Palm Med. Group v. State Comp. Ins. Fund

• Decision Date: 25 March 2008
• Docket Number: No. A114651.,A114651.
• Citation: 161 Cal.App.4th 206,74 Cal.Rptr.3d 266
• Court: California Court of Appeals Court of Appeals
• Parties: PALM MEDICAL GROUP, INC., Plaintiff and Appellant, v. STATE COMPENSATION INSURANCE FUND, Defendant and Appellant.

74 Cal.Rptr.3d 266

161 Cal.App.4th 206

PALM MEDICAL GROUP, INC., Plaintiff and Appellant, v. STATE COMPENSATION INSURANCE FUND, Defendant and Appellant.

No. A114651.

Court of Appeal, First District, Division 3.

March 25, 2008.

Roxborough, Pomerance & Nye LLP, Drew E. Pomerance, Erin M. LaBrache, Woodland Hills, for plaintiff and appellant Palm Medical Group, Inc.

David Bryan Leonard, as amicus curiae on behalf of plaintiff.

State Compensation Insurance Fund, Robert W. Daneri, Vera C. DeMartini, San Francisco, Sonnenschein Nath & Rosenthal LLP, Paul E.B. Glad, Steven H. Frankel, Sean McEneaney, San Francisco, for defendant and appellant State Compensation Insurance Fund.

Thelen Reid Brown Raysman & Steiner LLP, Daniel Sovocool, Jennifer McGlone, San Francisco, for California Chamber of Commerce as amicus curiae on behalf of defendant.

Law Offices Of Saul Allweiss, Michael A. Marks, San Francisco, for California

Workers' Compensation Institute as amicus curiae on behalf of defendant.

Donald H. Crane, Burbank, for California Association of Physician Groups as amicus curiae on behalf of defendant.

Gretchen M. Lachance, for California Association of Health Plans as amicus curiae on behalf of defendant.

POLLAK, J.

Palm Medical Group, Inc. (Palm), an occupational medical clinic located in Fresno, was denied admission into the preferred provider network (PPN) operated by State Compensation Insurance Fund (SCIF), a California public enterprise fund operating throughout the state as a nonprofit workers' compensation insurer. After a four-week trial, a jury found that SCIF had excluded Palm in violation of the common law fair procedure doctrine and awarded Palm damages of $1,131,000. The trial court subsequently granted SCIF's motion for judgment notwithstanding the verdict on the ground that there was insufficient evidence to establish a duty on the part of SCIF to afford Palm fair procedure in considering its application for admission to the PPN. Palm contends the trial court erred in granting SCIF's motion for judgment notwithstanding the verdict, and also in denying its request for an injunction requiring SCIF to admit Palm to the PPN. SCIF—supported by several amici curiae—defends the judgment on the basis of the trial court's reasoning and on numerous additional grounds. SCIF also argues that damages are not an available remedy for a violation of the fair procedures doctrine and that the jury's award is speculative in any event.

Having reviewed the trial transcript and the documentary evidence, we conclude the trial court erred in granting judgment notwithstanding the verdict. The record includes ample evidence to support the jury's finding that SCIF "possessed power 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" and, therefore, that SCIF owed Palm a duty of fair procedure in acting on its application to the PPN. We find no merit in SCIF's alternate arguments in support of the judgment. Nor do we agree with Palm that it was entitled to injunctive relief. Accordingly, we shall reverse the judgment and reinstate the jury verdict.

BACKGROUND

SCIF and its PPN

As indicated above, SCIF is a nonprofit workers' compensation insurer. As described in greater detail below, it is the largest workers' compensation carrier in California. In 1996 it established a PPN program as "a coordinated care program designed to provide quality medical care, reduce workers' compensation costs for employers and maintain employee productivity through medical management and early return to work efforts." Through this program, SCIF aimed "to improve the quality of care[,] ... improve the timeliness of reports and information that would be shared between policy holders, injured workers, their treating physicians and [itself, and] to reduce disability durations whenever possible." The program was designed to create a network of "the highest quality, highest credentialed, best trained practitioners in occupational medicine."

Within the constraints of the workers' compensation law as it existed prior to 2005, SCIF's evidence showed, "[t]he PPN enable[d] employers to exert their control over medical treatment ... by sending injured workers to experienced occupational health providers who [would] work closely with employers and [SCIF] claims adjusters and develop effective treatment plans." ¹ In exchange for participation in the program, employers received a 10 percent discount on their insurance premiums. Employers risked losing this discount if their employees received treatment from doctors outside the PPN without sufficient justification.

Doctors were selected for inclusion in the PPN based on the recommendation of a "Medical Community Liaison" (MCL) working in each of SCIF's 18 district offices. Doctors interested in admission to the PPN submitted an application to the local MCL. The MCL was expected to familiarize himself or herself with the applicant's expertise and talents and "if at all possible, individually [meet] with the provider and ... review[ ] with that provider the objectives of the [PPN] program." SCIF believed the MCL's recommendation was important because the MCL had "indispensible knowledge and information with regard to the physicians in their area." The MCLs had "the authority to make a recommendation" to SCIF about accepting applicants into the PPN, but did not make the final decision. If the MCL recommended a doctor for admission to the PPN, SCIF's claims and rehabilitation department was responsible for confirming the doctor's credentials. When that process was completed, the doctor entered into a contract with SCIF memorializing the provider's inclusion in the PPN. There was no appeals process by which to obtain review of an application if the MCL did not recommend admission.

SCIF's criteria for evaluating the "workers' compensation expertise of physicians for inclusion in the PNN" included, among other things, that the physician had "no restriction to practice, no sanctions or history of disciplinary action"; a "verifiable five-year history of malpractice awards and/or settlements that meets generally acceptable standards for the relevant specialty"; an "educational history that meets professionally recognized standards for the physician's area of practice"; and "no medical condition or other physical condition or problem that substantially impairs or prevents the essential functions of a physician." Physicians were also required to have "an awareness of the issues in workers' compensation [and] have significant experience in treating workers' compensation injuries Physicians were required to "show evidence of expertise in the preparation and timely submission of treating physician reports," "have a work history of experience in workers' compensation that includes but is not limited to: writing rateable permanent disability reports, a demonstrated knowledge of the [workers' compensation] appeals process" and "have a history of cooperation with the practice, policy and philosophy of Early Return to Work efforts." The criteria also stated that the PPN would "limit the number of providers in any given geographic area."

In November 2004 SCIF began closing its PPN and no new members were nominated. The PPN was dissolved in April 2006 after SCIF created a new Medical Provider Network (MPN), which was authorized under Labor Code section 4616 et seq., effective January 1, 2005. SCIF's MPN consists of former PPN providers and providers from a pre-existing SCIK-Kaiser Permanente Alliance program, as well as providers selected by SCIF from the Blue Cross of California Preferred Provider Organization (PPO). New providers are added to the MPN "directly through the Blue Cross PPO, not the PPN, and [are] subject to credentialing by, and contracting with, the Blue Cross PPO."

SCIF's market power in the Fresno area

Because this appeal is from a judgment notwithstanding the verdict, we state the facts in the light most favorable to the jury verdict. (Flanagan v. Flanagan (2002) 27 CaUth 766, 769, 117 Cal.Rptr.2d 574, 41 P.3d 575.)

SCIF is the largest workers' compensation insurance carrier in the State of California. Between 1998 and 2003, SCIF's share of the written premium market in California grew from 22.36 percent to 53 percent. In 2003, the next largest insurer wrote only 5 percent of the market. By 2002, employers paying half of all SCIF written premium were participating in the PPN program.

The market in the Fresno area for workers' compensation insurance was "reasonably consistent" with the statewide trends. Between 1998 and 2003, the Fresno district office, which includes four counties in the central valley, grew from writing approximately $62,100,000 in annual premiums to writing approximately $516,600,000 in premiums per year. According to Palm's salespeople, approximately six of every ten businesses solicited in Fresno were insured by SCIF. In 2002, 61 percent of the total written premiums received by SCIF from insureds in Fresno county came from employers participating in the PPN program.

Palm and its attempts to join the PPN

In 1995, Dr. I. Frank Huljev established Palm and opened its occupational medical clinic in Fresno, California. At that time, Palm provided treatment for occupational injuries as well as back and neck injuries, home injuries, and sports injuries. The clinic also provided weight loss services and "DMV Physicals." In 1997, Palm relocated to a larger facility in northwest Fresno and began "developing more of the occupational medicine component of [its] practice." At the new clinic; Palm provides treatment for all aspects of occupational medicine, including on-site doctors, chiropractors, physical therapy, gym rehabilitation, medication,...