The case of Cynthia Gordon v. State Compensation Insurance Fund ADJ 745778 (SRO 0132381) appeared to be simple matter and not any different from other cases before the Appeals Board in which the Lien Claimant felt that it was not adequately paid under the Official Medical Fee Schedule (OMFS), but somehow the case turned into and was tried on issues not directly relevant to the case.

Facts of the Case

The Lien Claimant Queen of the Valley Hospital (QVH) performed surgery April of 2003 on the applicant who sustained an admitted industrial injury to her bilateral knees, bilateral shoulders, left elbow, and left thumb, with the case resolving by way of compromise and release on January 4, 2005.  There existed no issue of medical necessity or reasonableness of services performed by QVH.  The amount of the bill was $70,877.08.  State Compensation Insurance Fund (SCIF) paid an amount of $11,925.41, stating that the amount was paid pursuant to that allowed under the OMFS. No party disputed the fact that the bill was reviewed in accordance with the OMFS. QVH filed a lien on May 20, 2008, and subsequently a Declaration of Readiness (DOR), seeking an additional amount of $6,212.16 for payment under the OMFS for implanted hardware.  What happened at trial seems unclear, but it appears both parties presented cases of previous panel decisions regarding the issue of preferred provider organization (PPO) contracts.

The Trial Judge issued a decision, stating that QVH was entitled to the $6,212.16. SCIF filed a petition for reconsideration, asserting that since it was a PPO contract issue and there was an express agreement, the board lacked jurisdiction under Labor Code § 5304, which states as follows:

''The appeals board has jurisdiction over any controversy relating to or arising out of Sections 4600 to 4605 inclusive, unless an express agreement fixing the amounts to be paid for medical, surgical or hospital treatment as such treatment is described in those sections has been made between the persons or institutions rendering such treatment and the employer or insurer.''

It appears from the record that QVH did not file a response to the petition for reconsideration.  The Trial Judge recommended that the petition be granted, stating that he had jurisdiction to interpret the contracts to see if an express agreement existed, and if such an agreement did exist (which was the case here), he lacked jurisdiction to award any additional fees.  QVH did not file a Petition for Reconsideration of the Appeals Board's reversal of the lower court's decision, but instead filed a petition for writ of review. In QVH's petition for writ of review, it stated that the issue before the Court of Appeal was a fee schedule issue and that the issue of the PPO contract had nothing to do with the case.  SCIF responded to the petition, stating that QVH waived this issue by not asserting it prior to the petition for writ of review and that just because SCIF paid an amount similar to that in the OMFS, it was still an express contract issue.  The Court of Appeal denied writ without comment.

The Procedural Matters

1. It appears that QVH at the trial level may not have submitted any evidence or arguments as to why it was entitled to the implants fees under the fee schedule or any other assertion.
2. It appears that QVH may not have submitted any written points or authorities.
3. It appears that no objections were made as to evidence and witness offered by SCIF on a PPO contract issue.
4. It appears that QVM did not respond to SCIFs petition for reconsideration.
5. QVM did not file a Petition for Reconsideration when it was aggrieved by the Appeals Board's decision to grant reconsideration and to reverse the Trial Judge's decision.
6. QVM did not exhaust the administrative remedies with the WCAB before filing for writ of review.

Possible Reasons Why Writ Was Denied

1. It was a fee schedule issue that only the WCAB has exclusive jurisdiction to interpret.
2. It was an express agreement under LC 5304 that was not properly objected to at the Trial Level.
3. QVM did not exhaust its administrative remedies.
4. Issues presented in the petition for writ of review were not presented at trial and, therefore, not appropriate on appeal.

Since the writ was denied without comment and, therefore, lacks any significant substantive legal analysis, it is unclear why the writ was denied. But the case does present some important legal procedural aspects of do’s and don’ts at both the trial level and Appeals Board level.

The PPO Contract Issues

The Trial Judge recommended that SCIF's petition for reconsideration be granted because he believed that the case of Sarah Waters, Applicant v. Los Angeles Clippers Basketball Club, Inc., TIG Specialty Insurance Solutions c/o Cambridge Integrated Services Group, Inc., Defendants, 2005 Cal. Wrk. Comp. P.D. LEXIS 15 (Opinions Filed February 7, 2005 and April 26, 2005) was a case on point, and that it applied in the case at hand, as did the Appeals Board when it incorporated the judge's recommendation in granting the petition for reconsideration.

In Waters, the court had distinguished the case as those applying to Managed Care Contracts, such as CCN and First Health, where their primary purpose is to contract with other payors and with the Blue Cross contract, which is a licensed insurance company and whose primary business purpose is to insure individual members as opposed to a managed care contract. The Appeals Board has handed down three important cases that deal specifically with the Blue Cross issue of selling contracted discounted rates without the applicants being members of the Blue Cross insurance. The cases handed down by the Appeals Board that specifically address the issue of Blue Cross and State Compensation Insurance Fund right to use discounts are as follows:

Maria Molina, Applicant v. Best Western Park Place Inn, State Compensation Insurance Fund, Defendants, 2005 Cal. Wrk. Comp. P.D. LEXIS 19, Opinion Filed February 7, 2005, contains the same issues in the present case. In Maria Molina, the court held as follows:

“SCIF contends that paragraph 2.2 of the agreement between BMC and Blue Cross (Defendant's Exhibit F) identifies SCIF as a party defendant to the agreement. No such language exists that specifically identifies SCIF as a party, nor did SCIF execute the agreement. SCIF contends that any dispute regarding payment of BMC'S billings must be resolved via binding arbitration as set forth in the agreement between BMC and Blue Cross. As stated above, the WCAB has jurisdiction to resolve the fee dispute herein as the treatment in question was rendered to relieve or cure the applicant from the effects of an industrial injury. Further, SCIF was not a party to the agreement between BMC and Blue Cross. Thus, it is the opinion of this Court that SCIF has no standing to force the matter into arbitration.”

The court held that State Compensation Insurance Fund was not a party to the insurance contract between Blue Cross and the Hospital and had no standing. Once again it is important to note that Blue Cross is a licensed insurance company and the only reason that the Hospital would enter into a contract with Blue Cross was to treat its members who would have been identified by a Blue Cross Membership card, which is not present in this case.

The second controlling case in this matter is Nico Zuniga, Applicant v. Herb Stewart, State Compensation Insurance Fund, Defendants, 2002 Cal. Wrk. Comp. P.D. LEXIS 104, Opinion Filed June 13, 2002, in which the court held as follows:

“At best, the two contracts, when read together are ambiguous on the question at hand. At worst, the contract only includes patients who are employees of Blue Cross filing workers compensation claims against Blue Cross or employees of companies whose workers compensation benefits are adjusted by Blue Cross acting as a third party administrator. See Contract between Blue Cross and Cedars-Sinai, sections 4.13, 2.1 and 2.20. Again, there is no evidence of either scenario in this case.” (Emphases added by author)

The court further stated:

"SCIF has failed to sustain its burden of establishing the existence of an express agreement between itself and Cedars-Sinai. While SCIF may have been a third-party beneficiary to the Blue Cross/Cedars-Sinai agreement in a Civil Code or Commercial Code setting, they may not assert such a right in a workers compensation case where Labor Code § 5304 applies. This Labor Code section requires an ''express agreement,'' whether oral or written, between the provider and the employer or carrier. This provides a higher standard than civil or commercial contract law." (Emphasis added by author)

The court also addressed the difference between a previous Blue Cross case as follow:

"The last citation relied upon by SCIF is distinguishable for other reasons. In Anderson vs. WCAB (2000) 28 CWCR 141, the Court of Appeal denied a lien claimant's petition for writ of review where the carrier was able to show the existence of an express agreement between the provider and the carrier. Furthermore, the Anderson case also involved the existence of a contract between Blue Cross and SCIF. However, two very important facts set the Anderson case apart from the case at bar: (1) It is unknown whether the terms of the contract between the lien claimant in the Anderson case and Blue Cross differ from those in the case at bar. Specifically, it is unknown if this other contract had the same paragraphs 4.13, 2.1 & 2.20. (2) The Anderson case included a very important piece of evidence that has no equivalent here: a letter that was introduced into evidence in that matter in which the chief financial officer of the lien claimant recognized the fact that workers compensation matters were included in the contract.

"Thus, it is very apparent that even if one assumes that parol evidence is admissible to show that a third-party contract can be elevated into an express agreement between a third-party beneficiary and a party to another contract, such was not done in this case.” (Emphases added by author)

Lastly, in the case of Virginia Woodruff, Applicant v. Greenfield Trucking, State Compensation Insurance Fund, Defendants, 2007 Cal. Wrk. Comp. P.D. LEXIS 93, Opinion Filed September 4, 2007, the court held:

Labor Code § 5304 provides:

''The appeals board has jurisdiction over any controversy relating to or arising out of Sections 4600 to 4605 inclusive, unless an express agreement fixing the amounts to be paid for medical, surgical or hospital treatment as such treatment is described in those sections has been made between the persons or institutions rendering such treatment and the employer or insurer.''

“In this case, there is no evidence of an express agreement between the rendering institution, Good Samaritan Hospital and the insurer State Compensation Insurance Fund (SCIF). The only express agreements in evidence are between   Good Samaritan Hospital and Blue Cross, and a separate agreement between Blue Cross and SCIF. Two years separates the two agreements. At best, SCIF is a third party beneficiary, in a contractual sense, to the Good Samaritan/Blue Cross agreement. Since there is no express agreement between the institution rendering treatment (Good Samaritan Hospital) and the insurer (SCIF), the appeals board has proper jurisdiction over the matter under Labor Code § 5304.”

Implications of Cynthia Gordon Case

As stated above, it is doubtful that this case would have any legal significance in subsequent cases, but think for a moment if it did. It would have determined that regardless of whether the Lien Claimants were paid fee schedule or under a PPO contract, if the provider had a PPO contract (which every provider does, usually with Blue Cross), they could never assert a Lien Claim at the WCAB again, regardless of a fee schedule issue being paid under the fee schedule or pursuant to a PPO contract, which would defeat the entire system of filing and asserting liens at the WCAB.

The Appeals Board made a decision that they lacked “jurisdiction” to hear the matter in an admitted industrial injury case.  However, in this writers' opinion the Appeals Board decided that the medical provider, which rendered treatment for the industrial injury, could not avail itself of the protection of the jurisdiction of the Appeals Board and, therefore, the Appeals Board separated the case in chief and medical treatment provided. Labor Code § 5304, which gives the Appeals Board exclusive jurisdiction of industrial injuries, makes the Board a court of inclusion, but the Appeals Board used it instead as an exclusion device to deprive the Lien Claimant of jurisdiction.  The California Constitution gives the Legislature plenary power to create and enforce a complete system of workers' compensation (Cal. Const., art. XIV, § 4).  Under the Act, the Appeals Board has exclusive jurisdiction over all proceedings for the recovery of compensation, or concerning any right or liability arising out of or incidental thereto (Lab. Code, § 5300, subd. (a)).

The Appeals Board used a wider interpretation of Labor Code § 5304 that requires an express agreement between the Lien Claimant and Defendants (State Compensation Insurance Fund). This decision broadened the interpretation of the Labor Code to one of exclusion as opposed to one of inclusion.  The Appeals Board not only violated the California Constitution that gives the Legislature plenary power to create and enforce a complete system of workers' compensation, but also invalidated Labor Code §§ 4609 and 4600 (enforcement and jurisdictional powers), completely disregarding the express intentions of these statutes.  The law is clear and unambiguous in stating that the Appeals Board has exclusive jurisdiction to determine the reasonableness of the billed charges, as outlined in Bell v. Samaritan Medical Clinic, Inc., 60 Cal. App. 3d 486, 131 Cal. Rptr. 582, 41 Cal. Comp. Cas. (MB) 415 (Cal. App. 1st Dist. 1976):

“When, however, a physician undertakes to treat an industrially injured patient and the employer accepts liability under section 4600, the exclusive jurisdiction of the Board attaches with respect to any controversy relating to the amounts to be paid for the services rendered by the physician (§ 5304).”

The Appeals Board in Nico Zuniga, Applicant v. Herb Stewart, State Compensation Insurance Fund, Defendants, 2002 Cal. Wrk. Comp. P.D. LEXIS 104, Opinion Filed June 13, 2002, states that:

“While SCIF may have been a third-party beneficiary to the Blue Cross/Cedars-Sinai agreement in a Civil Code or Commercial Code setting, they may not assert such a right in a workers compensation case where Labor Code § 5304 applies. This Labor Code section requires an ''express agreement,'' whether oral or written, between the provider and the employer or carrier. This provides a higher standard than civil or commercial contract law.” (Emphasis added by author)

Labor Code § 4609 and Jurisdiction

The California Legislature, recognizing the prevalence and abuse in the workers' compensation industry of PPO contracts, specifically addressed the issue under Labor Code § 4609, giving the courts the power and “jurisdiction” to interpret and enforce if abuse is present and to determine the issues of PPO contracts, whether or not an express agreement exists. The decision by the Appeals Board in this case, depriving the Lien Claimant of the Appeals Board's jurisdiction, has made that statute completely void.

Labor Code § 4609 begins with the intent of the code: “PROHIBITING THE SELLING OF CONTRACT DISCOUNTS"

(a) In order to prevent the improper selling, leasing, or transferring of a health care provider's contract…”

The Assembly analysis to SB 559, the bill that created Labor Code § 4609, sets forth the purpose of the bill as follows:

Purpose of the Bill.  The California Chiropractic Association and the California Healthcare Association, representing hospitals, are sponsors of this bill.  The sponsors indicate the bill is designed to stop "silent PPOs" from inappropriately marketing and selling lists of provider "panels" that offer discounted rates. Preferred Provider Organizations (PPO's) are a type of managed care organization under which providers accept reduced payments in exchange for increased patient flow.  Under these arrangements, individuals insured by a PPO plan are encouraged to use that plan's "preferred providers" because the insurer pays a much higher proportion of the cost of service when it is rendered by a preferred provider.

The sponsors argue a "silent PPO" is created when the PPO gains additional revenue by selling its reduced provider rates to payors (e.g., insurers) who are not party to the preferred rate agreement with provider panels and who do not provide incentives for their beneficiaries to see these providers. These unauthorized discounts cost hospitals and physicians large amounts of money.  In many instances, the bill's sponsors assert that providers never intended to extend discounts to these additional payors and had no knowledge that their services had been sold.  The sponsors argue this bill is necessary to reject such "silent PPO" efforts without the fear of contract termination.

Most states, including California, have created laws specifically prohibiting this practice and abuse of PPO contracts, but the Appeals Board has taken away the Trial Judges' powers to interpret, try and enforce the application of PPO contracts in the Workers' Compensation area.  The Appeals Board, if it is not going to reverse its decision in this case, must address the jurisdictional powers of Labor Code § 4609, or completely reverse, nullify and/or determine Labor Code § 4609 to be unconstitutional, by directly addressing this issue.

Conclusion

Therefore, this case has limited significance, because the real issue in this case was whether the Lien Claimants were entitled to be paid for implanted hardware under the OMFS.  The issue was not properly litigated as no evidence appeared to be submitted to substantiate Lien Claimants' right to the money. It appears that SCIF used this case to argue contracts when contracts were not the issue.