Can Attorney Fees be Deducted from MSAs? The Debate Continues….

According to a WorkCompCentral article (subscription required) titled “Applicants Hope to Persuade WCAB on MSAs and Attorney Fees,” the issue of attorney fees as they relate to a case involving an MSA rose again at a recent conference in Rancho Mirage, California in January 2012. Attorneys Robert Rassp and Marguerite Sweeney both stated at the conference that they believe the California Workers’ Compensation Appeals Board (WCAB) used a flawed analysis in a 2010 opinion entitled Pratt v. Wells Fargo Bank.

In Pratt, the WCAB found that claimants’ attorneys should not include money in MSAs as a basis for calculating attorney fees. Pratt’s workers’ compensation matter involved her receiving an 82% permanent partial disability award and life pension. Pratt then sought to settle her right to future medical a year after receiving her initial award. When the future medicals were settled, she was to receive an MSA of $162,000. Her attorney requested attorney fees of $45,440, which was inclusive of the prior permanent partial disability and life pension awards as well as the new MSA money. The judge found that the attorney fees should only be $15,000, which was 5% of the new money excluding the $162,000 MSA. The WCAB affirmed this decision finding that the proper method for calculating attorney fees would be to not include funds for an MSA.

Attorney Rassp stated that he disagreed with the decision because Pratt made a voluntary determination to enter into the settlement. He pointed out that this decision had a significant impact upon Pratt—agreement to shoulder the burden of managing her own medical care and reporting to CMS, which if mishandled, could leave her without coverage in the future. He further stated that the real issue in this case is whether Pratt gave informed consent to the settlement, with full knowledge of the burden to report to CMS. It could be argued that attorney fees were warranted for Pratt’s attorney due to the fact that representing a Medicare beneficiary during settlement can carry more obligations and liabilities than with non-beneficiaries.

The WorkCompCentral article also mentioned another recent case surrounding attorney fees and MSAs, Hinsinger v. Showboat Atlantic City, a New Jersey case from May of 2011.  In this case, the court allowed attorney fees to be deducted from the MSA in a personal injury matter. For a copy of PMSI’s previous legal bulletin and more detail on the Hinsinger v. Showboat Atlantic City case please click here. The Hinsinger case, unlike Pratt, involved the Plaintiff’s attorney literally taking his fee out of his client’s MSA whereas in Pratt, the claimant’s attorney calculated his fee off the entire settlement amount, which was inclusive of the MSA.

CMS has made its position clear on the issue of taking attorney fees out of a WCMSA in a memo dated May 7, 2004 which states  “. . .attorney costs specifically associated with establishing the MSA arrangement cannot be charged to the MSA arrangement. The CMS will no longer be evaluating the reasonableness of any of these costs because the payment of these costs must come from some other payment source that is completely separate from the MSA arrangement funds.” It could be argued that the Hinsinger case was not governed by this CMS memo since it involved a liability matter. On the other hand, one can also argue that this is a policy of CMS that should be applied across the board, in both liability and workers’ compensation matters.

Regardless, it will be interesting to see how this issue develops in further cases over time and if CMS issues any additional policy statements regarding attorney fees and MSAs.  There are both pros and cons to allowing for the deduction of attorney fees out of the MSA. Certainly, allowing for the deduction of attorney fees from MSAs provides incentive for claimant attorneys to protect both Medicare and their client’s interests. However, when attorney fees are deducted from an MSA, the claimant can be left without adequate funds for their future medical needs. PMSI will continue to follow this issue.

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