California comp system clogged by lien filings

Hundreds of thousands of liens are overwhelming California's workers compensation system, costing employers and insurers hundreds of millions of dollars in loss-adjustment expenses and delaying claims adjudication, observers say.

The liens represent billions of dollars in disputes over payments for services provided to injured workers.

Workers comp liens are legal claims for payment of medical treatment, attorney fees, interpreter services, medical/ legal expenses and other services. The entities filing them allege that insurers and employers are obligated to pay, and they seek Workers Compensation Appeals Board authorization to get the money.

More than 450,000 liens are expected to be filed in California during 2011, up from an estimated 350,000 in 2010, according to a report by California's Commission on Health Safety and Workers' Compensation. The liens are “choking” the state's workers comp system, according to the report.

Experts say the onslaught of lien filings presents one of the biggest challenges that California's workers comp system faces, with employers sometimes forced to settle contested liens so the employer can close the claim.

“As far as the effective administration of claims and the resolution of cases, (liens are) a huge issue,” said Jason Schmelzer, legislative advocate for the California Coalition on Workers' Compensation, a Sacramento-based employer organization.

“It's adding on extra costs for employers that frankly shouldn't have to pay most of these liens,” Mr. Schmelzer said. “It's definitely a problem and it's a growing problem.”

The final draft of a report that California's CHSWC rel—eased Jan. 5 shed light on the scope of the problem.

“Other states we have contacted have nothing comparable,” the report's researchers concluded of the claims filed last year and expected this year in California.

Disagreements over medical treatment account for 62% of all workers comp lien filings and about 80% of the dollars in dispute, the CHSWC study concluded. Employers and insurers spend roughly $200 million a year on loss-adjustment expenses to manage medical services liens, the report said.

But indirect costs also mount when injury claims stay open longer because workers comp judges are too busy settling lien disputes to attend to workers' injury claims, said Mark E. Webb, vp and assistant general counsel for Agoura Hills, Calif.-based Pacific Compensation Insurance Co.

“When you are taking away time from the workers comp judges to adjudicate cases because they are tied up with medical billing disputes, that makes it harder to schedule cases for resolution,” Mr. Webb said. “You wind up paying more in temporary disability” benefits.

The CHSWC report said one Los Angeles judge estimated liens consume about 35% of his court's calendar and would take up even more if the court did not ration its time for hearing them.

While the backlog of liens forces some employers or insurers to settle liens they may not be legally obligated to pay, the problem also forces some service providers to accept less than they are owed, researchers found.

“The volume of liens forces the courts to encourage settlement, almost to the point of coercion,” the CHSWC report said. “The necessity of settlement rewards both unjustified claims and unjustified refusals.”

Disputes commonly arise over issues such as whether the correct bill coding was applied to a claim, meaning payers may be uncertain whether they are being billed too much or whether the employer authorized a medical provider to provide treatment.

California's official medical fee schedule contributes to the problem because it is out of date, Mr. Webb said.

“It's very difficult for medical providers to know what to bill, and that creates more disputes with bill review,” Mr. Webb said.

A significant number of the liens could be removed from the workers comp court system if providers were required to discuss billing issues with payers through a formal process before they could file liens, Mr. Webb said. Legislation would be required to establish such a system.

California health maintenance organization regulators now rely on such a system to resolve billing disputes in the group health arena, as does Oregon's workers comp system, Mr. Webb said.

Among the CHSWC report's 30 recommendations are requiring a fee to file medical liens and requiring frequent lien filers to use an electronic filing system that would eliminate clerical work, impose penalties for material misrepresentations by frequent filers, and forbid the filing of liens until a bill is genuinely in dispute.

The California Coalition on Workers' Compensation and other system stakeholders are reviewing those options to determine whether to propose legislation or new system rules, sources said.