E-Alert Case Updates

Medical Provider’s Across-the-Board Surcharge Applied to Workers’ Compensation Patients Held Unnecessary and Unreasonable without Evidence of Additional Expenses

Fredericksburg Orthopaedic Associates v. Fredericksburg Machine & Steel, LLC, et al.
No. 1714-12-2 (Court of Appeals of Virginia, May 14, 2013)
by Anna C. Horevay, Summer Associate
Semmes, Bowen & Semmes (www.semmes.com)

In Fredericksburg Orthopaedic Associates v. Fredericksburg Machine & Steel, LLC, et al., the Court of Appeals of Virginia considered whether a medical provider’s forty-percent (40%) surcharge applied to all workers’ compensation patients’ treatment bills was reasonable and necessary. Writing for the appellate court, Chief Judge Walter S. Felton, Jr. affirmed the decision of the Workers’ Compensation Commission that medical bills alone were not prima facie evidence that the surcharge was reasonable and necessary.

In 2008, Michael Donald sustained a work-related injury to his right shoulder while working for his employer, Fredericksburg Machine & Steel, LLC (the “employer”). Fredericksburg Orthopaedic Associates (the “medical provider”) performed surgery on Mr. Donald’s shoulder in 2009, and subsequently submitted a bill to his employer. Of the $12,682 that the medical provider billed for Mr. Donald’s surgery, the employer paid only $3,715.44. The medical provider then initiated a hearing with the Workers’ Compensation Commission, claiming that the remaining balance was still owed.

At the hearing before the Workers’ Compensation Commission, the Chief Financial Officer of the medical provider testified that the medical provider used two different fee schedules: one (1) for non-workers’ compensation treatment services and one (1) for workers’ compensation-related treatment services. Mr. Whitting further testified that the fee schedule for workers’ compensation patients charged included a forty-percent (40%) surcharge over what non-workers’ compensation patients were charged. Mr. Whitting stated that workers’ compensation patients’ services included a surcharge because of additional overhead costs related to processing workers’ compensation claims, including wait time for payments, working with case managers, and sending out faxes. The medical provider did not provide any evidence of these increased expenses and relied only on Mr. Whitting’s testimony.

The deputy commissioner for the Workers’ Compensation Commission found that the “medical provider’s practice of charging 40% more for the treatment of workers’ compensation patients is unreasonable” because there was no evidence that linked the surcharge to increased overhead costs.

Following the findings of the deputy commissioner, the medical provider requested review by the full commission. The commission affirmed the ruling of the deputy commissioner that the medical provider did not establish a prima facie showing that its charges for treatment services were reasonable and necessary. In support of its ruling, the commission noted that the medical provider had no evidence as to the additional workers’ compensation expenses it claimed.

The Court of Appeals relied upon Code § 62.5-605 and 65.2-714(A) in holding that the forty-percent (40%) surcharge was not prima facie evidence that the medical bills were reasonable and necessary. Code § 62.5-605 provides that the liability of the employer for medical treatment services is limited to the community’s prevailing rate for similar treatment “when such treatment is paid for by the injured person.” Code § 65.2-714(A) states that charges for medical services are subject to the approval and award of the Workers’ Compensation Commission. Relying on Bee Hive Mining Co. v. Ind. Comm’n, the Court of Appeals noted that these sections prohibit medical providers from overcharging for their services.

Medical bills are typically “prima facie evidence that the charges were reasonable and necessary.” But because the medical provider placed a surcharge on workers’ compensation patients’ bills without explanation, the medical provider had the burden to prove that the charges were reasonable and necessary. The Court of Appeals found that the testimony provided by the medical provider did not support the assertion that the medical charges were reasonable and necessary. Because there was no evidence relating to the reasonableness and necessity of the surcharge, the bills were not prima facie evidence that the charges were reasonable and necessary.

Furthermore, because the medical provider failed to present evidence that the charges for medical treatments were limited to the prevailing rate in the community, the Court of Appeals refused to award any additional payment toward the unpaid balance of the outstanding bill.

In a dissenting opinion, Associate Judge Elder stated that the holding improperly shifted the burden of proving reasonableness of charges to the medical provider and ignores the evidence establishing the prevailing rate. While Judge Elder noted that an across-the-board surcharge of forty percent (40%) is unreasonable, he maintained that the burden of proof is on the employer to show that the fees for rendering treatment are excessive. In his opinion, that the burden-shifting scheme employed by the majority contradicted Code § 65.2605. Additionally, Judge Elder disagreed with the majority’s failure to award the medical provider any additional payment for its medical treatment services. Judge Elder believed that simple arithmetic could have been used by the court to reduce the claimed medical bill by the medical provider’s standard surcharge of forty percent (40%). Had the majority reduced the bill, the employer would have to pay the balance owed (minus the surcharge) unless the employer could prove the prevailing rate in the community was lower than the medical provider’s bill.