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Commonwealth Court Confirms that 20% Fee Deduction from all Compensation, including Medical Expense, is Reasonable per se

On May 14, 2020, the en banc Commonwealth Court issued an Opinion on reasonable counsel fee deduction in the case of Neves v. WCAB (American Airlines), 1431 C.D. 2018 (Pa. Commonwealth Ct., 2020).

This decision should have a very practical application in the day to day handling of Pennsylvania Workers’ Compensation claims.  To summarize, the court concluded as follows:

We hold that §442 does not distinguish between the type of compensation awarded; does not require an inquiry into the reasonableness of a 20% fee agreement; and does not make the amount and degree of difficulty of the work performed by the attorney relevant.  A 20% counsel fee is per se reasonable.

Neves, at p.18.

The facts of the case involved a Claim Petition that was awarded with a 20% counsel fee agreement approved containing the following language:

In consideration for services rendered and to be rendered, I agree to pay my attorney a sum equal to 20% percent (sic) of whatever may be recovered from said claim either by suit, settlement or in any other manner or of whatever may be recovered if a second trial or appeal is taken.

Neves at p.3.

It can be seen from the above that the fee agreement between claimant and his counsel contained no specific provision allowing for a 20% fee deduction from recovered medical expense.  Rather, the language was generic and all-encompassing to include “whatever may be recovered from said claim.”

When the employer refused to deduct 20% of the medical bills, the parties agreed to place that amount into escrow and have the matter addressed by the workers’ compensation judge and subsequently the Workers’ Compensation Appeal Board.  Both denied the deduction of a 20% fee based on the medical expense and the case went to Commonwealth Court.

The Opinion is comprehensive and outlines the statutory history of §442 along with the pertinent case decisions interpreting that portion of the Act.  The conclusion is that the clear language of §442 must be followed in that a counsel fee “shall be approved by the workers’ compensation judge or board as the case may be, providing the counsel fees do not exceed 20 per centum of the amount awarded.”

Although the court cites other cases for the proposition that counsel fees have always been payable from medical expense, several questions arise for the proper deduction of fees.

The first is whether an employer or insurance carrier can be held liable for the additional 20% which counsel is receiving as a fee.  The short answer is that such a situation should not arise as long as the appropriate steps are taken during the litigation to ensure a clear record.

At a minimum, the fee agreement should be placed into the record before the judge and reviewed carefully for its terms.  The court in Neves, held that a generic statement allowing for a 20% fee deduction from “compensation” applies to both indemnity and medical.

Going one step further, counsel should perhaps question claimants at hearing as to their understanding and acceptance of the fee deduction from medical expense.  A claimant could be personally responsible for that additional 20% payable to the provider.

There is no “balance billing” of a claimant under the medical cost containment regulations for the difference between the provider’s charge and the final repriced amount being paid to the provider.

In a situation of a 20% fee deduction calculated on medical charges, there is no such protection for a claimant.  A provider can legitimately collect the 20% reduction which is being paid to counsel.

Much like in a Compromise & Release scenario, it may be prudent to have claimants acknowledge the possibility of the providers collecting this shortfall from them.

If the claimant cannot be questioned on the issue for some reason, an affidavit may be a reasonable substitute.  This route was taken in the Neves case and submitted as an exhibit.  Another alternative may be a stipulation which the claimant signs.

A claim representative can also place language in a supplemental agreement or other bureau document where a claim is not in litigation and resolved amicably.  Language can be placed in the documentation evidencing the claimant’s understanding of the fee deduction for medical expense.

An unexpected situation could also arise where a fee agreement specifically excludes the 20% fee deduction from medical expense.  If an employer/carrier mistakenly deducts a fee to counsel in such a situation, there could conceivably be exposure to the extent of the error.

There may be questions interpreting a judge’s Order approving an ongoing fee.  Does the 20% deduction apply to all future payments of indemnity and medical until otherwise changed by a subsequent agreement or Order?  If the Order does not contain specific and limiting language for the type and duration of fee deduction, an ongoing fee deduction from medical expense could become the employer’s obligation.

The dissent by Judge Michael H. Wojcik also carefully reviews the history of counsel fee deductions and makes several points.  When an award is made in favor of a claimant, there is no monetary benefit to the injured worker with respect to the payment of medical bills.  As those amounts are payable directly to the providers, there is no amount awarded to the individual claimant such that a 20% fee deduction would be appropriate.  Simply, the additional 20% fee is not the claimant’s to give.

The above reasoning is also consistent with common practice in southwestern Pennsylvania for a claimant counsel to enter into a fee agreement with the individual providers or group health insurance carriers for payment of a fee in exchange for representation of the provider/carriers’ interest in obtaining payment.  Such an agreement was not in place in the Neves case and would clearly not be required based on the majority opinion.

The dissent argues that the judge should make a finding of fact as to the reasonableness of a counsel fee to protect injured workers.  Consider the situation of a short closed period of disability which involves substantial medical treatment and billings.  A 20% fee deduction from such medical expenses could exceed the amount of wage loss benefits awarded and arguably not represent a reasonable fee.

The majority believes these shortcomings identified by the dissent should be addressed by the legislature as the language of §442 is unambiguous and clear.

In summary, even though a 20% counsel fee deduction has been deemed reasonable per se, the deduction of a fee to counsel from both indemnity and medical benefits should not be considered as an automatic step in litigation.  Rather, the fee agreement should be reviewed for the specific terms and, when possible, questioning of the claimant as to his or her understanding of how these provisions will be applied in practice.  If the claimant accepts the responsibility to potentially pay an additional amount to the medical providers, then the fee agreement is reasonable and would seemingly be approved by the judge.  Care should also be taken when paying an ongoing fee following a judge’s order.  Unless specifically limited in duration, payment of an ongoing fee from medical expense could require the employer to pay 20% from future medical expense as well as indemnity.