Addressing Fraud with New Legislation – SB 1160 and AB 1244

Numerous efforts were undertaken in years past to eliminate fraud from the workers’ compensation system.  However, the problem persisted in the forms of the tainted medical providers being permitted to continue to practice, and having their liens satisfied, by the employers within the Workers’ Compensation system.  The Legislature has forcefully addressed these issues in enacting SB 1160 and AB 1244, which take effect 1/1/17.

Labor Code Section 139.31 provides that any medical provider convicted of a misdemeanor or felony pertaining to any type of fraud, conduct of medical practice pertaining to patient care, a financial crime or has been suspended from the Medicare or Medi-Cal systems will be prohibited from participating in the Workers’ Compensation system in any fashion.  The Administrative Director has been charged with the responsibility of compiling a list of such medical providers to be posted on the DWC website and disseminated to all Workers’ Compensation Judges as well as formulating regulations designed to afford the convicted medical provider with due process regarding the prohibition.

With respect to the liens of any medical provider so convicted, the Legislature has formulated a revolutionary solution.  Where the criminal case contains in its disposition that the liens will be dismissed, those liens in which the convicted medical provider has an ownership interest will be automatically dismissed in the Workers’ Compensation system by operation of law.  Where the criminal case disposition is silent regarding the outstanding liens, the Administrative Director will identify all liens owned, in whole or in part, by the convicted medical provider and will schedule a consolidated proceeding at a venue designated by the Chief Judge.  According to Labor Code Section 139.31(g), it will be presumed that the liens of the convicted medical provider were based on services connected to the fraud which resulted in the criminal conviction.  The statute specifically requires that the medical provider affirmatively prove beyond a preponderance of the evidence that the services were not connected to the fraud.  Even assuming that the medical provider is able to overcome this hurdle, the employer will retain its ability to defeat the lien on all existing grounds, such as that the services were not reasonably designed to effectuate cure or relief of an industrial injury, that the services were not reasonably calculated to offer proof in connection with a contested issue or that the charges exceeded the Official Medical Fee Schedule or the Medical-Legal Fee Schedule.

The Legislature has also addressed the scenario in which criminal charges have been filed against a medical provider.  Labor Code Section 4615 provides that an automatic stay will be imposed on the lien proceedings and accrual of interest against any medical provider against whom criminal charges have been filed.  The stay will remain in effect until a disposition has been achieved in the criminal case.  The Administrative Director will adopt the rules necessary to implement this statute and to disseminate a list of all medical providers charged with Workers’ Compensation, Medicare, Medi-Cal, insurance or billing fraud.

The Legislature has recognized that there are roughly 8,000 lienholders within the Workers’ Compensation system, which account for more than 1.2 million liens with a total value of $11 Billion.  Because the system was intended to expeditiously resolve the issues of workers industrially injured to insure that they are provided with the appropriate treatment in order to return to the work force, and, that the substantial influx of liens thwarts that purpose, Labor Code Section 4903.5 was substantially amended to reduce the number of liens in the system.  Effective 1/1/17, in addition to tendering the $150 filing fee, and providing the original bill and statement in a timely fashion (within 18 months from the last date of continuous service), the lien claimant must also execute a declaration under penalty of perjury stating that the filing of the lien is justified by one of seven conditions.  For liens asserted prior to 1/1/17, the required declaration must be asserted on or before 7/1/17.  Assuming that the required declaration is not electronically filed, the lien will be dismissed by operation of law.  Additionally, if the declaration is demonstrated to be false, the lien will also be dismissed.

Anticipating Constitutional challenges to this sweeping Legislation, the Legislature set forth in uncodified section 16 its detailed rationale highlighting the manner by which medical providers convicted of fraud have polluted the Workers’ Compensation system which justifies the means devised for eradicating them.  The Judicial adherence to the Legislature’s mandate will result in reduced costs to the employers, a more immediate delivery of benefits to legitimately industrially injured workers and an overall improvement in the economy of the State of California.