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Workers' Compensation

David Bryan Leonard on Calif. Doctrine of Fair Procedure and Admission to Medical Networks in Workers' Comp Context: Palm Medical Group v. SCIF

This article analyzes Palm Medical Group, Inc. v. State Compensation Insurance Fund, 161 Cal. App. 4th 206 (Cal. App. 1st Dist. 2008), in which the California Court of Appeal for the First Appellate District ruled that the State Compensation Insurance Fund (SCIF) owed a plaintiff a duty of fair procedure in acting on its application to a preferred provider network (PPN). In an era when various types of health care provider networks have become one major response to ever-rising health care costs, the decision may have significant repercussions for physicians, insurers, employers, employees, and providers.
 
 In Palm Medical Group the court held that substantial evidence supported the jury's finding that the defendant SCIF possessed power that was so substantial over the market for the treatment of occupational injuries in the Fresno area in 2001-2002, that the failure to admit an ordinary, competent medical provider to its PPN would significantly impair that provider's ability to practice occupational medicine in the Fresno area. Based upon that finding, the court determined that SCIF owed the plaintiff Palm, the medical provider, a duty of fair procedure in acting on Palm's application to the PPN.
 
The article first examines the establishment of the PPN by SCIF and the criteria that SCIF had established for the evaluation of the workers’ compensation expertise of physicians that seek to be included in the PPN. It then explains the market power that SCIF possessed in the Fresno area, Palm’s efforts to be admitted to the PPN, and the ensuing litigation after Palm’s request was denied.
 
The author analyzes the California common-law doctrine of fair procedure, including both its substantive component and its procedural component. “The decision must be substantively rational. A decision violates this requirement when it is arbitrary, capricious, discriminatory, irrational, or contrary to public policy. The decision also must be reached in a manner that is procedurally fair. At a minimum, procedural fairness requires notice and an opportunity to be heard.” At trial, a jury found that SCIF breached its duty with regard to substantive fairness, and the author explains in detail how the court of appeal reviewed that determination. The article then concludes with an analysis of the court of appeal’s review of the amount of damages that had been awarded by the jury.