Derry Twp. Supervisors and Selective Ins. Co. v. WCAB (Reed) , 158 A.3d 194 ( 2017 )

IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Derry Township Supervisors and :
Selective Insurance Company of :
America, :
Petitioners :
:
v. : No. 751 C.D. 2016
: Submitted: December 30, 2016
Workers’ Compensation Appeal :
Board (Reed), :
Respondent :
BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge
HONORABLE ANNE E. COVEY, Judge
HONORABLE DAN PELLEGRINI, Senior Judge
OPINION NOT REPORTED
MEMORANDUM OPINION BY
SENIOR JUDGE PELLEGRINI FILED: January 30, 2017
Derry Township Supervisors (Employer) and Selective Insurance
Company of America (Insurer) petition for review of the Workers’ Compensation
Appeal Board’s (Board) order affirming the Workers’ Compensation Judge’s
(WCJ’s) decision granting Kenneth Reed’s (Claimant) penalty petitions and the
award of counsel fees for failing to promptly pay for work-related medical treatment.
Employer did not pay for the work-related medical treatment not
because it was unnecessary, but because Physical Therapy Institute (PTI) was not the
provider of the billed services but another entity, THE pt GROUP (pt Group), was.
The dispute centers on whether the contractual arrangement and billing practice of the
two providers are lawful under the Workers’ Compensation Act (Act).1
I.
Effective January 1, 1995, cost containment amendments to the Act
made to reduce the cost of workers’ compensation insurance to employers became
effective. One of the most important was Section 306(3)(iii), 77 P.S. § 531(3)(iii),
which changed the method by which workers’ compensation medical bills’
reimbursement were to be calculated. The provision changed the charges from a
cost-plus basis to one calculated on Medicare’s fee schedule, which is normally a
lower amount. It provides:
[A] provider shall not require, request or accept payment for
the treatment, accommodations, products or services in
excess of one hundred thirteen per centum of the prevailing
charge at the seventy-fifth percentile; one hundred thirteen
per centum of the applicable fee schedule, the
recommended fee or the inflation index charge; one
hundred thirteen per centum of the DRG [diagnosis-related
group] payment plus pass-through costs and applicable cost
or day outliers; or one hundred thirteen per centum of any
other Medicare reimbursement mechanism, as determined
by the Medicare carrier or intermediary, whichever pertains
to the specialty service involved, determined to be
applicable in this Commonwealth under the Medicare
program for comparable services rendered. If the
commissioner determines that an allowance for a particular
provider group or service under the Medicare program is
not reasonable, it may adopt, by regulation, a new
allowance. If the prevailing charge, fee schedule,
recommended fee, inflation index charge, DRG payment or
1
Act of June 2, 1915, P.L. 736, as amended, 77 P.S. §§ 1–1041.4, 2501–2708.
2
any other reimbursement has not been calculated under the
Medicare program for a particular treatment,
accommodation, product or service, the amount of the
payment may not exceed eighty per centum of the charge
most often made by providers of similar training,
experience and licensure for a specific treatment,
accommodation, product or service in the geographic area
where the treatment, accommodation, product or service is
provided.
77 P.S. § 531(3)(iii).
We are unable to find any exception to this provision requiring billing
based on the Medicare fee schedule but, apparently, such an exception exists because
the parties assume that if a provider was in existence on January 1, 1995, when the
cost containment provisions were enacted, that provider is grandfathered and still
allowed to bill on a cost-plus formula. In this case, if the pt Group is the provider,
because it was apparently not in existence in 1995, the billed services would be billed
at 113 percent of the Medicare fee schedule. However, if PTI is the provider, because
it apparently was in existence in 1995, the services can be billed using the cost-plus
method. Now to the facts of this case.
II.
On March 5, 2010, Claimant sustained work-related injuries resulting
from a motor vehicle collision recognized by Employer as a cervical sprain and back
sprain. 2 As a result of those injuries, Claimant received physical therapy services at a
2
Employer issued a Notice of Compensation Payable (NCP) recognizing the work injuries.
3
facility known as the Derry Office located at 555 Route 217, Suite 3, Latrobe,
Pennsylvania (Latrobe Facility). The pt Group, a Medicare Part B provider, owns the
Latrobe Facility and employs its physical therapy and administrative staff. However,
pursuant to a Master Office Space Sublease Agreement and Staffing Agreement, it
then “leases” its facility and physical therapists to The Physical Therapy Institute
(PTI), a Medicare Part A provider, for set periods of time for the purpose of treating
workers’ compensation (WC) clients.
Claimant received treatment for his work injuries at the Latrobe Facility
and PTI submitted bills to Insurer totaling $9,564.62. Insurer denied those bills
because it believed the pt Group performed Claimant’s physical therapy and not PTI,
explaining:
The Physical Therapy Institute is not the entity which
provided the PT services represented on the submitted bill
and therefore is not entitled to payment under the medical
cost containment provision of the Act.
(See, e.g., Reproduced Record (R.R) at 560a.)
In February 2011, Claimant filed a penalty petition, later amended to
include a petition for review of medical treatment and/or billing (medical review
petition),3 contending that Employer and Insurer (collectively, Employer) failed to
3
Claimant amended his penalty petition to include a medical review petition in light of this
Court’s decision in Selective Insurance Company of America v. Bureau of Workers’ Compensation
Fee Review Hearing Office (The Physical Therapy Institute), 86 A.3d 300 (Pa. Cmwlth. 2014),
which involved nearly identical facts and, other than Claimant, the same parties. There, we held
that the Bureau of Workers’ Compensation Fee Review Hearing Office lacks jurisdiction to
(Footnote continued on next page…)
4
pay reasonable, necessary and causally-related medical expenses incurred by
Claimant for treatment of his work-related injuries. Employer timely filed Answers
denying all material allegations.
III.
A.
Before the WCJ, Claimant testified that he received physical therapy for
his work injuries at the Latrobe Facility and, as far as he knew, the physical therapy
was provided by the pt Group. Although he did not understand the meaning of the
document, Claimant confirmed that he signed a Disclosure Statement providing, in
pertinent part:
The Physical Therapy Institute and THE pt GROUP are
partners in a joint venture to provide physical therapy
services to a wide range of clients. Workers’ compensation
clients will be treated by therapists of the Physical Therapy
Institute unless your employer has an independent contract
with THE pt Group for such services . . . .
(R.R. at 286a, 774a.)
(continued…)
determine whether an entity is a “provider” of medical services as opposed to simply being a billing
agency because this is a question of liability or possibly insurance fraud, both of which are beyond
the scope of a fee review. We also held that the Bureau’s Medical Fee Review Section lacked
jurisdiction to consider PTI’s fee review petitions in the first instance.
5
To explain the relationship between PTI and the pt Group, Claimant
presented the testimony of Michael Cassidy (Attorney Cassidy), the attorney who
drafted the office and staff leasing arrangement between PTI and the pt Group in
November 2006. He explained that the leasing arrangement is the result of a joint
venture between PTI and the pt Group to provide resources, staff and office leases to
PTI at a variety of locations so that PTI could expand its WC practice in the most
cost-efficient manner. He explained that “the staff is leased in the same way you
would get part-time providers from a staffing service or a local temp agency” and that
this type of staff and leasing arrangement is “[v]ery common” because “there are
rules under Medicare, for example, that specifically allow the incorporation of leased
employees into the provider contracts for Medicare patients and [WC] patients.”
(R.R. at 112a-113a.)
Attorney Cassidy went on to testify that the Centers for Medicare and
Medicaid Services (CMS) has approved approximately 26 locations submitted by PTI
involving this leasing arrangement, including the Latrobe Facility, and the Bureau of
Workers’ Compensation (Bureau) has been aware of the leasing arrangement since
2007. He stated that no objections to this arrangement have been made by either
CMS or the Bureau, and despite an investigation conducted by the Office of the
Attorney General, there was no finding that the joint venture was illegal, improper or
otherwise in violation of any applicable law. Attorney Cassidy opined that the staff
and facility leasing arrangements are “entirely appropriate within the recognized
reimbursement rules for Medicare that the Workers’ Compensation Bureau follows
and that there’s no problem with the arrangement.” (R.R. at 160a.)
6
Attorney Cassidy testified that after he was made aware that Insurer was
refusing to pay Claimant’s medical bills issued by PTI, he contacted Insurer and
explained the legal basis for PTI’s entitlement to bill as Claimant’s provider. He
provided Insurer with documentation confirming PTI’s right to receive payment but
did not send Insurer a copy of the actual leasing agreements between PTI and the pt
Group due to concerns relating to confidentiality.
Ryan Christoff, PTI’s president, testified about the relationship between
PTI and the pt Group. He explained that PTI leased space and employees from the pt
Group for PTI’s workers’ compensation business, and that PTI paid a flat rate to the
pt Group for use of the facility and use of employees. The leased employees were
employees of the pt Group but were independent contractors with respect to PTI
under a staffing lease agreement. He noted, however, that PTI also employs physical
therapists but they do no work for the pt Group. Regarding billing practices, he
denied that PTI is billing for work performed by the pt Group. He explained that
where the pt Group had contracts with certain companies or if the patient was non-
workers’ compensation, the patient was treated by the pt Group while the WC
patients were treated by PTI.
Michael Smith, a senior investigator for Employer’s insurance carrier,
Selective Insurance Company, testified that from his review of Claimant’s bills, it
was unclear which was providing the service, but he believed that PTI was not the
actual health care provider. He acknowledged, though, that after he started his
investigation, he spoke with Attorney Cassidy regarding the questions that he had
about the relationship between PTI and the pt Group, and that Attorney Cassidy
7
indicated that the original agreements had been provided to the Office of the Attorney
General. He acknowledged that he had no information from CMS, the Bureau or any
state or federal law enforcement agency indicating that the arrangement between PTI
and the pt Group was unlawful or fraudulent.
Claimant also presented the testimony of Sherry Myers (Myers),
Selective Insurance Company’s lead bill reviewer, and Charita Farley (Farley), a
medical claims specialist for Eastern Alliance Insurance Group. Myers testified that
when the bills at issue were brought to her attention, they were denied because, based
on a review of the bills and Claimant’s medical records, the provider that billed the
treatment, PTI, was not the provider that rendered the treatment. Farley testified that
nothing on the face of the bills in question indicated that they should not be paid or
that the provider billing the treatment was not the provider rendering the treatment.
Employer presented the testimony of Joseph Chrillo (Chrillo), one of the
pt Group partners, who explained that the pt Group is the actual owner or direct lessor
of the Latrobe Facility which is subleased to PTI on an as-needed basis as is staff to
provide physical therapy services. Chrillo acknowledged that the secretary taking
information from a new patient is an employee of the pt Group, but if it is determined
that the patient is a PTI patient, the secretary then functions as a PTI employee. He
further stated that the physical therapists are pt Group employees and are leased to
PTI to treat PTI patients.
Dale Cordial (Cordial), owner of the pt Group, described the
arrangement as a joint venture of the pt Group and PTI. He testified that PTI
8
subleased space from the pt Group for a certain number of hours per week, and that
when patients were registered, they were identified as either a PTI or pt Group
patient. He testified that when a physical therapist saw a patient, the therapist
generated a billing slip from which the billing office entered the charges and codes
and transmitted them to PTI. The billing office employees were pt Group employees.
PTI generated its own bills. Cordial testified that the joint venture allowed the pt
Group to maximize its staffing and space in underutilized areas and provided regular
cash flow through the lease payments.
Mary Rectenwald testified that she was the physical therapist who
provided the services to Claimant that are at issue in this matter. She confirmed that
she is an employee of the pt Group but also acts as a leased employee of PTI. She
testified that she did not personally inform Claimant that his therapy was provided by
PTI but confirmed that he was provided with information about the joint venture.
She also confirmed that she provided Claimant’s treatment as a leased employee of
PTI.
Employer also presented the testimony of Lorie Myers, who is employed
by Insurer as a WC supervisor and has 33 years of experience in WC claims
management. She stated that the reason the billing for Claimant was denied was due
to billing discrepancies brought to her attention regarding which was actually
providing the therapy and billing Insurer.
9
Linda Schmac (Schmac), the owner and president of Premier Comp
Solutions,4 testified that she was aware of the leasing arrangement for space and
employees between PTI and the pt Group, but that she had never come across this
type of leasing arrangement in her 23 years of work, nor had she heard of any leasing
arrangement between a Part A provider and a Part B provider for physical therapy.
She also testified that she reported PTI and the pt Group’s relationship to the Office
of the Attorney General, CMS and the Bureau.5
B.
Finding credible Attorney Cassidy’s testimony that the joint venture has
been disclosed to CMS and the Bureau and investigated by the Office of the Attorney
General with no finding of illegality, and concluding that Employer has failed to
produce any evidence that would refute the testimony of Attorney Cassidy, the WCJ
granted Claimant’s penalty and medical review petitions. The WCJ noted that
Employer did not dispute that Claimant received the physical therapy treatment
outlined on the bills submitted by PTI or that the bills remain unpaid and outstanding.
Because Employer never received any indication from any federal or state authority
that the billing arrangement between PTI and the pt Group was impermissible in any
way, the WCJ found that Employer did not have a reasonable basis to contest the
4
Premier Comp Solutions is a company engaged in medical management, medical cost,
workers’ compensation medical cost containment services, and medical bill review and repricing.
5
Throughout these proceedings, various testimonies were offered regarding Schmac as it
pertains to her former business relationship with PTI and a withdrawn lawsuit commenced by PTI
against Schmac. The WCJ did not find this testimony to be particularly relevant or germane to the
issues involved in this case.
10
matter and ordered Employer to pay Claimant’s attorney’s fees in the amount of
$83,400.00, reflecting 333.6 hours at $250.00 per hour. The WCJ also ordered that
Employer reimburse Claimant’s counsel for all reasonable and necessary litigation
costs incurred in the amount of $3,328.32.
Employer then appealed to the Board, contending that the WCJ failed to
take into account the totality of the evidence and the actual operation of the entities in
question in finding that PTI provided the physical therapy. Arguing that the evidence
establishes that services were provided by the pt Group employees and billed by PTI
at Part A rates, Employer alleged that the staffing and leasing agreements are an
improper means to avoid the cost containment provision of the Act. Employer also
contended that the WCJ’s conclusion that Employer engaged in an unreasonable
contest was factually erroneous and not the product of a reasoned decision.
Noting that the WCJ found credible Attorney Cassidy’s testimony that
the joint venture was legal and found credible Farley’s testimony that there was
nothing on the face of the bills and supporting documentation to indicate that the bills
should not be paid or that the provider billing the treatment was not the provider
rendering the treatment, the Board found that the WCJ’s decision was grounded in
credibility determinations, which were his to make, and affirmed the WCJ.
With regard to the issue of attorney’s fees, the Board reasoned that the
WCJ did not err in concluding that Employer’s contest was unreasonable because the
WCJ found that Employer failed to submit any evidence to refute PTI’s status as the
provider or any evidence to demonstrate any illegality about the joint venture. The
11
Board further noted that the WCJ found that Claimant’s witnesses’ testimonies
supported the legitimacy of the joint venture, which Employer could not contradict.
Finally, the Board found that the WCJ properly found that Employer had no factual
or legal basis for its belief that the treatment was not actually rendered by the
provider that billed for the services. Employer then filed this petition for review.6
IV.
A.
The determinative issue in this appeal is whether the WCJ correctly
found that the joint venture between PTI and the pt Group was lawful, thereby
enabling PTI to bill for services rendered. Because the physical therapy services
were rendered to Claimant by the pt Group and billed by PTI, Employer argues that
the pt Group is the health care provider, not PTI and, thus, PTI is not entitled to
payment under the Act. Employer asserts that “[a]s a Part B provider, pt Group
portrayed themselves [sic] as the provider to [Claimant] and allowed PTI to represent
themselves [sic] to [Insurer] as the provider in order to charge Part A rates.”
(Employer’s Brief at 15-16.) Employer argues that because the pt Group is the
provider, services should be billed at the Part B rate and its insurance company did
not violate the Act by not paying PTI’s bills.
6
Our review of a decision of the Board is limited to determining whether errors of law were
made, whether constitutional rights were violated, and whether necessary findings of fact are
supported by substantial evidence. Ward v. Workers’ Compensation Appeal Board (City of
Philadelphia), 966 A.2d 1159, 1162 n.4 (Pa. Cmwlth.), appeal denied, 982 A.2d 1229 (Pa. 2009).
12
Section 306(f.1)(1)(i) of the Act requires that employers pay “for
reasonable surgical and medical services, services rendered by physicians or other
health care providers . . . medicines and supplies, as and when needed.” 77 P.S. §
531(1)(i). Employers must pay a claimant’s medical bills within 30 days of receiving
them “unless the employer or insurer disputes the reasonableness or necessity of the
treatment provided pursuant to [Section 306(f.1)(6) of the Act, 77 P.S. § 531(6)].” 77
P.S. § 531(5).
Here, there is no dispute as to whether Claimant’s physical therapy
treatment was necessary or whether Employer needs to pay for his treatment. Rather,
the conflict is over whether Employer needs to pay PTI’s bills given that it believes
that the pt Group was the health care provider. As noted by the WCJ, the agreement
between PTI and the pt Group, under which PTI leases space and staff from the pt
Group and bills insurance carriers for the services provided to patients, is acceptable
under the applicable law. The WCJ relied on and found as entirely credible Attorney
Cassidy’s testimony with which he established that CMS and the Bureau are aware of
the joint venture, and that the joint venture had been investigated by the Office of the
Attorney General with no finding of illegality. Moreover, the WCJ found that the
evidence produced by Employer did not contradict the finding that the joint venture
was lawful. Employer provides no analysis or reasons that we should find otherwise.
B.
Employer next contends that the Board abused its discretion when
assessing a 50 percent penalty fee because Employer established a reasonable basis to
deny payment of the medical bills in light of the complex facts of this case, the
13
leasing arrangement between PTI and the pt Group, and the fact that Claimant’s
physical therapist and PTI’s staff are employed by the pt Group.7
Section 435(d)(i) of the Act8 gives a WCJ discretion to impose a penalty
which “may be increased to fifty per centum in cases of unreasonable or excessive
delays.” Here, Employer persisted in denying PTI’s bills and, as the WCJ found, then
failed to submit any evidence or credible testimony to refute PTI’s status as the
provider or demonstrate that there was anything illegal or improper about the leasing
arrangements between PTI and the pt Group. Accordingly, the WCJ did not abuse its
discretion in imposing a 50 percent penalty.
C.
Not challenging the amount, Employer contends that the WCJ erred by
awarding Claimant unreasonable contest attorney’s fees because it presented a
reasonable contest. Pursuant to Section 440(a) of the Act,9 77 P.S. § 996, in any
7
While a claimant bears the initial burden of establishing a violation under the Act, once a
violation is established, the burden shifts to the employer to demonstrate that the violation did not
occur. Futura Agency, Inc. v. Workers’ Compensation Appeal Board (Marquez), 878 A.2d 167, 172
(Pa. Cmwlth. 2005). The assessment and amount of penalties is a matter for the WCJ’s discretion,
which this Court will not reverse absent an abuse of discretion. Westinghouse Electric v. Workers’
Compensation Appeal Board (Weaver), 823 A.2d 209, 213-14 (Pa. Cmwlth. 2003).
8
Added by Section 3 of the Act of February 8, 1972, P.L. 25, as amended, 77 P.S. §
991(d)(i).
9
Section 440(a) of the Act was added by the Act of February 8, 1972, as amended, and
provides:
(a) In any contested case where the insurer has contested liability in
whole or in part, including contested cases involving petitions to
terminate, reinstate, increase, reduce or otherwise modify
(Footnote continued on next page…)
14
contested case where an insurer contests liability in whole or in part, a WCJ shall
award counsel fees to an employee in whose favor the matter has been finally
adjudicated unless the employer provides a reasonable basis for the contest. “Section
440 . . . is intended to deter unreasonable contests of workers’ compensation claims
and to ensure that successful claimants receive compensation undiminished by costs
of litigation.” Eidell v. Workmen’s Compensation Appeal Board (Dana Corp.), 624
A.2d 824, 826 (Pa. Cmwlth. 1993) (citation omitted). The issue of whether an
employer’s contest is reasonable is a legal conclusion based on the WCJ’s findings of
fact. Yespelkis v. Workers’ Compensation Appeal Board (Pulmonology Associates
Inc.), 986 A.2d 194 (Pa. Cmwlth. 2009). The reasonableness of an employer’s
(continued…)
compensation awards, agreements or other payment arrangements or
to set aside final receipts, the employe or his dependent, as the case
may be, in whose favor the matter at issue has been finally determined
in whole or in part shall be awarded, in addition to the award for
compensation, a reasonable sum for costs incurred for attorney’s fees,
witnesses, necessary medical examination, and the value of
unreimbursed lost time to attend the proceedings: Provided, That cost
for attorney’s fees may be excluded when a reasonable basis for the
contest has been established by the employer or the insurer.
(b) If counsel fees are awarded and assessed against the insurer or
employer, then the workers’ compensation judge must make a finding
as to the amount and the length of time for which such counsel fee is
payable based upon the complexity of the factual and legal issues
involved, the skill required, the duration of the proceedings and the
time and effort required and actually expended. If the insurer has paid
or tendered payment of compensation and the controversy relates to
the amount of compensation due, costs for attorney’s fee shall be
based only on the difference between the final award of compensation
and the compensation paid or tendered by the insurer.
77 P.S. § 996.
15
contest depends on whether the contest was prompted to resolve a genuinely disputed
issue or merely to harass the claimant. Id.
In the present case, the WCJ found that Employer had failed to sustain
its burden of proving a reasonable contest, explaining in pertinent part:
. . . Employer denied the medical bills at issue alleging that
PTI was not the provider of the services. However, the
Employer has failed to submit any evidence during the
course of these proceedings to refute PTI’s status as the
provider of the treatment at issue. The Employer has failed
to submit any evidence contrary to PTI’s position that the
treatment was rendered by PTI in connection with a joint
venture that was entered into between PTI and [pt Group],
which was the basis for the Employer denying the bills.
The Employer has not offered any evidence to demonstrate
that there was anything illegal or improper about the joint
venture between PTI and [pt Group]. To the contrary, the
[i]nsurer’s senior investigator, Mr. Smith, admitted that he
had developed no evidence during the course of his
investigation that the joint venture was in [any] way illegal
or improper.
(R.R. at 35a, ¶17.) Given Employer’s failure to provide any evidence that establishes
the alleged illegality of the joint venture or PTI’s status as a health care provider, we
agree with the WCJ that Employer engaged in an unreasonable contest and the award
of attorney’s fees is proper.
16
Accordingly, the order of the Board is affirmed.
____________________________________
DAN PELLEGRINI, Senior Judge
Judge Hearthway did not participate in the decision of this case.
17
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Derry Township Supervisors and :
Selective Insurance Company of :
America, :
Petitioners :
:
v. : No. 751 C.D. 2016
:
Workers’ Compensation Appeal :
Board (Reed), :
Respondent :
ORDER
AND NOW, this 30th day of January, 2017, it is hereby ordered that the
order of the Workers’ Compensation Appeal Board dated April 13, 2016, is affirmed.
____________________________________
DAN PELLEGRINI, Senior Judge