SB 863, Despicable Behavior, Audits & Penalties

I talked to a lot of people at this past California Applicant Attorneys Association (CAAA) Winter Conference, as one would expect.

Of course there were plenty of attorneys - both applicant and defense. There were vendors too: photocopy service vendors, structured settlement consultants, book sellers, medical providers and their marketing and collections folks.

There are always unintended consequences when new laws are passed and this latest reform is no exception.

In speaking with people, an odd theme that emerged - getting paid by the carrier or administrator since the passage of SB 863, California's most recent landmark reform bill, has gotten considerably more difficult.

Surprising to me, the most common obstacle encountered in collection efforts, particularly by medical vendors and document reproduction companies, was the objection by the claims adjuster that a lien filing, or lien activation, fee had not been paid.

Quite often this objection is apparently being raised even when there is no reason, and no intent by the vendor, to file a lien.

Carrier/administrators are now using the new Labor Code sections 4903.05 (filing fee statute) and 4903.06 (activation fee statute) as a defense against payment even before any lien is filed or proposed for filing.

Worse, they are using this defense against paying their own doctors!

Yes, I heard more than one isolated report where the carrier's own Medical Provider Network (MPN) physician was told that unless he filed a lien and paid the filing fee that he would not get paid, and that the adjuster would not even talk with the provider's collections agent until the condition of filing/paying for a lien was completed.

This is preposterous behavior on the part of the carrier/administrators and if this practice is in fact becoming common place then the Audit Unit of the Division of Workers' Compensation (DWC) needs to step up enforcement in a prompt and heavy handed manner lest the entire system collapse from lack of physician participation due to these bone-headed tactics.

Title 8, Code of Regulations, section 10109 requires the claims administrator to deal with all persons, "including lien claimants" in good faith.

There is absolutely no requirement in any code or regulation section that mandates a vendor file a lien and pay either the activation or filing fee before negotiations or discussions can be initiated relative to bill resolution.

In my mind, failure to deal with such obligations is a failure in the duty of good faith as mandated by 10109.

Regulation 10106.5 provides that information indicating the possible existence of practices assessable as a civil penalty will invite an audit.

A civil penalty occurs under Labor Code section 129.5 where it can be shown that the "employer" (read carrier/administrator) "knowingly committed or performed with sufficient frequency as to indicate a general business practice" of, among other things, making it necessary to resort to adjudicatory proceedings in order to secure compensation, refusing to comply with "indisputable" compensation obligations, or acted dishonestly.

If this is found a penalty of up to $100,000 may be issued.

A failure in two or more similar audits constitutes a business practices violation and the Administrative Director is instructed to refer the offender to the Insurance Commissioner or the Department of Industrial Relations for license revocation.

And a possible $400,000 penalty may issue.

The carrier/administrator that is engaging in this behavior does so at its own peril, and I'm quite certain we will see an enforcement action publicized and reported in the news when one of these entities is hit with an audit and penalties per above.

My advise to any vendor that is experiencing this recalcitrant behavior on the part of carriers/administrators is to make sure that this behavior is documented. Have the claims adjuster put in writing that they will not negotiate on the bill unless and until a lien is filed with attendant fee and/or activation fee is paid.

If the claim administrator will not do so, then confirm the conversation with correspondence to that claims handler documenting the fact of refusal to negotiate conditioned upon lien filing and/or activation.

Stock up enough of this documentary evidence and send the package to the Audit Unit with a request for investigation. Instructions on how to do so are at http://www.dir.ca.gov/dwc/Audcomp.pdf.

My advise to any claim administrator that is engaging in this behavior - keep your network of employment contacts fresh and active. You may need a new job shortly.