In a certified for publication decision, the First District Court of Appeal agreed that prior to 2005, State Compensation Insurance Fund so dominated the PPN market (preferred provider network, basically the predecessor to post-2005 MPN's), at least in the Fresno area, as to require it to comply with the common law principle of "fair procedure."
The decision summarizes this doctrine as:
"... [protecting] against arbitrary decisions by private organizations under certain circumstances. [citation] When the doctrine applies, private entities may not expel or exclude qualified persons without acting in a manner that is substantively rational and procedurally fair.
"The doctrine applies primarily to decisions affecting membership in private organizations that affect the public interest, particularly when there are 'substantial economic ramifications' from exclusion (Ezekial v. Winkley (1977) 20 Cal.3d 267, 272 (Ezekial))."
In the much anticipated case, Palm Medical had sued State Fund for its refusal to allow it to participate in its pre-2005 preferred provider network in the Fresno area. The doctor group presented evidence showing that the carrier's decision was unfair and/or arbitrary.
At trial, the jury agreed, finding that State Fund "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."
Despite the jury's finding, the trial court judge had thrown out the $1,131,000 damage award against the carrier in a judgment notwithstanding the verdict motion, ruling instead that there was insufficient evidence as a matter of law to support Palm Medical's position.
This decision reinstates the jury's award for damages, although the appellate court did reject Palm Medical's other claim: that it should also be entitled to injunctive relief by having the carrier compelled to admit it into its PPN. On that issue, the opinion ruled that money damages were sufficient to make up for the economic loss suffered by not being admitted.
The appellate court found that the evidence showed that SCIF covered more than half of all employers in the area, and thus fit the definition for the doctrine to come into play. That being the case, the court ruled that State Fund owed Palm a duty of fair procedure in acting on its application to the PPN.
It ruled that Palm had presented sufficient evidence that State Fund's reasons for refusing Palm admittance were arbitrary and/or pretextual.
SCIF had claimed that the doctrine only applied to removing an entity already admitted, not a decision whether or not to admit an entity in the first place. But the court disagreed.
The opinion goes on to hold that corporations such as Palm Medical, as well as individual doctors, are protected by the doctrine.
The case is Palm Medical Group v. State Comp. Ins. Fund.
To read the opinion,
PLEASE CLICK HERE.
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