Court Takes Practical Approach to SB 863

The 4th District Court of Appeal has ruled on the “retroactive” application of the independent bill review (IBR) provisions of California's SB 863 and whether the legislature intended to remove from the Workers' Compensation Appeals Board (W.C.A.B.) the jurisdiction to address bill disputes that existed before the law took effect. (Jan. 1, 2013).  In California Insurance Guarantee Association (C.I.G.A.) v W.C.A.B. (Elite Surgical Centers), the court ruled that the legislature did not wrap up pre-existing medical billing disputes into the new IBR process and that the W.C.A.B. continues to have jurisdiction to resolve those disputes. The court also found that the process used by workers' compensation judges (WCJ) and adopted by the W.C.A.B. to determine the appropriate fee in these disputed cases constituted the necessary substantial evidence. The issue in the case involved fees for outpatient surgical center fees for more than 300 cases for treatment provided before Jan. 1, 2004. (The cutoff date is significant as ambulatory surgery centers (ASC) became subject to the official medical fee schedule (OFMS) after that date. Before that date, only hospital-based surgery centers were subject to the OFMS.) Evidence was presented that Elite had increased its rates in November 2000. C.I.G.A. (along with seven other defendants) contested the amount billed and paid the undisputed portion of the bill. The remainder was left for resolution at the W.C.A.B.  At the time this matter came to trial, the W.C.A.B. had consolidated 333 liens, involving different procedures, into a single litigated case. The case was litigated for 17 days. Elite provided its evidence showing the services provided and its customary fees accepted for similar procedures. Defendants presented contrary evidence, to portray the Elite charges as grossly disproportionate to those of other local providers. Defendants also argued that the ASC OFMS that went into effect on Jan. 1, 2004, was the most reasonable and objective method for determining a fee for Elite’s services. Before a decision was issued, the legislature passed SB 863, which became effective on Jan. 1, 2013. On Feb 1, 2013, the WCJ issued his decision awarding specific amounts for each of the different types of services at issue. The amount awarded was not based strictly on the evidence presented by one side or the other but represented a figure midway between the ASC OFMS that became effective on Jan. 1, 2004, and the OFMS for hospital-based surgery centers that was in effect beforehand. The awarded fees were between 22% and 45% (depending on the procedure) of what Elite had presented as its reasonable charges. Defendants appealed from the WCJ’s order, arguing that SB 863 removed the W.C.A.B. jurisdiction to resolve billing disputes and instead required the use of the newly enacted IBR process to resolve the disputed bills. Defendants also argued that the WCJ’s decision was not based on substantial evidence. After initially granting reconsideration, the W.C.A.B. affirmed the WCJ’s decision. Defendants’ petition for writ of review was granted, and the appellate court upheld the W.C.A.B.’s jurisdiction to decide the disputed issues. The court also found that the WCJ’s analysis was based on substantial evidence. In considering the potential application of IBR to the disputes existing as of the time SB 863 became effective, the court took note of section 84 of the statute, which required: "This act shall apply to all pending matters, regardless of date of injury, unless otherwise specified in this act, but shall not be a basis to rescind, alter, amend or reopen any final award of workers' compensation benefits." Defendants’ argued, unsuccessfully, that because there was not another provision dictating when the IBR provisions were to become effective, the provisions applied to all pending matters. The court agreed that at first blush the section appeared to mandate application of IBR to pending matters. The court, however, did not stop at that analysis, noting that a review of the entire framework of the IBR procedure indicated the matter was more complex. The court pointed out the impracticality of applying the new provisions to existing cases because of how the statutory process was set up: “After considering SB 863 as a whole, we conclude that this legislation is ambiguous with respect to whether the IBR process was intended to apply to pending billing disputes, or, rather, was intended to apply only prospectively, to new billing disputes that arise with respect to injuries that occur after the effective date of the legislation. Attempting to apply section 84 of SB 863 in this case would leave these parties without a process by which to have their dispute resolved by a third party, since the new IBR process may be utilized only if certain conditions precedent have been met, and the deadlines for meeting those conditions have passed. Leaving these parties without a viable process to decide their dispute cannot be what the legislature intended. We conclude that in creating the IBR process, the legislature intended to establish a new dispute resolution procedure that would apply to disputes arising on or after the effective date of the legislation, and not to disputes like this one that were pending at the time the legislation went into effect.... "Although this provision does not expressly state that the legislature intended that the IBR and IMR processes go into effect only prospectively, it provides an indication that the legislature viewed both the IMR and IBR processes as applying to future employment-related injuries and to future disputes as to medical care and billing for such care.” Defendants argued that the lack of process for disputes on billing before Jan. 1, 2013, could be addressed by administrative regulation. The court pointed out the administrative director (AD) had already created regulations and that no such process existed. Acknowledging the ambiguity of the statutory language and the practical problems in applying the statutory process where the events precedent to IBR have already passed, the court ruled: “In the face of such ambiguity, we are led to interpret the statute as operating prospectively.  … [statutes ordinarily are interpreted as operating prospectively in the absence of a clear indication of a contrary legislative intent]; see also Myers v. Philip Morris (2002) 28 Cal.4th 828, 841 [when a statute is ambiguous regarding retroactivity, it is construed to be prospective in application]. In construing statutes, there is a presumption against retroactive application unless the legislature plainly has directed otherwise by means of " 'express language of retroactivity or . . . other sources [that] provide a clear and unavoidable implication that the legislature intended retroactive application.' " (McClung v. Employment Development Dept. (2004) 34 Cal.4th 467, 475 (McClung).) Although, at first blush, SB 863 section 84 might appear to constitute " 'express language of retroactivity' " …, it specifically allows for other portions of the statute to provide a different rule regarding retroactive/prospective application, and at least one other provision of the statute, Labor Code section 139.5, suggests that the IBR process was intended to apply only to disputes over medical treatment provided for injuries that occur on or after Jan. 1, 2013.... "Considering these obstacles to applying the new billing review process to pending claims, it is clear that the legislature could not have intended to leave parties who had pending billing disputes on the effective date of the new statutory scheme with no meaningful procedure for resolving their disputes. ” The court also provided an extensive discussion of the WCJ’s analysis in determining the appropriate fee for the services in dispute. The court determined the WCJ properly applied the guidelines required in the Tapia v Skill Master Staffing case including its reliance on Kunz v Patterson Floor Coverings, both W.C.A.B. en banc decisions. “As the WCJ noted, the formula that he used to calculate the "reasonable" facility fees for the relevant time period for the procedures at issue took into consideration what Medicare allowed, what Elite charged, what Elite accepted as payment, what the OMFS for ASCs as of Jan. 1, 2004 allowed, what the OMFS for hospitals during much of the relevant period allowed and the fees that other ASCs billed and accepted for the same or similar services. The WCJ considered evidence as to all of these factors, and arrived at results that fell somewhere in the middle of all of these figures. These conclusions are supported by the evidence and are clearly permissible.” Comments and Conclusions: The court was clearly swayed by the practical issues in attempting to implement the IBR procedure to disputes where the necessary steps to enter the IBR process had long since passed. While defendants and amicus argued the procedural gaps could be addressed by regulation, the court remained unconvinced that the legislature intended the billing dispute process to be restarted and then shoehorned into IBR. While the fact the legislature had defined an implementation timetable for IMR but not IBR may have made it tempting for the court to rule, and defendants to argue, for retroactive application, the practical problems in doing so ultimately carried the day. The court’s rather lengthy discussion and approval of the WCJ’s analysis of how to resolve the facility fee dispute may have broader import in the long run as it may provide a roadmap for how to address similar disputes in existing cases. While most ASC fees in cases from after Jan. 1, 2004, are fairly easily resolved, cases pending for services before that date still exist. Prior cases such as Kunz and Tapia had provided some guidance, but translating those cases into easily applied formulas still poses problems. The WCJ’s discussion and the issues he considered, as well as the objectively based formula, may serve as guidance in pending cases with similar disputes. This does not necessarily mean that all such cases should resolve at the same midway point. Among considerations that both the WCJ and appellate court pointed out as significant was the quality of the facility. Elite presented evidence that its facility was state-of-the-art and provided higher-quality medical technology than other local facilities. One witness seemed to suggest the facility was closer to a hospital-based surgery center than most ASCs. One might therefore view the WCJ’s objective standard as the upper end of the scale for ASC facilities. Surgery centers with more mundane credentials might very well have to settle for a value between the 2004 OMFS  and the WCJ’s formula.