BILL ANALYSIS                                                                                                                                                                                                    





          SENATE COMMITTEE ON LABOR AND INDUSTRIAL RELATIONS
                             Senator Tony Mendoza, Chair
                                2015 - 2016  Regular 

          Bill No:               AB 1244      Hearing Date:    June 29,  
          2016
           ----------------------------------------------------------------- 
          |Author:    |Gray                                                 |
          |-----------+-----------------------------------------------------|
          |Version:   |June 22, 2016                                        |
           ----------------------------------------------------------------- 
           ----------------------------------------------------------------- 
          |Urgency:   |No                     |Fiscal:    |Yes              |
           ----------------------------------------------------------------- 
           ----------------------------------------------------------------- 
          |Consultant:|Gideon L. Baum                                       |
          |           |                                                     |
           ----------------------------------------------------------------- 
          
               Subject:  Workers' compensation: providers: suspension


          KEY ISSUE
          
          Should the Legislature require the administrative director of  
          the Division of Workers' Compensation to suspend a medical  
          service provider if he or she is convicted of workers'  
          compensation fraud?

          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 by either securing the  
               consent of the Department of Industrial Relations to  
               self-insure or by securing insurance against liability from  
               an insurance company authorized by the state.  

              2)   Provides that medical, surgical, chiropractic,  
               acupuncture, and hospital treatment, including nursing,  
               medicines, medical and surgical supplies, crutches, and  








          AB 1244 (Gray)                                          Page 2  
          of ?
          
               apparatuses, including orthotic and prosthetic devices and  
               services, that is reasonably required to cure or relieve  
               the injured worker from the effects of his or her injury  
               shall be provided by the employer.  (Labor Code 4600)
           
              3)   Requires that all employers create a utilization review  
               process, which is a process that prospectively,  
               retrospectively, or concurrently review and approve,  
               modify, delay, or deny, 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)

             4)   Requires the director of the Department of Health Care  
               Services (DHCS) to suspend any or all payments to a medical  
               service provider if there is a credible allegation of fraud  
               against the Medi-Cal system. (Welfare and Institutions Code  
               14107.11)

             5)   Requires the director of DHCS to suspend a provider of  
               medical services for conviction of any felony or any  
               misdemeanor involving fraud, abuse of the Medi-Cal program  
               or any patient, or otherwise substantially related to the  
               qualifications, functions, or duties of a provider of  
               medical services. 
             (Welfare and Institutions Code 14123)

           

          This bill would  :
          
             1)   Requires the administrative director (AD) of the  
               Division of Workers' Compensation (DWC) to suspend medical  
               service providers from participating in any capacity in the  
               workers' compensation system if any of the following is  
               applicable:
               a)     Convicted of a felony;
               b)     Convicted of a misdemeanor involving fraud or abuse  
                 of the Medi-Cal program, Medicare program, or workers'  
                 compensation system 
               c)     Convicted of a misdemeanor involving fraud or abuse  
                 of any patient, or otherwise substantially related to the  
                 qualifications, functions, or duties of a provider of  
                 service;







          AB 1244 (Gray)                                          Page 3  
          of ?
          
               d)     Suspended from the federal Medicare or Medicaid  
                 programs due to fraud or abuse; or
               e)     Lost or surrendered a license, certificate, or  
                 approval to provide health care.

             1)   Requires the AD to provide written notice to the medical  
               provider who has been identified as eligible for  
               suspension. The notice shall give information on how the  
               medical provider can request a hearing to contest his or  
               her eligibility for suspension. If the medical provider  
               does not respond to the notice within 30 days, he or she is  
               automatically suspended.

             2)   Require the DWC to hold a hearing on the suspension of a  
               medical provider within 30 days of a request. Such a  
               request would stay any suspension of a medical provider.

             3)   If, during the hearing, the AD finds that the medical  
               provider is eligible for suspension due to the reasons  
               listed above, the AD must suspend the medical provider  
               immediately. Upon suspension, the AD must notify the  
               relevant licensing, certification, or registration board.

             4)    Prohibits a provider of medical services, whether an  
               individual, clinic, group, corporation, or other  
               association from submitting or pursuing a claim for payment  
               from a payor, unless the claim for payment has been reduced  
               to final judgment or the services or supplies are unrelated  
               to a violation of the laws governing workers' compensation.

             5)   Require that the director of DHCS notify the  
               Administrative Director of the DWC if a medical provider is  
               added to the Suspended or Ineligible Provider List.


          COMMENTS
          

          1.  A Specter Haunting California: Fraud in the Workers'  
            Compensation System

            In a recent letter to the Commission on Health and Safety and  
            Workers' Compensation, the Chair of this Committee identified  
            fraud as a specter haunting the workers' compensation system  
            and presenting a fundamental challenge to the operation of  







          AB 1244 (Gray)                                          Page 4  
          of ?
          
            system for all stakeholders. 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. Recent enforcement  
            activities include:

            Pacific Hospital and Spinal Implants

            According to recent plea agreements, the owners of Pacific  
            Hospital illegally kicked back money to doctors,  
            chiropractors, marketers, and others for referring workers'  
            compensation patients for surgery and other services. In the  
            case of spinal surgeries, surgeons received $10,000 to $15,000  
            for each surgery. Between 2008 and 2013, this fraudulent  
            activity led to $500 million in illegal services being billed  
            to employers and insurers, as well as $20 to $50 million in  
            kickbacks resulting from those billed services.

            Peyman Heidary and Cary Abramowitz

            Seven defendants were indicted at the beginning of this month  
            for allegedly fraudulently billing nearly $100 million through  
            a complex running and capping system. Specifically, the  
            allegation is that a chiropractor effectively took control of  
            a law firm, illegally paid a firm for referrals of injured  
            workers, and then referred those injured workers to a series  
            of medical clinics for unnecessary treatment. Peyman Heidary,  
            the alleged "Godfather" of the plot, is facing up to 97 years  
            in prison.

            Ronald Grusd and George Reese

            In November of last year, eight defendants were indited for a  
            kickback scheme involving chiropractors and radiology for $25  
            million in allegedly fraudulent treatment. In this case, the  
            allegation was that a group of radiology companies paid  
            kickbacks to chiropractors for referrals of injured workers.  
            At the time, U.S. Attorney Laura Duffy said "Today's  
            indictments are only the first wave of charges in what we  
            believe is rampant corruption on the part of some physicians  
            and chiropractors in their dealings with the health care  
            system in general, and California's Workers' Compensation  
            System in particular."

            Despite the charges, medical bills and workers' compensation  







          AB 1244 (Gray)                                          Page 5  
          of ?
          
            liens from doctors convicted of medical fraud are still being  
            pursued. For example, Dr. Philip Sobol, who pled guilty in  
            connection with his involvement with the Pacific Hospital  
            kickback scheme and is facing up to 10 years in prison, is  
            still filing workers' compensation liens and seeking payment  
            for treatment that is likely fraudulent. In theory, these  
            workers' compensation liens could go towards paying his $5.2  
            million in restitution due to his fraudulent activities.  
            Additionally, Dr. Sobol's medical license remains active - the  
            Medical Board has yet to take adverse action.
          
          2.  AB 1244 and Workers' Compensation Fraud:  

            AB 1244 seeks to combat workers' compensation fraud by  
            changing the incentives facing medical providers in the  
            California workers' compensation system. Specifically, AB 1244  
            seeks to create a suspension process for medical providers who  
            commit serious crimes or are involved in fraudulent activity  
            that is modeled after the suspension process for Medi-Cal.  
            Currently, there is no suspension process for medical  
            providers in the workers' compensation system beyond removal  
            from the Qualified Medical Examiner (QME) list.
            In a nutshell, AB 1244 would follow the lead of Medi-Cal and  
            require the suspension of a medical provider if the medical  
            provider is convicted of a felony, a misdemeanor connected to  
            fraud, a misdemeanor connected to patient or privilege abuse,  
            or the medical provider's license is suspended or revoked. AB  
            1244 then provides a hearing process where the medical  
            provider can contest the applicability of suspension - such  
            mistaken identity or a later plea deal that reduces a felony  
            to a non-eligible misdemeanor. If the medical provider does  
            not request a hearing, the suspension would take effect within  
            30 days of notice.

            Similar to Medi-Cal, AB 1244 requires that a suspended medical  
            provider be excluded from the system and denies further  
            payment for services. In the case of Medi-Cal, however,  
            existing law allows for a suspension of any and all payments  
            in the case of a medical provider being charged with  
            fraudulent activity. AB 1244 instead suspends the provider and  
            denies further payment after conviction and the completion of  
            the suspension process, unless the suspension is for non-fraud  
            related reasons or payment was already provided.

            Finally, AB 1244 requires DHCS to communicate with DIR when a  







          AB 1244 (Gray)                                          Page 6  
          of ?
          
            medical provider is added to the Medi-Cal Suspended or  
            Ineligible Provider List. Depending on the reasons for a  
            medical provider being added to the Medi-Cal list, this may  
            trigger a suspension process by the DWC as well.

          3.  Staff Comments:  

            AB 1244 and Notice Requirements

            Under AB 1244, the notice for the suspension hearing is sent  
            by the AD, but then requires the Department of Industrial  
            Relations to hold the suspension hearing, rather than the  
            Division of Workers' Compensation, which is under the AD's  
            authority. The author may wish to strike the references to  
            "department" and replace them with "division" in Section  
            139.21(b)(2).

            Suspension of Payment

            As was noted above, Medi-Cal allows for the suspension of  
            payment if a medical provider is charged with committing  
            fraud. The author may want to consider a similar provision,  
            with the requirement that the DWC consolidate and suspend all  
            liens from the indicted medical provider. If the medical  
            provider is eventually cleared of all charges, he or she could  
            continue to pursue his or her claims. If he or she is  
            eventually convicted of fraud, such a consolidation would  
            lower barriers and reduce frictional costs in the dismissal of  
            the liens.

          4.  Proponent Arguments  :
            
            Proponents cite the recent Center for Investigative Reporting  
            articles which detailed significant fraud throughout the  
            system amounting to at least $1 billion in potentially  
            fraudulent charges. Proponents argue that the outrageous  
            billing and treatment practices endanger injured workers and  
            lead to significant costs on the part of employers. Moreover,  
            proponents note that many of these medical providers would  
            have been removed or suspended by other medical treatment  
            systems similar to the workers' compensation system.  
            Proponents argue that, in order to protect injured workers and  
            ensure that employers are only billed for appropriate medical  
            services, it is necessary to adopt similar medical provider  
            suspension policies as are found in Medi-Cal.







          AB 1244 (Gray)                                          Page 7  
          of ?
          

          5.  Opponent Arguments  :

            None on file.

          6.  Prior Legislation  :

            SB 863 (DeLeon), Chapter 363, Statutes of 2012, eliminates the  
            "spinal pass-through", or the double payment of spinal  
            hardware for spine surgery. 


          SUPPORT
          
          Association of California Insurance Companies
          California Chamber of Commerce
          California Conference Board of the Amalgamated Transit Union
          California Conference of Machinists
          California Professional Firefighters
          California State Association of Counties
          California Teamsters Public Affairs Council
          Engineers & scientists of CA, IFPTE Local 20, AFL-CIO
          International Longshore & Warehouse Union
          Professional & Technical Engineers, IFPTE Local 21, AFL-CIO
          UNITE-HERE, AFL-CIO
          Utility Workers Union of America, AFL-CIO

          
          OPPOSITION
          
          None received. 

                                      -- END --