Friday, November 30, 2012

Presumptions Only Prolong Litigation

I'm not a big fan of legal presumptions, particularly in workers' compensation.

Presumptions are built into many workers' compensation systems, usually for public protection agency workers such as firefighters and police.

Most of these presumptions are for cancer.

In my opinion such presumptions tend to exacerbate litigation rather than reduce it - the reason is that the employer has no other recourse. It's either pay, or litigate until told to pay.

There is no compromise in between. An employer can't negotiate a middle ground settlement because the worker's position is that there is a presumption that may trump the evidence.

If the evidence is equivocal then the worker wins.

So the employer has no other option and cases tend to go on much longer than most "normal" claims.

The difficulty the parties, and the courts, have with presumptions is demonstrated by a recent California case - Pesko v. WCAB (City of Westminster) - for which the 2nd District Court of Appeal is currently mulling whether to grant a petition for a writ of review.

The Workers' Compensation Appeals Board (WCAB), in a split decision, denied Pesko's claim. The difference in opinion stems from how strict the evidentiary standard must be under the (ambiguous) controlling statute.

The controlling statute is Labor Code 3212.1 and the section of that statute granting the presumption states in relevant part:

"(d) The cancer so developing or manifesting itself in these cases shall be presumed to arise out of and in the course of the employment. This presumption is disputable and may be controverted by evidence that the primary site of the cancer has been established and that the carcinogen to which the member has demonstrated exposure is not reasonably linked to the disabling cancer. Unless so controverted, the appeals board is bound to find in accordance with the presumption."

A 2005 appellate case interpreting this section, City of Long Beach v. WCAB (Garcia), said:

"We hold that the statute means exactly what it says: to rebut the presumption, the employer must prove the absence of a reasonable link between the cancer and the industrial exposure to the carcinogen. A mere showing of an absence of medical evidence that the carcinogen has been shown to cause the particular cancer contracted by the employee is not sufficient to rebut the presumption."

In the Garcia case the court concluded that the employer had failed to demonstrate an absence of a reasonable link. The court essentially said that there needs to be affirmative evidence demonstrating that it is not logical that the cancer which is the subject of the claim was related to the employment:

"Thus, under the current version of section 3212.1, an employer demonstrates the absence of a reasonable link if it shows no connection exists between the carcinogenic exposure, or that any such possible connection is so unlikely as to be absurd or illogical. Contrary to the City's argument, the statute does not require the employer to prove "the absence of any possible link." (Italics added.) The statute requires proof no reasonable link exists. A link that is merely remote, hypothetical, statistically improbable, or the like, is not a reasonable link. The employer need not prove the absence of a link to a scientific certainty; instead, it must simply show no such connection is reasonable, i.e., can be logically inferred."

In the Pesko case, the WCAB panel of commissioners determined that Pesko had established a prima facie case by showing that he worked as a police officer for the City of Westminster, and that he developed cancer within the statutory time frame.

The employer cited evidence from Dr. Gary M. Stewart, the parties' agreed medical evaluator (AME). Stewart had testified that it was unlikely that Pesko's cancer was work-related. The AME explained that he believed that there was a "high probability that applicant's cancer was caused by nonindustrial human papillomavirus (HPV)." Stewart also cited the cancer's latency period and stated that he believed it was unlikely that the disease could have developed during the four years between Stewart's first day at the department and his date of diagnosis.

The majority in the opinion determined that the employer had rebutted the presumption with the AME's opinion.

Dissenting Commissioner Frank Brass, citing the Garcia case requirement that an employer to show that "no connection exists between (applicant's cancer and) the carcinogenic exposure, or that any such possible connection is so unlikely as to be absurd or illogical," explained that the medical evidence established that there is a link between throat cancer and the carcinogens to which Pesko was exposed.

"However, the AME discounts the link because he opines it is highly probable that applicant's throat cancer was caused by nonindustrial HPV," Brass wrote. "While the AME's reporting might be sufficient to establish causation absent the Labor Code Section 3212.1 presumption, it is insufficient to establish that any possible connection between applicant's cancer and industrial exposure is so unlikely as to be absurd or illogical."

Cancer cases are extremely expensive and particularly for cash strapped municipalities, can be a long term financial obligation. The motivation to contest such cases is very, very high - and runs contrary to the philosophical underpinnings of workers' compensation.

In most other situations where such presumptions are not applicable the parties likely would have compromised and resolved the issues without further litigation, but that can't happen in a presumption case. The claimant will want everything a successful presumption outcome would provide. The employer will be diametrically opposed, seeking to avoid any and all liability.

There is no room for compromise in presumption cases leading to protracted litigation.

In the meantime expenses run up for the employer and the claimant sits high and dry until someone stops appealing. In the Pesko case, the employee was diagnosed with cancer in December 2008 and the agreed medical examination report issued October 2009. The underlying Award after trial issued February 2012. If the appellate court grants the writ of review, an opinion likely won't issue until late 2013 - five years after the claim was made.

Doesn't this sound like civil litigation: employer faces big liability; employee gets starved waiting for the big judgement.

Isn't this the situation that workers' compensation was meant to avoid?

Thursday, November 29, 2012

Eight Steps to Oklahoma Reform

Oklahoma Labor Commissioner Mark Costello (R) is pushing again to change from the current civil based dispute resolution system for workers' compensation claims to an administrative system.

The major goal is to remove attorney involvement as much as possible. Costello says that “If the lawyers are happy, I won’t be.”

Costello's dream is an administrative claim adjudication system modeled on that used by Arkansas – and possibly with elements also borrowed from Texas.

Lt. Gov. Todd Lamb (R) and Insurance Commissioner John Doak also are calling for change.

Lamb says he believes moving to an administrative model for workers' compensation would be an improvement over the current system, which he said pits employers against injured workers. An administrative system could eliminate that "adversarial nature," Lamb said.

I don't agree with Lamb - an administrative system will do nothing to eliminate the friction between employer and employee. That's an entirely different psychology and an entirely different set of problems.

The Oklahoma State Chamber is also critical of the current court-based system, but additionally supported the opt-out proposal in this year’s session (which likely will also surface on the legislative agenda for 2013).

Senate President Pro Tempore Brian Bingman, R-Sapulpa, carried the “opt-out” legislation in this year’s session. Bingman said last week that workers’ comp will be “a top issue” for him and Senate Republicans in 2013 but did not give details.

Costello also supports giving employers the opportunity to “opt out” of the workers’ compensation system and to offer alternative coverage to employees – an adaptation of the Texas “nonsubscriber” system.

He has commented, however, that he does not believe offering an "opt out" provision would be sufficient to eliminate lawyer involvement.

He's right, of course, because very few employers will actually qualify, or want to, "opt out."

Likewise, as we have seen in many states, just moving to an administrative system of adjudication will not eliminate the lawyers either.

If Costello wants to remove lawyers from the system, the way to accomplish that is much more simple than moving to an administrative system - take the money out of work comp.

Obviously one can not remove indemnity from the work comp equation. Labor won't let that happen, nor should that happen. Indemnity has a very important role in the grand scheme of work comp.

But how that money is derived, and how payment of indemnity is enforced, are where the litigable sticking points are in any work comp system.

This simple fact has been clearly demonstrated by what has happened in Florida, a phenomenon that I commented on just a few days ago.

Florida already had an administrative adjudication system, but this did not eliminate lawyer participation, and in fact more than likely exacerbated it, since administrative systems are typically much more loose in procedural requirements than civil courts thus making the "practice" of law quite a bit easier.

Until, of course, that administrative system goes through several series of "reform" that institute many more rules and layers of complexity. When that happens lawyers are nearly invited to participate because injured workers, who are not skilled or trained in the law, can't navigate such systems without professional help.

I think that this is essentially what has happened in California, perennially cited by outside observers as a system that is much too lawyered up. Since I started in California work comp in 1984 I have seen several waves of reform, and each one creates even more complexity, creates more confusion for injured workers (and claims adjusters by the way), and drives litigation even more. California work comp is insanely complex.

After SB 899, which on its face severely constricted permanent disability indemnity - the source by which claimant (applicant in California) attorneys derive their income - litigation plummeted and many lawyers that represented injured workers changed their practices and moved into other fields of law.

When the brightest of the applicant attorneys, dedicated to representing injured workers through thick and thin, challenged the law, courts agreed and permanent disability indemnity increased dramatically, and so too did lawyer participation in claims.

Florida capped fees except in the most egregious of situations. Lawyer participation is, comparatively, virtually non-existent (there's still plenty of litigation, but less than half of what it was prior to the state's 2003 reform).

I've said before that workers' compensation is the poor man's dispute resolution system. And in fact there is much scientific evidence supporting this claim - the single biggest factor driving workers' compensation litigation according to studies is job dissatisfaction.

My advice to Mr. Costello - if you're truly interested in really cleaning up the Oklahoma system, several things need to happen simultaneously in a cohesively planned reform:
  1. Yes, move to an administrative system of claim adjudication with its own "court" and its own "board" upon which the first level of appeal goes;
  2. Make the system as dead-on simple as possible - I'm talking "Forrest Gump" simple;
  3. Remove medical disputes out of the court system and into its own review system (i.e. borrow from California's latest reform - yes, it is untested but I think the writing on the wall is very clear and I believe that this single element of California's latest reform will greatly reduce litigation);
  4. Make sure that every single piece of paper and communication that is required to go to the injured worker is plain, simple, non-threatening and filled with easy to understand information;
  5. Along the same lines as simple forms and notices, procedural hurdles should not be thrown in the way of claimants - doing so makes them get lawyers. Give unrepresented claimants great latitude with their cases so that procedure is not in the way of them getting their day in court (remember the poor man's dispute resolution system qualities of work comp!);
  6. Provide free of charge to injured workers ombudsmen who are authorized to assist injured workers navigate the system and educate them about what can be expected (and more importantly what can NOT be expected) from a work comp claim;
  7. Remove the financial incentive for lawyers to participate - Florida used caps on fees, California altered the permanent disability indemnity system, other states have used other tactics - if lawyers can't make a living practicing workers' compensation law they will move to other areas.
  8. Go ahead and create an "opt-out" option - large employers will love that. But it is not a panacea for the whole state and in fact a very small percentage of employers will actually benefit. At least, though, the workers' compensation system will have competition, which is good for the system as a whole.

Wednesday, November 28, 2012

IMR/IBR - Cultural Change Doesn't Come Easy

The actuaries said that whether savings will be realized under California's SB 863 is dependent upon regulatory action. The fear of course is that regulations will end up either ineffective or unduly burdensome thus mitigating potential savings due to excess complexity.

California already has one of the most complex workers' compensation regulatory schemes in the United States.

Draft rules for the independent medical review process were just released. Among some of the provisions that are seeing critique are:
  • that claims administrators must provide a year’s worth of medical records for review
  • the absence of any deadline for the administration to request an independent medical review determination
  • the absence of any penalties if the review company fails to issue a timely decision
In addition, the claims administrator must pay the cost of IMR. The proposed fees range from $215 if a carrier elects to authorize a treatment request and terminate IMR before a decision is made to $760 for a regular review and $850 for one conducted by two physicians who hold an M.D. or D.O degree.

The division is working to finalize a contract with Maximum Federal Services Inc. to provide IMR services. The company, headquartered in Reston, Va., currently does group health IMR for the California Department of Managed Health Care.

Some are still complaining about the built in lack of transparency in the IMR process - the fact that under new Labor Code section the decision is made by an anonymous reviewer with no real ability to appeal.

Another complaint seems to be that the regulations don't appear to eliminate the possibility of delays due to inaction at the Administrative Director level. On the one hand, there is no deadline for the division to request an independent medical review. On the other, there is no penalty should the review company miss statutory deadlines.

There is some merit about deadlines on the administration for dealing with IMR requests. Until former Administrative Director Rosa Moran took the job, the wait to getting a panel of QMEs took months and there was a huge backlog. Moran brought the wait time down to several weeks.

Regardless of what the regulations say or do, critics of them completely miss the point: IMR, and its little sister IBR (independent bill review) are complete game changers. The issue is not really what the regulations say or do. The issue is that these processes introduce an entirely new concept to workers' compensation, and completely disrupt a culture that had been developing for over 100 years.

Whether or not there are penalties, whether or not there are time deadlines, whether or not a year's worth of records need to be supplied - what people aren't getting is that IMR is there to encourage people NOT to use it.

Workers' compensation is supposed to be a self-executing administrative system.

The problem that was identified by the authors of SB 863 is that there had become a lack of "self" in the execution part of the system. Carriers weren't approving procedures quickly or timely. Claimants were seeking treatment outside the boundaries of known science.

And the whole treatment process was taking too long, costing too much, and wasting too many resources.

So what if there isn't an appeal? So what if a year's worth or records is too much? So what if the review is anonymous? So what if the carrier has to pay the IMR fees?

When dealing with mechanical or engineering issues, professionals in those fields are taught to take the paths of least resistance so long as the outcome is within tolerance and safety is not compromised.

Ditto with IMR/IBR - the point behind these laws and soon-to-be regulations is that they will encourage path to least resistance behavior. Claimants and their treatment providers will begin to stop challenging UR decisions that are in compliance with guidelines and/or science. Carriers and administrators will start approving treatment requests that are still reasonable even though not necessarily supported by current science.

And yes there will be cases that fall through the cracks where treatment should have been approved but wasn't, or where treatment should not have been approved but was. Those cases are going to be few and far between.

More importantly the parties to a treatment dispute are going to be much more motivated now to resolve differences much more quickly and efficiently.

That's the point. This is a big cultural change and many people don't deal with change well.

And those who don't deal with change well had better either get out of the way or get on board real quick: The Division of Workers’ Compensation plans to implement the proposed rules as emergency regulations, which means the administration has to submit them to the Office of Administrative Law for approval by Dec. 7.

I can't help but be amused at the irony, for it was 71 years ago on that date that Pearl Harbor was attacked provoking the United States into war against Japan.

I'm not making light of Dec. 7, Pearl Harbor, or even suggesting that the IMR process has such historical significance. Dec. 7, though, completely changed the culture of the generation that was about to live through another world war.

Likewise, the culture of California workers' compensation is changing for this current generation.

Tuesday, November 27, 2012

Where Claimant Attorneys Go, So Too Will Defense

Whether it's good or bad, the bottom line is that when a state wants to really control medical and indemnity costs in its workers' compensation system, the state will limit the participation of attorneys, and the way to do that is to limit the fees paid to attorneys representing injured workers.

The State of Florida has proven this point succinctly, as reflected in the state Office of Judges of Compensation Claims latest annual report.

Florida in 2003 passed landmark legislation to reel in its workers' compensation costs, a system that had been spiraling out of control with double digit rates of inflation well ahead of the pace of most other states. When challenged, the provisions of the reform legislation limiting claimant attorney fees was edited by the legislature by simply excising the word "reasonable" from the attorney fee provisions, in response to the Supreme Court's interpretation of the statute.

Since then, injured workers' petitions for benefits have dramatically declined to 61,354 petitions filed during fiscal year 2011-2012 – a 5.1% decrease over the previous fiscal year. This compares to 127,611 petitions for benefits filed during fiscal year 2003-2004.

In addition, mediations declined to 16,881 in fiscal year 2011-2012 – a 5.7% reduction over the previous fiscal year.

This same phenomenon was experienced in Texas as well, where the big reform bill in that state, HB 7, severely constricted attorney fees. Lawyers went elsewhere for income and claimants seeking adjudication over benefit disputes declined dramatically.

However, if lawyers just change sides then their income isn't so drastically affected.

Here is the raw data of total attorney fee expenses in the Florida system since 2001, and proportion of those fees going to claimant lawyers and defense lawyers:

Fiscal YearFeesApplicantDefense

As total fees in the system grew, so did the proportion going to the defense bar. Then, as fees proportionally declined for claimant attorneys, overall total attorney fee expenses declined, but the ratio going to the defense bar remained.

Here's a neat graph that consultant Bill Cobb did based on these numbers that more easily displays the disparity in this cost item:
Chief Deputy David Langham told WorkCompCentral Monday that payments to claimants' attorneys have declined by 42.05% during the past nine years, while defense fees have declined by 4.17% adjusted for inflation.

Langham said the change in part tracks an overall decline in the number of petitions for benefits filed since the 2003 reforms. What isn't said is that the number of petitions filed since 2003 has declined because attorneys can't make any money doing so.

"I'm told anecdotally that lawyers are turning away clients who have cases that the lawyer perceives may have some value to the injured worker but don't have monetary value worth the efforts of a workers' compensation attorney," Langham said. "That could also be driving the frequency of the petitions that are being filed."

Curiously, then, one might expect a similar contraction in defense attorney fees, but this doesn't appear to be the case. While defense fees overall have gone down, as can be seen by the graph, proportionally spending on defense attorneys has increased when compared to the frequency of petitions for benefits filed.

At the peak in fiscal 2005-06 total attorney fees were almost $508 million. 59% of that went to defense lawyers, or $299.72 million. The gross number of petitions filed during this period was 90,991, which means that carriers and employers spent about $3,294 per claim.

This last fiscal year, 2011-12, total fees were nearly $417 million of which 63% went to defense lawyers, or the sum of $262.71 million. Gross petitions filed for this period totaled 61,354, so carriers and employers spent $4,282 per claim.

Either carriers and employers are failing to realize increased efficiencies and economies of scale in declining rates of workers' compensation litigation, or they are working harder to deny claims (perhaps legitimate claims), or they are getting fleeced by the defense bar.

If you're a claimant in Florida, the prevailing wisdom is to just accept what benefits are provided voluntarily unless there is some gross underpayment or desecration of benefits.

James Fee, president of Florida's Injured Workers' Advocates, a claimant's attorneys' group, told WorkCompCentral, "There's no question that in a system that's designed to be self-executing, there's an incredible amount of money being spent against the injured worker to defend these claims. It's unfortunate with the fee restraints that have been imposed on injured workers."

Defense lawyers, don't get smug. The writing's on the wall.

Every year I go to Orlando in August to attend the Workers' Compensation Institute's annual conference. The conference is legendary for defense firm hosted suite parties that go on into the early morning hours with free flowing alcohol, food, and other expensive niceties.

Eventually these will cease. When claims go down over 50%, but attorney fees to defend claims go up 23%, carriers and employers will take notice, and the sanctity of the defense bar will also be subject to the basic rules of finance and economy.

Here is the 238 page Florida report.

Monday, November 26, 2012

When Zealousness Becomes Malicious

When does zealousness become malicious?

It seems that's what is being asked of the  U.S. District Court in Sacramento in a case brought by five California chiropractors against The Travelers after the insurance company accused them of illegally practicing medicine and seeking criminal prosecution. 

Judge Lawrence K. Karlton ruled that the chiropractors can proceed with a civil action alleging Travelers Property and Casualty Co. engaged in malicious prosecution by persuading prosecutors to file criminal charges against them.

At the heart of the action is the practice of manipulation under anesthesia (MUA), whereby chiropractors make adjustments on a patient who is sedated by anesthesia administered by a medical doctor.

The story starts in August 2005, when San Joaquin County Deputy District Attorney James C. Wydert, according to the story reported in WorkCompCentral this morning, filed a criminal complaint against Michael Yates and Joseph Ambrose at the request of Travelers based on the recommendations of its investigator in the matter, William Reynolds. 

The DA alleged improper practice of medicine for performing MUAs, insurance fraud, conspiracy and grand theft. 

Wydert also filed a separate criminal complaint against Richard Sausedo and Pedram Vaezi alleging illegal practice of medicine and insurance fraud.

Then in March 2006, Wydert filed a criminal complaint accusing Wilmer Origel of insurance fraud and practicing medicine without a license.

The complaints against Yates, Ambrose, Sausedo and Vaezi were all dismissed “in the interest of justice,” according to documents filed with the federal court. In 2008, a jury in Stockton returned a 10-2 verdict to acquit Origel.

According to Daniel Horowitz, who was Origel’s attorney during the criminal proceeding, documents were discovered that suggested Reynolds “was running the show” and the district attorney’s office was doing what he said to do.

Reportedly, Reynolds on Aug. 25, 2005, said in an email to Steven K. Piper, another Travelers investigator, that a successful prosecution could be a "huge benefit to the company."

In the same email, he also said that a California Insurance Department investigator indicated the department wanted to prosecute all chiropractors for billing for MUAs.

“It would dramatically affect the insurance commissioner’s budget and political standing to have a major arrest investigation of this magnitude,” Reynolds wrote, according to the WorkCompCentral story. “The financial impact would be huge!”

The California Board of Chiropractic Examiners had issued a statement in 1990 that MUAs were within the chiropractic scope of practice and issued formal rules to that effect in March 2010.

Judge Karlton said the emails show Reynolds “was both interested in the monetary benefits to his company of declaring MUAs illegal and saw his influence as a motivating force in the criminal prosecutions.”

Karlton also wrote that Lon Malcom, a criminal investigator for the Department of Insurance, said during a March 29, 2011, deposition that an affidavit he submitted to the San Joaquin District Attorney’s Office to establish probable cause for a search warrant was “totally based” on information provided by Reynolds.

The case is going through procedural issues now with the latest activity being a dismissal of certain causes of action against Travelers, but also upholding other substantive allegations of the plaintiffs.

Regardless of the outcome of this case, which may or may not survive procedural challenges, it is a disgusting display of the callous disregard of the insurance industry, and of the government, for the rights of professionals (or anyone for that matter) where they are clearly operating within the law.

It's not the alleged crime that motivated these people to cause grief for others. It is the Almighty Dollar.

There's a reason that insurance is categorized as a part of the Financial Industry - because it's all about money, and this case demonstrates that to an unfortunately perverse degree.

I don't care if you're a medical professional, a legal professional, an insurance professional, an injured worker, an employer or the government. Money corrupts.

Reynolds, Piper and all of the others may all be fine people - but their zealousness was supercharged by the perception of power fueled by monetary gain. They went over the line by a wide margin.

I do not know the fate of Reynolds, Piper or anyone else involved in the manipulation of the system, but in my mind they are the ones that deserve punishment for these dishonest, unethical acts. The Travelers should likewise be made to account for the injustice brought upon these chiropractors.

Wednesday, November 21, 2012

SEUS and the Effects of Collapse

Legislators in Georgia will need to review a law that, likely unintentionally, will place one of the state's counties into a deeply troubling financial situation because of the insolvency of a workers' compensation carrier.

In 2009, Southeastern U.S. Insurance Co. (SEUS) went under amidst a very public probe and investigation based on allegations of misappropriation of funds, lavish executive spending and, of course, payola, as former Insurance Commissioner John Oxendine won court approval to force SEUS into liquidation in 2009. The suburban Atlanta insurer had 209 policyholders at the time of its collapse, including 40 cities, counties and school boards. 

SEUS had about $38.9 million in outstanding liabilities and holdings that included a 6,000-acre plantation and hunting preserve along the Chattahoochee River in South Georgia.

Georgia has a state Insurers Insolvency Pool that pays for a workers' compensation claims that would otherwise be covered by a carrier that has gone under but Official Code of Georgia 33-36-3 precludes the Insolvency Pool from paying any third-party claims for any insured with a net worth of more than $25 million.

When SEUS went into liquidation an estimated 88 workers – including eight with catastrophic injuries – had claims that weren't covered by the Insolvency Pool. Some were exempt because of the net-worth exclusion. Others were excluded because SEUS originally started as a captive of the professional employer organization (PEO) industry. Captives were initially not allowed in the pool.

SEUS converted to a stock insurance carrier in 2006.

Lumpkin County, Ga., was a SEUS customer and at the time had net assets of $66.8 million.

The county, along with cities and school boards left with claims in the wake of SEUS' failure, had argued the net-worth test should not be applied to local governments. Lumpkin County also argued in court filings that the bulk of its net worth is bridges, roads and government buildings that should be discounted as "restricted net assets."

The county said it has about $5.6 million in unrestricted net assets available to pay claims.

Lumpkin County lost at the trial level. The DeKalb County Superior Court Judge ruled that all of the counties assets were to be counted.

The Georgia Supreme Court on Monday agreed and ruled that the state Insurers Insolvency Pool is not required to pay for the county's workers' compensation claims.

Written by Justice Harold D. Melton in Lumpkin County v. Georgia Insurers Insolvency Pool, Case No. S12A1451, the court held that Georgia law is clear and that the county is exempt from protection by the pool.

"This court . . . is not in the business of rewriting unambiguous statutory authority," Melton said in the ruling. "A court of law is not authorized to rewrite the statute by inserting additional language that would expand its application."

Seems to me that if Lumpkin County wants a different result it will need to do some lobbying.

The case result is difficult in these challenging economic times as more and more liabilities are foisted upon local government from the federal and state governments.

And unfortunately this is just another example over the years of the delicate, tenuous position carriers play in the global scope of government and finance. The cascading effect of an insurance company's collapse lasts for years, and can have serious effect on an economy.

Tuesday, November 20, 2012

Marketing TX Comp by Setting the Standard

One could argue the Texas mandate that the workers' compensation system be reviewed every two years by the Insurance Department to assess the affordability and availability of workers’ compensation insurance for Texas employers and the effects of department-certified workers’ compensation health care networks on return-to-work outcomes, medical costs, quality-of-care issues and medical dispute resolution is just a smart marketing ploy to keep business in the state and attract more businesses.

After all, what business wouldn't like the fact that, according to the latest report, “Setting the Standard,” the average workers’ compensation premium has fallen more than 50%, from a high of $2.85 per $100 of payroll in 2003 to $1.38 per $100 of payroll in 2010?

Or that the number of disputes and the duration to resolve disputes have also decreased significantly since the 2005 reforms, dropping from more than 13,000 in 2005 to less than 8,000 in 2010?

Certainly a business considering Texas would be impressed by the report's conclusion that despite “modest increases” in average costs, when adjusted for inflation, total professional and hospital costs in the Texas workers’ compensation system decreased 30% from 1998 to 2011.

In addition while Texas medical networks overall tend to be more expensive in providing care to injured workers, injured workers in networks reported higher physical functioning scores and access-to-care measures than non-network injured employees.

According to the Insurance Department, an estimated 67% of Texas employers continue to participate in the workers' compensation system in 2012 – down 1% from 68%, but the second-highest participation rate since 1993.

In the only state where employers are not mandated to participate in the workers' compensation system, I'd say that this is probably the most telling statistic in the report, assuming its accuracy.

While the report shows there was a slight decline in the return-to-work rate in 2010 for injured employees with more than seven days of lost time, that could be more related to economic conditions and the availability of work. In February of 2010 the US Bureau of Labor Statistics reported that unemployment in Texas was 8.2%. It is now reporting the rate at 6.8% as of September, 2012.

Those who returned to work also had fewer days lost from work due to their work-related injuries, from an average of 97 days for employees injured in 2004 to 62 days for employees injured in 2010.

Attorneys aren't finding much work in the Texas system. The number of disputes and the duration to resolve disputes have also decreased significantly since the 2005 reforms, dropping from more than 13,000 in 2005 to less than 8,000 in 2010.

That probably makes many people happy.

What about claimants? The report says results of surveys of injured employees in 2012 found 55% said they had “no problem” in getting the medical care they felt they needed, compared to 52% in 2005. In 2008, the rate was 60%.

And for accident year 2010 return-to-work rates at the one year, and one and one-half year milestones were essentially unchanged.

The biggest competition in the Texas market place comes from the state's carrier of last resort, Texas Mutual, which gobbled up 33.8% of the voluntary market in 2011, up from 27.5% in 2007. The next biggest carrier is Liberty Mutual with 9.2%.

The report says that while Texas Mutual is the insurer of last resort, “it predominantly writes voluntary business, competing with the rest of the workers’ compensation market.”

I'm not sure that this description is accurate. Are carriers incentivized to write smaller employers, which likely won't buy ancillary products such as errors and omissions or employee liability policies? Are the other carriers ceding business to Texas Mutual for lack of interest? Or is Texas Mutual that aggressive to price competition out of the market?

Whatever is going on in Texas, however, is what most states would like to claim about their workers' compensation systems. I find the measures concerning injured workers a little lacking in terms of comparative analysis in wage replacement, disability, or other indemnity values and that may be an area of study for the future.

I would like to know, for instance, how Texas workers feel about the adequacy of benefits, whether they seek alternatives to workers' compensation (thus the great decline in disputes and costs), whether access to representation when there is a dispute has been muted, etc.

There are two sides to every story. Focusing on how well the costs are controlled does not reflect the true efficiency or adequacy of a system.

Certainly Texas chambers of commerce are going to tout the state's competitive workers' compensation system as a net benefit for any business looking to relocate or expand. Would the same system also be attractive to workers looking to relocate to a state with comparatively low unemployment statistics?

Does it even matter?

Monday, November 19, 2012

CA Rate Hearings: The Truth Will Sink In

Even the Insurance Commissioner of California can't believe the numbers coming out of SB 863.

“What strikes me is the dramatic difference between what the WCIRB [Workers' Compensation Insurance Rating Bureau] Actuarial Committee recommended as the actuarially indicated pure premium rate considering all the consequences of SB 863, and what the Governing Committee adopted,” Commissioner David Jones said during a four-hour-long rate hearing on Friday.

Here's the numbers:

The Rating Bureau’s Governing Committee on Sept. 26 voted 6-5 to propose no increase to the $2.38 average insurer filed rate as of July 1, 2012.

An updated Insurance Department analysis projects the average filed rate as of Jan. 1, 2013, will be $2.57.

The WCIRB Actuarial Committee said an advisory pure premium rate of $2.61 per $100 of payroll was appropriate because savings from SB 863 offset only part of increasing loss costs observed throughout 2012.

WCIRB chief actuary Dave Bellusci ultimately said that whether an advisory rate of $2.61 or $2.38 is more appropriate depends on a number of factors that just aren't known yet.

“I think there’s a particularly wide range of reasonableness when you have system change of this magnitude,” Bellusci said. “In my mind, $2.38 probably falls within that range of reasonableness. There’s some likelihood that it could be achieved, but again, I think there is also some likelihood that even the savings we’ve estimated don’t materialize.”

But Bellusci acknowledged that the WCIRB actuaries have been wrong, by a large amount, in the past with SB 899's projections.

The WCIRB estimated about $5 billion in savings from SB 899 but the actual savings were closer to $14 billion, according to Bellusci.

In my mind, while the WCIRB made an initial underestimate of the net savings from SB 899, as time has proven, ultimately over the long term, their estimates were more acccurate as various regulatory impacts and court decisions mollified the instant savings after the industry recovered from its post traumatic syndrome disorder.

According to the WorkCompCentral report on the hearing, Jones said he was not persuaded by references to reform measures passed between 2002 and 2004. Those bills were much larger in scope than SB 863, he said, and he didn't think it is appropriate to assume that the projections for SB 863 will also underestimate savings.

Jones may be correct regarding the estimation of savings, but comparing the scope of the two reform situations is not appropriate as they were the subject of completely different market climates.

2004 was a recovery from Unicover Partners inspired poisoned Kool-Aid that led many carriers to a Jim Jones style mass suicide. 2012 is all about a Democratic Governor using all available political resources to push his agenda for "fixing" California and getting support from Big Business and Big Labor to do it.

The 2004 reforms, in my opinion, weren't really necessary. This is evidenced by the fact that rates were already trending downward by that time as the market was recapitalizing and the State Fund was shedding the excess risk it had absorbed when policy holders of bankrupt carriers had no other market to go to.

My argument is further supported by the fact that the average combined ratio was close to fifty cents on the dollar, meaning that the average underwriting profit of the industry at that time was close to 50%, which is, of course, nearly unheard of.

True, the ombined ratio rose progressively after several years that to its present $1.20+, but the point I'm making is that SB 899 simply accelerated and intensified what the market was already experiencing.

2012 is different. There is no impeding "crisis" of carriers going out of business. In contrast, the whole state, it seems, is going out of business with its increased taxes, flagrant spending, and deflated assets. Can the state claim that something is different, that something positive is happening, that our politicians can realign this state and actually get it moving in the right direction?

2004 dealt with an industry. 2012 is dealing with an entire state.

That's what SB 863 is all about - it's part of an overall marketing campaign by government to keep business (and those employed) in California, to demonstrate that our leadership is dealing with the big picture by implementing reform along with unprecedented tax burdens on everyone, and seeking sacrifice from everyone, including those who have pillaged the People of California for so long.

So, whose estimate is more accurate? Does it really matter? This is, after all, simply "advisory" and carriers can charge what they want.

What really matters is the political message that comes out of an elected official's office that will provide the leadership for the rest of the state, and Jones said it:

“If we don’t get it right, that could have very significant consequences for the solvency and viability of workers’ compensation insurance carriers, and in turn, the availability of product in the market and in turn the pricing of product in the market which has potentially significant consequences for employers and their ability to hire employees.”

"[The] ability to hire employees." That's the message of this government. Unemployment in the state is still over 10% according to the US Bureau of Labor Statistics. That's millions of people that aren't paying taxes, and using state services that cost the rest of the population billions of dollars. That's not an acceptable political position.

Politics is all about the message. Reality is what the population perceives. The message has to create that reality.

Former President Bush, in a talk at the Athena Performing Arts Center at Greece Athena Middle and High School Tuesday, May 24, 2005 in Rochester, NY said it best: "See in my line of work you got to keep repeating things over and over and over again for the truth to sink in, to kind of catapult the propaganda."

The pure premium advisory rate is a message to shape public perception and create the reality that the businesses in this state, and ergo the people in this state, are going in the right direction.

Keep repeating that there are savings, keep repeating that premiums will go down, keep repeating that everyone will be better off.

The truth will sink in.

Friday, November 16, 2012

CA Lien Claimants: Are You Surprised?

The California Workers' Compensation Appeals Board (WCAB) is short of commissioners and staff, so it has not spent time in the last year going through the extraordinary judicial process of releasing citable case law where all commissioners weigh in on a case - that takes a lot of time, energy, and commissioners.

This week, though, the WCAB exercised its judicial powers and not only made case law by which the rest of the litigating interests in the system can follow, but took the opportunity to highlight why lien claimants have brought themselves to such high contempt in the community and why so much of SB 863 is all about constricting lien claim activity.

In fact the WCAB acknowledged that its decision in Torres v. AJC Sandblasting et al., Nos. ADJ909554 and ADJ1856854, did not establish any new principles of law, but said it felt it necessary to act en banc as a warning to all those lien claimants who "persist in disregarding existing law as to their burden of proof and repeatedly proceed to trial on lien claims that are so lacking in evidentiary support and/or presented with such a total disregard of existing law as to be frivolous."

Tito Torres allegedly suffered to his spine and lower extremities in 2002 and 2003. His employer's insurance carrier, Zurich North America, settled his claims in 2005 by compromise and release that listed various outstanding liens and provided for their disposition. Lien claimant Unitech was not included in this list..

Over four years later, Green Lien Collections filed a lien claim on behalf of Unitech.

At a lien hearing, Zurich disputed the reasonableness and necessity of the services Unitech allegedly offered to Torres and contended that the amounts billed by Unitech exceeded the Official Medical Fee Schedule.

The only evidence offered by Unitech in support of its lien was an unsigned "Health Insurance Claim Form" purportedly sent by Unitech to Zurich on July 15, 2003.

This form listed dates of service, procedure codes and treatment charges totaling $5,150 in addition to penalties of $704.03 and interest of $3,018.01 for a total lien amount of $8,904.04.

The workers' compensation judge (WCJ) determined that there was no factual or legal basis to proceed to a trial on the lien and issued a notice of intent to sanction Unitech $2,500. Unitech did not respond to the notice.

The WCJ thereafter ordered that Unitech take nothing on its lien and said that the company's decision to assert a claim supported only by an insurance form was a frivolous waste of the court's time. He directed Unitech to pay a $750 sanction and Zurich's attorney fees.

Unitech filed a timely petition for reconsideration. Unitech argued that putting its bill into evidence established its entitlement to payment and that the burden of proof was on Zurich to refute the validity of its claim. Since Zurich did not submit any evidence to rebut the reasonableness and necessity of Unitech's services, Unitech insisted that it was entitled to have its lien awarded and that the award of sanctions should be rescinded.

The WCAB not only said that Green Lien Collections/Unitech needed a lesson in evidence and judicial procedure, but disagreed with the WCJ's order of sanctions and attorney fees. Apparently the WCAB didn't feel the WCJ went far enough, remanding the case back to him to consider whether a) $750 in sanctions was adequate, b) whether the hearing representative (identified in the opinion as Suzi Gonzalez, who appeared at all of the hearings on the case) and the collection agency (Green Liens Collections) should also be held in contempt and sanctioned individually, joint or severally.

That lien claimants/bill collectors in California workers' compensation feel as though they are being unfairly targeted with recent legislation and other unwanted attention is simply a reflection that this group of people not only create unwanted friction within the system (FOUR YEARS TO SEEK PAYMENT ON AN ALLEGED OBLIGATION?!) but have not professional standards of quality whatsoever.

This case is representative of what has been an issue in California for some time - collections activities that resort to simple bullying without any substance whatsoever.

We sell education at WorkCompCentral. I see, hear, and read about the stories of our students. It is embarrassing to me how many times hearing representatives, and collections agents, for lien claimants simply have NO idea of what the law is. No idea. These people are either too lazy, too cheap, or just plain too stupid to figure it out.

It takes a massive restructuring of the law, SB 863, and big publicized sanction cases, to bring some order to the system. There certainly are some very professional lien claimant representatives and collection agents. They know what they're doing and they will survive the reform because they stay educated and practice to professional standards.

The rest of the collections population needs to understand: it's not business as usual any more.

I commend WCJ Craig Glass, the trial judge in this case, and the WCAB commissioners, for taking a stand, doing their jobs and restoring order to the court room and the system.

Thursday, November 15, 2012

Drug Overdosing Becomes the Employer's Risk

While Washington is a monopolistic, state-run workers' compensation system, lessons applicable to the traditional private insurance systems of most other states are occasionally delivered.

And this time the lesson is that if industry doesn't step in and help resolve this nation's growing problem with prescription drugs, the courts will make them do so.

On Tuesday a divided Washington Court of Appeals panel ruled that the widow of a trucking company employee who died after ingesting six different prescription medications and alcohol was entitled to surviving spouse benefits as a matter of law.

In Department of Labor and Industries v. Shirley, No. 66994-0-I, Brian Shirley injured his low back while working for Wells Trucking and Leasing in 2004. He filed an application for benefits with the Department of Labor and Industries, and his claim was allowed.

The department closed Shirley’s claim in March 2005 with no award for permanent partial disability. Shirley objected, but was unsuccessful in challenging the department's action.

At the time his claim was closed, Shirley was taking only ibuprofen. Later Shirley's treating physician, Dr. Chester Jangala, said he had prescribed oxycodone, citalopram, alprazolam and amitriptyline to treat Shirley's back pain.

Two years later, Shirley's wife found him dead. He was 37 years old.

Shirley's wife testified that Shirley had a job, and that he had gone to work as normal on the day before his death. That evening, Shirley helped a neighbor chop wood and then came home and went to bed. He did not wake up the next morning.

The King County Medical Examiner performed an autopsy and listed the cause of death as an accident resulting from acute alcohol and drug intoxication.

A toxicology report indicated that Shirley's blood alcohol content was 0.07 grams per 100 mL, slightly lower than the state-presumed intoxication level of 0.08 grams per 100 mL. There were also traces of oxycodone, citalopram, desmethylcitalopram, alprazolam, Nortriptyline, amitriptyline, carbamazepine, Promethazine, and acetaminophen in his system.

Shirley's widow filed an application for survivor benefits under the Industrial Insurance Act after his death, but the department denied her claim.

The case went through several layers of hearings and appeals. During these proceedings, all of the medical experts who testified agreed that the cause of Shirley's death was the combination of alcohol, oxycodone, citalopram, alprazolam, amitriptyline, carbamazepine and acetaminophen.

They all said that none of the drug levels in Shirley's blood were highly elevated. Even though the levels of oxycodone and citalopram in Shirley's system during the autopsy were inconsistent with normal dosing, several doctors testified that the level was closer to a "therapeutic" level than a "toxic" level.

All of the doctors agreed that neither the drugs alone nor the alcohol alone would have killed Shirley, but the combination of drugs and alcohol suppressed Shirley's respiration and gag reflex, causing him to suffocate.

Even though Shirley's consumption of alcohol in conjunction with his medications was "not a wise decision," the court majority opined, this "did not amount to a supervening cause (of death)" since it was undisputed that neither the drugs nor alcohol alone would have killed him."

The court concluded that the evidence "clearly indicates that but for the prescription medications, prescribed specifically and directly for the effects of the industrial injury, Mr. Shirley would not have died" and so his widow was entitled to survivor benefits.

The dissent by Judge C. Kenneth Grosse argued that he "cannot accept as rational the conclusion that it was foreseeable that a back injury of this nature would inexorably result in the injured workman abusing the painkillers prescribed for his treatment while simultaneously abusing alcohol."

This Washington case puts the national problem of prescription drugs squarely into the hands of the workers' compensation industry. Sure, other state courts may differ in their interpretation of the law, but clearly a new risk is being foisted upon employers and their carriers.

The industry will react in two ways: 1) measure the risk and price it into new policy years; 2) engage in tactics designed to minimize the risk and increase safety.

We have seen numbers from various state filings in the past year or so reflecting an increased awareness of potential risks due to drug overdosing, so the pricing impact of this problem is starting to be factored into the economics of workers' compensation.

And we have started to see new carrier tactics, such as California's State Fund's requirement that physicians in their network agree to prescription contracts.

While the government may be able to regulate and educate, it's when the financial consequences are handed down to the ultimate consumer - employers - that meaningful and serious reform occurs. This Washington case reflects that reality.

Wednesday, November 14, 2012

FL Shows How to Keep Honest People Honest

A couple of recent cases in Florida demonstrate how the courts interpret and shape statutes that are otherwise vague and ambiguous.

At issue is Florida Statutes Section 440.20 which states:

"An advance payment of compensation not in excess of $2,000 may be ordered by any judge of compensation claims after giving the interested parties an opportunity for a hearing thereon pursuant to not less than 10 days' notice by mail, unless such notice is waived, and after giving due consideration to the interests of the person entitled thereto. When the parties have stipulated to an advance payment of compensation not in excess of $2,000, such advance may be approved by an order of a judge of compensation claims, with or without hearing, or informally by letter by any such judge of compensation claims, or by the department, if such advance is found to be for the best interests of the person entitled thereto."

Florida's 1st District Court of Appeals (1st DCA), in Lopez v. Allied Aerofoam, No. 1D10-1444, 10/18/10, interpreted that section to require payment of a requested advance of up to $2,000 to any employee in the state, from whomever they request it, as long the person seeking the advance has either not returned to the same or similar employment following an alleged injury or has suffered a substantial loss of earning capacity.

Since then 440.20 has generated a bit of controversy because judges in the state considered the 1st DCA's opinion in Lopez to instruct them that the judge must only consider the "interests" of an entitled applicant and under the law the claimant only need show he would be "better off" with the money.

In the last two weeks though the 1st DCA has taken a couple of cases to put some boundaries on a 440.20 request.

In Worthy v. Jimmie Crowder Excavating, No. 1D12-1747, Worthy worked briefly as a truck driver for Jimmie Crowder Excavating on a hurricane debris clean-up project. He alleged that he slipped while climbing into the cab of his truck and jarred his back last July, and filed a disputed claim for compensation. Worthy also requested an advance of $2,000, pursuant to Florida Statutes Section 440.20(12)(c)2.

At the hearing on Worthy's request for an advance, it was undisputed that he had not worked since last July. He testified that he was behind on "a lot of bills," including his car payments, and had been paying the minimum he could on his rent.

Judge of Compensation Claims John J. Lazzara then asked Worthy's attorney why $2,000 was requested, and noted that Section 440.20(12)(c) does not say that an advance must be made in that amount.

Worthy's attorney responded that the burden should not be on a claimant to prove how much he is entitled to, but on the defense to prove that something less than $2,000 was more appropriate.

Lazzara disagreed and denied Worthy's request for an advance because Worthy failed to present any evidence regarding what amount not exceeding $2,000 would be in his best interest.

Worthy appealed, but the 1st DCA said Lazzara was right.

The 1st DCA reasoned that Worthy "made the required showing that he had not returned to the same or equivalent employment," but all this meant was that a judge could award him an advance payment of compensation, after considering his best interests. However, absent any evidence from Worthy as to why a $2,000 advance was appropriate, the court said Lazzara "was unable to adequately consider claimant's interests, as required under the statute," so the judge did not err in denying Worthy's request.

In Tuesday's decision, entitled ESIS v. Kuhn, No. 1D12-1726, the 1st DCA said a claimant also bears the burden of showing how that need is tied to the effects of a workplace injury.

Kuhn injured her right shoulder while working as a flight attendant for Delta Airlines in October 2006 when she picked up and replaced an accordion-type door in the cabin that had been broken by a passenger.

Her employer accepted her injury as compensable and provided benefits, but Kuhn was able to continue working even after her accident without any reduction in pay.

Kuhn reached maximum medical improvement with a 5% permanent impairment rating in April 2007.

Over four years later, Kuhn filed a new petition for benefits, the sole purpose of which was to obtain payment of a $2,000 advance under the authority of Section 440.20. She filed no independent petition for medical benefits and no other petition for benefits was pending at that time.

Kuhn asserted she met the statutory criteria for an advance because she has a permanent impairment and the advance was in her interest. She acknowledged that she was current on all her financial obligations and had no imminent need for the money, but the $2,000 "would be great…just to have extra money in my account for any unexpected things that come up."

Relying on the aforementioned Lopez case, Judge of Compensation Claims Thomas W. Sculco ordered the requested advance based solely on his finding that such a payment was in Kuhn's best interests.

On appeal the 1st DCA reasoned that Section 440.20's use of the phrase "due consideration" granted broad discretion to judges of compensation claims to award advances of up to $2,000, "provided a legitimate 'interest' of the claimant is demonstrated."

The court said that the provision of a financial cushion to a claimant is not, by itself, a justifiable basis for the award of an advance under Section 440.20 because "(w)e are dealing…with a statutory framework in Chapter 440 whose principal purpose is to address medical and related financial needs arising from workplace injuries."

Thus, the court said, the type of interest furthered by an advance under Section 440.20 "must at least have some plausible nexus to this purpose." Since Kuhn made no showing tying her desire to safeguard her finances to a medical or financial need arising from her workers' compensation claim, the court said, she was not entitled to the advance she sought.

Many in the Florida workers' compensation industry noted that before the Lopez case requests for a 440.20 advance were minimal, but that afterwards such requests became routine. Not only did these requests result in cost increases, but they left a bad taste with many.

The 1st DCA's opinions on 440.20 these past couple of weeks demonstrate how judicial opinions shape the law, how unintended consequences arise, and how a court can return to the subject matter of those unintended consequences and, with the right case, interpose boundaries and rules to keep honest people honest.

Tuesday, November 13, 2012

Liens and Full Employment For Bill Reviewers

California lien issues are surprising to workers' compensation professionals in other states because most states don't recognize liens as having independent rights apart from the case in chief.

I might add that a plain, black letter, reading of the statutes permitting liens in California cases would support outsider's initial thoughts - that a claim of lien against a worker's award should not have independent rights.

But that's not how the culture of California workers' compensation litigation has turned out, and in fact regulations over the years have codified this culture, from disallowing the adjudication of lien claims prior to resolution of the case in chief, to implementation of various statutes of limitation governing the timeliness of filing.

Due to this cultural diversity, issues regarding lien claims thus differ from Northern California to Southern California.

In attempting to quantify potential savings from the recent California reform bill, SB 863, the Workers’ Compensation Research Insurance Rating Bureau (WCIRB) conducted a state wide survey of liens which will be presented in its December 5 Actuarial Committee meeting.

WorkCompCentral obtained a copy of a PowerPoint presentation to be used in the meeting. The WCIRB's survey covered accident years 2002 through 2004, as well as accident year 2007.

Only one or two claims were filed on 24% of the reviewed claims, three or four claims were filed in 10% of the claims, and five or more liens were filed in 20% of the cases.

Broken down by geographic region, the WCIRB found liens were filed on 44% of the claims surveyed in Northern California and 64% of claims surveyed in Southern California.

But the difference is that in Northern California only a single lien was filed on half of the claims that were reviewed and 21% of the claims had two liens. Three or four liens were filed in 14% of the surveyed claims, and five or more liens were filed in 15% of the claims.

Contrast and compare with Southern California, where five or more liens were filed in 45% of the studied claims, and 10 or more liens filed in 15% of the claims. A single lien was filed in only 24% of the claims, and two liens were filed in 11% of the claims.

Consequently average lien defense cost per claim in SoCal was, on average, nearly three times the average cost in the northern part of the state.

SB 863 introduced some radical changes to many of the underlying processes that contribute to the assertion of liens, as well as direct impediments to such filings.

Some of the changes include a new medical bill review process that keeps payment disputes out of the normal adjudicatory processes, inclusive of penalties, fees and other financial incentives for both claimants and payers to resolve disputes informally and outside of the system.

Other changes include tighter statutes of limitations and fees for filing lien claims.

The whole process devised by the authors of SB 863 was based on changing the culture, and returning lien claims to what they are supposed to be: a claim upon the benefits being provided to the injured worker - not an independent right inherent in the service provider.

While the WCIRB has projected system savings attributable to the new lien process of up to $480 million, others such as risk management and brokerage firm Aon project less savings of only $356 million a year.

The disconnect on these projections stems from whether the new lien handling provisions are going to create a new cost to employers and whether employers are going to simply pay bills rather than dispute them.

I'm going to make a bold prediction.

1. The "lien problem" will essentially disappear. There will no longer be so many liens filed on so many cases for a couple of reasons: a) the cost of filing a lien for small amounts becomes prohibitive and b) payers and providers will not contest independent bill review because of the finality of decisions out of the process as well as the financial incentives (or disincentives) to contesting bills.

2. In a few years system observers will complain that payers are paying too much for services because it is easier and safer to just pay a bill rather than be subject to independent bill review and potential penalties and expenses inherent in the process.

3. Medical bill review specialists will be in high demand for the next 5 years or so until the next reform "crisis."

Monday, November 12, 2012

Reflecting the New Economy: Culture and Opt-Out

How much does a company's culture affect the business' workers' compensation experience? I'd venture to say a whole lot more than most people give credit.

At the National Workers' Compensation and Disability Conference and Expo at the Las Vegas Convention Center last week columnist and author on workers’ compensation issues, Peter Rousmaniere, previewed a 100-page analysis and research report on “The Texas Experience and the Oklahoma Proposal.”

While his overall conclusion was that the ability to opt out of the Texas workers’ compensation system “has produced significant results,” such an option is not for everyone, and in fact is for very few - those who's cultures are already vested towards a strong employee benefit system.

"For employers with well-developed employee benefits programs, an opt-out program will fit into the culture of these programs," Rousmaniere said. "The ability to choose private or public workers’ compensation means that the employer gets the solution that fits their needs."

"Customization of work injury benefits can match the needs of the employer’s workforce and location – something that’s impossible with statutory workers’ compensation," Rousmaniere said.

But, "a strong opt-out program requires special expertise especially from workers’ compensation administrators, benefits consultants, claims managers, brokers and excess insurers, and medical providers" Rousmaniere said. "The old ways won’t work."

And there's the rub: the old ways won't work. Culture is deeply rooted into the ability of any employer to deliver benefits effectively and economically, whether via non-subscription or traditional workers' compensation. So an opt out program is only going to work for those employers who already have workers' compensation systems that are timely, expedient and efficient.

I think Texas makes a great case study because it offers not only a comparison between an ERISA backed non-subscription system versus a traditional work comp insurance program from the employer-employee perspective, but it also gives us a glimpse how market reactions can foster overall change.

ERISA backed non-subscription has been around in Texas for several decades now, and participation has waxed and waned with the fluctuations in the traditional work comp market.

The "Survey of Employer Participation in the Texas Workers’ Compensation System" for 2010 showed the percentage of employers that are nonsubscribers decreased from 33% in 2008 to 32% in 2010. The survey, conducted by the Texas Department of Insurance’s Workers’ Compensation Research and Evaluation Group, shows the nonsubscription rate peaked at 44% in 1993 and 1995. 

The percentage of Texas employees working for nonsubscribers fell from 25% in 2008 to 17% in 2010. The lowest rate shown in the study was 16% in 2001. The Research and Evaluation Group is to release a new study updating the 2010 study by Dec. 1. I don't know how many of these non-subscribers have alternative benefit plans in place.

According to the  Insurance Council of Texas, workers' compensation premium rates have dropped 49% since 2005, the year that the state's big reform bill, HB 7, came into effect introducing numerous changes that significantly affected the cost of medical delivery and indemnity benefits. This correspondes, albeit not by a large amount, to the decline in non-susbscription.

But I think this shows that employers speak with their wallets, essentially introducing market competition in an alternative of a traditional system.

It can't be said that opting out in itself forced the changes to Texas' work comp market, but certainly the ability of large employers to do so does affect the economics of the system. With the diversion of all those premium dollars, carriers, and those who provide support to the system, are going to look towards changes that increase efficiency in order to compete for those insurance dollars that may otherwise get diverted to ERISA backed plans.

A similar market based pressure may occur in California. While the Golden State is far from ever embracing an opt-out program, SB 863 introduced significant changes to the self-insured program that is going to result in huge savings to those employers that are big enough to host such programs. The more businesses that go for self-insurance means the more premium dollars that are diverted from traditional insurance providing some market competition.

But self-insurance is not the same as ERISA backed opt out programs because self-insureds still need to play by the same game rules as those under traditional insurance.

Still, I think that at least the large employer market is speaking loud and clear: make changes to corral medical and indemnity expenses or we'll take our premium dollars elsewhere.

Now that I think about it, perhaps ERISA backed opt-out is not so far from a reality in a big state like California. It sure came awfully close to reality in Oklahoma on the first try and that is a radical departure from tradition in a single legislative session.

While a Texas style opt-out program is not the panacea for issues within the industry, companies with strong employee benefit cultures, like those in California who pushed for self-insurance reform in SB 863, are going to look at Rousmaniere's report, and look at what happens in Oklahoma. If it appears beneficial, we may see the next wave of reform following this radical departure as business-worker relations evolve to reflect this new economy.

Friday, November 9, 2012

Our New Reality: Work Comp is No Longer Exclusive

At the National Workers' Compensation and Disability Conference and Expo in Las Vegas yesterday I was part of a panel of bloggers asked to comment on what's wrong with the industry and how to fix it.

One of the things that we collectively noted was that in the over 100 years that workers' compensation has been in existence everything has changed: the economy has changed, culture and society has changed, there are now much different laws in place that provide new liabilities, responsibilities and remedies for both employers and employees, and as a consequence the risks are much different.

But workers' compensation hasn't changed.

We on the panel (and perhaps in the audience) were all were thinking in terms of the employer-employee relationship.

But a Louisiana case that was published on Wednesday demonstrates that risks have changed for the payer community in a dramatic fashion as well, and that the exclusive remedy isn't so exclusive any longer.

The Louisiana Court of Appeals 3rd Circuit ruled in Williams v. SIF Consultants of Louisiana, No. 12-419, that a group of medical vendors, institutions and facilities that have provided services to workers' compensation patients can collectively sue as a class action the insurance carriers for the CorVel Corp., based on alleged violations of Louisiana's laws governing notice for the application of preferred provider organization discounts.

The conditional certification of the class will allow these health care providers, who allegedly had their workers' compensation medical bills discounted through a "silent PPO" arrangement, to continue with the suit.

Thomas A. Filo of Cox, Cox, Filo, Camel & Wilson, one of the attorneys representing the class, on Thursday estimated more than 1,000 members comprise the class.

The lead plaintiff in the case originally filed claims against Med-Comp USA, Risk Management Services and SIF Consultants of Louisiana, in addition to CorVel and CorVel's insurance carriers – the Executive Risk Specialty Insurance Co. and the Homeland Insurance Company of New York.

Med-Comp, a PPO provider, had contracts to pay health care providers at discounted rates. Risk Management Services and SIF Consultants applied the Med-Comp discounts when administering workers' compensation claims for Louisiana employers. CorVel's claims administrators also used the Med-Comp PPO discounts, as well as its own CorCare PPO network discounts, on the bills submitted by plaintiffs.

Under Louisiana law, a PPO's discounted rates of payment cannot be enforced upon a provider unless the name of the organization is clearly identified on a benefit card issued by the group purchaser or other entity accessing a group purchaser's contractual agreement and presented to the participating provider when medical care is provided.

Last year, CorVel agreed to settle a class action against it based on its alleged non-compliance with this notice provision for $9 million. The terms of that settlement, however, allowed the plaintiffs in that case to proceed against CorVel's insurers.

The plaintiffs in that proceeding also reached settlements with Risk Management Services and SIF Consultants of Louisiana, but not with Med-Comp.

Filo said that he and his fellow claimant attorneys then sought to certify a new class of plaintiffs to sue CorVel's insurers – Homeland and Executive Risk – and Med-Comp.

While Filo told WorkCompCentral that this is likely close to the last of PPO discount class actions that had been going on since 2004, the import of this decision can't escape those in other states where similar situations may exist.

Yes, workers' compensation is a state by state issue and the applicability of Louisiana law to similarly situated claimants and providers may not be applicable.

But what I see as the bigger issue is that the dispute between the medical providers and the payers is all about workers' compensation, which to me means exclusive remedy and that disputes should all be resolved within the workers' compensation adjudication process, not in the civil court arena.

Louisiana has an administrative adjudication system like many states. A case as big as this is likely well beyond the capacity of the state's administrative system to handle and manage. I get that.

All I'm pointing out though, is that workers' compensation, and all of its ancillary sub-systems like bill and/or utilization review, has evolved to the point where one large component of the "grand compromise," removal of the risk of civil suit, has grown to become a big risk again.

I'm not opining on whether or not this class action is in the proper jurisdiction or venue, or that the payers or providers are right or wrong. I'm only saying that this is a very real example of the erosion of workers' compensation's original promise - alleviation of the risk of civil suit.

Back to the premise of our panel at the conference - what's wrong with workers' compensation. Quite simply, we haven't evolved.

Workers' compensation is no longer exclusive. I'm not sure that this is anything we can fix, or maybe something that we want to fix. But we certainly must keep this reality in mind as we go about our daily work, and planning for the future of our industry.

Thursday, November 8, 2012

When Law & Medicine Are At Odds

One of the things that frustrates physicians in the workers' compensation system is how the law plays with their opinions and services.

Physicians are trained in logic - their actions generally are based upon some process of scientific approach (and yes, the science changes...).

Medical science is the ability to prove with statistically significant reliability that when X happens, Y is the result. It's all in the numbers. That's why medicine has treatment guidelines. In general some element of scientific evidence supports guideline recommendations.

Law has a different logic to it and it is foreign to physicians - indeed, law is all in the words.

Medicine and law speak English, but the dialects are different.

This is particularly true in workers' compensation which is a complete fiction - it has no basis in common law. It is solely the product of legislative construction built upon a foundation of political exercise.

Which is why workers' compensation tends to produce situations that seem illogical to physicians, but perfectly logical to lawyers.

A Florida case highlights this.

In Florida an employer "has the right to transfer the care of an injured employee from the attending health care provider if an independent medical examination determines that the employee is not making appropriate progress in recuperation" (Florida Statutes Section 440.13(2)(d)).

Maggie Avery suffered a severe concussion and psyche injuries after being exposed to a flash grenade while working undercover as a police officer in a narcotics bust in January 1993 for the City of Coral Gables, and further psychological trauma from a shooting that took place in April of the same year.

The City stipulated that Avery reached maximum medical improvement in August 1994 and was permanently and totally disabled.

Avery began treating with Dr. Ramon Pino, a psychiatrist who initially diagnosed her with mood disorder, recurrent major depressive disorder – moderate severity with anxiety, insomnia and post-traumatic stress disorder. He changed his diagnosis in 2004 to mood disorder and severe clinical depression.

Pino referred Avery to Dr. Grant McDougall for psychotherapy in April 2001. She proceeded to see McDougall up to four times per week over the next eight years, while continuing to see Pino on a monthly basis.

In May 2009, the City of Coral Gables asked Avery to see Dr. Richard Greer, a psychiatrist, for an independent medical examination. Greer opined that Avery's treatment with Pino and McDougall was excessive and unwarranted to treat her depression and anxiety. He recommended only one visit with a physician every three months.

Based on Greer's report, the city informed Avery that it was transferring her psychiatric care from Pino and McDougall to Dr. Michael Amiel, pursuant to Florida Statutes Section 440.13(2)(d).

Avery objected but the Judge of Compensation Claims approved the city's deauthorization of Pino and McDougall as Avery's treating doctors.

On appeal the 1st DCA reversed because, since Avery had already reached maximum medical improvement (MMI), there could not be any further improvement by changing physicians.

By definition, once a worker MMI, the court explained, that worker's condition cannot be reasonably expected to improve. Any care the worker receives after reaching MMI necessarily becomes "palliative."

One can not dispute the court's logic. That's what the words mean. By the same token, from a practical standpoint one should expect some measurable benefit to ongoing treatment - in particular four times a week over the course of 8 years, as in this case.

If this were in a general health setting there would be no such thing as MMI and a regimen of psychotherapy of four times a week would not be tolerated or approved without a demonstration that something good was happening.

Now, it could be that this case was just about the cost of treatment.

It could also be that the City was genuinely concerned that Avery wasn't getting quality care.

Or maybe a combination of both. The City is probably just looking for some evidence that the treatment they are paying for is actually doing something - that there is VALUE being provided.

In either case I'm sure that most physicians would shake their heads in disbelief and point to this case as one where accountability to both the injured worker and the employer went out the window.

While the treatment in this case likely is not doing harm to the person, it doesn't seem to be beneficial either.

But, the law is the law and medicine is medicine. Sometimes they intersect nicely, and sometimes they don't.

Wednesday, November 7, 2012

Another Lesson in Tax Law vs. Work Comp

Staffing companies are among the most "creative" when it comes to trimming their workers' compensation costs. Their margins are so thin that every penny saved in work comp premium is a penny of profit.

So it comes as no surprise that a recent California appellate case penalized a staffing agency for underreporting wages because an "unreasonable" amount was classified as "per diem" expense reimbursement.

ReadyLink Healthcare Inc. sued the Department of Insurance (DOI) and the Workers' Compensation Insurance Rating Bureau (WCIRB) after an administrative law judge ordered that it pay State Compensation Insurance Fund (SCIF) an additional $555,327.53 in premium.

ReadyLink was insured by SCIF from 2000 until 2007. State Fund conducted a final audit of ReadyLink in 2007 for its September 2005 through September 2006 policy period. A senior auditor noted that ReadyLink was paying its nurses $6.75 an hour, plus a much higher "per diem" amount. 

The auditor had experience with other nurse staffing agencies insured by State Fund and knew of none where traveling nurses received more than half their reimbursement as per diem payments.
The auditor asked ReadyLink to provide documentation showing that the per diem payments represented the actual living expenses of the traveling nurses. ReadyLink did not respond, and State Fund billed the company the additional premium.

An administrative law judge ruled that ReadyLink had failed to prove that its per diem payments were reasonable, noting that the company was paying far below the market rate in hourly wages and had not produced any documentation that its per diem payments were related to actual living expenses of the traveling nurses.

ReadyLink sought review by the Los Angeles County Superior Court, which denied the petition. The company then appealed to the 2nd District Court of Appeal.

ReadyLink argued that its per diem payments comply with federal tax law and that State Fund had imposed onerous documentation requirements that federal law does not require.

The 2nd DCA didn't care, distinguishing between the federal tax system and the WCIRB's Uniform Statistical Rating Plan (USRP):

"The IRS collects tax revenue from employers and employees to fund a variety of federal programs, whereas the purpose of the USRP is to accurately recognize the amount of an employee’s real wages to ensure that the SCIF has sufficient reserves to pay a worker his or her wages if injured on the job."

  1. Don't mess with wage reporting. If you're an employer, pay market wages. If there is a per diem involved make sure that the payments can be supported as reasonably related to actual expenses.
  2. Don't ignore audits. When the auditor requests supporting documentation at least make a good faith, reasonable attempt to comply. If you can't - big time red flag goes up!
  3. Workers' compensation has NOTHING TO DO with tax law. This has been restated so many times since the beginning of work comp that it is unbelievable that any employer would attempt to raise this argument. Usually the attempt to relating tax law to work comp is in relation to employee classification - independent contractor vs. employee. Been there, done that so many times it still puzzles me that any attorney representing an employer would even attempt that argument; likely a professional that is not versed in the special character of work comp law.

ReadyLink also sued in federal court, which is pending. I'm sure there will be a similar outcome.

To read the decision, click here.

Tuesday, November 6, 2012

Privacy and Elections - Cultural Expectations

While I generally believe that, for the most part, there really isn't any privacy anymore despite the "right" to it. From a practical perspective, if you really want to find something out about someone, including their medical information, you can get it. There may be a cost of acquisition, but "individually identifiable information" (what the bureaucrats like to call it in the promulgation of silly regulations attempting to protect the un-protectable) is for the most part easily obtained.

The only exception is if you disappear from society. And that is unlikely if you pay taxes, own property (including intangible property such as bank accounts), get medical service, work, vote, etc.

So obviously I don't buy the arguments of privacy zealots - privacy disappeared a long, long time ago.

The Georgia Supreme Court in a recent opinion seems to recognize that privacy is a fallacy and ruled that once a claimant enters the workers' compensation arena she can not count on the "right of privacy" to protect her medical information.

Laura McRae had sought benefits for the third-degree burns to her esophagus she suffered while working at Arby's Restaurant Group six years ago when she mistook a cup of lye for her beverage and drank from it.

Arby's did not controvert her claim for benefits and began paying her compensation in March 2006.

In September 2009, McRae's treating gastroenterologist reported that McRae had reached maximum medical improvement, with a 65% permanent body impairment. McRae then requested an administrative hearing on her claim for temporary total disability and permanent partial disability.

After receiving the report, Arby's attorneys tried to schedule an ex parte consultation with McRae's doctor, but the doctor declined to meet with them absent express permission from McRae. Arby's then asked the administrative law judge to intervene (I'm assuming that they attempted to get permission from McRae and she refused), and the judge directed McRae to authorize her gastroenterologist to speak with the defense attorneys. When McRae refused, the judge sanctioned her by removing her claim from the hearing calendar.

The State Board of Workers' Compensation Appellate Division upheld the judge's action, as did the superior court, but last December, a narrow majority of the Georgia Court of Appeals reversed concluding that a claimant's waiver of her medical privacy under Georgia's Workers' Compensation Act was limited to a release of "tangible documentation" related to the medical condition forming the basis of her claim.

The Supreme Court, in a unanimous decision Monday authored by Presiding Justice Hugh Thompson, said the act's waiver was not so narrow. Under the plain and unambiguous language of the act, Thompson wrote that, "any privilege the employee may have had in protected medical records and information related to a workers' compensation claim is waived once the employee submits a claim for workers' compensation benefits or is receiving weekly income benefits or the employer has paid any medical expenses."

The point that the Supreme Court makes is that there is information that is necessary for the processing (or limitation) of a claim where someone else is footing the bill and that if there is a concern on the part of others that they can and should participate in the process.

"Under our statutory scheme, physicians may agree to be interviewed only on the condition that their own counsel, or the employee or her counsel, is present," or "may request that the interview be audio or video recorded," he said. The doctor also can share the substance of the interview with the employee and her counsel.

Additionally, Thompson cautioned that an employee maintains her right to privacy in any health information not pertaining to her compensable injury. He urged the State Board of Workers’ Compensation and litigants who request ex parte communications with a treating physician to make sure they "set parameters consistent with privacy protections afforded under state and federal law" to make sure their conversation is appropriately related to the compensable injury and does not exceed the bounds of the privilege waived by the worker.

Seems that the Supreme Court was essentially telling the State Board of Workers' Compensation to promulgate regulations on the topic so everyone has the same rules in place.

According to interviews in the WorkCompCentral story on the case, in Georgia a doctor has to be an approved member of an employer's panel of physicians in order to be the authorized initial provider on a workers' compensation claim. This means that any time an employee gets hurt, the employee has to see one of a limited number of doctors.

Consequently there is a built in conflict of interest because of the pressure a physician may feel if he or she wishes to continue to receive referrals from that employer.

The defense side of the argument is that ex parte communications with the treating physician can speed the claims process along, which helps workers get access to treatment and benefits faster.

I don't buy that for a second, in particular if the communication is by the defense attorneys. I was a defense attorney. My obligation was to the employer/carrier which is to say when I talked to a doctor about a case my interest was in getting as much defensible information as possible.

Sure, that may help the claims process along by using that information to deny benefits...

Here's the real deal as acknowledged by Judge Richard Thompson, chairman of the State Board of Workers’ Compensation.

Judge Thompson told our reporter that the court's "statutory construction analysis" was "pretty clear" and that the ruling returns things to "the way it was from Day One, before this litigation took place."

In other words, in the state of Georgia, ex parte communications by the defense with the treating doctor was standard procedure, was part of Georgia's workers' compensation culture, and this case challenged that culture.

Fair enough. Workers' compensation, by design, is a state by state system. Each state recognizes its own culture, and builds its laws to fit that culture. This is why we elect officials from municipal to state to federal - there are issues that are best dealt with through varying degrees of government.

Speaking of which, today of course is Election Day - the supreme day of politics in the United States where the average citizen gets some voice and participation in running the government.

Hopefully the insidious campaigning of the well financed politicians and voter referendums does not adversely affect voter turn out and people take this privilege seriously - we don't know all the issues, and we don't know all the politicians, but we don't have to vote on everything either.

And honestly, whether you vote Republican or Democrat probably won't make a big difference. Both parties, in my pessimistic view, are pretty much the same - candidates will tell you what they think you want to hear in order to get your vote so they can wrangle some power through the governmental system.

Many will be glued to the television following election results local, state wide and nationally. Many more likely will not follow the drama and will carry on with their normal lives.

Some will go shopping. I got an email advertisement this morning announcing a "one-day only" election day sale. Ugh - you're kidding me. Even the sanctity of a national election becomes marketing fodder.

Frankly, truly insulting.

Generally attributed to infamous Chicago mobster Al Capone, "vote early and vote often" should probably actually be "vote early and shop often" (Capone did - he bought lots of votes).

Voting with your pocket book takes on new meaning.