The Audit Joke in Workers' Comp

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January 14, 2015

The Audit Joke in Workers’ Comp

Summary:

If California actually enforced its penalties, then cultures and behaviors would change, but the state waives almost all of them.

Photo Courtesy of dsa66503

Police officers and firefighters in California and Arizona in separate cases are alleging violations of the Racketeers and Influenced Corruption Act against third-party administrators York and Corvel and the municipalities those companies serviced.

In California, the defendant cities are Rialto and Stockton. In Arizona, it’s Phoenix.The California complaint says the companies “routinely and improperly chose to hurl frivolous and legally unsound roadblock after roadblock to wrongfully deny care” to injured first responders.The plaintiffs believe that a “pattern of practice” at the defendant companies together with the involvement of certain personnel for the defendant municipalities created an enterprise to fraudulently deny benefits in violation of RICO statutes.

Michael P. Doyle, a founding partner of the Doyle Raizner law firm, which filed both complaints, told WorkCompCentral the Arizona case already survived a motion to dismiss, and he anticipates going to trial by the middle of summer. The California case is just getting started, he said.

The defendant cities paid the administrators based on a flat fee per claim and a percentage of savings from utilization-review and bill-review services that were provided, creating an incentive for improper conduct, the plaintiffs claim.

The alleged pattern of denying legitimate claims allowed the defendants to “lower the liability of the city, while at the same time maximizing the TPA’s revenues (and allowing the TPA to maintain and obtain contracts with other public entities based on their ‘outstanding’ financial performance at the expense of public servants).”

The defendant employers conspired with the defendant administrators and “denied claims in hopes that some plaintiffs will simply not continue to seek benefits under workers’ compensation entirely,” the complaint says. The complaint also alleges the defendants ignored California law regarding pre-existing injuries that are aggravated by a new incident, as well as statutes creating a presumption of compensability for certain conditions suffered by first responders.

Representatives for the various defendants would not comment on the cases to WorkCompCentral reporter Greg Jones because of the pending litigation or were not available prior to deadline.

But Jones reports that California Division of Workers’ Compensation audits found claims shops run throughout the state by both firms had numerous violations, including late and unpaid indemnity benefits. In all but one case, the fines were waived because the shops scored high enough to escape financial penalties under the division’s profile audit review program.

York was fined $117,036 after the DWC identified 213 violations during a review of claims processed through its shop in Oxnard. Violations included 26 cases in which the company underpaid indemnity benefits by a total of $84,458.42, according to the DWC’s 2010 audit report.

The DWC identified 45 violations at York’s shop in Fresno in 2010.

The same year, the DWC said it uncovered 80 violations at Corvel’s shop in Sacramento, including $2,147 in unpaid indemnity benefits on nine claims.

In 2011, the DWC identified $92,615 in unpaid indemnity benefits on 26 claims from Corvel’s shops in Camarillo, Rancho Cucamonga and San Diego. The proposed fines, all of which were waived, for 128 violations at the three adjusting locations were $78,790.

York in the same year had unpaid benefits of $31,562 on 28 claims audited at its shops in Upland, Valencia and Concord. The proposed penalties of $51,115 for 157 auditing violations uncovered were all waived, according to the DWC’s 2011 audit report.

In 2012, the latest year for which audit results are available, the DWC said York had unpaid indemnity totaling $7,347 on claims handled by its El Dorado Hills office. The audit also identified 52 cases of failing to comply with the requirements to provide notice to the injured worker of the qualified medical evaluator/agreed medical evaluator (QME/AME) process. York faced penalties of $30,175 for 117 violations, but the fines were waived.

There are two things that come readily to mind.

First, the DWC audit system in California just doesn’t work. That injured workers have to resort to seeking civil judicial intervention for redress that the state should be taking care of is sad testament to the respect the state gets.

Kind of like a parent who threatens taking the cell phone or Internet away from the teenager for misbehavior – puh-leeze! Oh! That’s a threat…

Second, maybe there’s an intentional manipulation of the system by the defendant, or maybe there’s a dysfunctional culture that allows such transgression without consequence.

Sadly, what will happen is that the RICO cases will end up in some sort of anonymous settlement; there won’t be any penalties or fines from the state auditors; there will be no change to the audit process; and the practices will continue, albeit via some other employers and other administrators.

The heavy penalization system that was so criticized by employers, carriers, TPAs and other payers (Labor Code section 5814) for unwarranted cost and expense to the system, was castrated by SB 899 10 years ago because the audit system was in place and was supposed to do the job of enforcement.

Clearly, that assumption has proven incorrect.

Enforcement by the state is a joke.

I can pretty much guarantee that if the state actually enforced the penalties instead of waiving them all (except for one, as noted) the culture would change, the behavior would change and there wouldn’t be any RICO challenges surviving the initial pleading stage.

The ball is in the state’s hands – the audit and penalty system is administrative in nature and doesn’t need legislative backing to change. All the state has to do is NOT waive penalties.

Until then, expect injured workers to seek civil redress for performing the state’s obligation.

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About the Author

David DePaolo is the president and CEO of WorkCompCentral, a workers’ compensation industry specialty news and education publication he founded in 1999. DePaolo directs a staff of 30 in the daily publication of industry news across the country, including politics, legal decisions, medical information and business news.

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