Anecdotes and Extrapolations Paint Troublesome Picture

The workers' compensation system is obsessed with costs. Reform legislation around the country is nearly uniformly about controlling costs.

The driving mantra behind California's last monster reform bill was costs were out of control.

High medical costs are blamed on unscrupulous profiteers. High indemnity costs are blamed on litigation and the claimant attorneys milking the system.

Ancillary vendors, such as interpreters and copy services, receive the heat as much as the more major cost contributors.

We read, hear and watch numerous reports every day about some claimant fraud, vendor fraud, employer fraud and once in a while some insurance company fraud. None of this compares, even cumulatively, to what I would characterize as outright system manipulation - intentional or not - by claims payers, which include the now publicly confirmed rumors about claims payers yanking the chains of lien claimants over filing fees.

Here are a couple of anecdotal vignettes recently posted in the WorkCompCentral Forums - they may not be typical (though as you will read below I believe that this is more representative than not) but they demonstrate some BIG issues. I have edited them for readability, but otherwise the factual contentions are as posted by the original authors.

After these short vignettes, employer consultant Bill Cobb gives us some real food for thought that demonstrates the enormity of the issue - and of course this would not be MY blog if I didn't opine one way or the other.

First Anecdotal Post:

Topic: Unrep PQME - Inappropriate Authoization Denial (California)

An unrepresented  applicant sets a Panel Qualified Medical Examiner (PQME) appointment and the cover letter is sent by the adjuster. The PQME sees the applicant and asks for a "consultation" from a specialist to help determine severity of damage and recommendations for further care. The PQME sends out the initial report explaining the need for the consult - not for treatment.

The insurance company adjuster does not respond to the requests for authorization for a consult - the one time he does answers his phone we explain the need for consultation arising from the PQME. The conversation goes like this:

Adjuster wants to know why we are treating...

We say we are not treating, need consult for PQME.

Adjuster states you cannot treat, you are not in the MPN...

We say we are not treating, we need authorization to consult for the PQME.

Adjuster states the consulting doctor is not in the MPN...

We say we are not treating, we need authorization to consult for the PQME.

Adjuster asks why does the doctor need a consult?? 

We say see his report.

Adjuster says, NO you explain to me why the doc needs a consult...

We say we cannot due to exparte communication rules -- please see report and send your questions to the PQME in writing.

Adjuster faxes note to us stating: Not authorized due to not in the MPN and UR did not approve.

Applicant was seen by the PQME in 11/2012 - adjuster has been delaying as above since then.

Second Anecdotal Post:

Topic: UR Timeframes vs. IMR (California)

Patient burned, had treatment elsewhere, then was referred to us by an occupational medical group where he was treating. We contacted adjuster at the TPA, who authorized the consult. Burn needs grafting. We sent a detailed narrative PR-2 with a Request For Authorization, but now, two weeks later, we have no response. [emphasis original] After the first week, I called and spoke with the adjuster, who said that because it's going to cost so much they have to think about it!!!!!  

Now it's been two weeks, and the poor guy is still doing dressing changes.  This is not life-threatening, but he will have a much higher risk of scarring and need for scar revision down the road, and in the meantime, he cannot return to work because of risk of infection, which grows every day.  That has all been explained to the adjuster.  Patient so far is not represented.

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Now that you've read, in my opinion, two alarming anecdotes about egregious claims behavior (and there's plenty more in the WorkCompCentral Forums), Bill Cobb comes along with some troubling conclusions based on extrapolations from actual Workers' Compensation Insurance Rating Bureau (WCIRB) and Division of Workers' Compensation (DWC) data.

By Bill Cobb:

Every year the DWC does an audit of the entities that do claims handling (self-administered carriers, self-insured employers and third party administrators). The results of the 2011 audit are published on the DWC web site. I’ve been following the results of the audits since 2003. It has always been a major shame and disgrace on the work comp carriers and their agents. But, for some reason, no one has given it much attention.

At the heart of the results (as you will see) is one of the primary reasons why injured workers litigate their claims. [Editor's note - from the data analytics standpoint; anecdotally see the two examples above.] 

Based on figures published by the WCIRB:

·        California has approximately 550,000 employers.

·        There are approximately 16.5 million workers.

·        Each year there are over 500,000 workplace injuries.

·        Med-Only claims account for 79%.

·        Indemnity Claims account for the other 21%.

·        The average Med-Only claim costs $713.

·        The average Indemnity claim costs $6,728 – UNLESS it litigates, then it costs $62,700.

·        Litigated claims make up 43% of all indemnity claims.

·        Litigated claims account for only 9% of all claims, yet they take up 82% of the costs.

The outcome is a main driver that causes the cost of work comp for employers to go up.

Let’s go over the figures:

·        The DWC audited 3,410 files – out of 200,000+ open files.

·        Of these, 444 (13.02%) had compensation that was owed to the injured worker, but was not paid.

·        The average amount owed was $1,468.87. That represents 3 – 4 weeks of indemnity payments not paid on each of those claims.

I’m assuming the DWC chose only 3,410 files to audit because their statisticians thought it was representative of the entire population of claims.  [Editor's note - the process of selecting audit subjects is found in Title 8, Regulation 10106.1 and the actual procedure is in Regulation 10107.1.] If we extrapolate those figures out over the entire indemnity realm, here’s what we would find:

·        Total indemnity paid in 2011 was $2,957,000,000 – that’s accrued, not actually paid.

·        That would leave $176,264,400 (yes, millions) in owed, but unpaid, benefits in the files of the carriers and TPA’s.

This is money that is owed to the injured worker, but the payer is sitting on it. This causes a tremendous hardship on injured workers that are living from paycheck to paycheck. [Editor's note - also may be vendors seeking payment on legitimately owed bills but are being ignored or delayed as in the example anecdotes.]

So, let’s take a look at what the enforcement arm of the DWC did to punish the offenders:

·        The 444 files produced 4,465 violations.

·        The total dollar value of the violations cited was $1,411,128.

·        Of that figure, $1,209,325 was deemed ‘Not Subject to Assessment’.

·        The violators paid $201,803.

As you (or anyone for that matter) can see – it pays to cheat. They will get their hands slapped with only a small financial penalty and reporting in an obscure DWC filing.

Bill's idea is to:

·        Beef up the Audit Department so that EVERY file gets audited once a year.

·        It would be a ‘self-funding’ program based on a small premium surcharge to fund the initial startup.

·        Make EVERY violation subject to assessment and make them pay – or shut them down!

·        That should bring in $50 million to $100 million in assessments which can be used to fund the program.

·        Over the years, not only would the violations and assessments gradually reduce, so would litigation and, ergo, the amount of indemnity associated with litigation. The size of the audit unit could be reduced accordingly.

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Radical? Yes. Objectionable by the claims community? Certainly. Effective? Beyond anyone's imagination, would be my guess.

As suggested by Bill's data, the two anecdotes above are certainly more representative than not.

So what have you Industry? Ready to put your money where your mouth is? 

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 Table of data:

	Total Audited - 2011			All Indemnity Paid - 2011
Total Files	3410	100%		Total Indemnity	$  2,957,000,000
Files with unpaid Indemnity	444	13.02%
Total Unpaid	$        652,178			Total Unpaid	$      176,264,400
Average Unpaid	$      1,468.87
Unpaid TTD	622.36	42.37%		Unpaid TTD	74,683,226
Unpaid PD	693.60	47.22%		Unpaid PD	83,232,050
Penalties	152.47	10.38%		Penalties	18,296,245