Happy NY Hike

My mother taught me it is not nice to take delight in other's misfortunes, but New York's proposed 9.3% rate hike does cause a little giddiness.

Yesterday the New York Department of Financial Services took testimony both for and against the proposed increase.

The financial sector, a strong sector of that state's economy, is for it; labor says it is just a scapegoat to take more benefits away from workers.

“It’s actuarially sound,” said Lev Ginsburg, director of government affairs for the Business Council of New York State. “Therefore, as much as we’d like it to be lower, it is necessary for market stability.”

Labor put a different spin on the proposal, that it “is based on the premise that the costs of workers’ compensation are continuing to rise, and that as a result, employers must pay more as well,” said Nadia Marin-Molina, associate director of the New York Committee for Occupational Safety and Health and the Workers Protection Coalition, a premise Marin-Molina disputes.

She says more blame needs to be laid on the marginal employers mis-classifying employees as independent contractors, which costs the state's system $6 billion / year in premiums and marginalizes even further the entire system.

Part of the blame, according to rate hike proponents, is due to the 2014 dismantling of the Special Fund for Reopened Cases, which pays for non-indemnity claims where medical is left open, and require further funding. Though that fund was closed a recent appellate court ruled that doing so was unconstitutional, because it shifted $1.1 billion to $1.6 billion on carriers that not had not factored those losses into their rates or reserves.

That case has since been appealed to New York's highest court, the Court of Appeals, and is awaiting review.

New York has some unique laws that go outside workers' compensation, principally in the construction industry. Labor Law section 240, known as the scaffolding law, deals with height based injuries, and section 241 deals with non-height related construction injuries.

Both were enacted at a time when New York was bustling with construction, ergo construction related injuries and deaths, and was seen at the time as an important safety motivator for contractors and construction companies.

Today, those laws provide tort remedies that would make most any opt-out proponent cringe with surprise and indignity.

But that's the state's culture. New York is a high cost state to live in, to do business in, and in which to employ people.

While the rest of the nation, even California, is moving in the opposite direction, New York is not only proposing a rate increase, but a significant one at that.

Is it possible that New York will eclipse California as the poster child for bad a workers' compensation environment?

The Department of Financial Services is expected to rule on the proposed rate increase, or ask the rating board to amend it, by July 15. We'll find out then...

A New York Case

From WorkCompCentral News this morning - an example of "liberal interpretation" in favor of the injured worker:

A New York appellate court ruled that a corrections officer was eligible for duty disability retirement benefits because she established that her injuries from being struck by a gate were caused by a direct interaction with an inmate.

Case: Matter of Traxler v. DiNapoli, No. 522066, 05/19/2016, published.

Facts: Sheila Traxler worked for the state of New York as a corrections officer.

She suffered injuries at work in June 2010 when a self-closing gate struck her.

The accident happened while Traxler was escorting three inmates through a gate from the visiting room.

After Traxler instructed the inmates to line up against a wall, another corrections officer told her someone was calling for her. As Traxler turned to see who was calling for her, another inmate passed through the gate.

Traxler ordered the inmate to stop, but the inmate proceeded through the gate and let go of it. The gate then swung closed and struck Traxler, who was standing in the doorway.

Traxler later applied for performance of duty disability retirement benefits, alleging that she was permanently incapacitated due to the injuries to her neck, back and shoulders from this incident.

Procedural History: The retirement board denied her application, and a hearing officer upheld this decision. After the state comptroller upheld the board's decision as well, Traxler sought judicial review.

Analysis: The Appellate Division's 3rd Department said that it is established in New York law that a corrections officer is entitled to duty disability retirement benefits if she is incapacitated from her job because of injuries that were caused by "direct interaction with an inmate." 

The court said the record in this case provided no basis for a finding that Traxler's injuries were not caused by an inmate's act of releasing the self-closing gate while Traxler was in the doorway.

Disposition: Annulled and remitted.

To read the decision, click here.

Minimum Wage Widens the Gap

There's a lot of consternation about California (and New York) raising the minimum wage level over the next 6 years to $15 an hour. Some predict doomsday for the state's economy, others applaud that the state is leading the way to a livable wage for the lowest tier of the economy.

How all of this plays out, of course, is all speculation at this point. This is the single largest pay increase for the working poor, likely in history.

California's minimum wage increase is state wide immediately, tiered to business size. New York City will mandate $15 an hour for firms with 11 or more employees by 2019, and all others employers by 2020. Businesses in New York suburbs will be required to meet the minimum by 2022.

According to the Wall Street Journal, there were 53.6 million workers in the U.S. paid less than $15 an hour in 2015, including nine million in New York and California.

That nine million represents about 41% of workers in California and 38% of those in New York, excluding those who are self-employed, says the WSJ.

Economists are mixed in their reactions to this move.

Some think the blunt approach of dictating an entire state to a higher minimum wage ignores the economic realities of geography - San Francisco and Los Angeles, for example, have much higher costs of living than, say Fresno or Bakersfield.

Others say jobs will migrate out of the state, or that employers will get even stingier in their use of labor, or that automation and robotics development will escalate.

Some feel that it's about time to elevate the living standards of the lowest rung of the wage ladder, while others believe all that will actually occur is that the cost of living will simply rise to the next median, creating just another wage gap perpetuating the cycle.

Regardless of whether you believe in free market control over wages, or whether more governmental control is necessary, workers' compensation insurance companies will reap big premium increases, and claims indemnity payments will see rapid escalation as disability indexes upwards along with state average weekly wages.

But one indemnity element will become acutely painful: the economic disparity between those impacted long term by a work injury and those who are able to return to work quickly will become even more significant.

The WorkCompCentral report, Uncompensated Worker, demonstrates that those on long term disability wander closer and closer to the poverty line - many people who incur long term permanent disability lose not only their jobs, but any sense of financial security.

Research shows the path to poverty is exacerbated by a work injury that produces long term disability, and workers' compensation permanent disability indemnity benefits fail miserably to cover that gap.

Temporary disability indemnity rates will raise to meet the income elevation because in both California and New York it is indexed to the states' average weekly wages as determined by each state's formula.

But compensation for permanent disability isn't.

Which sets up the next big political fight, ergo "reform." Labor will push to close the gap between permanent disability indemnity and the "living wage," business will object to raising PD - and the question is going to be what each side will give up to get their requested part of the bargain.

New York Republicans had already tried to tie a "reform" of that state's work comp system to the minimum wage increase. 

That obviously didn't work. They'll try again.

Same Song, Different Dance

In the face of last year's negative press about erosion of benefits through the constant "reform" of workers' compensation, New York Gov Andrew Cuomo released a proposed budget for fiscal year 2017 that is being pushed by the state's business interests to address escalating costs.

New York last went through the hemorrhaging effects of major changes to its business-backed workers' compensation reform effort under the disgraced former governor, Elliot Spitzer's, administration in 2007 - so the timing is about right for a new reform movement: every 7 to 10 years...

And in fact the Business Council of New York State, had been seeking legislative "corrections" to the inadequately implemented Spitzer reform package since at least 2014.

About this time last year, the Council released "Fix New York: The 2015 Legislative and Regulatory Agenda," it's architectural plans for curing what the business community sees as a system run amok with cost overruns and inflated benefits.

That document described seeking an update to the medical impairment guides used to calculate schedule loss-of-use awards, to require injured workers to use a doctor from panels appointed by employers for the first 90 days following an injury, add a comparative negligence standard to the state's unique Scaffold Law, "de-index" the maximum weekly benefit from the state average weekly wage or adopt regional indexes, cap temporary disability status at 2 years post injury, among other proposals.

Legislative attempts the past couple of years have not moved forward - lawmakers presumably having better things to do than to monkey with workers' compensation.

There are other avenues to reform, however, and one of them is through fiscal management; i.e. budget.

And like any other political strategy, there are provisions that neither business nor labor find savory, and there are provisions that either may find beneficial to their special interests.

Cuomo's proposed reforms include reducing the number of Workers’ Compensation Board commissioners from 13 to seven; extending to 120 days the period a claimant must wait until seeking care outside of a preferred provider network; and penalizing carriers with sanctions of up to 20% of unpaid compensation if the board finds an appeal was filed on frivolous grounds.

Additionally, the State Workers’ Compensation Board would create an authorization agreement with medical providers, which would give the board “broad authority” to bar any provider who breaches the authorization agreement - but operational details are left out of the package, leaving the Board to make up its own rules of engagement.

The proposed budget legislation would also allow the SWCB to reassign a workers’ comp case to a new judge at any time, regardless of reason, something critics say could result in an abuse of power.

But the Council's wish list isn't complete in Cuomo's budget - there's no cap on temporary disability.

The governor’s office, in its Budget Briefing Book (page 113), said the proposals were aimed at improving the workers’ compensation system, a “$7 billion program (that) is complicated and cumbersome, delaying claim settlements and payments, and increasing costs to employers.”

Same song. Different dance.

After all of workers' compensation's publicity in the general media (and ProPublica is based in New York), will New York's voting population even notice, let alone pay attention?

Scaffold's High Disputes

New York is the only state in the nation still with a "scaffold law."

The scaffold law imposes absolute liability on contractors and property owners who fail to provide workers with the appropriate safety devices to mitigate against any elevation-related risk they face while engaged in the "erection, demolition, repairing, altering, painting, cleaning or pointing of a building or structure."

Section 240(1) dates back to the 1880s, when the first skyscrapers that have become such a distinguishing feature on the Manhattan skyline were being erected. It is one of the leading issues of dispute in the New York system.

The number of cases citing Section 240 rose from an average of about 63 cases annually from 1990 to 1992, to an average of about 330 yearly cases from 2010 to 2012, the Nelson A. Rockefeller Institute of Government reports.

Most of the litigation surrounds the question of whether or not something is a "structure" subject to the law.

According to WorkCompCentral's Legal Editor, Sherri Okamoto's research, New York's intermediate appellate courts have put out at least nine cases addressing these claims in just the past two weeks.

They include Phillips v. Powercat Corp., Masiello v. 21 E. 79th St. Corp., Terepka v. City of New York, Buhr v. Concord Square Homes Associates, Miller v. Webb of Buffalo, Bausenwein v. Allison, Carr v. McHugh Painting Co., Jordan v. City of New York and Lombardo v. Tag Court Square.

The term "structures" includes a utility pole with attached hardware and cables, a ticket booth at a convention center, a free-standing Shell gasoline sign, a crane used for construction, a power screen being assembled at a gravel pit, a pumping station, a 10-foot-tall wedding chuppah and a window exhibit at a home improvement show.

By contrast, "structures" don't include, according to court rulings, temporary decorations to a building used as a set for a television film, a sign hung from a ceiling, commercial dishwasher machines and a decorative wooden disc suspended from a ceiling for use as a ceremonial wedding canopy.

A "structure" is fact-specific and determined on a case-by-case basis. Courts consider the item's size, purpose, design, composition and degree of complexity; the ease or difficulty of its assembly and disassembly; the tools required to create it and dismantle it; the manner and degree of its interconnecting parts, and the amount of time the item is to exist.

No one factor is controlling.

The scaffold law is a prime source of contention between the business lobby and Labor. Business says the law is antiquated and unnecessarily adds to the cost of construction in the state. Labor says the law has prevented innumerable accidents and deaths, and is one of the leading protections afforded workers.

Two examples of the type of disputes that section 240(1) engenders were issued by New York's highest court on Thursday.

The Court of Appeals ruled in Saint v. Syracuse Supply Co. that a worker who was working on the installation and removal of a billboard advertisement was engaged in alteration of the "structure" within the meaning of Section 240(1).

In contrast, the Court of Appeals found in Nicometi v. Vineyards of Fredonia that a construction worker who was injured when he fell while working on stilts to install insulation was not covered by the scaffold law.

Section 240 has been the source of legislative attacks for the past three years, and is targeted again in this legislative session; Sen. Patrick Gallivan, R-Elma, filed the latest scaffold law reform proposal in January. Joseph Morelle, D-Rochester, filed the companion version in the Assembly.

The stakes are high (no pun intended) and the emotions are volatile - New York's scaffold law is part of work comp culture, so it won't disappear easily nor without judicial challenge should the reform bills pass.

Most of our eyes might be on Oklahoma and constitutional challenges to its recent reform; or on Tennessee and pending opt-out legislation; or on Florida and claims that its benefit structure defies constitutional protections.

But changing 135 years of case law stimulated culture is incredibly historic, and another piece of evidence that I think demonstrates how work comp will be changing in this nation.

We're Back

The teaser line for the movie trailer Poltergeist II is almost universally known: "They're ba-ack."

It's now 2015, I'm back. Legislators are back. Judges are back. Workers are back. Business is back.

2014 was tumultuous for California work comp and in a few other states as well.

Heck, it was tumultuous for me!

In comp we had court challenges to many aspects of California's historic "reform" bill, SB 863, most of which are still pending.

In my life I had Dad's death and Mom's placement in a memory care facility.

In comp we saw continued increase in premium expense for employers despite promises of savings and uncertainty (WorkCompCentral's "Word on the Industry" for 2014) in nearly every aspect of California's system.

In my life I saw a kid graduate from college and enter the "real world" with nearly as much uncertainty in her future as workers' compensation.

They're ba-ack.

Some business relationships in work comp were challenged and the news was filled with prosecutions of white collar crime.

My life had business relationship challenges too, but thankfully no relations with criminals, though I was stalked a couple of times by some injured workers (and not exactly sure why).

Interest rates remained near record lows, and the stock market hit record highs. Bond yields remain at near all time lows.

Gasoline and oil nearly halved in price as Saudi Arabia sought to re-establish monopoly control over that market by forcing out new production efforts through economic warfare.

And it appears that some rogue nations are bent on other types of terrorist activity and warfare as we saw with monumental computer hacking, despicable head hacking, and Congress' ambivalence on TRIA.

Insurance rates, and premiums, along with medical expenses, continue to rise, though at a much more tepid pace than the last decade.

The economy has sucked back most of the unemployment roll since the 2008 recession, but left in its wake a large population of the unemployable.

The jobs that are coming back have more to do with controlling automation (eliminating a dozen or so jobs for each machine-monitoring job created) which is great for competitive business, but tough on those workers lacking education or skills in robotics.

There's speculation that even previously staid jobs, such as lawyers or legal clerks reviewing records, may end up automated putting pressure on white collars as well.

And workers' compensation is still here, trying to adapt to this radically changing world.

In California Professional Employee Organizations can no longer be self-insured.

Lien filers anxiously await a decision from the 9th Circuit Court of Appeals on the activation fees from SB 863.

Fee schedules for copy and interpreting services still require finality.

The vague $120M supplemental slush fund is also awaiting finishing touches.

Over on the other side of the nation a question remains as to the constitutionality of Florida's system.

New York is still grappling with sluggish implementation of fee schedule reform and challenges to authority in the system.

Illinois can't quite figure out what it wants out of "reform," Oklahoma is trying to show the rest of the nation that "opting out" into a regulated civil system can work, Texas is debating rules on its Independent Medical Review system, and the rest of the nation is busy legislating out anything other than a specifically witnessed, "old world" style of injury.

Sometimes I wonder if I'll have anything to write about. I mean, honestly, what can be so interesting about workers' compensation?

Then I read the daily headlines: a move to generic medications, challenges to 100% PD award where the worker can't leave the house, objections to fees that haven't changed in nearly 20 years, moribund legislatures ... and more.

All this turmoil, all this anxiety, and WorkCompCentral columnist Peter Rousmaniere opines that work comp is shrinking...

Yep, I'm back because the more things change, the more they stay the same: there's lots to write about, lots to debate, lots to reflect upon.

Welcome to 2015!

Can't Stay Away

WorkCompCentral correspondent, Michael Whitely, has been following and writing about New York-based Oriska Insurance Company for nearly a decade. 

His story this morning about the principal owner's travails with regulators and the judicial system, and his new attempt to reenter the workers' compensation insurance market, show how enticing the work comp market, particularly California's "troubled" system, still is.

James Kernan was banned from conducting insurance business when he was sentenced in January 2010 in connection with a scheme by which Oriska was used as the principal underwriting agency to collect millions of dollars of premiums through bogus workers' compensation policies issued to professional employer organizations in states where it wasn't licensed to conduct business.

Whiteley describes in detail the allegations, the convictions, the statements and the positions of the government, Kernan, his colleagues and accomplices, prosecutors and a lot of other people touched by this story.

In a classic public relations move, the convicted blames others for duping him into illegal acts.

"Some of these unfortunate claimants waited nearly a decade," Kernan said in a recent press release. "Even though Oriska Insurance was victimized by con-men, we worked with the Department of Insurance to ensure duped employers or taxpayers didn't suffer. We took unprecedented action to see this process through and also to protect the Oriska insurance name."

The California Department of Insurance doesn't see it that way.

"The California Department of Insurance does not believe that Oriska Insurance Co.'s press release accurately portrays the events in the matter," Nancy Kincaid, press secretary to California Insurance Commissioner Dave Jones, said in a statement to WorkCompCentral. "Oriska issued insurance policies in violation of the California Insurance Code."

Kernan is contesting a New York State Insurance Department order that he divest his controlling interest in Oriska and hopes to re-enter the insurance business, according to officials.

And he is still embroiled in California claims, though Kernan's California attorney says those matters will be fully resolved and paid in short order.

Bowzer smells malarky...

The scheme was hatched nearly a decade ago, and continued on in several states - where Oriska was not authorized to write work comp insurance - despite several warnings, penalties and fines from state insurance departments.

A 2008 federal grand jury indictment says that Kernan, California PEO executive Robert "Skip" Anderson Sr., and several others conspired to engage in mail fraud for selling work comp policies in Arizona, California, New York and Pennsylvania through Oriska, even though the insurer was not authorized to write business in those states.

As of 2007, Oriska was authorized to write business in the District of Columbia, North Carolina, Pennsylvania, Tennessee and West Virginia only.

In the press release, Kernan contends Oriska was not aware of what he calls an "insurance-related Ponzi scheme that targeted Oriska" and stranded more than 350 medical and wage-loss claims based on "counterfeit coverages."

Kernan said California regulators and Oriska discovered the scheme when PEOs told employers with claims to contact Oriska.

"Oriska was victim of this Ponzi scheme and nearly crippled this company, but we wanted to be part of the solution," Kernan said.

Kernan is fighting regulators in New York to regain authorization to write insurance and is seeking to reverse an order that he divest his interests in the insurance company.

Whitely's examination of documents calls into question whether the ordered divestiture in fact has ever occurred.

The outcome of all this is, I'm sure, far from decided. But the story is a reminder that workers' compensation insurance is, at its heart, part of the financial services industry and all too often the numbers are just too hard to resist.

But from what I've read, frankly, this is an open and shut case. There weren't just appearances of impropriety - there was outright malfeasance. We don't need this in work comp.

The Long Arm of Failure

How far do failed New York self-insurance trust issues go?

Answer: All the way across the nation to the West Coast.

In a lawsuit recently filed, California-based Waste Connections Inc. says it was duped because New York based Hudson Valley Waste Holding Inc. failed to disclose nearly $5 million in assessments by New York regulators for liabilities stemming from the Team Transportation Workers' Comp Trust, that failed in 2010.

Waste paid $300 million for Hudson Valley in 2011.

In 2005, the New York Workers' Compensation Board calculated that the trust equity ratio was 78.6% and deemed it to be underfunded as of Dec. 31, 2004. While the group's equity ratio improved to the point that the board stopped classifying it as underfunded as of Dec. 31, 2007, by July 29, 2010, it was once again declared underfunded.

In October 2010, the trustees held a meeting in which they voted to close the trust effective Jan. 1, 2011.

An audit was conducted by the board after it took control of the trust in 2012 and the analysis found the trust had a deficit of $32.5 million, plus interest.

The amount owed by the Hudson Valley companies consequently became $4.9 million. As of July 1, 2014, interest totaling $49,000 had accrued, and continues to accrue until the deficit is fully paid, according to Waste's complaint.

A Workers' Compensation Board report sent to lawmakers in June says the Team Trust has 120 open claims. The trust had 193 open claims when the board took it over in 2012.

Hudson Valley has not filed a response to the complaint, but an attorney for the company in a 2012 letter to Waste Collections filed as an exhibit to Waste's complaint denies any wrongdoing or intentional misrepresentation/concealment.

Waste Collections filed its lawsuit about one week after the New York Workers' Compensation Board extended the deadline for members of the Team Trust to sign a memorandum of understanding agreeing to pay just 75% of their assessment and to do so over an 18-month period.

The transportation industry group was one of the many New York trusts that failed starting in the mid-2000s. Of the 62 trusts that were operating at the end of 2005, only three remained operational by the end of 2012, leaving an estimated 10,000 employers responsible for nearly $1 billion in claims.

The untold story is the many injured workers who got the brunt of this irresponsible financial management.

The Worm Infested Big Apple

Back in 2011 I said that New York represents all that is wrong with workers' compensation for three reasons:

1. A state agency that ignores legal mandates and when the mandates are finally dealt with are done so with out conviction or determination.

2. Litigation drives disability, pushing a class of people into a state of being that would not otherwise occur.

3. The government is business' worst enemy with self-serving, non-responsive agencies.

In each of those respects I had pointed, specific examples of the worst of government.

Of course I have my own axe to grind against the NY State Workers' Compensation Board for its behavior towards WorkCompCentral: most recently what I deemed unreasonable penalties for failing to "secure compensation" despite corrective action; silence from the board to the media following blistering WorkCompCentral news reports of untrustworthy behavior; and lack of responsiveness to public document requests.

The public records request arises out of board criticism for its handling of contracts for scanning documents into its computing system.

The NY SWCB awarded a contract to scan its documents on Jan. 1, 2005, to SourceHOV, which was formerly known as SourceCorp BPS Inc.

On April 18, the SWCB announced in a bulletin on its website that it was switching to a new scanning vendor, Xerox.

Bowzer is unrepentant towards NY.

“The projected target date for this transition is June 1, 2014, with all board document processing becoming fully operational with Xerox by July of 2014,” wrote WCB Chairman Robert E. Beloten.

The bulletin had cited “delays and difficulties in the document scanning process.” But it did not mention SourceHOV by name or that it had paid the company nearly $80 million, not including $8.1 million still due under a contract extension through Dec. 31, which the WCB awarded March 14.

Continuing a pattern of practice dating back to WorkCompCentral's first reporting of questionable activity at the board years back by reporter Michael Whiteley, the current media representative for the board did not respond to phone and email questions about whether the transition to Xerox had been completed as scheduled and, if so, why the contract with SourceHOV continued until the end of the year.

In April, McEneny said the SWCB had intended to end its relationship with SourceHOV last November, when it entered into a new service contract that included Xerox as its new scanning subcontractor.

Less than two weeks before the WCB publicly announced its switch to Xerox and acknowledged difficulties with its scanning process, the state comptroller, Tom DiNapoli, had blamed SourceHOV for botching its job handling 2013 state tax returns using paper forms.

There are connections between SourceHOV and board commissioner Frances M. Libous.

The district of Libous' husband, Sen. Tom Libous, the No. 2 Republican official in the state Senate, happens to be the district where SourceHOV did all its scanning work: Binghamton, New York.

SourceHOV is a long time contributor to Libous.

In researching the contract issue about SourceHOV and Xerox, WorkCompCentral reporter Peter Mantius made a very specific public records request, asking the state comptroller's office for contracts by number.

The delays, silence and non-responsiveness was (and continues to be) significant.

And still despite spending $88 million over the years with SourceHOV, unanswered questions about the contract extension while another contract with Xerox was in force, obvious and public issues with the performance of SourceHOV in its SWCB contract, and a 22% error rate in scanned documents for the Department of Taxation and Finance under a separate contract, there is no public indication that the SourceHOV contracts with the SWCB and the Department of Taxation and Finance have come under the scrutiny of the commission or the U.S. Attorney for the Southern District of New York.

Denigrate California and its workers' compensation system all you want; at least the government on the Left Coast is generally responsive, doesn't hide behind silence and is generally kept in check by other public officials.

In contrast it seems the entire government of New York works against its people.

The Big Apple is worm-infested.

We Don't Hire In New York

Today the check goes out in the mail to the New York State Workers' Compensation Board.

It's a half payment towards WorkCompCentral's fine for not having workers' compensation insurance on a New York state reporter for one hundred ten days.

We had a Human Resources consultant at the time who didn't get "compensation" arranged. The SWCB of course got wind through the tax reporting structure there and quickly fined WorkCompCentral pursuant to Labor Law 52(5).

This is the same issue that got various celebrities caught up in the workers' compensation mess so inscrutably reported by various gossip and celebrity news outlets, such as Jim Carey, Jay-Z or Al Franken.

As soon as the error was reported WorkCompCentral of course secured coverage retroactive to date of hire.

Bowzer's not hiring from NY again...

But that's not good enough for New York. It appears that the New York system is not intended to urge compliance and ensure coverage of employees, but rather is executed as a revenue generation source.

This is why. From the SWCB's website:

"Section 52 [5] of the Workers' Compensation Law provides that the Chair, upon finding that an employer has failed for a period of not less than ten consecutive days to make the provision for payment of compensation may impose upon such employer, in addition to all other penalties, fines or assessments, a penalty of up to $2,000 dollars for each ten day period of non-compliance or a sum not in excess of two times the cost of compensation for its payroll for the period of such failure, which sum shall be paid into the uninsured employers' fund."
Fortunately for WorkCompCentral, "the Chair" showed some leniency and fined the company only $500 per each 10 day period, so it's "only" a penalty of $5,500 total.

But the law also provides for discretion in "the Chair" and while there was some discretion exercised, it is still excessive in comparison to the alternative of "two times the cost of compensation for its payroll for the period of such failure...".

By my estimate, that's probably closer to $100.

Five thousand five hundred dollars versus one hundred dollars. That's a spread of fifty-five times.

Okay - in the grand scheme of things we're not talking about a whole lot of money, but $5,500 is a couple of full time employees in New York (or nearly any state), or if we're talking Manhattan, one REALLY good reporter.

And the real question is, what is the SWCB trying to accomplish? Do they want me to cover employees in that state? Do they want me to hire people in that state? Or are they trying to fill the coffers?

Because if WorkCompCentral had been fined "two times the cost of compensation for its payroll for the period of such failure" the money goes into the uninsured employer's fund.

But if the discretion is otherwise it appears that the penalty payment is directed to the Board itself.

Business complains all the time about workers' compensation. I understand why - the law is applied and enforced unreasonably.

While most of the time we focus on claims, and how it seems illogical that even an iota of causation brings work comp into the mix, it is equally maddening to the business owner when policies meant to ensure compliance are used instead to punish otherwise conforming employers.

It's not the cost of workers' compensation that drives business away from a state - it's the unreasonable implementation and enforcement of the law and policies that do.

Since this whole fiasco started and has played out, our New York reporter has given notice so that he can take care of his ailing parents.

WorkCompCentral is hiring - but we're not interested in anyone within the state of New York.

Bowzer Knows

The tentacles of workers' compensation politics and the tangled weave of questionable ethics and morals runs deep.

And I'm not saying that the following tale that is unraveling implicates any wrong doing on the part of vice chair of the New York Workers’ Compensation Board, Frances M. Libous, but the appearance of impropriety is pretty strong.

State Sen. Thomas W. Libous, R-Binghamton, the No. 2 Republican in the state Senate, and husband to Frances Libous, was is charged with one count of lying to the FBI about his alleged efforts to obtain a position at a Westchester law firm for his son, Matthew. He faces up to five years in prison.

The indictment relates the FBI had been investigating allegations that Libous arranged for the law firm to pay son Matthew an “inflated salary” in exchange for having legal business steered to it.

The indictment further alleges that Thomas Libous promised members of the firm they would need to “build a new wing” to accommodate the new work if they hired his son.

Prosecutors allege that an Albany lobbying firm, on the direction of Thomas Libous, paid the law firm $50,000 a year to cover part of the requested inflated salary, plus lease payments on a Range Rover for Matthew.

Son Matthew is charged separately with various other legal misdeeds, particularly income tax evasion for underreporting income.

For the record, Matthew is in good standing with the New York State Bar Association with no disciplinary history. Neither Frances nor Thomas are in the bar association's computer records system as members.

Bowzer knows it when he smells it...

Though Frances Libous is not charged or named in any of these criminal accusations, her husband Thomas Libous does have connections with the Texas consulting firm that was just recently replaced as the vendor to the WCB's botched computerization program.

One of Thomas Libous' largest campaign contributors over many years was a Texas company that maintained an office in his Binghamton district and benefited from a scanning contract awarded by the WCB for which the company ultimately billed $88 million to the state.

In April of this year, WorkCompCentral reported that Libous had received 17 campaign contributions totaling $17,875 from SourceHOV or its affiliate, SourceCorp. BPS Inc., between June 2004 and August 2012, according to OpenSecrets.org.

In January 2005, SourceCorp. BPS obtained the contract with the WCB to scan records. As of April, the company had received $75,793,904 from the WCB on that original contract and renewals.

However, in April the WCB reported that it had been experiencing “delays and difficulties” with its scanning operations.

In an announcement on its website, it stated that it was hiring Xerox as its new scanning subcontractor, which would work under a main contract awarded to the New York State Industries for the Disabled.

The WCB announcement never mentioned SourceHOV or SourceCorp. BPS or their long-term relationship with the board. Nor did it mention that in March the board granted the Texas contractor a “final extension” on its contract to the end of 2014 for $8.1 million.

In April, WorkCompCentral filed a Freedom of Information Law request with the state Comptroller for copies of several of the WCB’s largest contracts, including its contracts with SourceHOV/SourceCorp. BPS.

To help speed the process, the requests specified exact contract numbers and requested a prompt electronic response.

The Comptroller had not produced the copies of the contract in any form as of July 1.

On June 3, Jane Hall, a records access officer for the Comptroller, replied to WorkCompCentral, “This office is continuing to process your request.”

“This office will write you no later than 8/27/2014 and inform you of any cost associated with producing or photocopying any available records,” Hall’s letter said.

Four months to determine the cost associated with the production and copying of "available" records... or four months to determine IF there are "available" records?

The board basks in the glory of the press when it announces that a business, celebrity or other entity has been "corrected" for alleged failure to provide workers' compensation coverage for employees, and aggressively pursues bad actors allegedly responsible for failed group trusts.

But when it comes to cleaning up its own dirty underwear there seems to be a disassociation.

Denmark is over 3,800 miles from New York but, to paraphrase Shakespeare's Hamlet, me thinks there still be something rotten...

New York's Acupuncture Experiment

My dad was a pioneering dentist in California while I was growing up.

He was the first in the state to have any automation in his dental office, with a computer system that cost thousands of dollars more than the top of the line systems offered today, with about one-one hundredth of the computing power...

I recall when I was a young lawyer practicing work comp law and was confronted with the first of what became a short lived trend of temporomandibular joint disorder cases. I asked my dad about the "disease" because I had to depose a physician about it for the first time, and in typical Dad fashion, when I tried to get some meaningful insight into the theory of the disorder he just replied, "It's bulls*#t."

And that was it - no further explanation given by Dad. (And now those of you who know me can understand where my abbreviated sense of conclusory commentary comes from.)

He always sought to broaden the scope of his practice to make sure he could offer his patients as much service as possible.

Dad's practice was one of the first in the state to offer nitrous oxide for low grade anesthesia and his partner, my then brother-in-law, was the first in the state to be certified to dispense NO2 and taught and certified many dentists over the years.

In his pioneering spirit my dad also tried acupuncture for dental anesthesia. He spent months studying the Eastern medicine discipline, brought home all sorts of dolls with dots and lines signifying the path of chi and where needles could either stop or divert the flow to provide various different physical consequences - but primarily some sort of anesthetic effect, be it for headaches, toothaches, whatever.

After a certain level of mastery Dad's enthusiasm for a new technology usually ended up with an experimentation on the kids ... 8 year olds have a very simple mechanism for displaying honest opinion in uncomplicated mono-syllabic style.

Sure enough, when I complained of a headache at that young age Dad sought to "treat" me with acupuncture. He had, by that juncture, been studying the practice for a couple years and had received his certification (or whatever they did back then) signifying that he was an acupuncture expert.

So he showed me the model, explained to me the path of chi, and how he was going to interrupt it.

The needles went in - and I recall a small pin prick sensation - but that was about it. Dad did some maneuvering of the needles, small minor adjustments, and waited the prescribed period of time.

The details are, of course, a little fuzzy after the passage of 37 years, but I recall the outcome quite clearly - completely ineffective. I still had the headache. Failed experiment.

I think that Dad had the same experience with acupuncture in his dental practice as he gave up the technique a couple of years after that.

That was my only experience with acupuncture, so my view of the concept is jaundiced. Perhaps some have faith in its restorative capacity, but to my honest and permeable 8 year old perception, acupuncture had no validity.

New York Governor Andrew Cuomo must have had a similar experience when he was a kid as he had vetoed a bill authorizing acupuncture as a reimbursable workers' compensation treatment expense last year.

A similar bill is before the governor this year and there is debate between interested groups about whether this new bill threads the needle (pun intended) between proponent's desire for alternative medicine and business' concern about cost effectiveness.

“The reason for the veto was the Business Council (of New York State) said acupuncture was not cost effective," James Shinol, president of the New York Acupuncturist Association, told WorkCompCentral. "We’ve met with both the Business Council and the governor’s office to explain why that argument is not correct.”

But the Business Council wrote a memo June 19 urging the governor to veto this year’s bill too (A9721 and S7634).

“While this bill has attempted to correct some of the deficiencies in the previous bill,” the memo said, “the underlying issue, that this bill would greatly broaden the scope and breadth of services provided under the workers’ compensation system, remains the same."

The Business Council is concerned that the bill would lead to a proliferation of acupuncture clinics which would increase the cost of workers' compensation.

Acupuncturists counter that the technique is a valid compliment to physical therapy and other modalities or drugs, and that the bill limits how acupuncture is billed, how many treatments are authorized and what it can be used for.

The Workers' Compensation Board’s proposed third edition medical treatment guidelines for neck injuries, dated May 27, 2014, noted that acupuncture is commonly used as an alternative or in addition to traditional Western pharmaceuticals.

“Acupuncture is a procedure used for the relief of pain and inflammation, and there is some scientific evidence to support its use,” the proposed guidelines said.

The proposed neck injury guidelines call for a maximum of 10 sessions. Effects are said to be most likely to occur after three to six sessions. The optimal frequency is one to three times per week, and the optimal duration is one month.

“Treatment beyond 10 treatments must be documented with respect to need and ability to facilitate positive symptomatic and functional gains,” the proposed neck guidelines stated.

The proposed medical treatment guidelines for mid- and lower-back injuries, also dated May 27, 2014, recommend up to 12 acupuncture sessions, though only under certain circumstances.

New York licenses acupuncturists and requires them to have national certification, meet state educational requirements and have extensive clinical experience in general health problems, diagnosis and treatment, according to a memo that accompanies the bill, and would be prescribed by a physician. 

That New York's proposed guidelines recognize acupuncture as valid treatment in certain circumstances should be compelling, at least to the extent that there is something to the practice. Like many modals of treatment, some work, some don't.

For me, acupuncture wasn't valid, but I tried it only once and it was administered by an Italian dentist. For others it might work. The point is to provide enough relief to an injured worker so that he or she can return to work, if in fact that is the motivation of that person.

Like anything else, particularly in work comp, it's not necessarily the treatment that should be questioned, but the motivations surrounding the treatment decisions. The Business Council has, in my opinion, valid concern about exploitation of the authorization of acupuncture in work comp, but on the other hand there are plenty of check points in the system to control abuse of that authority.

It all comes down to the experienced discretion of the professionals making the judgment calls on whether to authorize acupuncture for a particular claimant, or not. Like many medical techniques, there may be efficacy up to a point after which the practice should be discontinued. Those who abuse the privilege of receiving this modality will ruin it for those who receive therapeutic benefit from it.

Communication: First Step in Trust

The New York Workers’ Compensation Board forwarded to Gov. Andrew Cuomo recommendations from Deloitte Consulting which was contracted to identify ways to make the state's workers' compensation system more efficient to get speedier, fairer results for injured workers.

The actual Deloitte report isn't yet available for public consumption, but the WCB does have on line the firm's presentation for download and viewing.

Though Deloitte identified technological issues that need updating (of course the much criticized document scanning contract was cited), the most profound finding of the consultant's $2.8 million report was that trust in the system had deteriorated.

Deloitte cataloged the following “common themes”:

• “The system is rife with delays for treatment, initial payments, reporting, decisions, appeals."
• “Lack of trust throughout the system; participants can no longer rely on good faith."
• “Lack of respect and dignity for the injured worker.”

Breakdowns in the independent medical examiner process and “excessive” scheduled loss-of-use award payments have fostered this mistrust along with other action (or lack of) in the state's system.

And the WCB seems to recognize these criticisms as real.

On its Business Process Re-engineering web page the board says that New York “is historically slow to pay injured workers and produces poor medical outcomes in comparison to other states.”

The board boldly states what might seem obvious, but for a governmental entity to admit publicly is rare: “Improving a system that has decayed for decades is not easy. Not every vested interest will agree on every recommendation. Interest groups that profit from dysfunction will defend the status quo.”

And even though the ink hasn't dried yet, WorkCompCentral interviews with various interest groups confirm the board's conclusions.

For instance, an employer group representative says that the board's conclusion that New York needs to speed up payments to injured workers is based on anecdotes and that there is no "hard data" to support the board's statements.

But this ignores the many studies from disinterested research groups who have studied and ranked state's costs associated with timely payments and other benefit delivery measures.

I'm sure there are other objections to observations being delivered by Deloitte and the board.

All of these go back to the common theme identified in these early disclosures - mistrust in the system.

This mistrust starts from the top - as many institutional trust issues do.

Internal denial is a strong indicator of overall trust, because if the institution can not be honest with itself, how can the public trust it.

For example, the board has lagged on posting to its extensive website any pages on the BPR. K. Brian Collins, the board’s BPR project head, posted monthly updates for October, November, January and February, but not for March or April.

His February update included a graphic that indicated BPR implementation would begin in late March.

Yet Rachel McEneny, a spokeswoman for the board, said “We are on schedule. There is no delay due to the transition of the executive director,” referring to the rather abrupt and inopportune departure of Jeffrey Fenster as the board’s executive director. Giving only two weeks' notice, Fenster left in early April for a job in the insurance industry.

It's a good start that McEneny speaks to the press. But let's not brush over that the BPR initiative is behind the published schedule.

If New York is going to "fix" its system it first has to be honest with itself and admit to the problems and issues it faces, including a derailed document scanning program, closed hearing sites, and the missed self-imposed deadlines.

And if the board IS honest with itself, then it must communicate with the public, whether triumphant successes or embarrassing failure. Lack of honest communication, or artificially controlled communications, spreads rumors and instigates suspicion.

For instance, one person interviewed in the WorkCompCentral story this morning said he had heard the board may attempt to make it more difficult to obtain a hearing in order to reduce system costs.

Maybe that's true, or maybe that's just a bad rumor. The point is that what the board may do and why was "heard" - though frankly to me the rumored action doesn't make sense.

The easiest way to diffuse criticism and instill trust is to admit to short comings and communicate when error occurs.

In the past the board would not communicate with the press (or at least not WorkCompCentral), which stems from some critical reporting a couple of years ago.

I sense that perhaps this reticence is slowly lifting. Obviously the board's admissions on its BPR FAQ page is indicative of new found honesty.

If that's true, then trust in the system can be recovered.

If not, then no matter what recommendations Deloitte makes, no matter how much money the state spends on document scanning, no matter how many district offices are opened or closed, won't make a difference.

The recent change in heart by the board's communications department is a good step in the right direction. It's a difficult first step, but it makes it easier to take the next step and perhaps the people will start trusting the system again.

Z, Carey, Fey & WCC - All Together

I know how Jay-Z, Jim Carey and Tina Fey feel now.

I opened up the mail yesterday and was astounded to get a notice that WorkCompCentral is being fined by the New York State Compensation Board $4,000 for failing to secure work comp insurance for it's sole New York employee.

W?! T?! F?!!!!

How did this happen? Who dropped the ball? And that employee was just hired about 8 weeks ago - how could the fine be THAT much (about 8% of the total payroll for that employee)?

And WorkCompCentral of all businesses! Oy vey - the embarrassment and professional shame; probably the worst thing that could happen to a business that so righteously and piously covers the workers' compensation industry's news.

Certainly that piddly amount pales compared to Tina Fey's $79,000 penalty - but then again Tina Fey's investments and businesses likely make more in one week than WorkCompCentral does in an entire year.

Tina Fey's insurance broker took the fall for her, stating publicly that it was a clerical error on the part of the brokerage that caused the oversight.

“We collectively accept full responsibility for this clerical error,” said DeMille Halliburton, vice president of insurance broker Robertson Taylor. “Tina Fey was never delinquent in paying premiums or having the proper … coverage.”

In 2011, the NY SWB obtained an $18,000 judgment against rapper Jay-Z for failing to provide coverage for his household staff in New York City for three months during 2009. The board later withdrew the judgment against the musician after finding that the failure in coverage was caused by a clerical error on the part of his insurer.

I have to make the same sort of claim, so I hope that the powers that be at SWB take pity on me and WCC.

Turns out we covered the employee in New Jersey - that's what my broker says at least - and he has a policy to prove that.

What would my California based broker know? New York, New Jersey - they both are on the East Coast, right next to each other. Both start with "New".

And obviously the intent was there to cover - otherwise we would not have purchased any insurance whatsoever.

Last year, SWB asked the New York County Supreme Court to vacate a $72,000 judgment against comedian and actor Jim Carrey who also ran afoul of policy checks, and it turns out that Carrey actually had coverage in place, but a clerical error by Travelers Insurance Co. made it appear that he didn't.

Certainly New York's policy of presumption of guilty until proven innocent gets headlines and should make employers think twice about skirting their coverage obligations.

But in the case of the happy wanderer, who ignorantly had every reason to believe coverage was in place and has acted quickly to correct the error, such a fine should be waived.

Compliance has occurred. I plead guilty. Just lighten my sentence based on my good behavior...

Trite Financial Cliches Still True

I write sometimes about what would happen if there were no workers' compensation.

Of course I postulate in facetiousness - obviously such an occurrence would certainly teach employers who doubt the value of workers' compensation programs and insurance that it's better than the exposure to tort liability.

But then again, sometimes I'm not so facetious. Sometimes I think that employers do need a lesson every once in a while.

Some New York employers are getting some lessons.

There was a self insurance trust group called the Healthcare Industry Trust of New York. That trust shut down in 2008. That trust was marketed and managed by Compensation Risk Managers which had seven other trusts - all eight have now shut down.

CRM also had a part in five California trusts which have also shut down. WorkCompCentral covered the stories extensively.

Employers who join self-insurance trusts pay premiums, which are pooled, to cover the costs of claims against them. They receive dividends if claims remain under control, but if the group's liabilities exceed its assets, the members have to make up the difference, paying proportional assessments based on their initial premiums. All the members of a group are jointly and severally liable for the group's liabilities.

The Healthcare Industry Trust left its members with a $176.5 million shortfall.

Members are now trying to recoup that expense by suing the brokers that pitched the trust to its members, alleging that the brokers knew that the trusts were in trouble when they marketed it to the employers but that they sold the memberships anyhow.

According to the complaint filed last Monday, the defendants committed multiple related acts of mail fraud by using the U.S. Postal Service to transmit fraudulent and misleading materials to the plaintiffs and other New York employers. These alleged actions serve as the basis for plaintiff's Racketeer Influenced and Corrupt Organizations Act claim.

The trust plaintiffs assert that their brokers knew CRM "lacked the expertise and knowledge" to properly administer the Healthcare Industry Trust, but said nothing because of the generous commissions they earned.

According to the complaint, the brokers "acted in concert with CRM to increase the membership of the trust despite a mounting deficit by aggressively marketing trust membership as a relatively safe and conservative alternative to regulated insurance products, while negotiating, pursuing and accepting excessive and hidden commissions that were dramatically higher than those customary in the industry."

Defendants named are the Cool Insuring Agency, Hickey-Finn & Co., Hirsch Wolf & Co., Marshall & Sterling, Oxford Coverage, The Rampart Group, The Reis Group, Shel-Bern Associates, The Spain Agency, The Treiber Group and The Vanner Insurance Agency.

Self-insurance trusts were all the rage in New York during the mid-1990s after rule changes to make the state's workers' compensation market more competitive.

In September 2005, though, the New York State Workers' Compensation Board declared nearly half of the 62 self-insurance groups then in operation as "underfunded on a regulatory basis."

Seven trusts went dissolved between 2006 and 2007, and another 10 failed in the following year. New security requirements imposed in January 2012 took care of most of the rest.

Only three remain in operation today.

Consequently about 10,000 employers were left holding the bag for nearly $1 billion in claims.

The board reported the outstanding liability for the defaulted trusts had been reduced to $346,076,000 as of the end of 2013 by its settlements with employers and its bond program.

The bond program raised $370 million and the proceeds of the bond sales went to the board to arrange a loss-portfolio transfer that assumed the risks of the defaulted trusts.

The board sued CRM for $450 million in December 2009 but settled for $41 million in 2010 because of CRM's tenuous financial position.

The board currently has 11 pending lawsuits against various administrators, accountants and actuaries for mishandling trust assets as well. CRM is named as a defendant in two of them, although Majestic Capital, CRM's parent company, declared insolvency in April 2011.

A suit similar to the current New York broker complaint was dismissed in California.

The 3rd District Court of Appeal upheld summary judgment, explaining that the only obligation a broker owes a client is to procure legitimate coverage. Brokers have no independent duty to inquire into the financial health of the provider from which it secures coverage for a client, the court said.

But the lawyer for the California plaintiffs told WorkCompCentral that his investigation didn't discover a document that laid out the marketing agreement between CRM and the defendant brokers in his case until after discovery had closed. He thinks this document is material to the New York case.

But regardless the ultimate responsibility falls on the employers to make sure their workers are protected, and relying on another's expertise or knowledge does not delegate that responsibility.

The lesson - you can't get something for nothing. Or probably more accurately, you can pay now, or you an pay later, but eventually you will have to pay. Or, perhaps even more acute, penny-wise, pound foolish.

In other words, all of those trite cliches you learned as a child about proper financial management still apply.

If Benefits Provided, Protections Flow

New York's highest court on Thursday unanimously ruled that workers' compensation exclusivity can shield an employer from tort liability for an employee's workplace injury, even if it has hired undocumented workers.

And that result is completely just in my mind.

Some activists are upset that an employer of undocumented workers could not be sued in tort for injuries because they believe that providing the workers' compensation shield against tort liability creates an incentive for abusing workers who may be too timid or afraid to take corrective action because of their immigration status.

But obviously in this case the immigration status of the workers involved did not inhibit their request for, and receipt of, workers' compensation benefits. So if the remedy is available to the employee, the protections should also flow to the employer...

In New York Hospital Medical Center of Queens v. Microtech Contracting Corp., No. 1, Microtech Contracting was hired to do some demolition work in a basement room that housed an incinerator. A Microtech representative then hired Luis and Gerardo Lema to perform the work.

The Lemas are brothers, natives of Ecuador, were not legally employable in the United States at the time Microtech hired them.

Microtech supplied the Lemas with a sledge hammer and a chipping gun – essentially a small jackhammer – and put them to work. The vibrations from the chipping gun dislodged a metal chimney attached to the wall of the room, about 10 to 20 feet above the floor. The chimney toppled over on to the brothers, injuring them both.

The brothers made claims for, and received, workers' compensation benefits, from Microtech's insurance carrier. The Lemas then sued the hospital in tort. A supreme court judge granted summary judgment for the hospital on the issue of liability under Labor Law Sections 240(1) and 241(6).

The hospital then reached a settlement with the Lemas and subsequently filed suit against Microtech seeking contribution and indemnification.

Microtech moved to dismiss the complaint on the ground that the suit was barred by Workers' Compensation Law Section 11, the exclusive remedy provision of New York comp statutes.

Rejecting the hospital's argument that because the Lemas brothers were in the country illegally, that the contract of employment was illegal and thus not subject to workers' compensation exclusivity, the court said the question really was whether Microtech was entitled to the safe harbor in Section 11.

Concluding the answer was yes, the court acknowledged that the policy of the state was that wrong-doers should not be rewarded for such, but the court reasoned that these principles were not at issue because the court was not being asked to enforce or recognize rights arising from the illegal contract between Microtech and the Lemas.

"If the illegality of the employment contract does not defeat the employee's rights under an otherwise applicable state statute," the court reasoned, there was no reason why it should defeat an employer's rights under an otherwise applicable statute like Section 11.

A number of state courts have found that undocumented workers are entitled to income benefits under workers' compensation. The U.S. 5th Circuit Court of Appeals has also reached the same conclusion for indemnity benefits under the Longshore and Harbor Workers' Compensation Act.

A distinction is that many also say that because the workers can not legally be employed they can not avail themselves of return to work benefits such as vocational training since they can not thereafter legally obtain employment.

************

There will be no publication on Monday in observance of President's Day. I will resume Tuesday.

Fee Schedules and Value

Pricing medical services and goods is a sensitive subject and one that nearly always brings passionate debate.

The cost of medicine in this country is a big part of what has been behind the Affordable Care Act, and is a big component of what gets passed down to the employer in the pricing of workers' compensation insurance.

Because medical goods and services are so essential to the health, comfort and happiness of the entire human population and because the vast majority of people have no way of discriminating their medical purchases, most developed countries regulate what can be charged, particularly in captive systems such as any medical insurance program.

I define a captive system in the medical economics context as one where the ultimate consumer, i.e. the patient, has no direct responsibility for the payment of such goods or services and where the vast majority of decisions concerning care are outside the scope of understanding of the consumer.

In this country, Medicare is a captive system.

And so is workers' compensation.

Because there is so little choice and ability to discriminate based on cost versus quality (what is called "value" in economic terms) big systems regulate what can be charged for any given procedure or item.

And it isn't surprising that the Workers Competition Research Institute reported Thursday that states without medical fee schedules in their workers' compensation systems have seen the most rapid increases in prices for outpatient hospital and professional services, while states with fee schedules based on fixed amounts generally fared better.

"States without fee schedules saw faster price growth than states with fee schedules, and, for states with charge-based fee schedules, we saw prices for hospital outpatient services growing faster than states with fixed prices," said Rebecca Yang, the author of WCRI's 2nd Edition of its Outpatient Cost Index and the Fifth Edition of its Medical Price Index for Workers' Compensation, in a webinar yesterday.

On the other side of the nation yesterday the California Division of Workers’ Compensation held a public hearing on proposed regulations concerning the revision of its Resource-Based Relative Value Scale fee schedule rules to say any procedure for which there is no relative value unit in the U.S. Centers for Medicare and Medicaid Services National Physician Fee Schedule Relative Value File should be billed “by report.”

"By report" essentially means that the procedure or item is not covered by a fee schedule.

The DWC received critique that there were over 1,000 billing codes that would end up "by report" if the proposed revision, which would eliminate the use of federal Office of Workers’ Compensation Program relative value units, were implemented.

According to the division’s Initial Statement of Reasons for the proposed change, OWCP uses a conversion factor of $48.52 that is multiplied by the relative value unit assigned to a particular procedure. In some cases, however, OWCP uses a payment amount as the relative value and then uses a multiplier of 1.25 as the conversion factor.

“As a result of the use of a 1.25 multiplier, the data appearing in the relative value column is not truly a relative value,” the division said. “For example, use of the erroneous OWCP relative value data in the RBRVS payment methodology can result in a payment that is close to 40 times higher than the OWCP payment amount.”

The Initial Statement of Reasons says as an alternative to eliminating the OWCP value units, the division could create a formula specifically for these codes that have the 1.25 conversion factor that would be similar to the formulas used to calculate base maximum fees for procedures performed in non-facility and facility sites.

“However, this would add another layer of complexity,” the administration said. “In light of the many administrative changes needed to implement the RBRVS-based fee schedule, the acting administrative director has rejected this alternative at this time because the burdens outweigh the potential benefits.”

Suzanne Honor-Vangerov, former head of the DWC Medical Unit, an associate attorney for Floyd Skeren and Kelly and a regular instructor on medical billing for WorkCompCentral Education, said in written comments submitted on Wednesday that there are 1,012 codes in the RBRVS fee schedule that use OWCP data.

“Of these, 582 would be inappropriately priced using the original methodology adopted with the fee schedule and the rest would have been fine,” she wrote. “By making all of these codes payable ‘by report,’ you create the possibility of disputes over the value of the service, remove them from the independent bill review process and put them back in the hands of the judges who are ill-equipped to determine the value.”

In the WCRI webinar presentation, Yang said, "We do find that if you choose a (Medicare) 'cost-plus' model … the cost growth is more predictable than with charge-based fee schedules."

In any medical fee regulatory environment there are winners and losers. Policy makers have to weigh numerous considerations in the attempt to deliver value.

It's not an easy job.