BILL ANALYSIS Ó
SB 1160
Page 1
Date of Hearing: August 25, 2016
ASSEMBLY COMMITTEE ON INSURANCE
Tom Daly, Chair
SB
1160 (Mendoza) - As Amended August 18, 2016
SENATE VOTE: 26-12
SUBJECT: Workers' compensation
SUMMARY: Prohibits, subject to exceptions, prospective
utilization review (UR) in the first 30 days of a claim if the
treatment is being provided by an employer directed provider, or
a pre-designated physician; clarifies and enhances the rules
governing the assignment and filing of liens, and makes a number
of changes to the rules governing UR. Specifically, this bill:
1)Deletes the current content of the bill, with the exception of
the provision that increases from $5000 to $10,000 the potential
penalty for a failure of a claims administrator to file required
workers' compensation data with the Division of Workers'
Compensation (DWC).
2)Provides that, with respect to medical treatment that is
provided through a medical provider network (MPN), a health care
organization (HCO), other employer directed provider, or a
SB 1160
Page 2
pre-designated physician, no prospective UR may be undertaken
for the first 30 days of treatment.
3)Provides several exceptions to the "no UR" rule, including
surgery, medications not covered by the formulary, psychological
treatment, imaging, other than x-ray imaging, durable medical
equipment if total costs for all DME exceeds $250, and home
health care services.
4)Requires any treatment provided within the first 30 days to be
reported to the employer or claims administrator, and a failure
by the provider to properly report treatment constitutes grounds
to revoke the "no UR" rule as to that provider.
5)Authorizes an employer to conduct retrospective UR for the
purposes of ensuring that the provider is complying with
evidence-based medicine standards, and if a pattern or practice
of failing to do so is discovered this would be grounds to
revoke the "no UR" rule, or to remove the provider from the MPN.
6)Prohibits an employer or claims administrator from providing a
UR organization with financial incentives to deny or modify
treatment.
7)Authorizes the Administrative Director (AD) of the DWC to
review any contracts with a UR organization, but any of these
contracts in possession of the AD do not constitute public
records.
8)Requires any UR organization to obtain accreditation from an
accrediting entity specified by the AD, subject to exceptions
for certain public entities that have internal systems approved
by the AD.
SB 1160
Page 3
9)Requires prospective UR decisions relating to formulary drugs
after the first 30 days of a claim to be conducted within 5 days
after the claims administrator receives the request for
authorization.
10)Adopt new procedures designed to facilitate better
communication between UR entities and providers.
11)Requires the AD to develop a mandatory electronic system for
sharing documents necessary to conduct UR.
12)Adopts new procedures designed to better facilitate delivery
of information for purposes of independent medical review (IMR).
13)Establishes an expedited 5-day time frame for IMR decisions
related to medications on the formulary.
14)Provides that the medical treatment utilization schedule
(MTUS) may be updated with evidence-based medicine standards by
an expedited process.
15)Redefines "medical necessity" and "medically necessary" by
reference to the MTUS and to the drug formulary.
16)Requires a lien filer to specify in the lien filing the basis
upon which the lien is authorized.
17) Adds specific data requirements that must be included in any
lien filed on or after January 1, 2017.
SB 1160
Page 4
18)Requires these same data elements to be added to pre-existing
liens, but allows until July 1, 2017 for lien filers to comply.
19)Provides that the failure to comply with the requirements
noted above results in a dismissal of the lien with prejudice.
20)Provides that in the event a lien filer is charged with
workers' compensation fraud, all liens are stayed pending
resolution of the charges.
21)Clarifies the existing rule that liens are not assignable by
a provider, unless that provider is going out of business, and
states these amendments to be declaratory of existing law.
22)Directs the AD to adopt a fee schedule for certain attorney
services.
23)Recasts the requirements for the physician's initial report
of injury, and require the AD to adopt regulations to implement
these requirements.
24)Includes technical and conforming changes to implement the
amendments, above.
EXISTING LAW:
1)Establishes a comprehensive system to provide benefits,
including medical treatment, to employees who are injured or
suffer conditions that arise out of or in the course of
SB 1160
Page 5
employment.
2)Requires medical treatment to be evidence-based, as detailed
in the MTUS adopted and maintained by the AD.
3)Provides for a Workers' Compensation Information System
(WCIS), and mandates that specified claims data be filed by
entities that pay workers' compensation claims.
4)Authorizes the AD to impose a fine of up to $5000 per year for
a failure of an employer or claims administrator to comply with
the law.
5)Requires every employer or insurer to maintain a UR process,
which is the mechanism for the employer or insurer to review,
delay, modify or deny treatment requested by a treating medical
provider.
6)Allows an employer to subject any requested treatment to UR,
either prospectively or retrospectively.
7)Authorizes providers to file a lien in the event the provider
believes he or she is entitled to compensation for services
rendered, and empowers the WCAB to adjudicate the lien either in
connection with the underlying case or in a separate proceeding.
8)Requires a filing fee of $150 to file a lien, which is
refundable in the event the lien claimant succeeds in obtaining
payment on the lien.
9)Prohibits a medical provider from assigning lien rights to a
SB 1160
Page 6
third party unless the provider is going out of business.
10)Requires disputes over medical treatment to be resolved via
IMR.
11)Requires the AD to adopt a prescription drug formulary for
use in the workers' compensation system.
FISCAL EFFECT: Undetermined
Comments:
1)Purpose. SB 1160 represents the Administration's proposal to
address two concerns in the workers' compensation system.
First, it is designed to smooth what are perceived as the rough
edges of the UR process, which some stakeholders believe is
causing unnecessary delay or denial of appropriate medical
treatment. Second, it is designed to clarify the rules
governing liens, which has been an area of abuse that was
addressed by SB 863 (Statutes 2012, Chapter 363), the 2012
workers' compensation reform bill. However, the Administration
believes the lien rules require updating and clarification.
While the current bill contains mostly new language that is in
print for the first time, a broad array of workers' compensation
stakeholders have been meeting with the DWC, and have been privy
to the developing draft for some time. The recent amendment to
the bill has been expected.
2)Utilization review. Utilization review is the only mechanism
an insurer or employer has to object to treatment that is being
recommended for an injured worker by a treating provider. The
procedure is detailed in statute. A claims adjuster is not
authorized to modify or deny medical treatment - only a provider
SB 1160
Page 7
who is trained and experienced similarly to the recommending
provider can overrule a requested treatment. Typically insurers
and employers retain a UR firm, which in turn has contracts with
a network of qualified providers who are schooled in the
mandated-by-statute evidence-based medicine principles that
govern medical treatment in California's workers' compensation
system.
Proponents of the bill have become concerned that there is too
much treatment being denied or modified via UR, and in
particular see wide variations among insurers and employers in
how utilization review is being used. They recognize, however,
that there is not good data on UR practices, and this is one
reason why the bill proposes to increase penalties on claims
administrators that fail to file mandated claims data with the
DWC. The bill also increases the AD's authority to review
contracts that might create a financial conflict of interest.
However, the concern with UR is more deep-seated. Some
proponents believe that UR is used as an intentional delaying
tactic. The bill attempts to ensure that some issues, such as
disputes about treatment based on drugs listed for use in the
(not yet adopted) formulary are handled in an expedited fashion.
3)No UR within the first 30 days. Subject to a list of
exceptions for more sensitive treatments, the bill provides that
there shall be no UR in the first 30 days when the injured
worker goes to a provider who is recommended by the insurer or
employer, or if the injured worker predesignated their primary
care provider to be their workers' compensation physician in
case they are injured on the job. Some claims administrators
suggest that this is a "best practices" approach, and that
treatment provided quickly may be the best way to get an injured
worker back to work sooner. These claims administrators also
note that early treatments are not typically the sort of complex
SB 1160
Page 8
medical issues that generate debate over medical necessity or
appropriateness. Others are not convinced that "no UR" isn't an
invitation to certain providers to "over treat" and pad their
billings. In any event, insurers and employers have grudgingly
agreed that this part of the proposal is acceptable, provided
that lien reform is also a part of the package.
4)Medical necessity. The bill proposes a modification of the
definition of medical necessity by referring to the MTUS, which
defines or refers to appropriate guidelines that govern
appropriate treatment for most conditions or injuries. However,
there are potentially some conditions or injuries that are not
addressed by the MTUS, and the concern has been expressed that
the changes to the statute leave it unclear how to determine
appropriate treatment in these circumstances. The AD has
pointed out in response that the MTUS itself identifies how to
proceed when a condition or injury is not addressed
substantively. Specifically, in Title 8 of the California Code
of Regulations, Section 9792.21.1, it states "(2) In the limited
situation where a medical condition or injury is not addressed
by the MTUS or if the MTUS presumption of correctness is being
challenged, then:" The regulation proceeds to describe in
detail how the standards of evidence-based medicine are to be
applied in these situations. Proponents have argued that the
bill's language does not alter this regulation in any way, and
that the intent of the bill is that this regulation controls in
those limited situations where the MTUS itself does not address
a condition or injury directly.
5)Lien filing requirements. The bill establishes two new
requirements that are necessary when a lien is filed. First,
the bill requires additional data to be included in the filing
so that, on its face, it is much easier to ascertain what
services were provided, and the reasons those services were
provided. Second, the bill requires the lien filer to specify
from a list of statutory categories the basis upon which the
lien is being pursued by a proper lien filer. The filing
SB 1160
Page 9
notification contained in the proposed amendments to Labor Code
Section 4903.05 does not expand the circumstances under which
the law authorizes a lien to be filed. Those authorizations are
contained in other substantive Labor Code provisions. The bill
is merely requiring that the lien filer specify the basis upon
which the lien would be lawful.
6)Assignment of liens. Current law governing the assignment of
liens was adopted by SB 863 after stakeholders concluded that
lien abuse was rampant, and that the inappropriate (although not
necessarily illegal) use of liens was encouraging wasteful
expenses to the workers' compensation system. The SB 863
language provided that a lien payment "shall be made for payment
only to the person who was entitled to payment for the expenses
. . . at the time the expenses were incurred, and not to an
assignee" unless the provider were going out of business. This
language was commonly understood to mean that a health care
provider could pursue a lien on his/her own behalf, but could
not assign the lien to another party. Indeed, the Court of
Appeal in Chorn v Workers' Compensation Appeals Board, decided
in March of this year, stated: "The effect of section 4903.8 is
to prohibit WCAB from ordering or awarding lien payments to
anyone other than the medical provider who incurred the
expense."
Notwithstanding the apparent prohibition on assignment of liens,
some financiers opted to rely on an alternative interpretation
of the statute that would effectively continue the widespread
practice of purchasing the right to the proceeds of workers'
compensation liens. Based on their business judgment that the
status quo was more or less unchanged, these financiers
continued to purchase medical receivables - lien rights to
payment for workers' compensation treatments. Their
interpretation of the SB 863 language appears to be that, so
SB 1160
Page 10
long as the name of the original provider is used to file the
lien and payment is made to the provider, it does not matter
that the right to payment on the underlying lien had already
been assigned to the financier.
SB 1160 addresses this problem by adding language to the lien
assignment provision of the Labor Code that is consistent with
Chorn, and declares these changes to be declaratory of existing
law. In the end, a court is likely to rule on whether the
original intent of SB 863 controls liens filed by assignees
since SB 863 took effect, or whether the financiers'
interpretation of the statute is correct.
7)Continued lien abuse. Despite the efforts of the Legislature
and the DWC to control lien abuses in California's workers'
compensation system, the number of, and dollar value of,
workers' compensation liens has returned to pre-SB 863 levels.
According to the DWC, in the time period from 2011 through 2015,
over $600,000,000 of workers' compensation liens have been filed
- and allowed to be pursued - on behalf of providers who have
either been convicted of or indicted for workers' compensation
fraud.
Not all workers' compensation liens are abusive, and in fact SB
1160 is proposing rules that will govern when liens are
appropriate, and what data elements are required when a lien is
filed. Many providers, including providers who participate in
insurer or employer-established MPNs, will end up with payment
disputes that result in liens. This is not the source of the
primary lien abuses faced by the workers' compensation system.
SB 1160
Page 11
Many providers establish their practices, whether these are
physician offices, chiropractic or other physical medicine
clinics, or imaging and related testing facilities, for the sole
purpose of treating injured workers outside of the established
system (and if media reports and recent prosecutions are to be
believed, NOT providing treatment but billing anyway), and then
filing liens as the sole means of obtaining payment. In
essence, these providers find ways (sometimes legal, but
frequently illicit) to provide treatment without the approvals
or evidence-based medicine oversight built into the workers'
compensation system, and seek to be paid much later by filing
liens. Treating injured workers outside of the system is
contrary to a number of policies that have been pursued in
recent years, including evidence-based medicine treatment
guidelines, utilization review by qualified health care
providers, and independent medical review.
It is impossible in the overcrowded workers' compensation courts
to individually adjudicate all of these liens, and payors
complain that they are forced by workers' compensation judges to
settle by paying substantial funds on liens that are believed to
be inappropriate.
8)How capital encourages abuse. A small medical practice could
hardly stay in business if the only way it gets paid is months
or years later when the workers' compensation case is finally
resolved. Therefore these providers look to financiers who will
pay them now in exchange for assigning the lien rights to the
financiers. In this sense, these financiers are directly
enabling and incentivizing the lien providers and their
oftentimes abusive behavior. Commencing January 1, 2017, SB
1160 establishes a clear barrier to the assignment of liens.
9)Technical and clarifying amendments. A number of technical
SB 1160
Page 12
and clarifying amendments will be presented at the hearing of
the bill. These amendments will address drafting errors,
overlooked conforming changes, as well as new provisions
intended to improve the effectiveness of the bill's goals. The
amendments will be available prior to the hearing.
Analysis Prepared by:Mark Rakich / INS. / (916)
319-2086