Sanders & Parks Prevails at the Arizona Supreme Court

Sanders & Parks’ Trial Court Victory

Sanders & Parks, P.C. is pleased to announce that the Arizona Supreme Court has declined to review the ruling of the Arizona Court of Appeals that affirmed the trial court’s ruling in favor of Sanders & Parks’ client, SCF Arizona (“SCF”). SCF is a workers’ compensation insurance company that did not have contracts with Canyon Surgery Center and El Dorado Surgery Center (now known as “Tucson Surgery Center”) (collectively “the Surgery Centers”) to provide services to its injured workers at a reduced or discounted rate as other insurance carriers do.

The case, styled Canyon Surgery Center, et al. v. SCF Arizona, 1 CA-CV 09-0408, involved reimbursements of facility fees for services provided to over 2,100 injured workers from March 2003 through March 2007. In its published opinion, the Court of Appeals affirmed several rulings from the various trial judges who presided over this matter during the lengthy legal battle. After seven years and five months of protracted litigation, the Arizona Supreme Court has vindicated Sanders & Parks’ client’s legal positions.

The Surgery Centers were two of five original plaintiffs that initially sued to collect their unilaterally-established full-billed charges from SCF. The Surgery Centers’ theory was that SCF is a “state agency,” was subject to Arizona’s Administrative Procedures Act, and that its decision to retain third-party bill review vendor, Qmedtrix, constituted a “rule” that was impermissibly promulgated by SCF. In pre-trial briefings, that theory was rejected in May 2005 by the Honorable J. Richard Gama. This ruling was upheld by the September 16, 2010 Opinion of the Court of Appeals.

Next, the Surgery Center Plaintiffs continued to seek to recover their full-billed charges from SCF under certain contractual and statutory theories and based on bad faith. Again, during pre-trial briefings, the Honorable Timothy J. Ryan rejected those theories for failure to state a claim in January 2006. The Surgery Centers elected not to appeal Judge Ryan’s ruling with respect to the bad faith claim. The appellate court confirmed Judge Ryan’s rulings on the contractual and statutory claims.

In July 2008, a three-week trial ensued before the Honorable Edward O. Burke. The case was tried by Sanders & Parks attorneys Mark Worischeck and Debora Verdier on the remaining counts wherein the Surgery Centers sought payment of their full-billed charges on claims of negligent misrepresentation and unjust enrichment. With respect to the payment of the Surgery Centers’ full-billed charges, the trial court concluded that SCF had already paid the Surgery Centers “the reasonable value of their services, if not more.”

At the close of Plaintiffs’ evidence, Judge Burke granted SCF’s motion for judgment on the pleadings and rejected the Surgery Centers’ negligent misrepresentation claims. The appellate court confirmed these conclusions, along with the other pre-trial decisions rendered by the superior court.

In November 2008, Judge Burke rendered his decision on the sole remaining claim for unjust enrichment finding that the plaintiffs were entitled to no more than the reasonable value of their services. He also found that SCF’s payments, which were based on recommendations from third-party bill reviewer, Qmedtrix, represented the reasonable value for their services “if not more.” The appellate court affirmed Judge Burke’s conclusion. The Arizona Supreme Court has now declined to review the published decision.

In the opinion, the appellate court held that the surgery centers “were required to prove SCF paid less than a reasonable amount for their services, in which case they could recover the difference under a theory of quantum meruit or unjust enrichment.” Canyon Ambulatory Surgery Ctr. v. SCF Arizona, 225 Ariz. 414, 422, ¶ 29, 239 P.3d 733, 741 (App. 2010). The appellate court confirmed that the plaintiffs may measure the reasonable value of their services either by demonstrating “the fair market value of their services” or “the actual cost to them to provide the services, plus a reasonable rate of return.” Id. Ms. Verdier stated: “With the supreme court’s decision to deny review, this now holds as the standard for cases like this.”

In reviewing Judge Burke’s conclusions, the appellate court affirmed the trial court’s reliance on the undisputed evidence that Canyon accepts 30% or less from 82% of its payors and El Dorado accepts less than 24% from 89% of its payors. Id. at 423, ¶ 31, 239 P.3d at 742. Stated differently, Canyon accepts less than 30 cents on the dollar from most of its customers and El Dorado accepts less than 24 cents on the dollar from most. The appellate court affirmed the trial court’s conclusion that “the payments made by SCF, which exceeded 40% of the billed charges, were reasonable under the circumstances.” Id. at 423-424, ¶¶ 31, 34, 239 P.3d at 742-743.

Ms. Verdier, who argued the appeal on behalf of SCF, stated that “reasonableness has prevailed.” The Appellate Court rejected the Surgery Centers’ arguments at oral argument that their charges need not be subject to a review for reasonableness unless and until they are found to be “unconscionable.” Ms. Verdier argued that requiring a bill be “unconscionable” before it is required that it be “reasonable” is a preposterous notion and is pleased the appellate court rejected this notion in a published opinion.

The impact of the opinion reaches far beyond the $4.69M in dispute in the Canyon case. The parties had stipulated to try only those claims that were presented between March 31, 2003 and March 31, 2007. For those stipulated claims, SCF had paid $3.59M and the plaintiff surgery centers were seeking an additional $4.69M. By law, SCF is not permitted to direct injured workers away from certain facilities. Thus, despite this litigation, these two Surgery Centers have continued to treat SCF claimants, thereby increasing what they allege to be their “damages.”

Thus, the case has far reaching import beyond just the claims tried in July 2008. Indeed, the ruling has an impact even beyond the claims presented by these two non-contracted facilities. During the oral argument in the court of appeals, counsel for the Surgery Centers confirmed that there are facilities all over Arizona that are not subject to a fee schedule and that do not have contracts with workers’ compensation carriers that are watching this case. With its ruling, the appellate court has confirmed SCF’s right to subject its bills from non-contracted, non-fee scheduled providers to a reasonableness review. The savings to Arizona’s employers who must pay for workers’ compensation insurance as a result of this ruling are significant.

Mr. Worischeck commented: “The court’s ruling strikes a blow to health care providers who seek to impose their unreasonable charges on Arizona‘s employers.”