The California Department of Industrial relations started making the case for the crackdown on lien claimants that was introduced in the Capitol last week, saying nearly $600 million in liens have been filed with the Workers' Compensation Appeals Board since 2011 by people who have been indicted or convicted of fraud.

Sen. Tony Mendoza

Sen. Tony Mendoza, D-Artesia, on Thursday amended Senate Bill 1160 to include provisions the Department of Industrial Relations drafted after meeting with system users that would prohibit the assignment of liens, limit the situations in which liens can be filed and stay any lien filed by a provider who is charged with medical fraud.

Sen. Richard Pan, D-Sacramento, was also named as a co-author in the amended bill. The measure was posted to the Legislature’s website Friday and referred to the Assembly Insurance Committee pursuant to a rule allowing bills amended on the floor to be sent back to policy committees.

In a statement on Friday, the DIR said service providers who have been convicted or criminally indicted filed liens with a total claimed value of $599.3 million between 2011 and 2015. The claimed value represents 14.7% of the total claimed value of $4.1 billion on all liens filed during that period.

The 97,079 liens filed by indicted or convicted providers accounts for 16.7% of the 579,787 liens filed between 2011 and 2015, according to the DIR.

“While California has made great strides in increasing benefits to injured workers, improving appropriate care and reducing employers’ costs, we are pursuing legislation to prohibit criminal and indicted providers from lining their pockets through liens and to address the assignment of liens,” DIR Director Christine Baker said in a statement.

Amendments to SB 1160 would require lien claimants to file a declaration under penalty of perjury stating the dispute is not eligible for independent bill review and that the service provider satisfies one of the following criteria:

• The worker’s treating physician is providing care through a medical provider network or was otherwise authorized by the employer or claims administrator to treat the patient.
• The provider is an agreed medical evaluator or qualified medical evaluator.
• The treatment was for an emergency medical condition.
• The provider made a diligent search and found the employer does not have an MPN.
• The provider has documentation that medical treatment has been “neglected or unreasonably refused” for the injured worker.

The declaration would have to be included with all new liens filed on or after Jan. 1. For liens already on file at the start of 2017, the declaration would be due by next July 1.

Failure to file a complete the declaration would be grounds for automatic dismissal of the lien. Filing a false declaration would be grounds for the Workers’ Compensation Appeals Board to dismiss the lien.

Another section in the bill would require that all liens be filed in the name of the lien owner only and would prohibit payment to any lien claimant without evidence that he or she is the owner of the lien.

The amended bill would also prohibit the assignment of liens to third parties starting in 2017, unless the original service provider has gone out of business.

And the bill would include a provision to automatically stay any lien for medical treatment and medical-legal services, and stop interest from accruing if the provider is criminally charged with defrauding work comp or another health care system. The stay would remain in effect from the time charges are filed until the case is resolved.

Another measure, AB 1244, by Assemblyman Adam Gray, D-Merced, would require the Division of Workers’ Compensation to suspend the rights of a provider convicted of health care fraud from participating in the work comp system. The bill would also prohibit convicted providers from pursuing payment on any liens.

Lawmakers in 2012 passed SB 863, which imposed lien filing and activation fees, restricted the ability of third parties to collect on assigned liens and created independent bill review to keep disputes over bills covered by a fee schedule from going before the Workers’ Compensation Appeals Board as liens.

The DIR said in a Newsline released Friday afternoon that despite those efforts, more work is needed.

Between 2013 and 2015, 68 businesses representing the top 1% of lien filers submitted more than 273,000 liens on adjudicated cases with a claimed value of $2.5 billion. 

And the DIR said owners of five businesses included in the top 1% of all filers have been indicted or pleaded guilty, including:

• Dr. Philip Sobol, owner of Sobol Orthopedic Medical Group, who pleaded guilty to federal charges of accepting kickbacks in exchange for referring patients to Pacific Hospital of Long Beach.
• Dr. Ronald Grusd, owner of California Imaging in Beverly Hills, who faces federal charges that he paid illegal referral fees to a chiropractor in exchange for work comp referrals. Grusd's attorney, Richard Moss, said he is certain his client will be exonerated of any criminal wrongdoing.
• Steven Rigler, a chiropractor in San Diego who pleaded guilty to federal charges of accepting kickbacks for patient referrals.
• Carlos Arguello, who controlled and operated Prime Holdings International., according to federal prosecutors. He pleaded guilty to a conspiracy charge stemming from federal charges that he referred patients to providers in exchange for kickbacks.  
• Dr. Hootan Melamed, who was charged in a June 16 federal grand jury indictment of conspiring with marketers to pay kickbacks for referrals.

The department also noted that providers selling or assigning liens to third parties are “fertile ground for presenting fraudulent claims.”

SB 863 revised the rules relating to assignments by requiring the original service provider, unless no longer in business, receive payment on orders or awards for liens. The 2012 reforms required a copy of the lien assignment to be filed within 20 days, as well as the filing of a declaration that at least one person can attest to the fact that the services were provided. A lien filed after Jan. 1, 2013, that does not comply with those requirements shall be deemed invalid under the changes made by SB 863.

The department said in an “Issue Brief” that while the provisions seem clear, they have been difficult to enforce.

Third-party filers have omitted required information and paperwork regarding assignments, “effectively getting a foot inside the courthouse door" and leaving it to defendants or the Division of Workers’ Compensation to determine whether the filing was invalid.

As an example, the DIR said Reshealth Medical Group in Hermosa Beach, which was incorporated with the Secretary of State in August 2013, ranks 12th among medical lien filers for the period from 2013 through 2015. The company has filed 4,696 liens with a claimed value of $21.5 million. 

In one case, Gituku v. Alta Home Care, a third-party collection company called Javlin Three filed lien claims as the assignee of Reshealth, saying that the company went out of business in summer of 2015. 

According to the Secretary of State records, the company’s license was forfeited or suspended by the Franchise Tax Board for failure to meet tax requirements. Those records do not say when the license was suspended.

A WCAB panel on Aug. 9 issued a decision after reconsideration saying it was impossible to determine whether Javlin was allowed to collect on the Reshealth bill or another lien by a claimant who is not named in the report, in part because the assignment contracts were undated and incomplete. 

Other lien claimants on that case include Med Legal Photocopy in Covina, Vital Imaging Med Group in Anaheim, RM Schilling in Placentia and Mesa Pharmacy in Irvine. According to documents filed with the Orange County Superior Court in April 2015, Javlin Capital, a factoring company headquartered in Omaha, Nebraska, purchased receivables from Mesa Pharmacy, a mail-order compounder located in Irvine. 

But rather than rejecting the assignments to Javlin Three as invalid, the WCAB “punted the case back to a trial judge for further proceedings to address these issues,” the department said.

In a footnote, the DIR says that Javlin Three also argued that the SB 863 changes to the assignment rules require that the payment be made to the service provider, who could then turn it over to an assignee. While the department said that’s correct, it also said “the problem underlying this argument, as exemplified in this case, is the seemingly entrenched cultural understanding or belief that concrete proof of an assignment and that services were actually provided is unnecessary unless and until someone presses the point, and maybe not even then.”

Lobbyists have not announced formal positions, but it appears that labor and management are both supporting the DIR's proposed legislation.

The California Professional Firefighters union is sponsoring SB 1160, and the California Applicants’ Attorneys Association is the sponsor of AB 1244. Christy Bouma, the lobbyist for California Professional Firefighters, has not returned calls or emails from WorkCompCentral. A spokesman for CAAA said the organization was still reviewing the proposal.

Jason Schmelzer, a lobbyist for the California Coalition on Workers’ Compensation, said the DIR’s proposed legislative changes represent changes to which all parties could agree. 

And Mark Sektnan, president of the Association of California Insurance Companies, said that based on the proposed lien reforms, he could live with other provisions in SB 1160 that will modify the utilization review process.

Amendments introduced last week would prohibit prospective UR within the first 30 days of an injury for most treatments provided by a member of the employer’s medical provider network. The exemption from UR would not apply to services not addressed in the Medical Treatment Utilization Schedule, pharmaceuticals, non-emergency surgery, psychological treatment, home health care, imaging and radiology, electrodiagnostic medicine and durable medical equipment with a combined value of more than $250.

The bill would also include a new provision requiring the DWC to adopt by Jan. 1, 2018, rules establishing criteria to verify the identification and credentials of people providing interpreter services in “all necessary settings and proceedings within the workers’ compensation system.”

The California Society of Industrial Medicine and Surgery, California Society of Physical Medicine and Rehabilitation, the California Neurology Society, California Workers’ Compensation Interpreters Association and the California Workers Compensation Services Association, on Aug. 17 said they were opposed to the bill unless it was amended. 

In a letter sent to Assemblyman Tom Daly, D-Anaheim and chairman of the Assembly Insurance Committee, lobbyist Carl Brakensiek said the organizations would like to support the UR and interpreter reforms but can’t if the bill also contains the “defective lien provisions.” Brakensiek said in the letter that lien provisions “will severely restrict access to care for many injured workers,” and are “egregious and go far beyond what changes are necessary to combat fraud and abuse.”

The Assembly Insurance Committee can call a hearing on the amendments to SB 1160 any day during the last week and a half of the legislative session, which ends Aug. 31.

CORRECTION: Federal prosecutors say Carlos Arguello controlled and operated Prime Holdings International, the parent company of Prime Medical Resources. An earlier version of this story identified Arguello as owner of the subsidiary.

CORRECTION: The story incorrectly reported that Dr. Grusd pleaded guilty to federal charges in November. He has not pleaded guilty and his attorney, Richard Moss, said Grusd will be exonerated of any criminal wrongdoing.