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United Fire & Casualty Co. v. Cedars Sinai Medical Center

Court of Appeals of Iowa

December 21, 2016

UNITED FIRE & CASUALTY COMPANY, Plaintiff-Appellant,
v.
CEDARS SINAI MEDICAL CENTER and SEQUETOR, INC., Defendants-Appellees.

         Appeal from the Iowa District Court for Polk County, Arthur E. Gamble, Judge.

         An insurer appeals a judicial review order affirming the medical-fee determination of the workers' compensation commissioner. AFFIRMED.

          Sasha L. Monthei of Scheldrup Blades Schrock Smith P.C., Cedar Rapids, for appellant.

          Jane V. Lorentzen and Chandler L. Maxon of Hopkins & Huebner, P.C., Des Moines, for appellees.

          Heard by Vogel, P.J., and Tabor and Mullins, JJ.

          TABOR, Judge.

         An Iowa insurer contests a determination by the workers' compensation commissioner that a California hospital properly charged more than three million dollars in medical fees following its extended treatment of a severely injured construction worker. Because they disagreed over the reasonable cost of the worker's care, the parties engaged in the informal dispute resolution procedures set out in Iowa Code section 85.27(3) (2013) and Iowa Administrative Code rule 876-10.3. On appeal, United Fire & Casualty Company challenges several aspects of those procedures, as well as the commissioner's order that it pay $2, 266, 089.20 to Cedars-Sinai Medical Center on top of the $940, 195.81 already reimbursed by the insurer.

         United Fire urges four arguments on appeal. First, the insurer alleges the commissioner committed procedural errors in selecting and retaining the medical-fee reviewer, refusing to allow United Fire to offer evidence related to several legal issues, and accepting additional evidence and amended filings from Cedars-Sinai and Sequetor, Inc., the company Cedars-Sinai hired to recoup the outstanding fees. Second, United Fire contends Sequetor did not have standing to initiate the medical-fee review. Third, the insurer claims Cedars-Sinai is not entitled to additional reimbursement because United Fire's previous payments were an accord and satisfaction. Finally, United Fire argues the medical-fee resolution approved by the commissioner and affirmed by the district court was irrational and illogical. Because United Fire failed to preserve error on several of its claims and cannot show it is entitled to repeat the medical-fee dispute process, we affirm the judicial review order.

         I. Facts and Prior Proceedings

         On March 19, 2010, twenty-two-year-old Cody Mills was working on a California construction project for Alan Stevens Associates, Inc., an Iowa company insured by workers' compensation carrier United Fire. Mills fell twenty-five feet from scaffolding and landed face first on a cement surface. Mills was transported to Cedars-Sinai, a Los Angeles hospital, where he received treatment for his catastrophic head injuries. Over the course of his 131-day hospital stay, Mills endured more than twenty surgical procedures, including two craniotomies. Mills required care from the neurosurgical intensive care unit until April 2010. The hospital discharged Mills on July 28, 2010, and delivered a medical bill totaling $5, 314, 001.96 to United Fire.

         United Fire submitted the hospital bill to its reviewing agency, Alpha Review, which applied the California Official Medical Fee Schedule (OMFS) in setting the reimbursable amount at $939, 455.03. United Fire sent a check in that amount to Cedars-Sinai on October 11, 2010. After receiving that initial payment from United Fire, Cedars-Sinai authorized Sequetor to pursue recovery of the remaining balance on Mills's medical bill. Approximately one year later, Alpha Review reexamined the billing, at the hospital's request, and recommended reimbursement of an additional $740.78 for an orthopedic device, which United Fire paid to Cedars-Sinai on November 2, 2011.

         On June 22, 2012, Sequetor-on behalf of Cedars-Sinai-sought a medical-fee determination under the informal dispute resolution process laid out in Iowa Code section 85.27(3)[1] and Iowa Administrative Code rule 876-10.3.[2] In a letter to Penny Maxwell, a compliance administrator with the Iowa Workers' Compensation Commission, Sequetor notified the agency of its intent to use the 10.3-review process in its capacity as Cedar-Sinai's "authorized representative." Sequetor nominated David Stamp, an Iowa attorney, as the person to do the medical fee review but did not provide any details about Stamp's qualifications for the position.

         United Fire responded by letter dated August 15, 2012, and addressed to Maxwell and Deputy Commissioner James Christenson. Counsel for the insurer stated in the letter he had planned to file a motion asking the agency to set deadlines for the 10.3 procedure but learned from a telephone conversation with Maxwell that formal motions would not be entertained. So United Fire instead "submitted [its] positions on scheduling issues via this letter." The letter further stated: "[W]e would like to make the agency aware that although this is an informal medical bill dispute proceeding, this case involves over $4, 000, 000 in dispute and calls for decisions on complex legal questions which will be addressed through briefing and the informal review process." The letter then listed fifteen legal questions, including inquiries on standing, timeliness, preemption, and choice of law. Finally, United Fire nominated Paul Thune to serve as the reviewer, noting: "Mr. Stamp is primarily a claimants' workers' compensation attorney. Mr. Thune, on the other hand is a highly experienced mediator, and also has much experience representing both claimants and defendants in agency matters."

         Maxwell rejected United Fire's request for Thune and informed the parties Stamp had been selected to perform the review. But Stamp contacted Workers' Compensation Commissioner Christopher Godfrey to express concern the informal review process would not resolve the parties' dispute. On October 12, 2012, Stamp advised the parties to file motions raising their legal and procedural issues directly with Commissioner Godfrey. But on December 13, before either party had filed a motion, Commissioner Godfrey directed Stamp to move forward with the review, reasoning: "The issues raised [in United Fire's August 15 letter] . . . do not apply as the process under 876 IAC 10.3 is merely a means to resolve disputed medical fee claims." Godfrey reconsidered United Fire's reviewer nominee but ultimately affirmed the selection of Stamp.

         Godfrey stated: "If this process does not resolve the dispute, a contested case proceeding may be filed . . . ." See Iowa Admin. Code rr. 876-10.3(4), -4.46. The next day, [3] United Fire filed a "motion for determination of legal issues prior to any review under 876 IAC 10.3, " which was rejected by the agency because United Fire had not filed an original notice and petition.[4]

         Stamp withdrew as reviewer on January 30, 2013, without explanation. In the months that followed, two more selected reviewers failed to complete the 10.3 process. One withdrew after a misunderstanding with United Fire regarding mediation and another declined appointment. In each instance, the parties submitted their own nominees for a replacement reviewer, and Maxwell picked Sequetor's candidate. Finally, on November 5, 2013, the agency selected Alex Kauffman, the Sequetor nominee who ultimately completed the 10.3 review. United Fire unsuccessfully objected:

As is made plainly eviden[t] by his affidavit, Mr. Kauffman works for a collections agency, like Sequetor, Inc. who routinely provides collection services for Cedars Sinai Medical Center. . . . While Mr. Kauffman might not contract directly with Cedars Sinai Medical Center, there is an obvious conflict in Mr. Kauffman's serving as the "independent reviewer" in this proceeding as he has an established pattern of financial gain in performing collection work related to medical services provided by Cedars Sinai.

         Shortly thereafter, United Fire sent a letter to Kauffman, with a copy to Sequetor, requesting a scheduling conference. A Sequetor representative responded that Kauffman had already completed his review. United Fire, which had not yet submitted information to Kauffman, objected. In a letter to Maxwell and Deputy Christenson, United Fire requested another reviewer replace Kauffman or, alternatively, the agency order Kauffman to refrain from issuing an opinion until taking input from United Fire. Deputy Christenson reaffirmed Kauffman as the reviewer and noted "the attempted resolution of the medical fee dispute in this matter has gone on for well over a year." Christenson gave United Fire fifteen days to submit "objective" materials to Kauffman but found it "inappropriate to submit testimony or briefs" to the reviewer. After United Fire submitted documentation, Kauffman issued his opinion that an additional $2, 266, 089.20 be reimbursed to Cedars-Sinai.

         United Fire initiated a contested case proceeding against Cedars-Sinai and Sequetor. In addition to challenging Kauffman's findings, United Fire raised issues of standing, accord and satisfaction, and reviewer bias. After reviewing the materials provided by the parties, including a competing opinion on the reasonableness of the medical fees offered by an expert for United Fire, Deputy Christenson entered a decision adopting Kauffman's fee determination. Although the deputy found United Fire had not preserved error on accord and satisfaction or standing, Christenson proceeded to address and reject those claims.

         On judicial review, United Fire renewed the arguments it had raised before the agency and added claims that Maxwell did not have authority to select the 10.3 reviewers, Maxwell was biased in her reviewer selections, and the agency erred in allowing Cedars-Sinai and Sequetor to submit additional filings. The district court affirmed the agency decision. United Fire now appeals.

          II. Scope and Standards of Review

         Our review of workers' compensation cases is governed by Iowa Code chapter 17A. See Hill Concrete v. Dixson, 858 N.W.2d 26, 30 (Iowa Ct. App. 2014). We examine the judicial review ruling and consider whether we come to the same conclusions as the district court. Meyer v. IBP, Inc., 710 N.W.2d 213, 225 (Iowa 2006). If our conclusions align, we affirm; if not, we reverse. JBS Swift & Co. v. Hedberg, 873 N.W.2d 276, 279 (Iowa Ct. App. 2015).

         "[O]ur standard of review depends on the aspect of the agency's decision that forms the basis of the petition for judicial review." Burton v. Hilltop Care Ctr., 813 N.W.2d 250, 256 (Iowa 2012). United Fire's appellate claims implicate the agency's findings of fact, its application of law to fact, the proper construction of rule 10.3, and the insurer's procedural due process rights.

         We defer to the fact findings of the workers' compensation commissioner if they are based on substantial evidence. See Iowa Code § 17A.19(10)(f). Evidence is substantial when "the quantity and quality of evidence . . . would be deemed sufficient by a neutral, detached, and reasonable person, to establish the fact at issue when the consequences resulting from the establishment of that fact are understood to be serious and of great importance." Id. § 17A.19(10)(f)(1). In our review, we ask not whether the evidence may support a different finding than that made by the commissioner but whether the evidence supports the finding the commissioner actually made. See Larson Mfg. Co. v. Thorson, 763 N.W.2d 842, 850 (Iowa 2009).

         We afford "some degree of discretion" to the agency's application of law to the facts "but not the breadth of discretion given to the findings of fact." Meyer, 710 N.W.2d at 219. When the agency's decision is based on an incorrect interpretation of law, we are not bound by those legal conclusions and may correct them. See id.

         We defer to the agency's interpretation of law when it has been clearly vested in the agency's discretion by the legislature unless it is "irrational, illogical, or wholly unjustifiable." See Iowa Code § 17A.19(10)(l)-(m). But when the legislature has not clearly vested the agency with that authority, we review for correction of legal error. See Ramirez-Trujillo v. Quality Egg, L.L.C., 878 N.W.2d 759, 768 (Iowa 2016). We substantially defer to an agency when it interprets its own regulations, so long as its interpretation does not violate the rule's plain language. Des Moines Area Reg'l Transit Auth. v. Young, 867 N.W.2d 839, 842 (Iowa 2015).

         Finally, to the extent United Fire raises a constitutional claim, our review is de novo. See ABC Disposal Sys., Inc. v. Dep't of Nat. Res., 681 N.W.2d 596, 605 (Iowa 2004).

         III. ...


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