By Daniel R. Sovocool Introduction

Let's say your self-insured company has developed its own medical provider network ("MPN"), or perhaps it has joined an existing network. Perhaps your company is an insurance carrier or a third-party administrator using an MPN to manage medical costs for its insureds or clients. In each of these cases, your company is making a considerable investment in an MPN in the form of money and human resources.

You need to protect this investment. When well executed, MPNs offer significant benefits to insurance carriers, self-insured employers and injured workers. However, there are a number of significant potential legal loopholes that, if left unchecked, can erode the network, create an unforeseen layer of administrative burden, and add unanticipated legal and medical expenses. Problems can also arise with providers, and others. These challenges are going to play out before the Workers' Compensation Appeals Board ("WCAB") and in the court system, and missteps early on can be expensive and pose a serious threat to your network.

This article addresses several of the key challenges that need to be addressed as early as possible, including:

1. Managing providers in the network;

2. Obtaining and maintaining medical control; and

3. Dealing with transitions, such as changing carriers or third-party administrators.

Managing Providers in the Network

Establishing a network of providers can involve considerable effort, including "credentialing" the providers, insuring an adequate mix and availability of specialties, and satisfying the requirements for geographic access. Once the network is established, however, ongoing provider issues can arise that put medical control in peril and, in serious cases, lead to litigation or administrative complaints. Sound risk management requires that these issues be addressed.

Provider Credentialing and Contracting

Provider Selection. For obvious reasons, it is imperative to contract with good providers. The employer or insurer generally cannot challenge the reports of providers within the network.

There are several legal risks associated with provider selection.

First, be prepared to address, and overcome, concerns about bias, arbitrariness or collusion. These can arise when certain providers are invited to join the network, but others are not. The same issues can arise when providers are terminated (or not renewed). While it is tempting to "stuff the network" with providers with no known associations with applicants' counsel, it is important to develop an objective selection criteria and credentialing protocol that is defensible in court.[1]

An effective credentialing protocol is necessary to mitigate the risks associated with unknowingly allowing providers with problematic practice histories and/or sanctions into your MPN. As part of the credentialing process, a committee tasked with making credentialing decisions may be advisable. Typically, the committee is comprised of an interdisciplinary group of physicians, often chaired by a medical director who has experience with workers' compensation issues. The committee establishes credentialing policies that identify the minimum standards applicable to all applicants. These minimum standards often include possession of a valid state license; affiliation privileges at a contracted hospital; the ability to participate in Medicare and other public healthcare programs; board certifications; malpractice histories that meet certain standards; malpractice insurance at specified limits; an absence of criminal convictions related to the providers' profession; and possession of a DEA certificate allowing the provider to prescribe drugs. The committee will implement a credentialing process-intended to insure that all applicants are evaluated in a consistent, evenhanded fashion-which often consists of obtaining an application, a disclosure statement and related certifications; due diligence intended to verify the information provided by the provider; and a site visit. A process is often established allowing prospective providers to be promptly informed about information in their application that may adversely impact their selection.

Some of the credentialing functions, such as verification of source documents, can be delegated to a third-party credentialing entity. It is important to carefully delineate the respective roles of the delegator and delegatee in order to insure that the credentialing committee maintains appropriate control and oversight over the selection process.

Once a provider is accepted in the network, it is imperative that their performance be audited and measured against certain performance standards. In some cases, a peer review process may be established. In all cases, it is important to document the process. Good counsel can assist in mitigating the risk in this area.

Second, be prepared to address "fair hearing" issues, at least in those situations wherein the network allegedly has significant market power. In a pre-MPN managed care case, the California Supreme Court upheld the right of a provider to fair notice and a hearing prior to his removal from a list of preferred provider status. See Potvin v. Metropolitan Life Insurance Co. (2000) 22 Cal.4th 1060. In that case, the physician entered into an agreement with MetLife to be included as one of the 16,000 participants on two of its preferred provider lists. The agreement provided for termination by either party "at any time, with or without cause, by giving thirty (30) days prior written notice to the other party. MetLife "delisted" him because he did not meet MetLife's current selection and retention standard for malpractice history. (He had been sued for malpractice four times). Id. at 1064. The Court held that delisting him violated his common law right to "fair procedure." The Court noted that "[o]ur conclusion that the relationship between insurers and their preferred provider physicians significantly affects the public interest does not necessarily mean that every insurer wishing to remove a doctor from one of its preferred provider lists must comply with the common law right to fair procedure. The obligation to do so arises only when the insurer possesses power so substantial that the removal significantly impairs the ability of an ordinary, competent physician to practice medicine or a medical specialty in a particular geographic area, thereby affecting an important, substantial economic interest." Id. at 1071. The Court further noted that "[l]oss of income may be relevant in determining whether removal from an insurer's preferred provider list significantly impairs the ability of an ordinary, competent physician to practice medicine or a medical specialty in a particular geographic area, thereby affecting an important, substantial economic interest." Id. at 1072. As for the termination without cause language, the Court noted that California courts are "loathe" to enforce such provisions, and struck it down as contrary to public policy.

A case presently pending in the San Francisco Superior Court, Palm Medical Group v. State Compensation Insurance Fund, involves a provider who was excluded from State Compensation Insurance Fund's network of preferred providers. That case recently resulted in a $1.1 million jury verdict in the provider's favor arising from State Fund's alleged failure to provide a fair hearing prior to excluding the provider from its network. While both Palm Medical and Potvin arose in the managed care context, and did not directly involve MPNs, they could become particularly significant given the potential market power of MPNs, and the need to carefully consider how to deal with providers. We strongly recommend that you consider developing a legally defensible fair hearing process to avoid potential litigation.

Third, be mindful that even if the provider is sufficiently credentialed at the outset, the MPN regulations impose a continuing obligation on the MPN to insure compliance. The administrative director for the Division of Worker's Compensation ("DWC") can suspend or revoke an MPN when the MPN "knowingly continues to use the services of a provider or medical reviewer whose license, registration or certification has been suspended or revoked, or who is otherwise ineligible to provide treatment to an inured worker under California law." 8 CCR 9767.14(a)(4).

Given these requirements, the MPN must have a re-credentialing system for routinely monitoring the licensure of its providers. Re-credentialing often involves submitting an updated disclosure document, as well as verification of source data such as licenses and insurance certificates. Re-credentialing can also involve evaluating peer review data, injured employee complaints and other information that has developed during the term. As with initial credentialing, it is important that the re-credentialing process be well documented and non-arbitrary.

Provider Contracting. Other than the requirement that there be a provider contract, and that the compensation not be structured to reduce, delay or deny medical treatment or access, there are no statutory requirements for provider contracts. However, a partial list of important provisions that we strongly recommend to reduce risks includes:

1. A provision requiring the provider to immediately notify the MPN of any loss of licensing or certification;

2. A provision allowing the MPN an absolute right to terminate the contract without notice and without cause;

3. A provision that the provider will timely provide full and complete medical reports to the MPN;

4. A "no conflicts" provision,

5. A mandatory arbitration provision in the event a dispute arises; and

6. Provisions requiring that the provider exercise its own independent medical judgment.

It may also make sense to address the issues that commonly arise and create problems for adjusters, such as:

1. Whether and how to provide care (and obtain payment) in cases where there are both occupational and non-occupational injuries; and

2. Requiring the primary treating physician to prepare a "single report" (required by Labor Code section 4061.5) when there are multiple treating physicians.

Also, to avoid conflicts, it may be desirable to disallow the provider from dispensing medicines from their pharmacies and/or using their own medical centers.

Regarding pricing, there is no legal requirement regarding the amount that must (or may) be paid to providers, except that "physician compensation may not be structured in order to achieve the goal of reducing, delaying or denying medical treatment or restricting access to medical treatment." Labor Code section 4616(c). Many MPNs use the Official Medical Fee Schedule ("OMFS"); others require a discount from the OMFS. Some contain "most favored nation" pricing provisions. Some provider agreements provide that the WCAB has jurisdiction over payment disputes; some do not.

Obtaining and Maintaining Medical Control: Getting Employees into the MPN and Keeping Them There

Your network is only as good as your ability to keep employees in it. Unfortunately for employers and insurers, MPN regulations provide certain avenues for employees who resist medical control and challenge the network. If properly anticipated, some of these issues can be headed off with proper design and execution. Others will require that the employer be extremely well-prepared regarding the nuances of MPNs before the WCAB and/or the courts. The following are examples of potential challenges to your MPN, wherein good counsel can help you avoid costly mistakes and save you money.

Transfer of Care

Employees who are injured prior to MPN coverage, and whose treating physician has not joined the MPN, are entitled to the transfer of care regulations if they have one of the following conditions:

1. An "acute condition,"

2. A "serious chronic condition" or

3. A "terminal condition."

Additionally, the employee is entitled to treatment outside the MPN in the case of surgery or other procedure that is authorized by the insurer or employer. It must be part of a documented course of treatment recommended by the provider, and occur within 180 days from the MPN coverage effective date.

Good counsel can be invaluable in dealing with transfer of care challenges. From a risk management perspective, it is important to develop a consistent protocol for dealing with these issues. You will need to prepare a letter that is routinely sent to injured workers and treating physicians in response to all transfer of care challenges. The form of the letter depends upon whether the request is for a "acute" exception, a "serious and chronic" exception, etc. We strongly recommend that MPN administrators carefully evaluate each exception on a case-by-case basis, both to determine whether the facts merit an exception, and to maintain the integrity of the network.

Requests to Change Providers

The MPN regulations allow employees to freely change providers within the network.[2] Employees also have a limited right to see providers outside of the network; for example, if they fall within the transfer of care exceptions, if there is no specialist of the required type in the MPN, or if they are entitled to an Independent Medical Review following second and third opinions.[3]

Sometimes it is difficult to ascertain whether the request to change physicians is just that, or whether the request should be treated as a request for a second opinion. A second opinion request must be based on a disagreement about treatment or diagnosis. There can be tactical questions regarding how to treat the request, depending upon whether the employer/insurer is willing to forego temporary medical control or whether there is a legitimate RTW possibility, etc. These considerations need to be carefully weighed in evaluating requests.

Some applicants' counsel will undoubtedly argue that their clients have an absolute right to use a physician outside of the network because of failure to comply with some technical requirement. Examples might include:

1. Failing to provide the required notices, such as notice of the transfer of care or continuity of care policies;

2. Failing to post the standard employee notice; or

3. Failing to timely provide medical treatment after the DWC-1 is received, etc.

In our view, it is important that employers and insurers rationally and consistently evaluate these agreements in order to obtain the best results and avoid negative or inconsistent outcomes at the WCAB or in the court system. Thelen Reid can assist you in this process.

Predesignations

The MPN regulations also allow an employee to avoid the MPN by properly predesignating a "personal physician" anytime before an injury occurs, even if the predesignated physician is a provider in the MPN network. See 8 CCR section 9780.1, 8 CCR section 9782. The "personal physician" must meet the following requirements:

1. He must be the employee's regular physician and surgeon (only MDs and DOs qualify);

2. He must be the employee's primary care physician and have previously directed the employee's medical treatment;

3. He must be in possession of the employee's medical records, including his or her medical history; and

4. He must agree to be predesignated. Lab. Code section 4600(d)(1)(A)-(C). Chiropractors cannot be predesignated.

What happens if the employee predesignates a physician who is unable or unwilling to help with a particular medical issue? The rules do not describe an answer, but we would assert in such a case that the employee should be returned to the MPN.

Transitions: How to Avoid Handcuffing Your Company with its MPN

Employers that switch policies from one insurer to another, and switch MPNs in the process, should give careful consideration to the transition. It is essential that new notice be given. Additionally, it is essential that the new MPN meet all of the requirements of the Labor Code and the MPN regulations. We urge any employers considering making this change to first obtain sound legal advice.

Insured employers who leave an insurer's MPN for self-insurance need to be aware that employees who are injured at the time of the transition must stay within the insurer's MPN as to those injuries; new injuries are not subject to MPN medical control unless the newly self-insured employer establishes its own MPN. New notice will be required. Careful thought to this transition is essential to avoid the administrative hassle of having your employees fall into the "gap."

Another issue that should be carefully considered arises when joining an MPN set up by a Third-Party Administrator ("TPA"). TPAs who have set up their own networks may resist allowing the employer to use a different TPA, citing administrative inconvenience. These issues can arise at the outset, or later if the employer wants to change TPAs without losing medical control. We urge self-insured employers to carefully think through these issues.

Each case is different. We advise all self-insured employers and carriers to carefully anticipate future changes when designing and implementing their MPN. Thelen Reid can assist in this process.

Self-insured employers that set up their own MPN and want to change TPAs may have to file an entirely new application for the MPN if the original TPA had been delegated much of the operation, contracting and policies. In other cases, an application to materially modify the MPN is adequate. This implicates network design issues, because it is important to retain sufficient flexibility to change TPAs if the original TPA's performance proves unsatisfactory.

Conclusion

The foregoing is not intended to be all-inclusive. Whether you are designing an MPN, contracting with providers, or looking to make sure that your company makes the right decisions regarding its choice of a network, it pays to be mindful of the attendant risks and act promptly to mitigate them.

ENDNOTES 1. In addition to legal counsel, third-party consultants, such as Value Story, Inc., can be invaluable in working through these and other critical issues. Value Story, Inc. assists self-insured employers, TPAs and insurance carriers in designing, developing and managing medical provider networks. For more information, please visit www.valuestory.net or call 949-515-4512.

2 Labor Code section 4601 predates SB 899 and allows the applicant one free choice of physician, upon request. It was not repealed when SB 899 was enacted. It has been anticipated that applicants' counsel will argue that this provision allows the injured worker his or her own choice of physician, thereby creating a gaping loophole in the MPN regulations. One case has addressed this to date. In Mantalvo v. Administrative and Corporate Employment Services, a WCAB judge held that Labor Code section 4601, which gives employees one "free choice" of physicians, does not give a worker injured after a valid MPN is established the right to treat outside of the network, unless the MPN regulations provide otherwise.

3 Another "transition" is materially modifying the MPN, which is addressed in 8 CCR section 9767.8. Material modifications requiring approval include, but are not limited to, the following changes: (1) a change of 10% or more in the number or specialty of providers in the MPN; (2) a change in 25% or more in the number of employees to be covered by the MPN; (3) a material change in either the continuity of care or transfer of care policies; (4) a change in the economic profiling policy, including instituting an economic profiling policy when the original application stated that economic profiling was not performed; (5) a change in the name of the MPN; (6) a change in the geographic service area of the MPN, within the state of California; (7) a change in how the MPN complies with the access standards; (8) a change in the DWC liaison person for the MPN (which must be reported to the DWC within five business days of the change taking place); and (9) the termination, withdrawal or cessation of the MPN, among other changes.

Daniel R. Sovocool is a partner in the San Francisco office of Thelen Reid & Priest, LLP. He has more than twenty years of experience in practicing law. The primary focus of his practice is advising national clients on a variety of insurance (and self-insurance), regulatory and business matters, particularly in the area of workers' compensation. He serves as Legal Counsel to the California Self-Insurers' Security Fund, to which all employers in the State of California who self-insure their workers' compensation liabilities must belong. He speaks regularly on regulatory and self-insurance matters to various trade and business organizations. He is a graduate of Cornell Law School. He can be reached by e-mail at dsovocool@thelenreid.com or by phone at 415.369.7340.

Mr. Sovocool thanks Theresa Muir of Southern California Edison, Jill Dulich of Marriott International, William Zachry of Safeway, Inc., Tamara Watt of Value Story, Inc. and Susan M. Wright of Susan M. Wright and Associates for their invaluable guidance regarding MPNs. Mr. Sovocool also thanks Thelen Reid associate Lorinda Harris for her assistance in preparing this article.

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The views and opinions expressed by the author are not necessarily those of workcompcentral.com, its editors or management.