Court Case Update - January 2018

Posted Date: January 12, 2018
    

Industry InformationInsights

Introduction

There have been many court challenges to various aspects of state workers compensation systems throughout the years. Contesting the legality of workers compensation laws goes back more than a century, to the inception of the system. In the early 1900s, when states were starting to adopt workers compensation, the laws in several states were struck down as unconstitutional. Nonetheless, workers compensation continued to be enacted across the states. As more states adopted the laws, court cases challenging various aspects of the system followed.

This is the first edition of NCCI’s Court Case Update. This Court Case Update provides a look at some of the cases and decisions being monitored by NCCI’s Legal Division, that may impact and shape the future of workers compensation across the states.

Court Challenges to the AMA Guides

Recent Decisions: In June 2017, the Pennsylvania Supreme Court ruled in Protz v. Workers Compensation Appeals Board, that use of the "most recent edition" of the AMA Guides was an unconstitutional delegation of legislative authority because it gave the AMA "unfettered discretion over Pennsylvania’s impairment rating methodology."

Pending Cases: Oklahoma has several pending challenges to use of the 6th edition of the AMA Guides to assign disability ratings, including Stubblefield v. Buddy’s Home Furnishing, which is currently pending with the Oklahoma Supreme Court. In addition, Kansas has two challenges to the 6th edition of the AMA Guides, Pardo v. UPS and Liberty Mutual Ins. Corp., and Johnson v. U.S. Food Service and Zurich Insurance Co, pending in the appellate courts.

Potential Implications: Numerous states use the AMA Guides to evaluate impairment for permanent disability benefits ratings, and several states (approximately six) use the "most recent edition" language that was struck down in the Pennsylvania Protz decision. While at least one state (New Mexico) has previously upheld the "most recent edition" language, it’s possible that more challenges to the AMA Guides may follow the lead of the pending cases in Oklahoma and Kansas. As Protz lead to a 6.06% rate increase in Pennsylvania, stakeholders in other states will be watching any cases involving the AMA Guides.

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Developments in Marijuana

As highlighted in NCCI’s recent series, "The Marijuana Conversation," the legal use of medical and recreational marijuana is gaining traction in states across the country. As marijuana-related laws continue to develop, the state patchwork of laws will likely remain for the foreseeable future.

Marijuana Reimbursement Under Workers Compensation:
Courts in at least five states—Connecticut, Maine, Minnesota, New Jersey, and New Mexico—have found that medical marijuana is a permissible workers compensation treatment that requires insurer reimbursement. However, decisions in at least two states (Maine and Connecticut) are currently under review.

  • Maine—In September 2017, Maine’s Supreme Court heard oral arguments in Bourgoin v. Twin Rivers Paper Co., a case addressing reimbursement for medical marijuana in workers compensation. The workers compensation appeals board, pointing to its 2016 decision in Noll v. Lepage Bakeries, rejected the self-insured employer’s arguments that reimbursing for medical marijuana conflicts with the federal Controlled Substances Act (CSA) and violates the Maine medical marijuana law’s prohibition against private health insurers paying for medical marijuana.

  • Connecticut—In Petrini v. Marcus Dairy, Inc. and Gallagher Bassett Service, the Connecticut Supreme Court is reviewing a previous decision by the Workers Compensation Commission which found that use of medical marijuana was reimbursable and constitutes reasonable and necessary medical treatment.

Recent Marijuana Cases Shaping the Workplace:
Three recent cases in the Northeast highlight the growing complexity of marijuana’s relationship with the workplace.

  • New Jersey—In Cobb v. Ardagh Glass, Inc., pending in the US District Court of New Jersey, plaintiff alleges that his former employer, Ardagh Glass, violated New Jersey’s antidiscrimination law when he was terminated for a positive drug test showing marijuana, which he was prescribed by his doctor under New Jersey’s medical marijuana law, after he sustained an on-the-job injury.

  • Connecticut—In August 2017, the US District Court of Connecticut in Noffsinger v. Bride Brook Nursing & Rehabilitation Center, allowed a medical marijuana user to proceed with a lawsuit against a prospective employer who rescinded a job offer based on a positive preemployment drug test. The court concluded that federal law, including the CSA, did not preempt Connecticut’s medical marijuana law, which prohibits employment discrimination against medical marijuana users.

  • Massachusetts—In July 2017, Massachusetts’ highest state court in Barbuto v. Advantage Sales and Marketing, LLC, ruled that a medical marijuana user who was terminated from her employment after testing positive for marijuana could proceed with a claim against her employer based on the state’s disability discrimination statute. The court found that if an employee is handicapped and the out-of-work use of medical marijuana is determined to be a "reasonable accommodation" for handicapped persons under state law, an employer cannot take an adverse employment action based on a positive drug test for medical marijuana.

Potential Implications: With employment-related cases such as those noted above, employers in some states may start seeing impacts on the ability to enforce drug-free workplace policies and safety programs. The impact on the workers compensation industry also remains an evolving landscape. Stakeholders may see new legal challenges to laws that restrict or reduce benefits if a worker tests positive for marijuana. It’s also possible more states will find that marijuana is a reimbursable workers compensation treatment, which may spur state regulators to establish maximum reimbursement amounts. And what issues, if any, will insurers face as a result of insuring marijuana businesses or reimbursing for a treatment that utilizes a drug that is illegal under federal law? In recent news, in January 2018 the US Department of Justice rescinded the former Administration’s guidance regarding enforcement of federal marijuana laws. Until the federal government reclassifies marijuana from its current Schedule I status or begins enforcing existing federal laws, these questions will likely remain unanswered.

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Air Ambulance Reimbursement: State v. Federal Law

The question of which law governs air ambulance reimbursement rates—state workers compensation laws or the federal Airline Deregulation Act of 1978 (ADA)—has become a friction point in recent years. Stakeholders continue to closely watch developments in cases challenging the state regulation of air ambulance rates. NCCI’s "Keeping an Eye on Air Ambulance Costs" article provides further insight into this developing issue.

Recent Federal Court Decisions—ADA Preempts State Law:

  • Recent federal court decisions from the US 10th Circuit Court of Appeals in Eaglemed v. State of Wyoming, and the US District Court for the Southern District of West Virginia, in Air Evac EMS v. Cheatham, et al, have found that the ADA preempts state laws that limit reimbursement rates and implement fee schedules for air ambulance services. Air Evac EMS v. Cheatham was appealed to the US 4th Circuit Court of Appeals.

Ongoing State and Federal Cases:

Texas:

  • State case—In PHI Air Medical v. Texas Mutual Insurance, air ambulance provider PHI Air Medical (PHI) challenges that the Texas Workers Compensation Act’s limitation on air ambulance reimbursement rates of 125% of the Medicare rate are preempted by the ADA. The trial court previously found that the ADA does not preempt the Texas Workers Compensation Act and upheld the 125% reimbursement rate. PHI appealed the decision to the Third Court of Appeals. Oral argument was scheduled for November 15, 2017.

  • Federal case—Air Evac EMS v. State of Texas, Department of Insurance, currently pending in the District Court for the Western District of Texas, raises similar ADA preemption questions as those made in the above-noted state case. It also challenges the workers compensation prohibition against balance billing, which prevents a healthcare provider from pursuing a private claim against a workers’ compensation claimant.

Kansas:

  • State case—In Eaglemed, LLC v. Travelers Insurance, Travelers recently appealed a decision by the Workers Compensation Board ("Board") to the Kansas Court of Appeals. The Board held that the Kansas workers compensation fee schedule is preempted by the ADA, and that Travelers is to pay the full air carrier charges. Notably, Travelers does not dispute ADA preemption, but rather contends that air ambulance charges are limited by the federal Medicare Fee Schedule, or alternatively, that state courts can examine the charges for reasonableness, since this is the standard for medical expenses under both state and federal law.

Potential Implications: As the question of which law governs air ambulance rates has led to several court challenges over the past few years, it remains to be seen if state and federal courts will provide ultimate clarity on the issue. Is it possible that the recent federal court decisions out of Wyoming and West Virginia will lead to preemption challenges to air ambulance reimbursement rates in other states? Will there be a renewed effort at the federal level (see S. 471, recently introduced by Sen. Jon Tester, MT) to preserve state authority to regulate the network participation, reimbursement, and balance billing of air carriers providing air ambulance services? Workers compensation stakeholders will no doubt remain keenly interested as developments unfold.

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Attorney Fee Challenges

In recent years, courts in several states have been considering the constitutionality of fee schedules that cap attorney fees in workers compensation.

Recent Decisions Overturning Fee Caps:

  • In 2016, both the Florida Supreme Court (Castellanos v. Next Door Company) and the Utah Supreme Court (Injured Workers Association of Utah v. State of Utah) ruled, for differing reasons, that their respective attorney fee schedules are unconstitutional. More recently, in May 2017, an Alabama circuit court overturned Alabama’s 15% cap on attorney fees as unconstitutional, in Clower v. CVS Caremark Corporation. (Shortly thereafter, the court stayed the ruling indefinitely, hoping that the legislature would act to address the issue. This case was recently settled.)

Recent Decisions Upholding Fee Schedules:

  • In Bandy v. Murray American Energy, the West Virginia Supreme Court recently upheld the constitutionality of the statutory cap on attorney fees for successful protests of medical treatment denials. The court found that there was no violation of due process or the ability to retain counsel, and that the legislature is the appropriate body to consider public policy issues. And in Maryland, the Court of Special Appeals upheld the Workers Compensation Commission’s discretion to exceed the fee guide. In Cleary v. Maryland Workers Compensation Commission, the Court rejected a constitutional challenge that when the Commission sets an attorney fee award, even if the fee exceeds the fee guide, it is a violation of due process if the fee is so low that it deprives claimants of the ability to obtain counsel.

Potential Implications: With several other states having laws that cap attorney fees similar to those struck down in Florida and Utah, it’s possible that there will be more litigation on this issue. There may also be more discussion in state legislatures. In the past two years, several states considered changes to the attorney fee award structure in workers compensation, and approximately five states so far (IA, KY, OR, VT, and TX) have enacted legislation or adopted rules. Of particular note, two new bills have been introduced in Florida: the Florida Senate has proposed legislation for 2018 (SB 258), which would eliminate attorney fees from the calculation of workers compensation rates, and the House Commerce Committee is expected to consider Proposed Committee Bill 18-01, which among other things, proposes a cap on employer-paid attorney fees of $150 per hour when an attorney fee is permitted to exceed the fee schedule.

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Other State Developments

Kansas—Pending Constitutional Challenges in Court of Appeals

There are currently three constitutional challenges to workers compensation pending in the Kansas Court of Appeals. These cases bear watching as they could lead to significant system changes in Kansas.

Exclusive Remedy Challenges to Use of AMA Guides:

  • In Pardo v. UPS and Liberty Mutual Ins. Corp., claimant alleges that the 2013 amendments to the Kansas Workers Compensation Act, which require the use of the AMA Guides, 6th edition, to rate impairment:

    • Is an unconstitutional delegation of legislative authority, and

    • Renders workers compensation inadequate as a replacement for tort since it denies permanent partial disability compensation for injured workers.

  • The court in Johnson v. U.S. Food Service and Zurich Insurance Co. is expected to consider the constitutionality of the AMA Guides, 6th edition, to rate permanent impairment and whether workers compensation remains an adequate remedy for workplace injuries.

Benefit Award Offsets: In Hamilton v. Wal-Mart Associates, Inc. and New Hampshire Insurance Co., claimant argues that the Kansas state law requiring Social Security retirement benefit payments be offset from a compensation award, which was previously upheld by the Kansas Supreme Court in Hoesli v. Tripplet, Inc., violates equal protection and is unconstitutional.

Potential Implications: Although these cases are still pending in the appellate court and it may be some time before finality is reached (assuming any Court of Appeals decision may be appealed to the Kansas Supreme Court), if the courts strike any of the provisions at issue, there could be implications and questions for workers compensation stakeholders in Kansas, as well as across state lines, including:

  • If the use of the AMA Guides or the 6th edition is found to be unconstitutional, there is the potential for meaningful cost impacts on the system (e.g., the recent 6.06% rate increase in Pennsylvania based on the Pennsylvania Supreme Court’s decision striking the AMA Guides in Protz v. Workers Compensation Appeals Board).

  • If the use of the AMA Guides to rate impairment is found unconstitutional, will other third-party guides, such as drug formularies or medical treatment guidelines, face similar challenges in state courts?

  • Successful constitutional challenges to workers compensation provisions in Kansas could lead to litigation in other states with similar laws.

Challenges on the Horizon in Florida?

Jiminez v. UPS and Liberty Mutual and Bosch v. The Miami Herald, cases brought in the Florida First District Court of Appeals, challenge the constitutionality of statutory caps on weekly compensation benefits. In Bosch, the appellate court recently affirmed the Judge of Compensation Claims’ order capping the weekly compensation amount at $842, the statutory maximum in 2015. Notably, in 2016 the Florida Supreme Court overturned other provisions of the state’s workers compensation law as unconstitutional in the Castellanos and Westphal cases.

Potential Implications: Is this the beginning of a new string of challenges to Florida’s workers compensation law? Stakeholders should continue to closely watch workers compensation cases in Florida as there is the potential they could lead to system impacts.

Oklahoma Update

Since Oklahoma reformed its workers compensation law in 2013, there have been over 50 challenges to various aspects of the system. To date, there have been approximately 25 decisions, several of which have struck down various provisions of the law as unconstitutional, and up to 25 more cases are still pending in the courts. Many of these challenges are expected to continue until the issues are resolved by the Oklahoma Supreme Court or the Oklahoma Legislature.

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