BILL ANALYSIS                                                                                                                                                                                                    






                 Senate Committee on Labor and Industrial Relations
                                 Ted W. Lieu, Chair

          Date of Hearing: April 27, 2011              2011-2012 Regular 
          Session                              
          Consultant: Gideon L. Baum                   Fiscal:Yes
                                                       Urgency: No
          
                                   Bill No: SB 863
                                    Author: Lieu
                         Version: As Amended April 14, 2011
          

                                       SUBJECT
          
                            Workers' compensation: liens.


                                      KEY ISSUE

          Should the Legislature require that all workers' compensation 
          liens must be in writing and filed within a specific period of 
          time?
          

                                       PURPOSE
          
          To require that workers' compensation liens are filed in writing 
          and that their filing is bound by a statute of limitations.


                                      ANALYSIS
          
           Existing law  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.

           Existing law  requires the administrative director of the 
          Division of Workers' Compensation (DWC) to adopt and 
          periodically revise an Official Medical Fee Schedule (OMFS) to 
          establish reasonable maximum medical fees for medical services.  









          (Labor Code 5307.1)

           Existing law  permits the Workers' Compensation Appeals Board 
          (WCAB) to determine and allow liens against any sum to be paid 
          as compensation for a variety of services or expenses.  
          Allowable liens include a reasonable fee for legal services, the 
          reasonable expense incurred in the provision of medical 
          services, and the reasonable value of living expenses of an 
          injured employee subsequent to the injury.  (Labor Code 4903)

           Existing law  provides that when a compromise of a workers' 
          compensation claim or an award is submitted to the appeals 
          board, arbitrator, or settlement conference referee for 
          approval, the parties shall file with the appeals board, 
          arbitrator, or settlement conference referee any liens served on 
          the parties.  (Labor Code 4903.1)
           
           Existing law  prohibits a lien claim for expense filed with the 
          WCAB six months from the final decision or order of the WCAB, 
          five years from the date of the injury, or one year from the 
          date services were provided, whichever is later.  (Labor Code 
          4903.5)
          
           Existing law  addresses allowance and payment of liens for 
          unemployment compensation benefits, and provides that if a 
          notice is given in writing to the insurer or employer of a lien, 
          the claim is a lien payable against any amount payable as 
          temporary or permanent disability compensation, subject to the 
          determination of the amount and approval of the lien by the 
          WCAB.
          (Labor Code 4904)

           This bill  requires liens claimants to file its liens  in writing  
          with the Workers' Compensation Appeals Board (WCAB), accompanied 
          by a full statement or itemized voucher supporting the lien and 
          justifying the right to reimbursement.  The written lien filing 
          must also include proof of service on the injured worker, 
          employer, insurer, and other interested parties.

           This bill  prohibits the filing of a lien claim for expenses 
          after  three years  from the date services were provided, nor more 
          than  18 months  after the date the services were provided if the 
          Hearing Date:  April 27, 2011                            SB 863  
          Consultant: Gideon L. Baum                               Page 2

          Senate Committee on Labor and Industrial Relations 
          








          services were provided on or after  July 1, 2012  .  This bill 
          would also automatically dismiss any liens that were not filed 
          and served within this time period.

           This bill  clarifies that if a notice is given in writing to the 
          insurer or employer of a lien in favor of the Employment 
          Development Department (EDD), the claim is a lien payable 
          against any amount payable as temporary or permanent disability 
          compensation, subject to the determination of the amount and 
          approval of the lien by the WCAB.
          
           This bill  also contains technical language to ensure uniform 
          application of lien timelines and written lien filings.
          
           This bill  also provides language clarifying legislative intent 
          on lien filings and that amendments clarifying EDD and workers' 
          compensation liens are declarative of existing law.


                                      COMMENTS
          
          1.  What is a Workers' Compensation Lien?  

            Within the workers' compensation system, liens involving 
            medical services or benefits are direct claims against the 
            defendant (either the employer or the insurer of the employer) 
            for medical benefits or services provided by the lien claimant 
            which the lien claimant believes the employer was required to 
            provide due to a worker's industrial injury.  The lien 
            claimant  may not  pursue the lien against an injured worker 
            unless the injury is ruled to be non-industrial, and therefore 
            outside the workers' compensation system.

            In short, liens serve as a vehicle for contesting the 
            employer's determination (or the determination of the 
            employer's insurer) of the amount payable for medical goods or 
            services.

          2.  Need for this bill?

            In January of this year, the Commission on Health, Safety, and 
            Workers' Compensation (CHSWC) released a report on workers' 
          Hearing Date:  April 27, 2011                            SB 863  
          Consultant: Gideon L. Baum                               Page 3

          Senate Committee on Labor and Industrial Relations 
          








            compensation liens.  The report found that workers' 
            compensation liens are both a "cause and result of serious 
            distress in the workers' compensation system."  The report 
            went on to state that 35% of the Los Angeles branch of the 
            Workers Compensation Appeals Board (WCAB) is consumed with 
            addressing workers compensation liens, and that statewide 
            450,000 liens are expected to be filed in 2011, with employers 
            and insurers setting aside $200 million per year on loss 
            adjustment expenses to handle medical liens.  The report went 
            on to discuss and recommend a series of statutory changes that 
            could help to alleviate the situation.

            This bill seeks to focus on several of the report's 
            less-controversial recommendations suggested by the CHSWC 
            report dealing with "stale liens": requiring that workers' 
            compensation liens must be in writing and cannot be implied, 
            and that a statute of limitations applies on the filing of the 
            workers' compensation liens.

            On requiring that the liens be in writing, SB 863 seeks to 
            address several WCAB decisions which, when taken as a 
            totality, allow for a lien to be implied when a bill or notice 
            is provided to the employer or insurer, rather than actually 
            filed with the WCAB.  This was highlighted in a 2007 WCAB 
            decision which utilized Labor Code Section 4904, which 
            addresses Employment Development Department (EDD) liens, but 
            contains open-ended language that appears to allow implied 
            liens.

            These decisions have also undermined statute of limitation 
            language that came into effect in 2003, but, due to WCAB 
            decisions, does not universally control the length of time 
            that a lien can be filed.  Prior to 2003, however, there was 
            no statute of limitations whatsoever.  This has created a 
            market for third-parties to purchase "stale" or "zombie" liens 
            from medical providers and hospitals, which are old bills that 
            were in dispute at one time, but were paid at the fee 
            schedule.  Frequently, the hospital or medical provider will 
            bill at a rate in excess of the fee schedule, allowing for 
            third parties to lien to remainder of the bill, no matter the 
            bill's age, if the bill is from before 2003.  These liens 
            disputes cost a significant amount of money and do not provide 
          Hearing Date:  April 27, 2011                            SB 863  
          Consultant: Gideon L. Baum                               Page 4

          Senate Committee on Labor and Industrial Relations 
          








            any benefits to injured workers.

            By requiring a statute of limitations and clearly stating the 
            liens must be in writing, SB 863 would ensure that all parties 
            were aware of liens as they were created, as well prevent the 
            creation of third-party liens that create significant costs 
            within the workers compensation system without providing 
            benefits to the injured workers.  





          3.  Proponent Arguments  :
            
            Proponents argue that there are currently hundreds of 
            thousands of liens clogging the workers compensation appeals 
            process, which prevents the appeals process from operating 
            appropriately and ensuring that injured workers receive the 
            benefits that they are constitutionally required to receive.  
            Proponents also note that these liens are frequently quite old 
            and not compensable because they are in excess of the fee 
            schedule.  Proponents believe that SB 863 will help to clear 
            the appeals process from unnecessary liens by requiring that 
            liens be in writing and served on all parties, as well as 
            capped by a reasonable statute of limitations to ensure that 
            liens will be filed and processed in a timely manner.

          4.  Prior Legislation  :

            AB 749 (Calderon), Statutes of 2002, Chapter 6, among other 
            things, creates the current statute of limitations of workers' 
            compensation liens filings discussed earlier in this analysis.


                                       SUPPORT
          
          California Association of Joint Powers Authorities (CAJPA) 
          (Sponsor)
          California Chamber of Commerce
          California Coalition on Workers' Compensation
          California Medical Association (CMA)
          Hearing Date:  April 27, 2011                            SB 863  
          Consultant: Gideon L. Baum                               Page 5

          Senate Committee on Labor and Industrial Relations 
          








          California Special Districts Association
          California State Association of Counties (CSAC)
          CSAC Excess Insurance Authority
          League of California Cities
          
                                     OPPOSITION
          
          None on file.

































          Hearing Date:  April 27, 2011                            SB 863  
          Consultant: Gideon L. Baum                               Page 6

          Senate Committee on Labor and Industrial Relations