or where there is a need for uniform administrative standards. Courts are well versed in interpreting insurance contracts and this type of question does not require any specified expertise possessed by the Commission.  Since interpreting Section 4(b) of the Act is a legal question best answered by the courts and one not requiring specialized expertise associated with an administrative agency, the Commission did not have primary jurisdiction over the claim. 

COMMENT

Hastings Mutualwas issued under Rule 23 and thus cannot be cited as precedent.  This is unfortunate because Hastings can resolve questions the WC community has regarding how, when and where coverage disputes should be resolved.  A close reading of Hastings reveals that if a claimant proceeds to a final decision at the Commission on a coverage question, unless that decision is appealed by the carrier a declaratory judgment action filed after the Commission award will fail.  The appellate court referred to Casualty Insurance Company v Kendall Enterprises, Inc., where the carrier sought declaratory judgment after the coverage question was decided by the Commission.  Kendall held that the Commission’s administrative findings of fact could not be contested under those circumstances and permitted the claimant to win the ‘race’ to the courthouse.

Hastings Mutualargues for the opposite approach which is that the courts should determine whether notice of cancellation has been properly made per the statute.  Hastings has a somewhat convoluted procedural history but the essence of it is that there was no finding by the Commission on the notice of cancellation issue.  The lesson of Hastings Mutual is that waiting for the outcome of a coverage dispute at the Commission will probably not serve the interests of the carrier.

As you may know, when a WCMSA proposal is submitted, CMS prioritizes its review in the order in which a proposal was received.  Generally, one month after the materials are submitted, the submitter will receive a letter acknowledging that CMS has received the proposal and indicating that most reviews can be completed within 60 days.  For quite some time, this timeline was more or less correct and we expected approval within 90 days of sending the appropriate materials to CMS.

Over the past year, CMS has become backlogged with WCMSA submissions.  It is now taking up to 6 months to receive review/approval of submitted proposals.  Coupled with the 30 days it takes to have the case prioritized, some WCMSA proposals are not reviewed for 7 months from the day that the materials are sent to CMS.  In cases in which weekly indemnity benefits are ongoing, this backlog has resulted in the loss of thousands of dollars for employers.  Furthermore, the backlog has resulted in settlements in which the claimant’s medical rights are left open pending the WCMSA review process, adding a great deal of time and medical expenses to the lives of countless files.

According to representatives from CMS, the current WCMSA review contractor’s contract allowed for staffing to review 1,400 cases a month.  On average, 2,400 WCMSAs are being submitted, which resulted in a backlog of 1,000 cases per month. 

In addition to the Workers’ Compensation Review Contractor’s (WCRC) staffing issues, the submission of WCMSAs in cases where the settlement does not meet the threshold for review by Medicare have contributed to the backlog.  In fact, representatives from CMS indicated that 30% of the backlogged cases do not meet the threshold criteria for review.  The representatives indicated that many insurance carriers and attorneys opt to submit WCMSAs in cases that do not meet the threshold. 

Some parties have taken the position that the letter automatically generated by CMS, indicating that Medicare will not review the WCMSA, affords them some degree of protection from future inquiry by CMS.  Medicare has made it quite clear that there is no safe harbor in cases that do not meet the threshold criteria for review, and that the aforementioned letter provides no protection. 

Regardless of the reasons for the WCMSA review backlog, it is clear that there is a dire need for change.  CMS representatives explained some of the measures taken to solve the backlog problem and avoid additional problems going forward. 

CMS noted that it had authorized WCRC employees to work overtime from September through December solely to address backlogged cases.  The new WCRC contract allows staffing for the submission of 2,000 – 2,500 WCMSA submissions per month.  The contract also mandates periodic contract reviews to determine the current number of submissions so that the WCRC is adequately staffed.  Furthermore, there are performance indicators in the new contract that should encourage the efficient review and approval of WCMSA proposals.

CMS representatives also noted that they met with the Medicare Advocacy Recovery Coalition, a legislative advocacy group, to discuss the backlog issues.  The meeting resulted in CMS issuing the May 14, 2011 memorandum, which reiterated that submitting WCMSA proposals to CMS is voluntary and not required by law.

As discussed later in this Newsletter, CMS is also hopeful that its new web-based submission portal will ease the burdens on the parties to litigation. 

The CMS backlog continues to frustrate the parties to litigation.  CMS finally appears to be coming forward with some proposed solutions.  At Wiedner & McAuliffe, we will continue to monitor trends and implement solutions in the WCMSA process to ensure that our proposals are reviewed in the most timely fashion. 
 

Additional Signs of a Trend toward Non-Submission

Previous Newsletters have highlighted the CMS May 11, 2011 memorandum.  In that memorandum, CMS reiterated that submission of MSA proposals for review – even those meeting CMS thresholds – is a voluntary process.  There is no federal law or regulation requiring submission.  At that time we noted that CMS’ issuance of the May 11, 2011 memorandum appeared to signal that the parties to settlement may be free to “self-police” themselves.  In other words, so long as the parties to litigation reasonably consider Medicare’s future interests in good faith, submission to the onerous CMS review process is not required.

Recently, the Maryland Workers’ Compensation Commission revised its regulations to confirm that settlements meeting CMS’ review thresholds may be approved by the State of Maryland even if the parties have chosen not to submit an MSA proposal for CMS review.  This can occur contingent upon the parties acknowledging in writing that the settlement meets the published CMS review thresholds, that they have voluntarily chosen not to submit the matter to CMS, and that they are aware of the risk that CMS may refuse to pay for future medical services.   COMAR 14.09.19.

We view this new regulation by the State of Maryland to be further evidence of a potential trend towards non-submission of MSA proposals for CMS review.  While a CMS-approved Medicare Set-Aside can be an effective tool in consideration of Medicare’s interests, it is not the only mechanism with which the parties to settlement can obtain compliance with federal law.  In many cases, rather than submit to the onerous submission process, the parties may achieve the same goal – adequate consideration of Medicare’s interests – through a reasonable, good faith non-submitted Medicare Set-Aside proposal. 

Sixth Circuit Upholds Medicare’s Statutory Right to Conditional Payment Reimbursement

The United States Court of Appeals for the Sixth Circuit recently issued its long-awaited opinion in Vernon Hadden vs. United States.  While many in the Medicare compliance industry had hoped the decision would apply the rules of equity and apportionment to conditional payment claims, the decision instead reinforces Medicare’s statutory right to reimbursement of conditional payments made prior to settlement. 

Vernon Hadden brought suit for negligence after being struck by a vehicle owned by Pennyrile Rural Electric.  The owner of the vehicle settled Mr. Hadden’s claim for $125,000.00.  Prior to settlement, Medicare had conditionally paid $62,338.07.  Following settlement, Medicare demanded reimbursement.

Hadden reimbursed Medicare under protest, and brought suit claiming that Medicare should have only been entitled to reimbursement of 10% of the claimed conditional payments.  Hadden’s theory was that the $125,000.00 paid by Pennyrile only represented 10% of his claim’s value.  This was the case, argued Hadden, as an unidentified motorist held 90% fault for the accident.  Hadden also argued that approximately $117,000.00 of the settlement was allocated to pain and suffering, i.e., not medical expenses, and therefore should not be available to reimburse Medicare.  The Administrative Law Judge, District Court, and Sixth Circuit Court of Appeals all disagreed with Mr. Hadden.

On appeal, Hadden raised a wide array of arguments, based on statutory interpretation, policy and equity.  The Sixth Circuit, however, felt no need to go beyond the plain language of the statute.  Under the applicable provisions of the Medicare Secondary Payer Act, the court noted that CMS is entitled to pursue full reimbursement of conditional payments from a primary plan, or from any entity that has received payment from a primary plan.  Based on the language of the statute, the court found Mr. Hadden’s claim that he had settled his negligence action for a 90% discount on total exposure to be without any legal effect.

There is speculation in the Medicare compliance industry that Hadden may seek relief in the United States Supreme Court.  Various legislative proposals are also under consideration to lessen the burden on the parties to litigation to reimburse conditional payments in full, regardless of disputes between the parties.  Conventional wisdom would dictate that if the parties to litigation resolve a case at a discount on exposure to reflect the disputes between the parties, Medicare too should discount its interest.  For now, however, the law is rather clear.  Medicare has a statutory right to reimbursement of all related conditional payments made prior to settlement.  It is recommended the parties investigate and resolve such claims for reimbursement prior to finalizing settlement. 

CMS Opens Web Submission Registration

As discussed in prior W&M newsletters, the Centers for Medicare and Medicaid Services (CMS) established a Workers’ Compensation Medicare Set-Aside Portal (WCMSAP) for electronic submission of Workers’ Compensation Medicare Set-Asides (WCMSA).  We are pleased to announce that the registration process has finally begun. 

CMS anticipates that the WCMSAP will significantly reduce the current timeframe for approval of submitted Workers’ Compensation Medicare Set-Asides by streamlining the submission process.  The WCMSAP will allow registered users to create a work-in-progress case, submit WCMSA cases, perform case lookups, append documentation to a case, and receive alerts regarding case activity.  The WCMSAP will further allow a user to track the status of a case and determine the current stage of review.  If an entity elects to continue using the non-electronic submission process, the above referenced activities must be completed via regular mail resulting in significant delay.

Due to the numerous benefits and significant time savings, the Wiedner & McAuliffe Medicare Department has already begun the registration process and will begin submitting Medicare Set-Asides through the WCMSAP as soon as the site becomes available.  We look forward to providing our clients with the most progressive and cost-effective Medicare related services available.

The employer’s human resources manager testified that the production bonus plan was part of an employee’s payment package and of the collective bargaining agreement.  The plan had a production component and a safety component.  If certain production levels were met, the bonus was paid; if no time was lost due to a work-related accident, a safety bonus was paid.  If there was a work accident or production levels were not met, no bonus for those components was paid.  Once benchmarks were hit, each employee received a bonus; if the benchmark was not met, no member of the team received a bonus.  The manager testified further that the bonus was not tied to stock price, was not seasonal, and was not given due to the generosity of management.  If an employee was sick or did not work he received no bonus.

A letter from the employer’s general manager stated that Common was eligible to receive a weekly production bonus based on two components – quality tons per 12-hour shift and safety performance.  The letter also addressed overtime, stating that this would occur on the days when an employee is scheduled to work additional time.  An employee could be excused from this overtime upon request and a valid reason.  Otherwise, most overtime was on a volunteer basis. 

The union president testified that overtime on the 12-hour days was mandatory but that an exchange of shifts was permitted with a supervisor’s approval.  If someone was scheduled to work and called off without the permission of the supervisor, that would be considered an ‘occurrence’ which could ultimately lead to discipline and discharge.  Common’s supervisor testified that 12-hour shifts were based on production and were normally done on Wednesdays but were actually based on the supply of iron received.  Shift switching and requests for time off were allowed if made 24 hours in advance.  If an employee was scheduled to work a 12-hour shift he was not permitted to refuse the extra four hours.  Unscheduled overtime on any given day was assigned on a voluntary basis based on seniority.

The Arbitrator and the Commission calculated weekly wages using both the bonus/incentive pay and overtime calculated at straight time.  The Commission did not include unscheduled or voluntary overtime wages in calculating the AWW.  The Commission found that the 12-hour shift was mandatory and that bonus/incentive was paid in ‘consideration for work.’

This decision was affirmed on appeal.  The Appellate Court cited Section 10 of the Act wherein the ‘average weekly wage’ is defined as:

“[t]he actual earnings of the employee in the employment in which he was working at the time of the injury during the period of 52 weeks ending with the last day of the employee’s last full pay period immediately preceding the date of his injury, illness or disablement excluding overtime, and bonus divided by 52. . .”(emphasis added)

With regard to overtime, the court cited Edward Hines Lumbar Company wherein ‘overtime’ was defined as:

 “[c]ompensation for hours beyond those the employee regularly works each week and extra hourly pay above the employee’s normal hourly wage.

In that case, the evidence established that claimant was required to work whatever hours the employer demanded; therefore, the average weekly wage was based on all hours the claimant was required to work.  The holding in Edward Hineswas reiterated in several subsequent cases, including Ogle vs. Industrial Commissionwhere the normal workweek consisted of 48 hours and overtime was mandatory, and in Edward Don Company vs. Industrial Commissionand Fressen, Inc. vs. Industrial Commission,where overtime hours were excluded from wages because there was no evidence the claimants were required to work overtime as a condition of employment or that consistent overtime hours were worked weekly.  Later, in the Airborne Expresscase, overtime was excluded because the claimant was not required to work overtime as a condition of employment.  Rather, the claimant in that case used his seniority and requested overtime.

In the case at hand, the evidence showed that Common worked scheduled overtime as well as unscheduled, voluntary overtime.  The Commission included only contract mandated and scheduled overtime in calculating wages.  The court found this consistent with prior case law because the scheduled overtime was a condition of employment. 

The court then addressed the production bonus issue.  Webster’s Dictionary defines ‘bonus’ as “something in addition to what is expected or strictly due,”which creates,

“a distinction between incentive-based pay which an employee receives in consideration for specific work performed as a matter of contractual right, and a bonus which an employee receives for no consideration or in consideration of overall performance at the sole discretion of the employer.”

Based on this distinction, the production bonuses paid pursuant to the collective bargaining agreement were not an extra benefit provided gratuitously by the employer.  The employer had no discretion in paying the bonuses – these were “strictly due” based on the volume and quality of steel produced and the number of days worked without accidents.  Only employees who worked on the dates scheduled received the production bonuses.  Consequently, the court held that the production bonuses were not bonuses “as contemplated by Section 10 of the Act,”but rather were received in consideration for work actually performed.  Therefore, the production bonuses were included in the weekly wage.

 Comment

The discussion of the overtime issue reflects current case law after the recent Tower Automotivecase.  This case was not cited but Towercatalogued previous case law and laid down the circumstances where overtime hours will be included in the AWW: 1) overtime is a condition of the employment; or 2) overtime is worked a consistent number of hours each week.  Here, the 12-hour shifts were a condition of Common’s employment.  This would place his workweek in the same category as the claimants in Edward Hines Lumberand Ogle, where overtime was included in weekly wages.

Regarding the incentive pay/production bonus issue, it is apparent that the word ‘bonus’ in the statute includes only those sums paid at the discretion of an employer – something in addition to what an employee expects, such as an envelope passed out by an employer at a Christmas party.  Here, both the collective bargaining agreement and the actual operating arrangements spelled out qualitative and quantitative criteria which, if met, triggered an obligation to pay certain sums.

Thus a ‘bonus’ is not always a bonus as defined by the statute.  It is obvious that the Commission and the courts will look at both functional and contractual arrangements and not mere nomenclature when determining whether pay other than hourly wages should be included in weekly wages.