The Baird Formula is a method of reducing EDD liens proportionately, when a worker’s compensation claim is settled for less than its full amount. The formula was approved by the California Supreme Court in California-Western States Life Insurance Co. v. Industrial Accident Commission (Baird), 59 Cal.2d 257, 28 Cal.Rptr. 872, 379 P.2d 328 (1963). It seeks to assure fairness in proportional reductions of EDD liens by showing a reasonable estimate of the full value of the claims as if the worker had prevailed. The EDD lien is reduced so that the EDD does not receive a greater percentage of full recovery then does the injured worker. So, the question becomes, is it similarly possible to reduce the amount allocated to protect the interests of Medicare in a Workers’ Compensation Medicare Set Aside (WCMSA) situation so that CMS does not receive a greater percentage recovery than the claimant? While there are no cases on this point in the world of workers’ compensation claims, there are some new cases that may seem to agree with this concept in cases where a Liability Medicare Set Aside (LMSA) is required during the settlement of a liability case.

The United States District Court, W.D. Louisiana decided Benoit v. Neustrom, 2013 U.S. Dist. LEXIS 55971. on April 17, 2013. Michael Benoit suffered injuries while incarcerated. Michael Neustrom, as Sheriff of Lafayette Parish was sued for allegedly not recognizing his health condition, causing a delay in medical care leading to disabling neurologic injury. The Parties agreed to a settlement of $100,000 and Medicare claimed $2,777.78 for conditional payments it made related to the claim. Although the Parties did not contest what was owed to Medicare, there was concern regarding future Medical and CMS statements that its future interests must be protected. To do so, Plaintiff secured a LMSA with cost projections in the range of $277,758.62 – $333,267.02. Based on the settlement amount of only $100,000, an issue of how to fund the LMSA was obvious.

CMS was served notice of a Motion for Declaratory Judgment asking the Court how to proceed, but declined to appear. In lieu of its appearance, the U.S. Attorney sent its standard letter which included a handout from the MSP regional Coordinator for CMS in Region VI. According to such handout, Medicare’s interests must be protected, but CMS does not mandate a specific mechanism to protect those interests. It goes on to state the law does not require a “set – aside” in any situation, but it is [CMS] method of choice for workers’ compensation settlements .The law makes no distinction between workers’ compensation and liability cases. The implication therefore is that the LMSA would be a vehicle, but CMS has no approval mechanism in place. Absent a CMS approval, the LMSA could be later challenged by CMS.

Since CMS provides no other procedure to determine the adequacy of protecting Medicare’s interest for future medical, the Court decided it must act to fill the vacuum that is left. In doing so, the U.S. District Court made several important findings of fact, important to its determination which covered: 1) Jurisdictional basis; 2) Agreement that both liability and medical issues were contested; 3) The potential damage elements plaintiff would have recovered for had the case been tried; 4) The settlement amount of $100,000 represents a reasonable compromise; 5) Plaintiff will take more than 30 months to reach age 65; 6) A calculation of the allocation based on the settlement amount; 7) The need for Plaintiff’s wife to administer the fund, based on Plaintiff’s incapacitation; 8) The requirement to reimburse Medicare its conditional payment claim in full; and 9 ) No Party is attempting to maximize the settlement.

To arrive at the appropriate figure, the Court took the net settlement proceeds, after reimbursement of conditional payments to Medicare, attorneys’ fees and costs and divided it into the mid – point of the LMSA range that was presented to the Court, arriving at a ratio of 18.2%. That ratio was then applied to the net proceeds where the Court arrived at the $10,138 figure to fund the set-aside. The Court looked to the 11th Circuit decision in Bradley v. Sebelius for guidance. 621 F.3d 1330 (11th Cir. 2010). Bradley was an allocation case under the MSP with respect to conditional payments, holding that CMS must respect a judicial allocation based on the merits of the case.

Based upon the logic of these new federal decisions, perhaps it is time for the judicial creation of a “Baird” type formula for the resolution of conditional payments and set-aside allocations under California workers’ compensation law.