BILL ANALYSIS Ó SB 863 Page 1 Date of Hearing: June 22, 2011 ASSEMBLY COMMITTEE ON INSURANCE Jose Solorio, Chair SB 863 (Lieu) - As Amended: June 6, 2011 SENATE VOTE : 37-0 SUBJECT : Workers' compensation: liens SUMMARY : Adopts reforms to the lien procedures in the workers' compensation system. Specifically, this bill : 1)Requires lien claimants to file their liens in writing with the Workers' Compensation Appeals Board (WCAB), accompanied by a statement or itemized voucher supporting the lien and justifying the right to reimbursement. 2)Requires the lien claimant to provide notice to all interested parties. 3)Prohibits filing a lien after three years from the date the services were provided for services provided prior to July 1, 2012, and 18 months from the date the services were provided for services provided on or after July 1, 2012. 4)Provides that the limitation periods noted above apply to any lien filed on or after the effective date of the bill, regardless of the date the services were provided. 5)Clarifies that liens in favor of the Employment Development Department (EDD) are payable from amounts owed as temporary or permanent disability, and states that this clarification is declaratory of existing law. 6)Provides that a health insurer, a health care service plan, a self-funded employee welfare benefit plan, or a publicly funded program providing medical benefits on a nonindustrial basis may file a lien within six months of discovering that the injury or condition was industrial in nature, but in no case later than five years after the services were provided. EXISTING LAW : 1)Establishes a comprehensive system of workers' compensation SB 863 Page 2 benefits for workers injured on the job, including medical services among other benefits. 2)Requires the Administrative Director (AD) of the Division of Workers' Compensation (DWC) to adopt and periodically revise an Official Medical Fee Schedule (OMFS) to establish the reasonable maximum fees to be paid for medical services. 3)Authorizes the WCAB to determine and allow liens to be paid as compensation for a variety of services that are provided to injured workers. 4)Provides that when a workers' compensation award is made, or when a compromise is submitted to the WCAB, an arbitrator, or a settlement conference referee for approval, the parties shall file with the board any liens that have been served on the parties. 5)Prohibits allowing a lien claim filed with the WCAB six months from the final order or decision, five years from the date of injury, or one year from the date services were provided, whichever is later. 6)Provides, based on decisional law, that these limitations are frequently tolled, and thus do not operate to prevent late filing of liens, and allows "implied" liens when no actual lien was filed. FISCAL EFFECT : According to the Senate Appropriations Committee, potentially significant savings to the state's workers' compensation program, and one-time costs of under $50,000 for the adoption of procedures to implement the new lien rules. COMMENTS : 1)Purpose . SB 863 seeks to adopt several of the less controversial recommendations made by the Commission on Health and Safety and Workers' Compensation (CHSWC) in its January, 2011 report on workers' compensation liens. Specifically, the bill would adopt a legitimate state of limitations that would provide certainty to employers, and prevent one of the worst abuses - the filing of liens on very old billings, many of which were paid at fee schedule rates when the bills were highly inflated in the first place. The bill also requires SB 863 Page 3 the lien claimant to actually file the lien, and do so in writing, with accompanying documentation, eliminating the uncertainty of "implied" liens. 2)What is a workers' compensation lien ? A lien in the workers compensation system can be for services other than medical services, such as interpreter services or legal services, when the provider believes the compensation allowed by the employer (or the insurer acting on behalf of the employer) was not adequate. However, medical-related liens are the most common. There are a number of reasons for filing a lien, some more legitimate than others. For example, a medical provider may submit a bill to an employer, complete with detailed billing codes, only to have the employer "down-code" the bill and pay less than billed, even though the bill attempted to bill only to the amount allowed by the fee schedule. The lien system is the mechanism by which the provider can challenge that employer's decision. On the other hand, liens can be used in ways that many observers find abusive. One practice is for a provider to ignore the fee schedule, and bill a higher amount, often characterized as the provider's "usual and customary" fee. When the employer recalculates the fee and pays the bill according to the OMFS, the provider files a lien and seeks to obtain a settlement by forcing the dispute into the expensive and overcrowded workers compensation litigation system. Another practice involves the failure to provide notice to an employer that a work-related injury is being treated, thereby avoiding utilization review and other employer cost controls, and filing liens seeking compensation for the services provided. In addition, this Committee considered a related abuse in AB 378 (Solorio) - over-billing for compounded medications - where the lien mechanism is used to leverage higher payments even when the employer has attempted to reject the abusive billing. 3)Background . According to the CHSWC report, we can expect that 450,000 liens will be filed in 2011. This volume consumes 35% of the Los Angeles branch of the WCAB's time. Employers and insurers set aside $200,000,000 per year on loss adjustment expenses each year - that is not $200,000,000 to pay the bills that are the basis of the liens, but rather the frictional expense associated with merely handling the process of resolving them. The CHSWC report makes more than 25 recommendations on ways to improve the lien system, and this bill adopts a few of the less controversial of those SB 863 Page 4 recommendations. 4)EDD issue . Certain cases, for example stress related heart conditions, may cause an employee to seek medical care without realizing the cause is work-related. If the condition is severe enough to result in disability, the employee will seek the SDI benefits to which he or she is entitled from EDD. Once it becomes clear that the case is work-related, EDD will have a lien to recover the SDI funds that should have been paid as either temporary or permanent disability benefits. The bill's provisions clarify this issue, and state the clarification to be declaratory of existing law. 5)Double-jointing . This bill and SB 457 both amend Labor Code Section 4903.1. The amendments are not incompatible, but in order to avoid chaptering out issues, the authors should have double-jointing language prepared as final forms of the bills develop by the time they reach the Assembly Floor. REGISTERED SUPPORT / OPPOSITION : Support Alpha Fund California Association of Joint Powers Authorities California Applicant Attorneys Association (CAAA) California Chamber of Commerce California Coalition on Workers' Compensation (CCWC) California Medical Association California Special Districts Association (CSDA) California State Association of Counties (CSAC) CSAC Excess Insurance Authority League of California Cities (LCC) Opposition None received. Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086