Wednesday, August 31, 2011

FECA Shortfall Answer in West Virginia Model?

As the federal government's largest single employer with more than 560,000 employees, the US Postal Service (USPS) as you might imagine has a large workers' compensation bill, and a disproportionate impact on the federal work comp system.

So much so that its possible default on a pending payment to the US Labor Department could affect benefits for all injured federal workers.

The USPS makes "chargeback" payments to the Labor Department's Office of Workers' Compensation Programs (OWCP) to cover the costs of injured workers' benefits under the Federal Employees' Compensation Act (FECA). The chargebacks are assessed to each participating agency based on that agency's share of claims costs.

The USPS is responsible for 40% of all FECA benefits paid in a given year.

Currently it is projected that the USPS is in the red by $5.6 billion and could run out of cash in October without supplemental income from the government. This includes not making its $1.2 billion chargeback payment to OWCP on October 15.

According to Brian V. Kennedy, assistant labor secretary for Congressional and Intergovernmental Affairs, in an Aug. 1 letter to U.S. Rep. Darrel E. Issa, R-Calif., chairman of the U.S. House Committee on Government Oversight and Reform, "If USPS fails to make its Oct. 15, 2011, chargeback payment, but all other federal agencies participating in the FECA program paid their obligations to the fund, OWCP estimates that there would not be enough money in the fund to pay any benefits during the last four months of the fiscal year."

The federal fiscal year runs from Oct. 1 to Sept. 30, which means the default could occur as soon next June.

There are several "reform" plans floating in Congress to "fix" FECA, generally tampering with cash benefits paid to federal injured workers - this is contrary to the trend in state governments where reforms tend to focus on the cost of medical care.

This is because, unlike most states, FECA's indemnity benefits far exceed the cost of providing medical care.

According to Congressional testimony, FECA paid out $1.88 billion in wage-loss compensation, impairment and death benefits during the fiscal year ended June 30, 2010, and $898.1 million to cover medical treatment, rehabilitation and the cost of supplies.

FECA gives injured federal workers with at least one dependent 75% of their gross salary at the time of injury, while claimants with no dependents receive 66 2/3% of gross salary, tax free and paid for life if employees opt to receive workers' compensation benefits instead of federal retirement. Retirement benefits are taxed.

Federal labor unions oppose tinkering with this nice perquisite, but it is obvious from the numbers that this is not a sustainable program, and has not been for some time.

Perhaps the model for fixing this mess is just a few hundred miles away from D.C. in the state of West Virginia, which faced a similar issue with its program just a few years ago before privatizing its system in 2005 when faced with a $3.2 billion shortfall. Since conversion to a competitive market place the state has seen a 40% reduction in the cost of its system, infusion of about 160 carriers, and significant shrinkage of its "Old Fund" liabilities.

FECA and the USPS can be fixed if Congress has the political will to do so.

Tuesday, August 30, 2011

TDABC - Understanding Where the Money Flows Can Fix Comp

Walking through the airport in Orlando, FL last week I was looking for something to read on the flight and happend upon the September issue of Havard Business Review (HBR) with the headline story, "How to Solve the Cost Crisis in Health Care."

Whoa! A scholarly, high-level, business oriented analysis of the health care management system!

The real surprise of this discovery was that I had just listened the day before to Dr. David Deitz give his lecture at the 2011 FWCI conference on the problem with focusing on costs in the work comp medical delivery system as opposed to focusing on the value provided.

For anyone that is interested in controlling medical costs in workers' compensation, I highly recommend reading the HBR article, and related articles by the authors, Robert S. Kaplan and Michael E. Porter.

Kaplan and Porter argue that the problem with the expense of medical delivery in the United States is that we focus on the wrong element: cost. Focusing on cost, they argue, drives total costs in the wrong direction, providing incentive to deliver the wrong care at the wrong times thus increasing overall costs at the expense of incremental savings.

For example, a unit of surgery is more highly compensated than a unit of office time, thus the incentive is to provide surgery.

The authors argue that the analysis must be on the total value provided the consumer - i.e. a global assessment of the totality of procedures that result in a given outcome. In the medical world this is expressed in the deceptively simple equation of value = outcome/cost, not the number of services provided (as we now measure health care in workers' compensation).

Kaplan and Porter primarily focus on the provider of services and how the provider can cost out incrementally the actual delivery of services to completely understand what each element of service costs, then using that data to drive the best outcomes.

They use case studies where care providers have used a simple, but involved, costing technique from the business world known as Time Driven Activity Based Costing (TDABC).

TDABC requires that each step of the care delivery process be carefully analyzed to determine exactly what that component actually costs. This process requires that many steps of the care delivery process be flowcharted to ensure that all steps are accounted for.  There are only two parameters that are actually measured: the cost of each resource in the process and the quantity of  time the patient spends with each resource.

A resource can be medical hardware, a service location (e.g. emergency room or x-ray facility), a health provider (e.g. nurse, doctor, physical therapist), pharmaceuticals, etc. etc.

As you can see, while the process itself is simple, it requires drilling down to minute details to examine all elements provided in the care delivery equation.

Case studies are provided in the article where care delivery systems that thought they were delivering the most cost effective care were astonished to find that in fact care was being mis-directed because of reimbursement incentives AND that their profits were being marginalized because money was being wasted.

Oh, and of course those case studies also found that patient outcomes were much, much better when processes were subjected to TDABC.

The question in my mind while reading this article was how can this apply to workers' compensation?

  1. Get rid of fee schedules - fee schedules have the perverse effect of providing incentives that drive the wrong outcomes. First measure the cost of care delivery using the TDABC process.
  2. Define desired outcomes and start measuring them - this is what Deitz was saying in Florida: we have tons of data but none of it is used or analyzed properly to drive decision making relative to cost control in the right direction.
  3. Pay medical providers for the TOTALITY of services as a whole, based on diagnosis, rather than on a per procedure basis. Only when you step back to take a look at the complete care delivery package, and provide reimbursement for the expected outcome, can you change direction in health care costs.
Before you comment on this post and accuse me of oversimplifying medical care in workers' compensation, consider that we have been doing the same thing now for nearly 100 years - and the inflation of medical delivery costs continues to be the single biggest component of workers' compensation costs. To continue doing things the same way as in the past and expecting changes is illogical.  

This blog post is way too limited for a complete review and analysis of the work of Kaplan and Porter - but if you're a health care executive, an insurance executive OR, perhaps more importantly, a state administrator, you owe yourself to at least consider the arguments and examples that Kaplan and Porter set forth.

The way medical care is delivered in workers' compensation must be changed in order to keep the system viable for the future. The only way to do that is to change the motivations in the system, and the only way that can happen is to completely understand where the money flows.

Monday, August 29, 2011

KY Rejects Ban on Benefits to Illegal Aliens

I was happy to see that the Kentucky Supreme Court on Thursday had the good sense to reject an employer's argument that an undocumented immigrant worker was not entitled to indemnity benefits. To have done otherwise would not only compromise the social safety net that has been established with workers' compensation, but would expose any unwitting but otherwise lawful employer of undocumented workers in that state to civil damages.

Before I get into the social pragmatism of the court's ruling, here's a quick primer on the case.

The case is Abel Verdon Construction v. Rivera, 2010-SC-000744-WC, 08/25/2011.

Miguel A. Rivera was 15 in July 2005 when he was hired to work part time cleaning up Verndon's construction site and carrying supplies for carpenters on a framing crew. A Verndon foreman testified that he had promised to pay Rivera $50 a day in cash.

Rivera had worked approximately five days when he fell through a hole in the roof of a two-story home and landed in the basement, causing severe head injuries that put him in a coma and landed him in the hospital for two months. Rivera returned to high school after recovering to take special education classes, but suffered "significant physical and mental impairments that were permanent," according to the court's opinion.

An administrative law judge found Rivera to be Verndon's employee and awarded benefits.

Verdon Construction appealed the decision, arguing that Rivera was not its employee, that the Constitution bars benefits to him because he is an illegal alien.

The Court of Appeals affirmed much of the judge's findings including that Rivera was entitled to benefits regardless of his illegal alien status.

"We do not view eligibility for workers' compensation benefits as being a realistic incentive for an individual to enter the United States unlawfully," the Kentucky Supreme Court said in its unanimous opinion. "Moreover, we view a decision to exclude unauthorized aliens from the application of Chapter 342 as contravening the purpose of the [Immigration Reform and Control Act of 1986] by providing a financial incentive for unscrupulous employers to hire unauthorized workers and engage in unsafe practices, leaving the burden of caring for injured workers and their dependents to the residents of the Commonwealth."

On Friday I posted about a Texas case where the employer decided to deny benefits until a civil suit for negligence landed on its doorsteps. I have to presume that Verdon would have the same sentiments as that Texas employer had a civil suit for negligence landed in the hands of Verdon's lawyers.

The one unwavering aspect of the social responsibility of our workers' compensation system is that if you work, you are protected - at least that's the concept. We have disagreements about whether in fact those concepts are upheld in specific case situations, but the overall basis of this system can not be dismantled through discrimination based on immigration status.

The flip side of the coin is immunity to civil suit. Verdon is not facing the unpleasantness of a difficult civil suit - especially going before a jury to explain why a 15 year old was placed in a dangerous situation that ultimately resulted in a coma and mental disabilities.

Kentucky joins the U.S. 5th Circuit Court of Appeals, and appellate courts in California, New York, Illinois, Kansas, Maryland, Connecticut, Georgia, Minnesota and Florida in upholding the protections of workers' compensation for undocumented workers.

Friday, August 26, 2011

Work Comp Isn't Relevant, Until It's Needed

I've opined in the past as to whether workers' compensation was relevant any longer, and a case came down in Texas yesterday that clearly provided the relevancy of work comp to an employer who otherwise had apparently thought that they could obfuscate, deny, bully and attempt to keep an injured worker off its experience modification.

The 1st District Court of Appeals issued a new ruling in the case of Warnke v. Nabors Drilling USA on Thursday, after granting the employer's request for rehearing. At issue was whether the injured worker could sue the employer in civil courts after the employer told the employee that they did not have workers' compensation until a civil negligence action landed on their doorsteps, then all of a sudden remembered that they were in fact covered for work comp.

Warnke, a worker for Nabors Drilling, was injured in 2006 when a pipe broke free and crushed his hand. He filed for workers' compensation benefits, but Nabors Drilling denied that he was an employee for eight months.  

Citing the fact that Nabors denied he was an employee, Warnke sued Nabors for negligence, negligent misrepresentation, and fraudulent misrepresentation. He also filed a negligence claim against his co-worker, Bruce Wilkerson, who had attached the faulty pipe that had crushed his hand.

Eight months after the accident, and three months after filing the suit, Nabors' workers' compensation carrier began providing workers' compensation benefits. 

Nabors' months of denials created an economic injury that was distinctly different than Warnke's crushed hand injury, the 1st District Court of Appeals said, as it concluded that exclusive remedy did not bar Warnke's misrepresentation claims. 

After Thursday's decision in the Warnke case, the negligent and fraudulent misrepresentation claims are the sole causes of action that survived the 1st DCA's application of exclusive remedy on rehearing. The court determined that exclusive remedy barred Warnke's negligence claims against Wilkerson and Nabors, because Nabors had [finally] admitted that Warnke was an employee.

The lesson to be learned - if you're insured for work comp, then use it.

Thursday, August 25, 2011

Paduda Answers Questions Relevant to Upcoming Webinar

WorkCompCentral Education is hosting the first of what is planned to be a monthly series of educational webinars, free to the public, on Thursday September 1st.

This first webinar is presented by Joe Paduda, well known for his blog on the medical and work comp industry, "Managed Care Matters" and principal of Health Strategy Associates, a national consulting firm specializing in managed care for workers’ compensation and group health. 

In preparation for the webinar I asked Joe some questions about the upcoming webinar topic, Prescription Drug Abuse in Workers' Comp:

Q   The title of your upcoming webinar makes a pretty strong statement. What about this rises to the level of Rx abuse?

There's ample evidence of overuse of drugs in workers comp, especially narcotics.  About a quarter of the dollars spent on drugs are for narcotics, the majority of that is for opioids such as OxyContin and other powerful painkillers.  Yet there's very little evidence that opioids are useful in treating chronic musculoskeletal pain and some evidence they are not helpful. If drugs are being prescribed, and dispensed, and used, and paid for, yet aren't effective, then something's very wrong.

Q.  Has anybody sounded an alarm about narcotics for chronic pain, or is this a silent problem in the states?

I'd have to say the alarm has been sounded multiple times by various individuals and organizations.  NCCI's December 2009 report, the analyses and studies done by Alex Swedlow et al at CWCI, especially earlier this year, and the seminal work of Gary Franklin MD and Lee Glass MD in Washington State have all brought much-needed attention to this issue.

Q:   Do you see any way to fix the "abuse" of painkillers for treatment injured workers? 

Absolutely.  A combination of regulatory authority to ensure the appropriate use of narcotics is allowed and inappropriate use limited; education of stakeholders especially claims personnel and treating physicians, implementation of strong Prescription Drug Monitoring Programs with interstate reach, and proactive efforts to identify and treat claimants at high risk for addiction or dependence will all help reduce abuse.  These steps will also reduce claim duration and claim cost as well. 

Q:   What downsides have been documented with long-term narcotic use for chronic pain? 

Gary Franklin and others have reported increased risk of death associated with long term use of narcotics in workers comp.  Other studies have shown most patients don't see an improvement in functionality or pain levels over time.  Many patients require several other drugs to address the side effects of opioids, such as constipation, sleeplessness, sexual dysfunction.  That's not to say some patients don't do very well with appropriate long term use of narcotics, however that does not appear to be the norm.

Q:   Can workers' comp carriers and employers implement their own policies to prevent Rx drug abuse on claims?

Yes, and some are.  Working with their PBMs, payers can develop methods to track and identify potentially problematic situations involving specific claimants, pharmacies, or physicians.  Data mining enables payers to find patterns that may indicate elevated risk of abuse, diversion, or inappropriate prescribing or dispensing.  Promoting the use of narcotic 'contracts' between physicians and their patients taking narcotics can help establish expectations and ground rules, especially if they include random urine drug testing.  Data mining to identify claimants with elevated risk for addiction or dependence can also be quite helpful, but only if it is tied to treatment and follow up.

Finally, payers need to understand addiction is a disease - not a failure of will or character flaw.  Payers also need to understand that there are well-documented, proven methods of weaning claimants off opioids and other narcotics, thereby dramatically improving the claimant's quality of life and reducing medical spend - and reserves.


To register for the free webinar go to, or call 805-484-0333 x113 or x133. 1 hour CLE is available for attending this webinar for legal and claims professionals. Enrollment is limited to 100.

Wednesday, August 24, 2011

The 5 Stages of Work Comp Death

Dr. David Dietz, VP, National Medical Director for Liberty Mutual Group, asked the audience at the 66th Annual FWCI Workers' Compensation conference in Orlando, FL yesterday how many would choose workers' compensation for their health care over their general health insurance.

No hands went up.


That is a sad statement on the perceived value of workers' compensation medical - and it is a statement that is recognized by the people that are responsible for making the system work.

How can we, as an industry, justify our expense, our existence, when even those of us who are intimately familiar with, and answerable for the operation of workers' compensation?

Dr. Dietz hit the nail on the head - what is the value that we are delivering as an industry?

How do you define value? Is it providing services that are proven through scientific methodology (i.e. repeatable processes) to simultaneously provide medical services, indemnity AND increase injured worker return to work statistics?

Is it delivering health care and a positive experience for both the employee AND the employer so that they can see the big picture and work towards a mutually beneficial resolution of a bad situation (i.e. a work injury)?

One thing is certain - the evolution of workers' compensation has transcended its intended goals to a complex system that fails to deliver value to either the employer or employee. I believe that Dietz again hit the nail on the head by noting in his speech that workers' compensation systems have through the years become a perverse set of incentives that promote the wrong outcomes.

What are these wrong outcomes? Surgery without scientifically established clinical findings that end up creating greater disability for the injured worker than doing nothing at all; rewarding disability so well that for many (and not necessarily injured workers by the way) find it more financially beneficial to ensure greater levels of disability; system checks and balances (such as utilization review or medical fee schedules) that had the good intention of keeping costs in check but which unwittingly shift treatment choices to more destructive and costly alternatives.

How do we get out of this? With apologies to Elizabeth Kubler-Ross, whose award winning 1969 book, On Death and Dying, gave us her brilliant 5 stages of dying, Dr. Dietz gave attendees a path towards some sanity, in order:

  1. Denial - we in workers' compensation have LOTS of data about our system and we use some of that data to make decisions, but is it the right data?
  2. Anger - when we really look at the data and analyze it, we believe that our data stinks and this makes us angry.
  3. Bargaining - after coming to terms with the fact that our data stinks, we look at it from a different light, in a different way, and come to an understanding that the data might be okay but that it doesn't really apply to "me" (i.e. us as individual participants in the industry).
  4. Depression - okay, maybe this data which we have determined isn't that bad after all does in fact apply to "me".
  5. Acceptance - yes, death is inevitable and so is the realization that we can not only accept that the data applies to "me" but that it is measurable and that all of us can work together to make the system better.
Perhaps this is a bit of a simplistic view of the troubles we face as an industry, but it is a start. We are in the first stage of the five stages - denial. Sure, we all complain that certain aspects of workers' compensation doesn't work, but we are all in denial that the systems don't work as a whole. 

We all complain of individual elements, and we always seek to correct the elements that we believe require fixing, without looking at the "big picture" to really appreciate and understand how individual elemental changes can affect the overall system - where are the holes, what are the perverse incentives, how will changes affect other elements, just what is the human behavioral components that will be triggered by any particular system change?

The answer to these questions is the mind set of those of us in the workers' compensation delivery system, whether you are a physician, an attorney, a claims examiner, a broker/agent, an executive, risk manager, case manager - whatever. The answer is VALUE. 

Stop focusing on COSTS. What is the value that we deliver to the employee and employer?

Value, Dr. Dietz correctly notes, is quality divided by costs. Quality is the health outcome of the injured worker.

We have the data, but we don't use it effectively and when we do use it we measure the wrong components. Understanding the value proposition requires states to invest in analyzing the data and understanding the outcomes. Only then can one deliver value.

Group health has its own problems which the Federal government, and some state governments, seek to improve. But ask yourself - would you rather get medical treatment through workers' compensation or your group care?

My bet is that you prefer the latter. 

Tuesday, August 23, 2011

FL Rate Filing Reflects Hard Economy

The National Council on Compensation Insurance (NCCI) latest Florida rate filing is consistent with a national trend precipitated by the recessionary economy and portends more difficult times to come for everyone in the workers' compensation industry.

While the Florida Workers' Advocates (FWA) challenge NCCI's conclusion that there has been a reversal in claims frequency, the data that was provided WorkCompCentral demonstrates the more serious issue - that there is basically no underwriting profit for carriers in the state which means that in these times of declining stock market returns and low bond yields carriers need some financial hat tricks to make a profit on this line.

NCCI reported that lost-time claims adjusted for wage growth dropped from 17.1 per million dollars of on-level premium in 2005 to slightly less than 15 claims per million of dollars of premium in 2008, but climbed back to 15.2 in 2009.

The key here is the measure against premium. There is significantly less premium coming in over this period of time.

NCCI reported that the total workers' compensation premium dropped by more than half during the past five years: $5.2 billion in 2005 compared to an estimated $2.3 billion last year.

Driving this 50% reduction in premium is lower employment, lower wages, and a competitive marketplace.

The Office of Judges of Workers' Compensation is also seeing a decline in claims filed by nearly a third over the same time frame: fewer people are at work to get hurt and those that do get hurt are feeling lucky they even have a job so they don't rock the boat with a litigated claim.

The stark reality of financial dysfunction in Florida's work comp market would not seem apparent to any observer at the state's big annual FWCI Conference, which I am attending in Orlando, FL. The turnout for the conference appears normal and there are well over 300 exhibitors in attendance as well. 

But that doesn't mean people aren't concerned. I asked several people yesterday how they felt things were going and I wasn't getting positive feedback.

Instead most that I talked to about the state of the industry were cautiously pessimistic, holding on to some hope that austerity management will get them through these tough times.

The question that was almost universal on everyone's mind that I talked to was, when is this bad economy going to end?

To that I could offer only my non-expert outlook, which is, not for a while.

This economy has quite a ways to go before we see it reverse course, the markets return to a growth pattern, consumers returning to confidence, businesses rehiring, buildings getting built, labor being employed.

Until that happens though belt tightening is the order of the day. The financial underpinnings of the work comp system depend on reasonably reliable returns on investments to generate the cash flow and capital returns necessary to meet long-tail obligations and provide a profit to investors.

Workers' compensation, when taken down to its basics, is a financial services industry. Its lifeblood is the economy and its ability to grow. When growth is stunted, or in our present situation, receding like my hairline, reverberations move through every sub-sector.

I don't recall much from my MBA education. But the one thing that stuck with me from my finance classes was the basic rule: Cash Is King. In these times there are no truer words. Hold on to it - cash is what pays the bills...

Monday, August 22, 2011

Cost Containment Services and Medical Fees Need Alignment

The fastest growing segment of medical expense, at least as it is categorized currently in California, is cost containment services.

This segment includes medical bill review, utilization review and case management services.

The Rand Corp., through the Commission on Health and Safety and Workers' Compensation (CHSWC), released a report Thursday analyzing medical care in California's workers' compensation system and making various recommendations.

One of those recommendations is to report medical cost-containment expenses by category of cost. Rand also suggests that medical cost-containment expenses for services such as case coordination and management be separated from administrative fees including utilization review and network leasing.

I agree that the industry has, for too long, included cost containment in the medical expense ledger of the balance sheet. Not only does this practice overstate and mis-categorize how much medical expenses are in the system, but doing so hides just where the money actually is going.

Steve Cattolica, a lobbyist for the California Society of Industrial Medicine and Surgery and the California Society of Physical Medicine and Rehabilitation, told our WorkCompCentral reporter that it would also be useful to identify who is collecting the money that is paid for cost-containment programs. He said he would like to know whether money is being paid to claims administrators for services such as utilization review and bill review, and whether the administrator is paying another company for these services or passing that money along to the vendor responsible for administering the provider network.

"I think it would be important to find out who is being paid, not just what is being paid," he said. "Those business models drive an awful lot of activity."

I would like to know that too. Just what are the incentives in the system, and who is being incentivized?

Here is an anecdote of why I believe this is not only important information, but may need to be a source of regulation.

When I was still practicing law our firm was retained by a local, large non-profit organization to negotiate a contract with their third party administrator. All aspects of their service were negotiable … except medical bill review.

We were stymied at the negotiation of bill review at every turn. In fact we even offered to pay all medical bills at full face value but the TPA would not budge - bill review services were non-negotiable.

Turned out that none of the TPAs we contacted were interested in negotiating this element of services.

If cost containment services actually were an element of savings for the employer, then why is it non-negotiable? Just how much profit is derived from medical cost containment services? And how much does this element of "cost containment" actually lead to increased costs rather than an actual decrease in costs? And how much does the interference of cost containment services actually exacerbate the "lien problem" at the CA WCAB?

I suspect that the answers to these questions are, in order: because it is a major profit center; a lot; a lot; a lot.

While the lawmakers and regulators toy with revising the medical fee schedule they should also look at the payor end of the equation and bring both of those elements into alignment.

Friday, August 19, 2011

It's the Economy That Has Me Down

Early on in the recession many economists warned of a very possible "double dip" recession if the moons aligned and the rest of the globe continued to suck in the fumes of our financial flatulence.

The financial news from yesterday and today is not encouraging and though I'm not an economist, just a simple business man in a financial industry that supports a million people in this country, I'd have to say we're in for a very depressing time in the near future.

I'm an optimist who isn't very optimistic.

The US stock market appears to be in virtual free fall, down yesterday alone 3.7%. Last week's yo-yo'ing still had the overall market down for a total to date of 9.5%, just for the month of August.

Consumer prices are increasing and jobless claims are growing, according to reporting in the Wall Street Journal yesterday.

Housing isn't just slumping, it continues its downward spiral with yesterday's National Association of Realtors report showing a 3.5% drop in sales of previously owned homes just from June to July!

According to the Labor Department, average weekly wages are down 1.3% from October.

And foreign economies are just as much in a shambles with the Euro's valuation now in jeopardy, Greece bankrupt, France and Italy dragging the rest of Europe down...

Four dozen economists surveyed by the Wall Street Journal do not agree that we are NOW in another recession, but that's only because of a lack of statistical evidence (which as we know lags reality by quite some time because the numbers have to be crunched and analyzed) but "on average, they put the odds of recession in the next year at 29%, up from 17% only a month earlier; 10 of them put the odds at 40% or higher."

Interest rates aren't keeping up with inflation, the stock market is drowning in losses, gold and treasuries are being bid up, and in the midst of all this, workers' compensation rates across nearly all states are on the rise - with NCCI tagging Florida with a rather hefty 8.9% rise announced yesterday, on top of last year's 7.8%.

Let's look at other examples of the trouble facing not just the insurance industry, but the entire economy.

Verizon's East Coast operations are saddled with a labor strike, with 45,000 union workers of the land line division of the business not working and presently subsisting on only $200/week of union stipend. That's a lot of people not working and not contributing to the economy.

Bank of America is cutting 3500 jobs, with more cuts likely in the future.

Yields on 10-year Treasuries have sunk to the lowest level since the 1960s, down to 1.9872% yesterday briefly before recovering above 2%.

And I ask myself, where are comp carriers going to put their surplus so they do not not impair their cash flow to pay claims and expenses let alone attempt to turn a profit?

At least in theory corporate borrowers can get money on the cheap, and perhaps that's the strategy of the insurance industry - sell bonds at historically unbelievably low rates, then sit on the cash to use as needed until the economy improves.

Still I can't help but think that the businesses tied to the financial industry - and insurance is one of the mainstays of the financial industry - are in for a very, very rough time over the next couple of years, as though we haven't been through tough times already. This means that all businesses that either feed off of insurance lines, or require insurance - i.e. virtually the entire U.S. economy - are going to see increased rates and premiums, decreased services and payments, and overall contraction of capacity.

Insurance is all about managing risk, and if I were selling insurance one thing I would NOT be doing right now is taking on more risk.

Indeed, the chiefs of both Liberty Mutual and AIG have recently expressed that their appetite for workers' compensation risk is waning and that they are retreating from the line - I'm sure other carriers are likewise eyeing work comp very warily.

Lawmakers and regulators may again start tweaking systems, implementing new rules and regulations (indeed new the new Administrative Director of the California Division of Workers' Compensation is already eyeing a change in regulations to make utilization review and medical provider networks less complicated and more efficient), but the core basis of workers' compensation insurance - operational positive cash flow - is going to be a relatively scarce resource should the U.S. and global economies not reverse course.

What I'm reading in the gloomy financial news though isn't very promising for a near term reversal.

Thursday, August 18, 2011

Gardening Services are Medical Treatment ? Don't Think So!

Are pool, housekeeping and gardening services, when "prescribed" by a physician, medical treatment?

The majority in a California Workers' Compensation Appeals Board panel said that such a prescription was not medical treatment and thus the carrier was not required to send the prescription to utilization review, thereby denying the injured worker a penalty and attorney's fees on the issue.

The matter has been appealed to the 2nd District Court of Appeals for review.

Prior case law has found that such recommendations by physicians could be deemed medical treatment and that each such request would need to be determined on a case by case basis.

In the case at hand the WCAB panel majority found that the request for pool, housekeeping and gardening services, though recommended by the primary treating physician and an agreed medical examiner, were not supported by substantial evidence.

"It is not clear how or why Dr. Nagelberg or Dr. Alban arrived at the conclusion that housekeeping, gardening and pool services are medical care or how and why these services are reasonable and necessary on an industrial basis. In addition, their reports fail to offer analysis as to whether applicant ever performed these activities prior to his injury, whether the activities in question are activities of daily living, whether performance of the activities would have serious or long term effects on the applicant's medical condition, and the reasonableness of these services in light of the scope of medical treatment and its defined goals."

I don't have a prediction for how the 2nd District will rule on the case, if it even grants review.

But I have a bias, and I'm sure I will be castigated for what I'm about to state - I have a real problem finding that pool, housekeeping and gardening services are "medical treatment" that the workers' compensation system should be paying for.

The legal test is whether such services are "medically necessary and reasonable." This is where the legal fiction goes astray and jumps from the reality ship.

I empathize with the poor injured worker who can no longer clean his or her pool, or can no longer vacuum the house, or no longer mow the lawn. But those are DISABILITY problems. They are not questions of medical treatment.

Dr. Nagelberg's report in the case at question states, according to the WCAB Panel opinion, that "The patient requires housekeeping assistance 4 hours per day, 3 days per week for an indefinite period of time. The patient also requires pool man [sic] one time a week and gardening one time a week."

Dr. Alban said, in addition to continuing with physical therapy, that, "if [claimant's wife] is no longer able to help in the household, he will need a household helper approximately once per week for at least four hours. He also indicates that he has a small garden and does employ a gardener once per week for an hour to two hours, since he surely cannot do any heavy gardening except for occasional sprinkling. He cannot do bending, stooping, kneeling, or lifting from ground level more than an occasional two to three pounds. He has a swimming pool but indicates that the expense at heating it is a problem. Having a warm pool to exercise in would surely be advantageous and he is encouraged to perform general exercises..."

This is an injured worker who sustained an injury in 1996 and was awarded PD of 77% in 2006 for back, knees and gastrointestinal system. Mechanism of injury is not indicated in the opinion, but there were two cases, a specific injury of 9/24/1996 and a CT March 1970 - 11/27/96.

Granted, the facts of the case indicate significant disability. The recommendations for pool, housekeeping and gardening services reflect that. But the panel made the correct decision in this case. The physicians fail to describe how paying for outside home maintenance services, services for which we have no idea for how long they have been employed, whether before or after injury, or for whether these are activities that the injured worker engaged in prior to and/or after injury, are medical treatment.

The physicians fail to describe how paying for pool, housekeeping and gardening services are medically necessary, and more importantly reasonable.

Just a couple of posts ago I castigated the WCAB for waiting 6 years to tell an injured worker that his petition for reopening was filed at the wrong venue, and then not taking affirmative action to correct the procedural error.

But in this case the WCAB did the right thing by denying pool, housekeeping and gardening services. There was no evidence cited in the opinion that made the need for these services any different than procuring them on a non-medical basis.

This is the kind of case that critics of workers' compensation point to as exemplary of a system run amok by unreasonableness. It is a court opinion that proponents of comp can point to as evidence that there are good checks and balances in the system, albeit at an price...

Wednesday, August 17, 2011

The AZ Managed Care Experiment - Is Choice Material?

Arizona is experimenting with managed care concepts in workers' compensation.

Arizona state Rep. Judy Burges, R-Skull Valley, introduced HB 2584 during the 2011 legislative session, which was objected to by various constituencies. As a consequence HB 2584 was amended to implement a pilot program where one city with a population of 150,000 or more that is self-insured for the purposes of workers' compensation and the Arizona Counties Insurance Pool, a group of 11 rural counties, will be allowed to direct care for injured workers starting Jan. 1, 2012. The program will terminate Jan. 1, 2015, and the results of the pilot program will be analyzed to determine whether more employers should be allowed to direct care.

The bill had unanimous approval from the House and the Senate in votes taken last spring. Arizona Gov. Jan Brewer signed the bill on April 13.

The impetus of course is controlling medical costs by directing care. The hypothesis is that by directing care the employer will see better return to work outcomes, ergo lower overall costs.

There is some validity to that hypothesis based on some other state studies.

In Texas directed care was instituted in 2001. According to the Workers' Compensation Research Institute (WCIRB) medical costs per claim fell 19% from 2002 to 2006 because of fee schedule cuts included in HB 2600 and because of "increased management of medical costs by payers."

The WCIRB report reflected that patient outcomes were improved under the directed care model, but that patient satisfaction was lower because they didn't have the freedom to pick a doctor.

The issue of freedom to pick a doctor to me is interesting. I reflect upon my own experiences with medical treatment and the freedom to pick a doctor.

In those (unfortunately not so rare) instances where I needed care beyond my annual physical I did not know who to pick and relied upon others to direct me to a physician (or physicians) of competence within a given specialty. 

There have been two general types of situations where I required medical care for injuries: catastrophic injuries requiring emergency medical treatment, and more routine (for me) medical emergencies.

The former type of situation involved life or death consequences where my care was directed essentially by health care providers who were foreign to me - I didn't know where to go other than the emergency room and they sent me to physicians and facilities who did a fine job of patching me up. These were situations where it was literally life or death if the proper care wasn't administered in a timely fashion and involved hospital stays (a couple of times, up to a week - I'll tell those stories some other time!) along with follow up care for up to two months post hospital stay.

The latter type of situation involved serious injuries and a quick trip to urgent care at the direction of my medical insurance (i.e. an approved facility). Again, I did not know the physicians and I was patched up and sent on my merry way - no wear for the worse.

Now, in both situations there were no industrial issues - no one had to opine about my disability or return to work status. And even if they did I would probably have ignored their advise anyhow because I'm a bit hyperactive and bed/rest time to me is the antithesis of life.

I know that is not how many people would react so I don't hold myself out as a model for physician choice versus return to work outcomes and patient satisfaction.

The point with my experience though is that physician choice didn't make a difference. The patient/physician relationship was limited in duration to dealing with the injuries at hand and once those were resolved that relationship terminated. And I was repaired and returned to life.

In long term care situations physician choice may make a difference to the injured worker and perhaps may make a difference in the long term prospects of the patient. I suspect that these situations are rather rare however and may be based more on the comfort and security of seeing a familiar face whom one would associate with being intimately knowledgable about the case at hand.

I also suspect that much of the benefit of physician choice is rooted mostly in either culture or individual psychology, or a combination of both. Some people don't like being told what to do regardless of the benefit, and this can adversely affect outcomes. Others will persevere to a desired outcome regardless of who is "directing" the path.

The Arizona experiment is set to expire in 2015. A report to the legislature on the outcomes of this experiment is due before then so the state can determine whether to continue the program, expand the program or terminate it. How results are measured and the conclusions of this experiment will provide some interesting debate in the future.

Tuesday, August 16, 2011

MEM Review Demonstrates State Fund Vulnerabilties

Missouri Employers Mutual Insurance Company (MEM) is under review, prompted initially by some wrong doing of various board members unrelated to the business of workers' compensation or MEM operations, but continued under question as to whether the state created carrier of last resort was still needed to fulfill its primary mission of providing coverage to small employers.

Like most state funds, MEM was legislatively created to fill a gap in available coverage for small business.

According to MEM it still fulfills that mission as 83% of its policyholders involve premiums of $10,000 or less per year.

And like other state funds, MEM takes advantage of an income tax break afforded it due to a minimal level of state involvement and control.

While for-profit carriers often object to a state fund's tax advantages, those objections seem to only arise when a state fund becomes particularly aggressive and starts encroaching on the business targets of the for-profit carriers.

State funds serve a very important function in state workers' compensation systems. Since workers' compensation is mandatory there needs to be an affordable facility for providing that coverage to those businesses whose payroll is either unappetizing to for-profit carriers, or whose risk is too adverse for private enterprise.

But state funds also need to play by the rules. A state fund's place is not to openly compete for large scale business but, as I said, to fill the gap in available coverage. Wandering outside of that mission is cause for concern in any state.

And state funds must be sensitive to any public scrutiny, much more so than for-profit carriers, because they are ostensibly extensions of the government - any shenanigans at a state fund reflects upon the state government and are cause for public concern.

In the case of MEM, unwanted attention was brought upon itself by the fact that three board members recently resigned or were removed.

Former Missouri Gov. Roger Wilson was removed as MEM president in June because the insurer's board of directors "decided to make a leadership change." In April, Douglas Morgan, the former chairman of the St. Louis County Planning Commission and a chairman of the MEM board, was indicted on a bank fraud charge, according to the U.S. Attorney's Office for the Eastern District of Missouri. And in March, former MEM board member Karen Pletz, the former president and chief executive officer of the Kansas City University of Medicine and Biosciences, was indicted by a federal grand jury for the Western District of Missouri for allegedly embezzling more than $1.5 million from the university.

It should be emphasized that the two board members under indictment are not being investigated for wrong doing at MEM and no public reason was given for the removal of Wilson other than as stated.

Its not necessary for a board member to have insurance experience, but in the case of MEM, where the governor can make appointments without senate confirmation, there must be sensitivity to the appearance of impropriety. I applaud MEM for cooperating fully with the Lembke review and a one-time review by State Auditor Tom Schweich. These are necessary steps to prop its credibility and bolster its reputation.

State funds are necessary in the work comp world - they provide stability, a safety net, and a benchmark. They are not, however, one of those political plums that should be used to return favors. I feel confident that Lembke's committee will find that MEM is necessary and does fulfill its primary mission, and I also believe some changes in the methods and operations of its board and executive suite will be forthcoming.

Monday, August 15, 2011

CA Liens...Again - Entrepreneurs See Opportunity Unfortunately

I have often said that California influences workers' compensation in the United States disproportionately - yes the California market is much larger that any other state, but it is still just one state of 50.

California's bizarre lien claim process, which has been in the workers' compensation news frequently of late, is just one example of how the state's specific quirks affect business in other states.

MedStar Funding, a medical bill factoring company based in Austin, Texas, announced that it is hiring sales people and setting up operations in California to take advantage of the $1.5 billion in liens piling up at the California Workers' Compensation Appeals Board.

"You can have 50 MedStars come into California, and you wouldn't take up all the opportunity that is there," MedStar's CEO Dan Christensen said in a telephone interview with WorkCompCentral from his company's home office in Austin. "It is incredible, I guess, how much opportunity is out there."

Christensen told our reporter that MedStar operates nationally, but in most states it primarily buys unpaid medical bills related to personal injury cases. The company is active in the workers' comp industry in only two states: Illinois and California.

Christensen said Illinois has a relatively straightforward system under which unpaid medical bills are settled by the claimant's attorney when the case-in-chief is fully litigated. But he said California's lien labyrinth is so frustrating to medical providers that they rely on factors to pay them a percentage of the uncollected bills' face value just so they can make payroll and keep the lights on.

California is constantly criticized for its rapidly increasing medical costs. Doctors constantly state that they don't want to take work comp patients for various reasons. Payors decry the entire process because of bogus medical bills that come back and haunt previously closed files.

And in the meantime you have entrepreneurs who find money in the defects while the regulators seek to increase the complexity of the system to eliminate from their perspective the "lien problem".

My solution for ruining the business prospects of these entrepreneurs and eliminating the regulator's penchant towards complexity: make unresolved liens and bills the obligation of the party soliciting the expense.

The reason California has this "lien problem" is because there is no single person responsible for managing vendors on a case. The party responsible for incurring the cost of the vendor should be responsible for resolving any unpaid bills.

If the vendor is a physician hired by the carrier, then the carrier must pay the physician's bill at the negotiated face value and if the physician is forced to file a lien to protect its interest in getting paid then there needs to be a substantial penalty against the carrier for reneging on its promise to pay. Sure, we have a fee schedule, but the docs complain that it is insufficient and there is anecdotal evidence that many docs are compensated outside of the fee schedule to be induced to take work comp patients. So they should be paid as promised. Period.

If the lien/vendor was solicited by the injured worker or his/her attorney then that party must be responsible for resolving the bill out of the net proceeds. If it reduces the amount the injured worker gets, then at some point the injured worker is going to protest and since the injured worker is the ultimate customer there is going to be compliance.

There are many issues attendant with these ideas that would need to be worked out to reverse 50 years of procedural culture, but it would be nice at some point to be able to blog that California does NOT influence business in other states. 

Friday, August 12, 2011

WCAB's Contreras Case Worse Than I Thought!

I received several comments on the post a couple of days ago regarding the California 2nd District Court of Appeals taking up a case where the Workers' Compensation Appeals Board (WCAB), in my opinion, wrongfully used procedural issues against an in propria persona injured worker to trump his substantive rights.

Fortunately the WorkCompCentral database has virtually all WCAB opinions from July 1, 2007 to present so I was able to pull the actual opinion on denial of reconsideration from which the appeal to the 2nd District was taken. You can read the actual opinion here.

This case is even more egregious than I thought - frankly shame on the WCAB!!

The original injury occurred in 1999 and resulted in a Stipulated Award in 2001. At that time the injured worker was represented by counsel.

In 2004, well within the statutory time limits for seeking a reopening of the award, the appropriate petition was filed by the injured worker, this time without counsel. The original award was venued out of the Oxnard district office, but for unknown reasons the injured worker filed his petition to reopen in the Los Angeles district office.

Yes, at the time the regulations provided that if one is to reopen then the petition must be filed in the district office having original venue - i.e. for this case the petition should have been filed in Oxnard.

The injured worker did not explain in his petition why he filed in Los Angeles, nor did he subsequently make any attempt to clarify why he did what he did - thus the WCJ and the WCAB found as a result that there was no evidence of mistake or excusable neglect for filing in the wrong venue!

What is even more egregious about this whole process is that the WCAB apparently, by its own admission, engaged in its own negligence - the WCAB admits that even though the injured worker's petition for reconsideration was timely filed within 60 days from the WCJ's denial of his petition for reopening on 11/09/10, the WCAB didn't "see" the file until February of 2011.

So, let's look at the time line here and you tell me if this is not a complete miscarriage of justice: Award issues 6/26/2001; petition to reopen filed 8/24/2004; denial of petition to reopen by the WCJ was not until 11/09/2010!

You mean to tell me it took 6 years for the injured worker to find out that he filed his petition to reopen at the wrong venue!

If the injured worker had been given notice within the statutory time frame for filing to reopen he could have easily refiled at the proper district office! He still had nearly a whole year left in which to act.

Then to add insult to injury, the WCAB somehow loses track of the file, doesn't review the petition to reconsider until February of 2011, finally issuing its order April 4, 2011.

This poor injured worker had to wait almost 7 years to find out that the system screwed him.

Strong language, yes, but that is what happened in this case.

Something is egregiously wrong when a) substantive rights are not adjudicated in an administrative benefit delivery system for 6 years and b) when procedure trumps substance when the administrative agency has all the power in the world to resolve the procedural defect on its own.

Folks - its cases like this that shape my opinion that the whole system needs to be dismantled for a fresh start.

Thursday, August 11, 2011

Scientific Evidence May Not Be Scientific, or Evidence

A story in yesterday's Wall Street Journal (WSJ) may cause concern to everyone in any workers' compensation system where treatment and impairment are to be based on "peer-reviewed, nationally recognized"scientific evidence.

The WSJ found that an astonishing amount of medical and scientific research publications have been retracted in the past few years, at an alarmingly increasing rate, calling into question both the ethics of the authors and the reliability of any subsequent research or publications based on the flawed studies.

"Just 22 retraction notices appeared in 2001, but 139 in 2006 and 339 last year," the WSJ reports. "Through seven months of this year, there have been 210, according to Thomson Reuters Web of Science, an index of 11,600 peer-reviewed journals world-wide."

For the workers' compensation community, this could be a troubling trend and means that the editors of various guidelines that are used for both treatment approval and indemnity considerations will need to more carefully vet the medical evidence that is proffered in support of any particular conclusion.

Even more, as states move to either adopt or augment their various guidelines, a question exists as to just how much reliance can be placed on any particular "standard" that may pass through utilization review.

Workers' compensation in the past 10 years has evolved from a system where the injured worker largely had carte blanche as to any and all treatment so long as it was deemed "reasonable and necessary", to more and more states implementing treatment guidelines that purport to provide best practices supported by peer-reviewed scientifically valid evidence.

I support peer-reviewed scientific evidence, particularly in treatment. Standardization is necessary whenever one deals with something as complex and varied as the human body and the body's reaction to injury or illness. While no one is the same, there are standards that are applicable and as a consequence we expect that given condition X, response Y should result if Z is applied.

It is this basic foundation upon which the trust of physicians, and those peripherally tied to the medical practice (e.g. utilization review, case management, etc.) rely upon to ensure "best practices" and outcomes measurement.

If an injured worker can challenge guidelines on the basis that any such evidence is in fact not scientifically valid, that throws medical control options out the window, and can make utilization containment systems nearly ineffective.

I'm not saying that doomsday is here for treatment guidelines or any other similar medical or scientific standard. The majority of guidelines are edited rather conservatively and require high levels of validation before a study is incorporated into the text so they are quite reliable in their application.

But the news that these errors are increasing, and at a dramatic rate, is alarming and should cause the workers' compensation professional to at least question the validity of a recommendation that is based on a study that differs from long held standards.

Wednesday, August 10, 2011

CA Case Demonstrates Illogical Application of Procedure Over Substance

An interesting case that is being taken up by the California 2nd District Court of Appeals demonstrates the complexity that has grown into the workers' compensation system, and how procedural complexity is needlessly, and illogically, trumping substantive rights.

In Contreras v. WCAB (M&C Farm Labor), Contreras, the injured worker, had a stipulated award for a work injury. The case was venued at the Oxnard District Office. Three years later, he filed a petition to reopen the claim for new and further disability at the Los Angeles Workers' Compensation Appeals Board, without representation from an attorney.

The workers' compensation judge determined that Contreras did not file a timely petition to reopen, because although he did file it within the five-year statute of limitations set out by Labor Code Sections 5410 and 5804, he did not file it at the correct WCAB venue. A WCAB panel affirmed that ruling in a split 2-1 panel decision, with Commissioner Ronnie Caplane as the dissenter.

The majority reasoned that procedure trumped substantive rights, even though the injured worker was in pro per.

Caplane argued in her dissent that the injured worker, a fruit picker, had not litigated the case for three years and could not be expected to know or comply with procedural technicalities - that there are rules providing the flexibility of the administrative review process to ensure that a workers' substantive rights are not impaired by procedural flaws. 

Obviously the majority was not convinced.

I often hear complaints about too much attorney participation in workers' compensation - a system that originally was intended to be essentially self-service, with an adjudication process intentionally made administrative in nature to alleviate the procedural burden of the civil courts.

This case is a clear example that the adjudication process in workers' compensation litigation is clearly out of control.

Contreras should have his day in court, regardless of the applicable venue. His petition was otherwise timely. There is no issue with availability of evidence - the evidence is all on paper consisting of medical reports.

Why is it so difficult, if the case actually belonged in the Oxnard venue, for the WCAB to just transfer venue sua sponte? Why didn't the defense/carrier move to change venue if that was such a concern?

The fact that this case has gotten this far on a procedural issue is just plain wrong.

Tuesday, August 9, 2011

Kansas Reform Proves Unintended Consequences Adage

I've written before that "reform" nearly always results in unintended consequences, and the Supreme Court in Kansas affirmed that observation when it ruled that the state's 2005 reform created a fuzzy line of demarcation for making repetitive trauma claims.

In Saylor vs. Westar Energy, Saylor was a 33 year employee of Westar, and had a history of medical treatment to his knees. He never filed a workers' compensation claim for these injuries because he didn't think that workers' compensation applied - after all his knees were wearing out, not an "injury" in the lay-person sense.

The company didn't help either - rather than providing guidance on the issue of compensability the company simply accepted that Saylor was going to get his knees fixed through the general medical plan.

Saylor worked up until Feb. 6, 2006, and underwent knee replacement surgery the next day. His personal health insurance paid the medical bills. But while Saylor was recovering from surgery, a coworker told him that his injury might be considered work related and compensable. Saylor sought the advice of an attorney and filed a written notice of his claim to Westar on March 28, 2006.

Prior to the Kansas reforms in 2005, the state's courts held that a claimant's last day of work is the date of injury for repetitive trauma claims.

The 2005 reforms changed the statutory language to define the date of accident as the date the authorized physician takes the employee off work or places restrictions on the employee's physical activities while at work. If a worker has not been taken off work or placed on work restrictions, then the date of accident is, (1) when the employee gives the employer written notice of his injury, or (2) the date the condition is first diagnosed as work related and reported in writing to the employer, whichever comes first.

In Saylor's case, the date the condition was first diagnosed as work related was 3/28/06 because that was the first time that there was any evidence that a physician tagged his repetitive trauma injury as industrial.

The employer argued that such an interpretation of the plain language of HB 2142 produced absurd results (such as in Saylor) but the Supreme Court said that the Legislature had ample notice and opportunity to change the law, noting that it was warned of such consequences when the bill was in hearing.

The court said that despite conflicting evidence, both the Workers' Compensation Board and the Court of Appeals had ruled that Saylor had shown that Westar was aware Saylor had a work-related injury and did nothing about it. Kansas statute 44-510j(h) requires an employer to pay for self-procured medical treatment if it was aware of a work injury and did not provide medical care.

The consequences for Westar's failure to err on the side of workers' compensation in the handling of Saylor's claim likely means that Westar is out of pocket for the medical expense since the general health carrier will seek reimbursement for the expenses of Saylor's treatment (outside of the work comp medical cost control system), the work comp carrier will claim failure to adhere to the law and policy requirements of promptly reporting a claim, and Westar will also be on the hook for indemnity.

The lesson learned for employers beyond the caveat of "be careful what you wish for" is to err on the side of reporting any potential claim of injury to the workers' compensation carrier. The subsequent premiums might go up, but that's cheaper than paying out of pocket.

Monday, August 8, 2011

NJ Bad Faith Claim to Supreme Court; Sometimes Its Necessary

The New Jersey Supreme Court is considering whether a bad faith claim can be brought outside of the jurisdiction of the state's Division of Workers' Compensation.

The action of the Supreme Court was brought to attention by attorney Jon Gelman in his blog, and was followed this morning in a WorkCompCentral story.

In 2008 the New Jersey legislature passed a series of reform laws, and one of the provisions passed gave Division of Workers' Compensation (DWC) judges the power to impose penalties for parties who fail to timely comply with court orders. Judges were given the power to order 25% surcharges on overdue payments and levy fines of up to $5,000 for parties that fail to comply with court orders. Judges could also hold separate contempt hearings and recommend further action by the New Jersey Superior Court.

The case in question involved allegations of improper delay of medical benefits. After 2 orders to pay past due medical benefits the injured worker sued for bad faith. The superior court denied civil court jurisdiction. The New Jersey Superior Court, Appellate Division agreed, stating that the injured worker still has the option of going back to the workers' compensation judge and seeking sanctions.

The Supreme Court could have easily denied review. The fact that it decided to grant review is significant in that it will either grant the ability to pursue damages in excess of DWC sanctions against carriers engaging in bad faith, or will outline what may or may not constitute an injured worker's remedies.

I decided to search for the term "bad faith" in the WorkCompCentral news database to see how prevalent the cause of action might be in various states. More states than I thought permit bad faith action against carriers even though workers' compensation may have exclusive jurisdiction.

A quick review of search results came up with cases in California, Texas, Florida, Arizona, Ohio, and a number of other states.

The underlying theme of bad faith in these cases is alleged behavior that is particularly egregious, bordering on criminal, and much more than missing deadlines or incorrect payment amounts.

While the remedy of a bad faith civil suit should be a very unusual one and one that carries a very high burden of proof, it is nevertheless unfortunately necessary to ensure that misbehavior is correctable because sometimes administrative penalties just aren't enough incentive in certain situations.

Where carrier behavior borders on criminal activity, involving a high degree of intentional malfeasance, then a civil remedy with the threat of a large penalty for pain, suffering and punitive damages should be available.

Friday, August 5, 2011

CA Proposed Lien Regulations - A Mixed Bag

The California Division of Workers' Compensation (DWC) yesterday announced proposed regulatory changes for the adjudication of liens that it says should reduce the amount of filings with the Workers' Compensation Appeals Board (WCAB) and expedite the processing of those liens that are left in the system.

Liens in the California system have been a burden for years, and the volume has been increasing. The Commission on Health, Safety and Workers' Compensation (CHSWC) had issued a report earlier this year making recommendations to reduce the impact of liens on the system. The report was criticized by several different sectors of the industry as being incomplete, largely on the basis that the report did not get to the underlying cause of the problem, only addressing the symptoms expressed in the system.

I fear that the newly proposed regulations likewise address symptoms without seeking to influence the cause of these symptoms.

Nevertheless, the new regulations, at least initially, will not reduce the amount of liens being filed, but in fact I believe the reverse will occur - that filings and litigation activity regarding liens will increase.

New proposed Title 8, section 10582.5 would allow a lien claim to be dismissed if the lien claimant does not file a declaration of readiness to proceed (DOR) within one year of becoming a party to the case, or within one year of an order taking a lien conference or trial off calendar, whichever is later. The effect of this section may initially catch some lien claimants off guard, but eventually the savvy will institute more sophisticated and complete calendar management systems that will alert them when time deadlines approach so that they file more DORs more often.

When a case gets dismissed for lack of prosecution under 10582.5, another round of litigation concerning the appeal of the dismissal will take up more WCAB resources.

To make 10582.5 really effective, DWC should (assuming it has the regulatory authority to do so) force lien litigants to arbitration, with the right of trial de novo if the arbitrator makes an egregious error. 

Arbitration could be provided by independent services, or staffed with DWC resources (but that takes budgetary dollars that likely aren't forthcoming in the current economy). And arbitration could be initiated at any time since lien litigation would not be distracting the WCAB from the case in chief - at least until such time as a trial de novo is requested, which should not be granted until after the case in chief is resolved.

I do like the proposed change to regulation 10770, which would provide that it is unnecessary to file supporting documents with the lien form (though service of supporting documents would still be required). This would reduce the amount of errors that lien claimants introduce into the Electronic Adjudication Management System (EAMS), free up DWC resources presently used to "screen" EAMS filings, and free up the amount of electrons floating around the ether-world. The WCAB does not need to see an itemization of the billing until such time as the lien comes before the WCAB for adjudication - only the defense really needs to see the underlying billing.

In addition it is a good rule to keep amended liens out of the system until such time as adjudication is warranted. Filing amendments does nothing to support the lien - the initial filing secures the lien claimant's position in the claim. Amendments are only for the purpose of putting the payor on notice that the amount has changed - the WCAB does not need to know about that until the lien comes up for adjudication.

Requiring the parties to a lien claim dispute to go through the machinations of a mandatory settlement conference, with the completion of a conference statement and designation of evidence and witnesses is good IF there is first an arbitration. I think this provision would be better applied in a trial de novo situation on an arbitration appeal. 

But this is all digression. I understand that the DWC has limited authority on what it can do within its legal structure and that these proposed regulatory changes are an attempt to address the burden imposed on the DWC as a consequence of the Labor Code - something that only the Legislature can fix, and likely won't in the near future.

So, here's my bottom line: I like the provisions that reduce the amount of paper (real or digital) that would be required to be filed. I don't like the new time frames and punitive enforcement measures - I think those will actually increase the litigation burden on the WCAB. I think that the idea of moving lien claim litigation to arbitration should be part of the resolution.

But I think the first step in all of this should be a more complete study as to the underlying reasons for liens in the first place - there are as many reasons as there are parties to litigation, and there are common themes I'm sure. When we understand the behavior that causes the filing of liens then we can institute law and regulations to properly influence that behavior but until then we are treating the symptoms, not the disease.

Thursday, August 4, 2011

Have You Stopped Settling Future Medical?

In a recent LinkedIn group discussion (Work Comp Analysis Group) the debate started with a question about how many states permit settlement of future medical rights.

Like a lot of forum threads, the discussion went slightly off topic, and several comments were made that there seemed to be less future medical settlement activity as a consequence of the dabbling of the Centers for Medicare and Medicaid Services (CMS) into claims because of the increased costs in complying with CMS reimbursement negating any savings that might occur from such settlements.

In the closed world of workers' compensation, the ability to settle out claims for future medical care provides a very important economic benefit to both claimants and employers.

Claimants receive typically much needed cash up front - while that cash is ostensibly to provide for needed medical services, my guess is that more often than not it is spent on something other than future medical services. Regardless, that cash provides a small economic boost.

Likewise, closing out medical for the employer means the claim closes faster, ergo less impact on the "long tail" affecting the employer's experience modification.

And carriers can enjoy the investment power that comes from freeing up cash that is otherwise tied up in future medical reserves.

But when carriers start pulling out of the settlement of future medical because the cost of settlement actually exceeds the cost of holding onto that reserve, then there is a serious problem. The financial wizards that count the beans at the top of the insurance heap know that their calculators do not lie - as long as the data input is correct, the numbers are typically pretty accurate, and the numbers are saying hold on to the reserves.

There has been talk of CMS reforming its procedures to be more efficient and stable, but laws attempting to accomplish such have died.

Something as obscure and confusing as CMS' interaction in workers' compensation settlements is a very difficult topic for legislators to understand, much less comprehend how CMS can affect the economy.

So the path to a more efficient CMS is going to be through regulation. CMS would need to be convinced, in these budget-challenging times, that it can intake more cash by streamlining its processes than it currently is experiencing. CMS did create a workers' compensation Medicare set-aside web portal as a step in the right direction, though the review and decision processes are still mired in complexity and uncertainty.

Still the question remains whether the industry is experiencing fewer future medical settlements. I'm interested in your comments - post them here.

Wednesday, August 3, 2011

Dogging Contractors and Fitted Bed Sheets

Butte County in California is targeting contractors who operate without workers' compensation insurance by demanding proof of insurance prior to issuing permits.

This is a pilot program the county is rolling out and will initially apply only to roofing and swimming pool contractors, until the county understands the labor and operational requirements to make the program applicable to all contractors.

Butte County is ahead of the state government, which is considering a bill that would require proof of insurance before a contractor can renew its licence with the Contractors State Licensing Board. AB 397 by Assemblyman Bill Monning, D-Carmel, would require contractors to show proof of comp coverage or exempt status when renewing licenses before the State Contractor Licensing Board.

The bill is up for a third and final reading in the Senate.

Contractors have a notorious reputation for failing to either carry any workers' compensation insurance, or grossly underreporting payroll, claiming independent contractor status of workers that otherwise would be considered employees for work comp insurance purposes.

AB 397 is a good step in the right direction, but would be more effective if it also provided that a contractor's license could not be renewed if there was proof that the contractor was engaged in either underreporting payroll or misrepresenting its payroll.

On another note, pending before the California legislature is SB 432, introduced by Sen. Kevin DeLeon, D-Los Angeles, that would mandate hoteliers use fitted sheets and provide long handled tools to housekeeper employees.

The hotel industry opposes the bill because of expense and the intrusion of greater regulation, stating that there is no evidence that providing fitted sheets would prevent injuries. Unions and the California Applicant Attorneys Association support the bill, stating that it would reduce injuries to housekeepers.

In general I'm opposed to increased regulation on businesses that otherwise operate in an ethical and sensitive manner.

On the other hand, as a frequent hotel guest, I HATE flat sheets! They always come undone from under the mattress, bunch up, and make for an uncomfortable night of sleep.

I wouldn't mind paying a couple extra dollars (make it $5) to get a fitted sheet for a night of good sleep. Can't there be some middle ground?

Tuesday, August 2, 2011

Work Comp Complexity - Just Part of Life

Workers' compensation law is so complex, even the higher courts don't understand it, or get it right.

That appears to be the sentiment following Friday's release by the California First District Court of Appeal's opinion in Ogilvie.

The injured worker's attorney, Mark Gearheart, told WorkCompCentral, "I think it's likely that this decision will not end the litigation and confusion about how to use future earning capacity evidence, but will engender another round as the parties try to do it again. The battle will go on."

And the defense bar is also decrying the court's seeming lack of sophistication when it said that "loss of earning capacity" and "ability to compete in the open labor market", the former substituting the latter in the landmark reform bill SB 899, as being synonymous.

The California Division of Workers' Compensation (DWC) has a new Administrative Director (AD) coming on board, and presumably one of the major actions that the new AD will be taking is instituting a new permanent disability rating schedule (PDRS), which DWC was required by law to have implemented last year (a law that the DWC under the Schwarzenegger Administration conveniently ignored).

Some in the community are hopeful that a new rating schedule can be constructed to deal with vagaries that have been introduced by court decisions, and in particular the Ogilvie case.

I am less optimistic.

The court decisions throughout the years, well before SB 899, have consistently upheld the concept that factors in the PDRS can be rebutted. There has been some guidance, but this being case law, unique facts underlying the opinions make the standardization of any specific factor very difficult.

While the WCAB may have exceeded its authority in ascribing the technique to be used to rebut the diminished future earnings capacity (DFEC) component of a rating, it was a solid attempt at bringing some stability and predictability to rating. If you could provide the specific evidence documenting supporting numbers, you know what the answer would be, given the WCAB's original formula.

Now we are back to a case-by-case basis in determining not only what can rebut a rating, but what a rating may be given any similar set of facts.

That will not change with a new rating schedule - the DWC lacks the authority to overturn by regulation what has been upheld as case law for many years.

If anything, a new rating schedule will introduce more confusion and complexity since it will apply only to injuries incurred after the effective date of its introduction (unless perhaps there is some legislation to make it retroactive, in which case that may open up older cases to new litigation).

Such is life in the California workers' compensation system.

Monday, August 1, 2011

Ogilvie Court Does a Disservice to California

The news of the morning actually occurred late Friday afternoon: The California First District Court of Appeals (DCA) handed down its review of the Ogilvie case, disapproved of the formula the Workers Compensation Appeals Board (WCAB) had devised to standardize rebuttal of the Diminished Future Earnings Component (DFEC) of a permanent disability rating string, and opened the gauntlet to further indemnity unpredictability and litigation.

The court upheld the WCAB's conclusion that nothing in SB 899 changed the ability of an injured worker to challenge a permanent disability rating. But it didn't like the WCAB coming up with a formula for doing so, stating that the WCAB exceeded its authority.

There are three avenues for challenging a rating according to the 1st DCA:
  • A factual error in the calculation of a factor in the rating formula or its application.
  • The applicant is "not amenable to rehabilitation" because of his injury and therefore suffered a greater loss of future earning capacity than was reflected in the scheduled rating: 
“Another way the cases have long recognized that a scheduled rating has been effectively rebutted is when the injury to the employee impairs his or her rehabilitation, and for that reason, the employee’s diminished future earning capacity is greater than reflected in the employee’s scheduled rating….An employee effectively rebuts the scheduled rating when the employee will have a greater loss of future earnings than reflected in a rating because, due to the industrial injury, the employee is not amenable to rehabilitation…”
  • The omission of medical complications aggravating the injured workers' disability: 
“The briefs and arguments of the parties and amici also point out a third basis for rebuttal of a scheduled rating that is consistent with the statutory scheme. In certain rare cases, it appears the amalgamation of data used to arrive at a diminished future earning capacity adjustment may not capture the severity or all of the medical complications of an employee’s work-related injury. After all, the adjustment is a calculation based upon a summary of data that projects earning losses based upon wage information obtained from the California Employment Development Department for a finite period and comparing the earnings losses of certain disabled workers to the actual earnings of a control group of uninjured workers. (Working Paper at p. 3.) A scheduled rating may be rebutted when a claimant can demonstrate that the nature or severity of the claimant’s injury is not captured within the sampling of disabled workers that was used to compute the adjustment factor. For example, a claimant who sustains a compensable foot fracture with complications resulting from nerve damage may have greater permanent effects of the injury and thereby disprove the scheduled rating if the sampling used to arrive at the rating did not include any workers with similar complications.”

The first avenue is easy since it is a factually based element that is easy to rule on, easy to implement, and plug back into the rating formula.

The second and third create a destabilizing effect and will increase litigation at the trial level, and perhaps increase litigation at the review levels as well.

We are left without any guidance as to how to prove a loss of future earnings capacity. "Not amenable"? What does that mean? Does that include cases where the injured worker just says "no" to some form of rehabilitation?

At least the WCAB gave us a methodology for doing so, albeit a complicated one.

The 1st DCA said that everything we ever needed to know about DFEC has been published in earlier case law because even though SB 899 changed everything we thought we knew about permanent disability rating, it actually didn't:

“Senate Bill No. 899 amended section 4660 in two ways that affect the issue presented in this proceeding. The statute now provides that “an employee’s diminished future earning capacity shall be a numeric formula based upon empirical data and findings . . . prepared by the RAND Institute for Civil Justice.” (§ 4660, subd. (b)(2).) And a permanent disability award must now reflect consideration of an injured employee’s “diminished future earning capacity,” rather than the “ability of such injured employee to compete in an open labor market.” (Former § 4660, subd. (a).) This latter change is readily addressed… Indeed, the terms “diminished future earning capacity” and “ability to compete in an open labor market” suggest to us no meaningful difference, and nothing in Senate Bill No. 899 suggests that the Legislature intended to alter the purpose of an award of permanent disability through this change of phrase. Nor does its use suggest that a party seeking to rebut a permanent disability rating must make any particular showing.”

So we're back to "ability to compete in the open labor market" as a standard for challenging a rating without "any particular showing."

I think that participants in California workers' compensation want specificity, want routine, want clear direction. It benefits injured workers because then they don't have to spend a lot of time in litigation to either get, or not get, more money. It benefits employers and carriers because then they know exactly what they have to pay. Both benefit by getting cases get closed faster.

The 1st DCA creates a new level of pandemonium and litigation induced claim delay at a point in time when all of the participants in work comp cases are looking for some stability and predictability.

The court did a disservice to both the injured workers and employers of California.