Lake Charles Memorial Hospital (Stephen Babin) v. Hobby Lobby Stores, Inc.

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

10-261
consolidated with 10-262 and 10-263

LAKE CHARLES MEMORIAL HOSPITAL
(STEPHEN BABIN)

VERSUS

HOBBY LOBBY STORES, INC.

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APPEAL FROM THE
OFFICE OF WORKERS’ COMPENSATION, DISTRICT 3
PARISH OF CALCASIEU, NO. 05-01207
SHELLY D. DICK, WORKERS’ COMPENSATION JUDGE

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DAVID E. CHATELAIN*
JUDGE

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Court composed of Sylvia R. Cooks, J. David Painter, and David E. Chatelain,
Judges.

AFFIRMED IN PART; REVERSED IN PART; RENDERED.

Thomas A. Filo
Cox, Cox, Filo, Camel & Wilson, L.L.C.
723 Broad Street
Lake Charles, Louisiana 70601
(337) 436-6611
Counsel for Plaintiff/Appellant:
Lake Charles Memorial Hospital

*
Honorable David E. Chatelain participated in this decision by appointment of the Louisiana
Supreme Court as Judge Pro Tempore.

John V. Quaglino
Denis P. Juge
Juge, Napolitano, Guilbeau,
Ruli, Frieman & Whiteley
3320 W. Esplanade Avenue North
Metairie, Louisiana 70002
(504) 831-7270
Counsel for Defendant/Appellee:
Hobby Lobby Stores, Inc.

CHATELAIN, Judge.

In these consolidated cases, a health care provider appeals the denial of its

claims that the employer of three workers’ compensation claimants underpaid charges

for medical treatment the health care provider rendered to the claimants and that the

underpayment was arbitrary and capricious, entitling it to penalties and attorney fees.

For the following reasons, we reverse the denial of the health care provider’s claims

and award penalties and attorney fees for the underpayment. We also affirm the

award of penalties and attorney fees for late reimbursement of the claims.

FACTS

In 2002 and 2003, three employees of Hobby Lobby Stores, Inc. (Hobby

Lobby) in Lake Charles were injured in the course and scope of their employment and

sought treatment for their injuries at Lake Charles Memorial Hospital (LCMH).

LCMH submitted bills for services it rendered to the employees of Hobby Lobby;

Hobby Lobby remitted payments which were less than the amounts set forth in the

Louisiana Workers’ Compensation Reimbursement Schedule (Reimbursement

Schedule), as provided in La.R.S. 23:1034.2, and more than sixty days after receiving

notice of the bills in derogation of La.R.S. 23:1201(E).

The reimbursement payments Hobby Lobby remitted were calculated pursuant

to the provisions of a Preferred Provider Organization (PPO) Hospital Agreement

LCMH had with CorVel Corporation (CorVel) and a Workers’ Compensation

Managed Care Service Agreement Hobby Lobby had with CorVel. In the PPO

agreement, LCMH agreed to provide hospital and physician services to CorVel

beneficiaries, such as Hobby Lobby’s employees, at “85% of billed charges,” “85%

of usual and customary rates,” or “85% of any applicable maximum allowable rate as

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specified by the State, whichever is less.” Following receipt of Hobby Lobby’s

payments, LCMH filed disputed claims to recover “[u]nderpayment and/or late

payment of medical bills” and “penalties and attorney fees for arbitrary and capricious

handling” of each of the three employees’ claims.

The three claims were consolidated and tried. With regard to each of the three

claims, the workers’ compensation judge (WCJ) denied LCMH’s claims for

underpayment and penalties and attorney fees for Hobby Lobby’s arbitrary and

capricious handling of the claims but awarded $2000 in penalties and attorney fees

of $1000 because the reimbursement payments were “late.”

LCMH appealed, seeking reversal of the denial of its claims and an award of

penalties and attorney fees for Hobby Lobby’s failure to pay the full amount of its

claims. Hobby Lobby answered the appeal, seeking reversal of the penalties and

attorney fees for the late payment of LCMH’s claims.

ISSUES PRESENTED

LCMH’s assignments of error and Hobby Lobby’s answer present the

following issues for our consideration: (1) Did the WCJ err in dismissing LCMH’s

claims for underpayment? (2) If the WCJ erred in dismissing LCMH’s claims for

underpayment, was Hobby Lobby’s underpayment arbitrary and capricious, entitling

LCMH to penalties and attorney fees? and (3) Does a health care provider have a

claim for penalties and attorney fees for late payment of a claim for services

rendered?

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DISCUSSION

PPO Discount

LCMH asserts that the WCJ erred in concluding that Hobby Lobby “made a

prima facie showing of a defense” to its claim of underpayment because LCMH

agreed in its PPO agreement with CorVel to accept “85% of any applicable maximum

allowable rate as specified by the state.” We agree.

This court has recently held that a PPO agreement, such as the one between

LCMH and CorVel, does not relieve an employer that has a separate agreement with

a disability management and cost containment service of its obligation to reimburse

health care providers in accordance with the Reimbursement Schedule in La.R.S.

23:1034.2. See Cent. La. Ambulatory Surgical Ctr., Inc. v. Payless Shoesource, Inc.,

10-86, 10-91, 10-92, 10-96, 10-97, 10-99, 10-100, 10-115, 10-117, 10-118 (La.App.

3 Cir. 7/28/10), ___ So.3d ___; Agilus Health v. Accor Lodging N. A., 09-1049

(La.App. 3 Cir. 3/10/10), 32 So.3d 1120, writ granted, 10-800 (La. 6/18/10), 38 So.3d

312. In Payless, ___ So.3d at ___, this court determined that a PPO contract which

“purports to reduce or relieve the employer’s liability for workers’ compensation

medical payments from the full amount of the Fee Schedule . . . flies in the face of the

language and purpose of the Act” because such reductions fail to consider the

interrelationship of the pertinent sections of the workers’ compensation statute and

the overall social legislative purpose of the act.

The interrelationship of La.R.S. 23:1033 and La.R.S. 23:1203 was considered

important in Payless and Agilus. Louisiana Revised Statutes 23:1033 provides that:

“No contract, rule, regulation or device whatsoever shall operate to relieve the

employer, in whole or in part, from any liability created by this Chapter except as

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herein provided.” Thereafter, Section 1203(B) outlines the workers’ compensation

employer’s obligation to pay medical expenses; it states in pertinent part:

The obligation of the employer to furnish such care, services,
treatment, drugs, and supplies, whether in state or out of state, is limited
to the reimbursement determined to be the mean of the usual and
customary charges for such care, services, treatment, drugs, and
supplies, as determined under the reimbursement schedule annually
published pursuant to R.S. 23:1034.2 or the actual charge made for the
service, whichever is less.

In Payless, ___ So.3d at ___, a panel of this court found that Sections 1033 and

1203(B) and the Louisiana Workers’ Compensation Act (LWCA) “as a whole,

prohibit any contracts that would operate to relieve an employer of liability created

by the LWCA.” Agilus also determined that La.R.S. 23:1033 prohibits a PPO

contract from reducing an employer’s liability under the Louisiana Workers’

Compensation Act below what is provided in the Reimbursement Schedule.

Hobby Lobby urges that it is illogical to conclude that a health care provider

can reduce an employer’s reimbursement by charging the employer less than the

reimbursement schedule provides pursuant to La.R.S. 23:1203(B) but cannot achieve

the same end by agreeing to accept less by entering a PPO contract which does so.

Payless addresses this argument, finding that health care providers can agree to

accept “pre-negotiated” reduced rates; however, the reduced rates must be negotiated

by the health care provider and the employer, not by the health care provider and a

third party. We agree with this conclusion and find it dispositive of Hobby Lobby’s

argument in the present case.

For these reasons, we reverse the WCJ’s denial of LCMH’s claims that it was

underpaid by Hobby Lobby for the services it rendered to Hobby Lobby’s employees

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and order that Hobby Lobby pay the amounts provided in the Reimbursement

Schedule, as LCMH billed.1

Penalties and Attorney Fees

Underpayment of LCMH’s Claims

LCMH urges that Hobby Lobby’s underpayment of its claims was arbitrary and

capricious, entitling it to penalties and attorney fees as provided in La.R.S.

23:1201(F)(4) and for failing to provide either a benefit card or other written notice

of Hobby Lobby’s intent to access the PPO network discounts. Hobby Lobby

counters that it reasonably controverted LCMH’s claims for underpayment, asserting

that its belief that a health care provider can contract to accept payments for services

rendered below payments set forth in the Reimbursement Schedule was reasonable

and that PPO contracts are not subject to the notice provisions of La.R.S.

40:2203.1(B). As support for Hobby Lobby’s position, it cites holdings by other

tribunals in this state that through the execution of PPO agreements, health care

providers agreed to accept payments for their services that are less than the amounts

set forth in the Reimbursement Schedule, as support for its position. See Liberty Mut.

Ins. Co. v. Dr. Clark Gunderson, 2006 WL 367700 (WD La. February 15, 2006);

Lake Charles Mem’l Hosp., Docket Number 05-1318, Office of Workers’

Compensation District 3; St. Tammany Parish Hosp. v. Chick-fil-A, Docket Numbers

08-4486, 08-5060, Officer of Workers’ Compensation, District 6. Hobby Lobby also

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LCMH assigned as error the WCJ’s dismissal of its claims, asserting that the claims were
dismissed on the basis that the Office of Workers’ Compensation does not have subject matter
jurisdiction to consider the claims. In our view, the WCJ determined that the Office of Workers’
Compensation does not have jurisdiction to determine whether Hobby Lobby paid LCMH in
accordance with the terms of the PPO agreement. Regardless of the WCJ’s basis for dismissing
LCMH’s claims, our reversal of the WCJ’s dismissal of LCMH’s claims and award of judgment in
favor of LCMH against Hobby Lobby for the amount of its claims renders this assignment of error
moot; therefore, it will not be addressed.

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contends that this case presents novel issues of law for which there is no consensus

among the courts of this state; therefore, it argues that its reliance on Hobby Lobby’s

PPO agreement does not warrant the imposition of penalties and attorney fees. With

regard to its second defense, Hobby Lobby urges that pursuant to the clear language

of La.R.S. 40:2203.1(A), the notice requirements therein do not apply to LCMH’s

claims.

The panel in Agilus, 32 So.3d 1120, determined that reliance on a PPO

agreement did not present a close factual question and that an employer’s reliance on

a PPO agreement to reduce its reimbursement of the health care provider’s charges

did not reasonably controvert the health care provider’s claim for payment.

Accordingly, penalties and attorney fees were awarded. Id. The panel in Payless,

___ So.3d ___, originally concluded that while the PPO agreements were invalid, the

employer’s reliance on them as the basis for underpaying the health care provider’s

claims was reasonable and found the WCJ’s award of penalties and attorney fees were

improper because the claims were reasonably controverted, as provided in LaR.S.

23:1202(F)(2).

On rehearing, however, the panel in Payless reversed itself on this issue and

affirmed the WCJ’s awards of $2000 in penalties and $1500 in attorney fees, finding:

1) that for reasons set forth in Gunderson v. R.A. Richard & Associates, Inc., 09-1498

(La.App. 3 Cir. 6/30/10), ___ So.3d ___, the employer’s failure to comply with the

notice provisions of La.R.S. 40:2203.12 warranted the imposition of penalties and 2)

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Louisiana Revised Statutes 40:2203.1 provides in pertinent part that:

A. Except as otherwise provided in this Subsection, the requirements of this
Section shall apply to all preferred provider organization agreements that are
applicable to medical services rendered in this state and to group purchasers as
defined in this Part. The provisions of this Section shall not apply to a group
purchaser when providing health benefits through its own network or direct provider

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“once a health care provider prevails on an underpayment claim, the award of

attorney fees is discretionary and is not subject to the ‘reasonably controverted’

limitation.” In Gunderson, ___ So.3d at ___, this court determined that alternative

rates of payment provided in a PPO agreement are not binding unless a benefit card

is issued and presented to the health care provider when treatment is sought or the

health care provider is given thirty-day written notice of an entity’s intent to access

services under the agreement. In making this determination, the panel held that the

phrase “all preferred provider organization agreements” in Section 2203.1 includes

workers’ compensation claims, finding the legislature’s use of the word “all” includes

every type of claim.

For these reasons, we reverse the WCJ’s denial of penalties and award penalties

to LCMH in the amount of $2000 each for Hobby Lobby’s three underpayments of

LCMH’s charges.

Payless, ___ So.3d at ___, noted on rehearing the award of attorney fees is not

restricted by the “reasonably controverted” standard of La.R.S. 23:1201(F)(2). We

further observe that with regard to the award of attorney fees, the language of La.R.S.

agreements or to such agreements of a group purchaser.

B. A preferred provider organization’s alternative rates of payment shall not
be enforceable or binding upon any provider unless such organization is clearly
identified on the benefit card issued by the group purchaser or other entity accessing
a group purchaser’s contractual agreement or agreements and presented to the
participating provider when medical care is provided. . . .

....

(5) When no benefit card is issued or utilized by a group purchaser or other
entity, written notification shall be required of any entity accessing an existing group
purchaser’s contractual agreement or agreements at least thirty days prior to
accessing services through a participating provider under such agreement or
agreements.

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23:1201(F)(2) differs from that utilized in La.R.S. 23:1201(F)(4)—whereas the

former states “together with reasonable attorney fees” the latter provides for

“reasonable attorney fees based upon actual hours worked.” Accordingly, we must

determine whether this difference in language means that the award of attorney fees

is to be assessed differently. For reasons that follow, we think not.

It has long been held that the fee an attorney receives may not exceed a

“reasonable” fee. See, e.g. Saucier v. Hayes Dairy Prods., 373 So.2d 102 (La.1978);

Hutner Levine Seeman & Stuart v. La. State Bar Ass’n, 378 So.2d 423 (La.1979);

Pharis & Pharis v. Rayner, 397 So.2d 1295 (La.1981), on remand, 406 So.2d 723

(La.App. Cir.1981). In Rivet v. State, 90-145 (La. 9/5/96), 680 So.2d 1154 (La.1996),

an inverse condemnation suit, the court was faced with three statutes that seemingly

applied to the question of attorney fees; in its simplest form the question was whether

the formulation should be based on “attorney fees actually incurred,” La.R.S.

13:5111(A), “reasonable attorney fees,” La.R.S. 19:8, or an attorney fee which shall

not “exceed twenty-five percent of the difference between the award and the amount

deposited in the registry of the court,” La.R.S. 48:453(E). In its resolution of the

case, the Court stated:

Regardless of the language of the statutory authorization for an
award of attorney fees or the method employed by a trial court in
making an award of attorney fees, courts may inquire as to the
reasonableness of attorney fees as part of their prevailing, inherent
authority to regulate the practice of law. This court has previously noted
that factors to be taken into consideration in determining the
reasonableness of attorney fees include: (1) the ultimate result obtained;
(2) the responsibility incurred; (3) the importance of the litigation; (4)
the amount of money involved; (5) the extent and character of the work
performed; (6) the legal knowledge, attainment, and skill of the
attorneys; (7) the number of appearances involved; (8) the intricacies of
the facts involved; (9) the diligence and skill of counsel; and (10) the
court’s own knowledge. We have further noted that these factors are

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derived from Rule 1.5(a) of the Rules of Professional Conduct, which
provides:

(a) A lawyer’s fees shall be reasonable. The factors to be
considered in determining the reasonableness of a fee
include the following:

(1) The time and labor required, the novelty and
difficulty of the questions involved, and the skill
requisite to perform the legal service properly;

(2) The likelihood, if apparent to the client, that the
acceptance of the particular employment will
preclude other employment by the lawyer;

(3) The fee customarily charged in the locality for
similar legal services;

(4) The amount involved and the results obtained;

(5) The time limitations imposed by the client or by
the circumstances;

(6) The nature and length of the professional
relationship with the client;

(7) The experience, reputation, and ability of the
lawyer or lawyers performing the services; and

(8) Whether the fee is fixed or contingent.

Rivet, 680 So.2d at 1161-62 (citations omitted) (footnote omitted).

We agree with Rivet’s analysis and find that our duty in the assessment of a

reasonable attorney fee, regardless of the statutory authorization, requires us to look

beyond the actual hours worked. Certainly, it is important to consider that element,

but it is only one of several factors relevant to the issue before us. To limit our

inquiry to the actual hours worked would skew the well-established concept of

reasonableness and upset a well-understood jurisprudential concept.

Counsel for Hobby Lobby submitted affidavits itemizing his services in each

of the three consolidated matters as follows: Stephen Babin claim—9.5 hours; Janet

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Hines claim—29.29 hours; and Dustin Hebert claim—16.5 hours. Counsel’s hourly

rate is $200 per hour, resulting in fees sought being $1900; $3300; and $5858,

respectively. As noted by counsel in his briefs before this court and the WCJ, there

are no disputed facts herein and only legal issues are presented for consideration. The

same legal issues presented herein have been presented in other cases, some of which

have been decided and some of which are pending. Our consideration of the factors

outlined in Rivet in the context of the facts of these cases and in light of counsel

having presented the same legal issue previously lead us to conclude that $1900 in

the Babin case and $2000 in the Hines and Hebert cases are fair awards for attorney

fees for counsel’s work performed in these consolidated cases before the WCJ and

award an additional $1500 for work performed on each appeal.

Late Payment of LCMH’s Claims

Hobby Lobby answered LCMH’s appeal, asserting that the WCJ’s award of

penalties of $2000.00 and attorney fees of $1000.00 for its failure to pay LCMH’s

claims within sixty days as provided in La.R.S. 23:1201(E) constitutes error and

should be reversed. Citing Roque v. Shell Beach Trucking, 02-1305 (La.App. 3 Cir.

5/7/03), 844 So.2d 1111, as support for its argument, it contends that only a workers’

compensation claimant has the right to claim penalties and attorney fees for late

payment of a medical claim. We disagree.

Contrary to Hobby Lobby’s claims, the Workers’ Compensation Act

specifically addresses this issue. Louisiana Revised Statutes 23:1201(F)(4) provides:

“[i]n the event that the health care provider prevails on a claim for payment of his fee,

penalties as provided in this Section and reasonable attorney fees based upon actual

hours worked may be awarded and paid directly to the health care provider.”

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Furthermore, we find Roque factually distinguishable because that case awarded

penalties and attorney fees only because the employee, not the health care provider,

filed a claim for payment of the health care provider’s fee. Therefore, we find no

merit to the argument Hobby Lobby advances in its answer to this appeal.

DISPOSITION

For the reasons discussed, we reverse the WCJ’s denial of LCMH’s claims that

Hobby Lobby underpaid it for the services it rendered to Hobby Lobby’s employees

and order that Hobby Lobby reimburse LCMH in accordance with the

Reimbursement Schedule, as well as the WCJ’s denial of LCMH’s claims for

penalties and attorney fees for Hobby Lobby’s failure to reimburse it according to the

Reimbursement Schedule. Further, we award $2000 in penalties with regard to each

claim and award attorney fees in the amount of $1900 in the Babin case and $2000

in the Hines and Hebert cases for work performed before the WCJ; we award $1500

in attorney fees with regard to each claim for work performed on this appeal. We

affirm the WCJ’s award of penalties and attorney fees for Hobby Lobby’s late

reimbursement of LCMH’s claims. All costs are assessed to Hobby Lobby.

AFFIRMED IN PART; REVERSED IN PART; RENDERED.

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