As part of the worker's compensation reforms that took effect in California in 2005, California insurers and certain employers were allowed to set up or join medical provider networks (MPNs) to provide statutorily-required medical treatment to injured employees. The MPNs are intended to aid employers and carriers in providing medical treatment as economically as possible while ensuring that workers receive all needed medical care. Under the new law, California employers that qualify to self-insure their worker's compensation obligations are permitted to set up their own MPNs or join one. The MPN law is codified at Labor Code §§4616, et seq. Regulations implementing the law are at 8 California Code of Regulations (CCR) §§9767.1, et seq. The following article discusses steps that can be taken to maximize the effectiveness of an MPN.


Introduction

Let's say your self-insured company has developed its own medical provider network (MPN) or has joined an existing MPN network. Or, 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 of money and human resources in the MPN.

You need to protect this investment. When well-executed, MPNs offer significant benefits to self-insured employers, injured workers and insurance carriers. However, there are a number of potential legal issues that, if not addressed, can erode the network, create an unforeseen layer of administrative burden, and add legal and medical expenses. Problems also can arise with providers and others. Such challenges will play out before the California Workers' Compensation Appeals Board (WCAB) and in the court system, and missteps early on can be expensive and pose a serious threat to the network.

Counsel and consultants well-versed in MPNs can assist in developing fully compliant MPN processes. Key issues that need to be addressed as early as possible include:

	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.

1.	Managing Providers in the Network

Establishing a network of providers can involve considerable effort, including credentialing the providers, ensuring 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. 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.

An effective credentialing protocol is necessary to mitigate the risks associated with unknowingly allowing providers with problematic practice histories and/or sanctions into the 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 worker's 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 health-care 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 ensure that all applicants are evaluated in a consistent, even-handed fashion. The process 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 often is 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 ensure 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 its performance is audited and measured against defined 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 when 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 before his removal from preferred provider status. Potvin v. Metropolitan Life Insurance Co., 22 Cal.4th 1060 (2000). In that case, the physician entered into an agreement with MetLife to be one of 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" the provider because he did not meet MetLife's then-current selection and retention standard for malpractice history. The provider had been sued for malpractice four times.

The court held that delisting the provider 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." 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." 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 pending in San Francisco Superior Court, Palm Medical Group v. State Compensation Insurance Fund, involves a provider that was excluded from State Compensation Insurance Fund's network of preferred providers. The 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 before 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 significant given the potential market power of MPNs and the need to carefully consider how to deal with providers. MPNs should 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 ensure compliance. The administrative director for the Division of Worker's Compensation 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 to routinely monitor 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 also can involve evaluating peer review data, injured employee complaints and other information developed during the preceding 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, important provisions to reduce risks include:

		Requiring the provider to immediately notify the MPN of any loss of licensing or certification.
		Allowing the MPN an absolute right to terminate the contract without notice and without cause.
		Requiring the provider to timely provide full and complete medical reports to the MPN.
		A "no conflicts" provision.
		Mandatory arbitration in the event of disputes.
		Requiring that the provider to exercise his or her own independent medical judgment.

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

		Whether and how to provide care (and obtain payment) when there are both occupational and non-occupational injuries.
		Requiring the primary treating physician to prepare a "single report" (required by Labor Code §4061.5) when there are multiple treating physicians.

Also, to avoid conflicts, it may be desirable to prohibit providers from dispensing medicines from their pharmacies or using their own medical centers.

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 §4616 (c). Many MPNs use the Official Medical Fee Schedule; others require a discount from the OMFS. Some contain "most favored nation" pricing provisions. Some provider agreements state that WCAB has jurisdiction over payment disputes; some do not.

2.	Getting Employees into the MPN and Keeping Them There

A network is only as good as the employer's ability to keep employees in it. Unfortunately for employers and insurers, MPN regulations provide avenues for employees to 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. Following are examples of potential challenges to MPNs.


Transfer of Care

Employees injured before MPN coverage and whose treating physician has not joined the MPN get the benefit of transfer-of-care regulations if they have one of the following conditions:

		An "acute condition";
		A "serious chronic condition"; or
		A "terminal condition."

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

From a risk management perspective, it is important to develop a consistent protocol for dealing with these issues. A letter should be prepared that is consistently sent to injured workers and treating physicians in response to all transfer of care challenges. The form of the letter depends on the exception claimed. MPN administrators should 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. 1/ Employees also have a limited right to see providers outside 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.

Sometimes, it is difficult to ascertain whether a 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 on whether the employer/insurer is willing to forego temporary medical control. These considerations need to be carefully weighed in evaluating requests.

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

		Failing to provide required notices, such as notice of the transfer of care or continuity of care policies;
		Failing to post the standard employee notice; or
		Failing to timely provide medical treatment after the DWC-1 is received.

It is important that employers and insurers rationally and consistently evaluate these requests in order to obtain the best results and avoid negative or inconsistent outcomes at the WCAB or in the court system.


Pre-Designations

MPN regulations allow an employee to avoid the MPN by properly pre-designating a "personal physician" anytime before an injury occurs, even if the pre-designated physician is a provider in the MPN network. See, 8 CCR §§9780.1, 9782. The "personal physician" must:

		Be the employee's regular physician and surgeon (only MDs and DOs qualify);
		Be the employee's primary care physician and have previously directed the employee's medical treatment;
		Be in possession of the employee's medical records, including his or her medical history; and
		Agree to be pre-designated. Labor Code §4600. Chiropractors cannot be pre-designated.

3.	Transitions: How to Avoid Handcuffing Your Company

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 and that the new MPN meet all requirements of the Labor Code and MPN regulations. 2/

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. In addition, 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 problems involved with employees falling into the "gap."

Issues also can arise when joining an MPN set up by a Third-Party Administrator (TPA). TPAs with 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.

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 much of the operation, contracting and policy-making was delegated to the original TPA. 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.

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For more information about the issues covered in this report, please contact Daniel R. Sovocool in our San Francisco office at 415-369-7340 or at dsovocool@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.





ENDNOTES

1/

Labor Code §4601 predates SB 899 and allows the applicant one free choice of physician, upon request. It was not repealed when SB 899 was enacted. Applicants' counsel may argue that this provision allows the injured worker his or her own choice of physician, thereby creating a gaping loophole in MPN regulations. One case has addressed this to date. In Mantalvo v. Administrative and Corporate Employment Services, No. LBO 369986, a WCAB judge held that §4601 does not give a worker injured after a valid MPN is established the right to treatment outside the network unless the MPN regulations provide otherwise.

2/

One "transition" is materially modifying the MPN, addressed in 8 CCR §9767.8. Material modifications requiring approval include the following changes: (1) a change of 10 percent or more in the number or specialty of providers in the MPN; (2) a change in 25 percent 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 California; (7) a change in how the MPN complies with the access standards; (8) a change in the Division of Workers' Compensation 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.

©2006 Thelen Reid Brown Raysman & Steiner LLP