California Workers’ Comp Officials Continue to Praise Reforms

Touting California’s still-young workers’ compensation reform law as a “pragmatic middle” compromise that seems to be working, two of the top officials responsible for the system talked up some of the reform’s finer points on Thursday.

David Lanier, secretary of California’s Labor & Workforce Development Agency, and Department of Industrial Relations Director Christine Baker were at the California Coalition on Workers’ Compensation annual convention in Anaheim to give an update the impacts of the sweeping reform known as Senate Bill 863.

The reform passed in 2012 with Gov. Jerry Brown reportedly having a personal hand in getting labor and employers to compromise on enough points to last-minute bill passed Legislature. The bill provided an immediate 30 percent increase in permanent disability indemnity rates for workers phased in over two years, and a host of reforms to the system.

Despite the pair’s praise of the system, there have been plenty of kinks reported in the new law, including a major backlog in a new review process which has had the contractor for the system under scrutiny, a legal decision that may be undermining some of the changes and a constitutional challenge that threatens to undo some key provisions of the reforms.

DIR on Thursday also issued an official update on the reforms in conjunction with their pair’s appearance at the conference.

The update states SB 863:

• Successfully trimmed 3 percentage points off the rate increase, although employers still had to endure an increase of more than 10 percent in their workers’ comp costs;
• Strengthened California’s self-insurance marketplace by lowering the rate of defaults, thereby reducing costs to all remaining self-insurers;
• Reduced ambulatory surgery center facility fees from 120 percent to 80 percent of Medicare’s hospital outpatient fee schedule.

“We know we’ve got progress,” Lanier told the crowd of several hundred workers’ comp professionals, pointing to the most notable, and positive, impacts the reforms have had: the new independent medical review process; addressing the state’s coagulated lien process; reducing ballooning costs of the hardware used in spinal surgeries.

Lanier said Brown has so far let the system work as is before stepping in and making any adjustments and fixes along the way.

“We know it’s not perfect, he knows it’s not perfect,” Lanier said. “It’s a dynamic system. It’s not a static system.”

One of the biggest early impacts of the reforms was changes to the lien process, Baker said.

Under SB 863, liens for reasonable medical expenses incurred by or on behalf of the injured employee are subject to a filing fee of $150. For liens filed before Jan. 1, there will be a $100 activation fee which must be paid prior to Jan. 1, 2014, or the lien will be subject to dismissal.

The fees were intended to reduce the hundreds of thousands of liens filled each year costing the system hundreds-of-millions of dollars, according to SB 863 backers.

“We halved the liens,” Baker said. “The lien fee is saving employers and insurers $270 million per year.”

According to Baker, the average payment per spinal surgery involving implantable hardware fell 56 percent after a provision in SB 863 eliminated a duplicate payment loophole that was being exploited by workers’ comp physicians.

It’s not just those who run the system who say the reforms have had an impact.

A study from the California Workers’ Compensation Institute in January showed more than 95 percent of workers’ comp medical treatment requests were approved following the utilization review and independent medical review processes established by SB 863, which the report states “dispels the assertion that these programs are generating wholesale denials of necessary care for injured workers.”

The pair also talked extensively about IMR.

Under the process, a doctor treating an injured worker will submit a request for payment authorization, and an insurance adjuster may approve the request or ask that the request be sent to a utilization review doctor, who in most cases will review, but may reject the payment. The patent can appeal under the IMR process if treatment is rejected.

Initially DIR reported tens of thousands of IMR requests were received in the first year the process was initiated, creating a large backlog. When the reforms were passed IMR requests were expected at a rate of about 4,000 per month.

“They ended up coming in at about 20,000 a month,” Baker said.

Baker said those cases are being worked through.

“I am confident we will catch up and keep pace,” she said, adding that she expects DIR to catch up on IMRs around September.

The report released Thursday shows roughly 185,000 IMR applications have been filed, and the qualified medical evaluator process that IMR replaced cost at least three times more than the $420 average cost of an IMR – QMEs averaged $1,653, according to the report.

Not everyone agrees the state is on its way to catching up on IMRs, or that the process has worked as well as the officials say it has.

“I couldn’t disagree more firmly,” employers’ attorney Don Barthel, a partner in Bradford and Barthel LLP, said in response to Baker’s assessment that IMR is working.

Barthel said the IMR process is far too backlogged to be cleared up even by the end of the year.

“I don’t have great hope,” he said.

Barthel believes the contractor for the IMR and independent review services for California, Maximus, was given a “get out of jail free card” when Baker declined to penalize the firm under the auspices of the contract for falling so far behind in the IMR process.

He and others have also argued that one reason for the backlog is that the new system drove many cases that would have otherwise been informally settled between workers and employers into the IMR process.

“It brought these disputes into the fold and put Maximus so far behind,” Barthel said.

In fact, people like Barthel worry rougher seas could lie ahead for IMR.

The Workers’ Compensation Appeals Board in May agreed to reconsider its Feb. 27 decision in Dubon v. World Restoration, Inc. that held that if a defendant’s utilization review is found invalid the issue of medical necessity is not subject by IMR but is to be determined by the WCAB based on medical evidence.

Essentially that decision puts the medical decision making back into hands into the hands of workers’ comp judges in some cases, and flies in the face of one of the finer points of establishing the IMR process, which was to take medical decision making out of the hands of judges and let doctors make those judgments.

Applicants’ attorneys have already been using the Dubon decision to challenge the IMR process, and many believe that WCAB’s reconsideration of their decision will only back up what the board has already decided and open the floodgates wider.

“I think most folks in the industry believe there’s not going to be much of a change between Dubon 1 and Dubon 2,” Barthel said.

The decision has applicants’ attorneys ready to clog up the workers’ comp system even more by forcing them to go two routes in workers’ comp cases to avoid potential malpractice lawsuits from clients whose utilization reviews were determined flawed when they are forced to wait for a judge’s review because their lawyer didn’t simultaneously file for an expedited review.

“Applicants’ attorneys, to avoid malpractice, have to go via two routes at the same time,” Barthel said. “One, they have to file for an IMR request and ask that the utilization review be reviewed by IMR, and two, they have to file for an expedited hearing in hopes that the judge will determine that the utilization review decision was somehow fatally flawed.”

If the decision was flawed, under Dubon that case can be determined by a judge.

A constitutional challenge filed earlier this year is another potential wrench. It was filed by applicants’ attorney Joseph Waxman asking the California Court of Appeals to review language in SB 863 that states the utilization review and IMR processes are not appealable to the courts.

The challenge had an early setback and is no longer in the Court of Appeals, but Barthel and others say it will be back and they wouldn’t be surprised if it casts serious doubt on the constitutionality of one of SB 863’s main premises.

“I think many of us have been preaching that ever since SB 863 first passed,” Barthel said.

The annual three-day CCWC conference, “Connecting for a Shared Vision,” runs through Friday at Disney’s Grand Californian Hotel & Spa.