Stakeholders Say Low Penalties Encourage Carrier Delays

Published on 05/07/2013 by WorkCompCentral, authored by Greg Jones 

Allegations that Sedgwick CMS repeatedly denied care to an injured worker who suffered from a fatal infection contracted during surgery illustrates that California workers' compensation carriers have no incentive to authorize treatment or pay benefits or bills on a timely basis because the penalties for violations amount to little more than a slap on the wrist, attorneys, vendors and providers said on Monday.


Injured worker advocates said the prevalence of unreasonably delayed payments increased after lawmakers lowered fines and instituted a cap on the maximum penalty for violations in 2003.


The Workers’ Compensation Appeals Board in April referred Sedgwick CMS to the Division of Workers’ Compensation Audit Unit for what it said was a pattern of practice of not making payments or authorizing treatment, even after being ordered to do so by a judge. The decision could mark the first time the board asked the Audit Unit to investigate a claims administrator.

“Although the WCAB does not keep records on this type of information, I checked with subject experts that tell me they are not aware of any similar referral over the last 20 years,” DWC spokeswoman Erika Monterroza said in an email.

Charles Romano contracted methicillin-resistant staphylococcus aureus after undergoing surgery for a shoulder injury he sustained at work. The infection caused lung and kidney failure and left Romano paralyzed below his shoulders.

An adjuster for Sedgwick CMS, the third-party administrator for Kroger Co., on several occasions, “denied treatment (or withheld authorization) without consulting with a medical professional and without referring the request for treatment to utilization review,” the Appeals Board said.

Sedgwick has not responded to inquiries from WorkCompCentral.

Romano died from cardiorespiratory arrest, respiratory failure and pneumonia brought on by his infection in May 2008. The board decision notes that Sedgwick didn’t make any payments for medical care until June 23, 2008.

Additionally, the Appeals Board affirmed penalties imposed by a workers’ compensation judge for 11 instances of unreasonably delaying medical care. 

The decision says one of the unnecessary delays involves the late payment on a $275,439 bill submitted by Medi-Cal for treatment provided to Romano after Sedgwick refused to authorize treatment. Prior to SB 899 becoming law, the maximum penalty for this violation would have been $27,534, or 10% of the late payment.

Since SB 899 became law, the maximum penalty under Section 5814 is 25% of the delayed medical benefits, up to $10,000.

The California Applicants’ Attorneys Association said at the time that reducing penalties is “ludicrous” and that poor audit performance results – finding that about one in five cases have delayed or unpaid benefits – points to the need to increase penalties instead.

CAAA President Larry Stern said in an email on Monday that SB 899 reduced penalties so much that they have no deterrent effect on insurers.

“The practice of unreasonably delaying and denying recommended medical care has grown from a behavior by bad actors to a central feature of the workers’ compensation insurance carriers’ business practice,” he said. “They make more money on the interest and investment income from delaying paying for care and compensation than they are fined, so they make money by delaying and denying.”

Stern said what happened to Romano is not an isolated incident and that insurers are “getting away with physical and psychological torture through unreasonable delay and denial.”

Steve Cattolica, director of government relations for the California Society of Industrial Medicine and Surgery, said he believes that reducing penalties for unreasonable delays eliminated the incentive for carriers to do a good job.

“I’m absolutely convinced those changes had an effect on what the carriers perceived their accountability to be,” he said. “The penalties that exist today, they’re chump change, when it really comes down to it.”

Cattolica said penalties need to be large enough to change behavior and create a disincentive for carriers to delay paying bills or authorizing treatment. Hitting carriers with larger fines for late payments could also cut down on the number of liens being filed, he said.

Cattolica said SB 863 instituted lien-filing fees and activation fees to try to change the behavior of lien claimants, but nobody has done anything to address the real cause of liens, which he said is the fact that carriers won’t pay their bills.

“You’ve got to get upstream and stop the liens from occurring in the first place,” he said. “You’ve got to stop the adjusters from thinking they can do things that they shouldn’t in the first place. Go to the source of the problem; you don’t just treat the symptom.”

Dan Mora, president of the California Workers’ Compensation Services Association, said he’s happy to see that the Audit Unit will be asked to investigate Sedgwick for the actions described in the WCAB decision. However, he also said the Audit Unit can’t levy fines large enough to force carriers to act differently.

“They will only change their policy when slapped hard enough,” he said. “Forcing payers to cough up more in penalties is the right thing to do.”

Alan Gurvey, managing partner at the Law Firm of Rowen, Gurvey & Win, said he had a similar experience with the same Sedgwick adjuster named in the WCAB decision. However, he said the case does not have the “evidence necessary for publication” that was in the WCAB decision, “but when something smells fishy, many times it is.”


“This is, however, an important topic as there are other adjusters who seemingly take it upon themselves to inject their own intransigence into cases without legal justification,” Gurvey said. “Fortunately, these adjusters are in the minority, but increased awareness of penalties, sanctions, audits, etc., may help curtail the willy-nilly claims handling of these maverick adjusters.”


The Association of California Insurance Companies had no comment on the WCAB decision or penalties for claims-handling practices.