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 








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            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 








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            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 








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            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