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CA Appeals Court: Providers Do Not Need to Refund Overpayments

December 7, 2017 by Catherine Montgomery

Our recent blog post on overpayments generated a number of requests from providers for verification that, absent fraud, refunds are not due to employers or insurers, even in cases where the claims administrator overpaid. In that post, we explained that there are no legislative statutes addressing the return of funds; therefore, legally, no refunds are due.

We wrote that previous post in response to some reported aggressive behavior from claims administrators attempting to recover monies already paid, including threats of legal action against providers.

Following the blog post, the California Society of Industrial Medicine (CSIMS) sent us a decision by the California Court of Appeals, 2nd District, that providers can cite when refusing to return funds to payers. In American Psychometric Consultants, Inc. v. Workers' Comp. Appeals Bd. (1995) (36 Cal.App.4th 1626, 1645-1646 (American Psychometric).), the court specifically ruled that providers are under no obligation to return funds to a payor, even when the payor believes it incorrectly reimbursed the provider, unless the payor can prove that the billing was fraudulent.

The American Psychometric Case

In American Psychometric, the court annulled three separate WCAB orders that had awarded restitution of medical-legal fees paid to medical providers. In its lengthy decision, the Court points to the importance of medical providers:

It is more than theoretical importance in the workers’ compensation system that medical providers be paid promptly and treated fairly, for without them the entire benefit system would fail.

The decision goes on to declare that in order to play their crucial role, providers need to rely on the notion that payment is irrevocable.  

...medical providers not only render necessary services, they operate businesses which cannot be routinely dependent upon revenues subject to recovery by employer/carriers at some later unspecified time.

In its conclusion, the court again emphasizes the importance of transactional stability and the inviolability of payment, absent fraud. The Court clearly recognizes that a workers’ compensation system in which employers and carriers can demand refunds at will is inoperable, and thus cannot be allowed:

“We believe transactional stability is an important element of any benefit system. Approving restitution in these cases would set a precedent which would have unfortunate consequences for the workers' compensation system. It would introduce the possibility of continued transactional instability so negative it would impact the number of medical providers willing any longer to participate in the system by evaluating workers with industrial injuries. No one can operate a business on receipts only conditionally possessed, and medical providers are no exception [emphasis added]. Thus we have determined the restitution orders were unfair and must be annulled.

The Workers’ Compensation Appeals Board (WCAB) follows the precedent of denying restitution set by American Psychometric. In Silvia Mora v. Steelcase, Inc.; Liberty Mutual Insurance Company, the WCAB cited liberally from the earlier case when it held in a panel decision that the defendant was not entitled to restitution in a case involving medical treatment.

The WCAB notably relied on the concept of transactional stability and the unfortunate consequences of restitution on the workers’ compensation system.*

Bottom line: A functional workers’ compensation system is unsustainable unless providers are confident that payments will be correct, timely, and non-refundable. Everyone, including employers and injured workers, is better served erring on the side of the provider — even at the cost of an occasional overpayment.

How to Respond to Payers Demanding Refunds

As we made clear in our previous blog, a provider who wishes to return overpaid funds is certainly free to do so, at their own discretion. But if a payor or its claims administrator demands a refund for previously paid bills, absent fraud, the provider does not need to oblige them, and we suggest responding with the following language:

In American Psychometric Consultants, Inc. v. Workers' Comp. Appeals Bd. (1995), the California Court of Appeals ruled, absent fraud, that providers are under no obligation to return funds to a payer even when the payer believes it incorrectly reimbursed the provider. The WCAB has followed the higher court in denying restitution in Silvia Mora v. Steelcase, Inc.; Liberty Mutual Insurance Company.
The decisions reference both medical-legal services and medical treatment, and disallow the demand for a refund by employers and carriers. As stated by the Court of Appeals and reiterated by the WCAB, “No one can operate a business on receipts only conditionally possessed, and medical providers are no exception.
We, therefore, refuse to refund the requested reimbursement.  

Thank You CSIMS

We’d like to offer a special thanks to the California Society of Industrial Medical  (CSIMS), its Executive Vice President Carl Brakensiek, and its Director of Government Relations Steve Cattolica for providing this example. For further information on CSIMS and their advocacy efforts, see csims.org.

American Psychometrics and the subsequent decisions it informed is all the proof providers need to demonstrate that payment is inviolable, as it should be.

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*The Court of Appeals, 3rd District, in an unpublished decision, also followed American Psychometric in affirming a WCAB decision denying restitution, this time for lawyer’s fees. The court once again emphasized that, in the absence of fraud by the payment beneficiary, restitution has a detrimental impact on the workers’ compensation system.

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To ensure billing accuracy, providers should use reliable billing software: exactly what DaisyBill provides. Schedule a free demonstration today, and see what fast, reliable billing can do for your office.

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