Medicare and Marijuana: Preserving Settlements in the Face of Evolving Legalization Laws

Published in the August 2021 Issue of CLM Magazine

By: Heather Sanderson

In an interesting case out of the Commonwealth Court of Pennsylvania, Lehigh Specialty Melting, Inc. appealed an order of state’s workers’ compensation appeal board that would have caused the unwinding of an otherwise finalized workers’ compensation settlement agreement that included a Centers for Medicare and Medicaid Services (CMS)-approved Medicare Set-Aside (MSA) with an injured worker.

Essentially, the claimant had executed a settlement compromise and release (C&R) wherein the claimant agreed not only to a lump sum settlement, but also "to the potential establishment and funding of an MSA.” As part of the C&R, the claimant also agreed to timely complete all paperwork necessary for Lehigh and its insurer/third-party administrator to apply for and secure an MSA allocation. Post C&R, Lehigh had obtained an MSA that was approved by CMS. However, post-CMS approval, the claimant then refused to follow through with executing the paperwork necessary to finalize the MSA.

The claimant took the position that Lehigh would remain responsible for future work-related medical expenses without any reference to the establishment of an MSA. The claimant also further alleged that the proposed MSA failed to consider all work-related medical treatment currently being provided to him. The claimant further noted that he was prejudiced by the fact that Lehigh waited almost four years to have an MSA proposal performed, and further alleged that Lehigh sought the MSA without any input from the claimant.

More specifically, post C&R, the claimant alleged that circumstances had changed, as medical use of marijuana was now approved in Pennsylvania, so he wanted funding for his usage of medical marijuana in his MSA allocation. Thus, the claimant contended that medical marijuana was a reasonable and necessary treatment for his work injury.

Lehigh disagreed and asserted that the C&R did not contain any provision for the claimant to amend or refuse the MSA proposal and that the C&R was a means for Lehigh to end its medical liability. The question for the court then became whether there was a “meeting of the minds” and whether the provision of the C&R requiring the claimant to execute documents for the approval of the MSA and final settlement of his claim for medical benefits was enforceable.

The workers’ compensation board originally found in 2020 that circumstances had changed, and that medical use of marijuana was now approved in Pennsylvania. Further, as the claimant contended that medical marijuana was a reasonable treatment for his work injury, and Lehigh disagreed, that there was no “meeting of the minds” and the provision of the C&R requiring the claimant to execute documents for the approval of the MSA and final settlement of his claim for medical benefits was not enforceable.

Upon Lehigh’s appeal to the Commonwealth Court, the board’s decision was reversed. Further, the court found that Lehigh was correct that the board's standard would open a Pandora's box that could potentially unravel countless C&Rs based on the contention that there was no "meeting of the minds" at the time the agreements were approved. Further, medical marijuana was neither contemplated nor legal in Pennsylvania when the C&R was approved; the claimant never appealed the approval of the C&R; the claimant accepted $155,000 to resolve the indemnity portion of his claim; the claimant agreed to cooperate in Lehigh’s efforts to secure an MSA; it was up to Lehigh’s sole discretion whether to fund the MSA; and, lastly, CMS will not fund medical marijuana, despite changes in Pennsylvania’s state law. Thus, a new C&R is not required for Lehigh to exercise its option to resolve the medical portion of the claimant's workers' compensation claim.

Open With Caution

What is important to understand from this decision is that obtaining approval of an MSA by CMS post-settlement/C&R can open a can of worms (as occurred here in this case). Injured parties’ medical circumstances often change post-settlement, and not finalizing the MSA until after settlement/C&R opens a window for the claimant to challenge the MSA as no longer being accurate. Unfortunately, this occurs often, and the re-review process for CMS to potentially change the MSA is only granted in extremely limited circumstances. A case that should have been settled almost five years earlier continued to unnecessarily haunt Lehigh in court for years to come.

The takeaway is that parties looking to settle a workers’ compensation claim with a Medicare beneficiary should either agree upon or obtain CMS approval of an MSA, or incorporate a non-submit MSA pre-settlement so that there is a clear “meeting of the minds” at the time of settlement. If the parties choose to submit the MSA to CMS, then the parties should wait to settle the claim until CMS issues a determination on the MSA. If the parties utilize a non-submit MSA, however, settlement can occur immediately.

While medical marijuana is highly unlikely to be a component of MSAs for many years to come because marijuana remains a federally illegal drug and thus is not covered by Medicare, employers should prepare for potentially increased MSA allocations as Congress looks to expand the Medicare program. Currently, Democrats are pushing for Medicare expansion, which would expand Medicare coverage for dental, vision, and hearing benefits. There is also a possibility that if such expansion would pass, the Medicare age would be lowered from 65 to 60.

MSAs should not complicate otherwise good and final settlements. Consulting with a Medicare secondary payer expert to ensure all of your ducks are in a row is incredibly important to ensure settlements with Medicare beneficiaries are truly final and not subject to further review.

Heather Sanderson is president of Sanderson Firm PLLC and can be reached at heather@sandersoncomp.com.