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The C&R Dilemma – The Future Medical Buy-Out
by Michael McDonald

In this series, Michael G. McDonald, Esq. of the McDonald Law Corporation offers practical advice to WC lawyers and adjustors.

How do the parties in a workers’ compensation case ultimately agree to resolve the matter by a Compromise and Release and close the future medical award, as compared to Stipulations or going to trial? Are numbers just picked out of the air? Seems like at times, that is what happens. However, in most instances, a very detailed approach is taken.

Most seasoned defense attorneys have heard the expression “a closed file is a good file.” We have been taught a closed file will get you noticed by the adjuster and that adjuster would then be more willing to send more files to the attorney or the firm.

Some companies give bonuses to adjusters for closing a certain number of files per month. They take down the reserves after paying all the bills, including the liens and defense attorney fees. The adjusters have an incentive to settle by C&R and pay some premium for the case closure and future medical costs in order to take down the reserves and put the puppy to rest.

Applicants have an interest in a Compromise and Release. In my experience, many persons just want to take control over their future medical expenses and get out of the workers’ compensation system. Several years ago, I met an In Pro Per applicant (who was a Registered Nurse) at an adequacy hearing. The WCALJ was reluctant to approve the C&R and suggested she should settle by Stipulations.

I had never seen a judge dressed down so fast by litigant in all my life. She was respectful, but forceful. This forty-something professional let the judge know she understood her condition, appreciated the help (yes, help) provided by the claims adjuster and the defense attorney, but hated the waste of time and limited ability to choose her own doctor and not worry about her doctor getting paid and/or writing reports.

She went on to tell the judge she knew and understood the ramifications of the settlement and told the judge to “back-off” and get out of her life. The judge, needless to say, was a bit flustered, but did as he was instructed. The Compromise and Release was approved.

Many questions and issues exist when considering settlement by a C&R. Assuming the parties have an agreement on the level of PD and other side issues, what future medical factors do defendants consider in resolving the matter by C&R?


Are there sufficient funds to consider a buy-out of the future medical and case closure costs? Has a demand been made by applicant? Is the demand within the reserves? If not, what will be required to obtain an increase in the reserves? Will the defendant reject the demand and make an offer? Will the offer be a “take it or leave it” offer? Will the parties go into “nickel and dime” mode to get to a settlement within the reserve amount?

Lots of questions and few solid answers.

Professional Relationships

Do the parties know each other? Is there a good working relationship between the opponents? Is there professional respect for the opposition?

From a defense prospective, my clients know the good, tough, well-respected applicant attorneys as compared to what some might consider “bottom feeders.” The adjusters know or can find out from co-workers or others what the opposing attorney’s reputation is.

Will the opposing attorney always demand a C&R? Will that attorney settle just to get a fee? Will that attorney normally refuse to settle by C&R if there is a potential to re-open the file within five years from the injury date?

Costs if File Remains Open

What allocated costs for defense would be incurred if the file were to remain open for medical care in the future? Is the opposition likely to file documents to increase costs? Drugs, office visits, potential surgery should be considered in the future medical calculations. However, a “may need” treatment recommendation is not the same as a “will need” or “definitely need” treatment of some sort. Doctor phrases, such as “up to 12 office visits if the condition flares up,” carry little weight in FM calculations from a defense perspective. Why? If there is another flare up occurring as a result of subsequent work activity, the defendant may very well consider that need for medical treatment a new injury due to subsequent injurious industrial exposure. The settling defendant may not be on risk or may be able to seek reimbursement. In such a situation, the defendant will not pay a large premium to settle on such phrases.

Medical Control

Other factors concern the likelihood of controlling costs of future medical care. If CHSWC requires hearings to discuss the control of medical costs, how is an insurance adjuster expected to see the future medical costs? Is there an MPN in place which is effective in limiting costs? Is the treating physician prescribing medications? What are they? What are the future medical ramifications of the use of the medications? What is the potential for Medicare intervention? Will an MSA be required? If so, what are the costs, including obtaining the MSA estimates? Are out of pocket expenses considered in the settlement?

Risks to Consider

Similarly, Applicants and their attorneys need to raise questions to determine whether a settlement of future medical costs is warranted. For instance, does the injured worker have medical insurance? Will that insurance cover future treatment if it is needed? Is Medicare involved? Is the applicant capable of controlling their funds and setting aside money to pay for the future medical costs? Does the applicant want to deal with the insurance company and the workers’ compensation system in the future? Most importantly for the representative, is the client fully informed of their decision? Is there a potential for a law suit against them by their client?

Sharing certain information between the parties, such as medical insurance, SSDI filings, etc., can enlighten the opposing side and provide opportunities to discuss settlement.

The Market and Present Value

The questions raised may or may not take into consideration further costs, such as out of pocket travel expenses, Medicare gap in coverage, out of pocket non-covered medication costs, etc. The payer will be looking at the present value of the settlement figures to determine whether to agree to it or not. What will the market bear on the side of the carrier or the side of the applicant?

The use of present value calculations may help in placing the settlement within the reserve limits and assist in settlement. The PV calculations may include all amounts to be paid in the future, including PD and FM. The applicant’s attorney should consider the PV calculations to understand the potential differences in amounts offered and demanded. By doing so, the applicant can make a more informed decision as to whether the settlement is adequate.

Informed Consent

All parties need a “CYA” provision in the settlement documents. Years ago, an opponent of mine was threatened with a lawsuit by a former client for obtaining a C&R and settling the future medical costs. Similarly, lawsuits have been filed against applicant’s counsel for similar acts.

A client may wish to settle the future medical costs over the attorney recommendations. Even when an attorney acquiesces to a settlement, an “informed consent” provision should be placed within the C&R document. This will help protect all the parties from a potential lawsuit or possible attempt to set aside the C&R.

Too, a similar provision should be added to protect against a claim which may arise from a Medicare request for reimbursement. At the present time, if there is a reasonable expectation of Medicare enrollment within 30 months and the total settlement (including the sum payment of all indemnity and medical costs) is greater than $250,000.00, an MSA is not required if the applicant has not applied for Social Security Disability.

If Medicare refuses payment, the settlement document’s provisions may be helpful in outlining the understanding of the rights and liabilities of the parties. The settlement document may be used by the claimant to argue payment should not be denied. Also, the settlement provisions which outline the rights, liabilities and understanding of the parties may protect the attorneys and carriers against any Medicare claims for reimbursement.

Logical Analysis or Grinding

Even if both sides fully analyze the risks and benefits of future medical costs, a meeting of the minds may not happen. The carrier has the money, the applicant wants it. If the demand is deemed too high or if the offer is perceived as too low, there will be no settlement even though the numbers on both sides may be logical and based upon sound analysis.

In such a case, we get back to the market value of settlement. Is it worth the costs and the benefits? Then, at the end, will the judge approve the settlement? Can the parties explain the basis for the settlement in order to obtain the approval?

If so, a good file is a closed file.

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About the Author:

Michael G. McDonald is the founder of McDonald Law Corporation in Concord, California and a Certified Specialist in Workers' Compensation Law, State Bar of California. He is a Director for the California Workers’ Compensation Defense Attorneys Association.

Michael G. McDonald, Esq.
McDonald Law Corporation
1800 Sutter Street, Suite 430
Concord, CA 94520-2563
Voice: (925) 363-4380
Fax: (925) 363-4352
Other locations: Sacramento, San Jose and Fresno www.mcdonaldlawcorp.com

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