Will UR Proceedings be Protected Under the California Anti-SLAPP Statute?

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Electronic Waveform Lab, Inc. (EWL) manufactures the H-Wave electronic nerve stimulator, used for rehabbing muscle and tissue injuries. The H-Wave has been a popular option for professional football, basketball, and baseball teams, and for several years, EWL has advocated for its use in workers’ compensation. To date, neither California Medical Treatment Utilization Schedule (MTUS) nor Official Disability Guidelines (ODG) have recommended it as an isolated intervention. The H-Wave can be used on a case-by-case basis, but the Division of Workers’ Comp Medical Director has a generally negative view on its use.

EK Health Services provides UR for State Compensation Insurance Fund (SCIF). EK Health, via its individual UR doctors, has refused to grant approval for the use of H-Wave stimulators in workers’ compensation claims. In fact, EK Health physician advisors allegedly had a blanket policy to deny requests for the use of H-Wave stimulators on injured workers.

As a result of the denials, EWL filed a lawsuit in Los Angeles Superior Court in 2011, alleging; (1) violation of the Cartwright Act – the California law that prohibits agreements among competitors to fix prices and restrain free trade; (2) intentional interference with prospective economic advantage; and (3) defamation/trade libel. EWL’s principal argument was that SCIF (because of its market share) acted as a monopolistic gatekeeper to a significant market share of injured workers.

EK Health filed a motion to dismiss the entire lawsuit under the Civil Code Section 425.16, or “anti-SLAPP” statute, which allows a defendant to bring a motion to dismiss a plaintiff’s case if the following two conditions are met: (1) the defendant’s conduct must arise from protected speech that is “an official proceeding protected by law;” and (2) the plaintiff’s case is weak (i.e. plaintiff cannot demonstrate that he or she will likely prevail at trial). If the two prongs are met, the lawsuit must be dismissed, and the defendant will be entitled to recover attorney’s fees and costs. The original purpose of the anti-SLAPP statute was to give public entities a quick way to dismiss and deter “shakedown” lawsuits. Those lawsuits, even though they typically have little merit, are often expensive to defend and costly to taxpayers.

At the hearing on the anti-SLAPP motion, EK Health argued that the administrative actions of UR were “official proceedings protected by law,” thereby satisfying the first prong of the “anti-SLAPP” statute. They compared that to hospital URs that are required to report to a governing body, which under Kibler v. Northern Inyo County (2006) 39 Cal.4th 192 have been deemed “official proceeding protected by law.”

EWL countered that the UR process is not “official proceedings protected by law” but rather a claims adjustment process.

Superior Court Judge Michael Stern found that the first prong of the anti-SLAPP statute was met. Workers’ compensation UR was “an official proceeding protected by law.” However, the second prong was not satisfied in that EWL did demonstrate a likelihood it would prevail at trial. Its main piece of evidence was a 2006 memo by former SCIF Medical Director Gideon Letz that stated, “The more expensive interferential and ‘H-Wave’ units will not be authorized.” Therefore, Judge Stern denied EK Health’s anti-SLAPP motion. EK Health appealed.

The Court of Appeal initially handled the first prong of the anti-SLAPP test. It opined that while workers’ compensation UR has elements that are similar to hospital URs, especially as workers’ compensation UR is mandated by Labor Code Sec. 4610, it did not rise to the level of speech that was “an official proceeding protected by law.” The Court of Appeal said, “UR is medical rather than legal and informal rather than formal.” Because the Court of Appeal found that the first prong of the anti-SLAPP test was not satisfied, it did not need to consider the second prong.

What’s Next and Why WC Carriers Care About This Case

EK Health and SCIF have appealed to the California Supreme Court. Because workers’ compensation UR is mandated by Labor Code Sec. 4610, and has similar reporting and auditing requirements as hospital UR, EK Health and SCIF have a reasonable chance of prevailing before the California Supreme Court on the first prong of the test.

This is because the workers’ compensation insurance industry wants UR to be “an official proceeding protected by law.” That way, when they are sued, they have the first prong of the anti-SLAPP test already covered. In other words, if the California Supreme Court reverses the Court of Appeal on the first prong of the test, then carriers can cite to that in future litigation. This will benefit them significantly as most “shakedown” lawsuits are weak—there typically aren’t memos like the one by former SCIF medical director Gideon Letz stating that the H-Wave units would not be authorized.

If the case is weak, the second prong is met and the plaintiff’s lawsuit is struck, the workers’ comp insurance carrier defendant will be awarded reasonable attorney’s fees and costs. This will cause future plaintiffs to think carefully before filing lawsuits against insurance carriers. They will know that unless their case has real merit, they risk an anti-SLAPP motion and may be liable for the carrier’s attorney’s fees and costs.

Tom Swiatek

As Assistant Vice President of Regulatory Services and General Counsel, Tom Swiatek draws on his experience as an insurance attorney on both the general liability side, as well as on workers’ compensation matters. As a Workers’ Compensation Section Member, Tom is leading the discussion with respect to the regulatory challenges and opportunities facing the workers’ compensation system.