BILL ANALYSIS Ó 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