The Calif. Lien Problem: Cure the Disease, Not the Symptoms

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The Calif. Lien Problem: Cure the Disease, Not the Symptoms

Postby davidd on Sat Jan 08, 2011 3:23 am


by David DePaolo

The issue of liens clogging the Workers Compensation Appeals Board District Offices, particularly in Southern California, is vexing and difficult to tackle. Recently the Commission on Health Safety & Workers’ Compensation (CHSWC) issued a report and solicited input from participants both through written testimony and at its meeting Jan. 5.

To be clear about my position, many of the suggestions made by both the report authors and the participants in their testimony to CHSWC are excellent and I have no doubt would go a long way towards making a dent in the total volume of liens.

But there is a distinct issue that was not researched by CHSWC and only alluded to by commentators: the issue of liens has a uniquely Southern California flavor. Why is this?

Perhaps the answer is in the comment submitted by Peter J. Spalding of Glendale Commercial Market Claims. In his Dec. 20 comments to CHSWC, Spalding states that “the reason why liens don’t exist in northern venues (at least not to a significant extent) is because the behavior is simply not tolerated.”

One can easily argue that part of the reality of that statement is due to the simple fact that the population base of Southern California, and in particular the Greater Los Angeles area, is much larger than that of Northern California and thus will produce a greater number of lien disputes (Wikipedia at states that the seven counties constituting what is generally regarded as Southern California make up 61% of the state’s overall population).

But I tend to believe that Mr. Spalding’s opinion is in the right direction and after reading all of the comments and the report (including an excellent nine-page response by former Judge Pamela Foust in behalf of the Zenith Ins. Co.) THIS MAKES IT SOUND AS IF SHE IS RESPONDING TO SPALDING. IS THAT THE CASE? I am generally convinced that the culture that has arisen based on unsubstantiated interpretations of the Labor Code are the underlying reason for this crisis and that while many of the proposed “fixes” to the lien problem are good, all of them will ultimately fail because they all add another layer or two of complexity. And as we have seen in the past, increased complexity ultimately only exacerbates the problems rather than solving the problems.

In other words, while the Commission and commentators make good points, all of them address symptoms rather than dealing with the actual cause of the disease. Treating only the symptoms and not the disease itself may temporarily ease the pain, but ultimately the disease process will take over and we will have the same issues again, perhaps in an exacerbated fashion.

What I believe is needed is a wholesale reconfiguration of the culture in work comp practice and this may not even require additional or changed regulation (though I suspect regulation would be the preferred method to stimulate change). But the fortitude of the community (and in particular the WCAB) to stand up and just enforce the Labor Code as written in its black letter law will be tested.

The culture that precedes the problem, in my opinion, is that there is no single person who is responsible for management of “lien claim” vendors until after all services are provided and claims are made to get paid, then the person responsible is the carrier/employer who is at a significant disadvantage because it is operating after the fact.

This scenario does not have to be his way, and in fact is operationally counter to the black letter law.

The opening paragraph of Labor Code Section 4903 starts with, “The appeals board may determine, and allow as liens against any sum to be paid as compensation...” (emphasis added).

If taken literally, then, no lien would be allowed except as against money (i.e. “sum”) to be paid as “compensation.” “Compensation” is defined in Labor Code Section 3207 awkwardly and redundantly (as so often happens in our statutes) as: “compensation under this division (Division 4) and includes every benefit or payment conferred by this division upon an injured employee, or in the event of his or her death, upon his or her dependents, without regard to negligence.”

Thus, under the black letter law, liens may only be allowed against money that is to be paid to the injured worker.

This is not the procedure that is now custom and practice. Custom and practice is that liens have distinct and separate lives apart from the “sum” (i.e. money) paid or conferred upon an injured employee. The practice now is to provide the injured worker with specified sums (i.e. indemnity) and to pay vendors separately.

In the normal context this practice works just fine and frankly most injured workers who receive only medical treatment without having to make a claim for indemnity are not affected.

The issue becomes relevant only in a litigation setting (i.e. where liens “clog” the WCAB), and in the vast majority of litigated cases the injured worker is represented by an attorney. Presently there is no incentive for the injured worker’s attorney to control vendor claims, because vendor claims are paid outside of any sums to be paid the injured worker. There is no law for this, there is no rationale for this, other than this has become custom and practice over the many years that workers’ compensation litigation practice has evolved.

So the politically incorrect and difficult to swallow solution is really quite simple: the injured worker attorney should be responsible for negotiating a global resolution of the entire claim, inclusive of vendor claims. Period.

This is not a proposition that will sit well with the applicant attorneys. But it could be palatable if custom and practice also recognized that the total value of the claim from which attorney fees are calculated included the total value of “every benefit or payment” under the attorney’s management.

In a practical process the applicant attorney will manage the medical much as he or she may manage the claim presently. But the applicant attorney will also be responsible for managing his or her preferred vendors because the net amount of money that goes to both the attorney and the injured worker is affected directly by the amount of money that is “allowed” by the WCAB against the gross “sum” awarded or settled.

This would be a monumental shift in workers’ compensation litigation culture, and perhaps could not be effected without regulatory force. But the way I see it, this is how the Labor Code is written and is the only truly effective manner to reduce liens in litigation.
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Re: The Calif. Lien Problem: Cure the Disease, Not the Symptoms

Postby on Wed Jan 12, 2011 10:20 am

Hi David,

In order for your proposed solution to work, LC 3751(b) would have to be repealed --- but your solution is exactly how it works in Illinois. In IL, only the employee and the employer (insurer or TPA) have standing to appear before the WCC, not lien claimants. There is no "lien backlog" in Illinois whatsoever.

I worked the Illinois market for many years, and the way it works there is as follows:

The provider can bill an employee while the case-in-chief is pending --- even on accepted injury claims. However, once the employee notifies the provider that a claim is pending before the Workers' Compensation Commission (WCC), the provider must cease collection activities. Nevertheless, the provider may still mail the employee reminders about the outstanding billing and ask for an update on the status of the case. As long as the employee responds within 90 days, the provider may not conduct collection activities. But if the employee fails to respond within 90 days, the provider can initiate collection activities directly against the employee --- while the case-in-chief is pending.

See: ... notice.pdf

While the case-in-chief is pending, if there are providers that have not been paid, plaintiff's counsel has the option of seeking penalties before the WCC. Penalties can be up to 50% of the amount unpaid, per fee schedule, plus 1% interest per month. The plaintiff's attorney is also allowed attorney fees. If the plaintiff's attorney is successful, the 50% penalty goes to the employee; the provider gets paid, with interest; and, plaintiff's counsel gets paid his attorney fees for securing medical treatment payments.

In IL, there is no such animal as a QME or an AME. Instead, the employer's insurer or TPA will turn to an IME to opine on disputed issues --- including the medical necessity of treatment furnished the employee. When plaintiff's attorney seeks a penalty hearing before the WCC, the arbitrator or commissioner will often give the IME report the weight to which it is entitled. If the IME report is substantial, the arbitrator or commissioner will make a determination that the employer is not responsible for reimbursement to the provider. If the IME report is not substantial, and the arbitrator or commissioner determines the provider should have been paid, the employee gets the 50% penalty; the plaintiff's attorney gets paid; and, the provider is paid --- all by the employer's insurer or TPA.

However, in a situation where the arbitrator or commissioner determines the treatment is not medically necessary, the employer's insurer or TPA is not responsible for paying the provider. But, and this is a big but, in that scenario, the employee remains financially responsible for the treatment found unreasonable after the case-in-chief resolves.

Generally, when the case-in-chief resolves in IL, the plaintiff's attorney (applicant attorney here in CA) resolves with the employer for a global lump sum paid certain --- which includes reimbursement for unpaid medical treatment. (The IL plaintiff's WC attorney is paid 20% of the global settlement.) The plaintiff's attorney then negotiates with any/all providers to resolve their liens. If negotiations are successful with all providers, the attorney pays those providers from the global settlement, pockets the 20%, then disburses the remainder to the employee. If plaintiff's attorney's negotiations with any provider are unsuccessful, the provider can then bill the employee directly and if the employee fails to pay the provider's billing, the provider can proceed to the circuit court; obtain a judgment; then, lien, levy, and garnish.

David, in a perfect world your proposal is interesting, but there are unseen reefs and shallows, as well as pitfalls that are fraught with peril. As we know, the applicant attorney often prefers to work with certain providers --- specifically due to the fact a particular provider reports in a manner that increases WPI/PD. Accordingly, that provider may be given favorable resolution of his/her lien in the form of payment in full per OMFS. Another aspect worth considering is that it may be a particular provider that referred the employee to that applicant attorney. if that provider is not paid in full per OMFS by the applicant attorney, one wonders if the provider will refer future employees to that applicant attorney. Would the applicant attorney give the provider who refers employees to him for representation favorable treatment --- to ensure continued referrals in the future? The answer to that question is a no-brainer. (Behind-the-scenes, this is how it works in IL.)

I'm not thrilled with the way the IL comp system works, and I'm certainly not thrilled with the way the CA comp system works. This is why I chose to cease accepting any/all new injured employee referrals, nationwide, effective 1/1/05. The labyrinth of myriad regulations here in CA is often beyond the grasp of the vast majority of providers --- not to mention the fact EAMS is a true PITA (Pain In The A**), as are the Court Administrator's Rules. For example, the provider whose lien is under $25K need not appear at an MSC on the case-in-chief, unless ordered to appear. (See, §10240(a)(3).) However, that non-appearing provider could be in for a rude awakening if the defendant chooses to makes liens an "issue" to be decided at the trial, for LC 5502(e)(3) closes discovery on the date of the MSC, and providers whose liens are an "issue" must appear at the trial. (See, §10240(a)(4).)

I have recently seen this scenario taken to the extreme, as follows: Case-in-chief was set for an MSC. The provider was notified of the MSC, but instead of appearing at a hearing where traditionally the defendant will not resolve liens prior to resolution of the case-in-chief, the provider sent the WCAB and the parties a "conflict letter" with the telephone number of someone with settlement authority. Nobody called on the day of the MSC. The matter was set for trial, and a copy of the PTCS was subsequently served on the provider. The provider's staff did not recognize that the provider's lien was at issue --- despite the fact liens were checked off on the PTCS as a "issue." On the scheduled day of the trial, applicant and defendant resolved by C&R. The defendant pressed for the trial to proceed. The WCJ disallowed all liens, even those where treatment was "authorized" but the insurer failed to pay the provider --- as no lien claimants appeared for the scheduled trial, and for good reason, as WCJs usually bifurcate liens from the case-in-chief trial.

The filing fee recommended by CHSWC will cure nothing. When there was a filing fee between 2004 - 2006, I paid about $160,000.00 to the DWC, in $100.00 increments. And, I'm one of those low-dollar lien claimants, as the billing from my company rarely hits $2,000.00.

What can be done to resolve the "lien backlog?" First off, it would be great if the Audit Unit had some teeth, but they were defunded under the governator's regime. When the Audit Unit conducts compliance audits, they now use 'temps.' (No wonder the Audit Unit finds most insurers and TPAs are in compliance.) It would be great if the WCJs actually complied with CCR 10888 --- but as I have seen the vast majority of the time, it is observed in the breech. It would be wonderful if the WCJs actually sanctioned parties that fail to timely comply with CCR 10608 --- particularly subsections (b), (d), and (f). Instead, in regards to subsection (d), both lien claimants and defendants rarely comply. The resulting ad nauseum continuances just increases the docket load on the WCAB.

Presently, instead of sanctioning defendant's counsel and lien claimant's hearing representatives who fail to comply with the dictates of CCR 10608, the failure to comply is forgiven by the WCJ, day-after-day.

There is an aspect to liens that nobody wants to address: When the lien claimant sends its hearing representative to the WCAB for a lien conference, that representative usually gets paid an "appearance fee." When the defendant sends an attorney to the lien conference, that defense attorney gets paid by the "billable increment" --- unless, of course, the defense attorney is in-house and paid a salary. (e.g. SCIF) Do those gladiators (hearing reps and outside defense attorneys) have any incentive to resolve any/all liens, or do they have an incentive to appear at hearing-after-hearing-after-hearing, considering each is paid just for showing up?

There are no easy solutions to the "lien backlog." I fear that we will see an escalation of providers fleeing the California comp system if the changes suggested by CHSWC are implemented. As a provider, who is a businessman as all providers must be, why would I want my company to continue to carrying a financial float year-after-year-after-year, and be forced to comply with the various myriad rules and regulations, as well as making appearances before the WCAB, particularly as when my company provides treatment services to the PPO patient, my company gets paid more than OMFS, and 99% of the time, payment issues within thirty to sixty days? In the PPO arena, as a non-participating provider, if the insurer fails/refuses to pay the billing from my company, we simply bill our patient.

Wise providers are now limiting their percentage of work comp patients. I suspect we will see an escalation of this in the future --- much to the detriment of injured employees. I know, because I see this happening not only in California, but nationwide.

I do have one suggestion to reduce the "lien backlog," based upon my first-hand observations at almost every district office of the WCAB, everywhere from San Diego to Redding. However, this suggestion will not be received favorably by the WCJ community. In 2005, at every district office, each and every courtroom was packed wall-to-wall, each morning and each afternoon. Today, I see many "dark" courtrooms both in the mornings and in the afternoons, but particularly in the afternoons. Does the WCJ calendaring, made by the PJ at each district office of the WCAB, contribute to the "lien backlog?" I think so. David, being as the corporate office for WorkCompCentral is located close to the Oxnard district office of the WCAB, try dropping by and visiting on any afternoon to verify my observations.

Perhaps if each PJ opened up the calendars for all WCJs for many more lien conferences, combined with each WCJ sanctioning lien claimants and defendants when they fail/refuse to comply with CCR 10608, the "lien backlog" could be reduced.

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Re: The Calif. Lien Problem: Cure the Disease, Not the Symptoms

Postby AmeriLegalGroup on Sun Aug 21, 2011 10:23 am

Mr McGavin: You are sooo right. Why won't the WCAB listen to what you are saying. How can a lien claimant possibly litigate a lien or even settle a lien at a conference when the lien claimant has been served nothing by the defendant, not even the settlement documents or medicals, which, in most cases, were requested years before.
When is the WCAB going to get it?
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