BILL ANALYSIS                                                                                                                                                                                                    

                             Senator Tony Mendoza, Chair
                                2015 - 2016  Regular 

          Bill No:               SB 1160      Hearing Date:    August 31,  
          |Author:    |Mendoza                                              |
          |Version:   |August 29, 2016                                      |
          |Urgency:   |No                     |Fiscal:    |Yes              |
          |Consultant:|Gideon L. Baum                                       |
          |           |                                                     |
                           Subject:  Workers' compensation

          KEY ISSUE
          Should the Legislature expedite medical care at the beginning of  
          an injured worker's claim, modernize data collection in the  
          workers' compensation system, and implement anti-fraud measures  
          in the filing and collection of liens?

          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 duly 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  


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               shall be provided by the employer.  (Labor Code 4600)

             3)   Requires the administrative director of the Division of  
               Workers' Compensation to create a Medical Treatment  
               Utilization Schedule (MTUS), which is evidence-based, peer  
               reviewed, and addresses, at a minimum, the frequency,  
               duration, intensity, and appropriateness of all treatment  
               procedures and modalities commonly performed in workers'  
               compensation cases. The MTUS is presumed to be correct,  
               unless rebutted by a preponderance of evidence. (Labor Code  
               5307.27 and 4604.5)

             4)   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)

             5)   Requires that each utilization review (UR) process shall  
               be governed by written policies and that these policies and  
               procedures, and a description of the utilization process,  
               must be filed with the administrative director and shall be  
               disclosed by the employer to employees, physicians, and the  
               public upon request.  (Labor Code 4610(c))

             6)   Provides that, in the event over a dispute over a  
               utilization review decision on or after July 1, 2014, all  
               disputes must be submitted for Independent Medical Review  
               (IMR).  The independent reviewer's information must be kept  
             (Labor Code 4610.5 and 4610.6)

             7)   Requires that, in the absence of fraud, error, or  
               illegal conduct, the IMR decision is final and binding.   
               (Labor Code 4610.6)

             8)   Requires the administrative director to create and  
               maintain a workers' compensation information system (WCIS),  
               which is used to assist DIR to manage the workers'  
               compensation system in an effective manner, as well as  
               measuring how adequately the system indemnifies injured  


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               workers and their dependents. Penalties for failing to  
               report data to the WCIS are capped at $5,000 per year.  
               (Labor Code 138.6)
           This Bill makes a series of significant, wide-ranging changes to  
          the operation and UR processes, approval of UR processes, and  
          lien filing and collection. Specifically, this bill:

          UR Operation:

             1)   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 pre-designated physician, no prospective UR may be  
               undertaken for the first 30 days of treatment.

             2)   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.

             3)   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  

             4)   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.

          UR Process Approval:

             5)   Explicitly prohibits an employer or claims administrator  


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               from providing a UR organization with financial incentives  
               to deny or modify treatment.

             6)   Requires financial interest disclosure of UR entities be  
               shared with the Division of Workers' Compensation (DWC).

             7)   Requires any UR organization to obtain accreditation  
               from an accrediting entity specified by the DWC, subject to  
               exceptions for certain public entities that have internal  
               systems approved by the DWC. The accreditation entity must  
               be independent and non-profit. Until the rules are approved  
               by the AD, the accreditation entity will be URAC.

             8)   Provides authority to the DWC to approve UR processes.

          UR and Medical Guideline Modernization:

             9)   Requires, through the URAC accreditation process, the  
               availability of peer-to-peer communication in the event of  
               a UR modification or denial.

             10)  Requires the AD to develop a mandatory electronic system  
               for sharing documents necessary to conduct UR.

             11)  Adopts new procedures designed to better facilitate  
               delivery of information for purposes of independent medical  
               review (IMR).

             12)  Establishes an expedited 5-day time frame for IMR  
               decisions related to medications on the formulary.

             13)  Provides that the medical treatment utilization schedule  
               (MTUS) may be updated with evidence-based medicine  
               standards by an expedited process.


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          Anti-Fraud Measures:

             14)  Requires, for liens filed on or after January 1, 2017, a  
               lien filer to specify in the lien filing the basis upon  
               which the lien is authorized.

             15)  Requires these same data elements to be added to  
               pre-existing liens, but allows until July 1, 2017 for lien  
               filers to comply.

             16)  Provides that the failure to comply with the  
               requirements noted above results in a dismissal of the lien  
               with prejudice.

             17)  Provides that in the event a lien filer is charged with  
               workers' compensation fraud, Medi-Cal fraud, or Medicare  
               fraud, all liens are stayed pending resolution of the  

             18)  Prohibits, for liens on or after January 1, 2017, any  
               assignment of liens unless the person has ceased doing  
               business in the capacity held at the time the expenses were  
               incurred and has assigned all right, title, and interest in  
               the remaining accounts receivable to the assignee. The  
               assignment of a lien, in violation of this paragraph is  
               invalid by operation of law.

             19)  Clarifies existing law on liens assigned between 2013  
               and 2016 by codifying Chorn v. WCAB (2016), 2016 Cal. App.  
               LEXIS 232 and states these amendments to be declaratory of  
               existing law.


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          1.  SB 1160: Renewing the Grand Compromise

            In 1914, California embarked on a quest for justice - justice  
            for both California's injured workers and California's  
            employers. At the heart of this quest, enshrined in by the  
            State Constitution and statutes, is a grand compromise between  
            injured workers and employers. In creating a mandatory  
            workers' compensation system, injured workers gave up their  
            right to pursue tort claims against an employer due to an  
            industrial injury, while employers were required to pay for  
            appropriate medical care and, if necessary, indemnity  

            In anticipating disputes, the Constitution requires that the  
            administration of the workers' compensation system be  
            conducted "[T]o the end that the administration of such  
            legislation shall accomplish substantial justice in all cases  
            expeditiously, inexpensively, and without incumbrance of any  
            character?." Unfortunately, it is here that many stakeholders  
            feel the workers' compensation system has failed them, in the  
            form of unnecessary medical disputes and persistent and  
            unchecked fraud.

            A product of multiple oversight hearings, extensive  
            stakeholder feedback, and significant research, SB 1160 seeks  
            to address these challenges through reforms in two areas:  
            utilization review and workers' compensation liens. These  
            reforms will be discussed below.

          2.  SB 1160 and Utilization Review:  

             Utilization Review (UR)  is the review process for medical  
            treatment recommendations by physicians  to see if the request  
            for medical treatment is medically necessary  . The full UR  
            process varies by vendor, but it generally involves initial  
            review by a non-physician, with higher level review(s) being  
            conducted by a physician or physicians. Only a licensed  
            physician who is competent to evaluate the specific clinical  
            issues involved in the medical treatment services may modify  
            or deny a request for medical treatment.  


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            Recently, UR has become an increasingly notable area of  
            concern from a variety of stakeholders. Specifically, both  
            injured workers and medical providers report delays and  
            denials of medical care due to the UR process. While existing  
            research does not support the argument of significant delays  
            or denials due to UR, recent research suggests that, while  
            such delays and denials may not be system-wide, they may be  
            specific to certain employers or UR entities. This suggests,  
            in part, that the implementation of best-practices across the  
            system will lead to improvements for injured workers who are  
            having their care delayed or denied.

            SB 1160 seeks to address the reported challenges with the UR  
            in two ways. First, SB 1160 eases the requirements of UR  
            within the first 30 days of a worker's injury, with certain  
            exceptions. Employers are still able to conduct retrospective  
            review, and SB 1160 provides tools to employers in the event  
            that a medical provider abuses the workers' compensation  
            Second, SB 1160 requires that all UR entities rise to meet the  
            "best practices" of the industry. This includes URAC  
            accreditation, a voluntary peer-to-peer process between  
            doctors in the event of a medical dispute, and a prohibition  
            on the use of financial incentives to deny or modify medical  
            care. SB 1160 also provides for an expedited, transparent  
            process for updating existing medical guidelines, ensuring  
            that UR decisions are based on the best available medical  

            Finally, SB 1160 also requires the Division of Workers'  
            Compensation (DWC) to create a database that captures UR  
            decisions and documentation. With this information, SB 1160  
            will shine a bright light on how UR impacts claims, both  
            system-wide and for specific employers and UR entities. This  
            data will make possible targeted audits and legislative  
            initiatives that address unnecessary medical disputes, while  
            preserving important protections against unnecessary and  
            abusive medical treatment.

          3.  SB 1160 and the Workers' Compensation Liens Process:

            In a recent letter to the Commission on Health and Safety and  
            Workers' Compensation, the author of SB 1160 identified fraud  


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            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. While all of the  
            schemes were different, each had one common feature: the use  
            of the workers' compensation lien system to monetize the  

            Despite the criminal charges, medical bills and workers'  
            compensation liens from doctors charged or even convicted of  
            medical fraud continue to be 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.
            Overall, DWC places the dollar amount of liens held by  
            providers who have been charged or convicted of workers'  
            compensation fraud at $600 million - or 17% of all liens in  
            the system.

            SB 1160 addresses fraud in the workers' compensation lien  
            process in three ways:

            First, SB 1160 requires that, when a medical provider is  
            charged with workers' compensation, Medicare, or Medi-Cal  
            fraud, his or her liens must be stayed until criminal charges  
            are resolved. If the medical provider is cleared of all  
            charges, his or her liens will be adjudicated in the same way  
            as other liens without prejudice. Similar anti-fraud  
            provisions are utilized by the Medi-Cal and Medicare systems  
            in their fight against medical fraud.

            Second, SB 1160 requires all lien claimants to file a  
            declaration as to which specific category provided under  
            existing law allows the claimant to file a lien. As the  
            statute that provides the specific categories for filing a  
            lien is unchanged by SB 1160, the causes for filing a lien  


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            under existing law remain unchanged by SB 1160 - including  
            denied industrial injuries. The only change is that a lien  
            claimant must now file a declaration to support an assertion  
            of rights. 

            Third, SB 1160 prospectively prohibits lien assignments in the  
            workers' compensation system, unless the medical provider has  
            ceased doing business. SB 1160 also clarifies the law on lien  
            assignments made between 2013 and 2016. As this is an area of  
            considerable discussion among stakeholders, this facet will be  
            discussed in more detail below.

          4.  SB 1160 and Lien Assignments:  

            Some stakeholders have noted that assignment and factoring of  
            accounts receivable are common in many industries. Generally  
            speaking, accounts receivable can be sold to a third party or  
            used as collateral for a loan in order to allow a business to  
            maximize cash flow and not focus on chasing down payment. The  
            business generally receives 50-85% of the amount of the  
            receivables, with the remainder going to the third party.

            This is not what is happening in California's workers'  
            compensation system.

            Through lawsuits, grand jury transcripts, and research,  
            anti-fraud investigators have put forward a common scenario by  
            which lien assignments are used to drive fraud. In our  
            hypothetical, a compound pharmacy company contracts with a  
            third party marketing company. This company is in fact an  
            illegal "running and capping" organization, which pays doctors  
            and attorneys illegal kickbacks to prescribe the pharmacy's  

            To capitalize this scheme, a lien assignment firm buys the  
            company's accounts receivable and files them as liens, paying  
            only 20% of the face value of the receivables. This provides  
            the capital necessary for the pharmacy to compound products,  
            as well as pay the marketing firm for kickbacks. For the lien  
            assignment company, any lien settlement above 20 cents on the  
            dollar is nearly pure profit. As the cost of a compound  
            medication can be manipulated by the costs of the ingredients,  
            this allows all participants to grow their profit margins  
            based on volume. In short, all participants make money, with  


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            employers paying exorbitant costs and injured workers  
            receiving substandard, profit-driven care.

            In 2012, the Legislature sought to limit this practice with  
            the passage of SB 863, which created new requirements limiting  
            assignments to medical providers that are going out of  
            business (Labor Code 4903.8). However, some workers'  
            compensation judges have found existing law to be unclear,  
            leading to a phenomena where liens are filed in a provider's  
            name, with payment going to that provider, but then the  
            provider returns all or a portion of the payment to the third  
            party assignment company, which actually owns the lien. This  
            repayment is generally governed by a contractual agreement  
            that is unknown to the workers' compensation judge awarding  
            the lien. This was not what the Legislature had in mind with  
            the passage of SB 863.

            SB 1160 explicitly prohibits any assigning or factoring of a  
            lien on or after January 1, 2017, unless the medical provider  
            is no longer in business in the capacity in which they filed a  
            lien. For liens assigned between 2013 and 2016, SB 1160  
            codifies the recent appellate court decision, Chorn v. WCAB  
            (2016), 2016 Cal. App. LEXIS 232, which found that  
            restrictions on lien assignments were constitutional and that  
            "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."

          5.  Proponent Arguments  :
            Proponents argue that SB 1160 addresses several areas of  
            concern within our current system relating to how insurers and  
            employers dispute treatment requests. Proponents argue that,  
            while UR decisions should focus on if the treatment aligns  
            with our Medical Treatment Utilization Schedule (MTUS),  
            medically necessary treatment is inappropriately delayed or  
            denied via UR, generating needless costs for employers and  
            pointless delays for workers. Proponents argue that SB 1160  
            limits unnecessary UR in the first 30 days, and provides a  
            voluntary peer-to-peer communication process between doctors.  


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            Proponents also argue that independent accreditation will  
            ensure that UR entities are making medical care decisions  
            timely and in an appropriate manner. Finally, proponents argue  
            that, while SB 863 made great strides to eliminate fraudulent  
            liens, fraudulent liens continue to be problematic and SB 1160  
            helps resolve this by placing important safeguards in the lien  
            process, including ending the assignment of liens to third  
            parties-unless the provider has left that business-and require  
            a declaration of lien filers to ensure that these requests for  
            payments are filed for appropriate reasons.

          6.  Opponent Arguments  :

            Opponents argue that SB 1160 will result in significant  
            financial losses for lien claimants. Specifically, opponents  
            are concerned that they will not have sufficient time to file  
            declarations and avoid losing their liens. Opponents further  
            argue that, in order to comply with the provisions of SB 1160,  
            they may need to request that the WCAB compel documentation  
            from employers on claims, overwhelming to local WCABs  
            Opponents also argue that the lien disclosure may overturn  
            settled law that gives specific rights to injured workers to  
            self-procure medical treatment in the event of a denial by the  
            employer. Finally, some opponents have raised concerns about  
            the provisions of SB 1160 which stay workers' compensation  
            liens in the event of criminal charges related to workers'  
            compensation fraud. These opponents argue that this provision  
            may not hold up in court, and therefore should be removed from  
            the bill. 

          7.  Prior Legislation  :

            SB 863 (DeLeon), Chapter 363, Statutes of 2012, was discussed  

          California Professional Firefighters (Sponsor)
          California Labor Federation, AFL-CIO (Sponsor)
          Acclamation Insurance Management Services
          California Alliance of Self-Insured Groups
          California Medical Association
          California Occupational Medicine Physicians


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          Communication Workers of America, District 9
          Orange County Professional Firefighters Association, Local 3631
          Risk Insurance Management Society
          Small Business California
          U.S. HelathWorks Medical Group
          Western Occupational and Environmental Association
          California Neurology Society
          California Society of Industrial Medicine and Surgery
          California Society of Physical Medicine and Rehabilitation
          California Workers' Compensation Interpreters Association
          California Workers' Compensation Services Association
          Voters Injured at WORK

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