A California appeals court upheld a prior ruling that employer ReadyLink owed the California State Compensation Insurance Fund (CA State Fund) more than $500,000 in unpaid premiums.

More importantly, the court also upheld a ruling that ReadyLink owes CA State Fund over $900,000 in interest on the unpaid premiums.

Apparently, there are real monetary consequences for employers that fail to meet their financial obligations to workers’ comp insurers on time. This raises a serious question: why does that standard not apply when insurers and other payers fail to promptly meet their financial obligations to healthcare providers?

In California, a payer that fails to timely reimburse a provider only theoretically owes penalties and interest. Unfortunately, the California Division of Workers’ Compensation (CA DWC) directs that those additional payments are “self-executing,” effectively rendering them unenforceable.

As a result, payers consistently fail to remit penalties and interest. It’s yet another example of how comp laws and regulations that benefit insurers seem always to have teeth, while laws and regulations that nominally protect providers seem effectively optional.

For the record, daisyNews notes that CA State Fund is one of the exceedingly rare payers that often remits penalty and interest payments when they fail to pay on time or in full, a voluntary act of compliance that sets this consistently high-performing, law-abiding insurer apart.

Unfortunately, other payers are less conscientious than CA State Fund, and doctors are paying the price.

Penalty & Interest Payments in CA Comp

Inevitably, payers sometimes fail to meet payment deadlines, or pay incorrect reimbursement amounts. To remedy that, California Labor Code Section 4603.2  mandates that a bill (emphases ours):

“...provided and not paid at the rates then in effect under Section 5307.1 within the 45-day period shall be paid at the rates then in effect and increased by 15 percent, together with interest at the same rate as judgments in civil actions retroactive to the date of receipt of the itemization…”

In other words, when the payer fails to correctly reimburse the provider (or formally object to the bill) within 45 days (60 days for government employers), it owes the provider a 15% penalty and 10% annual interest (the interest rate for judgments in civil actions), retroactive to the date the payer received the bill. For Medical-Legal bills, the penalty is 10%, and the interest rate is 7%, both applying after 60 days.

There’s one significant problem, though. The CA DWC’s Medical Billing and Payment Guide, which offers specific instructions pursuant to the relevant payment laws, also notes that:

“The increase and interest are self-executing…”

No effective enforcement mechanism exists to ensure these payments. With electronic billing, it is extraordinarily easy to prove that a payment was late; yet, providers have no way to bill for any unpaid penalties and interest. California Code of Regulations Section 10111.2 mandates additional fees for failure to remit penalties and interest for the subjects of Target Audits, but we have never seen this actually occur.  

In effect, it’s an absurd payer honor system.

CA Court Orders $900k+ in Interest to State Fund

Setting a stark example for employers’ financial accountability to their comp insurers, a California appeals court determined that ReadyLink owes CA State Fund $907,998.38 in interest on unpaid premiums worth just $555,327.53.

ReadyLink supplies temporary nurses to healthcare practices, reportedly paying those nurses low hourly wages. However, ReadyLink also paid high per diems, which CA State Fund determined should have counted towards payroll after an audit of the 2005 policy year. In the ensuing legal battle, which dragged on for years, the courts ultimately sided with the insurer.

Subsequently, CA State Fund sought the applicable interest payments, per California Civil Code Section 3287. Again, the courts sided with CA State Fund.

The ruling on the interest payment, which is 64% higher than the original amount ReadyLink underpaid, will no doubt send a clear signal to employers statewide that there are real monetary consequences for failing to properly pay a comp insurer.

It is indefensible that (in effect) there are no real consequences for failing to pay a doctor for an injured worker’s treatment.

In situation after situation, the law, regulations, and implementation thereof default to the payer’s advantage. If a provider fails to submit a bill or appeal on time, or to include necessary documentation, the consequences are immediate and automatic: the payer doesn’t reimburse. End of story.

Yet payers routinely fail to remit penalty and interest payments and Independent Bill Review filing fees without repercussions, sending the unmistakable message that the rules meant to protect providers are toothless. In such a climate, how can anyone be surprised by the provider shortage in workers’ comp?

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