California has a workers' compensation system in which payers can't lose.

In practice, there are no penalties for refusing to pay a legitimate bill; no consequences for ignoring clear treatment authorization. If a payer forces a doctor to spend time appealing bogus payment denials, in the worst-case scenario, they only pay exactly what they always owed.

This is how the system works under the California Division of Workers’ Compensation (CA DWC).

Recently, Third Party Administrator Gallagher Bassett demonstrated how payers benefit from this rigged payment system. In January, a provider submitted an electronic bill (e-bill) to the Third-Party Administrator (TPA) for treating an Evolution Hospitality, LLC employee. Gallagher Bassett denied payment.

According to its Explanation of Review (EOR), Gallagher Bassett denied payment for lack of authorization:

• "...ABSENCE OF PRECERTIFICATION/AUTHORIZATION."
• "...REQUIRES PRIOR AUTHORIZATION AND NONE WAS IDENTIFIED."
• "NOT ALL DOS [Dates of Service] HAVE BEEN AUTHORIZED."

There’s just one problem with this denial reasoning: Gallagher Bassett undeniably authorized the treatment. The provider submitted proof of that authorization, issued by Gallagher Bassett itself, along with the bill.

Unfortunately, in California’s lopsided billing and payment environment, the facts do not matter.

The Authorization Gallagher Bassett Ignored

When providers send e-bills using daisyBill, those e-bills include attached documentation that cannot be separated from the bill or “lost” along the way. In this case, the provider’s e-bill included:

• A progress report detailing the injury and treatment
• Gallagher Bassett's own authorization document (shown below)

The Gallagher Bassett authorization the provider sent with the e-bill clearly shows the treatment in question is "Peer Approved."

(The document's blurriness represents another gift to payers from the CA DWC, which refuses to require standardized formats for Utilization Review decisions; but that's a rant for another day.)

None of this stopped Gallagher Bassett from claiming that the authorization never existed and sending an EOR (shown below) denying payment for the authorized services.

Why Payers Do This: Because They Can

Arguably, CA DWC regulations and selective enforcement make this kind of payer behavior inevitable. Here’s why:

If Gallagher Bassett denies payment:

• Best case (for Gallagher Bassett): The provider misses the deadline to submit a Second Review appeal or otherwise fails to comply perfectly with appeal procedures. Gallagher Bassett keeps the provider’s reimbursement.
  
  
• Worst case (for Gallagher Bassett): The provider successfully appeals, paying $195 and escalating to Independent Bill Review (IBR) if necessary. Gallagher Bassett pays exactly what it owes and nothing more.

The CA DWC does not enforce any consequences (such as penalty and interest payments or refunding the IBR filing fee) on Gallagher Bassett for failing to pay providers correctly. So, why bother?

Worse, the CA DWC may consider this dispute “ineligible” for IBR. Authorization is considered a “threshold” issue regarding whether or not the payer must pay a bill. Since IBR only resolves disputes over the amount of payment owed, claiming lack of authorization (however farcically) can disqualify an IBR request.  

The CA DWC's Role: Professional Bystander

The CA DWC has the authority and the legal mandate to deter payers from this kind of behavior. Instead, it watches from the sidelines while payers make treating injured workers financially irrational for doctors.

As a result, fewer providers are willing to take on workers' comp patients, ultimately delaying treatment and worsening health outcomes. Employers and their injured workers are paying the price (literally) for a system that arguably incentivizes payers to commit abuses.

Evolution Hospitality's employees deserve better than a TPA that treats payment obligations as optional. California's employers and injured workers deserve better than a regulator that refuses to regulate.

Sadly, this is the system California built. Until something changes, payers like Gallagher Bassett will keep doing exactly what the system rewards them for doing: whatever they want.

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