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Wolken: Zombie Liens, Round Two

By James Wolken

Friday, April 13, 2018 | 393 | 0 | min read

We all remember the notion of "zombie liens" from a few years ago, which the Legislature tried to combat by enacting regulations to allow dismissal of liens for failure to prosecute a lien (8 CCR § 10582.5), and enacting legislation requiring payment of the controversial lien activation fee (Labor Code § 4903.06; 8 CCR § 10208).

The Legislature and the Division of Workers' Compensation presumably hoped that such action would alleviate the cost and expense defendants incurred in keeping files open due to these dormant zombie liens.

The primary issue we are now facing with liens is the newly enacted Labor Code sections addressing medical treatment and billing fraud. For instance, in its simplest terms, Labor Code § 4615 states that any lien filed by or on behalf of a medical provider for medical treatment services shall be automatically stayed upon the filing of criminal charges against the provider for fraud related to the alleged treatment or billing (this section also applies to medical-legal liens).

The stay is to remain in effect from the time criminal charges are filed until the final disposition of the criminal proceedings. Once the conviction is finalized, the stay of the lien is then lifted until lien consolidation proceedings are initiated, which is the stage we are now in with chiropractor Dr. Steven Rigler’s liens in Southern California.

If a medical provider is not actually convicted of fraud and is otherwise cleared of criminal charges, the lien may be adjudicated in the workers’ compensation system just as if it was never stayed in the first place.

Although the ultimate goal of enacting legislation to combat fraud may be achieved some day, it likely will not be without unforeseen costs to defendants throughout California. We are perhaps entering the second round of the zombie lien phenomenon in California. The problem defendants are now facing is that the process of staying liens, the criminal adjudication process, and the lien consolidation process are far from swift.

Once criminal charges are filed against a medical provider for fraud, the lien is then stayed pending the final disposition of criminal charges. When dealing with any criminal defendant, the criminal prosecution can take years. What happens when we are dealing with a complex scheme of insurance fraud involving several medical providers?

We are faced with a realistic situation that criminal adjudication could take several years, which means that these stayed liens remain in limbo and dormant, just as zombie liens from years past.

Control costs further with an enlightened use of utilization review/independent medical review. Triage requests for authorization of treatment that are clearly indicated to avoid unnecessary UR/IMR costs. These items include treatment that is less expensive than the review process and items that are needed for resolution of cases, such as diagnostic tests. Where such tests will eventually be required by the medical-legal physician, UR review only increases the cost of a claim.

To make matters more complicated, once criminal proceedings have been finalized, any resulting convictions then subject the medical provider and their liens to the lien consolidation process, which has its entirely own discovery process.

Should defendants choose to participate in the lien consolidation process, they suffer the cost of keeping claims open for years, with the false hope of perhaps obtaining some restitution through the criminal adjudication process, or perhaps more realistically, only the satisfaction of partaking in the process of taking down bad actors.

What happens in the case where defendants wait years for the criminal process to finalize with respect to any given medical provider, only for the result to not be a conviction? Defendants are left in a position where their claims remain open for years, only to have to deal with liens that are now potentially several years old.

These defendants now must face the reality from the first round of zombie Liens: In the passage of time, evidence can be lost, witnesses may no longer be available and lien litigation starts back at square one.

To be clear, nothing in the enacted fraud legislation requires defendants to participate in the processes described above. Moreover, nothing in the enacted fraud legislation prohibits a defendant from making a payment to a stayed lien claimant.

In many situations, defendants may be better served by truly considering the cost of settling stayed liens for pennies on the dollar compared to awaiting (1) the criminal adjudication process and (2) the lien consolidation process, all while suffering the expense of keeping claims open.

The obvious problem with paying these stayed lien claimants a nominal sum is that it perhaps encourages the fraud we are trying to prevent, leading to an endless circle of potentially fraudulent lien claims.

So, then, perhaps reactionary and remedial legislation is not the answer, but rather, preventative legislation that discourages fraudulent practices in the first place may be the answer.

James Wolken is an associate attorney in workers' compensation defense firm Stander Reubens Thomas Kinsey's San Diego office. This blog post is republished, with permission, from SRTK's client newsletter.

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