In the Matter of a Medical Services Dispute ROBERT E. LANCE, Claimant MID-CENTURY INSURANCE CO., Insurer

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PROPOSED AND FINAL CONTESTED CASE HEARING ORDER Contested Case No: H98-049 Claim No: E3006423 Date of Injury: 09/16/97 WCD File No: G88-2277

On May 27, 1998, Hearings Judge Paul Vincent conducted a hearing. The petitioner, insurer Mid-Century Insurance Co., appeared and was represented through its attorney, Jerry Keene. The respondent, claimant Robert E. Lance, appeared and was represented by his attorney, John Oswald. The Department of Consumer and Business Services (DCBS) and its Workers’ Compensation Division (WCD) were not represented at the hearing. The record in this matter was closed after the hearing with an allowance for respondent to file a Statement of Services. The respondent submitted a Statement of Services on May 27, 1998. The Insurer filed an Objection to Petition for Attorney Fees on May 29, 1998.

The record of this proceeding, consisting of a tape recording of the hearing, all evidence received, and all hearing papers filed, has been considered. The findings of fact set out below are based on the entire record.

Whether petitioner Mid-Century Insurance Co. is liable for surgical services provided to the worker by Bradley Bergquist, MD on October 30, 1997.

WCD’s exhibits 1-39 were entered into the record without objection. Petitioner’s exhibit 40 was also entered into the record without objection. Respondent’s Statement of Services was received into the record on May 27, 1998.

The basic facts of this case are undisputed: On September 16, 1997, Robert Lance was working as a construction laborer. He had spent much of the day at a work site lifting and carrying 80 lb. cement blocks across wet, muddy ground. Later that day, while shoveling dirt, he experienced a sudden, sharp, shooting pain down his left leg, spreading into his back. (Exs. 1; 2) Following the injury, he went home and attempted to obtain relief through use of an “icy hot” gel and rest. The worker did not seek professional care for the injury until September 27, 1997, when he sought chiropractic care from Philip Zapf, DC for lower back pain. (Exs. 1; 2). Noting that the worker exhibited symptoms of disc herniation, Dr. Zapf referred him for an MRI. (Ex. 3). The MRI appears to have been performed by Dr. Piepgrass at Tuality Community Hospital on October 10, 1997¹. On October 13, 1997, the worker was referred by Drs. Piepgrass and Zapf to Bradley Bergquist, MD (Neurological Surgery). (Ex. 5). Dr. Bergquist examined the worker on October 22, 1997 and assessed a left far lateral L4-5 disc herniation. Following the examination he discussed the possibility of surgery (discectomy) with the worker, who chose to wait a few days before making a decision. (Exs. 11-13).

On October 23, 1997, Dr. Bergquist requested authorization from insurer, Mid-Century Insurance Company (Farmers), for the proposed discectomy. (Ex. 14). The insurer did not authorize the surgery. On October 24, 1997 the insurer changed the status of the worker’s claim from a deferred disabling claim to an accepted disabling claim. (Ex. 15). On the same date the worker, employer and Dr. Bergquist were mailed copies of the worker’s notice of immediate enrollment in Providence Vantage MCO. The notice was prepared by a Farmers claim representative, Catherine Henry. She informed the worker that he was required to obtain referral to the MCO panel for all subsequent non-emergency treatment and specifically notified him, in bold print, that his physician, Dr. Bergquist, was not authorized to treat him for the work-related injury. (Ex. 17).

On October 23, 24 and 27, 1997, Henry contacted Dr. Bergquist’s office and notified them that Dr. Bergquist was not a member of Vantage MCO and was not authorized to treat the worker. (Ex. 28). Despite this notice, on October 27, the worker again sought treatment from Dr. Bergquist and a pre-surgical conference was held in regard to the proposed discectomy. The chart notes indicate that the two also discussed “the medical issues versus the legal issues,” with the result that the worker decided to proceed with surgery. Dr. Bergquist scheduled the surgery for October 30, 1997 and sent a cc: copy of his chart notes to Henry. (Ex. 18). Henry sent a fax on the same date to Dr. Bergquist’s office notifying them that nothing in her file indicated Dr. Bergquist was treating the worker. She requesting a signed 829 Authorization Form and release of information before more information could be provided. (Ex. 19). Dr. Bergquist signed the Form 829 on that date. (Ex. 20). Finally, Henry sent a list of qualified MCO neurosurgeons to Bergquist’s office. She was told that Dr. Bergquist would review the list of qualified MCO neurosurgeons with the worker so that he could treat within the MCO. (Exs. 39; 4 at 3; 28 at 1).

On October 29, 1997, the worker retained an attorney, John Oswald, and Henry received a facsimile copy of the retainer agreement on that same date. (Ex. 21). Henry immediately sent attorney Oswald a copy of the claim file and notified him that the worker needed to schedule the impending surgery through an MCO surgeon. She stated: “Please have your client schedule an appt. with an MCO neurosurgeon ASAP – there is no need to delay the surgery while Mr. Lance is hurting so much and treatment is needed.” (Ex. 23). In a second fax on that date Henry notified Oswald that Tuality Community Hospital had been advised that the surgery scheduled for October 30, 1997 was not authorized. (Ex. 22). Tuality Community Hospital records confirm that they were notified by Henry that the procedure scheduled for October 30, 1997 had been denied and that the worker, Dr. Bergquist and Oswald had been notified of the denial. (Ex. 40 at 2). To confirm this information, the hospital contacted the worker, who claimed he was unaware of the denial by Farmers. The worker gave the hospital his attorney’s phone number and agreed that he would call his attorney to double check that Farmers had not notified him of the denied surgery. (Ex. 40 at 3). The hospital then called Farmers and confirmed that although the worker had an active and accepted Workers’ Compensation claim, authorization for the surgery was denied because Dr. Bergquist was not a Vantage provider. (Ex. 40 at 3). Despite the notice, on October 30, 1997, Dr. Bergquist performed a left far lateral discectomy on the worker at Tuality Community Hospital. (Ex. 24).

On November 6, 1997, the worker was notified by Farmers that his temporary total disability compensation was terminated effective October 27, 1997, on the grounds that no authorization of time loss had been received from a qualified attending physician. (Ex. 28-1). On December 30, 1997, the worker requested a director review of a medical services dispute in regard to the insurer’s refusal to accept responsibility for payment on the surgery. (Ex. 34). On February 27, 1998, the Medical Review Unit issued an order requiring Mid-Century Insurance Company (Farmers) to pay for the surgery. (Ex. 36). The insurer has now requested a contested case review of the MRU order. (Ex. 37).

In hearings before the director, “the scope of review shall be de novo unless otherwise prescribed by statute or administrative rule.” OAR 436-001-0225(1). This issues raised in this medical treatment dispute concern the application of ORS 656.245(4)(a), which does not specify any other standard of review. Therefore, my review of this matter is de novo. Archie M. Ulbrich, 2 WCSR 152, 153 (1997).

There is no dispute that this worker was compensably injured in the course of his employment; the worker was experiencing genuine and severe pain as a result of a disc herniation at the time of surgery, and the condition was properly treated through surgical intervention. Nor does the petitioner-insurer challenge the medical necessity of the performed surgery or claim that the surgery was excessive, inappropriate or ineffectual. What is disputed is whether Dr. Bergquist’s surgical services were provided in accordance with ORS 656.245(4)(a), requiring the insurer to compensate him for the surgery. The insurer contends that Dr. Bergquist’s surgery was provided outside of the terms of an active MCO contract at a time when both the worker and surgeon had been notified that the worker was enrolled in an MCO and subject to the MCO contract. Therefore, argues the insurer, Dr. Bergquist’s services were not provided “in the manner prescribed in the contract” as required by ORS 656.245(4)(a), and they are under no obligation to reimburse him for the services provided.

The worker argues that MRU correctly interpreted OAR 436-010-0270(20) as entitling a worker’s medical provider at the time of MCO enrollment, not otherwise entitled to provide care within the MCO, to continue providing compensable services to the worker for 14 days after the mailing date of a notification of MCO enrollment to that provider. The worker then argues that the director is entitled to create administrative rules requiring treatment outside of the MCO contract through the legislature’s grant of authority to the director, also contained in ORS 656.245(4)(a), in regard to informational notices to the worker.

There are two relevant legal provisions which apply to this dispute. The first is a statute, ORS 656.245(4)(a), which provides in part:

“(4) Notwithstanding subsection (2)(a) of this section, when a self-insured employer or the insurer of an employer contracts with a managed care organization certified pursuant to ORS 656.260 for medical services required by this chapter to be provided to injured workers:

(a) Those workers who are subject to the contract shall receive medical services in the manner prescribed in the contract . . . . A worker becomes subject to the contract upon the worker’s receipt of actual notice of the worker’s enrollment in the managed care organization, or upon the third day after the notice was sent by regular mail by the insurer or self-insured employer, whichever event first occurs . . . . Each such contract must comply with the certification standards provided in ORS 656.260 . . . . However, a worker may receive immediate emergency medical treatment that is compensable from a medical service provider who is not a member of the managed care organization. Insurers or self-insured employers who contract with a managed care organization for medical services shall give notice to the workers of eligible medical service providers and such other information regarding the contract and manner of receiving medical services as the director may prescribe . . . .” [Emphasis added].

The second applicable provision, OAR 436-010-0270, is a rule promulgated by the WCD, and relates to the rights and duties of insurers under the Workers’ Compensation Law. Subsection 20 of the rule provides for notification to the worker’s medical service provider at the time of enrollment in an MCO. It provides in part:

“(20) If, at the time of MCO enrollment, the worker’s medical service provider is not a member of the MCO and does not qualify as a primary care physician, the insurer shall notify the medical service provider that services rendered more than 14 days after the mailing date of the notification shall not be compensable. This notification requirement also applies to non-member health care providers. [Emphasis added].”

In the administrative order which I now review, MRU first determined that the insurer had properly enrolled the worker in an MCO and notified him that he was required to seek care within it. MRU then recognized that ORS 656.245(4)(a) mandates that workers who are thus subject to the contract “shall receive medical services in the manner prescribed in the contract.” (Ex. 36 at 1). However, MRU also noted that OAR 436-010-0270(20) requires the insurer to provide an additional notice to medical services providers that procedures performed more than 14 days after the date of that notification are not compensable. Citing Aetna Casualty & Surety Co. v. Blanton, 139 Or App 283, 287 (1996), MRU concluded that an agency cannot ignore its own rules, and was therefore bound to require payment for procedures that fell within the agency’s rule.

MRU’s reliance on Blanton in isolation from an analysis of the underlying rule is misplaced. The Blanton court premised an agency’s obligation to follow its internal rules on an understanding that the rule to be enforced is in fact within the agency’s authority to adopt. As the Court stated:

“We begin with a fundamental principle of administrative law that ‘[w]hen an agency has the authority to adopt rules and does so, it must follow them.’ Albertson’s, Inc. v. Bureau of Labor and Industries, 128 Or App 97, 101, 874 P2d 1352 (1994). An agency does not have the authority to ignore its own rules. Id.; Georgia-Pacific Corp. v. Kight, 126 Or App. 244, 246, 868 P2d 36 (1994); Harsh Investment Corp. v. State Housing Division, 88 Or App 151, 157, 744 P2d 588 (1987), rev. den. 305 Or 273, 752 P2d 1219 (1988).” Blanton, supra, at 287. [Emphasis added].

The principle that an agency’s obligation to follow a rule is premised on the underlying legality of the rule has been previously enunciated in the workers’ compensation context by the Workers’ Compensation Board decision of Frances Gentry, 40 Van Natta 1697 (1988). The case required the Board to determine whether the agency (the Workers’ Compensation Board) was bound to follow its own rule when it was in conflict with the governing statute:

Following our reconsideration of this matter, we conclude that the Board is not bound to follow OAR 438-47-075 to the extent this rule conflicts with the interpretation of ORS 656.382(2) enunciated in Teel, Travis and Saiville. While it is a generally accepted precept of administrative law that a public body is bound to adhere to its own rules, that precept does not give an administrative rule at odds with the statutes it implements a life of its own. To so hold would require an agency to knowingly apply an interpretive rule which is inconsistent with an authoritative interpretation of a controlling statute until such time as its rules are changed via the processes established by the Administrative Procedure Act. We cannot; for like other administrative bodies we are not at liberty to exceed or disregard statutory authority through rulemaking. Planned Parenthood Assoc. v. Department of Human Resources, 297 Or 562 (1984); Springfield Educ. Assoc. v. Springfield School District, 290 Or 217, 227 (1980). We are, instead, free to decline to follow our own rules where we determine they are inconsistent with the governing statutes. Realty Group v. Department of Revenue, 299 Or 377, 382 at n. 3 (1985). Frances Gentry, supra, at 1698.

Thus, to the extent that the rule requires a result inconsistent with the statute it implements, the director is not bound by the rule. Indeed, to the extent that the rule requires the director to reach an outcome contrary to his legislative authority, the director is bound not to apply the rule.

The plain language of ORS 656.245(4)(a) first mandates that a worker “subject to the [MCO] contract shall receive medical services in the manner prescribed in the contract.” At hearing, the evidence establishing that the relevant MCO contract did not allow the services of Dr. Bergquist was uncontradicted.² Thus, if the worker was “subject to the contract” the statute specifically prohibited the surgery which MRU required the insurer to reimburse.

A worker becomes subject to the MCO contract “upon the worker’s receipt of actual notice of the worker’s enrollment in the managed care organization, or upon the third day after the notice was sent by regular mail by the insurer or self-insured employer, whichever event first occurs.” ORS 656.245(4)(a). The worker, Dr. Bergquist and the worker’s attorney were all provided actual notice no later than October 29, 1997, the day prior to the surgery. However, pursuant to the statute, the worker is subject to the contract on the earlier of either actual notice or upon the third day after mailing. By operation of statute, therefore, the worker was subject to the contract upon the third day after the notice of MCO enrollment was mailed, making the worker subject to the contract on October 27, 1997³. (Ex. 17).

To the extent that OAR 436-010-0270(20) requires an insurer to pay compensation for procedures performed outside of the manner prescribed in the contract, it is in direct conflict with the c and may not be enforced. Because the medical services in this case were provided to a worker properly enrolled in an MCO and not performed in a manner prescribed in the contract, the director may not require the insurer to pay for the medical services. Because of this error of law, MRU’s administrative order is reversed.

IT IS HEREBY ORDERED that the February 27, 1998 Administrative Order, MS 98-104, is reversed.

DATED this _____ day of July, 1998.

Michael Greenfield, Director
Department of Consumer
and Business Services

By:	__________________________________ Paul Vincent, Hearings Judge Workers’ Compensation Division

As provided in ORS 183.460, the parties are entitled to file written exceptions, including argument, to this Proposed and Final Contested Case Hearing Order. The exceptions must be served on the parties and filed with the Administrator of the Workers’ Compensation Division at the address set forth below within 30 days following the date of service of this order. Written responses to exceptions must be filed within 20 days of service of the exceptions. Replies, if desired, must be filed within 10 days of service of the response.

If no exceptions are filed, this order shall become final upon expiration of 30 days following the date of service on the parties.

After this order becomes final, you are entitled to judicial review
pursuant to the provisions of ORS 183.480. Judicial review may be
obtained by filing a petition with the Court of Appeals within 60
days from the date that this order becomes final.

Mail any exceptions and a copy of any petition for judicial review to:

Hearings Unit, Administrator’s Office
Workers’ Compensation Division
Department of Consumer and Business Services
350 Winter Street NE, Rm. 330
Salem, Oregon 97310