PPO Litigation in Louisiana Update (12/1/2010): Louisiana Supreme Court Reverses Third Circuit

PPO Litigation in Louisiana Update (12/1/2010): Louisiana Supreme Court Reverses Third Circuit

Are Discounts Below the Fee Schedule Permitted?

The Third Circuit in Agilus Health v. Accor Lodging North America,2009-1049 (La. App. 3d Cir. 3/10/10), 32 So3d 1120 held that providers could not agree to be paid less than the fee schedule [See also, Central Louisiana Ambulatory Surgical Center, Inc. v. Payless Shoesource, Inc., 2010 La. App. Lexis 1089, on rehearing 2010 La. App. Lexis 1399 and Musculoskeletal Institute of Louisiana, APMC v. McDonald’s Corp., 2010 La. App. Lexis 1267 (La. App. 2d Cir.)] The Third Circuit found that 23:1203(B) does not allow the employer to pay less than the scheduled amount if the provider charges the amount or more.  They further held that 23:1033 provides that no contract . . . shall operate to relieve the employer, in whole or in part, from any liability created by the Act.  The majority cited to Judge Peters’ concurrence in a prior case that “to the extent that PPO contracts purport to further limit the employer’s liability for medical care, it runs afoul of 23:1033 and may not serve as the basis to reduce the amount owed to [the provider].”  They upheld the trial court’s decision awarding penalties and attorney’s fees finding that the claim was not reasonably controverted nor was it a close factual situation.”  The trial court had awarded a $2000 penalty and $4000 in attorney’s fees.

The Louisiana Supreme Court accepted writs and reversed the Third Circuit finding no prohibition in the Louisiana Workers’ Compensation Act against contracts in which a provider agrees to be paid less than the amount established in the fee schedule. Agilus Health v. Accor Lodging North America, No. 2010-C-0800 (La. 11/30/10).

If Discounts are Permitted Are the PPO Discounts Valid?

Although the Louisiana Supreme Court held that discounts below the fee schedule are permitted it failed to address the issue of whether the particular PPO discount violated the notice provisions of title 40 or whether the agreement is a “direct” contract which is an exception to the notice requirements. Unfortunately the court has left this issue to be resolved at a latter date. The Third Circuit has regarded the PPO contracts as invalid as no PPO card was presented to the provider [Agilus Health v. Accor Lodging North America,2009-1049 (La. App. 3d Cir. 3/10/10), 32 So3d 1120, reversed on other grounds]. The Second Circuit Court of Appeal in Musculoskeletal Institute of Louisiana, APMC v. McDonald’s Corp, 2010 La. App. Lexis 1267 (La. App. 2d Cir.) found that PPO discounts in workers' compensation matters violate La. R.S. 23:1033.  They also held that even if the discounts did not violate the Workers' Compensation Act, the provider's were entitled to notice of the discount in accordance with La. R.S. 40:2203.1 and no notice was given.  The Court then went on to find that the employer had reasonably controverted the claim by its reliance on the PPO contract for payment at the discounted rate and reversed the award of penalties and attorney fees.  As noted in the discussion below of the federal litigation the federal district court did not find the PPO discounts to have violated the notice provisions of title 40.

If Discounts are Invalid for Any Reason Should Penalties and Fees Be Awarded?

The Third Circuit in Agilus awarded penalties and attorney fees.  However, in a later decision, Central Louisiana Ambulatory Surgical Center, Inc., v. Rapides Parish School Board, 2010 La. App. Lexis 1493 (La. App. 3d Cir. 2010) the Third Circuit did not award penalties noting that the notice issue was not raised on appeal.  However, the court awarded attorney fees reasoning that the health care provider’s claim is akin to actions on an open account.  The Second Circuit in Musculoskeletal Institute of Louisiana, APMC v. McDonald’s Corp., 2010 La. App. Lexis 1267 (La. App. 2d Cir.) found that the employer had reasonably controverted the claim and reversed the award of statutory penalties and attorney fees.

Class Action Litigation – The Third Circuit in Gunderson v. F.A. Richard & Associates, 09-1498 (La. App. 3d Cir. 8/16/10), 210 La. App. Lexis 1170, writs applied for affirmed the summary judgment rendered by the 14th Judicial District Court in favor of the provider plaintiffs ($261 Million) against First Health, a PPO (the plaintiffs’ have already recovered $74 Million in settlements with class action defendants. The basis of the class action suit is that the workers’ compensation related fees of the plaintiffs/providers were reduced under PPO contracts that are not enforceable due to the failure to give notice to the providers that the patient was covered under the PPO contracts which they allege is a violation of the notice provisions of R.S. 40:2203.1. The Third Circuit opinion addressed a number of issues.

(a)  Prescription – First Health argued that the claims of the providers under Title 40 have a three year prescriptive period (as is the period for a claim under an open account) [see, for example, Touro Infirmary v. American Maritime Officer, 2009-CA-0696 c/w 2009-C-0314 (La. App. 4th Cir. 1/7/10), 34 So3d 878.]  In Touro the court held that although the provider characterized some of the claims as arising under La. Rev. Stat. Ann. § 40:2203.1, the claims were nonetheless open account claims for medical services. The fact that there may have been an agreement to bill some patients at a certain agreed upon discounted rate did not change the nature of the claim from open account to contractual for prescription purposes.  However, the Third Circuit held that the action is personal in nature and is subject to a 10 year prescriptive period.

(b)  Title 40 and Workers’ Compensation – First Health argued that PPO regulations of Title 40 were never intended to apply to the workers’ compensation setting but was intended only for health insurance.  The Third Circuit rejected this argument and found that title 40 did apply to PPO contracts involving workers’ compensation services.

(c)  Direct Contract Exception to Notice – First Health argued that the contracts with their providers were “direct” contracts which are not subject to the special notice requirements of title 40 (either a PPO card presented by the patient or 30 days notice prior to accessing the PPO contract).  The Third Circuit rejected this defense finding that the only “direct” contract would be one in which First Health provided benefits through its own PPO. This opinion is contrary to that of the federal Judge Trimble in Liberty v. Gunderson, No. 04-2405 (W.D. La. 3/15/06), 2006 U.S. Dist. Lexis 10278 in which judge Trimble considered a similar First Health contract and determined that it was a direct contract.

(d)  Damages – The Third Circuit affirmed the award of $261 Million which was based on a listing of individual first visits to a medical provider.  The trial court awarded damages (as per the provisions of title 40) in the amount of $2,000 for each visit by a patient in which no “notice” was given to the provider.  This leaves open the opportunity for the providers to seek additional penalties for any visits beyond the first and does not preclude the claim for attorney fees as provided under the PPO statute.

First Health has applied for writs to the Louisiana Supreme Court and there have been Amicus briefs filed by employer groups and medical providers on the question of accepting writs.  It is our hope that the Louisiana Supreme Court will accept writs in the First Health case in order to bring some resolution to the more than 7,000 suits filed by medical providers against employers in the Office of Workers’ Compensation.  Although these suits are no claims under the PPO statute, the issue of whether the PPO statute applies in workers’ compensation and if it does apply whether the PPO contracts can be considered “direct’ contracts are issues that are identical to the issues raised in the class action suit.

   This article was written by Denis Paul Juge, author of Louisiana Workers’ Compensation (LexisNexis). To order this book, click here.

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