Workers’ compensation.

Valencia’s Assembly Bill 1398 reorients California’s workers’ compensation referral landscape by requiring a new, written disclosure at the point a payment claim is presented when a financial interest sits between an interested party and a referral recipient. The central change is the amendment of Labor Code section 139.32 to require every interested party to disclose in writing to the third-party payer or other entity handling the payment any financial interest in an entity providing services furnished under a referral, with the disclosure due at the time the claim for payment is submitted.

The bill expands and clarifies who counts as an interested party and what constitutes a financial interest, and it enumerates the services that can be involved in referrals. An “interested party” includes an injured employee; the employee’s employer (and insurer if insured); a claims administrator; an attorney or law firm representing or advising the employee; a representative or agent of an interested party (including employees and immediate family acting on behalf); and a provider of medical services or products. A “financial interest in another entity” covers ownership, debt, loans, leases, compensation, discounts, dividends, or other direct or indirect payments, plus arrangements that compensate based on referral volume or value. “Services” encompasses determinations of eligibility and permanent disability ratings, evaluations of future earnings capacity, medical-bill itemization review, transcription, interpretation, medical services or products, transportation, and utilization review, among others. The disclosure must be in writing and accompany the claim at the time it is presented.

The bill imposes prohibitions and an enforcement framework tied to these disclosures. It is unlawful for an interested party to refer a person for services, or to use services, if the other entity will be paid for those services pursuant to Division 4 and the interested party has a financial interest in the other entity, subject to specified safe harbors and exceptions. It also bars cross-referral arrangements intended to secure referrals to a particular entity and outlaws certain inducements tied to referrals. A claim for payment arising from a prohibited referral may not be presented, and payers are prohibited from knowingly paying charges or liens for such services. Violations carry a misdemeanor for individuals and, for corporations, potential liability for directors or officers who knowingly participate; civil penalties can reach up to 15,000 dollars per offense. Enforcement may involve the Insurance Commissioner, the Attorney General, district attorneys, and disciplinary actions by licensing authorities or the State Bar for attorneys. The bill also provides that any determination of employee eligibility for compensation shall be void if the service was provided in violation.

The measure preserves existing safe harbors and exceptions, while codifying a broader set of conditions that do or do not constitute a “financial interest.” Safe harbors include certain loans with commercially reasonable terms, written leases with fixed rent for at least one year, and ownership of publicly traded securities. Exceptions cover services performed by employees in the ordinary course of employment, referrals for legal services not prohibited by professional conduct rules, and physician referrals exempted by other provisions. The statute also clarifies that other applicable laws may still apply and that the act does not preclude broader regulatory or legal frameworks. A local-mandate analysis is included, noting that no reimbursement is required for local entities despite the designation of a state-mandated local program.

In its broader context, the bill establishes a multi-layered enforcement regime aimed at disclosures, referrals, and potential financial-driven arrangements within the workers’ compensation system. It imposes procedural disclosure requirements, tightens prohibitions on referral patterns tied to financial interests, and assigns multiple authorities to enforce penalties and professional discipline. Operationally, it implies the development of payer-based workflows for receiving disclosures, potential form or data standardization, and record-keeping to support audits and compliance, all within the framework of existing Labor Code provisions and related regulations.