Controlling Costs

From time to time, plaintiff’s counsel takes the position that respondent’s lien is applied to the net proceeds after deduction for plaintiff’s total costs of suit. In Greater New York Mutual Insurance Company v. Calcagno & Associates, A-0900-11T4 (App. Div. September 20, 2012), that very issue was decided. (more…)

Legal actions for reimbursement by medical providers have become very common in the New Jersey Division of Workers’ Compensation. Now they are even more complex following the decision in The Valley Hospital v. LQ Management LLC, A-0831-10T1 (App. Div. August 8, 2011).

The facts are straightforward. An employee of LQ Management, LLC, was treated for work-related back injuries at Valley Hospital. The hospital billed $65,549 for its services and submitted the bill to Zurich American Insurance Company, which was the workers’ compensation carrier for LQ Management. Zurich utilized a claim administrator to review the bill, and the claim administrator issued an explanation of benefits stating that Zurich was paying the bill under the hospital’s contract with FOCUS – Aetna Workers’ Comp Access, LLC. Zurich paid $24,743, less than half the bill.

Valley Hospital sued in civil court alleging breach of contract. It said that under the terms of the Aetna contract, the hospital was entitled to 80% of its billed charges based on preferred provider rates. That would have been $52,456. LQ moved to dismiss the complaint, contending that this was a workers’ compensation issue and belonged in workers’ compensation court. Further, LQ noted that there was a pending workers’ compensation claim and argued that the question of payment of this bill must be transferred to workers’ compensation court.

On the face of it, LQ’s argument had appeal because of the decision in Univ. of Mass. Mem’l Med. Ctr., Inc. v. Christodoulou, 180 N.J. 334 (2004). In that case the New Jersey Supreme Court held that “while an employee’s claim for a work-related injury is pending in the Division, a medical provider’s action for unpaid services must be transferred from the Law Division to the Division of Workers’ Compensation.” Obviously it would be better for LQ to defend only one action and to have that action vested in the Division of Workers’ Compensation.

In this case, however, the Appellate Division found a reason to distinguish the rule in Christodoulou. It said that the Christodoulou case involved a claim against a patient/employee for payment or against the workers’ compensation carrier. In this case the “complaint states a common law contract claim against the insurance carrier under the alleged Aetna contract, as well as a common law claim of unjust enrichment related to that contract and its discounted rates.” As such, the court held, “Plaintiff’s claim under such a contract, however, is not a matter pertaining to compensable benefits under the Workers’ Compensation Act.”

This distinction is an unusual one and contrasts with most workers’ compensation medical provider claims where the only issue is whether the medical services were reasonable and necessary. Those cases are claims against employees or against the appropriate workers’ compensation carrier for reimbursement. This case involved more issues of contract law and as such the court was emphatic that the Division of Workers’ Compensation was not empowered to resolve contractual disputes. For this reason, the civil action was permitted to continue even while the petitioner pursued the workers’ compensation matter. The decision illustrates an important exception to the general rule that medical reimbursement claims should be transferred to pending workers’ compensation claims in the Division. When the issue is interpretation of a contract, that issue belongs in civil court according to this decision.

Visit John H. Geaney’s Blog page at NJworkerscompblog.com

In Kuhnel v. CNA Ins. Cos., 322 N.J. Super. 568 (App. Div. 1999), certif. denied, 163 N.J. 12, cert. denied, 531 U.S. 819 (2000) the Appellate Division held that a lien under N.J.S.A. 34:15-40 shall not include expenses for rehabilitation nursing services as a medical cost unless respondent can prove that the services primarily benefited the employee and were reasonably necessary to the employee’s recovery. One case in which rehabilitation nursing services were considered to be medical services and therefore lienable is Raso v. Ross Steel Erectors, 319 N.J. Super. 373 (App. Div.), certif. denied, 161 N.J. 148 (1999). This case contains a helpful discussion of the requirements of N.J.S.A. 34:15-15.

New Jersey has a powerful subrogation provision under N.J.S.A. 34:15-40.  Respondent is entitled to two thirds of its payment if the recovery exceeds the total workers’ compensation expenses.  The employer must properly reserve lien rights.

The case of Errickson v. Supermarkets General Corp., 246 N.J. Super. 457 (App. Div. 1991) points out how failure to follow the rules can cause the loss of lien rights.

In Errickson, the accident happened on July 14, 1986. Cigna, the compensation carrier, paid compensation benefits and filed a suit in the name of Errickson on July 24, 1987. Cigna settled with the attorney for the third-party defendant and sent the release to Errickson, who refused to sign it. Errickson successfully argued that Cigna had not provided a written demand letter to him, and therefore the settlement Cigna had effected was invalidated. The court reviewed the proper procedure as follows:

1. The compensation carrier or employer must wait one year;
2. Then the carrier must make a written 10-day demand on employee to either effect settlement or institute a proceeding against the third-party defendant;
3. The carrier must then wait the 10 days and can file suit if the employee fails to settle or institute proceedings.

It is important to bear in mind that if a carrier or employer files suit in the name of the injured worker against a third-party defendant, the rights of the carrier derive from the worker. Therefore, any money recovered in excess of the amount respondent has paid in compensation payments goes to the injured employee.