BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 1160| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- UNFINISHED BUSINESS Bill No: SB 1160 Author: Mendoza (D), et al. Amended: 8/29/16 Vote: 21 SENATE LABOR AND IND. REL. COMMITTEE: 4-1, 4/13/16 AYES: Mendoza, Jackson, Leno, Mitchell NOES: Stone SENATE APPROPRIATIONS COMMITTEE: 5-2, 5/27/16 AYES: Lara, Beall, Hill, McGuire, Mendoza NOES: Bates, Nielsen SENATE LABOR AND IND. REL. COMMITTEE: 5-0, 8/31/16 (pursuant to Senate Rule 29.10) AYES: Mendoza, Stone, Jackson, Leno, Mitchell SENATE FLOOR: 26-12, 5/31/16 AYES: Allen, Beall, Block, De León, Galgiani, Glazer, Hall, Hancock, Hernandez, Hertzberg, Hill, Hueso, Jackson, Lara, Leno, Leyva, Liu, McGuire, Mendoza, Mitchell, Monning, Pan, Pavley, Roth, Wieckowski, Wolk NOES: Anderson, Bates, Berryhill, Fuller, Gaines, Huff, Moorlach, Morrell, Nguyen, Nielsen, Stone, Vidak NO VOTE RECORDED: Cannella, Runner ASSEMBLY FLOOR: 80-0, 8/30/16 - See last page for vote SUBJECT: Workers compensation SOURCE: California Labor Federation, AFL-CIO California Professional Firefighters SB 1160 Page 2 DIGEST: This bill expedites medical care at the beginning of an injured worker's claim, modernizes data collection in the workers' compensation system, and implements anti-fraud measures in the filing and collection of liens. Assembly Amendments rewrite the bill, creating, among other things, the 30 day utilization review (UR) period and the anti-fraud measures. 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 through the consent of the Department of Industrial Relations (DIR) to self-insure or by securing insurance against liability from a state authorized insurance company. 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 be provided by the employer. (Labor Code §4600) 3) Requires the administrative director (AD) of the Division of Workers' Compensation (DWC) 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 SB 1160 Page 3 §§5307.27 and 4604.5) 4) Requires that all employers create an UR process, which is a process that prospectively, retrospectively, or concurrently review and approves, modifies, delays, or denies, 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 UR process be governed by written policies, procedures, and a description of the utilization process, must be filed with the AD and disclosed by the employer to employees, physicians, and the public upon request. [Labor Code §4610(c)] 6) Provides that, in the event of a dispute over a UR 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 AD 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 measure how adequately the system indemnifies injured 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: SB 1160 Page 4 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, non x-ray imaging, durable medical equipment (DME) 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 - failure by the provider to properly report treatment can lead to revocation of the "no UR" rule. 4) Authorizes an employer to conduct retrospective UR to ensure compliance with evidence-based medicine standards, and if a pattern of non-compliance is discovered, the "no UR" rule could be revoked or the provider removed from the MPN. UR Process Approval: 5) Prohibits explicitly an employer or claims administrator from providing a UR organization with financial incentives to deny or modify treatment. 6) Requires financial interest disclosure of UR entities be shared with DWC. 7) Requires any UR organization to be accredited by an entity specified by the DWC, subject to exceptions for certain SB 1160 Page 5 public entities that have internal systems approved by the DWC. The entity must be independent and non-profit. Until the rules are approved by the AD, the 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 IMR. 12)Establishes an expedited five-day time frame for IMR decisions related to medications on the formulary. 13)Provides that MTUS may be updated with evidence-based medicine standards by an expedited process. 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. SB 1160 Page 6 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 rights, 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 (Workers' Compensation Appeals Board) (2016), 2016 Cal. App. LEXIS 232 and states these amendments to be declaratory of existing law. Comments SB 1160 and 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 UR process varies by vendor, but generally involves initial review by a non-physician, with higher level review(s) being conducted by a physician(s). 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 treatment. Recently, UR has become a growing area of concern. Both injured SB 1160 Page 7 workers and medical providers report delays and denials of medical care due to the UR process. 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 addresses 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 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 DWC to create a database that captures UR decisions and documentation. 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. 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 in the workers' compensation system as a fundamental challenge. 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. The schemes have one common feature: the use of the SB 1160 Page 8 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. Please see Senate Labor and Industrial Relations Committee policy analysis for an example of these schemes. 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. 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 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. SB 1160 and lien assignments: SB 1160 Page 9 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. In California, 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 employers paying exorbitant costs and injured workers receiving substandard, profit-driven care. 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." SB 1160 Page 10 FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: Yes Unknown with recent amendments. SUPPORT: (Verified8/31/16) California Labor Federation, AFL-CIO (co-source) California Professional Firefighters (co-source) Acclamation Insurance Management Services California Alliance of Self-Insured Groups California Medical Association California Occupational Medicine Physicians Communication Workers of America, District 9 Orange County Professional Firefighters Association, Local 3631 Risk Insurance Management Society Small Business California U.S. HealthWorks Medical Group UPS Western Occupational and Environmental Association OPPOSITION: (Verified8/31/16) 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 ARGUMENTS IN SUPPORT: Proponents argue that, while UR decisions should focus on whether the treatment aligns with their MTUS, medically necessary treatment is inappropriately delayed or denied via UR, generating needless costs for employers and pointless delays for workers. Proponents argue SB 1160 Page 11 this bill limits unnecessary UR in the first 30 days, and provides a voluntary peer-to-peer communication process between doctors. 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 fraud, 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. ARGUMENTS IN OPPOSITION: 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, 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 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 this bill. ASSEMBLY FLOOR: 80-0, 8/30/16 AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon SB 1160 Page 12 Prepared by: Gideon L. Baum / L. & I.R. / (916) 651-1556 8/31/16 14:00:04 **** END ****