12 Oct 2016

California: Are Voucher Penalties Based on the Actual or the Potential Loss?

Interesting Ramifications of Labor Code Section 5814

By Brad Wixen, Esq.

In Garcia v. Sara Lee Corporation, 2016 Cal. Wrk. Comp. P.D. LEXIS – (Board Panel Decision), applicant received an independent medical review (IMR) overturning a utilization review (UR) denial for medications. Defendant produced no evidence at trial that the authorization was submitted within five days of the IMR decision pursuant to 8 Cal. Code Reg. § 9792.10.7(a)(2). (Defendant claimed that said authorization was provided but submitted no written evidence to demonstrate this. But, in fact, there was evidence that applicant received his medications within 15 days of the IMR.) In addition, the same applicant later received a stipulated award in which the minutes of hearing indicate that, “App. Entitled to $8000 voucher”. Such voucher was never provided. Applicant’s attorney filed for penalties on both the late authorization for the medications, and the failure to provide the voucher.

(Publisher’s Note: Citations link to Lexis Advance.)

The WCJ awarded applicant a penalty for the late medication as well as “the costs of travel to the pharmacy to obtain the prescriptions”, a full 25% of the $8000 voucher to the applicant, and applicant’s attorney’s fees at the rate of $400 an hour, citing Labor Code Section 5814.5. Defendant filed a Petition for Reconsideration arguing that the medication had been authorized, that the Judge should not have awarded the 25% based on the full value of the voucher in the absence of knowing how much of it applicant would actually utilize, and that the attorney fee should have been limited to 15% of the penalty awarded. The WCJ in her report reiterated that there was no substantial evidence as to authorization of the medication, and she did not change her findings.

In its Opinion and Order Granting Petition for Reconsideration, the WCAB panel let stand all aspects of the Judge’s findings except with regards to calculation on the voucher. The panel cited Labor Code Section 5814, specifically stating that the penalties should be based on 25% of “the amount of the payment unreasonably delayed or refused” or $10,000, “whichever is less.” In this case, they reasoned, consistent with two prior panel decisions (see Stonebraker v. Master Cooling Corporation, 2007 Cal. Wrk. Comp. P.D. LEXIS 90 (Board Panel Decision); Portugal v. Mikasa, Inc., 2009 Cal. Wrk. Comp. P.D. LEXIS 143 (Board Panel Decision)) that the amount of payment unreasonably delayed is not the value of the voucher as a whole, but rather can only be calculated once the voucher payment is utilized.

Analysis

Labor Code Section 5814 has undergone substantial change. Its previous version allowed for a 10% penalty on past, present, and future benefits of that type for any single violation. Thus, if an applicant was not sent the notice of potential eligibility for vocational rehabilitation letter (8 Cal. Code Reg. § 10006(a)(2)), and could reasonably argue that they would have requested the benefit, they could demand both retro vocational rehabilitation maintenance allowance (VRMA) plus a penalty on top of that for all benefits ever paid. Similarly, a single late payment of temporary disability could allow an exorbitant windfall to the applicant and all temporary disability without any potential cap. While the applicant’s bar may argue that such stiff penalties were warranted as a deterrent, the legislature determined that penalties needed to be severely revamped. Thus, as the commissioners point out, the current law provides an overall cap of $10,000 under any circumstance for a single penalty. The commissioners did not necessarily need to read the words “payment unreasonably refused” to equate with actual payments made. They could have found that the $8000 voucher was the payment unreasonably refused. However, prior panels have found otherwise. Even under the old system, potential benefits for vocational rehabilitation, without an actual showing of any genuine interest on the part of the applicant, were not subject to a 5814 penalty. (See Reagan v. Workers’ Comp. Appeals Bd. (1998) 63 Cal. Comp. Cases 475 (writ den.).) Therefore, the commissioners were on solid legal ground for their Decision.

Takeaway points

As usual, some of the most important points reside in other than the main issue decided. At the outset, it is important to realize that despite the lack of jurisdiction of the WCAB generally to overturn UR IMR decisions, there is jurisdiction on the crucial issue of penalties. Accordingly, takeaway point number one is that applicant’s attorneys and defendants should be careful about issues of compliance. Secondly, note that the judge awarded travel time to fill the prescription. Takeaway point number two is, applicant need not be limited in calculating his penalty award by the amount of the benefit itself. Applicant may look to consequential costs. Thirdly, defendant insisted that the disputed medication had actually been authorized. Proof was not evident at Trial. Takeaway point number three is, have your evidence ready at trial! Also, notice that the applicant’s attorney had written the award for the voucher on the minutes of hearing. Takeaway point number four is, minutes of hearing are important. Finally, a point that I am sure applicant’s attorneys did not miss is that a fee of $400 an hour was awarded to the applicant’s attorney and was not limited to 15% of the award. This is certainly a large incentive for the applicant’s bar to pay attention to the UR IMR process of their clients. Prompt letters of demand should be made. A penalty petition should be filed. And, the same holds true for the defense bar. Keeping timelines for any benefit awarded, and promptly informing the insurance adjuster of the necessity to authorize or to delay no further, minimize penalty expenses from the carrier.

Read the Garcia v. Sara Lee Corporation noteworthy panel decision.