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There's the court system so choked with a backlog of cases -- approximately 800,000 pending in the Los Angeles office alone -- that it can't adequately adjudicate those it has. There's the indirect impact on workers, who lose out on the money for workers' comp benefits as well as payment of wages and other benefits. And there's the thwarting of public policy intentions.

State workers' comp advisors are hoping to come to terms with the out-of-control measures that are driving a cottage industry and holding the state's workers' comp system hostage to the myriad disputes that are filed as liens. This month, the Commission on Health and Safety and Workers' Compensation voted to adopt a report that characterizes the extent of the problem and suggests recommendations to policymakers.

"The typical workers' comp lien is a direct claim against the defendant for a benefit which is not otherwise payable to the injured worker," according to the report from the CHSWC. "A lien is the medical provider's vehicle for contesting the employer's determination of the amount payable for medical goods or services. Unlike conventional liens, these are not obligations of the injured worker."

The costs can be staggering. "We estimate that $1.5 billion in medical liens will be filed in 2010 and $2 billion in 2011. By way of comparison, the total spending on medical benefits statewide in 2009 was nearly $6 billion, so one dollar is in dispute for every four dollars paid," according to the CHSWC.

While other states' workers' comp systems have liens, they appear not to hold a candle to California's. CHSWC cited one national insurer that writes 22 percent of its business in California but receives 87 percent of liens in the state.

"We have a system designed to assure appropriate benefits for workers under a set of assumptions that were probably valid when they were designed, but there have been business practices evolving on the payer side and the medical provider side which were not contemplated when that system was designed," said Lachlan Taylor, CHSWC workers' compensation judge. "Parties on both sides are acting in ways contrary to the interests of employees and employers because the design of the system is rewarding those behaviors."

In addition to the obvious expense are other problems associated with the excessive number of liens. Perhaps the most noteworthy is the overall impact on the system.

"The billions of dollars in dispute reflect both obligations that should have been paid but which may eventually have to be compromised in order to obtain any payment, and claims that should not be paid but which may eventually have to be compromised in order to obtain closure," the CHSWC said. "The volume of liens forces the courts to encourage settlement, almost to the point of coercion. The necessity of settlement rewards both unjustified claims and unjustified refusals."

An estimated 350,000 liens were filed last year, and experts anticipate 450,000 this year.

The number of liens filed varies from year to year, depending on the procedures in place.

In 2003, there were 500,000 filed. That number dropped substantially when a $100 filing fee was implemented. The fee has since been eliminated, resulting in an uptick of liens. The year 2007 saw more than 700,000 liens filed; that number dropped quickly when an electronic filing system was implemented.

The CHSWC believes that addressing the lien situation on several fronts can result in substantial savings. "If even a third of the liens filed this year could have been avoided by a better functioning system, that would mean that $117 million of frictional costs could have been saved."

Recommendations. Most liens in the California workers' comp system arise "because the law is unclear on what should be paid, or one party has failed to pay what it should, or another party perceives an opportunity to obtain more than it is entitled to receive," according to the CHSWC. Accordingly, the agency has recommended a number of possible fixes to the system.

The initial recommendations focus on coping with the volume of liens and the burden placed on the system, but CHSWC members say the key is addressing the issues that are leading to excessive liens, not just adding resources.

"If we're getting 350,000 liens [estimated for 2010] and wanted to keep up with the incoming workload and eliminate the backlog, then you would need at least 25 more judge teams -- or 50, depending on how long you are willing to take to 'clean out the stables,' but is that the right response?" said CHSWC Executive Officer Christine Baker. "It's a better practice to stop the liens so you don't need as many resources."

Read more at the WorkersComp Forum homepage.

February 7, 2011

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