Use of State Workers’ Compensation Fund to Pay MCOs’ Fees Unconstitutional

Use of State Workers’ Compensation Fund to Pay MCOs’ Fees Unconstitutional

Posted: March, 2000; Updated: July, 2001

Northwestern Ohio Building and Const. Trades Council v. Conrad (1/27/00), Franklin No. 98AP-1287.

NOTE: In July, 2001, the Ohio Supreme Court reversed this decision.

Issue: Is the MCO system constitutional?

Background: The Northwestern Ohio Building. and Construction Trades Council (NOB&CTC) filed a declaratory judgment suit claiming that R.C. 4121.44, 4121.441, 4121.442 and 4121.443 violate Art. II Section 35 of the Ohio Constitution.

NOB&CTC is an employer for purposes of workers’ compensation and pays premium to the state fund. Under rules issued by the BWC, each state fund employer must select an MCO or the BWC will appoint an MCO. The BWC pays a fee to the MCOs for medical management and administrative services. In addition, the MCO may be paid a performance incentive. The payments are made from employer premium payments.

The suit essentially challenged (1) the Health Partnership MCO process and (2) the use of premium contributions paid to the state insurance fund to pay fees to private managed care organizations.

Common Pleas granted summary judgment against NOB&CTC.

Decision: Court of Appeals affirms in part and reverses in part.

On the basis of the Ohio Supreme Court decision in State, ex rel. Haylett v. Ohio Bureau of Workers’ Comp. (1999), 87 Ohio St.3d 325, it determines that the MCO program does not improperly delegate to a private entity in violation of Art. II Section 35. The Court of Appeals affirms summary judgment on this issue.

However, the Court of Appeals reverses on the issue of the use of premiums to pay private entities.

In Corrugated Container v. Dickerson (1960), 17 Ohio St. 289, a challenge was made to transferring money from the state fund to the state general revenue fund to reimburse the state of Ohio for the Industrial Commission’s administrative costs. The Ohio Supreme Court ruled the state could not use money from the state fund to reimburse the state for administrative costs.

In the present case, MCOs are paid a set percentage of the employers’ state insurance fund premiums for administrative costs. The statutes do not authorize such use of the money from the state insurance fund.

The Court rules that payment of funds from the state insurance fund in the form of administrative fees and performance incentives violates Art. II, Section 35. The money can only be spent for purposes spelled out in Art. II, Section 35 (compensating injured workers and their dependents for injuries and illness arising out of their employment.)

Information courtesy of the Ohio Workers’ Compensation Bulletin. Subscribe to the Ohio Workers’ Compensation Bulletin to keep informed about the Ohio workers’ compensation system.