(March 28, 2008) In a decision that impacts the workers' compensation arena, the 1st District Court of Appeal has found that the common law doctrine of “fair procedure” extends to situations where a group seeks admittance to a Preferred Provider Network (PPN).

In the case of Palm Medical Group, Inc. v. State Compensation Insurance Fund (SCIF), Palm Medical Group successfully applied the doctrine of “fair procedure” to challenge SCIF’s decision to deny Palm's request to be in its PPN.

The appeals court declined to order injunctive relief compelling SCIF to allow Palm Medical to join its PPN. This refusal was at least in part because the PPN no longer exists and has been replaced by SCIF’s medical provider network (MPN), which uses medical providers from a number of different networks.

Nevertheless, the ruling presents a mixed-bag of good and bad for the California Chamber of Commerce and others interested in keeping workers’ compensation costs under control.

The CalChamber filed a “friend of the court” brief in June 2007 to protect MPNs and their ability to control costs under the successful workers’ compensation reforms of 2004.

In its brief, the CalChamber argued that the Legislature’s intent in implementing the workers’ compensation reforms was to reduce the skyrocketing cost of workers’ compensation premiums for California employers.

The Legislature’s reforms clearly state that, “in developing a medical provider network, an employer or insurer shall have the exclusive right to determine the members of their network.”

CalChamber was concerned that the court’s ruling would invalidate MPNs. Fortunately, the court, in its narrowly tailored ruling, did not discuss or comment on the application of the fair practices doctrine to MPNs. Nonetheless, CalChamber remains concerned that this ruling could provide a roadmap to undermining the Legislature’s efforts to reduce costs by preventing fraud and ensuring medically appropriate care through the creation of medical provider networks.

Impact

The real potential targets to legal action in this area will end up being the medical networks behind the current MPN filings in California.

Department of Workers’ Compensation records indicated that there are six basic medical networks that are used as the basis for filing MPNs in California. As more and more employers and carriers elect to obtain medical care for their employers through such networks, and as the trend toward paring down the size of networks also grows, conflicts over selection of medical providers within the networks, and in turn the MPNs, are certain to develop.

Staff Contact: Erika Frank