Gorman: Is Strategic Consolidation Right for You?

Thursday, May 20, 2021 | 0

Strategic consolidations have become more common in the California workers’ compensation system in recent years, prompting defendants to weigh the pros and cons of consolidated litigation.

Patrick C. Gorman

So far, most consolidations have been limited to strategic consolidations of medical providers’ liens and costs. However, subsequent consolidations involving ancillary services such as copy services have been assigned to the Special Adjudication Unit, which I detailed in this blog post and commented to WorkCompCentral about in 2019.

Service providers invented the frictional cost dilemma in addressing services purported to be “med-legal,” where not only is the full invoiced amount demanded, but an additional $800 or more for a boilerplate petition. It seems the business model of these service providers is to insist on a demand (inclusive of interest, penalty and costs) at roughly 70% of the cost to litigate the dispute, and sometimes at multiples of 30:1 costs over invoiced amount.

On the surface or a per-claim perspective, this appears to be just a few petitions or invoices. However, teeming beneath the service are thousands of petitions and invoices with inflated bills, thus making this a multimillion-dollar niche industry.

In my provision of training and information throughout the state, I have promoted the idea of strategic consolidation. As I began to proceed I found a hurdle put in my way by the service providers at every turn in the road. From missed appearances to dismissed petitions the night before a hearing, outright refusal to produce named and subpoenaed witnesses and what I anticipate will be petitions for removal in response to every filing here on, some ancillary service providers have absolutely no appetite for what might come out of a large consolidation and discovery into their business practices.

What is the extent of this cost “leakage?” To what extent are services that were never requested being performed by these service providers? Are invoices issuing for services never performed? If done under the guise of discovery, doesn’t this constitute abuse of process?

While a large strategic consolidation does not have much agility when it comes to quick settlement or discovery, neither does filing petitions to compel discovery in thousands of separate cases. Frictional costs are dramatically reduced, with a few very bright attorneys who can handle this bifurcated issue over a vast caseload. Additionally, strategic consolidation eliminates the frictional cost leverage that ancillary service providers have over carriers and administrators, allowing the case to be about the facts and law instead of an inflated cost-benefit analysis.

Will we see true reform as a result? As more payers in the system travel the path of strategic consolidation and discovery proceeds, I anticipate that will ultimately be the case. In the meantime, any “reform” will be in the form of backroom confidential settlements so that the status quo can be maintained for as long as possible.

Simply put, this is a multimillion-dollar practice throughout the industry and there will be a significant amount of funding to prevent that from changing.

Patrick C. Gorman is a partner at Bradford and Barthel and managing attorney of the firm's Redding office. This entry from Bradford & Barthel's blog appears with permission.