The Gregory Formula

Workers’ compensation benefits are designed to help an employee who has sustained a work-related injury by paying for related medical expenses.  The injured employee may receive a large variety of treatments including, but not limited to, physical therapy, prescription medication, chiropractic care, psychological services, or the use of durable medical equipment.  An employer may very well be on the hook for the costs of these services.  When providing medical care to an injured employee, medical providers and group health insurance providers may file liens against the workers’ compensation recovery in order to ensure reimbursement for care provided to the employee.  Ultimately an employer and an employee may agree to settle the workers’ compensation claim by a compromise and release agreement.  In a case styled Kaiser Foundation Hosp. v. Workers’ Comp. App. Bd., the WCAB addressed the issue of what happens when the medical providers who have filed liens do not agree with the amount settled on in the compromise and release agreement.

In that case, four separate cases were consolidated for consideration by the WCAB.  The issue revolved around how much a lien claimant should recover in a denied case.  It was proposed that the Lien Claimant should be eligible for the same ratio of recovery that the injured worker accepted as settlement of the case.  Where the lien claimant does not agree with the amount of the settlement compromise, the workers’ compensation referee shall “determine the potential recovery and reduce the amount of the lien in the ratio of the applicant’s recovery to the potential recovery in full satisfaction of its lien claim.”  The court stated that the phrase “potential recovery” means “the amount of recovery which is reasonably probable” in a contested trial, examining the entire record.  The proposed settlement should include the formula for determining the reduction of the lien, called “the Gregory Formula,” and the computation of the potential recovery needs to include a variety of figures, including the percentage of disability, medical expenses, and the duration of future medical expenses.  In the simplest terms the proposed recovery is a fraction, where the actual settlement amount is the top number (numerator), and the total reasonable case value if Worker won at Trial is the bottom number (denominator).  Basically, if the Injured Worker accepted 25% of the potential case value as settlement, that number could be attributed to the lien claimants.  These need to be set forth in specific detail for the judge.  These figures have to be disclosed to the lien holder to allow it to examine the basis on which the settlement would reduce the award against it.  If the Lien Claimant objects to the formula after notice, the WCAB may withhold that lien from resolution, and give the Lien Claimant an opportunity to independently prove up an injury.  The lien claimant then runs the risk of zero recovery if they fail to independently prove an injury.

If you have a question about how the Gregory Formula could help reduce the financial liability of your business during a workers’ compensation case, contact me today at (714) 516-8188.  We can discuss your business and your options.

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