Monday, April 30, 2012

California, Connecticut and the Wind

The Door's "L.A. Woman" lyrics seem particularly relevant to a certain trend in workers' compensation:

"Took a little downer 'bout an hour ago. Took a look around me, which way the wind blow."

Connecticut is seeing wind blow in its direction - physician dispensed and repackaged drugs.

What is interesting is that, according to State Workers' Compensation Commission (WCC) Chairman John Mastropietro in an interview with WorkCompCentral, there were no problems with physician dispensing and repackaged drugs just four years ago and that physician dispensing was limited only to sample drugs.

Now Mastropietro says he is hearing reports that some Connecticut doctors are charging up to 600 times the price charged by pharmacies for certain drugs.

The WCC is now considering regulations to cap prices and restrict dispensing.

"The prices that have been documented are disturbing," Mastropietro told WorkCompCentral. "There are some objections to control of free enterprise, but it's difficult to justify the price differences for what is a relatively minor inconvenience associated with not being able to pick up your drugs on the way out of the doctor's office."

Exactly the point - when unreasonable people exceed tolerable greed levels they bring on regulation to the rest of the population and create additional work and frictional costs.

In a national study of drugs in the workers' compensation system, National Council on Compensation Insurance (NCCI) reported last August that the share of physician dispensing based on total dollars spent on prescriptions in Connecticut increased from less than 10% in 2007 to more than 25% in 2009.

NCCI said medical costs now account for half of all costs in the Connecticut system.

Though Connecticut has a fee schedule, adopted in 2000, that caps the price of prescription drugs at the average wholesale price established by Medi-Span plus a $5 dispensing fee for brand-name mediation and $8 for generic drugs, doctors are buying prescriptions from drug repackagers, which are allowed to assign a new National Drug Code to the drugs they sell doctors and assign their own AWP.

Legislation enacting price caps meets incredible resistance and has failed in Florida, Hawaii and Maryland. But when enacted via regulation caps have been more successful as witnessed in California, Mississippi, Georgia, South Carolina and other states.

The issue is not whether a physician can or should dispense drugs from the office, but what the price is. 

"It's especially difficult to justify when you drive past six CVS pharmacies and a Rite-Aid on your way home from the doctor's office," Mastropietro said.

In another story this morning the Santa Clara County District Attorney's office brought charges against spinal implant hardware distributor, Implantium's chief executive officer and chief medical officer.

The allegations are that the company through the direction of the CEO and CMO fraudulently over charged for the hardware in cases involving the County, and the cities of Los Gatos and San Jose.

California Code of Regulations Section 9792.1(c)(7) provides that implantable hardware or instrumentation for diagnostic-related groups 496 through 500 "shall be separately reimbursed at the provider's documented paid cost, plus an additional 10% of the provider's documented paid cost not to exceed a maximum of $250, plus any sales tax and/or shipping and handling charges actually paid." That regulation restates state law, Labor Code Section 5318.

But who's to blame? According to a former Division of Workers' Compensation employee who was responsible for drafting many of the medical fee regulations, the public entities complaining should have paid the hospitals that "purchased" the hardware and should not have paid Implantium directly.

The hospitals have to pay for the implants first and are then reimbursed. If they don’t pay before submitting the bill to the payer, there is no basis for payment because they are entitled to what they actually paid, not what they will pay, according to Sue Honor, the former manager of the Division of Workers’ Compensation Medical Unit.

“The fee schedule is for facilities,” she said. “It identifies the definition of ‘facility’ and nowhere does it say anything about allowing a facilitator to jump in.”

So what's the connection in these two stories that are 3500 miles apart?

The jet stream blows from west to east.

And both states are dealing essentially with the abuse and regulation of medical charges. California has already dealt with physician dispensing and repackaging.

In 2007 California regulators capped the price of repackaged drugs not included in the fee schedule established by Medi-Cal at the average wholesale price set by the original manufacturer plus a dispensing fee. Now the state is dealing with reimbursement of medical hardware and there is pending legislation to do so.

So can we assume that Connecticut and other Eastern states will have to deal with reimbursement of medical hardware? I have no reason to believe otherwise given the prophesy of Jim Morrison's lyrics.

Friday, April 27, 2012

Two Parts of the Promise; The Conversation of Reform

I've had an ongoing (online) discussion with a colleague whom I consider to be very astute.

He said this the other day (paraphrased): The reason for workers' compensation has always been so that the employer could provide for injured workers in an economical way.

That is such a beautifully clear and true statement and its simplicity cuts to the very core of the existence of this system.

And so it should be guiding light to those who seek to "reform" workers' compensation, which leads to another, related, truism of his: "Work comp works exactly as it was designed to work, it does not work as it was intended to work."

Each of us in the workers' compensation industry deal with only two constituents, and have only one goal. 

The constituents: employer and injured worker. 

The goal: to permit the employer to provide for the injured worker in an economical fashion.

There's a lot of power packed into that sentence, and that sentence defines the two basic elements of workers' compensation: for the worker it's the benefit delivery system; for the employer it is the allocation of risk system.

There are providers to these two constituents who have decided to make it a business and living out of getting to one or both groups the services and products necessary to meet the goal. Some providers have conflicting interests, others are much more singularly focused. All providers serve only these two constituents.

Is workers' compensation broken? I'd say for most people most of the time it is not broken. For most workers who come into the system the benefits are delivered appropriately and in accordance with the law. For most employers the allocation of risk is done in an affordable, economic fashion.

But for those who end up on the back side of the power curve (aviators will know what I'm talking about) it can be a very disruptive, very destructive place to be in life, whether one is an employer or an injured worker. These are the stories that drive "reform".

When the system does not work, it fails in a miserable way.

Is it because there are not enough checks and balances? Is it because there isn't enough regulation? Is it because certain elements take advantage of workers' compensation's complex nature and low profile for unfair advantage and profiteering?

California regulators are going around the state accumulating ideas and getting input on how to "fix" the system.

Oklahoma politicians are batting around a non-subscription option (defeated by that state's House yesterday with proponents regrouping for another assault on the beach head).

New York has spent the last couple of years trying to get it's "reform" moving out of the starter blocks, and Illinois is still struggling with the cultural overtones that have hampered its system.

Several months ago I had lunch with a former California regulator who is as passionate about workers' compensation as anyone I know. Deep in her heart she truly felt that workers' compensation is a good, and necessary, component to social order and economic vitality. She worked tirelessly from the regulator aspect to put into place policies and enforcement mechanisms to meet the requirements of the law with unwavering optimism.

Even she admitted that sometimes she feels that the current workers' compensation system in California should just be scraped and that we should just start over.

No matter how you slice it, workers' compensation is as pure of a service industry as one can define. I love that insurance companies call their policies a "product". It is no more a product than my pledge and a handshake on a promise. Insurance is just a promise that some service will be provided in the future. Just a promise.

A promise requires trust. There must be trust that each will perform as expected and that each will employ what is necessary to make that promise good.

In all states other than Texas, workers' compensation is not a free market (and I could argue that even in Texas it is not a free market if a business wishes to take on the risk of an injured worker).

Workers' compensation is a mandatory market. Employers must have workers' compensation insurance (or legally be without) and employees must go through the workers' compensation system if hurt (or claim to be) at work. There are exceptions and ways around this, of course, but the bottom line is that the system is mandatory to both constituents and if one is caught trying to get around its mandatory nature then one gets penalized.

When legislators and regulators debate how to "fix" workers' compensation they need to step back and get to the heart of the system. It is mandatory. Free market principles don't apply. They don't work.

Even in Oklahoma, non-subscription there (if it comes to pass) would need to meet the minimums of the workers' compensation laws - so even this radical approach to the ultimate goal is rooted in mandatory terms.

So when any administration, whether it is California, the Federal government with FECA, or Oklahoma, thinks about some workers' compensation reform, the basic premise of the system needs to be kept front and center. One can not "reform" the benefit delivery system without also "reforming" the allocation of risk system. They go hand in hand because there are only two constituents and each has their unique reliance on the promise.

Thursday, April 26, 2012

Audit Confirms: IL Out of Control

Talk about a state that's out of control.

Everyone knew that Illinois workers' compensation was a run away train, but until now it wasn't really quantified.

A report released by Illinois' state auditor's office on Wednesday blasted the Department of Central Management Services (CMS), the Workers' Compensation Commission and the Attorney General's Office for lax practices, some bordering on gross negligence or blatantly in violation of state law. These agencies are involved in management of workers' compensation claims by state employees.

Not only did these three agencies engage in program mismanagement, the costs can't even be fully accounted for yet because the state is still trying to deal with its abysmal financial situation.

According to the audit, state employees filed 26,101 claims from 2007 to 2010 and the state made payments in 17,500 claims. The state paid $295 million in workers' compensation benefits during that period, but because of budget issues last year the state started delaying payment to vendors, such as medical providers, by 180 days and as of May, 2011 there may be an additional $61.5 million in liabilities from fiscal year 2010 that have not yet been paid.

Some of the more egregious findings:

The eight adjusters for CMS may each be responsible for as many as 1,577 open claims, but the agency can't be sure because it cannot identify what portion of the claims are actually active and which are merely being held open until the statute of limitations runs out.

Not only did the Workers' Compensation Commission not conduct annual performance reviews as required by law, but arbitrator's awards for the same body parts varied by as much as 95%.

The Attorney General's Office does not have specific policies or procedures to identify or control fraud and the state's Insurance Fraud Unit has not implemented a data analytics system to detect fraud, despite a statutory mandate to do so.

In addition, the audit found:
  • The state has a Commission Review Board that is responsible for conducting investigations of complaints against arbitrators and workers' compensation commissioners, but the board did not hold any meetings for two and a half years, from February 2008 until September 2011, even though the commission received several allegations of fraud, unethical practices and favoritism during that time. I'm assuming commissioners were paid during this period.
  • Claims adjusters for CMS negotiated directly with claimants' attorneys to settle cases without conferring with the defense attorneys assigned by the Attorney General's Office.
  • CMS adjusted claims and made decisions on compensability without submitting the proper forms, or submitting forms that were sometimes incomplete. Adjusters' decisions about whether a claim was compensable were not reviewed by supervisors.
  • In three cases, the auditor found that state employees filed additional claims while they were on leave for a prior claim. In one instance, an employee who had been on leave for nearly two years for a workplace injury filed an additional claim for carpal tunnel syndrome. The state settled the first claim for a neck injury for $149,999.99 and the carpal tunnel syndrome for $51,320.76.
  • A random sample of claims filed showed that many claims were settled or awards paid even though required forms were not in the files. Out of 109 claims files examined, the employee's notice of injury was missing in 23, the initial medical report was missing in 56 and the supervisor's report of injury was missing in 21.
  • The workload among the state's 31 arbitrators was not spread evenly, with some arbitrators hearing far more cases than others. Some arbitrators held more than 200 trials a year, while others held fewer than 50. 
The audit was done pursuant to a resolution passed last March authored by State Rep. Dwight Kay, R-Glen Carbon.

One question not addressed by the audit is whether the Illinois legislature has the fortitude to fix things. It hasn't shown much interest in the past with a weak "reform" passed last year. Perhaps the embarassment of this audit will change attitudes in Springfield. Perhaps not.

The audit is here.

Wednesday, April 25, 2012

Shame On Erie

One of the troubles with workers' compensation is that it is purely a product of legislative grant. What the legislature giveth, the legislature taketh away, including reason and rational thought.

What seems like a good idea may produce unjust or terrible consequences given certain fact patterns - facts that can't be anticipated in advance or may be deemed too remote to have any probability of occurrence.

In law school we're taught early on that, in any given debate, first argue the law. If that fails then argue the facts.

This is essentially where the "law of equity" arose. Equity came from British common law, where judges were granted leeway in the application of strict written law (i.e. statutes) in order to do the right thing.

Equity doesn't have much place in workers' compensation because of the statutory origin of the law. Courts are loath to wander into equitable territory least an opinion open the proverbial can of worms creating chaos out of legislative intent.

Sometimes, though, a case comes around that seems to beg for some equitable resolution even against ardent, strict statutory rule.

In Virginia a law was amended and re-enacted by the General Assembly in 2011 that granted a presumption where the injured worker was unable to testify.

Section 65.2-105 of the Code of Virginia reads:

In any claim for compensation, where the employee is physically or mentally unable to testify as confirmed by competent medical evidence and where there is unrebutted prima facie evidence that indicates that the injury arose out of and was in the course of employment, it shall be presumed, in the absence of a preponderance of evidence to the contrary, that the injury arose out of and was in the course of employment. 

This actually seems like it would be a good law - a presumption in favor of the injured worker that would seem to reduce the burden of an unfortunate circumstance that produces an inability to provide first hand testimony.

But when an injured worker can testify, but can't testify ABOUT the accident, and there is no other evidence of causation, this seemingly liberal presumption actually inhibits the provision of benefits. At least that is what a Virginia deputy commissioner ruled.

Herman Blair, owner (and employee) of a roofing company in Virginia, fell from a ladder while installing a roof in Jonesville, Va., on Sept. 8, 2011, and suffered multiple skull fractures which required an emergency craniotomy - the injuries were so severe that Blair was unable to give consent to the surgery so his daughter had to provide that consent.

Blair sought workers' compensation benefits. One would think that this would be a "no brainer" since a) there doesn't appear to be dispute that Blair fell from a ladder working on a roof, and b) Blair was the company owner.

But the insurance carrier for Blair Construction, Erie Indemnity Co., denied compensability because Blair's fall was unexplained and thus there lacked evidence that Blair's injuries arose out of employment.

Erie further argued Blair was not entitled to the presumption because he was able to appear at a workers' compensation hearing and supply his name, age and occupation, but was unable to testify about the circumstances of the accident because he has no memory of it.

Deputy Commissioner Philip Burchett ruled on March 12 that, despite testimony from a co-worker that he heard a noise and saw Blair falling, the roofer's ability to appear and testify nullified the presumption. Burchett found that Blair was injured in the course of employment but that there was no evidence, since the presumption did not apply, that Blair's injuries arose out of employment.

In my mind, I don't even understand why this is in dispute. This is the kind of injury that workers' compensation was intended from the very beginning of its origins to protect workers against, even if the worker owns the company.

How did this case even get to the courts? If a representative of Erie would be kind enough to comment on this blog it would be appreciated so I, and everyone else, can understand the position of Erie. Perhaps there is good reason for this claim to be disputed, but under the facts known by me thus far, this is just the sort of stereotypical picture of a greedy insurance company ruining some man's life that has already taken a bad hit.

This is the sort of case that is the insurance industry's worst public relations story. This is why insurance companies are held is such low esteem by the general population. I don't understand how they can argue with a straight face that Blair's injuries did not arise out of employment. He was working at one moment and the next moment he has significant head injury, and his employee saw him fall.

Really Erie? Are you kidding me?

I understand there was an attempt to settle before the hearing - perhaps Blair's demands were excessive... we don't know what the demands were, or what the offers were. In this case it seems to me that the true dispute should be about the quantity of benefits, not the provision of benefits.

Blair's case has prompted some discussion in Virginia with a legislator seeking a "technical" amendment to the 2011 law, and Blair's attorney waiting for the Virginia Workers' Compensation Commission to be fully staffed (the Commission is comprised of three commissioners, but currently is staffed only by two) before seeking reconsideration of the ruling.

This is a ruling that shouldn't be on appeal, let alone in front of a commissioner. This is a case that screams for equitable consideration.

And shame on Erie for even going down this path.

The full story on this case is in today's WorkCompCentral.

Tuesday, April 24, 2012

WA RTW/SAW Experiment Forgets Tolerance

Return to work/stay at work (RTW/SAW) programs in workers' compensation have numerous complex issues inhibiting success, all of them tied to the great unknown variable we call human behavior.

In the early days RTW/SAW was thought of as vocational rehabilitation. The thought was (and is in some states) that if the right set of services were provided to the injured worker that new skills could be developed, jobs identified, and the worker would be motivated to get a job.

What happened in a lot of states where vocational rehabilitation services were part of workers' compensation was that a cottage industry cost a lot of money but could not provide any good data or evidence that such services worked.

In many cases vocational rehabilitation services were provided up to statutory or regulatory maximums and then the injured worker would be left to his or her own devices.

Many states still have vocational rehabilitation programs with varying degrees of success.

California started a new trend when vocational rehabilitation was replaced with incentive programs that attempt to provide financial reward to the employer for taking back injured workers and penalizing workers for not taking advantage of such opportunities. I think if you ask anyone in California workers' compensation about this system, if they were being truthful, they'd tell you that it has been an unmitigated failure that just added complexity, paperwork and expense to claims.

So it is interesting that the Washington Department of Labor and Industries (L&I) will launch in May a program intended to improve return-to-work performance by subsidizing 50% of wages paid to disabled workers brought back to light or modified duty along with other incentives to both the employer and injured worker.

Washington can do a lot of programs that other states can't do because of its monopolistic nature - there is only one "carrier", the state, and consequently execution and enforcement are much easier.

The Washington Department of Commerce projects the stay-at-work program will lead to savings of $111 million from fiscal year 2012 through 2015. That projection is amorphous though and depends upon whether both sides of the equation buy into the incentives.

Like many such programs, the array of factors and qualifications are complicated, and that may itself inhibit success.

The final rules based on House Bill 2123 provide that starting May 21 Washington Department of Labor and Industries (L&I) will subsidize 50% of gross wages paid to an injured employee assigned to transitional work for up to 66 days worked in a two-year period, capped at $10,000.

L&I will also reimburse employers up to $1,000 per claim for training expenses, including the purchase of books or payment of tuition or fees to an outside party. The department will not reimburse employers for the value of in-house training.

L&I will pay up to $400 if special clothing is needed for the modified position and the employer doesn’t normally provide clothing to workers.

Finally, the department will pay up to $2,500 per claim if an employer needs to purchase tools and equipment for a modified position.

To qualify, a business must be the employer at the time of the injury and the injured worker must be eligible for temporary total disability or temporary partial disability benefits. A treating physician has to have restricted the work activities of the employee and released the worker to perform the light duty or transitional work.

Employers have to file reimbursement requests, including payroll records or time cards and itemized receipts, within one year of the date the work was performed. L&I will not reimburse for stay-at-work expenses incurred before June 15, 2011, the date HB 2123 was signed into law by Gov. Christine Gregoire.

My personal opinion is that these financial incentives basically won't work for most situations and that cottage industries will take advantage of the economic opportunities generating costs with no measurable success.

Washington is no different than other states in that there are a couple of large employers with the resources and capabilities of taking advantage of these incentives, but the majority of the employer base are small employers that lack the resources, skills or capacity to use these RTW/SAW provisions. The Washington RTW/SAW program was a part of a larger workers' compensation overhaul from last year in which the state's big employers (Boeing and Microsoft) had a big voice so it's easy to see how these provisions made law.

In addition, studies have shown, almost universally, that financial incentives basically don't work in RTW/SAW on the employee side. The motivation isn't usually financial. The motivation is more fundamental than that - it comes down to whether the employee wants to work for that employer - the single biggest factor affecting disability status is job satisfaction.

Several months ago I told the story of a young lady who was looking for advice in the face of a cessation of her disability benefits. The issue wasn't whether she could do some work. The issue was whether she was motivated to do THAT work for THAT employer.

This is the third tier in the Talmage Triage which is "tolerance" - the sole subjective component of the Triage: how much pain an individual is willing to tolerate depends on many (sometimes conflicting) psychosocial factors and the benefits available for doing the job (or any activity).

L&I will have a better handle on the progress of the success of the program than other states simply because it is a single point of contact, rather than a couple hundred independent carriers like its neighbors to the south. In that regard the state can monitor its success much more directly.

I wish L&I unbridled success in this program and that the state actually can measure a net savings of $111 million by 2015. I don't see that happening though. Tolerance isn't addressed in the law.

Monday, April 23, 2012

The New Cost Driver - Drug Labs

Start a trend, create a sub-industry and develop a new cost driver.

Or in another colloquialism that is frequently used to describe workers' compensation: whack-a-mole.

We've all played whack-a-mole: that crazy carnival game where you try to hit a mole puppet with a mallet popping up variously through numerous holes in a grid, and as time progresses the pace of the mole popping up increases, making it nearly impossible to hit every time.

In workers' compensation this analogy describes the imperious nature of issues taking on their own lives, spawning new sub-industries, driving up new costs, creating new headaches and ultimately new regulation, which in itself creates new costs.

The repetitive nature of this phenomenon can almost be predictable except that we never seem to know what kind of new enterprise will arise until disturbing trends become decently defined and identified, and by then it generally is too late to reel in the offending vendors and the entire industry takes a hit.

Kind of like capping the entire whack-a-mole game with a cover that closes all the holes ... until the next carnival operator comes to town.

That's the prescription drug situation that has been sweeping the medical world and the workers' compensation world the past couple of years, but I'm not talking about the spread of opioids or the underground economy that drugs support.

I'm talking about the quasi-legitimate industry that is supported by this trend - drug testing laboratories.

Legitimate because labs require licensing. Quasi because some have figured out how to make outsized profits at the expense of the system which means we all pay in excess of reasonableness.

If accusations are correct, there is a "dirty" side to the business - the side that really drives costs because some operators are unscrupulous, and the industry is uninformed and uneducated about such practices.

A couple of weeks ago WorkCompCentral ran a story that was prompted by Dr. Gerald 
's allegations that a national drug testing laboratory of which he was medical director was engaged in improper activities and billing practices.

Dr. Pearlman resigned from that company and days afterwards died.

Dr. Pearlman's statements ignited some debate in the work comp industry and now revelations about drug lab practices are coming to light.

Alex Swedlow, research director for the California Workers' Compensation Institute (CWCI), said during the group's annual meeting in San Francisco last month that drug testing has emerged as the newest cost driver - indeed this appears to be an understatement.

Howard Appel, president of Millennium Laboratories in San Diego, told WorkCompCentral that labs have figured out how to get paid for bills that are almost 1,500% what a test costs.

According to Appel, the routine practice in the laboratory industry is to do qualitative screens for broad drug classes and do follow-up qualitative screens for particular drug classes -- or panels -- that test positive to determine which drug is present. After that, upon the request of the physician, the labs do a quantitative test to measure the concentration of the metabolites to determine how much or how little of the drug the patient is using.

The reimbursement rate is higher for quantitative tests than it is for qualitative tests, but Appel said some labs and vendors are using billing codes for quantitative tests when performing qualitative tests.

Another practice is for labs to "bundle" the different panels together. A lab might offer a doctor a panel that would test for all classes of drugs commonly prescribed to treat pain. Appel said this is acceptable, as long as the doctor has the option of testing only the panels for the drugs he is prescribing. But Appel said some labs and billing companies make only 21-panel or 35-panel tests available, even though the doctor may only want just a few of the panels actually tested.

After bundling the panel tests together, a biller can submit an invoice that charges for each panel test as though it was performed individually. This allows the lab or billing company to significantly mark up the invoice. A 35-panel test that costs $200 could become a $1,750 item on an invoice.

In addition, labs and drug testing companies fuel the fire by providing doctors with marketing and promotional materials showing them how they can bill not just for a $20 point of care, but also for multiple office visits, patient consultations and preparing reports.

It's easy to say that payers should deny payment and take these issues to court, but then that creates extraordinary burden on the adjudicatory systems that were designed to resolve disputes between injured workers and payers, not vendors and payers.

California's "lien problem" is directly tied to this sort of whack-a-mole phenomenon. Other jurisdictions with case backlogs can also be tied to these issues.

Paul Randall, a former consultant at Tri-City Regional Medical Center in Hawaiian Gardens who the Wall Street Journal in February tied to a $60 million increase in spinal surgery billings at the facility, is now the president of Matrix Medical and a managing member of Platinum Medical Group, both drug-screening companies in Hawaiian Gardens. He told WorkCompCentral that labs and billing companies in California are paying physicians for referrals.

He said that what is happening with toxicology is no different than the ways vendors and doctors have partnered on diagnostic imaging, office dispensing or using compound drugs, and that it's "so crooked that it’s difficult to do things the right way.”


Friday, April 20, 2012

It's a Prairie Fire

"We may be looking at a prairie fire," Tulsa, Oklahoma attorney Steve Edwards, legislative consultant for the Oklahoma Injury Benefit Coalition on the alternative benefit measure that was passed by the Senate, told WorkCompCentral on Thursday.

He's talking about the sudden and explosive interest by business to take to other states the non-subscription model that may get approved by the Oklahoma House of Representatives as soon as Monday.

States that are reportedly now very interested and for which proposals may be filed as soon as this legislative session were identified as Colorado, Kansas, Louisiana and Tennessee.

Wal-Mart, a huge influence of workers' compensation operations nationwide as one of the nations biggest employers and certainly the nation's largest retailer, announced earlier this year it was opting out of the Texas work comp system to implement its own ERISA based non-subscription model. We can expect it to do so in Oklahoma as well.

Wal-Mart's decision runs counter to the trend in Texas which makes it even more notable.

Workers’ compensation law changes over the last few years have helped lower costs for employers, leading many companies to return to the state's workers' compensation system, according to Margaret Greenshield, chair of the Texas Alliance of Nonsubscribers.

Greenshield told WorkCompCentral that, "This migration back into the system is reflected in a 2010 (Texas Department of Insurance) survey that shows the number of Texas workers employed by nonsubscribers dropped from 25% in 2008 to 17% in 2010".

The same survey showed that the number of nonsubscribers among the state’s largest employers fell from 26% in 2008 to 15% in 2010.

Daniel Morales, spokesman for Wal-Mart, told WorkCompCentral that Wal-Mart’s ERISA plan will allow it to increase the pool of doctors available to treat injured workers (because they don't have to be qualified through the Texas work comp system) and allow those workers to receive treatment more quickly, and to receive indemnity benefits faster – and at a higher rate – than they would under workers’ compensation:
  • There would be no waiting period under the Wal-Mart plan as opposed to Texas' seven-day waiting period; 
  • Indemnity would cap at 90% of the employee's pay rather than the current $787 per week under Texas work comp; 
  • Indemnity would be processed through Wal-Mart's payroll system, which makes it much more efficient than through a carrier/third party administrator.
Those are pretty compelling non-subscription benefits.

Rick Levy, legal director of the Texas AFL-CIO, has always been adamantly opposed to Texas non-subscription because in Texas there is no requirement that non-subscription meet the same or better standards as the work comp system. His tune changes though relative to Oklahoma's plan law.

Levy seemed to indicate he might be okay with the concept of non-subscription if there are safeguards that ensure that benefits under non-subscription at a minimum match what a state's work comp laws guarantee.

He noted, however, in the past Texas non-subscription proponents have argued against such minimum guarantees.

“They have told us that doing that would make the program nonviable,” he told WorkCompCentral when discussing non-subscription in Texas versus Oklahoma.

“My question to them,” Levy said, “is ‘are you ready to accept the same requirements in Texas?’”

It seems to me that Labor might get behind non-subscription Oklahoma style if such minimum guarantees are a part of the legislative deal making and Wal-Mart demonstrates leadership by ensuring that its non-subscription plan runs smoothly and provides benefits quickly, with less bureaucratic intervention and returns people back to work without stigma or discrimination.

In the end, that could spell the demise of workers' compensation as we know it - and that, in my opinion, may be a good thing as the raison d'ĂȘtre of work injury protection systems would return to its original mission: protecting employees and employers.

Thursday, April 19, 2012

Florida Does It's Own Private Idaho

We know that legislators don't think a whole lot about workers' compensation. For the most part, work comp to our elected officials is viewed the same by law makers as most business owners see it - an irritating expense that isn't understood, takes up unnecessary time and resources, and adds no value to the operation.

Florida Governor Rick Scott certainly indicates that's how he views an industry responsible for a couple billion dollars of economic activity in his state by line item vetoing $195,000 from the state budget of $70 billion that was marked to fund the annual benchmark study by the Workers Compensation Research Institute (WCRI).

The money would have come from the Florida Workers' Compensation Administration Trust Fund, which is financed by premium assessments paid by employers. 

As I have opined in the past, I have a problem when a specific funding source for a specific service is treated like general fund money - employers paid for the research and now they are not getting what they paid for.

The Florida Division of Workers' Compensation (DWC) used to provide information to law makers about the functioning of the system, but on April 6, Scott signed Senate Bill 140, which repeals the requirement that DWC issue annual reports to lawmakers.

Florida does not have its own rate making agency and relies upon the services of National Council on Compensation Insurance, Inc. (NCCI) to take care of statistical analysis and rate making recommendations to the insurance department. NCCI takes in a lot of data about the health of the system and uses that data to determine if carriers in the state for which rates are being recommended can continue doing business in an adequate fashion to ensure liquidity and capacity. But NCCI's function is as a rate making agency, not as a public policy analyzer, like what WCRI provides.

Removal of funding for WCRI study and DWC's reporting now means that the only source of information about the health of the system in Florida is the rate making service provided by NCCI.

That would be like saying that the only newspaper in Florida is going to be the Miami Herald.

Persons responsible for making decisions, particularly law makers, are now deprived of important, independent, information that otherwise is not of particular interest to rate makers.

The WCRI provides vital statistical comparison analysis of key states that have influence on the rest of the nation's workers' compensation practices in a manner quite different than NCCI. WCRI's annual benchmark reports, because of comparison analysis with numerous states, provides trending that otherwise might fly off the radar on topics that are not of interest to rate makers.

For instance, during this past year WCRI reporting was instrumental in understanding not only the scope of prescription drug issues, but how they are trending across states, and showing the migration of activity, for instance, from Florida to Georgia, as measures were implemented to control prescription abuses.

And its not often that business and labor agree on something, but the availability of an independent source of information on the state's work comp system is one where there is shared concern.

In a statement issued late Wednesday, the Florida Insurance Council said insurers were "disappointed".

"The vetoed funds would have allowed WCRI to include Florida in its multi-state comparisons on multiple workers' compensation issues for policymakers. The Department of Financial Services believes it has all of the data necessary for Florida," the Council said in the statement. "The department, however, does not have the multi-state access of WCRI. This was money allocated from the WC Administrative Trust Fund that is funded by assessments on policyholders, not general revenue."

And Ricardo Morales, president of Florida Workers' Advocates (FWA), a claimants' attorneys' group, said potential removal from the annual WCRI study leaves the National Council on Compensation Insurance (NCCI), Florida's rate maker, as the sole source of annual reports on workers' compensation, which would place too much reliance on NCCI.

Judge David Langham, deputy chief judge of the state Office of Judges of Workers' Compensation Claims, told WorkCompCentral that lawmakers and state officials need a multi-state comparison to make policy decisions.

"In order to have consistency, you've got to be able to compare statistics state-to-state and region-to-region," Langham said. "Only an agency like WCRI brings that to the table."

WCRI Executive Director Richard A. Victor said the withdrawal of state funding for the studies "appears to be only a phenomenon in Florida."

Without a good comparison, and the ability to note trends not just in one state, but across several comprable states, deprives policymakers of important information that would influence legislation and business operations.

Maybe Florida, hanging down there at the lower eastern portion of the nation, sort of isolated due to its extensive Gulf and Eastern shorelines, is feeling a little B-52's "Private Idaho":

Don't let the chlorine in your eyes
Blind you to the awful surprise
That's waitin' for you at
The bottom of the bottomless blue blue blue pool.

Florida - don't "be blind to the big surprise, Swimming round and round like the deadly hand, Of a radium clock, at the bottom, of the pool."

Wednesday, April 18, 2012

Reform is About the Trees, Not the Forest

Workers' compensation reform is in the air in about a dozen states right now, including the Federal Employee Compensation Act (FECA) system.

Particularly in California, the biggest work comp system of all, this wave of reform is spurred by two disparate goals: reduce costs and increase indemnity.

A good friend of mine from the industry accurately described, in my opinion, the basic element that leads to the octennial revision of workers' compensation laws: "Everybody in this system is out to get all they can," he said to me, "so much like the criminal system, both sides need to do their best to win, and if the system is designed right, and the Judges do their jobs, justice should be done."

I think my friend is absolutely correct in the first instance - everybody is out to get all they can.

This includes of course injured workers that seek to increase indemnity and liberate the medical dispensation system. Employers that seek to pay as little as possible for coverage (and some seek not to pay at all). Insurance companies seeking to maximize the profit out of the cash flow exchange that work comp provides. Vendors (including medical providers) that seek to capture all of the dollars that an injured worker throws off them. Brokers who like higher premiums because that means bigger commissions. The list goes on.

There are so many myriad businesses that specialize in the process of taking a work injury from start to finish that if this process were described to a logistics specialist their eyes would glaze and their disbelief would turn to disinterest as they go back to the design of the latest assembly line system.

I struggle with how workers' compensation can be tamed - there are so many moving parts it is seems almost impossible to quantify. The politics of so many interested groups must be overwhelming for legislators who have no idea of the monstrosity that has evolved from such a simple concept of spreading the risk of work injury to the entire employer population so that the 1% of the employment force that does get hurt at work has a safety net.

When I was still a naive defense lawyer and couldn't sleep at night (I'm not as naive now as I was then, and I'm not a defense attorney any longer, but I still don't sleep) I came up with the concept that the workers' compensation system could be flowcharted - that there was some logical distribution of the various claim elements that could be followed if one took the time to study the statutes and regulations. It seemed to me that things sort of fit together and that a better understanding of the system could be had if it was represented graphically.

Besides that, it would be a tremendous marketing tool for my law firm.

So I spent hours very early every morning before taking off for my first court appearance working on a flowchart.

This took a lot of time initially as I would document a process, put it where I thought it belonged in the flow of things, then would have to incorporate some seemingly contradictory provision into the pattern.

I think that first flowchart of the California work comp system, which I published back in 1997, took me about 80 total hours to put together. I called it the California Workers' Compensation Flowchart.

Much to my chagrin, this was the start of an annual exercise - and frankly one that I don't relish - and each year has assumed in the title the year of the legislative and regulatory changes implemented.

I think you would be very surprised at how SIMPLE those early Flowcharts were compared to today's monstrosity! In 1997 I thought the system was complex. But 2004 introduced so much more complexity into the California system, and judicial interpretations of that mess of a law raised the bar even further, that this is what we have now:


I know you can't make out the details; I'm not sure you want to. Trust me that while this looks complex, there are details that I don't include - how granular can one really get? In California work comp, one can get VERY granular...

I had the president of an insurance carrier tell me once why he usually ordered up a half dozen of these posters at a time - because when he went to big clients for a review and was challenged with why the premium was so high, he would whip out this poster with all its complexity and tell them, "this is why."

I can't deny that logic...

The reason I bring this up is because the present talk of reform focuses on granular tweaks - lots of small items intended to wrangle out some sort of "savings" so that another small part of the system can be increased. It's the proverbial trees trumping the forest. One tree seems diseased so treatment is applied, but in the meantime the rest of the trees, to which the disease is spreading, is ignored, until the whole forest falls.

For instance, everyone relies upon the data published by the Workers' Compensation Insurance Rating Bureau (WCIRB) but no one challenges that this data is even valid or accurate.

As an example, WCIRB relies upon reserve data from the carriers to make actuarial pronouncements.

My good friend has an acquaintance who just quit the State Fund as an adjuster. She said she just couldn’t take it anymore. “It” meaning the employers calling her and complaining about her reserve practices, and the vendors calling and complaining about unpaid bills. The two shouldn’t happen at the same time… if you aren’t paying your vendors then your customer should be happy that you're saving them money.

The answer to the dilemma lies in reserves - management provides all kinds of cheat sheets and charts showing what she should type in on various types of body parts in different types of cases, and even based on which physicians are involved. She doesn't really know what she is inputting or how it affects the premium or management of the case - she follows instructions for processes that were devised by people higher up the food chain. She makes educated guesses at the data based on these forms and formulas, but in the end it is all guesswork.

This guesswork reserve data is then communicated to the WCIRB at various points during the year and is used as a part of the actuarial prognostications for generating rate recommendations, even though it is not accurate data.

This is "virtual" data - it's not real. It is a fantasy. Perhaps it is the best we can come up with, but it is not data that can be validated, is not data that can be replicated, is not data that can be relied upon because it is about something that MIGHT happen in the future.

Kind of like "end of the world" predictions - when the event doesn't happen (remember Y2K?), well the scriptures (or whatever drove the prediction) were misinterpreted... Perhaps it just isn't reliable information after all...

This is why the WCIRB can come out with a proposal for a big rate increase at one point in the year and at another point "adjust" it downward or upward, depending upon what new claims data based on reserves comes in the door.

Reform can't be about the trees - it has to be about the whole forest. The concept of workers' compensation is a good one. Along the evolution of the system the concept got lost. Trees were being fixed but in the meantime the forest has not been managed and we are dealing with overgrowth and high density forestation. Eventually a wild fire will burn down the forest and take a few structures and lives along the path of destruction.

I've said it before, but I think it bears repeating - reform can not be just about the benefit delivery system. That is only one grove in the forest.

Tuesday, April 17, 2012

Noncompliance: Laws Are One Thing, Enforcement Another

I'm sure that one of the biggest reasons for non-compliance with mandatory workers' compensation provision is that some employers don't seem to feel that the risk of getting caught isn't that big compared to the reward of saving all that cash.

WorkCompCentral publishes news all of the time about employers who get jail time and ordered to pay restitution to the carrier for either misclassifying employees, under-reporting payroll, or not carrying coverage at all. Certainly this news gets around.

Yet there are always some who don't feel the penalty for getting caught is an adequate deterrence.

In Massachusetts some lawmakers feel that if the penalty were harsh enough they may be able to influence behavior more affirmatively.

Senate Bill 915, scheduled for a final vote in the Massachusetts state Senate on April 26, would make failure to carry workers' compensation coverage a felony punishable by up to five years in state prison and not less than six months to 30 months in county jail and/or fines of between $1,000 and $10,000 for noncompliance.

Current law sets a maximum penalty for failure to carry workers' compensation coverage of up to one year in prison, a $1,500 fine or both.

I would have to agree that certainly the current law is pretty much a joke in terms of compliance motivation. You can bet that nearly no one serves prison time under this law, in particular if it is a first time offender. And the consequence of only a $1,500 fine is recouped in just a short period of time if coverage isn't carried.

In terms of risk versus reward, the current Massachusetts penalty likely has little deterrent effect, and certainly isn't going to deter the sociopathic employer.

A Massachusetts law passed in 2009 also imposes penalties of up to a year in jail and/or a fine of up to $50,000 for employers who "willfully" misclassify workers as independent contractors. Repeat violators can be sentenced up to two years in jail and fined up to $25,000 per violation for misclassifying workers under present law.

I don't have any data or information as to whether the 2009 law made a difference in misclassification.

The Massachusetts Department of Industrial Accidents (DIA) reported more than 1,000 cases of noncompliance during the past five years involving injuries to workers employed by uninsured companies. DIA reported the injuries resulted in nearly $26 million in damages during those years, and during 2009 and 2010, DIA issued an average of more than 3,400 stop-work orders a year. The department collected between $1.3 million and $1.8 million annually in 2009, 2010 and 2011.

The purpose of this new law is to ensnare companies that unwittingly misclassify workers as independent contractors when DIA can't prove the misclassification was intentional, Bill Vernon, state director of the Massachusetts chapter of the National Federation of Independent Business, told WorkCompCentral.

The question all comes down to enforcement and whether penalties are meted out sufficiently to persuade employers into compliance.

One of the biggest obstacles I see is that jail time is likely not very enforceable because other more heinous criminals need that jail space.

And the criminal employer that is skirting workers' compensation compliance is typically not too concerned with the financial penalty - that mindset spends the money long before getting caught so there typically isn't much to lose (though occasionally we will read about an employer that did build up substantial wealth and had to forfeit much of that in restitution and fines - not very often though).

Other states that have recently increased the penalty severity for non-compliance but I don't know whether those efforts have proved successful. For instance in North Carolina noncompliance is a Class H felony punishable by up to 10 years in prison, and both Connecticut and Pennsylvania have recently made noncompliance felonies.

I think it is good to have stiff penalties on the books for noncompliance so that law enforcement and the judiciary have the tools necessary to prosecute those scofflaws

We all know that noncompliance is a serious issue. It drives up costs for those employers who do abide by the law and it creates an unacceptable risk to the non-covered employee that may get injured.

Surely some of those that end up as the subject of enforcement are either ignorant or just plain stupid. In most of those situations the law is adequate and we won't see repeat offenses.

It is the repeat offenders or those who display a callous disregard for the law by engaging in noncompliance behavior for a protracted period of time. Those are the bad apples that need to be removed from the cart.

Still, Does the criminal mind know? Does the criminal mind care? Time and statistics are all that we can use to measure the effectiveness of the law and law enforcement.

Monday, April 16, 2012

Call Now for Free Money - A Representative Sample

I was riding my bicycle in Ventura County, CA, the other day (those of you who know me know that I'm a complete kook when it comes to riding my bicycle - there is nothing I can think of that is a better use of my time!) when these signs posted along the roads that front agricultural fields caught my eye.

My spanish isn't too good but fortunately I have the assistance of Google Translate. So if I get the translation incorrect please don't castigate me publicly.

Here's what this sign says based on my Google translation skills:
"Call for free medical!
"Legal Central International
"Free consultation!
"You'll receive $4,000 monthly disability"

Then of course the phone number. 

I want $4,000 a month! And free medical!!

So I called the phone number (on a Sunday though) and got a recording, mostly in Spanish, but there was an English follow up recording, "Welcome to Legal Central. If you have a case with us press one, if not please stay on the line." Something was apparently wrong with the phone system because then it hung up, but I got an call back from 619-309-4461. I was away from the phone and no message was left. Likely an automated call back system.

I did some Internet snooping.

According to Corporation Wiki, "Centro Legal Internacional, Inc. has a location in Chula Vista, CA. Active officers include Carlos Arguello. Centro Legal Internacional, Inc. filed its Articles of Incorporation on Saturday, January 01, 2005 in the state of California and is currently active. Tania Arguello serves as the registered agent for this organization.The company's line of business includes Legal Services Office."

Associated businesses include Arguello Enterprises Incorporated, United California Medical Dynamics, Inc. and High Voltage Advertising LLC. None of these entities have web sites.

I checked the California State Bar website for attorneys with the name "Arguello" - there were eight with one listing that seemed close: Arguello, Carlos Active 157162 San Diego December 1991.

I don't know if this is the same guy - the listing shows current employment with the Office of the US Attorneys office in San Diego on Front Street.

I'm not saying that anything illegal is going on here. And perhaps this is a valid service that helps mono-lingual hispanic workers access benefits that they may not otherwise avail themselves in the event of an injury.

But if that is the case, then why the seeming promise of $4,000 monthly disability? Why the claim of free medical? What's the catch??

I don't know ... this all just seems to be wrong and representative of a part of what ills workers' compensation: promises of free medical care, free income, free legal advise...

Some have opined in the past in LinkedIn responses to my blog posts that attorneys are a big problem in workers' compensation. I have defended attorneys as a necessary part of the dispute resolution process inherent in work comp.

I can't defend this practice though.

Friday, April 13, 2012

Valdez Wins if Docs Want to Work for Free - Didn't Think So

One of my very first lessons as a workers' compensation neophyte was, "he who controls the medical controls the case."

That is the premise behind the fight in Valdez v. WCAB, No. B237147 (pending in the California 2nd District Court of Appeal) where the Workers' Compensation Appeals Board (WCAB) ruled last April that Labor Code Section 4616 bars the admission of medical reports from doctors who are not a part of an employer's properly noticed and valid Medical Provider Network (MPN). That code section sets forth a multi-level process for an injured worker to change physicians within an MPN and obtain the opinions of additional doctors to dispute a treatment or diagnosis.

John A. Mendoza, Valdez' attorney in the case argues that this ruling conflicts with another Labor Code section, 4605, which provides that "(n)othing contained in this chapter shall limit the right of the employee to provide, at his own expense, a consulting physician or any attending physicians whom he desires."

Mendoza told WorkCompCentral in an interview yesterday that, "every section in 4600 is talking about an employer's obligation. It says an employer 'shall make a medical appointment,' but it never says an employee shall attend."

The argument being, in summary, that if the injured worker wants to "pay for" his or her own medical treatment and evaluation that any evidence from such treatment or evaluation is admissible to prove or disprove an issue.

Honestly I don't have a problem with that - as long as the injured worker ACTUALLY pays for the treatment, exam and/or report - and that NEVER happens!

What actually happens is that the physician providing such services does so on a lien basis and the employer/carrier ends up paying for it anyhow, so section 4605 becomes nearly irrelevant.

One of the basic tenets of workers' compensation (which, by the way, I do think is a flaw in the underlying philosophy of the system - but that's the topic of another column) is that all medical services are without expense to the injured worker. That is an entitlement well ingrained in the minds of workers, their counsel and the physicians doing the work.

I think that the position taken by Valdez is extreme, and is not even fully supported by the California Applicant Attorneys Assoc. (CAAA).

CAAA's amicus brief in the case argues that he WCAB decision "was overly broad" in excluding physician reports from non-MPN providers in every administrative proceeding, and that the injured worker should be able to use the treating physician's reports in disputed body parts cases.

A related issue in the case is how Labor Code section 4616.6 interfaces with the whole process.

4616.6 states simply: "No additional examinations shall be ordered by the appeals board and no other reports shall be admissible to resolve any controversy arising out of this article."

"This article" is Article 2.3 governing MPNs beginning with Labor Code Section 4616.

The WCAB said that "Section 4616.6 is not limited to cases where there has been an (independent medical review) under Section 4616.4, because other 'controversies' may arise under the MPN article of the Labor Code before the injured employee gets to the stage of requesting an IMR."

4616.4 is all about the Independent Medical Review process.

CAAA argues that 4616.6 "by its own terms is limited to disputes arising within the … MPN … and specifically, the independent medical review."

Valdez argues that Section 4616.6 is limited to cases where there has been an independent medical review under Section 4616.4, so it was inapplicable to his case.

The California Workers' Compensation Institute (CWCI), an insurance carrier supported research and advocacy organization, argues that the intent of the legislature in 2004 was to secure medical control to the employer. And that may be true, but the argument doesn't really address the technical issue as to whether an employee can go outside the employer controlled medical process at his or her own expense.

Valdez' argument that there is no requirement that an injured worker attend an appointment within an MPN may be true (I'm not completely buying that - there is a process to compel attendance or forfeit rights in the litigation process, but that its very rarely enforced), but the issue then really becomes who is paying for that privilege at the end of the day?

Certainly if Valdez' argument wins, that 4605 grants the injured worker the right to see whoever he or she wants for medical services at his/her own expense, then the court must also make clear that there is absolutely no liability for such medical expense by the employer/carrier. Does the court see that as an issue?

Is there anyone in the medical-legal business willing to paraphrase Larry Miller, president of Southern California bed retailing chain, Sit N' Sleep, in his commercials, "We'll beat any competitor's advertised rating, or your medical report is FREEEEE!"?

{silence except for crickets chirping}

I thought so.

Thursday, April 12, 2012

Work Comp and Dirt - Do They Have to be Synonymous?

“There’s almost no business that is doing workers’ compensation that’s clean,” he said. “It’s a dirty business from start to finish. It’s dirty all the way around. Dirty, dirty, dirty.”

That's a quote straight out of this morning's lead story on WorkCompCentral from Paul Randall, a former consultant for Tri-City Regional Medical Center in Hawaiian Gardens, California, before the hospital fired the chief executive officer who hired him, and who was featured in a Wall Street Journal article in February about an alleged conspiracy to inflate the cost of spinal surgery hardware and use the proceeds to pay kickbacks to doctors (the U.S. Attorney’s Office in Los Angeles prepared, but did not file, a criminal charge).

"Dirty" is an adjective that I've personally heard used to describe the workers' compensation industry way too many times in the past couple of years for it to be coincidence.

A couple of years ago, when in a meeting with some executives from a medical imaging company about doing some business with WorkCompCentral, the CEO of that company, in a moment of frank discussion, said, "David, you know and I know that workers' compensation is a dirty business. Very dirty."

At a lunch meeting several months ago with a medical executive/physician, talk about the industry inevitably led the executive to declare that our industry was "dirty" from top to bottom.

A former workers' compensation judge that I know well describes some of the business antics and characters that would come before her in the courtroom as "dirty".

And most recently in an email exchange with yet another industry executive the businesses in our industry were described nearly universally as "dirty".

When you Google "workers' compensation dirty" (don't use the quotes, just input those search terms) you come up with many interesting web sites that declare various dirty elements or tactics in the industry, and not just medical providers or attorneys.

Contractors Insurance, which appears to be either an agency or brokerage, itemizes 7 "dirty secrets of workers' compensation insurance" pointing out elements of work comp insurance that an employer wouldn't necessarily understand but which have huge impact on premiums.

Another brokerage has a presentation on the experience modification system which it calls "Workers' Compensation: Dirty Little Secrets".

And there's a host of attorney sites using the term "dirty" in their marketing.

Why is workers' compensation so "dirty"? What is it about this industry that elicits such negative images from system vendors? Is doing business in workers' compensation nearly always on the edge of legality, morality, ethics?

Then there's the stories of recent that really challenge one's misconceptions of public safety personnel - the last people one would think would be taking advantage of the work comp system: L.A. Firefighter, and Part-Time Martial Arts Fighter, Arrested for Fraud; Disabled Police Officer's Drug Sales Nixed his Entitlement to Benefits; Former Deputy Fire Chief Surrenders on Comp Fraud Charges - there's plenty more.

Where do we go from here? How do we "clean" up the "dirt" in our industry?

Yesterday I went on a rant about education, or the lack thereof, in our industry. I got a lot of agreement on that post. Is part of the issue degradation in professional training? Maybe we've gotten to the point where most people just don't care anymore - that the "dirty" in workers' compensation is just accepted as a part of doing business.

If you're like me, you don't buy that.

Workers' compensation (in whatever form it is delivered, be it standard issue insurance or some form of ERISA opt-out program) is one of the basic tenets of a globally competitive economy. The concept of work injury insurance is that the work force must have some protection against injury or disease to stay productive and produce a standard of living that is the mainstay of modern first world economies.

It's not the best way to get things done, and yes the industry has evolved over the last 100 years, perhaps beyond what the original provocateurs intended (I use the term "provocateurs" intentionally because the idea of work comp when first derived was NOT a popular program). But it does serve a vital purpose that has largely enabled this country, and others, to move beyond agrarian living.

As a dozen or so states this year contemplate "reform" and push around various measures to try and reconcile the disparate goals of increasing benefits while reducing costs, I can't help but think how much of this debate arises out of our dirty house.

This makes me sad. Are we all really that dirty? Is there no soap that can wash away the filth?


One element that I did not write about in the blog post originally (mostly because when I write it's 3 a.m. and I haven't entirely derived the benefit of caffeine) is the dirt on the insurance side too - and there has been plenty of that in the headlines in the past few years too: AIG's use of credit default swaps and captive offshore reinsurance to avoid state premium taxes; contingent commission programs causing brokers to steer business away from lower premium quoted underwriters without disclosure to the employer/client; Unicover partners; etc. The "dirt" does go full circle, and while most are clean, it's the dirty ones that take up most of the resources and cause most of the problems.

Wednesday, April 11, 2012

Reform? How About Professional Competency?

Maybe this is a little off topic, maybe not, but I'm going to rant anyhow.

One pet peeve of mine, being in the position I am in as chief executive of a specialty publication and education company, is the lack of knowledge I observe in the so called "professionals" that make a living in the workers' compensation system.

For example, yesterday my customer service staff took a phone call from an attorney's paralegal who was questioning why the California 2012 state average weekly wage (SAWW) was not published yet on WorkCompCentral.

The paralegal was relentless, insisting that her attorney was adamant that the 2012 data should have been published, that it was in effect and that he needed it NOW.

At first I was baffled - we are up to date on all SAWW data where that computational factor is used ... or so I thought. Perhaps we missed something?

Then after that brief period of self-doubt I realized that, of course we don't have the 2012 SAWW data yet because a) it has not been published and b) is not going to affect any claim except those that originate with a 2013 date of injury - an event that can not happen yet.

A quick search of the Labor Code and section 4453(a)(10) reminded me that:

Commencing on January 1, 2007, and each January 1 thereafter, the limits specified in this paragraph shall be increased by an amount equal to the percentage increase in the state average weekly wage as compared to the prior year. For purposes of this paragraph, "state average weekly wage" means the average weekly wage paid by employers to employees covered by unemployment insurance as reported by the United States Department of Labor for California for the 12 months ending March 31 of the calendar year preceding the year in which the injury occurred.

My staff has been clearly briefed on not providing legal advise and they are certain to inform our customers that they are not lawyers, and can not provide legal information but can point them to the correct legal resource. So I told staff to direct the paralegal to said Labor Code section and to let her know that her attorney was wrong.

A couple of days ago my staff took a call from a different attorney who didn't know how to perform a pre-1997 permanent disability rating that involved the "subtraction method" for rating a psyche injury with apportionment.

In the name of good customer service I performed the calculations and provided the attorney with the spreadsheet I created to do the job, with the caveat that I'm not a rater, that what I did might be wrong and that he should know better because he is the one getting paid to do this work!

We provide education to physicians, namely those who wish to be certified as Qualified Medical Evaluators (QME). One of the requirements of a QME is knowing how to write a medical-legal report that incorporates all of the basic requirements of the Labor Code and Regulations.

As part of the QME training we provide, the physician is required to write and submit a sample medical report. The quality of these sample reports is frighteningly poor. I don't believe some of the garbage I read - from plain and simple basic omissions of required report elements to nearly incomprehensible gibberish. No wonder there is a problem with impairment ratings and permanent disability calculations - those who are mandated with the job of determining these basic claim elements don't know how to do this work competently or proficiently!

We take several calls about what I consider basic workers' compensation knowledge issues every single day. Calls from self-proclaimed "professionals" who are getting paid to know the system, know the law, know the regulations and perform services for others as experts even thought it is quite obvious, at least to this one observer, that there is no expertise, no knowledge, no professionalism. These calls come from physicians, attorneys, secretaries, claims adjusters, medical billers and so on.

Folks, the SAWW issue is BASIC workers' compensation legal knowledge. This is an issue covered in Work Comp 101. While a pre-1997 claim is rare now, rating permanent disability is a basic skill! Even if it involves the "subtraction method" of dealing with apportionment in a psyche claim. Writing a rateable and legally compliant medical report is not rocket science - hell I wouldn't even describe it as the practice of medicine!

Yet, here are attorneys, physicians and others, people that are either billing an insurance company a couple hundred dollars an hour or getting a percentage of some injured worker's settlement to know what the law is, and don't.

In my opinion this is inexcusable. Yeah, workers' compensation is technical and complex, especially the large bureaucratic system we have in California. But if you're employed in this industry it is your obligation to know what the heck you are doing!

We sell education so of course my opinion is biased, but I am constantly amazed at how little commitment there is in our industry to be truly educated. We have a very large population who is either very lazy, very cheap, or both.

There are a few people in this industry who hold a very high standard for themselves in the professional ranks. You know who they are. They are the ones that are always showing up for seminars, always engaged in the news of the industry, always trying to understand the issues and the policy requirements behind the law and regulations.

They are the minority. The majority, in my experience, have just enough knowledge to set sail down a tranquil, smooth river, but are woefully unprepared to tackle the roaring rapids that eventually are encountered even in day to day claims.

Most states have some requirements for continuing education for claims folks, attorneys, physicians, etc. But they are not adequately enforced so folks that are claiming to be continuously educated really aren't.

While various states in the union discuss reform, it is the obligation of those who make a living in the system to know what they are doing, know what they are talking about, know the law and the regulations.

Enough of my rant. If you're reading this you are probably one of the minority so this rant doesn't really apply to you.

So I urge you dear reader, go and motivate someone of the majority to become one of the minority by getting current education in workers' compensation.

Tuesday, April 10, 2012

Reform Must Include Incoming and Outgoing Costs

Spring is in the air and Spring means new life and change.

Starting today the California Department of Industrial Relations (DIR) will take in comments from industry vendors about what to do with the state's workers' compensation system, in a series of public forums where speakers are limited to two minutes each.

The forums have proved popular to the industry with over 1,500 people across the state signed up to attend causing DIR to add several more dates and venues to the schedule, for a total of nine public forums during the month of April.

The administration of Governor Jerry Brown has indicated that either this year or next there will be changes coming to the big workers' compensation system of California. The administration is seeking to increase permanent disability indemnity benefits but has to find savings in the system to offset the increase in costs as a result.

While it is anyone's guess at this time where those savings will come from, there are not too many choices, and the easiest target is from medical vendors since the medical component is the single biggest cost item in a workers' compensation claim, has the greatest growth ratio of any item by a significant margin, and is the most complex with billing codes, reimbursement schedules, reporting requirements, utilization review and various other complexities adding to frictional costs.

By all accounts thus far, the focus of the Brown Administration is on the benefit delivery system, and certainly there are benefit delivery costs that can be challenged.

But the costs of benefit delivery impact very few employers in the state from a direct perspective. And disputed claims likewise comprise a very small percent of all claims made.

There is very little discussion I see about the underwriting market process.

Employers, large and small, see the bottom line quite clearly: it's the premium quote that requires payment annually. Ask most any business owner in California whether they care about permanent disability indemnity or medical provider networks, and unless they are actually involved in the workers' compensation industry they will tell you they don't know, don't care, and assume that the system will work as intended because that is what they are paying for.

While benefit delivery costs can be an important part of the ultimate cost to the employer, as I said, the employer for the most part doesn't know about and doesn't care about benefit delivery costs. It's the cost of producing the piece of paper that guarantees coverage that employers see at the end of the day as most important. And this is where disturbing trends appear.

A friend of mine, New Jersey lawyer (and photographer) Jon Gelman, recently opined that the most quiet trend in the United States concerning workers' compensation is the "de-facto opt-out process".

Gelman argues that there are legitimate and illegitimate schemes to opt out across the states. In Michigan, for instance where unemployment was near 14% at its peak, there is a bill pending that would exempt religious organizations from having to obtain workers' compensation insurance.

Of course, we have the Texas system where workers' compensation is completely voluntary, though one runs the risk of civil disaster without some insurance protection - but for large employers, such as Wal-Mart, "going bare" is a viable option because a company that big has the resources to mitigate the risk.

In Oklahoma there is a very good chance that employers will be able to elect out of workers' compensation to provide similar benefits to their employees while retaining the protection of an exclusive remedy. I see this as a growing trend that will put this 100 year old industry on its ear.

Illegitimate schemes in the "de-facto opt-out process" involve those employers that decide that the benefit of either mis-classifying workers or just not purchasing coverage at all outweighs the risk of getting caught.

In California, DIR has done a great job under the new leadership of Christine Baker of coordinating state resources to mitigate the impact of illegitimate opt-outs. I think this will pay dividends down the road for ensuring an adequate capital base upon which to spread the workers' compensation risk.

But it all comes down to the premium at the end of the day which will motivate some employers to seek an alternative, whether it is to opt-out, move to Oklahoma or Texas or take some other action that is contrary to the public policy of ensuring that all workers in the state are protected against the medical consequences and financial ruin of a potential work injury.

The industry is full of statistics and evidence on the costs of benefit delivery. There is not so much study on the cost of the underwriting market process.

There can not be a true reform without analyzing both the incoming dollar and the outgoing dollar - they work together to generate the final number that concerns the employer.

Monday, April 9, 2012

How Would You Rule?

How would you rule in this case?

A city police officer sustained an injury to his low back on April 28, 2002, when his gun holster caught on the steering wheel while he was getting out of his patrol car. He settled his claim for temporary and permanent disability indemnity against the city by Compromise and Release (C&R) for $109,582.42, less a $69,514.00 lien and attorney fees in 2008.

The settlement was approved by a Workers' Compensation Administrative Law Judge (WCJ) and the C&R specifically provided that it did not release the city from liability for "reasonable and necessary future medical care."

The officer's doctor later diagnosed him with sleep apnea and prescribed the use of a Continuous Positive Airway Pressure machine for which the officer asked the city to reimburse him for the cost of the machine.

The city refused, and at a hearing the WCJ relied upon a report by the officer's doctor that said "(s)leep apnea has many causes but is commonly associated in the chronic pain setting with both the use of chronic opioids as well as weight gain." The doctor's report stated the officer "has been dependent on chronic opioids for his current level of function," and "has gained some weight since his injury" and it was his opinion that those factors contributed to his sleep apnea.

The WCJ concluded that the unrebutted opinion of the officer's physician, combined with the officer's credible testimony, established that the sleep disorder was a consequence of the industrial injury, for which the city was liable.

On reconsideration the Workers' Compensation Appeals Board (WCAB) adopted the WCJ's recommendations finding that the unrebutted opinion of the officer's longtime treating physician was "based on an adequate understanding of the development and course of (the officer)'s symptomatology," and the doctor's "conclusion that (the officer)'s sleep disorder is a consequence of his industrial injuries is logical and is justified by a cogent rationale."

A petition for writ of review has been filed with the court of appeals, the city arguing that the WCAB's ruling was contrary to a "strong public policy favoring the enforcement of … judicially sanctioned settlement agreements, and that substantial evidence did not support the administrative ruling.

If I'm the appellate court clerk assigned to review this case and make a recommendation to the justices about whether to accept the writ or not, my advise would be "no", i.e. writ denied.

Here's what's wrong with this case:

The city went to a hearing with out any rebutting evidence - I assume thinking that the medical report of the officer's treating physician either wasn't admissible or could not be relied upon as substantial evidence. Or perhaps the worst case scenario: that the claim just wasn't being monitored correctly and the city got caught unprepared for a hearing with no evidence to submit for consideration. Regardless, going to a hearing with out rebutting evidence is nearly always a sure way to lose.

The amount in controversy is $1,237.97 - not a lot of money relatively speaking. So the question becomes what are the underlying motivations for seeking review?

In addition, there does not seem to have been adequate monitoring of the officer's medical treatment in that it is apparent that the officer was left to his own discipline relative to the intake of pain medication. What happened with utilization review in this case?

Sure, the premise of going from a back injury to sleep apnea may seem askew, but in the face of no other evidence, how would you rule as the trial judge?

Friday, April 6, 2012

Privatization of State Funds Won't Avoid the Long Arm of the Tax Man

Hard times for state budgets make for consistent headlines in workers' compensation news as state insurance funds become targets for raids against surplus prompting attempts to privatize them, which provokes other revenue issues.

Top headlines in WorkCompCentral News this morning involve two such stories - Maryland's Injured Workers Insurance Fund (IWIF) and the Missouri Employers Mutual Insurance Co. (MEM).

The provocation for privatization of both state's carriers is the same - continuous attempts in the past (and present) to siphon money out of the carrier's reserves in order to supplement general fund revenues. Since I'm from the workers' compensation industry my bias is obvious - state legislators have no business tinkering with money that is intended to ensure a healthy insurance environment where the system around which the carriers exist requires mandatory participation by the state's employers and workers.

But state legislators pull out all the tricks in challenging the resistance to the raids - for instance, now that both IWIF and MEM have support for some privatization, legislators are seeking either back taxes from which these entities were previously exempt, or current taxes on certain assets.

In Maryland, the debate is what IWIF may owe the government in taxes if it goes private. The Maryland House of Representatives agreed by a voice vote on Thursday to send Senate Bill 745 back to the state Senate, where members voted later in the day to reject a House amendment that would prevent IWIF from paying premium taxes dating back to 1941, when the state first imposed the tax.

IWIF was exempt from the 2% premium tax until last year and could owe as much $100 million in back taxes, according to one state estimate.

Last year IWIF beat back efforts by Gov. Martin O'Malley to take $20 million of IWIF's surplus.

This year it is fighting the Budget Reconciliation and Financing Act of 2012, which would require O'Malley to take $50 million of IWIF's estimated $322 million in surplus by July 1, 2013. That bill is pending in a House-Senate conference committee.

In the meantime both versions of SB 745 require the Maryland Insurance Administration to hire an outside consultant and report back on the "real value" of all benefits IWIF has received since it was created.

In Missouri, legislation is pending requiring a study to decide whether the state has a claim to part of MEM’s $161 million surplus.

SB 856 by Sen. Scott Rupp, R-Wentzville, would establish the "Senate Interim Committee on the Structure of the Missouri Employers Mutual Insurance Co." The bill passed on a 26 to 7 vote.

The bill still requires approval by the House of Representatives.

The Missouri Legislature created MEM in 1993 to promote competition in the marketplace and lower workers’ compensation premiums for employers – especially small businesses. Because the governor appoints three of the five MEM directors, the insurer is exempted from federal taxes as an “independent public corporation.”

SB 624 by Sen. Jim Lembke, R-St. Louis, and SB 660 by Sen. Eric Schmitt, R-Glendale, would require MEM, by 2014, to convert to a private mutual company operating under the same state laws and regulations as other workers’ compensation carriers. SB 660 also would require that MEM transfer $127 million from the company's surplus funds to the state treasurer for deposit into the state's general revenue fund.

In the meantime, the interim committee would be required to meet at least twice between August and December of this year, and to study whether MEM should be sold, privatized, or have its current structure modified. It would also be required to calculate the value of MEM in case the committee recommends selling the company to another insurer.

In my opinion a mandatory participation insurance system, like workers' compensation, can not operate without either a state fund, or (in my opinion less desirable) or a residual market. These are the only alternatives to small business, which comprise the majority of insureds in any state - and are particularly subject to volatility in smaller states.

If a state is going to privatize a state fund, then it needs to implement a residual market. But the problem with residual markets is that the size of the market is divided among all participating carriers, diluting the overall capacity for the high risk small businesses meaning that their premiums are out-sized in comparison to their payroll ratio.

This in my opinion is a short sighted view of a state's economy, and could end up further exacerbating an already delicate situation by making small business activity even less attractive thus impairing further taxation revenue down the road.

But when it comes to meeting government's obligations, the immediate future takes precedence - the money will be found!

There's an old saying in tax law circles - what the government giveth, the government taketh away.

In the world of workers' compensation insurance though, the government should leaveth alone!