Paradigm Catastrophic Care Management offers what insurers crave: certainty in medical costs for workers compensation claims filed by catastrophically injured workers.

For a set fee, the California company’s Catastrophic Care Management division will take over liability for all treatment costs from catastrophic medical claims that meet its criteria. Paradigm makes it profit by holding costs below what the insurer pays.

Paradigm’s Outcomes program hasn’t been a controversy since the product’s launch nearly three decades ago. But a lawsuit that reached the Texas Court of Appeals points to a potential issue with the company’s business plan if insurers aren’t careful about how they pursue subrogation claims.

The 12th District Court of Appeals in Tyler on June 12 dismissed a lawsuit that accused Old Republic Risk Management of filing a fraudulent subrogation lien by seeking to recover the fee it paid to Paradigm. The court referred the case to the Texas Division of Workers Compensation to resolve the allegation.

The insurer won that battle, but now the fraud allegation goes to the DWC. Moreover, the appellate court’s opinion includes a statement that should give pause to any carrier that wants to recover through subrogation the full cost of Paradigm’s fee or any other medical management fees.

The court said the Workers Compensation Act allows carriers to recover only medical, income, death or burial benefits paid for a compensable injury. The court said “… a carrier violates the Act’s provisions if it seeks subrogation for amounts that do not qualify as benefits.”

Attorney Gary Wickert, a specialist in national subrogation policy, noted the 13th District’s ruling and a separate decision by a federal district court in Illinois in a viewpoint column posted by the Claims Journal July 22. He said those cases should serve as a warning that carriers need to know exactly how each state defines benefits when preparing subrogation claims.

“Trial lawyers are waking up to the inadvertent practice of including in their lien nurse case management fees, bill review audit fees, Paradigm payments, and other payments which could arguably not be recoverable,” Wickert said.

In a telephone interview, Wickert said he is surprised that state regulators haven’t been more involved in Paradigm’s contractual relationships with insurance carriers. He said insurers, in essence, are paying Paradigm to hold costs to a fixed amount. “I think the incentives are all wrong,” he said.

“I’m surprised they let the carrier abdicate like this,” Wickert said. “I represent insurance companies, so I’m not usually waving the flag for the applicants, but I find this a little weird.”

Kevin Turner, chief executive officer of Paradigm’s Catastrophic Care Management division, said insurers trust the company’s Outcomes program because they know it gets results. He said Paradigm uses a network of specialists to deliver expert care to injured workers. He said it’s able to hold costs down through contractual arrangements with providers and facilities. It also has 29 years of data on highly-specialized care that has been collecting since its inception.

“When someone suffers a catastrophic injury, we provide the best quality care and outcome that is possible,” he said.

Turner said the company accepts only about 800 claims a year and tightly focuses on injuries that fall within its expertise — specifically brain and spinal cord injuries, multiple trauma, burns and amputations. He said the company has intimate relationships with its patients, 20% of whom die from their injuries. Turner said he knows of no other company with a similar business model.

Turner said Paradigm is aware that its clients may not be able to recover through subrogation the entire amount of the fees they pay. He said the company provides clients an accounting of all paid medical costs, which generally are reimbursable.

“They may not be able to recoup all their costs, depending on the jurisdiction where the case is,” he said.

The Division of Workers Compensation will decide what part of Paradigm’s fees are compensable under Texas law in the case referred to it by the 12th District Court of Appeals. The corollary question to the DWC will be whether Old Republic committed sanctionable fraud when it filed a subrogation lien for the $5,592,458.38 fee that it paid to Paradigm to take over medical care for injured worker Jimmy Williams, when the actual medical costs amounted to only $2,259,378.58.

The dispute arose after an April 2014 fire, followed by an explosion, in the sander dust collection system at the Georgia Pacific Wood Products South plywood mill in Corrigan, Texas. Employee Kenneth Morris was killed. Williams and several other workers were badly burned.

The employer accepted the claims and filed a third-party personal injury lawsuit against parties involved in the design, installation and inspection of the equipment thought to have caused the explosion. Old Republic, which insured Georgia Pacific, filed a subrogation lien to recover the cost of William’s claim.

It remains to be seen whether the Division of Workers Compensation will allow the full amount of the subrogation lien, or whether Old Republic violated the Workers Compensation Act by seeking recovery. A spokeswoman for the agency refused to comment on whether the plaintiffs had yet filed a dispute, whether a hearing had been set, or whether the agency has any policy on what can be included in subrogation liens.

“Due to confidentiality of claims under Texas Labor Code 402.083 we cannot disclose any information relating to a specific claim, which would include information on dispute proceedings,” Public Information Officer Kate Sidora said in an email.

*This story ran previously in our sister publication Claims Journal.

Topics Carriers Texas Claims Workers' Compensation