BILL ANALYSIS Ó
SENATE COMMITTEE ON LABOR AND INDUSTRIAL RELATIONS
Senator Tony Mendoza, Chair
2015 - 2016 Regular
Bill No: SB 1160 Hearing Date: August 31,
2016
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|Author: |Mendoza |
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|Version: |August 29, 2016 |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Gideon L. Baum |
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Subject: Workers' compensation
KEY ISSUE
Should the Legislature expedite medical care at the beginning of
an injured worker's claim, modernize data collection in the
workers' compensation system, and implement anti-fraud measures
in the filing and collection of liens?
ANALYSIS
Existing law:
1) Establishes a workers' compensation system that provides
benefits to an employee who suffers from an injury or
illness that arises out of and in the course of employment,
irrespective of fault. This system requires all employers
to secure payment of benefits by either securing the
consent of the Department of Industrial Relations to
self-insure or by securing insurance against liability from
an insurance company duly authorized by the state.
2) Provides that medical, surgical, chiropractic,
acupuncture, and hospital treatment, including nursing,
medicines, medical and surgical supplies, crutches, and
apparatuses, including orthotic and prosthetic devices and
services, that is reasonably required to cure or relieve
the injured worker from the effects of his or her injury
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shall be provided by the employer. (Labor Code §4600)
3) Requires the administrative director of the Division of
Workers' Compensation to create a Medical Treatment
Utilization Schedule (MTUS), which is evidence-based, peer
reviewed, and addresses, at a minimum, the frequency,
duration, intensity, and appropriateness of all treatment
procedures and modalities commonly performed in workers'
compensation cases. The MTUS is presumed to be correct,
unless rebutted by a preponderance of evidence. (Labor Code
§§5307.27 and 4604.5)
4) Requires that all employers create a utilization review
process, which is a process that prospectively,
retrospectively, or concurrently review and approve,
modify, delay, or deny, based in whole or in part on
medical necessity to cure and relieve, treatment
recommendations by physicians, prior to, retrospectively,
or concurrent with the provision of medical treatment
services. (Labor Code §4610)
5) Requires that each utilization review (UR) process shall
be governed by written policies and that these policies and
procedures, and a description of the utilization process,
must be filed with the administrative director and shall be
disclosed by the employer to employees, physicians, and the
public upon request. (Labor Code §4610(c))
6) Provides that, in the event over a dispute over a
utilization review decision on or after July 1, 2014, all
disputes must be submitted for Independent Medical Review
(IMR). The independent reviewer's information must be kept
confidential.
(Labor Code §§4610.5 and 4610.6)
7) Requires that, in the absence of fraud, error, or
illegal conduct, the IMR decision is final and binding.
(Labor Code §4610.6)
8) Requires the administrative director to create and
maintain a workers' compensation information system (WCIS),
which is used to assist DIR to manage the workers'
compensation system in an effective manner, as well as
measuring how adequately the system indemnifies injured
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workers and their dependents. Penalties for failing to
report data to the WCIS are capped at $5,000 per year.
(Labor Code §138.6)
This Bill makes a series of significant, wide-ranging changes to
the operation and UR processes, approval of UR processes, and
lien filing and collection. Specifically, this bill:
UR Operation:
1) Provides that, with respect to medical treatment that is
provided through a medical provider network (MPN), a health
care organization (HCO), other employer directed provider,
or a pre-designated physician, no prospective UR may be
undertaken for the first 30 days of treatment.
2) Provides several exceptions to the "no UR" rule,
including surgery, medications not covered by the
formulary, psychological treatment, imaging, other than
x-ray imaging, durable medical equipment if total costs for
all DME exceeds $250, and home health care services.
3) Requires any treatment provided within the first 30 days
to be reported to the employer or claims administrator, and
a failure by the provider to properly report treatment
constitutes grounds to revoke the "no UR" rule as to that
provider.
4) Authorizes an employer to conduct retrospective UR for
the purposes of ensuring that the provider is complying
with evidence-based medicine standards, and if a pattern or
practice of failing to do so is discovered this would be
grounds to revoke the "no UR" rule, or to remove the
provider from the MPN.
UR Process Approval:
5) Explicitly prohibits an employer or claims administrator
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from providing a UR organization with financial incentives
to deny or modify treatment.
6) Requires financial interest disclosure of UR entities be
shared with the Division of Workers' Compensation (DWC).
7) Requires any UR organization to obtain accreditation
from an accrediting entity specified by the DWC, subject to
exceptions for certain public entities that have internal
systems approved by the DWC. The accreditation entity must
be independent and non-profit. Until the rules are approved
by the AD, the accreditation entity will be URAC.
8) Provides authority to the DWC to approve UR processes.
UR and Medical Guideline Modernization:
9) Requires, through the URAC accreditation process, the
availability of peer-to-peer communication in the event of
a UR modification or denial.
10) Requires the AD to develop a mandatory electronic system
for sharing documents necessary to conduct UR.
11) Adopts new procedures designed to better facilitate
delivery of information for purposes of independent medical
review (IMR).
12) Establishes an expedited 5-day time frame for IMR
decisions related to medications on the formulary.
13) Provides that the medical treatment utilization schedule
(MTUS) may be updated with evidence-based medicine
standards by an expedited process.
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Anti-Fraud Measures:
14) Requires, for liens filed on or after January 1, 2017, a
lien filer to specify in the lien filing the basis upon
which the lien is authorized.
15) Requires these same data elements to be added to
pre-existing liens, but allows until July 1, 2017 for lien
filers to comply.
16) Provides that the failure to comply with the
requirements noted above results in a dismissal of the lien
with prejudice.
17) Provides that in the event a lien filer is charged with
workers' compensation fraud, Medi-Cal fraud, or Medicare
fraud, all liens are stayed pending resolution of the
charges.
18) Prohibits, for liens on or after January 1, 2017, any
assignment of liens unless the person has ceased doing
business in the capacity held at the time the expenses were
incurred and has assigned all right, title, and interest in
the remaining accounts receivable to the assignee. The
assignment of a lien, in violation of this paragraph is
invalid by operation of law.
19) Clarifies existing law on liens assigned between 2013
and 2016 by codifying Chorn v. WCAB (2016), 2016 Cal. App.
LEXIS 232 and states these amendments to be declaratory of
existing law.
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COMMENTS
1. SB 1160: Renewing the Grand Compromise
In 1914, California embarked on a quest for justice - justice
for both California's injured workers and California's
employers. At the heart of this quest, enshrined in by the
State Constitution and statutes, is a grand compromise between
injured workers and employers. In creating a mandatory
workers' compensation system, injured workers gave up their
right to pursue tort claims against an employer due to an
industrial injury, while employers were required to pay for
appropriate medical care and, if necessary, indemnity
benefits.
In anticipating disputes, the Constitution requires that the
administration of the workers' compensation system be
conducted "[T]o the end that the administration of such
legislation shall accomplish substantial justice in all cases
expeditiously, inexpensively, and without incumbrance of any
character?." Unfortunately, it is here that many stakeholders
feel the workers' compensation system has failed them, in the
form of unnecessary medical disputes and persistent and
unchecked fraud.
A product of multiple oversight hearings, extensive
stakeholder feedback, and significant research, SB 1160 seeks
to address these challenges through reforms in two areas:
utilization review and workers' compensation liens. These
reforms will be discussed below.
2. SB 1160 and Utilization Review:
Utilization Review (UR) is the review process for medical
treatment recommendations by physicians to see if the request
for medical treatment is medically necessary . The full UR
process varies by vendor, but it generally involves initial
review by a non-physician, with higher level review(s) being
conducted by a physician or physicians. Only a licensed
physician who is competent to evaluate the specific clinical
issues involved in the medical treatment services may modify
or deny a request for medical treatment.
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Recently, UR has become an increasingly notable area of
concern from a variety of stakeholders. Specifically, both
injured workers and medical providers report delays and
denials of medical care due to the UR process. While existing
research does not support the argument of significant delays
or denials due to UR, recent research suggests that, while
such delays and denials may not be system-wide, they may be
specific to certain employers or UR entities. This suggests,
in part, that the implementation of best-practices across the
system will lead to improvements for injured workers who are
having their care delayed or denied.
SB 1160 seeks to address the reported challenges with the UR
in two ways. First, SB 1160 eases the requirements of UR
within the first 30 days of a worker's injury, with certain
exceptions. Employers are still able to conduct retrospective
review, and SB 1160 provides tools to employers in the event
that a medical provider abuses the workers' compensation
system.
Second, SB 1160 requires that all UR entities rise to meet the
"best practices" of the industry. This includes URAC
accreditation, a voluntary peer-to-peer process between
doctors in the event of a medical dispute, and a prohibition
on the use of financial incentives to deny or modify medical
care. SB 1160 also provides for an expedited, transparent
process for updating existing medical guidelines, ensuring
that UR decisions are based on the best available medical
science.
Finally, SB 1160 also requires the Division of Workers'
Compensation (DWC) to create a database that captures UR
decisions and documentation. With this information, SB 1160
will shine a bright light on how UR impacts claims, both
system-wide and for specific employers and UR entities. This
data will make possible targeted audits and legislative
initiatives that address unnecessary medical disputes, while
preserving important protections against unnecessary and
abusive medical treatment.
3. SB 1160 and the Workers' Compensation Liens Process:
In a recent letter to the Commission on Health and Safety and
Workers' Compensation, the author of SB 1160 identified fraud
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as a specter haunting the workers' compensation system and
presenting a fundamental challenge to the operation of system
for all stakeholders. Specifically, the letter cited the
recent press coverage by the Center of Investigative
Reporting, which detailed more than $1 billion in fraudulent
activity by a variety of medical providers. While all of the
schemes were different, each had one common feature: the use
of the workers' compensation lien system to monetize the
fraud.
Despite the criminal charges, medical bills and workers'
compensation liens from doctors charged or even convicted of
medical fraud continue to be pursued. For example, Dr. Philip
Sobol, who pled guilty in connection with his involvement with
the Pacific Hospital kickback scheme and is facing up to 10
years in prison, is still filing workers' compensation liens
and seeking payment for treatment that is likely fraudulent.
In theory, these workers' compensation liens could go towards
paying his $5.2 million in restitution due to his fraudulent
activities. Additionally, Dr. Sobol's medical license remains
active - the Medical Board has yet to take adverse action.
Overall, DWC places the dollar amount of liens held by
providers who have been charged or convicted of workers'
compensation fraud at $600 million - or 17% of all liens in
the system.
SB 1160 addresses fraud in the workers' compensation lien
process in three ways:
First, SB 1160 requires that, when a medical provider is
charged with workers' compensation, Medicare, or Medi-Cal
fraud, his or her liens must be stayed until criminal charges
are resolved. If the medical provider is cleared of all
charges, his or her liens will be adjudicated in the same way
as other liens without prejudice. Similar anti-fraud
provisions are utilized by the Medi-Cal and Medicare systems
in their fight against medical fraud.
Second, SB 1160 requires all lien claimants to file a
declaration as to which specific category provided under
existing law allows the claimant to file a lien. As the
statute that provides the specific categories for filing a
lien is unchanged by SB 1160, the causes for filing a lien
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under existing law remain unchanged by SB 1160 - including
denied industrial injuries. The only change is that a lien
claimant must now file a declaration to support an assertion
of rights.
Third, SB 1160 prospectively prohibits lien assignments in the
workers' compensation system, unless the medical provider has
ceased doing business. SB 1160 also clarifies the law on lien
assignments made between 2013 and 2016. As this is an area of
considerable discussion among stakeholders, this facet will be
discussed in more detail below.
4. SB 1160 and Lien Assignments:
Some stakeholders have noted that assignment and factoring of
accounts receivable are common in many industries. Generally
speaking, accounts receivable can be sold to a third party or
used as collateral for a loan in order to allow a business to
maximize cash flow and not focus on chasing down payment. The
business generally receives 50-85% of the amount of the
receivables, with the remainder going to the third party.
This is not what is happening in California's workers'
compensation system.
Through lawsuits, grand jury transcripts, and research,
anti-fraud investigators have put forward a common scenario by
which lien assignments are used to drive fraud. In our
hypothetical, a compound pharmacy company contracts with a
third party marketing company. This company is in fact an
illegal "running and capping" organization, which pays doctors
and attorneys illegal kickbacks to prescribe the pharmacy's
products.
To capitalize this scheme, a lien assignment firm buys the
company's accounts receivable and files them as liens, paying
only 20% of the face value of the receivables. This provides
the capital necessary for the pharmacy to compound products,
as well as pay the marketing firm for kickbacks. For the lien
assignment company, any lien settlement above 20 cents on the
dollar is nearly pure profit. As the cost of a compound
medication can be manipulated by the costs of the ingredients,
this allows all participants to grow their profit margins
based on volume. In short, all participants make money, with
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employers paying exorbitant costs and injured workers
receiving substandard, profit-driven care.
In 2012, the Legislature sought to limit this practice with
the passage of SB 863, which created new requirements limiting
assignments to medical providers that are going out of
business (Labor Code §4903.8). However, some workers'
compensation judges have found existing law to be unclear,
leading to a phenomena where liens are filed in a provider's
name, with payment going to that provider, but then the
provider returns all or a portion of the payment to the third
party assignment company, which actually owns the lien. This
repayment is generally governed by a contractual agreement
that is unknown to the workers' compensation judge awarding
the lien. This was not what the Legislature had in mind with
the passage of SB 863.
SB 1160 explicitly prohibits any assigning or factoring of a
lien on or after January 1, 2017, unless the medical provider
is no longer in business in the capacity in which they filed a
lien. For liens assigned between 2013 and 2016, SB 1160
codifies the recent appellate court decision, Chorn v. WCAB
(2016), 2016 Cal. App. LEXIS 232, which found that
restrictions on lien assignments were constitutional and that
"The effect of section 4903.8 is to prohibit WCAB from
ordering or awarding lien payments to anyone other than the
medical provider who incurred the expense."
5. Proponent Arguments :
Proponents argue that SB 1160 addresses several areas of
concern within our current system relating to how insurers and
employers dispute treatment requests. Proponents argue that,
while UR decisions should focus on if the treatment aligns
with our Medical Treatment Utilization Schedule (MTUS),
medically necessary treatment is inappropriately delayed or
denied via UR, generating needless costs for employers and
pointless delays for workers. Proponents argue that SB 1160
limits unnecessary UR in the first 30 days, and provides a
voluntary peer-to-peer communication process between doctors.
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Proponents also argue that independent accreditation will
ensure that UR entities are making medical care decisions
timely and in an appropriate manner. Finally, proponents argue
that, while SB 863 made great strides to eliminate fraudulent
liens, fraudulent liens continue to be problematic and SB 1160
helps resolve this by placing important safeguards in the lien
process, including ending the assignment of liens to third
parties-unless the provider has left that business-and require
a declaration of lien filers to ensure that these requests for
payments are filed for appropriate reasons.
6. Opponent Arguments :
Opponents argue that SB 1160 will result in significant
financial losses for lien claimants. Specifically, opponents
are concerned that they will not have sufficient time to file
declarations and avoid losing their liens. Opponents further
argue that, in order to comply with the provisions of SB 1160,
they may need to request that the WCAB compel documentation
from employers on claims, overwhelming to local WCABs
Opponents also argue that the lien disclosure may overturn
settled law that gives specific rights to injured workers to
self-procure medical treatment in the event of a denial by the
employer. Finally, some opponents have raised concerns about
the provisions of SB 1160 which stay workers' compensation
liens in the event of criminal charges related to workers'
compensation fraud. These opponents argue that this provision
may not hold up in court, and therefore should be removed from
the bill.
7. Prior Legislation :
SB 863 (DeLeon), Chapter 363, Statutes of 2012, was discussed
above.
SUPPORT
California Professional Firefighters (Sponsor)
California Labor Federation, AFL-CIO (Sponsor)
Acclamation Insurance Management Services
California Alliance of Self-Insured Groups
California Medical Association
California Occupational Medicine Physicians
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Communication Workers of America, District 9
Orange County Professional Firefighters Association, Local 3631
Risk Insurance Management Society
Small Business California
U.S. HelathWorks Medical Group
UPS
Western Occupational and Environmental Association
OPPOSITION
California Neurology Society
California Society of Industrial Medicine and Surgery
California Society of Physical Medicine and Rehabilitation
California Workers' Compensation Interpreters Association
California Workers' Compensation Services Association
Voters Injured at WORK
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