BILL ANALYSIS                                                                                                                                                                                                    Ó






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          |SENATE RULES COMMITTEE            |                       AB 1244|
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                                   THIRD READING 


          Bill No:  AB 1244
          Author:   Gray (D) and Daly (D), et al.
          Amended:  8/19/16 in Senate
          Vote:     21 

           SENATE LABOR & IND. REL. COMMITTEE:  5-0, 6/29/16
           AYES:  Mendoza, Stone, Jackson, Leno, Mitchell

           SENATE APPROPRIATIONS COMMITTEE:  5-0, 8/11/16
           AYES:  Lara, Beall, Hill, McGuire, Mendoza
           NO VOTE RECORDED:  Bates, Nielsen

           ASSEMBLY FLOOR:  78-0, 1/28/16 - See last page for vote

           SUBJECT:   Workers compensation


          SOURCE:    Author

          DIGEST:   This bill requires the administrative director of the  
          Division of Workers Compensation to suspend a physician,  
          practitioner, or provider from providing care or services in the  
          workers' compensation system if he or she is convicted of  
          workers' compensation fraud. This bill also provides a process  
          for the dismissal of the convicted physician, practitioner, or  
          provider's liens.

          Senate Floor Amendments of 8/19/16 clarify lien suspension  
          process for physicians, practitioners, and providers convicted  
          of fraud and add coauthors.
          
          ANALYSIS:  
           








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           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 (DIR) 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 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:

          1)Requires the administrative director (AD) of the Division of  
            Workers' Compensation (DWC) to suspend a physician,  







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            practitioner, or provider from participating in a professional  
            capacity in the workers' compensation system if any of the  
            following is applicable:

             a)   Convicted of a felony or a misdemeanor a felony or  
               misdemeanor and that crime comes within any of the  
               following descriptions:

               (i) It involves fraud or abuse of the Medi-Cal program,  
               Medicare program, or workers' compensation system, or fraud  
               or abuse of any patient, or patient.
               (ii) It relates to the conduct of the individual's medical  
               practice as it pertains to patient care.
               (iii) It is a financial crime that relates to the Medi-Cal  
               program, Medicare program, or workers' compensation system.
               (iv) It is otherwise substantially related to the  
               qualifications, functions, or duties of a provider of  
               services.
                
             b)   Suspended from the federal Medicare or Medicaid programs  
               due to fraud or abuse; or

             c)   Lost or surrendered a license, certificate, or approval  
               to provide health care.

          2)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.

          3)Requires 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.

          4)Provides that 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.

          5)Creates a process for the consolidation and dismissal of liens  
            for specified convicted physicians, practitioners and  







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            providers.

          6)Requires that the director of DHCS notify the AD of the DWC if  
            a medical provider is added to the Suspended or Ineligible  
            Provider List.

          7)Limits reimbursement for legal fees unless an attorney has  
            filed the appropriate disclosures prior to representing an  
            injured worker.
          
          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 the Senate Labor and  
            Industrial Relations Committee identified fraud as a specter  
            haunting the workers' compensation system and presenting a  
            fundamental challenge to the operation 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,  







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          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  
          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.
        
          1)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, this  
            bill 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  
            list.

            In a nutshell, AB 1244 follows the lead of Medi-Cal and  







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            requires 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  
            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.


          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:YesLocal:   Yes


          According to the Senate Appropriations Committee, DIR estimates  
          the annual costs of this bill to be $1.5 million (special  
          funds).


          SUPPORT:   (Verified8/19/16)


          American Insurance Association
          Association of California Insurance Companies 
          California Association of Highway Patrolmen 
          California Chamber of Commerce







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          California Coalition on Workers' Compensation
          California Conference Board of the Amalgamated Transit Union
          California Conference of Machinists
          California Labor Federation
          California Professional Firefighters
          California State Association of Counties 
          California Teamsters Public Affairs Council
          Engineers & Scientists of California, IFPTE Local 20, AFL-CIO
          International Longshore & Warehouse Union
          Los Angeles County Professional Peace Officers Association
          Medical Board of California
          Organization of SMUD Employees
          Professional & Technical Engineers, IFPTE Local 21, AFL-CIO
          San Luis Obispo County Employees Association
          Service Employees International Union
          State Building and Construction Trades Council
          UNITE-HERE, AFL-CIO
          Utility Workers Union of America, AFL-CIO


          OPPOSITION:   (Verified8/19/16)


          California Neurological Society
          California Society for Industrial Medicine and Surgery 
          California Society of Physical Medicine and Rehabilitation


          ARGUMENTS IN SUPPORT:     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.


          ARGUMENTS IN OPPOSITION:     The opponents, while noting their  







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          opposition to provider fraud, argue that AB 1244 is overly  
          broad. Specifically, the opponents note that the prohibition on  
          providers being paid after conviction of fraud is excessively  
          broad. Opponents argue that it is possible that someone could be  
          convicted of fraudulent activity and still have legitimate liens  
          or medical bills in the system. Therefore, the opponents request  
          amendments to narrow the scope and prohibition of this bill to  
          allow providers convicted of fraud to continue to be able to  
          collect on their liens and medical bills.

          ASSEMBLY FLOOR:  78-0, 1/28/16
          AYES:  Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom,  
            Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang,  
            Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle,  
            Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina  
            Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez,  
            Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden,  
            Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder,  
            Lopez, Low, Maienschein, Mayes, McCarty, Medina, Melendez,  
            Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson,  
            Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago,  
            Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber,  
            Wilk, Williams, Wood, Atkins
          NO VOTE RECORDED:  Mathis

          Prepared by:Gideon L. Baum / L. & I.R. / (916) 651-1556
          8/22/16 22:58:08


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