For many years now, medical providers who enter into contracts with preferred provider organizations (PPOs) have had their bills for medical services reduced in accordance with the terms of the contract. The PPO creates a network of providers who have agreed to these discounts. A silent PPO is created when the PPO sells its reduced provider rates to insurers, third party administrators (TPAs), and employers.
In California, for example, Blue Cross has entered into contracts with hospitals to treat Blue Cross members, but then, unbeknownst to the hospitals, Blue Cross contracted with the State Compensation Insurance Fund (SCIF) to sell SCIF the contract discount. So SCIF is paying heavily discounted Blue Cross rates, way below the medical fee schedule, for medical services provided to injured workers who aren't members of Blue Cross.
As pointed out by Reid Steinfeld, in-house counsel for Grant & Weber, "The crisis that injured workers face is the failure of providers to offer services to injured workers. Doctors simply do not want to treat injured workers because of the small amount of payment they receive."
Mr. Steinfeld points out that in Woodruff v. Greenfield Trucking, a recent decision by the California Workers' Compensation Appeals Board, the trial judge stated that "The next 'crisis' that appears to be looming in workers' compensation will be that of a failure of providers to offer services to injured workers. Already it is getting more and more difficult to find doctors and medical providers willing to provide treatment to injured workers. To allow such deeply discounted rates will only add to this looming crisis. Therefore as a matter of public policy, unless there is an absolutely clear and unambiguous agreement to the contrary, the [official medical fee schedule] amounts should apply."
In the Woodruff decision, the medical provider – Good Samaritan Hospital – billed $69,624.04 for services, but SCIF paid only $9,307.76 based on a PPO discount through its contract with Blue Cross. Good Samaritan filed a lien. The trial judge found no evidence of an agreement between the medical provider and SCIF, and awarded the fee schedule amount to be paid to Good Samaritan. The trial judge further found that, contrary to the provisions of Calif. Labor Code § 4609, Blue Cross appears to have sold its PPO discount to SCIF in contravention of this statute.
To read Mr. Steinfeld's commentary on the Woodruff decision and the Silent PPO problem, see http://www.grantweber.com/102507ppo.asp
For further discussion on the medical provider crisis in general, see my blog Workers' Compensation Crisis: The Physicians Have Left the Building at http://law.lexisnexis.com/blogs/Insurance/Workers-Compensation-Crisis-The-Physicians-Have-Left-the-Building
For a copy of the Woodruff decision, contact me via email at Robin.E.Kobayashi@lexisnexis.com