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California’s latest comp reforms target fraud

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After passing reforms aimed at reducing workers compensation costs in 2012, California legislators and workers comp professionals are implementing more changes to the system, but this time they are targeting provider fraud.

Increased awareness of fraud helped prompt two anti-fraud measures last year and more action is expected.

Nationally, workers comp costs are lower than 10 years ago, but fraud remains a big problem, said Carol Murphy, Chicago-based managing director at Aon Risk Solutions.

In California, the high-profile prosecution of medical providers has highlighted the problem, said Vanessa Gillis, Sacramento, California-based special investigations unit manager at Sentry Insurance.

“It’s been a wake-up call for people to see the exorbitant high costs of medical provider fraud within the workers compensation system. It has really captured the attention of many,” Ms. Gillis said.

Many of the prosecutions were in Southern California, including a $580 million fraud involving kickbacks paid to chiropractors and doctors connected with Pacific Hospital of Long Beach (see related story). That case “was a turning point on showing how we can stop pervasive medical provider fraud in California,” said Bill Zachry, San Francisco-based senior fellow at The Sedgwick Institute, a research arm of Sedgwick Claims Management Services Inc.

The current crackdown on workers comp fraud in the state is a consequence of Senate Bill 863, a workers comp reform bill enacted in 2012, experts said.

“S.B. 863, which was negotiated by labor and management to increase benefits, reduce frictional costs, and improve medical delivery, also offered the opportunity to have a more transparent system which allowed us to evaluate where there are problem areas,” said Christine Baker, San Francisco-based director of California’s Department of Industrial Relations.

The measure provided a framework for developing an anti-fraud strategy, said Carmichael, California-based Amanda Gualderama, West regional government affairs director at Sentry Insurance. “It was able to create the independent medical review process, the independent bill review. This is where we are getting all of the data to be able to make these connections into the fraudulent activities,” said Ms. Gualderama.

In 2016, two measures targeting fraud were passed — Assembly Bill 1244 and Senate Bill 1160.

A.B. 1244 banned providers from treating patients within the workers comp system if they have been convicted and precluded from treating Medicare and Medicaid patients. The bill went into effect in January.

“There was an investigative series in early 2016 that had shone light on certain physicians who were banned from treating within the Medicare and Medicaid system and they were simply moving their practices, including some of their fraudulent practices, into the workers comp system because there was nothing that precluded them from doing that,” said Ms. Gualderama.

S.B. 1160 focused on the widespread liens filed in workers comp courts. It required medical providers to cite the legal authority they relied on to file their claims and banned providers that were charged with medical fraud from collecting lien dollars until their cases were concluded.

“Prior to S.B. 1160, these fraudulent providers … were basically taking unapproved medical care that insurers did not deem appropriate or medically necessary and, when they were denied payment, the providers would go to court and file a lien or often sold the rights to these liens to collection firms,” Ms. Gualderama said.

And more action to stifle fraud in the state is expected.

In March, state Assemblyman Tom Daly, in a letter addressed to Assemblyman Al Muratsuchi, chairman of the audit committee, requested an audit for possible fraud in the state’s workers comp system.

Results of the audit are expected in October, according to a spokeswoman from Assemblyman Muratsuchi’s office.

In the beginning of the year, the California Department of Industrial Relations made workers comp fraud a priority.

“The labor secretary has directed us to focus in on fraud and we have been making recommendations. We have been taking direct action administratively and through negotiations with the parties to really focus on anti-fraud measures. We are working closely with the department of insurance through a (memorandum of understanding) to share data back and forth and take steps in sharing information,” said Ms. Baker.