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At each year end workerscompzone features a post on the most prominent workers’ comp happenings during the year. In California workers’ compensation, what were the top developments during 2014?

Here, in no particular order, are my what caught my eye as choices for the top 10 events and trends in California workers’ comp  in 2014.

I’ve included links to many of the studies and documents noted in the text as well as some detailed commentary.

1. 2014 was a meager year for workers’ comp legislation in Sacramento but was a productive year for other employment related bills

As in 2013, there was not much appetite  in Sacramento for major legislative workers’ comp reform efforts.

The workers’ comp bills that did get approved and signed by the Governor are mostly smaller in scope. They include these:

AB 1035 (Perez) (extends statue of limitations for death actions filed by families of police and firefighters)

AB 1746 (Alejo) (requires a priority conference calendar for uninsured employer cases)

AB 2732 (cleanup bill for SB 863)

Bills vetoed by Governor Brown included a proposed expansion of peace officer presumptions (AB 2052), a bill to create a presumption that MRSA infections developed by hospital employees is work related (AB 2616), and a bill to allow peace offers to collect up to 104 weeks of temporary disability in addition to one year’s full pay under Labor Code 4850 (AB 2378).

However, the 2014 legislative session will be remembered for a handful of bills sought by labor interests. Those bills, summarized in a DWC legislative digest, provide as follows:

  • AB 1522 provides workers with paid sick leave, accrued at a rate of at least one hour for every 30 hours worked.
  • AB 1897 establishes shared legal responsibility between labor contractors and employers utilizing workers supplied by labor contractors. It also prevents employers from shifting any legal duty or liability to a labor contractor.
  • AB 1634 removes the option of postponing an abatement period for employers cited with certain types of serious, willful violations.
  • SB 854 replaces current funding mechanisms for public works enforcement. The law creates a uniform annual registration fee paid by public works contractors requiring that all contractors and subcontractors pay an initial registration and (thereafter a renewal) fee if they intend to bid or perform work on public works projects.

2. California’s system turned 100

In 1914 the California legislature enacted a system of compulsory workers’ compensation coverage, commonly known as the Boynton Act. In 1914 the  system celebrated its 100th birthday. An event was organized by the Department of Industrial Relations to commemorate the anniversary. Speakers, including myself, recounted many of the milestones in the system during the past 100 years. Although the system has seen wave after wave of reforms pushed by different coalitions under different governors, the system, despite all its problems, continues to deliver a massive amount of benefits to workers and supports a massive industry of “stakeholders”.

3.  System stakeholders  continued to assess the effects of the 2012 SB 863 reforms

At year’s end the jury was still out on the question of the balance between costs and savings under the 2012 reforms.

As 2014 progressed, reform proponents noted significant savings from lien procedure reforms as lien filings were significantly reduced. WCIRB stats noted that lien filings in 2013 and 2014 had decreased by 60% annually when compared to 2011 levels.

The so-called spinal hardware “pass-through” billing fix and lowered utilization of spinal instrumentation had decreased charges by 25%.

Ambulatory surgical facility fee changes had reduced charges by an estimated 25%.

www.wcirb.com/sites/default/files/documents/asc_study_140225_final.pdf

In December 2014 the WCIRB revealed an analysis indicating that payments to physicians under the newly-mandated RBRVS fee schedule had actually dropped by 3.9% rather than increasing by 2.4% as the WCIRB had projected. However the WCIRB cautioned that the transition to RBRVS is in early stages and limited data is available.

www.wcirb.com/sites/default/files/documents/wcirb-research-forum-rbrvs.pdf

A November 14, 2014 WCIRB  analysis listed the impact on savings under SB 863 as “to be determined” in the following areas:

-Supplemental Job Displacement Benefits

-Elimination of PD add ons for psyche, sleep and sexual dysfunction

-elimination of Ogilvie for post 1/1/13 cases

-three-tiered weekly PD benefits

-Independent Bill Review (IBR)

The major area where projected SB savings have not been realized is in Independent Medical Review (IMR). The November 14, 2014 WCIRB report noted that:

“The frequency of IMR requests through the third quarter of 2014, even after eliminating duplicate and ineligible requests, is far above the levels initially projected.”

“Medical -legal costs, utilization review costs, litigation costs, and average unallocated and allocated loss adjustment expense costs continue to increase through 2013, suggesting any savings to frictional costs from IMR or other SB 863 provisions are not materializing.”

“Temporary disability (TD) duration was projected to decrease by 5% as result of SB 863 provisions related to IMR and medical provider networks (MPNs). CWCI information on average TD duration for accident year 2013 shows an increase of approximately 4% at 12 months and average TD duration for accident year 2012 also shows an increase. However, inasmuch as the issuance of IMR decisions has experienced significant delays during the initial transition period due to a far greater than anticipated volume of requests, the extent to which IMR may ultimately impact TD duration remains uncertain.”

www.wcirb.com/sites/default/files/documents/sb_863_cost_monitoring_report-2014.pdf

4.  UR and IMR continued to generate great concern ; IMR was subject to a constitutional challenge

Utilization review and Independent Medical Review continued to be a very controversial issue in California’s system. Workers with old medical awards as well as workers treating for recent injuries found themselves tangled in a web of treatment denials. Insurers and policymakers defended the UR and IMR system, citing concerns about over -treatment, expanded use of opioids, and the difficulties in shifting to a system of evidence-based treatment after years of medical treatment where the doctors had much more free reign. Some union officials publicly stated that they were getting many complaints from their members about too many denials.

But there was debate over the extent of the denials.

A January 2014  study by CWCI (the California Workers’ Comp Institute) (http://cwci.org/research.html) claimed that only about 4.7% of treatment requests are ultimately denied or modified.

According to the CWCI around 75% of treatment requests were approved without being sent to UR (“elevated review”). These numbers were in line with a 2011 study done by RAND. In response, a January 2014 analysis )of 2013 sample UR audit data prepared by CAAA consultant Mark Gerlach documented that some insurers were denying as much as two of every three treatment requests. Reviewing  audit data,  Gerlach noted that there was a wide range in approval rates of different claims administrators.

Overall, Gerlach’s analysis was that “nearly one of every five claims administrators audited in 2013 had a denial rate of more than 50%” and that “if as many as 50% of treatment requests are self to elevated UR and over 35% of those requests are denied, the ratio of treatment denials in UR could be almost 18%”. Gerlach postulated that in a system with 20 million treatment requests each year, that would translate into a UR denial of over 3.5 million treatment requests annually.

The uncertainty over these numbers was also evident at a December 2014 CHSWC meeting. A slide presentation by Destie Overpeck and Dr. Rupa Das of the DWC claimed that 99% of requested treatment is provided. However, several CHSWC commissioners questioned these statistics, pointing out that the proffered DWC numbers may include minor injuries and do not reflect the number of treatments denied or modified at utilization review that are not appealed. CHSWC commissioners, including Angie Wei, urged the DWC to seek data from the industry on UR denials. Attorney Jim Butler, speaking on behalf of CAAA, urged policymakers to look at the number of treatment denials in indemnity claims as a more accurate assessment of the impact of UR and IMR in the system.

Whatever is an accurate analysis of numbers on UR denials, it became clear in 2014 that the volume of IMR requests being filed continued to be substantially above DWC projections.

As of September 2014 the total number of IMR requests was 214,728, with 65,488 open at that time.

The WCIRB reported on June 26,2014 that for calendar year 2013 Medical Cost Containment (MCC) costs were $446 million. By comparison, medical cost containment costs in 2007 were $245 million. So medical cost containment expenses had almost doubled over a six year period.

A DWC analysis of 2013 IMR data revealed that UR denials of treatment were upheld by the Maximus reviewers 84% of the time.

www.dir.ca.gov/dwc/imr/reports/2014_IMR_Annual_Report.pdf

CAAA circulated a graphic charging that injured workers appear to have the deck stacked against them. The graphic noted that injured workers win only 16% of treatment denial appeals whereas under group health plans individuals win 61% of appeals from treatment denials. These sorts of comparisons ring true with many doctors and workers who denied care. The sense is that the UR and IMR system is being administered in a very aggressive way to control costs.

In early 2014 a WCAB decision, Jose Dubon v. World Restoration, Inc., held that a UR decision is invalid if it is untimely or suffers from material procedural defects that undermine the integrity of the UR decision. This was a cause for great but temporary celebration among the applicant bar, which welcomed the case as a tool to challenge UR denials that were based on inadequate or insufficient information. However, “Dubon I” was appealed to the the WCAB which then essentially flipped “Dubon I”. In “Dubon II” the WCAB took the position that it only had jurisdiction over timeliness of UR; otherwise, appeals of UR would have to go through the IMR system.

An analysis of the flipping of Dubon  was covered in my post “Crocodile Wrestling”:

www.workerscompzone.com/2014/10/10/crocodile-wrestling/

Dubon’s attorney filed a Petition for Writ of Review  in November 2014 with the California Court of Appeals 4th Appellate District Division 3.

Also pending at the close of 2014 is a Petition for Writ of Review which was granted by the California Court of Appeal 1st Appellate District in Frances Stevens vs. Outspoken Enterprises and SCIF. Stevens is a challenge to the constitutionality of the SB 863 IMR system. Constitutionality was a concern in the drafting of SB 863 as evidenced by the fact that backers secured at least two analyses  on that point.

Here is my post on the Stevens case:

www.workerscompzone.com/2014/12/11/stevens-writ-granted/

Perhaps in response to some of these concerns, in late 2014 the DWC announced that it would step up enforcement of UR penalties.

www.dir.ca.gov/DIRNews/2014/2014-110.pdf

5.  The DWC continued significant rule making activities that will affect the system

In 2014 new or revised DWC regulations went into effect on the following subjects: Independent Bill Review (IBR), Independent Medical Review (IMR), Medical Provider Networks (MPNs), Hospital Outpatient Departments and Ambulatory Surgical Centers, Physician Fee Schedule, Predesignation/Chiropractor as Primary Treating Physician, Supplemental Job Displacement Benefit (SJDB), and Workers’ Compensation Billing:ICD-10 Delay.

Several proposed regulations were still pending at the close of 2014. These include the following: Copy Service Fee Schedule, Employee Benefit Notices, Medical Treatment Utilization Schedule (MTUS), Official MedicalFee Schedule (OFMS), and Workers’Compensation Information System (WCIS).

Changes to the MTUS regulations were in a third comment period by year’s end. Proposed chronic pain medical treatment guidelines were posted for public comments in December 2014. Opioid guidelines had been circulated for comment earlier in the year.

Hearings were held in December 2014 on the DWC’s proposal to implement the $120 million fund created under SB 863 for workers with disproportionate earnings losses. The proposal would provide that a worker eligible for a voucher be eligible for a $5,000 payment from the $120 million fund.

A proposed DWC online selection process for QME panels had not gone live by the close of 2014.

6. Stakeholders continued to watch for effects from the Affordable Care rollout, but the results were not clear

With many physician-requested medical treatments being denied by utilization review and IMR, it appeared from anecdotal sources that an increasing number of workers may be turning to group or individual medical plans to receive denied treatments. It is widely believed by many practitioners that in its current form the Affordable Care Act prohibits insurers from denying coverage to pre-existing conditions even if those conditions are work-related (different rules would apply for workers on Medicare or Medi-Cal). As yet, however, there do not appear to be studies on any shift to the ACA phenomenon. Nevertheless, there is great concern among some that extensive cost-shifting is going on.

As the year progressed there has been concern by some labor unions about the long term viability of their medical trust fund plans under the ACA rules and in particular concern about cost shifting from workers’ comp to those plans.

At the December 2014  CHSWC meeting several CHSWC commissioners and Brown Administration administrators expressed interest in looking further at “24 Hour Care”.

7. Allegations of provider greed and abuse continued to plague the system

Multiple studies have shown the high cost of employer fraud as some businesses misclassify employees or fail to secure coverage. And each year there are always high-profile issues of workers arrested for abusing the system.

But in recent years increasing focus has also turned to medical provider fraud and abuse.

In 2014 there was no lack of controversy over provider  bad behavior. Litigation continued over allegations that Southern California doctors and hospitals were involved in schemes where phony spinal hardware was implanted and referral payments made. A number of well known Southern California doctors were ensnared in a case alleging schemes for fraudulent billings of compounded transdermal creams. A prominent Riverside chiropractor was arrested and charged with running a scheme to defraud workers comp carriers. At year’s end a whistleblower complaint was filed over accusations of fraudulent billing for durable medical equipment.

While much of the recent concern was over Southern California providers, Northern California had its share in 2014. A prominent Bay Area orthopaedic surgeon who apparently has ownership interests in various provider companies was arrested on 31 felony charges involving phony billing schemes.

8. Workers’ comp costs continued to rise, but remained much lower than a decade ago

Numbers provide snapshots of the health of the workers’ comp industry, the adequacy of benefits for workers, and the burden on employers. As such, numbers are subject to interpretation..

But some stats seem to stand out.

A pie-chart included in a WCIRB 2014 State of the System study noted the following percentages of cost distribution out of the entire system’s costs:

Paid Medical benefits          33% ($5.1 billion)

Paid indemnity benefits      21% ($3.3 billion)

Loss adjustment expenses  17% ($2.6 billion)

Commissions and other expenses 10% ($1.6 billion)

General expenses and premium taxes  7% ($1.1 billion)

Change in insurer loss reserves  12% ($1.9 billion)

www.wcirb.com/sites/default/files/documents/state_of_the_wc_system_report_140815.pdf

Those figures would indicate that monies received by workers or monies received for their treatment are only 54%  (i.e. 33% plus 21%) of the overall system costs. Clearly, California’s workers’ comp system has huge overhead costs which are not going directly to workers or their care.

On the issue of “frequency”, according to the WCIRB claim frequency had increased from 2012 to 2014 by 6%, exceeding projections of a 2% increase. Claims were up, particularly in Southern California.

The California Workers’ Compensation Institute produced a study showing that average  medical payments on two year old claims rose 2.3%. The same study noted that in the past decade medical management/cost containment expenses had registered the largest percentage increase among medical expense subcategories (i.e. compared to med-legal expenses, medical treatment and pharmaceuticals/durable medical equipment). CWCI contended that medical managagement/cost containment for accident year 2012 was 14.2% of the overall California workers’ compensation medical dollar.

www.cwci.org/press_release.html?id=421

In November, Insurance Commissioner Dave Jones issued his advisory pure premium rate finding.

www.wcirb.com/sites/default/files/documents/insurance-commissioners-decision-01012015_1.pdf

www.insurance.ca.gov/0400-news/0100-press-releases/2014/release126-14.cfm

Jones’ adopted a pure premium rate for 2015 of $2.74 per $100 of payroll, a rate that was above what was recommended by actuary Mark Priven ($2.69) but below the rate recommended by the WCIRB $2.77).

Jones’ determination is advisory only and does not necessarily reflect what prices employers will actually pay for coverage, since carriers are free to price coverage lower or higher and offer discounts and rebates, etc.

The  rate advised by Jones for 2014 had been $2.68. 2014 average charged rates were about $2.95 per $100 of payroll. By contrast, the average charged rates for $100 of payroll a decade ago had been over $6 per $100 of payroll ($6.29 in the last quarter of 2003). So while there was an uptick in rates in 2014, the rates remained less than half of the spike in the early 2000s.

Nevertheless, some employers and policymakers are very concerned that California is seen as one of the most costly states in an annual Oregon comparative costs survey.

www.cbs.state.or.us/external/dir/wc_cost/files/report_summary.pdf

9. 2014 was a modest year for workers’ comp in the courts

At year’s end two important cases were awaiting action by the California Court of Appeals: the challenge to the constitutionality of IMR (Stevens v. Outspoken Enterprises and SCIF) and the petition for writ in Jose Dubon v. World Restoration, Inc.

The following are among the more noteworthy workers’ comp court decisions of 2014:

Brower v. David Jones Construction (WCAB en banc May 2014) (PD benefits based on a reasonable estimate of PD level are payable after temporary disability stops even if a worker is not P&S; decision also addressed COLA calculations)

Neri Hernandez V. Geneva Staffing (WCAB en banc June 2014) (home health care services require a prescription and in the absence of a home health fee schedule, a showing of evidence describing the hours and services required and provided and evidence of a reasonable hourly rate)

Kim v. B.C.D. Tofu House (WCAB significant panel decision February 2014) (an issue of whether employee must treat within MPN is eligible for expedited hearing during the 90 days that the employer has to determine whether to accept or deny the claim)

-Navarro v. City of Montebello (WCAB en banc April 2014) (Navarro has been appealed to the California Court of Appeals, but the WCAB en banc holds that the labor Code does not require an employee to return to the same panel for an evaluation of a subsequent claim of injury and that Rule 35.5(e) which required this is invalid

-Patterson v. The Oaks Farm (WCAB significant panel decision July 2014) (nurse case manager is a form of medical treatment; an employer may not unilaterally cease to provide approved nurse case manager services when there is no evidence of a change in circumstances showing that the series are no longer required to cure or relieve effects of injury). Subsequent to Patterson several WCAB panel decisions appeared to reject broadly applying the principles of Patterson to a UR termination of opioids (Kim McCool(Nelson) v. Monterey Bay Medicar; ADJ2086501) and (Jamie Vargas vs. Seligman Western; ADJ7684442/ADJ7684554).

In the California Court of Appeal:

County of Nevada v. WCAB (Lade) (3rd DCA January 2014)(public safety officer injured while working night job that paid 5% higher shift differential was not entitled to 4850 pay while working in modified job during that did not pay shift differential)

Regents of University of California v. WCAB (Lappi) (4th DCA) (California Evidence Code trumps WCAB authority over discovery in dispute over review of documents claimed privileged)

White v. County of Los Angeles (2nd DCA, Div.3) (employer can request 2nd evaluation of worker after FMLA expires)

California Insurance Guarantee Association v. WCAB (Elite Surgical Centers)(effect of SB 863 on billing disputes that existed prior to SB 863)

City of Sacramento v. WCAB (Cannon) (case need not be complex or extraordinary to receiverating by analogy where disability not covered in AMA Guides)

Lantz v. WCAB (the fact that worker did an extra shift did not make death in accident going home compensable under special mission doctrine)

Powell v. WCAB (actual job duties rather than title of job determine occupation for rating purposes)

In the California Supreme Court:

Salas v. Sierra Chemical (eligibility of undocumented workers to damages in employment discrimination case)

10. Studies were launched or presented which may serve as a roadmap for future reforms

Historically, future reforms often have a correlation to key think-tank studies and analyses.

In 2014 RAND began a two-year study evaluating the SD 863 provisions that affect medical care under the California system. The study will assess how thereforms affected medical utilization, medical expenses and access and quality of care.

In 2014 from CHSWC we saw a study on how to distribute the $120 million annual fund created by SB 863 for workers with disproportionately high earnings losses:

www.dir.ca.gov/chswc/Reports/2014/Earnings_Losses_2014.pdf

From the California Workers Compensation Institute we saw the following studies:

-“Are Formularies a Viable Solution for Controlling Prescription Drug Utilization and Cost in Workers’ Compensation?”

www.cwci.org/research.html

From WCRI:

-“The Impact of Physician Dispensing on Opioid Use:

www.wcrinet.org/studies/public/abstracts/PD_opioid-ab.html

From CHSWC and Bickmore consulting:

-“Examination of the California Public Sector Self-Insured Workers’ Comp Program”

www.dir.ca.gov/chswc/Reports/2014/Public_Sector_Self_Insured_WC.pdf

A September 2014 Los Angeles Times report on the cost of L.A. public safety officer workers’ comp leaves also generated attention.

In summary, it was not the most eventful year in California workers’ comp. After the 2012 changes the system continues to be in an aftershock mode. Details are being thrashed out, strategies tested, and studies undertaken.

Many of the items mentioned in the post will be ongoing concerns in 2015. I’ll continue to cover them on the blog.

Here is a link to  my mid-2014 post on the Top 10 Workers’ Comp Developments in the first six months of 2014

www.workerscompzone.com/2014/07/14/top-10-events-in-california-workers-comp-1st-half-2014/

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Julius Young

www.workerscompzone.com

www.boxerlaw.com

Julius Young

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