Another state has been heard from. The growing outcry for direction over whether case management fees can be recovered by a subrogated workers’ compensation carrier has in many respects been as daunting and elusive as the search for the Holy Grail. All 50 states allow for recovery of workers’ compensation benefits paid to or on behalf of a claimant injured in the course of his or her employment. Not even one, however, enunciates in its statute precisely which payments or costs paid by a worker’s compensation carrier constitute “compensation” and can be recovered. California comes closest; but that is little consolation when carriers invest their own money for the mutual benefit of employees, employers, and themselves. The result is industry-wide confusion and an ongoing debate and argument with claimants’ attorneys over what can and can’t be included in a carrier’s lien for recovery purposes.
This issue was recently addressed for the first time in Tennessee by the Tennessee Court of Appeals in Memphis Light Gas & Water Division v. Watson, 2019 WL 589838 (Tenn. App. 2019). In Memphis Light Gas & Water Division v. Watson, the court held that an employer’s worker’s compensation subrogation lien, codified at T.C.A. § 50-6-112(c)(1), does not include recovery of $10,000 in nurse case management fees, even though such expenses are required by law and constitute a clear benefit to the employee. The court noted that the use of management services is a discretionary matter, and T.C.A. § 50-6-123 was amended to state as follows:
Employers may, at their own expense, utilize case management, and if utilized, the employee shall cooperate with the case management.
Some have argued that the Tennessee Commissioner of the Department of Labor retained a requirement for case management after it reached an appropriate threshold. Although this precise statement may have been true at one time, at least in the immediate wake of the 2004 statutory amendment pertaining to case management, because in 2007, this regulation, which had at one time required case management in certain cases, was itself amended to state:
An employer or insurer is encouraged, but not required, to provide case management services. Tenn. Comp. R. & Regs. 0800-2-7-.03(1).
Simply put, the court held that, even though these fees are necessitated by the tortious act of the third party and their expenditure assists the employing public of Texas holding down workers’ compensation costs and premiums, providing case management is not required under the statutory and regulatory framework pertinent to this case. Therefore, the subrogated carrier cannot recovery such fees and costs. There was no explanation as to why such payments must be “required” in order to be recovered.
The issue addressed by the Tennessee court has been reverberating throughout the industry in other states. In addition to medical expenses, death benefits, funeral costs, and/or indemnity benefits for lost wages and loss of earning capacity resulting from a compensable injury, workers’ compensation insurance carriers also expend considerable dollars for case management costs, medical bill audit fees, rehabilitation benefits, nurse case worker fees, and the like. They pay significant attorney’s fees on permanency awards and incur other expenses in conjunction with the handling and adjusting of workers’ compensation claims. The subrogated workers’ compensation carrier believes strongly that, as part of the deal society struck with employers a century ago and in order to hold down premiums for employers across the nation, it should be reimbursed for such expenditures when it recovers its workers’ compensation lien. Injured employees and their lawyers will disagree.
Subrogation professionals, claims handlers, and trial lawyers are not the only ones confused. Trial judges, too, scratch their heads and stare blankly at the courtroom ceiling when asked whether a subrogated carrier can include such legitimate payments in their subrogation liens. As is often the case when there is no answer in law – a good argument can often carry the day.
Judges like things that fit neatly into legal categories and definitions. When subrogating for more than basic medical and indemnity benefits, look first to the underlying workers’ compensation subrogation statute. In Texas, for example, the statute reads as follows:
“….the net amount recovered by a claimant in a third‑party action shall be used to reimburse the carrier for benefits, including medical benefits that have been paid for the compensable injury.” V.T.C.A. Labor Code § 417.002.
Therefore, the question becomes whether such things as case management costs and medical bill audit fees are considered benefits or medical benefits that have been paid “for the compensable injury”. “Case management” is a collaborative process of a medical assessment, planning, facilitation, and advocacy for options and services to meet an injured worker’s health needs through communication and available resources in order to promote quality and cost-effective recoveries and outcomes. It is an essential element of efforts to improve the quality of care delivered to people with complex health needs. Case managers coordinate multiple services including medical services and non-medical services such as: vocational, educational, housing, social services, and recreational. What constitutes “case management” is carefully regulated and defined by state law. They usually include such things as:
- Developing a treatment plan to provide appropriate medical services to an injured employee;
- Systematically monitoring the treatment being rendered and medical progress of the employee;
- Assessing whether alternate medical care is appropriate and delivered in a cost-effective manner;
- Ensuring that the injured employee is following the prescribed medical plan; and
- Formulating a plan for return to work with due regard for the employee’s recovery and restrictions and limitations.
Likewise, fee audits ensure compliance with state fee guidelines, prevent fraud, and keep liens to an absolute minimum. These efforts hold down costs of workers’ compensation for employers and ensure that the smallest lien possible is taken from an injured worker’s third-party recovery. Refusing to reimburse costs such as these is not only illogical, it’s foolish. However, logic doesn’t always win the day, so let’s look at the law.
The Texas Department of Insurance – Workers’ Compensation Division requires these services and expenses. Therefore, the carrier should be able to recover them. The Texas Administrative Code provides as follows:
(a) The ground rules and the medical service standards and limitations as established by the Fee Guidelines shall be used to properly calculate the payments due to the healthcare providers. Tex. Admin. Code Tit. 28, § 134.1.
The Texas Supreme Court has also indirectly weighed in on the issue. It has confirmed that V.T.C.A. Labor Code § 417.002(a) requires that a carrier be reimbursed out of any third-party recovery for all benefits paid for an injury. Texas Workers’ Comp. Ins. Fund v. Serrano, 962 S.W.2d 536 (Tex. 1998). It says that the statute does not limit reimbursement to only those benefits that are reasonable and necessary. Because the injured worker receives the benefit of all amounts paid, the carrier is entitled to reimbursement without proving that the amounts paid to or for the worker were reasonable and necessary medical expenses. The assumption is that if it was paid, it should be reimbursed. The court essentially gave broad definitions to the terms “medical benefit” and “healthcare”. The Serrano Court allowed reimbursement for costs and payments introduced in that case which indicated on their face that they were paid in accordance with Commission guidelines.
Each state should be evaluated and argued differently, because each state’s statute is different. In California, for example, the applicable statute reads as follows:
Any employer who pays, or becomes obligated to pay compensation, or who pays, or becomes obligated to pay salary in lieu of compensation, or who pays or becomes obligated to pay an amount to the Department of Industrial Relations pursuant to Section 4706.5, may likewise make a claim or bring an action against the third person. In the latter event, the employer may recover in the same suit, in addition to the total amount of compensation, damages for which he or she was liable including all salary, wage, pension, or other emolument paid to the employee or to his or her dependents. Cal. Labor Code § 3852.
The workers’ compensation carrier is entitled to recover, in the same third-party lawsuit with the employee, the total amount of its expenditures for “compensation” and any other special damages, such as salary, wage, pension, or other emolument paid to the employee. Cal. Labor Code § 3856(c). California law then defines “compensation” as:
“….compensation under this division and includes every benefit or payment conferred by this division [Division IV] upon an injured employee, or in the event of his or her death, upon his or her dependents, without regard to negligence.” Cal. Labor Code § 3207.
“Compensation” therefore, includes medical and hospital expenses (Cal. Labor Code §§ 4600‑4608), medical-legal expenses (Cal. Labor Code §§ 4620‑4628), vocational rehabilitation expenses (Cal. Labor Code §§ 4635‑4647), disability indemnity payments (Cal. Labor Code §§ 4650‑4663), death benefits (Cal. Labor Code §§ 4700‑4709), and interest (Cal. Labor Code § 5800). Most penalties are arguably recoverable as mandated by Division IV, and even the cost of utilization review should now arguably be recoverable as the use of such process is now mandated by California law. Cal. Labor Code § 4610. However, the cost of utilization review may not be a “benefit” or “payment conferred on an injured employee”. Aside from the logical arguments above, California law apparently does not directly support recovery of these items. However, it does require mitigation of damages, and one Court of Appeals decision does allow a plaintiff to recover the cost of mitigation efforts as a recoverable item of damages. Kleinclause v. Marin Realty Co., 94 Cal. App.2d 773 (1949).
Another interesting and cogent argument is an analogy to the right to a future credit. When a recovery by a claimant is made, the carrier is given a credit toward future “benefit” payments. A close look at this law reveals that “medical-legal” costs should be costs against which a carrier can press a credit, implying that they constitute “compensation” under California law and should be recoverable by a worker’s compensation carrier. Adams v. W.C.A.B., 18 Cal.3d 226 (1976).
Arguments in each state should be fashioned from the only tools available – statutory language and common sense. In North Carolina, for example, the workers’ compensation statute provides for reimbursement to the carrier of “all benefits by way of compensation or medical compensation expense paid or to be paid”. N.C.G.S.A. § 97‑10.2. Further legal archaeology reveals the definition of compensation as follows:
“The term ‘compensation’ means the money allowance payable to an employee or to his dependents as provided for in this Article, and includes funeral benefits provided therein.” N.C.G.S.A. § 97‑2.
North Carolina case law reveals no further clarification on exactly what “medical compensation expenses” refer to, but the door seems open wide enough to include some of the case management costs referenced above, yet not quite wide enough to include interest. Buckner v. City of Asheville, 438 S.E.2d 467 (N.C. App. 1994). In North Carolina, however, there is also the possible appeal to the Industrial Commission to have something declared as a “benefit” recoverable in subrogation. Before the Commission can declare that a carrier is entitled to a particular expense, it must make a factual determination that the services were rehabilitative in nature and reasonably “required to effect a cure or give relief” to the claimant. Walker v. Penn. Nat’l Security Ins. Co., 608 S.E.2d 107 (N.C. App. 2005). This state has a higher burden to meet in order to recover something as a “benefit” in subrogation.
Illinois has totally ignored the cost savings to the claimant of such case management fees and expenditures. It has declared such items unrecoverable because such medical rehabilitative services provided by the claim’s coordinator at the insurance company’s direction were presumably provided for the benefit of the carrier and were not reimbursable necessary medical or rehabilitative services. Cole v. Byrd, 656 N.E.2d 1068 (Ill. 1995). The expense at issue was the medical rehabilitation coordinator services of a licensed professional nurse provided by Professional Rehabilitation Management (PRM). The court declared that when registered professional nurses coordinate the services of various medical providers but do not provide any treatment to an injured employee, these services constitute “case management services” rather than “medical treatment services” within the meaning of the Workers’ Compensation Act.
In New Jersey, a Section 40 lien includes payments made for temporary disability, permanent disability, and all medical expenses and treatment. The workers’ compensation lien does not include the carrier’s portion of a claimant’s attorney and expert fees, an employer or insurer’s expenses for a defense medical examination, nurse case management fees, or rehabilitative nursing services unless such nursing services primarily benefitted the claimant and were reasonably necessary to the claimant’s recovery. Kuhnel v. CNA Ins. Companies, 731 A.2d 564 (N.J. Super. 1999). Any expenses incurred by a workers’ compensation carrier for services of a rehabilitative nurse are recoverable as medical expenses under the workers’ compensation lien statute only if the carrier demonstrates that such expenses are necessary to provide medical and other treatment as shall be necessary to cure and relieve the claimant of the effects of the injury. Raso v. Ross Steel Erectors, Inc., 725 A.2d 690 (N.J. Super. 1999).
The Michigan Workers’ Compensation Appellate Commission has specifically held that nurse case management fees can be reimbursable – depending on circumstances. In Ziebell v. Wal-Mart, 2001 WL 566162 (Mich. Work. Comp. App. Com. 2001), the TPA hired a nurse case manager and then fired him when he recommended the claimant have an independent medical evaluation. The nurse case manager stayed on working for the plaintiff (non-cat injuries) and the Magistrate later ordered the carrier to pay his $7,713.10 in nurse case management fees. The Appellate Commission reversed because the plaintiff and nurse case manager did not provide proof that the services were “reasonable”, but specifically stated:
“Although the Act makes no specific reference to ‘case management services,’ we believe that those services, if reasonable and needed, are contemplated in the types of services provided for under section 315(1).”
Unlike “case management services,” there is at least a provision in the Act that contemplates payment of nursing care services, §§ 418.315(1) and 17.237(315)(1). A condition precedent to an award of nursing care or attendant services, however, is a determination that such services are “needed”, not merely desired. M.C.L.A. § 418.315(1) provides in pertinent part:
The employer shall furnish, or cause to be furnished, to an employee who receives a personal injury arising out of and in the course of employment, reasonable medical, surgical, and hospital services and medicines, or other attendance or treatment recognized by the laws of this state as legal, when they are needed.
Courts have held that § 315(1) means that the employee is entitled to appropriate medical care. However, with regard to nurse case management services, the Commission said the following:
Although the Act makes no specific reference to “case management services,” we believe that those services, if reasonable and needed, are contemplated in the types of services provided for under section 315(1).
However, it remains the burden of the carrier seeking to subrogate for such services that they were reasonable and necessary.
In Lefko v. Walter Toebe Constr. Co., 2008 WL 5122473 (Mich. Work. Comp. App. Com. 2008), a 19-year-old employee was rendered a spastic quadriplegic as the result of a work-related accident. Liberty Mutual provided workers’ compensation benefits including nurse case managers. The Commission stated that case management fees are routinely paid in appropriate cases and constitute a “benefit” under Michigan law.
When attempting to recover for costs or expenses beyond the basic indemnity and medical benefit payments, a subrogation professional’s first strategy should be to look at the law of the state involved to determine exactly what the subrogation statute allows the carrier to recover. For example, if it allows for recovery of “benefits” or “compensation” paid, then the definitions of those terms in other areas of the workers’ compensation law should be determined, and an argument fashioned that those definitions include case management type fees and expenses. If that proves to be a dead end, a logical argument should be made that by discouraging the spending of such amounts, the subrogation lien will increase, and the recovery of the injured worker will decrease. Such expenditures assist in holding down the cost of workers’ compensation insurance premiums and every incentive to hold down liens and reduce fraud will make workers’ compensation systems more cost-effective and affordable for businesses.
Any argument for recovery of medical case management services should also argue that such services constitute medical treatment. This is no easy task, because at its core, targeted case management is not the direct provision of care and services, but instead is a separate class of services that identifies necessary services, assists in locating the services, identifies providers, and monitors the provision of care. However, such services serve the purpose of managing the medical services provided – a function every bit as important as the actual medical services provided. It partners with subrogation to help keep down both health care costs and workers’ compensation premiums. Allowing for recovery of such services serves the original underlying legislative and social purpose of workers’ compensation subrogation. An Illinois Bar Journal article suggested some rather interesting criteria to determine if case management expenses should be reimbursable:
- Whether the case manager provides medical treatment and/or diagnosis;
- Whether the case manager coordinates and supervises medical treatment provided by others;
- Whether the injured employee requested the case manager’s services;
- Whether the case manager makes recommendations to the insurer or to the employee;
- Whether the case manager would discontinue working with the employee if the insurer so instructed;
- Whether the case manager reports to the insurer or to the employee; and
- Whether the case manager considers cost effectiveness and cost containment.
Mary Palumbo, Workers’ Compensation Insurer Not Entitled to Reimbursement for Case Management Services, 84 Ill. B.J. 101, 103 (1996).
As a last resort, subrogation professionals should simply include reasonable case management costs in the lien totals provided to plaintiffs’ lawyers and put the burden on them to affirmatively challenge such expenses and come up with legal arguments as to why they should not be reimbursed. While it is perhaps a stretch to include attorney’s fees and other overhead charges in the lien total, it is reasonable to expect reimbursement of expenses and costs which benefit the claimant by keeping the benefits total to its absolute minimum. If the totals are not questioned, there is no foul. If they are, remember the words of Mark Twain, “Whatever you say, say it with conviction.”
If you should have any questions regarding this article or subrogation in general, please contact Gary Wickert at firstname.lastname@example.org.