Mahjoubi: Legislation Combats Fraud and Abuse in Lien Practices

Wednesday, October 10, 2018 | 0

The California Legislature has taken additional steps to combat fraud and abuses in lien practices not resolved by SB 863.

David F. Mahjoubi

One of the major issues was whether violators of workers’ compensation laws should be entitled to enforce their right to payments on liens. The Department of Industrial Relations and Division of Workers’ Compensation announced recently that from 2011 through 2015, $600 million in liens were filed for treatment of injured workers covered by workers’ compensation insurance by providers who had been convicted of crimes or were under criminal indictment.

According to the DWC, 17% of all liens filed between 2011 and 2015 were filed by providers with fraud indictments or convictions. In response to these statistics, the Legislature enacted two recent bills (AB 1244 and SB 1160), then followed up with cleanup legislation, enacting AB 1422.

AB 1244 is designed to combat fraud by creating a suspension process for medical providers found to have committed a felony or misdemeanor involving fraud or abuse of the Medi-Cal program, Medicare or the workers’ compensation system itself. AB 1244 follows Medi-Cal’s lead, requiring the suspension of a medical provider convicted of a felony, a misdemeanor connected to fraud, a misdemeanor connected to patient or privilege abuse, or the medical provider’s license is suspended or revoked.

There is a hearing process where a medical provider can contest the applicability of suspension, such as mistaken identity or a later plea deal that reduces a felony to a non-eligible misdemeanor. However, if no hearing is requested, the suspension takes effect within 30 days of notice.

SB 1160 automatically places a stay on any physician or provider lien upon the filing of criminal charges for specified offenses involving alleged medical fraud. If the medical provider is cleared of all charges, his or her liens are adjudicated without prejudice.

SB 1160 also explicitly prohibits any assigning or factoring of a lien on or after Jan. 1, 2017, unless the medical provider is no longer in business in the capacity in which he filed a lien.

For liens assigned between 2013 and 2016, SB 1160 codifies the recent appellate court decision, Chorn v. Workers Comp. Appeals Board, which found that restrictions on lien assignments were constitutional and that the effect of Labor Code Section 4903.8 (i.e., SB 863) is to prohibit the Worker’s Compensation Appeals Board from ordering or awarding lien payments to anyone other than the medical provider who incurred the expense.

AB 1422, recently signed into law by Gov. Jerry Brown, amends Labor Code Section 4615’s automatic stay provisions for medical providers who have been charged with fraud due to confusion regarding the interpretation and application of the new workers’ compensation anti-fraud bills that were passed in 2016. Prior to AB 1422, there was significant debate over the WCAB’s jurisdiction over disputes regarding the applicability of the automatic stay provisions.

AB 1422 confirms the WCAB’s jurisdiction over disputes regarding the automatic stay of providers’ liens. Among other provisions, the bill added the following new subdivision (e) to Section 4615:

(e) The automatic stay required by this section shall not preclude the appeals board from inquiring into and determining within a workers’ compensation proceeding whether a lien is stayed pursuant to subdivision (a) or whether a lien claimant is controlled by a physician, practitioner or provider.

The statute now expressly confirms that judges within the workers’ compensation system may determine within any particular case whether the provisions of Section 4615 apply such that a lien is stayed.

Furthermore, Brown issued a signing message for AB 1422, which specifically addressed this issue. The message characterized AB 1422 as “cleanup legislation” for the 2016 bills combatting worker’s compensation fraud (AB 1244 and SB 1160) that enacted Labor Code Sections 139.21 and 4615, and contained the following paragraph:

AB 1422 confirms that the Workers’ Compensation Appeals Board retains jurisdiction to resolve disputes about the applicability of the automatic stay provision to specific liens. This bill is declaratory of existing law which provides for the resolution of these disputes through the board’s current practices and procedures. Nothing in last year’s legislation creating the stay was intended, or operated, to divest the board of jurisdiction over these issues.

The original legislation was ambiguous in terms of the status of liens filed by companies that were not themselves part of a criminal prosecution. Under the revised law, the stay provisions will apply not only to a person who is being prosecuted, but to a "controlled entity" as well.

An entity is controlled by an individual if the individual is an officer or a director of the entity, or a shareholder with a 10% or greater interest in the entity.

Check the DIR website for stayed liens before entering into settlement negotiations.

David Mahjoubi is an attorney with Bradford & Barthel. This entry from the workers' compensation defense firm's blog appears with permission.