Friday, May 27, 2016

Distrust Government

There are three stakeholders in workers' compensation: employers who pay for it; injured workers who benefit from it; and government which sets the rules and enforces them.

Or at least is supposed to.

We prosecute employers who commit fraud. Ditto for employees.

But at least the executive branch of the California state government seems to feel it is beyond reproach when it comes to opening its books for audit.

Assemblyman Tom Daly, D-Anaheim, had made a request for the state auditor to take a look at how the Department of Insurance and Division of Workers' Compensation work with prosecutors, insurers and employers to fight fraud.

But the governor's office didn't like the oversight request.
Sure you trust this guy?

According to sources who discussed the matter with WorkCompCentral on condition of anonymity, Gov Jerry Brown quashed Daly's efforts with considerable political pressure on Democratic members of the audit committee.

Daly’s May 2 audit request says lawmakers created tools to prevent or reduce unnecessary treatments for injured workers, but despite those tools, “there is ample evidence that the system remains rife with fraud and waste in connection with providing care, and related services to injured workers.”

Daly sought an explanation into how and to what extent state agencies, county prosecutors, self-insured employers and insurance companies worked together to fight workers’ compensation fraud.

Daly wanted to know how these entities coordinate anti-fraud efforts and the metrics used to measure progress in reducing fraud. He also wanted the auditor to investigate strategies used in other health care systems to prevent and prosecute fraud, as well as identify practices that may not be fraudulent, but that “result in the wasteful or abusive provision of services to injured workers.”

Staff members for the legislators on the audit committee who responded to reporter inquiries on Thursday said there was some support for the measure by both Democrats and Republicans.

But Brown's office, without explanation, did not want any review of the fraud-fighting apparatus, which is largely funded through assessments on employers and overseen by the Fraud Assessment Commission, the Department of Insurance and the DWC.

So Daly withdrew his request Wednesday depriving the Joint Legislative Audit Committee the opportunity to hear testimony or vote on whether to approve the audit.

Daly's office did not respond to reporter's inquiries either.

The industry talks about transparency all of the time and the chorus has been getting louder over the years. For example, it seemed that every presentation at the Self Insurance Institute of America's Workers' Compensation Executive Forum I just attended talked about the need for more transparency.

Employers want transparency because they pay for the system. 

Employees need transparency to know that they're getting what they should.

But the California government doesn't want transparency because it makes the rules, including the rules about enforcing its own rules...

Workers' compensation seems to be a system built on mistrust - and Brown's office wants to keep it that way.


On March 31, 2016, the news publication Reveal of The Center for Investigative Reporting published, "Profiteering masquerades as medical care for injured California workers." (Reveal has a whole series on work comp fraud and it is excellent and should be required reading for everyone in the industry, especially in California).

The most telling quote in that piece, which is completely validates by the notion that our government either has something to hide, or an embarrassment to protect, is by accused fraudster, owner of Landmark Medical Management, Kareem Ahmed who was caught on tape, according to the article, stating, "Nobody gives a fuck.”

Indeed, the article points out that "while health care programs such as Medicare have developed an arsenal of weapons to ward off fraud, California state regulators have few tools at their disposal. For one thing, the state shares oversight with hundreds of insurers and self-insured employers, leaving no one clearly in charge."

Perhaps it is THIS embarrassment that Brown intends to hide.

Partial remedy: mandate that ALL medical EOBs be shared with the patient, then reward patients for reporting activity that ends up either fraudulent or clearly erroneous. That is one simple tool that may cost carriers a little more, but could lighten the fraud assessment surcharge on employers considerably.

Hiding the ball by avoiding audits, however, is just plain wrong and the government needs to be called out on this bullshit.

The administration says it wants to deliver "evidence-based, appropriate and quickly delivered" medical care, but does nothing to avoid the opposite.

If mistrust is to be reversed, then we should not tolerate hypocrisy from our government officials.

Thursday, May 26, 2016

Culture and Claims

Jon Pearson, Director of Life Path Services for QLI, a spine and brain injury rehabilitation service, gave a wonderful presentation about returning folks to a new normal during the recovery from injury at the Self Insurance Institute of America's Workers' Compensation Executive Forum yesterday.

Part of what he talked about was the team at QLI and how crucial they were to the success of the treatment model.

"If people don't want to work there," Pearson reflected, "then who would want to be a patient there?"

That observation goes well beyond QLI's business model.

Indeed - later in the day a`member on the panel for "Out Front Ideas: How successful Partnerships enhance Your Workers' Compensation Program" noted that claims adjusters have the toughest jobs in workers' compensation because they are expected to deal with their clients (injured workers) with empathy and compassion, yet meet conflicting production and financial goals.

The industry is currently fretting about the drain of talent on the front ends. Attracting, recruiting and retaining good claims handlers is at the top of every work comp adjusting house executive's lists.

How much does the internal culture of a claims house affect the quality of the claims handling? How many people are unwittingly thrown into a claims management situation where the handlers don't want to be there? How much of that contributes to a state's good, or bad, claims ratings and experience?

The Workers Compensation Research Institute recently released survey results of client satisfaction with workers' compensation medical care comparing results across 14 states. The middle of the country scored the highest by far, regardless of whether there were fee schedules, treatment guidelines, etc. Florida was miserably at the bottom.

How much client satisfaction was not the product of the actual medical care, but really of the claims handling experience? After all, the injured worker has to go through the claims handler first to get to the medical care provider...

Obviously self insured entities have much greater say in their claims handling. They competitively seek bids from claims houses, and one of the overall messages coming from the SIIA conference is, essentially, you get what you pay for in claims handling.

So while pricing the job is a consideration, the quality that is provided has a much bigger role; what Out Front panelist Stu Thompson, CEO of The Builders Group, referred simply to as, "value."

We all know of claims handlers who are besieged with extraordinarily high case loads. And there are others that have more reasonable loads.

Kevin Confetti, Deputy Chief Risk Officer for the University of California, said his claims staff's maximum is 100 files per adjuster. He claims very high satisfaction ratings from clients, and good claims experience numbers. I didn't ask him if his handlers like working there, but I have to assume that being a part of the California University payroll isn't that bad of a gig.

The reality of workers' compensation is that the claims process has the most impact: perceptions, finances, expenses and ultimately outcomes are all tied to how well any particular claim is managed.

My take from this week's seminar education is that the claims experience is intimately connected with the happiness of the claims staff. The quality of the service, i.e. the value, is ultimately the product of how well the claims handler deals with the client; from setting expectations up front, to communicating through out the process, to ensuring obstacles are smoothed.

A disgruntled, unhappy, under-appreciated, unmotivated claims staff isn't going to return value.

If the claims staff doesn't want to work there, then would I want my work injured to be clients there?

But, if your claims staff does like their work, and that is reflected in good outcomes, then tell the world about it with a Comp Laude nomination...

Wednesday, May 25, 2016

Colorado Disruption

Voters in Colorado are being asked to adopt a single payer medical system.

Proposition 20 would enact Amendment 69 to the state Constitution, creating ColoradoCare to pay for medical services provided to all residents of the state regardless of why they need treatment.

The amendment language expressly requires the program to pay for treatment provided to people hurt on the job. And it directs the legislature to repeal parts of the Workers’ Compensation Act obligating employers to cover medical costs for occupational injuries and illnesses.

To pay for all of the medical care, a 3.33% payroll tax would be assessed on all workers and a 6.67% payroll tax on employers in the state. It would also levy a 10% health care premium tax on non-payroll income. Supporters say these taxes will raise $25 billion that will be needed to pay for medical costs for all of the state’s residents.

Opponents say the math is wrong, that costs won't be reduced, and that important safety and other considerations will be thwarted.

Pinnacol Assurance, Colorado's state-chartered carrier, also says its bad for employers and their workers.

“And any workers’ comp savings will be eroded quickly by lower worker productivity and increased indemnity costs,” Edie Sonn, Pinnacol's vice president of communications, wrote on the carrier’s blog. “That’s because ColoradoCare won’t have mechanisms in place to do all the things Pinnacol does: work with employers to keep workers safe and minimize the potential for injury, and work with doctors to help injured workers get back to work in a timely and safe way.”

Which brings me to the point of discussion about just what workers' compensation is supposed to do.

Safety, return to work, injury prevention - these are offshoots of the workers' compensation insurance formula because it saves the insurance company money, and arguable thus saves the employer money.

Whether the employer, or the worker, is particularly interested in saving the insurance company money is an irrelevant argument though, because, while the carrier may have some influence over behavior, ultimately it is the employer and the worker to behave as desired.

Brian Carpenter, R. Ph., Clinical Director and pharmacist with Optum, made a very poignant observation to attendees at the Self-Insured Workers' Compensation Executive Forum in Scottsdale, AZ yesterday.

The silos that now exist, said Carpenter, interfere with the sharing of important medical and health information. Consequently general health doesn't know what the workers' compensation providers are doing, and visa-versa.

This is, in part, because of the legal and regulatory environment dictating privacy, and it is also in part due to the fact that there are simply too many different data platforms making data share radically difficult.

The unfortunate outcome of this information failure is inappropriate or ineffective treatment that may considerably extend disability or time off work, or worse, result in treatment contraindications.

Jennifer L. Evans, a shareholder with the Polsinelli law firm in Denver, co-authored an analysis of the single-payer proposal for the Colorado Health Foundation.

Evans told WorkCompCentral that Prop 20 would represent a huge culture shift in workers' compensation, but the end result is simply unknown.

“It really is a sea change for workers’ comp,” she said. “On the health care side there’s not much change, mostly just payments. In comp, it appears this would change the infrastructure for where care is furnished and might impact the type of care available.”

In my mind, while completely disruptive to the status quo, ColoradoCare is a debate and idea that is long over due. The arguments against the idea of a single payer system strike me as simply entrenched interests seeking to protect their turf and business models.

But, as we have seen over the past few years in critique after critique, those interests and business models may no longer be relevant, may no longer be economical, and in fact may ultimately be more harmful to employer and employee than what is proposed.

Just what does Pinnacol (or any other workers' compensation carrier) do that is so special for employer safety programs that state or federal agencies don't do now, or that some other more specialized provider could do?

Why is it that return to work is such an insurance company specialty? The migration from medical treatment to disability determination (ergo return to work status) is nothing special - general health and disability insurance providers have been doing this for decades; the only distinction in work comp is that all of this is combined into a very complex equation that the insurance company controls for the purpose of containing costs.

And as noted by Carpenter, the separate silos ultimately are dangerous to employees, and consequently likely more expensive for employers.

The insurance carrier's workers' compensation role is very simple: provide medical care, and pay indemnity, nothing more.

This is a reality that we in the work comp industry simply forget.

All of the other ancillary programs foisted upon worker and employer may help them, or may not - these are completely out of the control of the carrier and depend upon the attitudes, cultures, and willingness of the service recipients to have any impact.

Nobody really knows how all of this will play out.

What we do know is that we are in a dramatic age of disruption. The tech industry has been disrupting existing business models and entire industries for a couple of decades now.

Why anyone would think that the insurance industry, and in particular workers' compensation, is not just as subject to disruption is pure sophistry.

Tuesday, May 24, 2016

Constitution Times Deuce

The Flying None...
2016 really is the year that challenges to workers' compensation's constitutionality is playing out across the nation in multiple jurisdictions under various theories.

Kentucky governor, Matt Bevin, only the third Republican governor in the history of Kentucky, drew fire for disbanding the Workers’ Compensation Nominating Commission on May 9 and then reconstituted it with new members.

Bevin dismantled the seven-member nominating commission even though all of them were serving unexpired terms. The commission exists to advise the governor on which administrative law judges should hear workers’ compensation cases.

The governor also changed the terms and membership criteria for commission members. State law requires that three of the members be from the state’s majority political party (in this case Democratic) and two from the minority party (Republican). Bevin’s executive order changes the makeup to two Democrats, two Republicans and one at-large member opponents say will mirror’s the governor’s views.

The Kentucky AFL-CIO, and Teamsters Local 89 aren't happy with Bevin and have brought suit to declare the governor's actions unconstitutional. Joining them are former nominating commission member Charles McCoy and Louisville attorney Eric Lamb, who represents three workers' compensation claimants.

They say Bevin is trying to stack the commission against workers and in favor of business.

The suit includes a petition for a temporary and, ultimately, a permanent injunction to prohibit the governor's restructuring from ever taking place. Franklin Judge Phillip Shepherd has scheduled a preliminary hearing for June 1 and the governor's office has decided to hold off on any appointments until at least then.

The challenge isn't appreciated by the governor's office. “Another day, another frivolous lawsuit,” the governor’s press secretary, Amanda Stamper, emailed WorkCompCentral.

The plaintiffs claim that not only did Bevin stack the deck with his new nominating commission, he refused to reappoint six qualified administrative law judges. 

In the meantime California lien claimants challenging SB 863 were thrown out of the Supreme Court of the United States with a no comment "writ denied," the final grasp for straw over.

On Monday, the court denied the petition for certiorari in Angelotti Chiropractic v. Baker, bringing an end to more than three years of litigation over the $100 "activation" fee imposed by SB 863.

They filed suit, with Angelotti Chiropractic serving as the lead plaintiff, asserting the doctors, chiropractors, pharmacies, interpreters, copy companies and other businesses like them have no way to get paid unless they file a lien claim. Thus, they complained that the forfeiture penalty is a governmental deprivation of their ability to be paid.

The U.S. 9th Circuit Court of Appeals wasn't persuaded, finding that a lien merely represented the claimant's expectation of payment.

Once the 9th Circuit denied the plaintiffs' request for reconsideration, the Angelotti plaintiffs turned to the U.S. Supreme Court for relief in January.

Though the California Department of Industrial Relations submitted a waiver of its right to respond to the petition, SCOTUS said it wanted to hear what the administration had to say.

The DIR submitted a response arguing that a lien claimant's "expectations" are not property subject to a governmental taking and that it just imposed a "user fee" on those who chose to use the workers' compensation adjudicatory system to pursue payment.

Apparently SCOTUS was persuaded.

And that's our constitutional lesson in work comp for the day....

Monday, May 23, 2016

Adjust The Portfolio

Peter Lynch is probably one of the most famous investors ever.

As the head of Magellan Fund for 13 years, he averaged returns of 29.2% annually. Assets under his management swelled from $18 million to $14 billion. Like a good athlete he left at the top - the size of the fund nearly too large to continue such incredible gains.

Lynch wrote several books on investing and I read a few. I won't say my investment prowess even came close to his.

Not even close.
Peter Lynch

Lack of trust, lack of research, lack of time ...

But the one maxim that Lynch repeated over and over in his writings was to buy what you know.

Lynch would watch the consuming habits of his wife, his kids, his friends - and ask about the products or services that were being purchased and why. Then he'd take a look at the sector, and the companies in that sector to determine whether a company was under valued based on his criteria.

It's really a simple evaluation. Basically, Lynch was interested in the early consumer adoption of a product to predict whether a company making that product would be successful.

The key, according to Lynch, is to buy what you already know and watch the cycles...

With that in mind, I'm intrigued by workers' compensation insurance at this point in time.

Work comp, as we know, is highly cyclical. While the rest of the economy cycles, work comp seems to have higher highs, and lower lows.

The mantra, of course: buy low, sell high.

The trick for investors is to spot the beginning of an up cycle, and it seems like we're entering that phase now.

NCCI, in its last state of the industry observation, noted that carriers for the first time in decades are posting combined ratios below 100. That means they're making underwriting profits - which is nearly unheard of in work comp.

That the business community is tolerating rates and premiums supporting an underwriting profit is unique; work comp carrier profits are typically the product of savvy investments. But investment returns lately have not been good because conservative products, e.g. bonds, have been suppressed by unprecedentedly low interest rates.

There are several trends emerging, though, that fare well for carriers.

In big states California and New York, the minimum wage will increase a third to $15/hour over the next several years. Quite simply, this just means more premium money into carrier coffers because policies are tied to payroll. The more payroll, the bigger the premium, the more money into the insurance company treasury.

In addition, the Department of Labor's recent change to exempt vs. non-exempt/overtime regulations means hundreds of thousands of individuals will see an increase in wages; again, more money in payroll means bigger premiums which means more money to the insurance companies.

The seventh or eighth largest (depending on who is measuring) economy in the world, California, is adding more jobs, faster, than any other state in the nation. The latest unemployment statistics put the state at 5.3% unemployment. More telling, employment in California increased 2.8% in the last twelve months, compared to 1.9% nationally. In addition, most of those jobs are in low risk sectors like IT, or professional services. And the most populous areas, the Bay Area, Los Angeles and Orange Counties, are seeing unemployment rates well below the national average...

Finally, interest rates are poised to head up. After seven years of near zero interest on Federal Treasury Bonds, the mainstay of the investment community, Wall Streeters are seeing signs that the Federal Reserve is getting ready to slowly raise rates as the global economy starts warming up - and there's no reason not to believe that it will since American consumers will, at least for a short period of time, have a bit more purchasing power due to the aforementioned increases in minimum wage and overtime.

So, lots of fresh money will be heading into insurance company treasuries.

But what about paying out that money in claims?

Here's what we know on a national basis: frequency continues to decline reflecting safety and the ongoing shift in the economy to office-type work; work comp medical inflation is at an historic low (unlike the general health sector); and severity is at an all time low.

So, the work comp line is going to be flush with cash for a few years until those high wage claims start hitting the books - which means that carriers will be investing more money into better instruments to make more money before it is needed to pay claims, thus greater dividends to investors which makes the stock prices go up.

Now, I could be a complete investing moron - certainly my track record does not speak to any Lynch-style wonderment.

And economists who watch the insurance industry, like the great Bob Hartwig, may disagree with my analysis.

But, if we follow Lynch's advise, this is something we know. Seems like a good time to adjust the portfolio...

Friday, May 20, 2016

No Limits

Changes in the weather...
Workers' compensation is a pendulum that swings back and forth.

For the past 10 or so years the interests of payers have trumped those of beneficiaries, as laws across the nation limited benefits, and consequently services and fees.

That swing to the right was precipitated by an earlier swing to the left which caused a perception that escalating benefits were out of proportion to the risk payers were willing to accept.

Expansion, contraction - workers' compensation is like the weather with high pressure pushing the winds and temperatures one way, and low pressure the other. The changes in the weather were mostly the product of legislative actions.

These past couple of years have seen several constitutional challenges to various workers' compensation "reform" laws, some successful, some not. 

What is remarkable is that "reform" is coming from state supreme courts, not legislative movements. State supreme courts have weighed in on work comp occasionally, but the wave of high court "reform" is, in my experience, unprecedented.

One of the constitutional targets that appears to be gaining steam are challenges to limits on fees attorneys can charge and collect in the representation of the injured.

Attorney fees were easy targets in reform laws. High rates of litigation are tied to high costs, and that litigation cost was perceived to be the product of lawyer attraction, so the theory was limit fees, limit litigation due to financial unattractiveness of the field.

Florida's Supreme Court just last month struck down the limitations on fees on the ground that the law violated due process since the restrictions left no means to secure a reasonable fee if the statutory formula yielded a grossly inadequate level of compensation for attorneys.

The Utah Supreme Court late Wednesday took a different tack on invalidating that state's fee restrictions: because the state's Constitution provides (as do most states) that the Utah Supreme Court has sole and plenary power over attorneys then any legislative control over lawyers violates the constitutional guarantee of separation of powers.

In other words, only the judicial branch can regulate attorneys, and their fees. Attempts by the legislative branch violate the separation of powers, the Utah Supreme Court concluded.

Frankly, this is a brilliant strategy that likely will find traction in many other jurisdictions.

Utah didn't have a maximum fee limitation until 1991. Then, the legislature implemented a law providing a fee of 25% for the first $25,000 of an award, 20% for the next $25,000 of the award, and 10% of amounts awarded in excess of $50,000, up to a maximum of $18,590.

After a lengthy unsuccessful battle to get the Utah Labor Commission to revise fee regulations, the Injured Workers' Association of Utah brought suit.

The St. George District Court rejected all of the association's constitutional arguments and granted summary judgment in favor of the state.

The association appealed this decision directly to the Supreme Court. On appeal, the association limited its arguments to an assertion that the fee restrictions violated principles of equal protection and the separation of powers doctrine.

Without addressing the equal protection argument the court said it has had plenary power to regulate the practice of law in Utah under that state's Constitution.

Accordingly, the court concluded that the legislative delegation of authority to the Labor Commission to create a fee schedule, as well as the fee schedule itself, were "unconstitutional encroachments upon the power of the judiciary to govern the practice of law."

The court went on to say that it would not adopt a fee schedule of its own making, as it found the Utah Rules of Professional Conduct adequately safeguarded injured workers by limiting attorneys to charging only "reasonable" fees for their services.

The court said it was not persuaded that having a fee schedule "actually protects injured workers," as there was "some evidence that there are now very few attorneys willing to represent injured workers in Utah and injured workers suffer as a result of being unable to obtain representation."

According to WorkCompCentral's research on the story, a vast majority of states have laws that place limitations on fees, and many use a percentage of recovery as a limit.

2016 is, indeed, shaping up to be the Constitutional Year in workers' compensation.

To read the Utah Supreme Court's decision in Workers' Association of Utah v. State, click here.

Thursday, May 19, 2016

Summit Notes

Bob Wilson from has posted links to the notes compiled by David Langham arising out of the 2016 Workers' Compensation Summit held in Dallas last week.

The notes are broken down into five categories; plagiarizing Bob's post hopefully with his permission:

Summit Notes – These are generalized notes of comments made during our two days of discussion. They are generally presented in the overall order they were made.

Friction Points – these notations were part of a discussion about those transactional points that slow down, increase the cost or potentially disrupt the claims process.

Paradoxical Incentive Points – these notes are related to discussions where incentive/payment structures may not be in line with desired outcomes.

Regulatory Points – a great deal of energy went into discussing regulatory burdens and oversight as related to workers’ compensation. These are broken out for your benefit here.

Imperative Issues* – These are the final points that the group identified as pain points or problem areas within workers’ compensation. *IMPORTANT NOTICE REGARDING THIS FINAL DOCUMENT: This is simply the release of a rough outline. The group will be working further on these points, and is currently undergoing a survey process to prioritize these particular issues. Once that is complete, we plan a more formalized document that contains a “Statement of Purpose” as well as extended commentary surrounding these points.

Bob's blog post where you can not only download these documents, but also leave comment for aggregation and inclusion is

Summit attendees are encouraging comment and participation regarding these notes and documents. Please comment either at the bottom of Bob's post, or in any of the LinkedIn groups where these notes are available and/or discussed.

Thanks to Bob Wilson and David Langham for putting the Summit together and getting things moving. Thanks also to all of the participants for taking time to participate with no other agenda than hoping to improve work injury protection systems.