State Fund Faces $107K Bill in Fight to Keep Doc Out of Network

Tuesday, August 29, 2017 | 0

California’s State Compensation Insurance Fund faces a bill of more than $107,000 for legal fees incurred by a doctor who sued the carrier for excluding him from its medical provider network.

Dr. Vatche Cabayan is asking the carrier to pay for his costs of bringing a motion to enforce a 2013 settlement in which State Fund agreed to bring him back into its network.

State Fund says that not only are the requested fees excessive, but the question of whether it can be forced to compel another company to include Cabayan in the network is still pending before the 1st District Court of Appeal.

State Fund leases Harbor Health’s medical provider network. The carrier is asking the 1st DCA to determine whether the 2013 settlement requires it to force Harbor Health to enroll Cabayan in the network.

San Francisco Superior Court Judge Harold E. Kahn ruled that the settlement requires State Fund to find a way to get Cabayan into its network, even though Harbor Health is the administrator.

“The language ‘State Fund’s medical provider network' in the settlement agreement is objectively broad enough to encompass an MPN that is affiliated with defendant State Compensation Insurance Fund even though it is not administered by the State Fund,” Kahn said in April.

The judge decided that he has continuing jurisdiction over the case, and that “State Fund is required to include Dr. Cabayan as an authorized medical provider in the State Fund MPN by Harbor Health pursuant to the settlement agreement.”

State Fund is asking the 1st DCA to review Kahn’s decision. Cabayan, meanwhile, wants the carrier to pay for the costs he says he incurred to obtain the ruling.

Cabayan and State Fund have been locked in a legal battle since September 2009 when the doctor said he was kicked out of the MPN in violation of his due process rights. Cabayan also accused SCIF of defamation and conducting an improper investigation in bad faith.

State Found in 2011 shot back with a cross-complaint accusing Cabayan of participating in a racketeering enterprise with his medical corporation to defraud the carrier by overbilling for services provided. Among other things, State Fund said nearly every patient the doctor treated received a prescription for what it called the “Cabayan cocktail,” which consisted of an opiate for pain, “including Oxycontin or Norco,” a muscle relaxant, an anti-inflammatory, Prilosec and, in 2007 and 2008, two topical compound creams including Wasabi cream and ketorub.

Cabayan then filled the prescription out of his office and billed the carrier “exorbitant prices — sometimes 10 times the market price” for the drugs.

For example, State Fund says Cabayan billed $160 for 30 Prilosec tablets that typically cost $18 when purchased at a retail pharmacy. The carrier says Cabayan also billed $300 to $400 for 2-ounce jars of the topical creams despite the fact that they have no proven medical value.

Further, State Fund alleged Cabayan billed for interpreting services that were not needed and, in some cases, never provided.

State Fund in a May 2013 settlement agreed to admit Cabayan into its medical provider network. Cabayan agreed to comply with State Fund’s MPN criteria. But Cabayan says he has not been admitted into the MPN and, after the San Francisco County Superior Court granted his motion ordering State Fund to honor the settlement agreement, Cabayan now wants the carrier to pay his attorney fees.

While State Fund says the $107,333.28 in legal fees that Cabayan demands is excessive, the doctor says the carrier has only itself to blame for turning what should have been a simple motion hearing into a mini-trial.

“At every turn, in every brief and at every hearing, State Fund raised new legal arguments, new statutory claims and new challenges to this court’s legal authority to grant plaintiff’s motion, and to order State Fund or Harbor Health to include plaintiffs as members in the new State Fund MPN,” he says in court filings. “For example, the court and plaintiffs were confronted with complex factual and legal arguments concerning the statutory scheme behind State Fund’s creation, whether the new MPN was 'State Fund’s' or 'Harbor Health’s,' and whether a voluminous contract between State Fund and Harbor Health somehow precluded the court from granting the relief sought.”

Cabayan alleges that by complicating the case, State Fund transformed something that could have been resolved with a single set of briefs into complex litigation involving multiple briefings and multiple oral arguments.

State Fund says the demanded fees are premature. Cabayan has not completed the application and appeal process to enroll in the Harbor Health MPN, the carrier says. And it said the question of attorney fees is not ripe until the 1st DCA rules on its appeal of the April order directing it to place Cabayan in its network.

“No determination has been reached by Harbor Health on whether Dr. Cabayan will be part of Harbor Health’s MPN, to trigger the issue of whether State Fund is forced by the court to attempt to exercise its alleged contractual authority, if any, to require Harbor Health to accept Dr. Cabayan,” the carrier said in a court filing. “The court’s April 20, 2017, order, requiring State Fund to insert Dr. Cabayan into the Harbor Health MPN, is in fact a mandatory injunction ordering State Fund to act contrary [to] the existing regulatory scheme, contractual provisions and the status quo, and therefore subject to automatic stay, including the issue of attorney fees, when this matter was appealed on June 12, 2017.”

The dispute between Cabayan and State Fund is the latest in a series of cases in which carriers who tried to control the providers in their networks were hit with lawsuits.

In 2008, the 1st DCA reinstated a jury verdict awarding Palm Medical $1.1 million after the clinic said it was unfairly excluded from State Fund’s preferred provider network. Palm Medical argued in its 2003 complaint that because State Fund at the time was writing more than 50% of the work comp premiums in California, the carrier owed the clinic a duty to review its application to enroll.

The appellate court’s ruling that State Fund owed Palm Medical a fair shot at enrolling in its network led Cumbre Insurance Services to allege State Fund didn’t give it a fair shot at appealing a decision to terminate the brokerage from the preferred brokerage program in 2003.

But the 4th District Court of Appeal in November 2010 said State Fund afforded Cumbre an opportunity to challenge its removal from the brokerage network.

The payer side notched another victory in 2013 with an unpublished decision from the 4th DCA allowing Corvel Healthcare Corp. to exclude from its network Dr. Douglas Roger, who was allegedly prescribing compound drugs and refusing to discuss the prescriptions with peer-review doctors.

While the appellate court said Corvel didn’t follow the process outlined in its contract to remove Roger, it said the decision to terminate the network contract was rational and procedurally fair.