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Mr. Padilla was named a Texas Super Lawyer (Rising Star)(2006) by Thompson Reuters as seen in Texas Monthly Magazine
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Mr. Padilla was named a Texas Super Lawyer (Rising Star)(2006) by Thompson Reuters as seen in Texas Monthly Magazine
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Mr. Padilla was named a Texas Super Lawyer (Rising Star)(2006) by Thompson Reuters as seen in Texas Monthly Magazine

Workers’ Compensation Subrogation of Administrative Fees and Costs

When a worker covered by workers’ compensation makes a claim against a third party, the workers’ compensation insurance retains the right to subrogate against any recovery from that third party for all benefits paid to or on behalf of a claimant injured at work. When subrogating for more than basic medical and indemnity benefits, the Texas workers’ compensation subrogation statute provides that “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.” TX Labor Code § 417.002.

In fact, all 50 states provide for similar subrogation. However, none of them precisely outlines which payments or costs paid by a compensation carrier constitute “compensation” and can be recovered. 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.

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 other similar fees. They also incur other expenses in conjunction with the handling and adjusting of workers’ compensation claims. Workers’ compensation carriers typically assert, of course, that, they are entitled to reimbursement for such expenditures when it recovers its workers’ compensation lien. Injured workers and their attorneys disagree.

Therefore, the question becomes whether or not such things as case management costs and medical bill audit fees are considered benefits or medical benefits which have been paid “for the compensable injury.” Case management is often a collaborative process of a medical assessment, planning, facilitation and advocacy for options and services to meet an injured worker’s health needs and assessment of available resources in order to promote cost-effective recoveries and outcomes. Case managers can coordinate services, including medical services and non-medical services such as: vocational, educational, housing, and social services. What constitutes “case management,” and how it’s billed to the carrier, is regulated and defined by TX Admin Code. § 134.204(e). Likewise, fee audits ensure compliance with Texas fee guidelines, prevent fraud, and minimize the lien amount.

The Texas Department of Insurance – Workers’ Compensation Division actually requires these services and expenses. The Texas Supreme Court has also indirectly weighed in on the issue. It has confirmed that § 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. Other Texas Courts have followed suit. See, e.g., Benchmark Ins. Co. v. Sullivan, 12-07-00223-CV, 2009 WL 1153385, at *3 (Tex. App.—Tyler Apr. 30, 2009, no pet.) (citing Texas Workers' Comp. Ins. Fund v. Travis, 912 S.W.2d 895, 897 (Tex. App.—Fort Worth 1995, no writ)).

While it is far from settled law, this leaves claimants’ attorneys with a conundrum of having to reimburse workers’ compensation carriers for what can amount to significant fees and costs along with the amount paid or incurred for medical treatment while being prevented from presenting evidence of these administrative costs if the case ever proceeded to trial. The collateral source rule prevents references during trial to insurance coverage, including workers’ compensation. Even if claimants’ attorneys manage to overcome the road block of obtaining billing records for such costs and fees, they may be excluded for not only violating the collateral source rule, but may also run afoul of some other evidentiary rule. Until this discrepancy is settled, injured workers with third party claims may be on the hook to repay workers’ compensation for fees and costs that are difficult to prove up and recover.

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*John M. Padilla is licensed in Texas and California. The firm's other attorneys are licensed in Texas.

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