Here’s a tip for carriers that plan to apply for reimbursement under the War Hazards Compensation Act: don’t let your vendors charge flat fees. Why? Because the Division of Federal Employees’ Compensation will not reimburse flat fee charges, no matter what.
What are Flat Fees?
A flat fee, or flat rate, is a pricing structure where a single fixed fee is charged for a service, regardless of usage. These fees could arise for any number of services in Defense Base Act case. For instance, vendors may change flat rates for medical repatriation to the United States following an injury in Afghanistan; for surveillance or overseas document retrieval services; or even for legal fees.
Why are Flat Fees Denied Reimbursement?
Flat fees are not addressed in the War Hazards Compensation Act statutes. See 42 U.S.C. § 1701 et. seq. The regulations, however, do address flat fees. Specifically, 20 C.F.R. § 61.403, entitled “Approval of claims for legal and other services,” states:
(b) The Office shall not recognize a contract for a stipulated fee or for a fee on a contingent basis. No fee for services shall be approved except upon application supported by a sufficient statement of the extent and character of the necessary work done on behalf of the claimant. Except where the claimant was advised that the representation would be rendered on a gratuitous basis, the fee approved shall be reasonably commensurate with the actual necessary work performed by the representative, and with due regard to the capacity in which the representative appeared, the amount of compensation involved, and the circumstances of the claimant.
Based upon 20 C.F.R. § 61.403, the Division of Federal Employees’ Compensation takes the position that no flat fees are reimbursable, no matter whether the flat fee was charged by a lawyer or another vendor.
Should Flat Fees Be Reimbursed?
The Division of Federal Employees’ Compensation’s reference to 20 C.F.R. § 61.403 when denying reimbursement for flat fees begs the question whether flat fees are being improperly denied. There are good arguments that flat fees should be reimbursed, so long as those fees are not charged by a claimant’s attorney under Section 101(a) or Section 101(b) of the War Hazards Compensation Act.
For instance, the WHCA regulations are divided into 5 sections, Subparts A through E. Each Subpart has a specific purpose. Subpart B “describes the procedure by which an insurance carrier . . . shall file a claim for reimbursement . . . and describes the procedures for processing a claim for reimbursement and transferring a case for direct payment by the Department of Labor.” Subpart E, wherein 20 C.F.R. § 61.403 is found, “contains miscellaneous provisions concerning disclosure of program information, approval for claims for legal services, and assignment of claim.” See 20 C.F.R. § 61.3.
Consider the language used in 20 C.F.R. § 61.3: “approval for claims for legal services.” Id. Also, consider the language used in 20 C.F.R. § 61.403, which focuses entirely on fees for legal services. It appears that the regulations want to prohibit claimant’s attorneys from charging flat fees.
But not all claimant’s attorneys. The regulation only applies to attorneys who help a claimant file a direct claim for War Hazards Compensation Act relief, see 42 U.S.C. § 1701(a), or a detention benefits claim, see 42 U.S.C. § 1701(b). Claimant’s attorneys who are paid fees pursuant to Section 28 of the Longshore and Harbor Workers’ Compensation Act, as extended to the Defense Base Act, are not bound by the flat fee language contained in the War Hazards Compensation Act regulations.
Still, though, there is a problematic sentence in 20 C.F.R. § 61.403. The first sentence of subsection (b) reads, “The Office shall not recognize a contract for a stipulated fee or for a fee on a contingent basis.” The scope of this sentence has been extended beyond the regulation and Subpart in which it appears. The Division of Federal Employees’ Compensation applies it to all costs associated with a claim.
What Can Carriers Do to Avoid Denials?
There are more arguments that carriers can lodge to obtain reimbursement for flat fees, but the best practice is to avoid the problem in its entirety. Carriers should require their vendors to record task-specific and claim-specific charges instead of accepting invoices with flat fees. Use 20 C.F.R. § 61.101(b) as a template. Vendors should submit documentation that allows a carrier to “sufficient[ly] . . . establish the purpose of the payment, the name of the payee, the date(s) for which payment was made, and the amount of the payment.”