The Supreme Court yesterday declined to review an Appellate Court ruling which holds that State Compensation Insurance Fund has to be fair to California business. Why a quasi governmental entity needs to be told by multiple courts multiple times to be fair is either the subject of anyone's supposition or yet another weight on the scale of justice that speaks to what can only be the continuing culture of intellectual corruption that is California's State Fund.

In a closely watched case challenging the notion that State Fund - because of its sheer size - has an obligation to be procedurally fair and reasonable in deciding who is in and who is out of its provider networks, the California Supreme Court yesterday, like the Appellate Court before it, came down clearly on the side of fairness.

The Same People Doing the Same Things

The case is a carry over from the heyday of when now deposed ex-president Jim Tudor was running things. Notably, SCIF lawyer Charles Savage has been the steward of this case. Savage was Tudor's handpicked vice president and general counsel. As part of the Tudor purge Savage was stripped of both titles and sent back down to his former civil service position. Savage physically shows up at many of these old cases and appears to be directing State Fund's expensive outside counsel on the cases.

State Fund Board Chair Jeannie Cain, who additionally is executive vice president, policy, for the California Chamber of Commerce, works as well with State Fund's expensive outside legal and public relations counsel. The California Chamber filed an Amicus brief in the case.  Board Chair Cain is responsible for appointing Tudor as both interim and permanent president. It is she who was in control and serving as chair during all of the controversial board meetings in which conflicts occurred about which Workers' Comp Executive wrote resulting in the removal of three board members.

The Case Itself

The case, Palm Medical v. State Compensation Insurance Fund, started when the clinic tried in 1998 to gain entry to the Fresno area preferred provider network operated by State Fund but was repeatedly rebuffed. A jury found in 2005 that State Fund's reasons and methodology for excluding Palm were arbitrary and unreasonable and sided with the clinic. It awarded Palm $1.3 million. Interestingly enough, sources tell Workers Comp Executive, had State Fund acted reasonably and not as some say like a bully it likely would have been able to exclude Palm from its network and avoid the whole legal precedent.

In a rare move, State Fund's outside counsel surprised everyone when it was able to convince the trial judge to overturn the jury's findings. That decision predictably did not stand on appeal.

"I've argued throughout that this is not a hard standard to achieve. We're not setting the bar too high by asking businesses to make their decisions in a procedurally fair and rational manner," said a joyous Drew Pomerance of Roxborough, Pomerance & Nye. "If someone has a problem with that then I think their values are all messed up. In this case that's State Fund as they're the ones who don't want to be fair or rational."

But State Fund still stands by its position that the decision does more to cloud the air than to clear it around the issue of PPNs.

"We believe the decision not to review the Palm Medical case has the potential to create a significantly difficult climate for businesses [insurance carriers] in California who operate preferred provider networks as evidenced by the number of amicus briefs that were filed [by insurance carriers] in support of our position," says Jennifer Vargen, who is not a lawyer, but is the internal public relations person for State Fund. "This leaves California businesses [carriers] to deal with the difficult situation of understanding exactly what the rules are around PPNs."

But the broad applicability of the case is somewhat in question. The court of appeal went out of its way to note that it was limiting its discussion only to PPNs.  PPNs have largely been replaced by medical provider networks or MPNs. Such is the case at State Fund, which replaced the contested PPN with a medical provider network that includes Palm Medical.

According to the Division of Workers' Compensation 60% of all care for injured workers is now being delivered through the 1300 MPNs now in operation. Common industry wisdom holds that most if not all PPNs have been replaced with MPNs.

"This leaves California businesses [carriers] to deal with the difficult situation of understanding exactly what the rules are around PPNs." Jennifer Vargan, SCIF Internal PR Person

Doctrine of Fair Procedure

The case hinged in substantial part on the question of market power and the applicability of the doctrine of fair procedure. That common law doctrine provides that when a private business has substantial economic power and the use of that power can affect another's ability to earn a living—then the decision-making must be both substantially rational and procedurally fair. In the present case, Palm argued the doctrine applied because of State Fund's gigantic market share in the Fresno area. The jury agreed and ultimately so did the Supreme Court.

"I'm relieved and gratified that it turned out the way that it did. It would have been unfortunate if big money would have been able to take something that is logical and say it's not legal," says Dr. Frank Huljev, administrator and principal of Palm Medical. "In other words for them to say that they don't have to be fair and rational in how they do things."

"It would have been unfortunate if big money would have been able to take something that is logical and say it's not legal." Dr. Frank Huljev, administrator for Palm Medical Group

Pomerance is confident that a similar argument could hold sway in the MPN arena if certain conditions are met. "For those medical provider networks that wield substantial economic power, I think a provider could make the argument that 'you have to treat me and make your decisions in a rationale way and in a way that's procedurally fair."

In any case, Palm Medical now stands to collect on the $1.3 million it was awarded by the jury way back when. Pomerance notes the award is now up to $1,476,633 and continues to accrue interest at a rate of $310 per day.

State Fund policyholders are out nearly one and half million dollars plus hundreds of thousands in legal fees to outside counsel all because it's the same old people doing the same old things. This case alone cost approximately $10 per policyholder in premium.

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