Northwestern Ohio Bldg. & Constr. Trades Council v. Conrad

[This decision has been published in Ohio Official Reports at 92 Ohio St.3d 282.]

NORTHWESTERN OHIO BUILDING & CONSTRUCTION TRADES COUNCIL ET AL.,

APPELLEES, v. CONRAD, ADMR., BUREAU OF WORKERS’ COMPENSATION ET

AL., APPELLANTS.

[Cite as Northwestern Ohio Bldg. & Constr. Trades Council v. Conrad,

2001-Ohio-190.]

Workers’ compensation—Use of premium contributions from the State Insurance

Fund for payment of administrative and performance incentive fees to

managed care organizations certified by the Bureau of Workers’

Compensation does not violate Section 35, Article II of the Ohio

Constitution.

(No. 00-216—Submitted January 10, 2001—Decided July 18, 2001.)

APPEAL from the Court of Appeals for Franklin County, No. 98AP-1287.

__________________

SYLLABUS OF THE COURT

The use of premium contributions from the State Insurance Fund for the payment

of administrative and performance incentive fees under Ohio Adm.Code

4123-6-13 to managed care organizations certified by the Bureau of

Workers’ Compensation under the Health Partnership Program does not

violate Section 35, Article II of the Ohio Constitution.

__________________

COOK, J.

{¶ 1} In 1993, the General Assembly amended Ohio’s workers’

compensation scheme to create the Health Partnership Program (“HPP”), a

comprehensive managed care program administered by appellant, the Bureau of

Workers’ Compensation (“BWC”), to provide medical services to employees for

their compensable injuries or occupational diseases. See 145 Ohio Laws, Part II,

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2990, 3088-3093; R.C. 4121.44 and 4121.441. We have already determined that

the managed care organizations (“MCOs”) certified to perform these services under

the HPP do not unconstitutionally usurp the state’s power and authority to

administer the State Insurance Fund (“SIF”) and determine the terms and conditions

of payments to injured claimants. State ex rel. Haylett v. Ohio Bur. of Workers’

Comp. (1999), 87 Ohio St.3d 325, 331, 720 N.E.2d 901, 906.

{¶ 2} Now we are asked to decide whether the BWC’s use of SIF proceeds

to pay administrative and performance-incentive fees to certified MCOs under the

HPP violates either the Revised Code or Section 35, Article II of the Ohio

Constitution. The court of appeals determined that the BWC’s use of fund proceeds

for administrative and performance incentive payments is neither legislatively

authorized nor constitutional. For the following reasons, however, we disagree.

I. MCOs and the HPP

{¶ 3} As we noted in Haylett, supra, MCOs are an integral part of the HPP

established by the General Assembly. Id., 87 Ohio St.3d at 326, 720 N.E.2d at 903.

The MCOs certified by the BWC under Ohio Adm.Code Chapter 4123-6 are private

entities that perform medical-management and cost-containment services under

contract with the BWC. Id. Employers covered by the SIF select an MCO from a

list of BWC-certified MCOs, or the BWC will assign an MCO to employers who

fail to make a selection. Ohio Adm.Code 4123-6-051(A); 4123-6-052(A). Each

MCO is associated with a network of health-care providers that can offer a full

range of medical services to injured workers. Id.

{¶ 4} Once certified by the BWC and selected by or assigned to an

employer, MCOs manage the medical aspect of each workers’ compensation claim.

Ohio Adm.Code 4123-6-043(B) and (F); Haylett, 87 Ohio St.3d at 329, 720 N.E.2d

at 905. An MCO is the entity responsible for initially authorizing medical care to

an injured party. Ohio Adm.Code 4123-6-043(F); 4123-6-045(D). “The MCO

must promptly notify the BWC of an employee’s industrial injury. While the BWC

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determines the compensability of a claim, the MCO works ‘in conjunction with the

employer, employee, attending physician, and the [BWC to] seek a course of

medical or rehabilitative treatment that promotes a safe return to work.’ “ Haylett,

87 Ohio St.3d at 329, 720 N.E.2d at 905, citing Ohio Adm.Code 4123-6-043(B).

“During the life of a medical claim, the MCO performs utilization reviews * * *.

Utilization reviews ensure that only medical services and supplies that are

medically necessary for the diagnosis and treatment of allowed conditions and that

are causally related to those conditions will be considered for payment. The MCO

must submit all medical bills to the BWC. * * * The BWC then authorizes

payment and sends it to the MCO for reimbursement to the individual provider.”

(Citation omitted.) Id.

{¶ 5} The HPP also contains a mandatory dispute resolution program

available to employees, employers, and providers. Id., citing Ohio Adm.Code

4123-6-16. “Any decision by an MCO regarding treatment or payment is

nonbinding and subject to multiple levels of review. The final decision as to any

aspect of the claim lies with the Industrial Commission.” Id. at 330, 720 N.E.2d at

905. In addition to these procedural safeguards, the HPP requires the BWC to

supervise the certified MCOs and to monitor their performance continually. Id.

II. Administrative and Performance Incentive Payments to MCOs

{¶ 6} To compensate the MCOs for their medical-management and cost-

containment services, the administrator promulgated a rule providing for certain

payments to be made to the MCOs. The source of the payments made to MCOs by

the BWC under this administrative rule is the focus of the instant dispute.

{¶ 7} Ohio Adm.Code 4123-6-13 provides:

“(B) The bureau shall pay an MCO an administrative fee for its medical

management and administrative services in a manner determined by the

administrator. The administrative fee may be subject to a disincentive penalty

based upon the failure of the MCO to meet predetermined performance criteria set

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forth in the MCO contract. The bureau may pay an MCO a performance payment

and may pay an incentive payment.

“(C) In establishing performance measures, the bureau shall evaluate an

MCO’s performance based upon but not limited to:

“(1) Quality performance measures that may include return to work rates

and reinjury rates.

“(2) Total cost measures that may include average total paid cost, average

incurred cost, and lost-time claims to total claims ratio.

“(3) Change in cost measures that may include change in average total paid

cost, change in average incurred cost, and change in lost-time to total claims ratio.

“(4) Customer satisfaction that may include in-network utilization rate and

employee, employer, and provider satisfaction surveys.”

{¶ 8} The parties here stipulate that both the administrative and

performance-incentive payments authorized by Ohio Adm.Code 4123-6-13 are

paid out of employer premium contributions, “with the total remuneration available

to each [MCO] being a fixed percentage of the premiums paid by the employers

which have selected or been assigned to it.” The parties further stipulate that “[t]he

total percentage of premium allocated for payment of fees and performance

incentive payments is not fixed by rule, but is established by the BWC or the

Administrator and may be periodically adjusted.”

{¶ 9} Douglas Maser, the BWC’s Chief Medical Management and Cost

Containment Officer in 1997, testified at a deposition about how the administrative

and performance-incentive fees provided under Ohio Adm.Code 4123-6-13 are

calculated. Maser testified that at the time of his deposition, the “base

administrative fee” was set at three percent. Accordingly, a hypothetical MCO with

one hundred employers enrolled in it would receive a base administrative fee from

the SIF equal to three percent of the premiums paid by those one hundred

employers. As of January 1, 1998, the phase-in of the HPP was complete and the

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January Term, 2001

base administrative fee for each participating MCO was increased to five percent

of premium.

{¶ 10} The performance-incentive payments, Maser testified, are payable to

an MCO “over and above its administrative fee” and calculated on an “MCO-by-

MCO” basis. At the time of Maser’s deposition, a total of an additional three

percent of premium—over and above the three percent administrative fee—was

potentially available to MCOs in incentive payments keyed to specific quality-

control objectives. Of this additional three percent of premium, one percent would

be paid to those MCOs that achieved a certain level of data accuracy and “reduce[d]

the lag time” between claimants’ injuries and the MCO’s report of those claims to

the BWC. One percent of premium would be paid to those MCOs that participated

in Phase 2 of the HPP implementation program by picking up additional claims.

Finally, one percent of premium would be paid to those MCOs participating in

Phase 3 of the implementation program. As of January 1, 1998, when the base

administrative fee was increased to five percent, each MCO could qualify for only

an additional one percent of premium in performance-incentive payments.

{¶ 11} As a result, an MCO that participated in all phases of the HPP

implementation program and successfully achieved all of the BWC’s quality-

control objectives could earn administrative fees and performance-incentive

payments totalling six percent of premium, to be paid from the SIF. The parties

here do not dispute how the administrative fees and performance incentive

payments are calculated in practice; rather, their appeal here centers on whether the

use of SIF monies for these purposes is permissible at all.

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III. This Declaratory Judgment Action

{¶ 12} Appellees, Northwestern Ohio Building & Construction Trades

Council and International Brotherhood of Electrical Workers, Local Union No. 8

(collectively, “Northwestern”), filed the instant action in June 1997, challenging

several aspects of the HPP. In its complaint, Northwestern sought two declarations

from the trial court. First, Northwestern sought a declaration that the HPP statutes

and rules unconstitutionally delegate essential aspects of the administration of the

SIF to private entities—including the determination of the terms and conditions

upon which payments shall be made from the SIF. Second, Northwestern sought a

declaration that Ohio Adm.Code 4123-6-13, to the extent that it authorizes the use

of the SIF for administrative and performance-incentive payments, was

promulgated without statutory authority and violates Section 35, Article II of the

Ohio Constitution and R.C. 4123.30.

{¶ 13} The parties eventually filed competing motions for summary

judgment. In a Decision and Entry filed September 9, 1998, the Franklin County

Common Pleas Court sustained the BWC’s motion for summary judgment. The

trial court determined that “the HPP statutory provisions do not unconstitutionally

delegate authority and responsibility over the SIF,” and that “the use of the SIF for

HPP purposes is constitutional.”

{¶ 14} Northwestern appealed to the Tenth District Court of Appeals,

assigning as error the trial court’s resolution of the same two claims raised in its

complaint. The court of appeals overruled Northwestern’s first assignment of error

on the authority of this court’s decision in Haylett, 87 Ohio St.3d 325, 720 N.E.2d

901, noting that we had already determined that the HPP “does not constitute an

improper delegation of authority to a private entity.”

{¶ 15} In its second assignment of error, Northwestern contended that the

use of SIF proceeds for the payment of administrative and performance-incentive

fees under Ohio Adm.Code 4123-6-13 would contravene this court’s holdings in

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January Term, 2001

Corrugated Container Co. v. Dickerson (1960), 171 Ohio St. 289, 13 O.O.2d 337,

170 N.E.2d 255, and Thompson v. Indus. Comm. (1982), 1 Ohio St.3d 244, 1 OBR

265, 438 N.E.2d 1167. The court of appeals agreed, reversed the trial court’s

decision, and remanded the cause for an entry of summary judgment in favor of

Northwestern. Construing Corrugated Container and Thompson, the court of

appeals determined that the payment of SIF proceeds to MCOs as administrative

fees and performance incentives violated Section 35, Article II of the Ohio

Constitution, and that the Bureau lacked legislative authority to authorize these

payments from the SIF in the first place. The bureau appealed, and the cause is

now before this court upon the allowance of a discretionary appeal.

IV. Analysis

{¶ 16} We shall address the BWC’s propositions of law in reverse order

because we should determine the validity of the administrative rule, as well as the

BWC’s interpretation of that rule, before we address any constitutional arguments

related to the payments that the BWC has elected to make under the rule. If we

were to agree with the court of appeals that the BWC lacked legislative authority

to make these payments from the fund in the first instance, then we should decline

to pass on any constitutional question implicated by those payments. See

Norandex, Inc. v. Limbach (1994), 69 Ohio St.3d 26, 28, 630 N.E.2d 329, 331; Hal

Artz Lincoln-Mercury, Inc. v. Ford Motor Co. (1986), 28 Ohio St.3d 20, 28, 28

OBR 83, 90, 502 N.E.2d 590, 597, fn. 17.

A. The Promulgation of Ohio Adm.Code 4123-6-13

{¶ 17} The General Assembly has delegated broad rulemaking authority to

the administrator of workers’ compensation. See, e.g., R.C. 4121.121 and

4121.441. R.C. 4121.121 expressly permits the administrator to “[e]stablish the

overall administrative policy of the bureau,” R.C. 4121.121(B)(1), to “[e]nsure, by

rules, the impartial and prompt treatment of all claims,” R.C. 4121.121(B)(13), and

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to “[p]repare and submit * * * recommendations, in the form of administrative

rules, * * * for the health partnership program,” R.C. 4121.121(B)(21).

{¶ 18} When the General Assembly enacted the HPP, it vested additional

rulemaking authority in the administrator of workers’ compensation tailored to the

specific goals of that comprehensive program. See R.C. 4121.441(A). R.C.

4121.441(A) directs the administrator to “adopt rules * * * for the [HPP]

administered by the [BWC] to provide medical, surgical, nursing, drug, hospital,

and rehabilitation services and supplies to an employee.”

{¶ 19} To guide the administrator’s efforts in promulgating rules for

administering the HPP, the General Assembly enumerated twelve nonexhaustive

categories of rules that it deemed necessary for the effective implementation of the

program. See R.C. 4121.441(A)(1) to (A)(12). One of these twelve subdivisions

directs the administrator to adopt rules providing for “[a]ppropriate financial

incentives to reduce service cost and insure proper system utilization without

sacrificing the quality of service.” (Emphasis added.) R.C. 4121.441(A)(4).

Another directs the administrator to adopt rules ensuring “[a]dequate methods of

peer review, utilization review, quality assurance, and dispute resolution.”

(Emphasis added.) R.C. 4121.441(A)(5).

{¶ 20} Ohio Adm.Code 4123-6-13(B) provides that MCOs shall be

compensated for their “medical management and administrative services” based on

“performance criteria” keyed to proper system utilization. Accordingly, it

represents exactly the sort of administrative rule contemplated by the enabling

language in R.C. 4121.441. In order to implement the HPP effectively, which it is

statutorily required to do under R.C. 4121.441(B), the BWC must have the ability

to promulgate, interpret, and enforce rules providing for performance-based

compensation of those “integral” entities that perform the medical-management

services called for under the program—the MCOs. See Haylett, 87 Ohio St.3d at

326, 720 N.E.2d at 903.

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January Term, 2001

B. The BWC’s Reasonable Interpretation of Ohio Adm.Code 4123-6-13 and the

Workers’ Compensation Statutory Scheme

{¶ 21} As Northwestern correctly notes, neither R.C. 4121.441 nor Ohio

Adm.Code 4123-6-13 specifies the source of the administrative and performance-

incentive payments to be made under the rule. For the following reasons, however,

we conclude that the BWC reasonably interpreted the statutory scheme when it

decided to utilize SIF proceeds for these purposes.

{¶ 22} It is axiomatic that if a statute provides the authority for an

administrative agency to perform a specified act, but does not provide the details

by which the act should be performed, the agency is to perform the act in a

reasonable manner based upon a reasonable construction of the statutory scheme.

See Swallow v. Indus. Comm. (1988), 36 Ohio St.3d 55, 57, 521 N.E.2d 778, 779.

A court must give due deference to the agency’s reasonable interpretation of the

legislative scheme. Id. See, also, Chevron U.S.A., Inc. v. Natural Resources

Defense Council, Inc. (1984), 467 U.S. 837, 843, 104 S.Ct. 2778, 2782, 81 L.Ed.2d

694, 703 (“if the statute is silent or ambiguous with respect to the specific issue, the

question for the court is whether the agency’s answer is based on a permissible

construction of the statute”).

{¶ 23} In Swallow, a workers’ compensation claimant awarded permanent

partial and permanent total disability benefits for the loss of use of both arms and

legs requested that his permanent partial benefits be paid concurrently rather than

consecutively. The statute at issue did not specify whether payments were to be

made concurrently or consecutively. Even so, this court unanimously concluded

that “the commission had a reasonable basis upon which to formulate a policy

premised on the rationale that claimants are generally placed in a better position by

receiving payments consecutively rather than concurrently. It was within the

administrative purview of the commission to determine that appellant would be put

in a better position by receiving eight hundred-fifty weeks of payments

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consecutively rather than two two-hundred weeks of payments for loss of each leg

and two two-hundred twenty-five weeks of payments for loss of each arm

concurrently.” Id. at 57, 521 N.E.2d at 780.

{¶ 24} We recognize that an agency can, at times, overstep the bounds of

its statutorily delegated authority when interpreting and enforcing its administrative

rules. In a recent case, the United States Supreme Court decided that the Army

Corps of Engineers could not interpret and enforce its own “Migratory Bird Rule”

so broadly as to provide the Corps with regulatory jurisdiction over ponds in

abandoned gravel pits used as habitats by migratory birds, when the Clean Water

Act authorized the Corps to regulate discharges only into “navigable waters.” Solid

Waste Agency of N. Cook Cty. v. United States Army Corps of Engineers (2001),

531 U.S. 159, 121 S.Ct. 675, 148 L.Ed.2d 576. In Cook Cty., the majority decided

that, in order to accept the Corps’s broad interpretation of its own jurisdiction, the

court would have to pretend that the word “navigable” contained in the enabling

statute had “no effect whatever.” Id. at ___, 121 S.Ct. at 683, 148 L.Ed.2d at 587-

589. See, also, Riley Family Trust v. Hood (Colo.App.1994), 874 P.2d 503

(deciding that Department of Labor and Employment rule could not be interpreted

to preclude payment for massage therapy prescribed by treating physician, when

enabling statute authorized director to establish a fee schedule but did not grant

authority to restrict treatment so long as the treatment was reasonable and

necessary).

{¶ 25} In the present case, the General Assembly has not specified the

source from which the BWC is to draw the funds necessary for the administrative

and performance-incentive payments to be made to MCOs. The court of appeals

found this legislative “gap” to be fatal, writing, “R.C. 4121.441(A)(4) is ambiguous

in that it does not specifically authorize that these payments be made from SIF.

Lacking any clear legislative authorization, appellees were without the authority to

authorize these payments from SIF.” (Emphasis added.)

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January Term, 2001

{¶ 26} Unlike the court of appeals, we do not find the legislative gap

equivalent to a lack of authority for the agency to act. As the United States Supreme

Court has noted, “[t]he power of an administrative agency to administer a * * *

program necessarily requires the formulation of policy and the making of rules to

fill any gap left, implicitly or explicitly,” by the legislature. (Emphasis added.)

Morton v. Ruiz (1974), 415 U.S. 199, 231, 94 S.Ct. 1055, 1072, 39 L.Ed.2d 270,

292. Our own Swallow case implicitly recognized that no set of statutes and

administrative rules will answer each and every administrative concern. Id., 36

Ohio St.3d 55, 521 N.E.2d 778. When agencies promulgate and interpret rules to

fill these gaps, as they must often do in order to function, “courts * * * must give

due deference to an administrative interpretation formulated by an agency that has

accumulated substantial expertise, and to which the General Assembly has

delegated the responsibility of implementing the legislative command.” Id. at 57,

521 N.E.2d at 779. We accord due deference to the BWC’s interpretation, so long

as it is reasonable. See State ex rel. McLean v. Indus. Comm. (1986), 25 Ohio St.3d

90, 92, 25 OBR 141, 143, 495 N.E.2d 370, 372 (holding that commission did not

abuse discretion in awarding compensation for loss of foot even though claimant

suffered amputation five inches below the knee).

{¶ 27} We find that the BWC acted reasonably when it authorized the use

of fund proceeds for the payments to MCOs provided under Ohio Adm.Code 4123-

6-13. No provision of the workers’ compensation scheme expressly prohibits this

use, at least one provision of the scheme impliedly permits it, and both the General

Assembly and this court have expressly permitted fund proceeds to be used for

similar purposes in the past.

{¶ 28} Northwestern contends that the BWC’s interpretation of its

administrative rule cannot be a reasonable one because, in its view, R.C. 4123.30

“expressly prohibits the expenditure of premiums contributed to the state insurance

fund for purposes other than the payment of compensation and benefits for loss

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sustained on account of injury, disease or death compensable under the workers’

compensation act.” The court of appeals likewise determined that though R.C.

4123.30 lists various permissible uses of SIF proceeds, no provision of that statute

expressly authorizes the use of fund proceeds as the BWC seeks to apply them

under Ohio Adm.Code 4123-6-13. The appellate panel concluded that R.C.

4123.30 ensures that fund proceeds are “limited to compensating injured workers

and their dependents for injuries and illness arising out of their employment.” As

we have done before, we decline to adopt these narrow interpretations of the fund’s

permitted applications. See Thompson, 1 Ohio St.3d at 248, 1 OBR at 268-269,

438 N.E.2d at 1170 (expressly declining to adopt a “narrow” or “cramped”

interpretation of the fund’s constitutionally permissible uses).

{¶ 29} R.C. 4123.30 provides that money from the SIF may be applied to

“the payment of compensation, medical services, examinations, recommendations

and determinations, nursing and hospital services, medicine, rehabilitation, death

benefits, funeral expenses, and like benefits for loss sustained on account of injury,

disease, or death provided for by this chapter, and for no other purpose.”

(Emphasis added.) In dicta, this court has previously stated that “[t]here is no

provision for payment of administrative costs” from the fund under this statute.

Corrugated Container, 171 Ohio St. at 291, 13 O.O.2d at 338, 170 N.E.2d at 256.

{¶ 30} Northwestern seizes on Corrugated Container’s dicta, the restrictive

statutory language italicized above, and Ohio Adm.Code 4123-6-13’s

characterization of some of the payments to be made thereunder as “administrative”

to contend that R.C. 4123.30 prohibits the BWC from making the rule’s payments

from the SIF. Superficially, Northwestern’s position has merit. As Northwestern

correctly notes, “the workers’ compensation statutes have historically provided for

a separate and distinct assessment for administrative costs.” See R.C. 4123.341.

Moreover, R.C. 4123.30 expressly enumerates a list of permissible uses of the SIF,

this court has previously stated (in Corrugated Container) that administrative costs

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January Term, 2001

are not among those enumerated uses, and R.C. 4123.30 expressly provides that the

SIF is to be used for “no other purpose.” Despite these valid observations, several

factors suggest that the BWC has reasonably interpreted Ohio Adm.Code 4123-6-

13 to allow the rule’s payments to be made from the SIF.

{¶ 31} First, though Ohio Adm.Code 4123-6-13(B) provides for payment

of an “administrative fee,” this fee is expressly intended to compensate the MCOs

for the “medical management * * * services” that they provide. (Emphasis added.)

Id. The medical-management and cost-containment services performed by MCOs

under the HPP differ from “the duties and * * * activities of * * * the bureau” for

which an administrative cost and expense assessment is made under R.C. 4123.341.

Compare R.C. 4121.44 and 4121.441 (outlining duties of MCOs under the HPP)

with R.C. 4121.121 (outlining duties of the bureau and administrator).

{¶ 32} Further, R.C. 4123.30 expressly permits the SIF to be applied to

“medical services, examinations, recommendations and determinations.” As the

BWC notes in its merit brief, “HPP administrative and performance and incentive

payments are provided to MCOs for [their] medical recommendations. Each MCO

has developed treatment guidelines. These guidelines guide MCOs and their

providers in developing treatment plans for individual injured workers and * * *

constitute medical recommendations.” See Ohio Adm.Code 4123-6-032(E)(5).

Because the payments provided to the MCOs under Ohio Adm.Code 4123-6-13

compensate those entities for “recommendations and determinations,” they are not

prohibited by R.C. 4123.30. In fact, a reasonable interpretation of R.C. 4123.30

would deem the payments to the MCOs from the fund as expressly permitted under

that provision.

{¶ 33} Moreover, as this court has previously noted, SIF proceeds have

historically been used for purposes other than the payment of direct disability

compensation to claimants. Thompson, 1 Ohio St.3d at 248, 1 OBR at 268-269,

438 N.E.2d at 1170. Simply put, not every dollar of the fund has been applied

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directly to the compensation of injured workers and their dependents, R.C. 4123.30

notwithstanding. In Thompson, we noted the past practice of SIF proceeds being

applied to, inter alia, the creation of a surplus fund, set-asides for actuarial audits,

costs for depositions and copies, and payments to medical specialists in certain

occupational disease cases. Id. at 248, 1 OBR at 269, 438 N.E.2d at 1170, fn. 4. In

other workers’ compensation statutes, the General Assembly has expressly

permitted fund proceeds to be used for some of the same types of compensation

provided by Ohio Adm.Code 4123-6-13. By the time the General Assembly

promulgated the HPP, it had previously authorized “reasonable compensation”

from the fund to private entities who performed services comparable to those

performed by MCOs under the HPP. See, e.g., R.C. 4123.68(V), (W), and (Y)

(permitting fund proceeds to be used as compensation for specialists who make

examinations and recommendations before an award of benefits for berylliosis,

certain diseases incurred by firefighters/police, and pneumoconiosis).

{¶ 34} As the MCO League notes in its amicus curiae brief supporting the

appellants, the “medical management” services performed by MCOs under the HPP

are simply a “generalized development of earlier instances of utilization review

provided by external entities for the BWC.” The BWC was entitled to rely on this

historical practice when interpreting and applying the rules that it was delegated the

authority to adopt under the HPP. It was reasonable for the BWC to conclude that

the General Assembly provided it with the same authority to compensate MCOs for

medical-utilization services under the HPP as the BWC had historically exercised

to compensate outside vendors for similar services.

{¶ 35} This is not a case, such as Cook Cty., supra, in which an agency

ignored express terms contained in its enabling statute in order to expand broadly

its own jurisdiction. See id., 531 U.S. at ___, 121 S.Ct. at 683, 148 L.Ed.2d at 587-

589. In that case, the Corps’s interpretation of its Migratory Bird Rule rendered

specific language in the Clean Water Act with “no effect whatever.” Id. Here, on

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January Term, 2001

the other hand, as in Swallow, 36 Ohio St.3d 55, 521 N.E.2d 778, and Chevron, 467

U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694, the agency’s interpretation of Ohio

Adm.Code 4123-6-13 has furthered the intent of the General Assembly in enacting

the HPP and does not conflict with R.C. 4123.30. To the extent that the BWC’s

interpretation may conflict with this court’s dicta in Corrugated Container, we

disapprove of that dicta today.

C. Constitutionality of the BWC’s Interpretation

{¶ 36} Having decided that the BWC reasonably interpreted Ohio

Adm.Code 4123-6-13 and the workers’ compensation statutes to authorize the use

of SIF proceeds for the administrative and performance-incentive payments

provided under the rule, we now turn to the constitutional question. Despite this

court’s broadly worded syllabus in Haylett, 87 Ohio St.3d 325, 720 N.E.2d 901,

that “[t]he managed care organization program enacted in R.C. 4121.44 and

4121.441 does not violate Section 35, Article II of the Ohio Constitution,” the court

of appeals in this case decided that the bureau’s chosen method of compensating

MCOs for their services under the very same program violated the very same

constitutional provision. Assuming, arguendo, that our holding in Haylett was not

broad enough to encompass the specific constitutional claim asserted here, we now

clarify that the use of SIF proceeds for these purposes does not violate Section 35,

Article II of the Ohio Constitution and reverse the court of appeals’ judgment to the

contrary.

{¶ 37} Section 35, Article II of the Ohio Constitution provides:

“For the purpose of providing compensation to workmen and their

dependents, for death, injuries or occupational disease, occasioned in the course of

such workmen’s employment, laws may be passed establishing a state fund to be

created by compulsory contribution thereto by employers, and administered by the

state, determining the terms and conditions upon which payment shall be made

therefrom.”

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{¶ 38} We have previously described this constitutional provision as “a

broad grant of power to establish and to administer the fund without limitation.”

(Emphasis added.) State ex rel. Michaels v. Morse (1956), 165 Ohio St. 599, 603,

60 O.O. 531, 533, 138 N.E.2d 660, 663. Here, though, the court of appeals took a

more limited approach to the constitutional provision and determined that “[a]s the

Supreme Court held in Corrugated and reaffirmed in Thompson, funds from SIF

can only be spent for the purposes enumerated in Section 35, Article II of the Ohio

Constitution which, as noted above, is limited to compensating injured workers and

their dependents for injuries and illness arising out of their employment.”

(Emphasis added.) We find that the court of appeals read Section 35, Article II too

narrowly and misconstrued the relationship between our decisions in Corrugated

Container and Thompson.

{¶ 39} In Corrugated Container, the precise issue before the court was

“whether the state can take money which has been set aside for the payment of

awards to injured workmen and * * * transfer it to the money comprising the

General Revenue Fund of the state.” Id., 171 Ohio St. at 290, 13 O.O.2d at 337,

170 N.E.2d at 256. We held that the state could not constitutionally effect this

diversion of fund proceeds. Id. at 291, 13 O.O.2d at 338, 170 N.E.2d at 256-257.

As we later recognized in Thompson, transferring SIF proceeds to the state’s

general revenue fund creates a risk that the proceeds will be applied to purposes

wholly unrelated to the workers’ compensation system. See id., 1 Ohio St.3d at

246-247, 1 OBR at 267, 438 N.E.2d at 1169-1170. Moreover, in Corrugated

Container, this court struck down an Industrial Commission resolution requiring

the SIF to reimburse the general revenue fund for all amounts appropriated for the

commission’s administrative costs, when that resolution conflicted with express

provisions of the Revised Code requiring the SIF to reimburse only two-thirds of

those costs. Id., 171 Ohio St. 289, 13 O.O.2d 337, 170 N.E.2d 255.

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January Term, 2001

{¶ 40} In Thompson, however, this court distinguished Corrugated

Container, rejected the court of appeals’ “cramped” reading of Section 35, Article

II, and held that the transfer of SIF investment income to the Disabled Workers’

Relief Fund (“DWRF”) did not violate the constitutional provision. Id., 1 Ohio

St.3d at 246-248, 1 OBR at 267, 438 N.E.2d at 1169-1170. Writing for the

majority, Justice A.W. Sweeney noted that “[t]he General Assembly is afforded

substantial discretion to implement a comprehensive workers’ compensation

program and it is not the function of the judiciary to question the wisdom of the

General Assembly’s exercise of its permissive powers. * * * [T]o hold otherwise

and declare the DWRF program as presently funded and administered

unconstitutional makes a cruel mockery of the laudable purpose that the

constitutional provision was designed to serve.” Id. at 249, 1 OBR at 269, 438

N.E.2d at 1170.

{¶ 41} The same logic and the Thompson court’s careful distinction of

Corrugated Container inform our decision here. In Thompson, this court noted that

“the transfer of SIF investment funds to the DWRF is qualitatively different from

the diversion of SIF funds proscribed in Corrugated Container. The DWRF is an

integral component of Ohio’s comprehensive workers’ compensation program and,

therefore, the use of SIF investment income to fund the DWRF does not contravene

the principle enunciated in Corrugated Container.” (Emphasis added.) Id. at 247,

1 OBR at 267, 438 N.E.2d at 1169. In Thompson, this court expressly approved

the use of SIF proceeds to fund an integral component of the workers’

compensation scheme. With its interpretation of Ohio Adm.Code 4123-6-13, the

BWC simply seeks to apply SIF proceeds to fund what this court has already

described as an “integral part” of the HPP—the medical-management services

performed by the MCOs. Haylett, 87 Ohio St.3d at 326, 720 N.E.2d at 903. As the

trial court noted in this case, “it is uncontroverted that the SIF funds at issue are

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being used in the HPP for purposes which relate to or are incidental to workers’

compensation.”

{¶ 42} For the foregoing reasons, we conclude that the court of appeals

erroneously relied on Corrugated Container to reverse the trial court’s grant of

summary judgment in favor of the appellants. We hold that the use of premium

contributions from the State Insurance Fund for the payment of administrative and

performance-incentive fees under Ohio Adm.Code 4123-6-13 to managed care

organizations certified by the Bureau of Workers’ Compensation under the Health

Partnership Program does not violate Section 35, Article II of the Ohio

Constitution. We thus reverse the court of appeals’ decision and reinstate the

decision of the trial court.

Judgment reversed.

MOYER, C.J., PFEIFER and LUNDBERG STRATTON, JJ., concur.

DOUGLAS, RESNICK and F.E. SWEENEY, JJ., dissent.

__________________

ALICE ROBIE RESNICK, J., dissenting.

{¶ 43} The majority finds the historical and dedicated purpose of the State

Insurance Fund (“SIF”) too “narrow” and “cramped” for its liking. Consequently,

the majority approves the diversion of $140 million per year for administrative fees

and performance bonuses to organizational claims managers from a trust fund that

was established for injured workers. The SIF is the tangible representation of the

essential compensation bargain that forms the workers’ compensation system. It is

constitutionally conceived, statutorily established, and judicially recognized as a

trust fund for the benefit of injured Ohio workers and their dependents. Its

quintessential purpose is to accumulate and reserve a sufficiently large sum of

money to pay compensation and benefits to employees who suffer injury and

disease, and to the dependents of employees who suffer death, in the course of their

employment. After today, however, the premium contributions that compose the

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January Term, 2001

SIF can be used generally for all “purposes which relate to or are incidental to

workers’ compensation,” or “to fund an integral component of the workers’

compensation scheme,” and specifically “for the payment of administrative and

performance incentive fees * * * to managed care organizations.” Semantics aside,

the majority has just changed the nature of the SIF in order to permit the Bureau of

Workers’ Compensation (“bureau”) to tap its resources to pay administrative costs.

I must dissent.

{¶ 44} Section 35, Article II of the Ohio Constitution provides:

“For the purpose of providing compensation to workmen and their

dependents, for death, injuries or occupational disease, occasioned in the course

of such workmen’s employment, laws may be passed establishing a state fund to be

created by compulsory contribution thereto by employers, and administered by the

state, determining the terms and conditions upon which payment shall be made

therefrom. * * * Laws may be passed establishing a board which may be

empowered to classify all occupations, according to their degree of hazard, to fix

rates of contribution to such fund according to such classification, and to collect,

administer and distribute such fund, and to determine all rights of claimants

thereto.” (Emphasis added.) See, also, R.C. 4123.29(A)(2), 4123.30, and 4123.46.

{¶ 45} The SIF and the net premiums contributed thereto constitute a trust

fund to be used solely for the payment of compensation and benefits to injured

workers and their dependents. See State ex rel. Williams v. Indus. Comm. (1927),

116 Ohio St. 45, 55, 156 N.E. 101, 104. See, also, R.C. 4123.29(A)(2), 4123.30,

and 4123.46. “The Legislature throughout the legislation on this subject has

studiously recognized this [constitutional] limitation, and it will be found in all the

sections pertaining to the distribution of the fund that distribution is in fact limited

to ‘injured employe[e]s or to the dependents of such employe[e]s as may be killed.’

” State ex rel. Crawford v. Indus. Comm. (1924), 110 Ohio St. 271, 277, 143 N.E.

574, 576, quoting several former sections of the General Code.

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{¶ 46} In Corrugated Container Co. v. Dickerson (1960), 171 Ohio St. 289,

291, 13 O.O.2d 337, 338, 170 N.E.2d 255, 257, we specifically held that “[n]o part

of the State Insurance Fund, a trust fund for the benefit of employers and

employees, may be used for administrative purposes except as provided in Section

4123.342, Revised Code.” R.C. 4123.342(A) provides that administrative costs are

defrayed by a separate administrative assessment against amenable employers

within certain designated classes, and R.C. 4123.341 defines “administrative costs”

as “those costs and expenses that are incident to the discharge of the duties and

performance of the activities of the industrial commission, the oversight

commission, and the bureau under Chapters 4121. and 4123. of the Revised Code.”

{¶ 47} It cannot be any clearer that the SIF, in its essential form and

character, is a trust fund created by premium contributions that are set aside for and

disbursed to employees who suffer loss on account of injury, disease, or death

occasioned in the course of employment, and that it is not to be used for

administrative purposes.

{¶ 48} Nevertheless, the majority views this basic principle as a “narrow”

or “cramped” interpretation of the fund’s permissible uses, and argues:

“First, though Ohio Adm.Code 4123-6-13(B) provides for payment of an

‘administrative fee,’ this fee is expressly intended to compensate the MCOs for the

‘medical management * * * services’ that they provide. (Emphasis added.) Id.

The medical-management and cost-containment services performed by MCOs

under the HPP [health partnership program] differ from ‘the duties and * * *

activities of * * * the bureau’ for which an administrative cost and expense

assessment is made under R.C. 4123.341. Compare R.C. 4121.44 and 4121.441

(outlining duties of MCOs under the HPP) with R.C. 4121.121 (outlining duties of

the bureau and administrator).” (Ellipses sic.)

{¶ 49} Nothing could be further from the truth. In the first place, Ohio

Adm.Code 4123-6-13(B) actually provides that “[t]he bureau shall pay an MCO an

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January Term, 2001

administrative fee for its medical management and administrative services.”

(Emphasis added.)

{¶ 50} Second, the administrative duties and activities of the bureau most

certainly include medical-management and cost-containment services as set forth

in R.C. 4121.121(B)(16) and (17). Indeed, Ohio Adm.Code 4123-6-44 amplifies

R.C. 4121.121, 4121.44, and 4121.441 by providing that fees and methods of

payment for practitioner services will be established in conjunction with “the

bureau’s medical management and cost containment division.” (Emphasis added.)

{¶ 51} Third, the medical-management services provided by MCOs are just

that, management services. They are not medical services. Medical services are

provided by health care providers. A health care provider is “[a] physician or

practitioner * * * or other legal entity licensed * * * and approved by the bureau,

to provide particular medical services or supplies, including, but not limited to: a

hospital, qualified rehabilitation provider, pharmacist, or durable medical

equipment supplier.” Ohio Adm.Code 4123-6-01(G). “[A] managed care

organization is not a health care provider.” (Emphasis added.) Ohio Adm.Code

4123-6-01(C).

{¶ 52} Fourth, the HPP, by definition and design, is “[t]he bureau of

workers’ compensation’s comprehensive managed care program.” (Emphasis

added.) Ohio Adm.Code 4123-6-01(A). Moreover, R.C. 4121.44(B)(3) provides

that the bureau “[m]ay integrate the certified vendors with bureau staff and existing

bureau services for purposes of operation and training to allow the bureau to

assume operation of the health partnership program at the conclusion of the

certification periods.” (Emphasis added.) See, also, R.C. 4121.44(G).

{¶ 53} It is eminently clear that the majority’s attempt to distinguish the

services of MCOs from the duties and activities of the bureau creates a false

dichotomy. Whether administered internally by the bureau or externally through

contracts with private vendors, the HPP is essentially an administrative mechanism

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for medical management and cost containment. The services performed thereunder

by MCOs are precisely the duties and activities of the bureau for which a separate

administrative cost assessment is required under R.C. 4123.341.

{¶ 54} The majority’s second argument is that R.C. 4123.30 expressly

authorizes, or at least does not prohibit, the use of SIF contributions to pay the

administrative fees of MCOs. According to the majority, the development of

treatment guidelines and individual treatment plans by MCOs constitutes “medical

* * * recommendations and determinations” for which R.C. 4123.30 permits

payment from the SIF.

{¶ 55} To put it mildly, this argument stretches the meaning of “medical *

* * recommendations and determinations” under R.C. 4123.30 considerably

beyond its contextual parameters. The authorized SIF expenditures enumerated in

R.C. 4123.30 are bounded by language establishing the SIF as a trust fund for the

payment of compensation and benefits to employees and their dependents who

suffer loss on account of a compensable injury, disease, or death. The payment of

a basic administrative and performance incentive fee equal to five percent of all SIF

premiums contributed by each covered employer is neither “compensation” nor

“benefit,” and has nothing to do with a statute that provides for loss-replacement

expenditures to injured workers. The development of treatment guidelines and

plans by MCOs may be administratively necessary to facilitate the process of

medical management and cost containment, but it is not medically necessary for the

diagnosis or treatment of injury or disease, and certainly does not constitute a

compensable loss to employees. Ohio Adm.Code 4123-6-043(B) provides that

“[t]he MCO, in conjunction with the employer, employee, attending physician, and

the bureau claims personnel assigned to the claim, shall seek a course of medical

or rehabilitative treatment that promotes a safe return to work.” If we follow the

majority’s reasoning, then the employer, employee, and the bureau’s claims

personnel could all be paid an administrative fee from the SIF for their

22

January Term, 2001

“recommendations and determinations” in developing treatment plans for injured

workers. These guidelines and plans are administrative, not medical,

recommendations and determinations. The administrative fee paid to MCOs under

Ohio Adm.Code 4123-6-13(B) is still an administrative fee, and it can no more be

wedged into the meaning of “medical * * * recommendations and determinations”

under R.C. 4123.30 then it can be forced out of the definition of “administrative

costs” under R.C. 4123.341.

{¶ 56} In its third argument, the majority relies on Thompson v. Indus.

Comm. (1982), 1 Ohio St.3d 244, 248, 1 OBR 265, 268-269, 438 N.E.2d 1167,

1170, for the proposition that not every dollar of the SIF must be used as a direct

disability compensation payment to claimants. The majority points out that certain

provisions in R.C. Chapter 4123 expressly authorize SIF expenditures for “the

creation of a surplus fund, set-asides for actuarial audits, costs for depositions and

copies, and payments to medical specialists in certain occupational disease cases.”

According to the majority, the medical-management services performed by MCOs

under the HPP are simply a generalized development of earlier instances of

utilization review by outside entities and are particularly comparable to those

services provided by independent medical specialists under R.C. 4123.68(V), (W),

and (Y). Thus, the majority concludes, “[i]t was reasonable for the BWC to

conclude that the General Assembly provided it with the same authority to

compensate MCOs for medical-utilization services under the HPP as the BWC had

historically exercised to compensate outside vendors for similar services.”

{¶ 57} It is true, of course, that SIF disbursements do not always take the

form of direct compensation payments to injured workers. But this does not mean

that the SIF may be used to fund the administrative machinery of the workers’

compensation system. Constitutional limitations aside, the fact that certain

provisions in R.C. Chapter 4123 expressly authorize SIF disbursements for specific

items of cost associated with the bringing of a claim or the upkeep of the fund does

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SUPREME COURT OF OHIO

not endow the bureau with such broad authority that it can use SIF assets to finance

an entire administrative program created under R.C. Chapter 4121.

{¶ 58} In creating the HPP, the General Assembly conferred no authority to

compensate MCOs out of the SIF. Contrary to the majority’s assertions, this lack

of authority does not translate into a “legislative gap” to be filled by the bureau.

“Except for amounts earmarked for safety and hygiene, actuarial audits, specified

costs and fees, and reinsurance premiums, the State Insurance Fund is a trust fund

maintained for the benefit of employees and employers as a source of payment of

compensation and benefits; it has no other purpose.” Fulton, Ohio Workers’

Compensation Law (2 Ed.1998) 378, Section 14.1. Moreover, when the General

Assembly established the HPP as part of Am.Sub.H.B. No. 107, it also amended

R.C. 4123.30 by removing an obsolete trust-fund exception for amounts set aside

“for fees and costs authorized by section 4123.51 of the Revised Code,” which had

been repealed effective October 5, 1955. 145 Ohio Laws, Part II, 3115; 126 Ohio

Laws 1015. Yet the General Assembly did not, in amended R.C. 4123.30 or

elsewhere, purport to provide any authority for using SIF assets to defray the

operating costs of the HPP. Thus, the court of appeals correctly found that

“[l]acking any clear legislative authorization, [the bureau was] without the

authority to authorize these payments from [the] SIF.”

{¶ 59} In any event, the “utilization review” services performed by MCOs,

like their other “medical management” services, are administrative in nature. R.C.

4121.441(A)(5) requires the administrator to adopt rules for the HPP that include

“[a]dequate methods of * * * utilization review * * * to prevent, and provide

sanctions for, inappropriate, excessive or not medically necessary treatment.” Ohio

Adm.Code 4123-6-01(U) defines “utilization review” as “[t]he assessment of an

employee’s medical care by the MCO. This assessment typically considers medical

necessity, the appropriateness of the place of care, level of care, and the duration,

frequency or quality of services provided in relation to the allowed condition being

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January Term, 2001

treated.” This is precisely the kind of review that the Workers’ Compensation Act

historically required the commission and bureau to perform as part of their

administrative duties. See State ex rel. Nutt v. Cincinnati (1994), 70 Ohio St.3d

594, 639 N.E.2d 1196; State ex rel. Breno v. Indus. Comm. (1973), 34 Ohio St.2d

227, 63 O.O.2d 378, 298 N.E.2d 150; State ex rel. Campbell v. Indus. Comm.

(1971), 28 Ohio St.2d 154, 57 O.O.2d 397, 277 N.E.2d 219.

{¶ 60} In particular, the utilization review services performed by MCOs are

not comparable to the medical examinations and recommendations rendered by

qualified medical specialists under R.C. 4123.68(V), (W), and (Y). MCOs conduct

no x-ray, autopsy or other clinical examinations or tests, make no diagnostic or

clinical findings, and perform no physical examinations of claimants. Instead, like

the bureau, MCOs are authorized to obtain independent medical examinations to

help resolve medical-management and treatment disputes. See Ohio Adm.Code

4123-6-043(G). Their utilization review has no actual medical component, and the

fee paid by the bureau for these services constitutes an administrative cost for which

a separate administrative assessment is required under R.C. 4123.341.

{¶ 61} Moreover, there is no statutory exception that authorizes the use of

SIF proceeds for purposes of “medical utilization services,” and the isolated

provisions in R.C. Chapter 4123 upon which the majority relies do not cohere to

allow for one to be judicially created. The costs of physician depositions (R.C.

4123.512[D]) and independent medical examinations (R.C. 4123.68[V], [W], and

[Y]) are part of the expenses of a claim, while actuarial audits (R.C. 4123.30 and

4123.47[A]) and the creation of a Surplus Fund (R.C. 4123.34[B]), which is

actually part of the SIF, State ex rel. First Natl. Supermarkets, Inc. v. Indus. Comm.

(1994), 70 Ohio St.3d 582, 584, 639 N.E.2d 1185, 1188, are directly necessary to

guarantee the solvency and fiscal integrity of the SIF. These provisions, which are

quite specific in scope and purpose, simply do not conjoin to allow $140 million a

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year to be taken from the SIF to pay for the administrative apparatus of medical

management and cost containment.

{¶ 62} Finally, the majority finds that “the use of SIF proceeds for these

purposes does not violate Section 35, Article II of the Ohio Constitution.” The

majority’s supporting rationale for this finding has three components. First, the

majority suggests that the constitutional question presented in this case can be

disposed of under the authority of our syllabus in State ex rel. Haylett v. Ohio Bur.

of Workers’ Comp. (1999), 87 Ohio St.3d 325, 720 N.E.2d 901, where we held that

“[t]he managed care organization program enacted in R.C. 4121.44 and 4121.441

does not violate Section 35, Article II of the Ohio Constitution.” Although the issue

of using SIF assets to fund the MCO program was never raised, discussed, decided,

or even mentioned in Haylett, the majority insinuates that our holding in Haylett

was “broad enough to encompass the specific constitutional claim asserted here.”

{¶ 63} Aside from the obvious fact that the only Section 35, Article II issues

addressed in Haylett were whether the MCO program constitutes an attempt to

privatize the state’s workers’ compensation system and whether it causes delays

and hardships that violate Section 35, the problem with the majority’s argument is

that the specific constitutional claim asserted in the present case has nothing to do

with the constitutionality of the MCO program. Any decision in this case

invalidating the bureau’s present method of funding the MCO program would have

no impact whatsoever on our decision in Haylett or the constitutionality of the MCO

program. It would simply force the bureau to pay MCOs their administrative fee

from an account that is not held in trust for the payment of compensation and

benefits to injured workers and their dependents.

{¶ 64} In the second part of its constitutional analysis, the majority

interprets Corrugated Container as holding only that SIF proceeds cannot be

transferred to the general revenue fund because such a transfer “creates a risk that

the proceeds will be applied to purposes wholly unrelated to the workers’

26

January Term, 2001

compensation system.” However, our decision in Corrugated Container leaves no

room for such an interpretation.

{¶ 65} Corrugated Container involved a challenge to certain provisions in

the General Appropriation Act of 1959, which required that the SIF reimburse the

General Fund for all amounts appropriated for administrative costs of the

commission, and a commission resolution effectuating those provisions. Since

former R.C. 4123.341 and 4123.342 had previously authorized the commission to

collect only two-thirds of that amount from employers, the remaining one-third

would have to come from money collected to pay awards of compensation. Our

concern in Corrugated Container was that the SIF was being used to pay the

administrative costs of the commission, and nothing in the opinion suggests that

the court had any concern whatsoever with the funds being used for any purpose

unrelated to the workers’ compensation system. Our holding is quite clear that

“[n]o part of the State Insurance Fund, a trust fund for the benefit of employers

and employees, may be used for administrative purposes except as provided in

Section 4123.342, Revised Code, and the Industrial Commission was without

authority to adopt its resolution attempting to transfer money from the State

Insurance Fund to the general fund in accordance with the appropriation act.”

(Emphasis added.) Id., 171 Ohio St. at 291, 13 O.O.2d at 338, 170 N.E.2d at 257.

{¶ 66} In its third constitutional argument, the majority reasons:

“In Thompson, this court expressly approved the use of SIF proceeds to fund

an integral component of the workers’ compensation scheme. With its

interpretation of Ohio Adm.Code 4123-6-13, the BWC simply seeks to apply SIF

proceeds to fund what this court has already described as an ‘integral part’ of the

HPP—the medical-management services performed by the MCOs. Haylett, 87

Ohio St.3d at 326, 720 N.E.2d at 903. As the trial court noted in this case, ‘it is

uncontroverted that the SIF funds at issue are being used in the HPP for purposes

which relate to or are incidental to workers’ compensation.’ “

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SUPREME COURT OF OHIO

{¶ 67} In Thompson, we held that “[t]he transfer of State Insurance Fund

investment income to the Disabled Workers’ Relief Fund, pursuant to R.C.

4123.411, violates neither Section 35, Article II, nor Section 28, Article II of the

Ohio Constitution.” Id., 1 Ohio St.3d 244, 1 OBR 265, 438 N.E.2d 1167, at the

syllabus.

{¶ 68} The Disabled Workers’ Relief Fund (“DWRF”) was created in 1953

as a subsidy to certain recipients of workers’ compensation. 125 Ohio Laws 506.

“The creation of this subsidy was based upon the recognition that a large number

of permanently and totally disabled claimants were receiving low levels of

compensation, because benefits payable in a compensation claim are limited to

those in effect at the time of injury, and inflation tended to victimize the recipients

of such continuing benefits.” Fulton, Ohio Workers’ Compensation Law, supra, at

318, Section 10.6.

{¶ 69} R.C. 4123.412 creates the DWRF “[f]or the relief of persons who are

permanently and totally disabled as the result of injury or disease sustained in the

course of their employment and who are receiving workers’ compensation which

is payable to them by virtue of and under the laws of this state in amounts, the total

of which, when combined with disability benefits received pursuant to the Social

Security Act is less than three hundred forty-two dollars per month adjusted

annually.” These are also the eligibility requirements for a participant in the

DWRF. R.C. 4123.413.

{¶ 70} The DWRF is obviously designed to pay supplemental benefits to a

designated group of injured workers. “The recipients of the DWRF subsidy,

namely those permanently and totally disabled employees who have previously

been awarded workers’ compensation, are clearly members of this designated

group.” Thompson, supra, 1 Ohio St.3d at 247, 1 OBR at 268, 438 N.E.2d at 1169.

Thus, the DWRF is entirely consistent with the constitutionally enumerated

28

January Term, 2001

purpose of the SIF to provide compensation to workers who are injured in the

course of their employment.

{¶ 71} As we explained in Thompson:

“The General Assembly is afforded substantial discretion to implement a

comprehensive workers’ compensation program and it is not the function of the

judiciary to question the wisdom of the General Assembly’s exercise of its

permissive powers under Section 35, Article II, so long as these powers are used in

furtherance of the constitutionally enumerated purpose. The DWRF subsidy

received by eligible permanently and totally disabled workers infuses Section 35,

Article II with a meaningfulness that is fully consistent with the goals that prompted

the people of Ohio to approve Section 35, Article II in the first place. Indeed, to

hold otherwise and declare the DWRF program as presently funded and

administered unconstitutional makes a cruel mockery of the laudable purpose that

the constitutional provision was designed to serve.” Id., 1 Ohio St.3d at 249, 1

OBR at 269, 438 N.E.2d at 1171.

{¶ 72} Accordingly, we agreed with the commission in Thompson that “the

transfer of SIF investment funds to the DWRF is qualitatively different from the

diversion of SIF funds proscribed in Corrugated Container. The DWRF is an

integral component of Ohio’s comprehensive workers’ compensation program and,

therefore, the use of SIF investment income to fund the DWRF does not contravene

the principle enunciated in Corrugated Container.” Id. at 247, 1 OBR at 267, 438

N.E.2d at 1169.

{¶ 73} The obvious distinction between Corrugated Container and

Thompson lies in the qualitative difference between using SIF funds to pay for

administrative costs and using SIF funds to provide compensation to workers who

are injured in the course of their employment. It is in this sense that we considered

the DWRF to be an integral component of the workers’ compensation program in

Thompson. It can hardly be considered the intent of this single sentence in

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SUPREME COURT OF OHIO

Thompson to change the nature of the SIF from a trust fund for the payment of

compensation and benefits to injured workers to an all-purpose fund that can be

used to pay the operating expenses of any constituent part of the entire workers’

compensation system.

{¶ 74} The same qualitative difference between administrative costs and

workers’ compensation that led us to distinguish Corrugated Container in

Thompson should now compel us to distinguish Thompson. While the medical-

management services of the MCOs may be an “ ‘integral part’ of the HPP,” the

HPP is qualitatively different from the DWRF. The DWRF program is established

to pay supplemental compensation to injured workers; the HPP has no

compensation component. Thus, the use of SIF contributions to fund the HPP

contravenes the principle enunciated in Corrugated Container.

{¶ 75} For all of the foregoing reasons, the bureau acted without statutory

or constitutional authority in diverting SIF contributions to pay administrative and

performance incentive fees to MCOs under the HPP, and the judgment of the court

of appeals should be affirmed.

DOUGLAS and F.E. SWEENEY, JJ., concur in the foregoing dissenting

opinion.

__________________

Gallon & Takacs Co., L.P.A., Theodore A. Bowman, Jack Gallon and John

M. Roca, for appellees.

Betty D. Montgomery, Attorney General; Schottenstein, Zox & Dunn,

L.P.A., Kris M. Dawley and Russell J. Kutell, for appellants James Conrad and the

Ohio Bureau of Workers’ Compensation.

Zeiger & Carpenter, John W. Zeiger, Marion H. Little, Jr., and Ronald E.

Laymon, urging reversal for amicus curiae MCO League of Ohio.

Stewart Jaffy & Assoc. Co., L.P.A., Stewart R. Jaffy and Marc J. Jaffy,

urging affirmance for amicus curiae Ohio AFL-CIO.

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January Term, 2001

__________________

31