Existing law establishes a workers compensation system, administered by the Administrative Director of the Division of Workers Compensation, within the Department of Industrial Relations, to compensate an employee for injuries sustained in the course of his or her employment. Existing law makes it a crime to commit various acts of fraud relating to workers compensation, including to knowingly make or cause to be made a false or fraudulent claim for payment of workers compensation health benefits.

Existing law creates the Fraud Division, within the Department of Insurance, to administer provisions related to insurance fraud. Existing law requires the Insurance Commissioner to ensure that the Fraud Division aggressively pursues all reported incidents of probable workers compensation fraud.

This bill would require the administrative director to establish an antifraud support unit within the Division of Workers Compensation. The bill would set forth the duties of the unit, including coordinating and advancing antifraud activities for the division and serving as the point of contact between the division and other agencies and entities engaged in antifraud activities. The bill would require the unit to develop and implement by July 1, 2019, data analytics processes to identify the sources of previously unknown fraud and the magnitude of known or suspected fraud, as specified. The bill would require state entities to submit the data to the unit for analysis, as specified. The bill would also require the unit to report to the Legislature, not less frequently than every 3 years, on the effectiveness of its data analytics efforts and to revise the data analytics processes if it identifies improved methods of detecting fraud.

Existing law establishes a workers compensation system, administered by the Administrative Director of the Division of Workers Compensation, within the Department of Industrial Relations, to compensate an employee for injuries sustained in the course of his or her employment. Existing law makes it a crime to commit various acts of fraud relating to workers compensation, including to knowingly make or cause to be made a false or fraudulent claim for payment of workers compensation health benefits.

Existing law creates the Fraud Division, within the Department of Insurance, to administer provisions related to insurance fraud. Existing law requires the Insurance Commissioner to ensure that the Fraud Division aggressively pursues all reported incidents of probable workers compensation fraud.

This bill would require the administrative director to establish an antifraud support unit within the Division of Workers Compensation. The bill would set forth the duties of the unit, including coordinating and advancing antifraud activities for the division and serving as the point of contact between the division and other agencies and entities engaged in antifraud activities. The bill would require the unit to develop and implement by July 1, 2019, data analytics processes to identify the sources of previously unknown fraud and the magnitude of known or suspected fraud, as specified. The bill would require state entities to submit the data to the unit for analysis, as specified. The bill would also require the unit to report to the Legislature, not less frequently than every 3 years, on the effectiveness of its data analytics efforts and to revise the data analytics processes if it identifies improved methods of detecting fraud.

Existing law establishes a workers compensation system, administered by the Administrative Director of the Division of Workers Compensation, within the Department of Industrial Relations, to compensate an employee for injuries sustained in the course of his or her employment. Existing law makes it a crime to commit various acts of fraud relating to workers compensation, including to knowingly make or cause to be made a false or fraudulent claim for payment of workers compensation health benefits.

Existing law creates the Fraud Division, within the Department of Insurance, to administer provisions related to insurance fraud. Existing law requires the Insurance Commissioner to ensure that the Fraud Division aggressively pursues all reported incidents of probable workers compensation fraud.

This bill would require the administrative director to establish an antifraud support unit within the Division of Workers Compensation. The bill would set forth the duties of the unit, including coordinating and advancing antifraud activities for the division and serving as the point of contact between the division and other agencies and entities engaged in antifraud activities. The bill would require the unit to develop and implement by July 1, 2019, data analytics processes to identify the sources of previously unknown fraud and the magnitude of known or suspected fraud, as specified. The bill would require state entities to submit the data to the unit for analysis, as specified. The bill would also require the unit to report to the Legislature, not less frequently than every 3 years, on the effectiveness of its data analytics efforts and to revise the data analytics processes if it identifies improved methods of detecting fraud.

Existing law requires every employer except the state to secure the payment of compensation by being insured against liability to pay compensation, as specified, and vests enforcement of those provisions in the Director of Industrial Relations. Existing law authorizes the director to record a certificate of lien in the office of the county recorder in the counties where the employers property is possibly located, as specified, if a determination is made that an employer has not secured the payment of compensation as required or is prima facie illegally uninsured. Existing law additionally authorizes the director to determine whether a person is prima facie a parent or substantial shareholder in any claim in which the alleged uninsured employer is a corporation, for purposes of filing certificates of lien and holding those persons jointly and severally liable with the corporation in a civil action against the corporation. Existing law authorizes a person who is aggrieved by such a finding to request a hearing by filing a written request for hearing with the director. Existing law requires the director to hold that hearing within 20 days of the receipt of the request for hearing.

This bill would require the director to hold that hearing within 30 days, rather than 20 days, of the receipt of the request for hearing.

GOVERNOR'S VETO

GV Bill Id:AB 1697

Author:(Committee on Insurance)

As Enrolled Ver:September 6, 2018

2/3 vote

Original Committee Reference: INS.

SUMMARY: Codifies and provides legislative direction to an analytics unit within the Division of Workers' Compensation (DWC) in the Department of Industrial Relations (DIR). Specifically, this bill:

1. Provides statutory authorization for an analytics unit in the DWC to use data analysis to identify potentially fraudulent activity in the workers' compensation system.
2. Directs the unit to coordinate the DWC's anti-fraud efforts, including interactions with other governmental agencies, and operate as a repository and clearinghouse for data to be used to combat fraud.

The Senate amendments:

1. Require DWC to adopt formal processes and standards to carry out its duties.
2. Requires a report to the Legislature every three years on the effectiveness of the analytics program.

EXISTING LAW:

1. Establishes the DWC within the DIR, headed by an Administrative Director (AD), with the responsibilities to implement and administer the state's workers' compensation laws.
2. Provides that it is a crime to commit various acts that are defined as workers' compensation fraud, including false billing for services, billing for unnecessary or phantom services, filing false claims for injuries that either do not exist or are exaggerated, and lying about payroll in order to reduce workers' compensation premiums.
3. Establishes a Fraud Division in the Department of Insurance (DOI) that employs peace officers and support staff to investigate suspected fraud.
4. Provides for a Fraud Assessment Commission (FAC) to evaluate the need for funding anti-fraud efforts, and assess employers accordingly to pay for both the investigation of fraud, and the prosecution of fraud by local District Attorneys.

FISCAL EFFECT: Unknown.

COMMENTS:

1. Purpose. The Committee is pursuing this bill in order to formalize the DWC's recently created anti-fraud analytics unit, and to provide Legislative direction for the unit's functions and goals.
2. Background. There has been a formal anti-fraud program for workers' compensation since the early 1990's. For the past several years, the state has been spending approximately $50 million per year in support of the fight against workers' compensation fraud. Despite these efforts, it is clear, based on investigative reporting in the media, prosecutions by both state and federal prosecutors, and data derived from DOI, DWC and industry sources, that fraud in the workers' compensation system continues to exist at alarming rates.

In response to this situation, Assembly Insurance Committee Chair Tom Daly last May requested that the Joint Legislative Audit Committee authorize a comprehensive review and audit of the workers' compensation anti-fraud system, with a goal of identify best practices to improve the results of the state's efforts. In response to Assemblymember Daly's request, the DIR announced its intention to convene a stakeholder-driven process to focus on fraud, and develop recommendations to improve the anti-fraud system. After Mr. Daly withdrew the audit request, the DIR proceeded with its stakeholder process. That effort resulted in a January, 2017, report from the DIR to Labor and Workforce Development Agency Secretary David Lanier. The report included a number of recommendations for both administrative and legislative action. One of the legislative recommendations was to formalize the new analytics unit. This bill implements that recommendation.

GOVERNOR'S VETO MESSAGE:

This bill requires the Department of Industrial Relations to establish an anti-fraud unit within the Division of Workers' Compensation and requires the unit to develop data analytic processes to identify sources and the magnitude of fraudulent activity.

The work required by this measure is already underway. Additionally, the bill would require the Department to reveal sensitive details about its enforcement practices. This will compromise the state's efforts to combat workers' compensation fraud, a result that nobody wants.

Analysis Prepared by: Mark Rakich / INS. / (916) 319-2086 FN: 0005269

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 1697

Author:(Committee on Insurance)

As Amended Ver:August 20, 2018

Majority vote

Original Committee Reference: INS.

SUMMARY: Codifies and provides legislative direction to an analytics unit within the Division of Workers' Compensation (DWC) in the Department of Industrial Relations (DIR). Specifically, this bill:

1. Provides statutory authorization for an analytics unit in the DWC to use data analysis to identify potentially fraudulent activity in the workers' compensation system.
2. Directs the unit to coordinate the DWC's anti-fraud efforts, including interactions with other governmental agencies, and operate as a repository and clearinghouse for data to be used to combat fraud.

The Senate amendments:

1. Require DWC to adopt formal processes and standards to carry out its duties.
2. Requires a report to the Legislature every three years on the effectiveness of the analytics program.

EXISTING LAW:

1. Establishes the DWC within the DIR, headed by an Administrative Director (AD), with the responsibilities to implement and administer the state's workers' compensation laws.
2. Provides that it is a crime to commit various acts that are defined as workers' compensation fraud, including false billing for services, billing for unnecessary or phantom services, filing false claims for injuries that either do not exist or are exaggerated, and lying about payroll in order to reduce workers' compensation premiums.
3. Establishes a Fraud Division in the Department of Insurance (DOI) that employs peace officers and support staff to investigate suspected fraud.
4. Provides for a Fraud Assessment Commission (FAC) to evaluate the need for funding anti-fraud efforts, and assess employers accordingly to pay for both the investigation of fraud, and the prosecution of fraud by local District Attorneys.

FISCAL EFFECT: Unknown.

COMMENTS:

1. Purpose. The Assembly Insurance Committee is pursuing this bill in order to formalize the DWC's recently created anti-fraud analytics unit, and to provide Legislative direction for the unit's functions and goals.
2. Background. There has been a formal anti-fraud program for workers' compensation since the early 1990's. For the past several years, the state has been spending approximately $50 million per year in support of the fight against workers' compensation fraud. Despite these efforts, it is clear, based on investigative reporting in the media, prosecutions by both state and federal prosecutors, and data derived from DOI, DWC and industry sources, that fraud in the workers' compensation system continues to exist at alarming rates.

In response to this situation, Assembly Insurance Committee Chair Tom Daly last May requested that the Joint Legislative Audit Committee authorize a comprehensive review and audit of the workers' compensation anti-fraud system, with a goal of identify best practices to improve the results of the state's efforts. In response to Assemblymember Daly's request, the DIR announced its intention to convene a stakeholder-driven process to focus on fraud, and develop recommendations to improve the anti-fraud system. After Mr. Daly withdrew the audit request, the DIR proceeded with its stakeholder process. That effort resulted in a January, 2017, report from the DIR to Labor and Workforce Development Agency Secretary David Lanier. The report included a number of recommendations for both administrative and legislative action. One of the legislative recommendations was to formalize the new analytics unit. This bill implements that recommendation.

Analysis Prepared by: Mark Rakich / INS. / (916) 319-2086 FN: 0004937

 THIRD READING 

Bill No: AB 1697

Author:

: 8/20/18

Vote:

SENATE LABOR & IND. REL. COMMITTEE: 5-0, 6/27/18

AYES: Lara, Stone, Jackson, Mitchell, Wieckowski

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

ASSEMBLY FLOOR: 77-0, 5/30/17 (Consent) - See last page for vote

SUBJECT:

SOURCE: Author

DIGEST:

This bill creates explicit authorization for the Division of Workers’ Compensation to create an anti-fraud support unit and require that the anti-fraud support unit develops written policies and procedures for combating workers’ compensation fraud, as specified.

Senate Floor Amendments of 8/20/18 strike a duplicative and conflicting reference to existing data confidentiality laws on individually identifiable data in the California workers’ compensation system.

ANALYSIS:

Existing law:

1. Establishes a workers’ compensation system that provides benefits to an employee who suffers from an injury or illness that arises out of and in the course of employment, irrespective of fault. This system requires all employers to secure payment of benefits by either securing the consent of the Department of Industrial Relations to self-insure or by securing insurance against liability from an insurance company authorized by the state.
2. Provides that medical, surgical, chiropractic, acupuncture, and hospital treatment, including nursing, medicines, medical and surgical supplies, crutches, and apparatuses, including orthotic and prosthetic devices and services, that is reasonably required to cure or relieve the injured worker from the effects of his or her injury shall be provided by the employer. (Labor Code §4600)
3. Requires that the administrative director of the Division of Workers’ Compensation (DWC) must promptly suspend any physician, practitioner, or provider from participating in the workers’ compensation system as a physician, practitioner, or provider if the individual or entity has been convicted of felony or misdemeanor fraud or abuse of the Medi-Cal program, Medicare program, or workers’ compensation system, or fraud or abuse of any patient. (Labor Code §139.21)
4. Requires that, upon the filing of criminal charges of misdemeanor or felony medical fraud described above, all medical liens related to the entity or individual must be automatically stayed. If convicted, the individual or entity’s liens are dismissed. (Labor Code §§139.21 & 4615)

This bill:

1. Provides explicit statutory authorization for an anti-fraud support unit (unit) in the DWC to use data analysis to identify potentially fraudulent activity in the workers’ compensation system.
2. Requires the unit to coordinate the DWC’s anti-fraud efforts, including interactions with other governmental agencies, and operate as a repository and clearinghouse for data to be used to combat fraud.
3. Requires that the unit, on or before July 1, 2019, develops and implements data analytics processes to identify the sources of previously unknown fraud and the magnitude of known or suspected fraud. As part of these processes, the unit shall create written policies and procedures to guide the unit’s data analytics efforts.
4. Requires that the unit’s written policies and procedures include, but not be limited to, the following components:
   1. Goals to be achieved.
   2. Data sources, internal and external to the DWC, which the unit will utilize.
   3. Data elements the unit will measure from those data sources.
   4. Indicators of possible workers’ compensation fraud.
   5. Descriptions of the analytical measures to be used, including comparisons of, and correlations among, the data elements.
   6. Feedback mechanisms, whether internal or external to the division, to assess the effectiveness of the unit’s data analytics processes.
   7. The law enforcement entities, including, but not limited to, the Fraud Division of the Department of Insurance, to which the unit will forward the results of its data analytics efforts.
5. Directs all state entities to submit all data elements discussed in the written policies and procedures to the unit for analysis, with the information staying confidential.
6. Requires that, every 3 years, the unit submits a report to the Legislature on the effectiveness of its data analytics efforts at identifying previously unknown workers’ compensation fraud and the magnitude of known or suspected fraud.
7. Requires, based on the results of the unit’s assessment described above, the unit to revise its data analytics processes if it identifies improved methods of detecting fraud.

Comments

1. Need for this bill?

In a 2016 letter to the Commission on Health and Safety and Workers’ Compensation, the then-Chair of the Senate Labor Committee identified fraud as a specter haunting the workers’ compensation system and presenting a fundamental challenge to the operation of system for all stakeholders. Specifically, the letter cited the recent press coverage by the Center of Investigative Reporting, which detailed more than $1 billion in fraudulent activity by a variety of medical providers. While all of the schemes were different, each had one common feature: the use of the workers’ compensation lien system to monetize the fraud.

In response to this systemic threat, both the Senate Labor Committee and the Assembly Insurance Committee worked on significant anti-fraud measures that would suspend criminally-convicted medical providers and remove their fraudulent liens from the system. With the passage of SB 1160 (Mendoza, Chapter 868, Statutes of 2016) and AB 1244 (Gray/Daly, Chapter 852, Statutes of 2016), significant progress has been made: to date, 263 medical providers have been suspended from the California workers’ compensation system and nearly $2.75 billion ($2,745,352,743) in liens have been dismissed. By any measure, SB 1160 and AB 1244 have made significant progress in curbing fraud in the workers’ compensation system.

That said, nearly all stakeholders agree that there is still much more to be done. AB 1697 seeks to continue that work by codifying several recommendations from a recent State Auditor’s report on workers’ compensation anti-fraud efforts. By codifying the existing anti-fraud unit and requiring written policy and procedures, AB 1697 attempts to ensure that the anti-fraud efforts will continue in the future and be bound by concrete expectations.

Related/Prior Legislation

SB 1160 (Mendoza, Chapter 868, Statutes of 2016) was discussed above.

AB 1244 (Daly/Gray, Chapter 852, Statutes of 2016) was also discussed above.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 8/8/18)

None received

OPPOSITION: (Verified 8/8/18)

Department of Finance

ARGUMENTS IN SUPPORT: ---

ARGUMENTS IN OPPOSITION: The Department of Finance, writing in opposition, states the following:

“The Department of Finance is opposed to this bill because DIR already has a unit established to develop this tool. Additionally, this bill could result in unknown, but potentially significant costs to the Workers’ Compensation Administration Revolving Fund, which is supported by a surcharge on employers’ workers’ compensation premiums.

This bill requires DIR to establish an anti-fraud unit to develop and implement data analytics processes to identify potential fraudulent activity by July 1, 2019. This bill also requires state entities to submit specified data to the unit for analysis and directs the unit to comply with state laws governing privacy and confidentiality, “except as necessary to carry out the duties required by this section.” The language is broad and unclear and may lead to litigation from stakeholders and privacy advocates.

According to the author’s office, the purpose of this bill is to implement the 2017 State Auditor’s recommendations to DIR from its report on California’s workers’ compensation anti-fraud efforts. However, the goal of this provision may be achieved administratively without legislation.

The California Department of Insurance is the lead state agency for the criminal investigation of workers’ compensation fraud. DIR’s Division of Workers’ Compensation monitors the administration of workers’ compensation claims, and provides administrative and judicial services to assist in resolving disputes that arise related to workers’ compensation claims.”

ASSEMBLY FLOOR: 77-0, 5/30/17

AYES: Acosta, Aguiar-Curry, Travis Allen, Arambula, Baker, Berman, Bigelow, Bloom, Bocanegra, Bonta, Brough, Burke, Caballero, Calderon, Cervantes, Chávez, Chen, Chiu, Chu, Cooley, Cooper, Cunningham, Dababneh, Dahle, Daly, Flora, Fong, Frazier, Friedman, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gomez, Gonzalez Fletcher, Gray, Grayson, Harper, Holden, Irwin, Jones-Sawyer, Kalra, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Quirk, Quirk-Silva, Reyes, Ridley-Thomas, Rodriguez, Rubio, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Voepel, Waldron, Weber, Wood, Rendon

NO VOTE RECORDED: Chau, Choi, Eggman

Prepared by:

8/21/18 18:40:07

**** END ****

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 1697

Author:(Committee on Insurance)

As Amended Ver:April 12, 2018

Majority vote

Original Committee Reference: INS.

SUMMARY: Codifies and provides legislative direction to an analytics unit within the Division of Workers' Compensation (DWC) in the Department of Industrial Relations (DIR). Specifically, this bill:

1. Provides statutory authorization for an analytics unit in the DWC to use data analysis to identify potentially fraudulent activity in the workers' compensation system.
2. Directs the unit to coordinate the DWC's anti-fraud efforts, including interactions with other governmental agencies, and operate as a repository and clearinghouse for data to be used to combat fraud.

The Senate amendments:

1. Require DWC to adopt formal processes and standards to carry out its duties.
2. Requires a report to the Legislature every three years on the effectiveness of the analytics pogram.

EXISTING LAW:

1. Establishes the DWC within the DIR, headed by an Administrative Director (AD), with the responsibilities to implement and administer the state's workers' compensation laws.
2. Provides that it is a crime to commit various acts that are defined as workers' compensation fraud, including false billing for services, billing for unnecessary or phantom services, filing false claims for injuries that either do not exist or are exaggerated, and lying about payroll in order to reduce workers' compensation premiums.
3. Establishes a Fraud Division in the Department of Insurance (DOI) that employs peace officers and support staff to investigate suspected fraud.
4. Provides for a Fraud Assessment Commission (FAC) to evaluate the need for funding anti-fraud efforts, and assess employers accordingly to pay for both the investigation of fraud, and the prosecution of fraud by local District Attorneys.

FISCAL EFFECT: According to the Senate Appropriations Committee, pursuant to Senate Rule 28.8, negligible state costs.

COMMENTS:

1. Purpose. The Committee is pursuing this bill in order to formalize the DWC's recently created anti-fraud analytics unit, and to provide Legislative direction for the unit's functions and goals.
2. Background. There has been a formal anti-fraud program for workers' compensation since the early 1990's. For the past several years, the state has been spending approximately $50 million per year in support of the fight against workers' compensation fraud. Despite these efforts, it is clear, based on investigative reporting in the media, prosecutions by both state and federal prosecutors, and data derived from DOI, DWC and industry sources, that fraud in the workers' compensation system continues to exist at alarming rates.

In response to this situation, Assembly Insurance Committee Chair Tom Daly last May requested that the Joint Legislative Audit Committee authorize a comprehensive review and audit of the workers' compensation anti-fraud system, with a goal of identify best practices to improve the results of the state's efforts. In response to Assemblymember Daly's request, the DIR announced its intention to convene a stakeholder-driven process to focus on fraud, and develop recommendations to improve the anti-fraud system. After Mr. Daly withdrew the audit request, the DIR proceeded with its stakeholder process. That effort resulted in a January, 2017, report from the DIR to Labor and Workforce Development Agency Secretary David Lanier. The report included a number of recommendations for both administrative and legislative action. One of the legislative recommendations was to formalize the new analytics unit. This bill implements that recommendation.

Analysis Prepared by: Mark Rakich / INS. / (916) 319-2086 FN: 0003999

 CONSENT  

Bill No: AB 1697

Author:

:

Vote:

SENATE LABOR & IND. REL. COMMITTEE: 5-0, 6/27/18

AYES: Lara, Stone, Jackson, Mitchell, Wieckowski

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

ASSEMBLY FLOOR: 77-0, 5/30/17 (Consent) - See last page for vote

SUBJECT:

SOURCE: Author

DIGEST:

This bill creates explicit authorization for the Division of Workers’ Compensation to create an anti-fraud support unit and require that the anti-fraud support unit develops written policies and procedures for combating workers’ compensation fraud, as specified.

ANALYSIS:

Existing law:

1. Establishes a workers’ compensation system that provides benefits to an employee who suffers from an injury or illness that arises out of and in the course of employment, irrespective of fault. This system requires all employers to secure payment of benefits by either securing the consent of the Department of Industrial Relations to self-insure or by securing insurance against liability from an insurance company authorized by the state.
2. Provides that medical, surgical, chiropractic, acupuncture, and hospital treatment, including nursing, medicines, medical and surgical supplies, crutches, and apparatuses, including orthotic and prosthetic devices and services, that is reasonably required to cure or relieve the injured worker from the effects of his or her injury shall be provided by the employer. (Labor Code §4600)
3. Requires that the administrative director of the Division of Workers’ Compensation (DWC) must promptly suspend any physician, practitioner, or provider from participating in the workers’ compensation system as a physician, practitioner, or provider if the individual or entity has been convicted of felony or misdemeanor fraud or abuse of the Medi-Cal program, Medicare program, or workers’ compensation system, or fraud or abuse of any patient. (Labor Code §139.21)
4. Requires that, upon the filing of criminal charges of misdemeanor or felony medical fraud described above, all medical liens related to the entity or individual must be automatically stayed. If convicted, the individual or entity’s liens are dismissed. (Labor Code §§139.21 & 4615)

This bill:

1. Provides explicit statutory authorization for an anti-fraud support unit (unit) in the DWC to use data analysis to identify potentially fraudulent activity in the workers’ compensation system.
2. Requires the unit to coordinate the DWC’s anti-fraud efforts, including interactions with other governmental agencies, and operate as a repository and clearinghouse for data to be used to combat fraud.
3. Requires that the unit, on or before July 1, 2019, develops and implements data analytics processes to identify the sources of previously unknown fraud and the magnitude of known or suspected fraud. As part of these processes, the unit shall create written policies and procedures to guide the unit’s data analytics efforts.
4. Requires that the unit’s written policies and procedures include, but not be limited to, the following components:
   1. Goals to be achieved.
   2. Data sources, internal and external to the DWC, which the unit will utilize.
   3. Data elements the unit will measure from those data sources.
   4. Indicators of possible workers’ compensation fraud.
   5. Descriptions of the analytical measures to be used, including comparisons of, and correlations among, the data elements.
   6. Feedback mechanisms, whether internal or external to the division, to assess the effectiveness of the unit’s data analytics processes.
   7. The law enforcement entities, including, but not limited to, the Fraud Division of the Department of Insurance, to which the unit will forward the results of its data analytics efforts.
5. Directs all state entities to submit all data elements discussed in the written policies and procedures to the unit for analysis, with the information staying confidential.
6. Requires that, every 3 years, the unit submits a report to the Legislature on the effectiveness of its data analytics efforts at identifying previously unknown workers’ compensation fraud and the magnitude of known or suspected fraud.
7. Requires, based on the results of the unit’s assessment described above, the unit to revise its data analytics processes if it identifies improved methods of detecting fraud.

Comments

1. Need for this bill?

In a 2016 letter to the Commission on Health and Safety and Workers’ Compensation, the then-Chair of the Senate Labor Committee identified fraud as a specter haunting the workers’ compensation system and presenting a fundamental challenge to the operation of system for all stakeholders. Specifically, the letter cited the recent press coverage by the Center of Investigative Reporting, which detailed more than $1 billion in fraudulent activity by a variety of medical providers. While all of the schemes were different, each had one common feature: the use of the workers’ compensation lien system to monetize the fraud.

In response to this systemic threat, both the Senate Labor Committee and the Assembly Insurance Committee worked on significant anti-fraud measures that would suspend criminally-convicted medical providers and remove their fraudulent liens from the system. With the passage of SB 1160 (Mendoza, Chapter 868, Statutes of 2016) and AB 1244 (Gray/Daly, Chapter 852, Statutes of 2016), significant progress has been made: to date, 263 medical providers have been suspended from the California workers’ compensation system and nearly $2.75 billion ($2,745,352,743) in liens have been dismissed. By any measure, SB 1160 and AB 1244 have made significant progress in curbing fraud in the workers’ compensation system.

That said, nearly all stakeholders agree that there is still much more to be done. AB 1697 seeks to continue that work by codifying several recommendations from a recent State Auditor’s report on workers’ compensation anti-fraud efforts. By codifying the existing anti-fraud unit and requiring written policy and procedures, AB 1697 attempts to ensure that the anti-fraud efforts will continue in the future and be bound by concrete expectations.

Related/Prior Legislation

SB 1160 (Mendoza, Chapter 868, Statutes of 2016) was discussed above.

AB 1244 (Daly/Gray, Chapter 852, Statutes of 2016) was also discussed above.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 8/8/18)

None received

OPPOSITION: (Verified 8/8/18)

Department of Finance

ARGUMENTS IN SUPPORT: ---

ARGUMENTS IN OPPOSITION: The Department of Finance, writing in opposition, states the following:

“The Department of Finance is opposed to this bill because DIR already has a unit established to develop this tool. Additionally, this bill could result in unknown, but potentially significant costs to the Workers’ Compensation Administration Revolving Fund, which is supported by a surcharge on employers’ workers’ compensation premiums.

This bill requires DIR to establish an anti-fraud unit to develop and implement data analytics processes to identify potential fraudulent activity by July 1, 2019. This bill also requires state entities to submit specified data to the unit for analysis and directs the unit to comply with state laws governing privacy and confidentiality, “except as necessary to carry out the duties required by this section.” The language is broad and unclear and may lead to litigation from stakeholders and privacy advocates.

According to the author’s office, the purpose of this bill is to implement the 2017 State Auditor’s recommendations to DIR from its report on California’s workers’ compensation anti-fraud efforts. However, the goal of this provision may be achieved administratively without legislation.

The California Department of Insurance is the lead state agency for the criminal investigation of workers’ compensation fraud. DIR’s Division of Workers’ Compensation monitors the administration of workers’ compensation claims, and provides administrative and judicial services to assist in resolving disputes that arise related to workers’ compensation claims.”

ASSEMBLY FLOOR: 77-0, 5/30/17

AYES: Acosta, Aguiar-Curry, Travis Allen, Arambula, Baker, Berman, Bigelow, Bloom, Bocanegra, Bonta, Brough, Burke, Caballero, Calderon, Cervantes, Chávez, Chen, Chiu, Chu, Cooley, Cooper, Cunningham, Dababneh, Dahle, Daly, Flora, Fong, Frazier, Friedman, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gomez, Gonzalez Fletcher, Gray, Grayson, Harper, Holden, Irwin, Jones-Sawyer, Kalra, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Quirk, Quirk-Silva, Reyes, Ridley-Thomas, Rodriguez, Rubio, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Voepel, Waldron, Weber, Wood, Rendon

NO VOTE RECORDED: Chau, Choi, Eggman

Prepared by:

8/8/18 16:10:07

**** END ****

SENATE COMMITTEE ON LABOR AND INDUSTRIAL RELATIONS

Senator Ricardo Lara, Chair

2017 - 2018 Regular

Bill No: AB 1697 Hearing Date: June 27, 2018

Subject: Workers’ compensation

KEY ISSUE

Should the Legislature create explicit authorization for the Division of Workers’ Compensation to create an anti-fraud support unit and require that the anti-fraud support unit develops written policies and procedures for combating workers’ compensation fraud, as specified?

ANALYSIS

Existing law:

1. Establishes a workers’ compensation system that provides benefits to an employee who suffers from an injury or illness that arises out of and in the course of employment, irrespective of fault. This system requires all employers to secure payment of benefits by either securing the consent of the Department of Industrial Relations to self-insure or by securing insurance against liability from an insurance company authorized by the state.
2. Provides that medical, surgical, chiropractic, acupuncture, and hospital treatment, including nursing, medicines, medical and surgical supplies, crutches, and apparatuses, including orthotic and prosthetic devices and services, that is reasonably required to cure or relieve the injured worker from the effects of his or her injury shall be provided by the employer. (Labor Code §4600)
3. Requires that the administrative director of the Division of Workers’ Compensation (DWC) must promptly suspend any physician, practitioner, or provider from participating in the workers’ compensation system as a physician, practitioner, or provider if the individual or entity has been convicted of felony or misdemeanor fraud or abuse of the Medi-Cal program, Medicare program, or workers’ compensation system, or fraud or abuse of any patient. (Labor Code §139.21)
4. Requires that, upon the filing of criminal charges of misdemeanor or felony medical fraud described above, all medical liens related to the entity or individual must be automatically stayed. If convicted, the individual or entity’s liens are dismissed.
   (Labor Code §§139.21 & 4615)

This bill:

1. Provides explicit statutory authorization for an anti-fraud support unit (unit) in the DWC to use data analysis to identify potentially fraudulent activity in the workers’ compensation system.
2. Requires the unit to coordinate the DWC’s anti-fraud efforts, including interactions with other governmental agencies, and operate as a repository and clearinghouse for data to be used to combat fraud.
3. Requires that the unit, on or before July 1, 2019, develops and implements data analytics processes to identify the sources of previously unknown fraud and the magnitude of known or suspected fraud. As part of these processes, the unit shall create written policies and procedures to guide the unit’s data analytics efforts.
4. Requires that the unit’s written policies and procedures include, but not be limited to, the following components:
5. Goals to be achieved.
6. Data sources, internal and external to the DWC, which the unit will utilize.
7. Data elements the unit will measure from those data sources.
8. Indicators of possible workers’ compensation fraud.
9. Descriptions of the analytical measures to be used, including comparisons of, and correlations among, the data elements.
10. Feedback mechanisms, whether internal or external to the division, to assess the effectiveness of the unit’s data analytics processes.
11. The law enforcement entities, including, but not limited to, the Fraud Division of the Department of Insurance, to which the unit will forward the results of its data analytics efforts.
12. Directs all state entities to submit all data elements discussed in the written policies and procedures to the unit for analysis, with the information staying confidential.
13. Requires that, every 3 years, the unit submits a report to the Legislature on the effectiveness of its data analytics efforts at identifying previously unknown workers’ compensation fraud and the magnitude of known or suspected fraud.
14. Based on the results of the unit’s assessment described above, the unit must revise its data analytics processes if it identifies improved methods of detecting fraud.

COMMENTS

1. Need for this bill?

In a 2016 letter to the Commission on Health and Safety and Workers’ Compensation, the then-Chair of the Senate Labor Committee identified fraud as a specter haunting the workers’ compensation system and presenting a fundamental challenge to the operation of system for all stakeholders. Specifically, the letter cited the recent press coverage by the Center of Investigative Reporting, which detailed more than $1 billion in fraudulent activity by a variety of medical providers. While all of the schemes were different, each had one common feature: the use of the workers’ compensation lien system to monetize the fraud.

In response to this systemic threat, both the Senate Labor Committee and the Assembly Insurance Committee worked on significant anti-fraud measures that would suspend criminally-convicted medical providers and remove their fraudulent liens from the system. With the passage of SB 1160 (Mendoza) and AB 1244 (Gray/Daly), significant progress has been made: to date, 263 medical providers have been suspended from the California workers’ compensation system and nearly $2.75 billion ($2,745,352,743) in liens have been dismissed. By any measure, SB 1160 and AB 1244 have made significant progress in curbing fraud in the workers’ compensation system.

That said, nearly all stakeholders agree that there is still much more to be done. AB 1697 seeks to continue that work by codifying several recommendations from a recent State Auditor’s report on workers’ compensation anti-fraud efforts. By codifying the existing anti-fraud unit and requiring written policy and procedures, AB 1697 attempts to ensure that the anti-fraud efforts will continue in the future and be bound by concrete expectations.

2. Proponent Arguments:

None received.

3. Opponent Arguments:

None received.

4. Prior Legislation:

SB 1160 (Mendoza), Chapter 868, Statutes of 2016, was discussed above.

AB 1244 (Daly/Gray), Chapter 852, Statutes of 2016, was also discussed above.

SUPPORT

None on file.

OPPOSITION

None on file.

-- END --

Date of Hearing: May 24, 2017

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

ABPCA Bill Id:AB 1697

Author:(Committee on Insurance) – As Amended Ver:April 6, 2017

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill codifies and provides legislative direction to an anti-fraud support unit within the Division of Workers’ Compensation (DWC) in the Department of Industrial Relations (DIR). Specifically, this bill:

1. Provides statutory authorization for an analytics unit in the DWC to use data to identify potentially fraudulent activity in the workers’ compensation system.
2. Directs the unit to coordinate the DWC’s anti-fraud efforts, including interactions with other governmental agencies, and operate as a repository and clearinghouse for data to be used to combat fraud.

FISCAL EFFECT:

Costs are not expected to be significant. This bill codifies and further specifies existing anti-fraud efforts.

COMMENTS:

1. Purpose. The Committee on Insurance is pursuing this bill in order to formalize the DWC’s recently created anti-fraud analytics unit, and to provide Legislative direction for the unit’s functions and goals.
2. Background. There has been a formal anti-fraud program for workers’ compensation since the early 1990’s. Despite these efforts, however, fraud continues to plague the workers’ compensation system. The DIR, in response to an audit request by Assembly Insurance Committee Chair, Tom Daly, related to workers' compensation fraud, convened a stakeholder process and subsequently issued a January 2017 report to Labor and Workforce Development Agency Secretary David Lanier. This bill implements the report's legislative recommendation to formalize the new analytics unit.
3. Related Budget Change Proposal. As part of the Governor's 2017-18 budget, DIR has requested a budget augmentation for 73 positions and $14.7 million in 2017-18 and $13.6 million ongoing (Workers' Compensation Administration Revolving Fund) to implement and meet the ongoing requirements of SB 1160 (Mendoza), Chapter 868, Statutes of 2016, and AB 1244 (Gray), Chapter 852, Statutes of 2016, two bills that implemented anti-fraud measures.

1. Prior Legislation.

SB 1160 (Mendoza), Chapter 868, Statutes of 2016, expedites medical treatment to injured workers within the first 30 days after their injury by exempting conservative treatment from utilization review, standardizing utilization review procedures, modernizing data collection in the system to improve transparency, and implementing anti-fraud measures in the filing and collection of lien claims for medical treatment.

AB 1244 (Gray), Chapter 852, Statutes of 2016, addresses medical provider fraud within the workers' compensation system and creates a new adjudication, stay, and suspension process for dealing with convicted and indicted providers that have medical lien claims within the system.

1. Staff Comment. DIR notes the BCP requests resources to fund anti-fraud functions in the Director’s office and this bill places those functions in the Division. The author may wish to discuss with DIR the proper placement of these functions.

Analysis Prepared by: Lisa Murawski / APPR. / (916) 319-2081

Date of Hearing: April 19, 2017

ASSEMBLY COMMITTEE ON INSURANCE

Tom Daly, Chair

ABPCA Bill Id:AB 1697 (

Author:Committee on Insurance) – As Amended :April 6, 2017

SUBJECT: Workers’ compensation

SUMMARY: Codifies and provides legislative direction to an analytics unit within the Division of Workers’ Compensation (DWC) in the Department of Industrial Relations (DIR). Specifically, this bill:

1. Provides statutory authorization for an analytics unit in the DWC to use data analysis to identify potentially fraudulent activity in the workers’ compensation system.
2. Directs the unit to coordinate the DWC’s anti-fraud efforts, including interactions with other governmental agencies, and operate as a repository and clearinghouse for data to be used to combat fraud.

EXISTING LAW:

1. Establishes the DWC within the DIR, headed by an Administrative Director (AD), with the responsibilities to implement and administer the state’s workers’ compensation laws.
2. Provides that it is a crime to commit various acts that are defined as workers’ compensation fraud, including false billing for services, billing for unnecessary or phantom services, filing false claims for injuries that either do not exist or are exaggerated, and lying about payroll in order to reduce workers’ compensation premiums.
3. Establishes a Fraud Division in the Department of Insurance (DOI) that employs peace officers and support staff to investigate suspected fraud.
4. Provides for a Fraud Assessment Commission (FAC) to evaluate the need for funding anti-fraud efforts, and assess employers accordingly to pay for both the investigation of fraud, and the prosecution of fraud by local District Attorneys.

FISCAL EFFECT: Undetermined.

COMMENTS:

1. Purpose. The Committee is pursuing this bill in order to formalize the DWC’s recently created anti-fraud analytics unit, and to provide Legislative direction for the unit’s functions and goals.
2. Background. There has been a formal anti-fraud program for workers’ compensation since the early 1990’s. For the past several years, the state has been spending approximately $50 million per year in support of the fight against workers’ compensation fraud. Despite these efforts, it is clear, based on investigative reporting in the media, prosecutions by both state and federal prosecutors, and data derived from DOI, DWC and industry sources, that fraud in the workers’ compensation system continues to exist at alarming rates.
   
   In response to this situation, Assembly Insurance Committee Chair Tom Daly last May requested that the Joint Legislative Audit Committee authorize a comprehensive review and audit of the workers’ compensation anti-fraud system, with a goal of identify best practices to improve the results of the state’s efforts. In response to Assemblymember Daly’s request, the DIR announced its intention to convene a stakeholder-driven process to focus on fraud, and develop recommendations to improve the anti-fraud system. After Mr. Daly withdrew the audit request, the DIR proceeded with its stakeholder process. That effort resulted in a January, 2017, report from the DIR to Labor and Workforce Development Agency Secretary David Lanier. The report included a number of recommendations for both administrative and legislative action. One of the legislative recommendations was to formalize the new analytics unit. This bill implements that recommendation.

REGISTERED SUPPORT / OPPOSITION:

Support

None received

Opposition

None received

Analysis Prepared by: Mark Rakich / INS. /