BILL ANALYSIS                                                                                                                                                                                                    Ó

          |SENATE RULES COMMITTEE            |                       SB 1160|
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                                 UNFINISHED BUSINESS

          Bill No:  SB 1160
          Author:   Mendoza (D), et al.
          Amended:  8/29/16  
          Vote:     21  

           SENATE LABOR AND IND. REL. COMMITTEE:  4-1, 4/13/16
           AYES:  Mendoza, Jackson, Leno, Mitchell
           NOES:  Stone

           AYES:  Lara, Beall, Hill, McGuire, Mendoza
           NOES:  Bates, Nielsen

           SENATE LABOR AND IND. REL. COMMITTEE:  5-0, 8/31/16 (pursuant  
            to Senate Rule 29.10)
           AYES:  Mendoza, Stone, Jackson, Leno, Mitchell

           SENATE FLOOR:  26-12, 5/31/16
           AYES:  Allen, Beall, Block, De León, Galgiani, Glazer, Hall,  
            Hancock, Hernandez, Hertzberg, Hill, Hueso, Jackson, Lara,  
            Leno, Leyva, Liu, McGuire, Mendoza, Mitchell, Monning, Pan,  
            Pavley, Roth, Wieckowski, Wolk
           NOES:  Anderson, Bates, Berryhill, Fuller, Gaines, Huff,  
            Moorlach, Morrell, Nguyen, Nielsen, Stone, Vidak
           NO VOTE RECORDED:  Cannella, Runner

           ASSEMBLY FLOOR:  80-0, 8/30/16 - See last page for vote
           SUBJECT:   Workers compensation

          SOURCE:    California Labor Federation, AFL-CIO 
                     California Professional Firefighters


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          DIGEST:   This bill expedites medical care at the beginning of  
          an injured worker's claim, modernizes data collection in the  
          workers' compensation system, and implements anti-fraud measures  
          in the filing and collection of liens.

          Assembly Amendments rewrite the bill, creating, among other  
          things, the 30 day utilization review (UR) period and the  
          anti-fraud measures.


          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 through the consent of the  
             Department of Industrial Relations (DIR) to self-insure or by  
             securing insurance against liability from a state authorized  
             insurance company.  

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

           3) Requires the administrative director (AD) of the Division of  
             Workers' Compensation (DWC) 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  


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             §§5307.27 and 4604.5)

           4) Requires that all employers create an UR process, which is a  
             process that prospectively, retrospectively, or concurrently  
             review and approves, modifies, delays, or denies, 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 UR process be governed by written  
             policies, procedures, and a description of the utilization  
             process, must be filed with the AD and disclosed by the  
             employer to employees, physicians, and the public upon  
             request.  [Labor Code §4610(c)]

           6) Provides that, in the event of a dispute over a UR 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 confidential.  (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  

           8) Requires the AD 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 measure how adequately the  
             system indemnifies injured 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:


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          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, non x-ray imaging, durable medical  
             equipment (DME) 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 - failure  
             by the provider to properly report treatment can lead to  
             revocation of the "no UR" rule.

           4) Authorizes an employer to conduct retrospective UR to ensure  
             compliance with evidence-based medicine standards, and if a  
             pattern of non-compliance is discovered, the "no UR" rule  
             could be revoked or the provider removed  from the MPN.

          UR Process Approval:

           5) Prohibits explicitly an employer or claims administrator  
             from providing a UR organization with financial incentives to  
             deny or modify treatment.

           6) Requires financial interest disclosure of UR entities be  
             shared with DWC.

           7) Requires any UR organization to be accredited by an entity  
             specified by the DWC, subject to exceptions for certain  


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             public entities that have internal systems approved by the  
             DWC. The entity must be independent and non-profit. Until the  
             rules are approved by the AD, the 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 IMR.

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

           13)Provides that MTUS may be updated with evidence-based  
             medicine standards by an expedited process.

          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.


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

           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 rights, 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 (Workers' Compensation  
             Appeals Board) (2016), 2016 Cal. App. LEXIS 232 and states  
             these amendments to be declaratory of existing law.


          SB 1160 and 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 UR process varies by vendor, but  
          generally involves initial review by a non-physician, with  
          higher level review(s) being conducted by a physician(s). 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 treatment.  

          Recently, UR has become a growing area of concern. Both injured  


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          workers and medical providers report delays and denials of  
          medical care due to the UR process. 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 addresses 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 a medical provider  
          abuses the workers' compensation system.  

          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 science.

          Finally, SB 1160 also requires DWC to create a database that  
          captures UR decisions and documentation. 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.

          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 in  
          the workers' compensation system as a fundamental challenge.  
          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. The schemes have one common feature: the use of the  


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          workers' compensation lien system to monetize the fraud. Despite  
          the criminal charges, medical bills and workers' compensation  
          liens from doctors charged or even convicted of medical fraud  
          continue to be pursued. Please see Senate Labor and Industrial  
          Relations Committee policy analysis for an example of these  

          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  

          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 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. 

          SB 1160 and lien assignments:


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          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.

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

          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."


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

          Unknown with recent amendments.

          SUPPORT:   (Verified8/31/16)

          California Labor Federation, AFL-CIO (co-source)
          California Professional Firefighters (co-source)
          Acclamation Insurance Management Services
          California Alliance of Self-Insured Groups
          California Medical Association
          California Occupational Medicine Physicians
          Communication Workers of America, District 9
          Orange County Professional Firefighters Association, Local 3631
          Risk Insurance Management Society
          Small Business California
          U.S. HealthWorks Medical Group
          Western Occupational and Environmental Association

          OPPOSITION:   (Verified8/31/16)

          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

          ARGUMENTS IN SUPPORT:     Proponents argue that, while UR  
          decisions should focus on whether the treatment aligns with  
          their MTUS, medically necessary treatment is inappropriately  
          delayed or denied via UR, generating needless costs for  
          employers and pointless delays for workers. Proponents argue  


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          this bill limits unnecessary UR in the first 30 days, and  
          provides a voluntary peer-to-peer communication process between  
          doctors. 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 fraud,  
          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.

          ARGUMENTS IN OPPOSITION:     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, 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 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 this bill.

           ASSEMBLY FLOOR:  80-0, 8/30/16
           AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, 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, Mathis,  
            Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte,  
            O'Donnell, Olsen, Patterson, Quirk, Ridley-Thomas, Rodriguez,  
            Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting,  
            Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon


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          Prepared by:  Gideon L. Baum / L. & I.R. / (916) 651-1556
          8/31/16 14:00:04

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