Tuesday, July 31, 2012

Cost Shifting - It's What Comp is For

Workers' compensation claims come about in interesting and unanticipated ways - and when the alternative is civil liability employers can be more than happy to accommodate.

In Pennsylvania a dental laboratory technician of 30 years was diagnosed with chronic beryllium disease, so he and his wife sued several former employers for "Intentional Conduct with a Substantial Certainty of Causing Injury" and fraudulent misrepresentation.

In Kostryckyj v. Pentron Laboratory Technologies, No. 1604 EDA 2011 (07/27/2012) Michael Kostryckyj worked as a dental technician for nearly 30 years for several different dental laboratories where he performed various procedures using dental alloys containing beryllium. These alloys were allegedly manufactured by Pentron Laboratory Technologies and sold under the brand name Rexillium III.

In 1998, Kostryckyj began experiencing shortness of breath and sought treatment with Edward Schuman, a pulmonologist at Holy Redeemer Hospital. Schuman diagnosed Kostryckyj with sarcoidosis, a chronic inflammatory disease of the lungs of unknown origin.

Dr. Jennifer Weibel at Thomas Jefferson University Hospital confirmed this diagnosis in 2002.

Kostryckyj went to see Dr. Milton Rossman in the Sarcoidosis and Interstitial Lung Disease Program at the Penn Lung Center in 2008. Rossman diagnosed him with chronic beryllium disease. Kostryckyj then sued.

The defendants countered with the argument that Kostryckyj's claim in civil court was barred by workers' compensation's exclusive remedy.

Kostryckyj argued that an exception carved out by the state's Supreme Court in 1992 where the employee demonstrates (1) fraudulent misrepresentation, which (2) leads to the aggravation of an employee's pre-existing condition permitted his case to proceed.

The Superior Court of Pennsylvania was not persuaded and allowed defendant's summary judgments to stand because it concluded that Kostryckyj and his wife could not demonstrate that his employers had in any way misrepresented the dangers of beryllium to Kostryckyj in order to induce him to continue in his employment.

Contrast that result with a report that was released by the California Workers’ Compensation Insurance Rating Bureau. (WCIRB) which concludes that claims frequency is up, primarily on the basis of claims of continuous trauma (aka cumulative injury, or CT).

Kostryckyj's case would clearly be one of a CT nature (albeit not in California).

Cumulative trauma claims increased 177.2% from 2007 to 2010 in the construction industry at the same time that employment fell 37.3%. In real estate, cumulative trauma claims increased 136.6%, while employment dropped 12.6%, according to the Rating Bureau. This has caused some to speculate about a connection between the economy and claims frequency.

Employers say they’re seeing an increase in the number of post-employment cumulative trauma claims. On the contrary, employee representatives note that CT claims fell from 7.9% of all indemnity claims in 2004 to 6.5% of indemnity claims in 2005. By 2008, cumulative trauma claims represented 7.5% of indemnity claims, and by 2010 reached 10%.

So employers suggest the CT trend is an example of cost shifting, and employees see this as just claims normalization over a period of time.

I see it as no big deal regardless.

Employee claims for injury benefit is a part of being in business. While we as an industry get alarmed when the meta data suggests some trends that are outside the normal short term projection, the truth is that such trends reflect that workers' compensation is doing its job by capturing claims that could otherwise burden employers with the old civil liability system that existed a hundred years ago.

As the employers in the Kostryckyj case showed, its much better having a CT claim made under workers' compensation than face a civil case where damages are unlimited and others with tenuous connection to an injury (Kostryckyj's wife for example) can claim a remedy too.

Cost shifting - sure it is. Workers' compensation exists for the fundamental reason to shift the unknown cost of civil liability to the contained cost of the politically bred, statutorily defined, and heavily regulated system of work injury protection with all of its benefits, complexities and burdens.

Monday, July 30, 2012

Work Comp Rates and Politics; Just the Way It Is

An interesting thing happened on my way to the [residual] market the other day - there were a lot more businesses in there than last year.

For those of you unfamiliar with residual markets - those are the assigned risk pools in states that do not have a "carrier of last resort" (i.e. a state fund). Carriers participating in these state markets are required to provide coverage for those businesses that can not get traditional workers' compensation insurance. In those cases there are pools where a carrier must take an "assigned" business and provide coverage. These are typically very high risk businesses or brand new businesses that have not established a safety or loss record. Because of that assigned risk categories are charged more for coverage.

According to the latest report from the National Council on Compensation Insurance (NCCI), new assignments to state residual market pools is up 9.2% on average resulting in new assigned premium going up 68.9% for the second quarter of 2012, compared to the second quarter of 2011.

On a year-to-date basis, the number of new assignments is up 13.4%, and new assigned premium is up 89.4% for 2012.

There are three basic elements to this surge in the residual pools: carriers can't make adequate money in the investment arena to cover their risks and gain a profit due to the economy; political philandering is artificially suppressing rates; and a tightening of underwriting standards in the voluntary market because of higher than anticipated loss ratios.

What is interesting about this latest surge, according to Harry Shuford, practice leader and economist with NCCI, is that the increase in the number of assignments have been “particularly pronounced in larger risks.”

In other words, more mature businesses are being assigned to the high risk pools which indicates that carriers are being much more selective with whom they take on voluntarily.

Shuford attributes this to a combination of high loss ratios the past couple of years and poor investment returns, which are not expected to reverse course for the next couple of years.

The other element though is the political interference in rate making. When rates are held artificially low carriers have little recourse in their bag of risk allocation tricks to protect their assets - and one of the tricks is to put more businesses into the assigned risk pools.

This is a form of "market hardening" that is likely to continue for the next few years until payroll increases sufficiently to generate adequate premium base.

The risk to the economy though are spikes in premium that spook employers.

While the actual dollar amount of premium increase may not be alarming on a period over period basis, when an employer's premium doubles from one quarter to the next as a consequence of reassignment it causes panic and disruption begetting further political machinations that may not otherwise occur if premium increases are smooth and predictable.

David Long, president of Liberty Mutual Insurance Co., said during a conference call last week that “while I am happy to receive fees, and in all likelihood better profits, for servicing these pools, it’s just not healthy for the industry.”

Artificially suppressing rates eventually catches up to the industry and to the premium paying businesses with spikes in premium down the road.

Smooth, progressive inflation of rates is much more palatable to the premium payor (employer) than single large increases every few years, which are difficult to plan for and disrupt the budget.

But workers' compensation is a politically created animal and thus is a politically manipulated system for the expediency of politicians. 

That's just the way it is.

Friday, July 27, 2012

Banning the Criminal Activity Makes the Criminal More Sophisticated

In 2003 the California legislature passed SB 228.

Among its various controversial provisions was a constriction on the number of chiropractic visits an injured worker was entitled to.

This law was implemented because some chiropractors would take advantage of workers' compensation's life long medical care provision and have patients on weekly adjustment programs for years, running up chiropractic bills in the tens of thousands of dollars per case.

But to prove that as soon as you shut down a well another spigot opens up (or, since this is county fair season in California, "Whack-A-Mole") unscrupulous chiropractors have teamed up with similarly characterized physicians to take advantage of the law in complex schemes to continue unfair profiteering, and according to some, illegally bilking the work comp system, and other medical systems.

California law allows licensed professionals, such as chiropractors, acupuncturists, registered nurses and doctors of podiatric medicine, to own up to 49% of medical corporations. A physician or physicians who are licensed by the Medical Board of California must own at least 51% of the corporation. California Corporations Code Section 13401.5 further says the number of licensed professionals can’t exceed the number of licensed physicians in a medical corporation.

These are known as multidisciplinary clinics and allow patients to go to a single clinic to get all the treatment they need under one roof - which would seem like a great, convenient model for patient convenience.

Chiropractors intent on unfair business practices however "lease" the use of doctors' name and licenses for medical clinics to take advantage of this liberality.

Using what's known as the MD-DC model, chiropractors get around the SB 228 constriction by having physicians order up services and make referrals for unnecessary procedures.

Several fraud experts who talked to WorkCompCentral on the condition that their names not be published said that multidisciplinary clinics -- and the MD-DC model in particular -- have become more prevalent in California after the implementation of Senate Bill 228 in 2003 and are responsible for highly inflated, if not outright fraudulent, medical billings.

But these schemes are notoriously difficult, and expensive, to prove in a court of law because of the sophistication that these people use in their accounting and other records.

And while the criminal aspect of these enterprises is alarming, the truly shocking element is that these people have no regard for the patients that are subjected to "treatments" in the name of ill-gotten gains.

For instance, the Division of Workers' Compensation (DWC) suspended the Qualified Medical Examiner (QME) license of chiropractor Richard Skala for six months but stayed the suspension and placed him on probation from July 25, 2011, through Jan. 24, 2012.

The violation Skala was accused of was referral of patients to the 51% owner of Golden State Neuro Medical Association Inc., Ramanathan Prakash, to conduct “nerve conduction velocity testing” on four occasions between March 11, 2008, and May 20, 2009. DWC says in its complaint that these referrals were made for profit in violation of Labor Code section 139.3.

Skala was a partner in Golden State Neuro Medical Association Inc. Prakash's QME status was terminated in 2011 for not reporting that he held an ownership interest in the medical practice.

Prakash was eventually found guilty of MediCare fraud for participating in a scheme that falsified patient records and billings.

All of which shows that you can ban the criminal activity, but you can't remove the criminals.

Thursday, July 26, 2012

IL Wisely Tackles Repackaged Drugs

Repackaged drugs have been in the headlines this past year for good reason - there are several studies indicating that the high cost of repackaged drugs do not correlate to a high return of value in workers' compensation systems.

The Illinois Workers’ Compensation Commission’s Medical Fee Advisory Board recommended by a 4-3 vote against a proposed rule that would regulate the price of repackaged drugs.

The proposed rule would provide that all prescriptions filled and dispensed outside of a licensed pharmacy "shall be billed at the average wholesale price, plus a dispensing fee of $4.18."

"If a prescription has been repackaged, the average wholesale price used to determine the maximum reimbursement shall be the average wholesale price for the underlying drug product, as identified by its National Drug Code from the original manufacturer," the rule states.

The rule also provides that the "average wholesale price or its equivalent as registered by the National Drug Code shall be set forth for that drug on that date as published in Medispan.”

Not surprisingly, the two employee and two medical representatives on the nine-member Advisory Board voted against the rule. The three employer representatives voted for it. One medical representative was absent for the vote and one employee slot is vacant.

What was surprising is that the full nine member Commission disregarded the Advisory Board's vote and on Tuesday voted 9-1 to continue the rulemaking process. According to Illinois observers, it is unusual for the Commission to disregard the advisory board's recommendation.

The debate included the usual arguments for and against.

Jason Keller, legislative director for the Illinois AFL-CIO and a member of the advisory board, said board members opposed to the rule cited various concerns, including injured workers’ ability to get prescriptions quickly, and the potential administrative costs of the program.

Employer representative Barbara Molloy, head of Molloy Consulting, Chicago, said she voted in favor of the rule because she believes other states’ experience with the increased costs due to repackaging illustrates the need for regulation. Molloy said she doesn’t believe opponents of the rule have demonstrated that it would deny access to, or delay delivery of, medications to injured workers.

Dr. William Werner, president of the Illinois State Medical Society, said in a statement to WorkCompCentral: "We do not believe that tying reimbursements to the average wholesale price ... is reasonable." Werner said that many physician offices rely on third-party vendors to obtain prescription medications and purchase them at levels above the average wholesale price.

Physicians also have overhead expenses associated with administering prescriptions, Werner said.

In my mind the physician's arguments are not substantial. States that have implemented price caps on repackaged drugs have not experienced denial of access to care issues. Physicians that are paying more than the average wholesale price for drugs aren't engaging in good business practices. If there are increased overhead expenses associated with administering prescriptions then that is a business administration problem, not a medical problem.

Repackaging of drugs has very little increased value to workers' compensation systems. There has been no demonstration that injured workers are better off with physician prescription fulfillment other than on an emergency basis or that they are unduly harmed.

Workers' compensation exists in part to provide injured workers with medical care at a cost that can reasonably be distributed and borne by employers, not to ensure the livelihood of vendors. It seems to me that Commission Chairman Mitch Weisz and his colleagues understand this.

Wednesday, July 25, 2012

Despite Costs Work Comp has Value

What it really all comes down to is value.

Is the cost of providing workers' compensation benefits worth it to employers for the protection against civil suits and some stability in the management of the risk of employee injury?

And is the cost of forgoing the right to a civil remedy worth it to workers for receipt of some guarantee of economic and medical protection?

The California Workers’ Compensation Institute released its report on self-insured employer losses July 19 which concluded that average paid indemnity at the first report increased 33% from 2005 to 2011, and average paid medical is up 51%.

2005 is a critical starting year for the measurement because it is the first full year after the Schwarzenegger reforms drastically reduced indemnity and introduced several medical cost constriction measures.

Jerry Azevedo, a spokesman for the Workers’ Compensation Action Network, said the analysis by CWCI shows that "despite what we may hear about how different payers administer claims differently, everyone is on the same page with respect to how they’re being affected.”

Total incurred losses at first report for self-insured employers increased to $619.6 million in 2011, up 4.2% from $594.8 million. Total incurred losses at first report in 2005 were $595.5 million. This doesn't tell the whole story.

In 2005 there were 106,569 claims reported, compared to 79,075 in 2010 and 77,386 in 2011. Thus, the average incurred loss per claim of $8,007 in 2011 was 6.4% higher than the average incurred loss of $7,522 in 2010 and 43.3% higher than the average incurred loss of $5,588 in 2005.

Azevedo told WorkCompCentral that, “We know costs are heading up, we just don’t know how much further they’re going to go up before we reach a breaking point. It may not be enough just to offset cost increases with any reform. Policymakers may need to do more if cost savings will work.”

Another way to look at the data is that while claims were down as a consequence of less jobs in California, particularly in the high wage, high risk categories such as construction, the economic recovery, albeit tepid, is going to increase payroll which impacts levels of indemnity.

Self-insured employers paid total wages of $79.7 billion to 2.2 million employees in 2010, compared to wages of $81 billion paid to 2.1 million workers in 2011.

California is in the middle of a negotiating period for a new reform wave which may be introduced this year, and if not then in 2013.

Mark Gerlach, a consultant to the California Applicants’ Attorneys Association (CAAA), told WorkCompCentral it might be necessary to identify more in savings than what is needed to pay for a benefit increase, and that is a key statement, for Gerlach underscores that workers' compensation is a political product.

When we look at it from the political prism it all makes sense. While opposing constituencies may argue about costs here, and increases there, when the pencil hits the spreadsheet the bottom line is that both business and labor continue to find value in workers' compensation otherwise the conversation would not be about costs and who pays for what. The conversation would be much more radical.

So I can only conclude that while folks may utter concern over costs in workers' compensation overall people are happy and that they find value in the system. If you're in one of the special interest groups facing regulatory or legislative cuts then you're not happy, but that's how it goes in the Grand Compromise.

Tuesday, July 24, 2012

GA Case Tests Medical Privacy

An interesting battle on medical privacy in workers' compensation claims is pending before the Georgia Supreme Court (oral argument was heard July 10), and the case serves up some interesting issues for consideration.

In Arby's Restaurant Group et al. v. McRae, No. S12G0714, claimant Laura McRae accidentally drank a cup of lye and suffered third-degree burns to her esophagus while at work six years ago.

An administrative law judge ordered claimant Laura McRae to allow attorneys for her employer to speak with her treating gastroenterologist and when McRae refused, the judge sanctioned her by removing her claim from the hearing calendar.

The State Board of Workers' Compensation Appellate Division upheld the judge's action, as did the superior court, but last December, a narrow majority of the Georgia Court of Appeals reversed.

The four-judge majority acknowledged that the Georgia's Workers' Compensation Act requires a claimant to waive her medical privacy to the extent that she places her medical condition at issue in a workers' compensation claim; however the justices concluded that this is not tantamount to allowing an employer "unbridled access to ex parte communications" with a claimant's treating physicians.

The state Supreme Court heard oral argument in the case on July 10 and numerous amicus briefs have also been filed including those by the Georgia Self-Insurers Association, Georgia Manufacturers Association, Georgia Poultry Federation, the Dougherty County School System, YKK (USA) Inc., the Georgia Association of Manufacturers, the Georgia Trial Lawyers Association and University of Georgia School of Law Professor Thomas Eaton.

While medical privacy in workers' compensation is a state by state issue, in my opinion there are distinct and incompatible issues when it comes to an employer's "need to know" and protection of an employee's basic rights.

Typically medical privacy issues will only arise in litigated settings where the employer is contesting some claim to benefits and usually this is related to indemnity. Sometimes, where the claimant has an injury claim that progressively inflates to claim other body parts than that originally injured will require more information, but more often than not the issue arises when a claim for temporary disability is exceeding a normal pattern or there is an issue of apportionment when it comes to permanent disability.

In those situations the employer does not need, nor should it have, wholesale medical information. The issues are distinct and can be well defined to protect one's medical privacy.

When the issue isn't a contest about benefits, then it is a return to work issue. Return to work comes in two flavors - the employee claiming an ability to return to work, and the employer claiming the employee can return to work but refuses to do so.

The latter issue is really about indemnity - already commented on in this post.

The former issue is nearly moot - if the employee presents documented evidence of ability to return to work then that should be sufficient.

In the case of McRae, the issue in fact IS all about indemnity. In September 2009, McRae's treating gastroenterologist prepared a medical narrative report in which the physician concluded that, despite exhaustive therapy, McRae had reached maximum medical improvement and had a 65 percent permanent body impairment. In October 2009 McRae requested a hearing on her claim for temporary total disability and permanent partial disability.

Arby's attorneys tried to schedule an ex parte consultation with the treating physician, but the physician declined to meet with them absent express permission from her patient. The attorneys then moved the ALJ to remove McRae's hearing from the calendar or issue an order authorizing the treating physician to talk to them outside the presence of McRae or her attorney. The ALJ ordered McRae to expressly authorize her physician to speak with counsel for her employer, and denied McRae's request for a certificate of immediate review by the Appellate Division. In denying the request, the ALJ concluded that McRae could informally contact the treating physician herself and inquire about any communications made between [the physician] and the Employer/Insurer.

Arby's attorneys have a perfectly reasonable method of obtaining the information they seek without jeopardizing McRae's rights to privacy or otherwise influencing the physician's opinion without due process and that is to take the physician's deposition with McRae's attorney present.

The Georgia appellate court got it right when it opined that "while the Act requires an employee to authorize her treating physician to release relevant medical records and information, it does not require an employee to authorize her treating physician to communicate ex parte with the employer's lawyers in order to continue receiving benefits.  Giving the employer's counsel unbridled access to ex parte communications with an employee's treating physicians would create numerous potential dangers, as noted in Baker [Baker v. Wellstar Health Sys., 288 Ga. 336, 338(2) (703 S.E.2d 601) (2010)], among them the potential to influence the physician's testimony, to probe into irrelevant but highly prejudicial matters, and the disclosure of information never disclosed to the patient."

I suspect the Supreme Court will err on the side of protecting the employee's privacy as well since the alternative method of obtaining this information, by deposition, is reasonable, is not extraordinarily expensive, provides due process protections to BOTH employee and employer and perhaps the most compelling reason, is testimony under oath that can be used as evidence.

Monday, July 23, 2012

A Mixed Bag for California

Private self-insured employers incurred losses of $620 million in 2011, up 4.2% from the amount incurred the previous year, as lost-time claims frequency edged up a fraction and medical-only claims declined slightly, the California Workers' Compensation Institute reported.

Total claims frequency for 2011 dropped slightly to 3.66 per 100 employees from 3.68 in 2010.

More developed data from private insureds' second through fifth reports on 1998 to 2010 claims shows declining claim severity and declining claim volume until 2005, but increasing claim severity since then.

Private self-insured losses are an important barometer of the health of the workers' compensation sector because these are employers that have their own nickel in the game slot. There is no intermediary imposing its own cost or profit issues into the equation. In this case the story is that the high unemployment over the past few years is reflected in lower frequency, but the claims that are being made incur more medical and indemnity costs.

It's a mixed bag, but not entirely negative.

In the meantime the California Employment Development Department reported Friday that employers statewide added 38,300 net new jobs in June with gains in most industries, including construction and professional services.

The increase in jobs helped push California's unemployment rate down in June to 10.7% from May's 10.8%. The state also revised May's jobs figure up, to 45,900 from the initial report of 33,900.

California's job market is growing faster than the nation's — 2% since last June compared to the national rate of 1.4%.

Silicon Valley of course added substantial numbers to the state's economy with Google expanding and Facebook going public, along with other technology companies either growing or starting.

Tourism has rebounded as visitors return to the state's beaches and theme parks. Healthcare continues to advance, even in a sluggish economy. White-collar jobs such as accounting, finance and legal services are starting to return.

Even the long-suffering construction industry is adding jobs as developers rush to build apartment units for a growing population that is not buying single-family houses. The state added 8,100 construction jobs in June.

Since June 2011, the construction sector grew 5%, adding 27,200 jobs. But the industry is still down 400,000 jobs from its peak of 945,100 in 2006.

Still, the fact that higher risk categories are recovering is good news for carriers in the state.

The importance to workers' compensation is of course higher payrolls beget higher premiums which means more money coming into the system that will offset the negative combined ratio that has been reported lately and which has caused a little anxiety over a hardening market.

Still there is a long way to go. California's unemployment rate remains the third-highest in the country, behind Nevada, with 11.6%; and Rhode Island at 10.9%. The national jobless rate is 8.2%.

But California's economy is so large, and its population so big, that it takes time to catch up with the rest of the country.

So, the way I read the current news is that California's self insured businesses are keeping claims frequency in check and those that do get into the system are the more severe claims; and higher rate/risk/premium categories are coming back, which means there's going to be more money coming into the system and staying there.

The only thing missing are decent investment returns, but with the Federal Reserve's continuing pessimism towards economic recovery and view towards long term low interest rates, this part of the equation may not come to fruition for a couple more years.

Friday, July 20, 2012

Repackaged Drugs, Physician Dispensing and History

Medical groups and Florida-based Automated Health Care Solutions (AHCS) have argued that physicians will stop dispensing drugs and will stop seeing workers' compensation patients if price caps are imposed. They also argue patients sometimes face delays when prescriptions are filled at pharmacies.

AHCS sells software to doctors to assist with claims management and the dispensing of repackaged drugs.

But a just released study by the Workers Compensation Research Institute (WCRI) on physician dispensing and repackaged drugs shows that doctors in California have continued to dispense drugs since 2007 when a cap on prices was put into effect, and reported that physicians have begun dispensing non-repackaged drugs and charging prices in line with California pharmacies.

This compares with non-regulated states such as Florida and Illinois where prices increased 62% and 63% respectively during the WCRI study period, and where physician dispensed drugs are between 60% and 300% more than what is charged by pharmacies.

WCRI analyzed more than 758,000 claims involving more than seven days of lost-time from work. WCRI said it looked at nearly 5.7 million prescriptions from Arizona, Arkansas, California, Connecticut, Florida, Georgia, Illinois, Indiana, Iowa, Louisiana, Maryland, Michigan, Minnesota, New Jersey, North Carolina, South Carolina, Pennsylvania, Tennessee, Virginia and Wisconsin.

WCRI also looked at data from Massachusetts, New York and Texas, which generally prohibit physician dispensing.

WCRI used data from claims arising in 2007 with all payments made through March 31, 2008. The study compared that data to injuries occurring between Oct. 1, 2009, and Sept. 30, 2010, involving prescription costs paid through March 31, 2011.

The study found:
  • For most commonly dispensed drugs in the workers' compensation systems studied, the price per pill for doctors was often between 60% and 300% more than the price charged by pharmacies.
  • In Illinois, 43% of all drugs dispensed came from doctors' offices during the 2010/2011 period and doctors collected 63% of all the money spent on prescriptions to injured workers during the period.
  • Physician dispensing accounted for 48% of all drug costs in Georgia in 2010/2011. The State Board of Workers' Compensation capped the price of repackaged drugs by regulation in April 2011 – the month before WCRI's study period ended.
  • Physician-dispensing accounted for 47% of all drug costs in Maryland, which withdrew a proposed price cap on repackaged drugs last month, after the Maryland General Assembly's Joint Committee on Administrative, Executive and Legislative Review (AELR) voted to oppose it in February.
  • Between the 2007/2008 and 2010/2011 study periods, the doctors' share of prescription payments grew from 15% to 27% in Pennsylvania, 14% to 25% in Tennessee and from 5% to 15% in Wisconsin.
Physician groups interviewed by WorkCompCentral and AHCS try to discredit the WCRI work by stating that the organization receives funding from insurance companies - and that is partially correct. But WCRI also receives funding from many other sources, such as state agencies, that have no "teeth" in the game and simply need good information for policy decisions.

With national attention being paid to prescription drugs fueled by celebrity deaths and addiction, those arguing in favor of physician prescription drug dispensing have an uphill battle - they might win legislatures for a short time but the tide is against them.

When all of the rhetoric, innuendo and posturing is stripped away the truth is that physicians don't need to dispense drugs except in very limited, isolated situations. They certainly don't need to dispense 43% of all drugs (as in Illinois).

Eventually price caps and other regulatory tools will be implemented to either ban or discourage repackaging of drugs and physician dispensing - it is inevitable because physicians that engage in such practices have brought it upon themselves.

And besides, those doctors arguing against a price cap will find another profitable spigot to open once the repackaged drug supply dries up. Trust me. History repeats.

Thursday, July 19, 2012

AMA 6th Study Doesn't Answer the Big Question

An interesting thing happened when three states migrated to the Sixth Ed. of the AMA Guides to the Evaluation of Permanent Impairment - the average impairment ratings declined.

That is what the National Council on Compensation Insurance (NCCI) reported on Wednesday.

Impairment ratings for injured workers dropped significantly in Montana, New Mexico and Tennessee after they switched to the Sixth Edition NCCI found.

The study also compared some changes to impairment ratings in Georgia and Kentucky, which are continuing use of the AMA fifth edition.

NCCI found a direct correlation between ratings declines and use of the sixth edition in New Mexico, Montana and Tennessee. But there were also some declines in Georgia and Kentucky which NCCI attributes to other factors including the economy and law changes.

"While the impact of and the direction of the changes in Kentucky and Georgia are worth noting, the mere presence of change itself has an impact on average impairment ratings from factors unrelated to which edition of the AMA guides was used to determine impairment," NCCI said in the report.

For the three states examined, NCCI found:
  • In Montana, whole-body impairment ratings dropped by an average of 28% when comparing workers who reached maximum medical improvement (MMI) during accident years 2006-2007 and those who reached MMI during 2008 or 2009.
  • In New Mexico, whole-body impairment ratings dropped by 32% and impairment ratings for individual body part dropped by 6% for workers who reached MMI during 2008 and 2009, compared to those who reached MMI during accident years 2006-2007.
  • Average whole-body impairments dropped by 25% and impairments for individual body parts dropped by an average of 16% in Tennessee for workers who reached MMI in 2008 or 2009, compared to those who reached MMI in 2006-2007.
The Sixth Edition generated much controversy when it was introduced. The AMA released the tome at the end of a year that caused an uproar in some states because they had statutes that required an automatic conversion to the new edition - but there was insufficient time for the adoption process so legal and legislative maneuvers ensued to retard the adoption process in those states.

In addition many observed that there would be significant reduction in ratings - and of course it turns out that they were correct. This would not necessarily pose a problem for those states that have formulas to adjust impairment ratings to disability ratings (the former describes "whole person" bodily function, the later describes the financial affect). But those states that don't have a conversion system and translate an impairment directly into money essentially discriminate against workers injured after the adoption date of the 6th.

The sixth edition of the AMA guides is used in 12 states and for the administration of the U.S. Longshore and Harbor Workers' Compensation Act: Alaska, Arizona, Illinois, Louisiana, Mississippi, Montana, North Dakota, New Mexico, Pennsylvania, Rhode Island, Tennessee and Wyoming.

How those states use the guides however is dramatically different from state to state.

The biggest driving factor of the sixth edition from prior editions is the attempt to make ratings as predictable and stable as possible so that injuries generate the same rating across the nation regardless of where, when, how, who and what.

In my opinion, while the NCCI reports the obvious and predictable, what NCCI should really study (if possible) is whether adoption of the sixth edition resulted in more consistency in impairment ratings.

The issue isn't how much money an impairment rating generates - that can be adjusted by the conversion to a disability rating.

The issue is whether a back injury in Alaska generates the same impairment rating as a back injury in Wyoming. If that is the case, then the sixth edition accomplishes its goal and legislatures can adjust now much money an impairment is worth.

While NCCI's study is interesting, it is not terribly relevant.

Wednesday, July 18, 2012

Medical Causation, Factual Causation & Compensability

Workers' compensation liability follows when an injury both arises out of employment and occurs within the course of employment.

The acronym for this is AOE/COE. Both must concur for there to be a workers' compensation claim to be "compensable." There's a lot of case law that tells us what AOE/COE means in relation to specific fact patterns.

Fact patterns revolve around the question of causation.

There are two types of causation in workers' compensation: factual causation and medical causation.

Factual causation is where the issue concerns a matter of general fact that can be witnessed by a lay person (i.e. someone who is not an expert). A fall off a ladder, trip over a floor mat, automobile accident, etc.: if any of these (and many other fact scenarios) occur while the employee was on the job, and while the employee was engaged in an act in furtherance of his/her job, then factual causation is generally resolved in favor of the employee for workers' compensation benefits.

Medical causation however requires expert opinion - someone with special medical training to determine if an injury or illness had some relation to the work of the employee. Cancer, disc herniation, mental illness, etc.: where the issue requires a medical expert to opine as to whether an injury or illness was possibly caused, and occurred during, employment is one of medical causation.

Texas is about to release new rules on their designated doctor process that has caused a bit of debate.

In Texas a designated doctor is a medical expert approved by the Division of Workers' Compensation (DWC) to render opinion on medical issues. For the most part such opinion revolves around impairment ratings or treatment requests.

But some in Texas don't like that designated doctors may also render opinion on medical causation - the new rules permit a hearing officer or benefit review officer to order a designated doctor examination to resolve a dispute as to whether the claimed injury resulted from the claimed incident.

Carriers have a problem with this process because the designated doctor "hears testimony" from only one witness - the injured worker, and may not have all of the medical evidence before him/her to render a completely impartial pronouncement of medical causation.

Steve Bennett, associate general counsel for the American Insurance Association (AIA), told WorkCompCentral that “designated doctors are not authorized by statute to provide opinions on compensability. Labor Code Section 408.0041(a) lists the specific issues that may be resolved by a designated doctor and neither causation nor compensability are listed.”

The AIA also said allowing the designated doctor “to perform an examination and opine on causation in a proceeding where compensability is in dispute not only violates the statutory provisions governing the scope of designated doctor examinations, but also impermissibly shifts the burden of proof.”

Trey Gillespie, senior workers’ compensation manager for the Property Casualty Insurers Association of America (PCI), told WorkCompCentral that there is no statutory authority allowing the DWC to delegate the agency’s duty to resolve compensability disputes to a designated doctor.

Bennett and Gillespie may correct about statutory authority - they are much more knowledgeable about Texas law than I am.

But in the grand scheme of things, a designated doctor is still only a witness - not a trier of fact.

Medical causation requires expert opinion. At some point in a litigated workers' compensation proceeding where there is a dispute about medical issues there has to be an expert opinion that presumably is based on science and/or knowledge and experience.

In litigation expert witnesses may be used for all sorts of causation issues, not just medical issues. Workers' compensation, because we are dealing with injury and/or illness, relies more heavily on medical expert witness testimony than any other expert.

Medical opinion is not perfect - I think everyone appreciates that. There are some times when a physician can not render an opinion with scientific certainty and must rely upon his or her experience and accumulated knowledge to form an opinion.

Even then the trier of fact must weigh whether the opinion is reasonable - that it is substantial evidence, i.e. that the opinion can be reasonably arrived at given the "facts" presented.

In some cases a hearing officer is not going to be able to make a determination on causation without the assistance of a medical expert. The new rules attempt to resolve this procedural issue.

I don't share carrier's concern that the new rules give designated doctors sole power to determine compensability. That is still the purview of the DWC. Causation is certainly a component of compensability, but there are many other issues, issues of fact and not medicine, that the DWC must consider before coming to a conclusion on compensability.

Tuesday, July 17, 2012

The Real Lien Problem Anectdotally

A number of comments were made in the WorkCompCentral LinkedIn account regarding my blog post several weeks ago, "First Rule, Fly the Airplane". In that post I reflected that California was embarking on resolving a problem, liens, that it both didn't understand and didn't have good data on.

The comments in LinkedIn have continued. Several are from people whose business is medical billing collections in workers' compensation and I think they are illustrative of another side of the story. I present them here in edited fashion to demonstrate that the "problem" is not all about lien claimants.

Post 1:

Has "constructive knowledge" been eliminated with the current passing law on liens?

For example, I served my bill to the insurance company and I bill them every thirty days.

However, 20 days later, after the last billing, the case in chief settles. The Compromise and Released is signed. Our name is absent from the lien affidavit. Subsequent to the C&R, I file my lien and then my DOR.

The defendant contends that they sent us a payment and we did not object. Therefore they considered our bill satisfied.

We go to court (180 days have passed since the C&R), I tell the judge that the DA [defense attorney] knew our bill was $20,000 and they only paid $200.

DA says we got our two hundred dollars and they knew nothing of the $20,000. I tell the judge that the DA had constructive knowledge of our bills because I was sending the insurance company monthly billing.

How will the judge perceive my response with the recent changes in Workers' compensation lien law?

Post 2:

So the new lien law is so suppose to help how? I mean....it appears that a lot of attention will be given to settlements in order to determine when you should file a DOR.

And it would appear that insurance companies will be receiving a lot of demands for individual dates of service, if they have not paid correctly.

Furthermore, it appears that EAMS and EDEX on occasion have not provided users with the same information regarding settlements.

Since collections companies and multiple medical providers will need settlement information in order to avoid being sanctioned or their liens dismissed, then they will have to call defense attorneys and applicant attorneys.

Post 3:

We are completely overwhelmed at our office (even before the new lien regs), especially with the total disparity of information coming from EAMS/EDEX systems. We were notified by EDEX of a "Status Conference" coming up in July (is it a lien conference or not?). There is no such hearing for this patient in EAMS. Just trying to get ahold of the Van Nuys board takes a long time, with judge's secretary saying "Go look it up"! Do we go, not go? It's just one small case... out of hundreds for us in a month.

With regards to Constructive Knowledge, I do hope that this approach is not completely disallowed in the future. I know recent case law narrows our options considerably, but like you, we also send bills with POS [proof of service], settlement demands, and make telephone calls... only to have DA state he/she didn't know about us. We're here!

Post 4:

Since the passing of the recent lien legislation, I find that some insurance companies are actually saying that they are not going to pay bills. Some have gone as far to say that ‘you won’t get any money unless you litigate for it.

I am usually asked to collect on accounts that are less than a $1000. In the past, I quickly resolved such bills. But now, I find myself having to file Declarations of Readiness to proceed on very small balances.

One branch manager, at a major insurance company, asked me to prove that they had "constructive knowledge" of our lien in order to resolve the bill. I was completely flabbergasted. Maybe, what she really wanted to know was if I knew “how” to prove it. I really don't know. I am still trying to collect on the account.

On any given day, I am pressed to collect a few thousand dollars. I usually try not to spend more than a few minutes per account. Now, on a few accounts, I find myself on the phone for 20 minutes, trying to overcome "constructive knowledge" issues.

Time is of the essence in collections. And, a penny wasted in collections in Workers Compensation is money wasted. Medical collection is a fast paced environment and the new legislation has thrown a monkey wrench in the machinery.

This new legislation will eat away at the bottom line of medical providers.

Post 5:

It has occured to me that maybe the best thing to do at this point is to NOT file liens until close to the limit of the statute. (5 years from DOI [date of injury], or 6 mo's after C&R [compromise & release settlement agreement])--then there will be nothing to dismiss. So far, the new regs have not discussed this eventuality. Then... would this be a kicker?... the DEFENSE would have to argue Constructive Knowledge on the Provider's part, to get the non-lien disallowed.

If these regs were intended to limit "zombie liens", think of how it could backfire. We still have hundreds of cases where our providers never filed liens, and they are in our very deep "to do" stack. Maybe we should just wait... until all of the current lien litigation is over, until the carriers have sent their files back to storage and closed them out... and THEN file liens and DOR's when we are ready.

Just fyi... this is not something we plan to do. We are trying to play by the rules, and ethically. But we have at least a thousand cases in our office that will suddenly be effected by the new regs in August... all have C&R'd or settled in some other way, and all will require immediate action. We are staffing up.

Post 6:

We are definitely on the same page. FYI-some insurers are sending out zero checks. And the corresponding EOR [explanation of review] says that they have reviewed the bill, which they accurately reviewed, but send zero pay. And, if you ignore the check and file a DOR to protest the payment in court, then the DA can say to the judge that we didn't object. Which would mean we accepted the payment.

We may have to send a letter to the insurer notifying them we object to every date of service that they sent in a low or zero payment to protect the providers interest. Talk about time consuming. How much will I collect if I have to check every single EOB and object to it when it is a low offer? What an absolute mess.


Anecdotal, and only a couple of collections agents with their lien issues, but I think representative of "the other side."

If DWC wants to resolve "the lien problem", then strong enforcement of the rules (including penalties, sanctions, etc.) must issue against both payee AND payor. No side should be able to implement strategies that use financial strength to defeat legally indefensible obligations.

Monday, July 16, 2012

Intelligible Notices Are True Reform

If there is one thing that the current California workers' compensation administration is doing that is of utmost importance, it is the de-complication of the forms that are sent to injured workers.

Rosa Moran, administrative director of the Division of Workers' Compensation, said during the California Coalition on Workers' Compensation 10th annual Political and Educational Forum that her staff is rewriting benefit notices, which she described as "a mess."

I agree.

She said she struggled to understand the notices that are sent to injured workers despite having worked as a workers' compensation judge and an applicants' attorney.

As an example of the confusion the communication to an injured worker can create, Moran said division interns who reviewed the notices over the summer commented that a worker must have suffered a very serious injury to be declared permanent and stationary.

They assumed the phrase -- used by doctors to indicate that a patient has recovered as much as anticipated and the extent of any impairment can be determined -- indicated that a worker was in such bad shape that he was permanently required to remain stationary.

Moran said new notice letters that use simple language -- the target is a 6th grade reading comprehension level -- are almost complete, but she wants to present them to four or five focus groups before publicly introducing them. The new notices will be released "soon," she said.

If nothing else is accomplished by the administration, revising the benefit notice letters to injured workers will be a huge boon to the workers' compensation system in California.

A couple of years ago my wife had a very simple medical only workers' compensation claim - no lost time, very little medical treatment. In fact, the injury required only two doctor visits for the initial consultation/treatment and the final follow up.

The quantity of paperwork this claim generated and copied to my wife was astounding - at least a third of an inch thick for this very simple claim.

Worse, the notices were very threatening and used unintelligible language to those not versed in workers' compensation vernacular. My wife was truly alarmed by phrases, in bold, capitalized font, that essentially said that if she did nothing she would lose valuable rights and privileges.

I don't have any statistics or anything other than anecdotal evidence, but I believe that these notices drive many workers to attorneys for advise, and as a consequence what would otherwise be inconsequential claims end up litigated.

So I commend Ms. Moran and the administration for tackling this issue. Simply revising the various notices to make them non-threatening and intelligible at the 6th grade level will go far in terms of "reform". This is the kind of "reform" that is truly effective, and doesn't cost the system anything in return.

Friday, July 13, 2012

Stop the Talk of Costs - Talk About Volatility

While lobbyists told attendees at the California Coalition on Workers' Compensation (CCWC) 10th annual Political and Legislative Forum that reform may not occur in 2012 due to various reasons, the message that was delivered was that some proposal either this year or next year will make it to the governor's desk.

Again the discussion during the presentations was trimming costs in order to raise the level of benefits (specifically revising the permanent disability rating schedule to increase indemnity to injured workers).

For instance, presenter Jason Schmelzer, a lobbyist for CCWC, said while benefits should be increased, it's important to avert cost increases that would put employers out of business and leave workers without jobs. Any reform proposal should be based on the goal of identifying $2 in savings for every $1 increase in benefits, he added.

Mike Herald, a lobbyist for the California Applicants' Attorneys Association, said using an "arbitrary number" such as $2 in savings for every $1 in benefit increases is the wrong approach.

Department of Industrial Relations Director Christine Baker said the cities of Stockton and San Bernardino filing for bankruptcy demonstrates how precarious the current economic climate is. She said she promised Gov. Jerry Brown that any changes to benefits won't drive up costs for private or public employers.

Okay people at the "reform negotiation table" - first off, jobs don't disappear because of workers' compensation. There are a whole host of other reasons why an employer trims the work force, and I can almost guarantee that while workers' compensation premiums may be a part of the equation, the reality is that work comp premium (or self insured retention) is for most employers (unless you're a roofing company or other high risk employer) only about 1% of the cost of labor.

By far and way the biggest cost to most employers is SALARIES AND WAGES.

Employers trim jobs because of salaries and wages, not because workers' compensation premiums went up another two percent.

So, lobbyists, please stop talking about workers' compensation costs as a reason why an employer may dislodge workers from the payroll. A private employer's workers' compensation costs are factored into the pricing of goods and services sold. A public employer's workers' compensation costs are factored into the tax rolls and the risks experienced by public employers are decidedly different than private employers - as was told to me in the past, while private employers tell their employees to run away from a fire, public employers pay their workers to run into fires!

Employers do much better in controlling their premiums when they know how risks get factored into their experience modification factor - the ex-mod is the single biggest "cost" component to an employer's workers' compensation premium.

Bill Cobb at CompMetrics has made available to the public a spreadsheet work book that provides a nice determination of how the experience modification rating factor affects premium - it can be downloaded (after registration) at http://www.compmetrics.com/client-downloads. While the California Workers Compensation Rating Bureau has one available too, Cobb's provides more complete analysis and ‘what-if’ scenarios.

Evaluating risk appropriately is how employers save money on their workers' compensation bills.

Costs, as described by the lobbyists and the current administration, inure to the benefit of insurers. Those savings may, or may not, trickle down to employers. Private self-insured employers, have more sophisticated methods of controlling their workers' compensation costs, and generally those are more tied into risk management practices than other techniques. Public self-insured employers may not have the benefit of those risk management practices due to various labor issues (i.e. unions) but those are issues that are a small part of the overall financial issues of those entities.

Stockton and San Bernardino's financial issues have very little to do with workers' compensation and have much more to do with a hugely reduced tax basis because the housing market is worth half of what it was 5 years ago, as well as commitments made by governmental officials via union contracts for benefits, pensions, etc. that have accumulated over the years without adequate reserving.

If those who are driving the "reform" discussion want to make a big, long term, impact on workers' compensation then they need to talk about stability and volatility. If employers KNOW that their premiums, or self-insured retentions, are going to rise consistently at 2% per year then there is no crisis and those expenses can be more accurately financed.

Market volatility is what employers complain of and what drives them nuts.

Thursday, July 12, 2012

Yes Florida, A Brain Injury Can Occur At Work

A recent Florida case is not unlike a situation I blogged about not too log ago that occurred in Virginia.

If you recall I was critical of Erie Insurance for denying a claim for benefits where the injured worker fell off a ladder and suffered a head injury impairing his ability to testify about how the fall occurred. Erie asserted a wrinkle in Virginia law that was intended to provide a presumption in favor of injured workers who can't testify about how their injury occurred.

In Florida the 1st District Court of Appeals (DCA) reversed a Judge of Compensation Claims (JCC) decision that denied the claim of a worker who fell from a ladder and could not testify about how the fall happened.

In Caputo v. ABC Fine Wine & Spirits, No. 1D11-4962, 07/11/2012, Michael Caputo, an electrician for ABC Fine Wine & Spirits fell from a ladder and hit his head on the floor while using a saw to cut down shelving on March 3, 2010.

Doctors diagnosed him with a left temporal hemorrhage, seizure disorder possibly secondary to the left temporal hemorrhage and toxic encephalopathy secondary to the left temporal hemorrhage.

Caputo filed a petition for benefits, but his employer denied his claim. ABC argued that Caputo's fall resulted either from a pre-existing or idiopathic condition.

Although Caputo testified that he remembered working on the day of his accident, he said he had no recollection of how his fall happened.

His independent medical examiner, Dr. Ira Goodman, opined that Caputo's head injuries were the result of his head impacting the floor, not a seizure or a fainting spell. Goodman was, however, unable to state within a reasonable degree of medical certainty whether any factor related to Caputo's employment caused the fall.

ABC's independent medical examiner, Dr. Anthony Shydohub, also opined that the blow to Caputo's head from the floor, and not the fall, caused his brain to hemorrhage.

Caputo's medical records indicated Caputo had fallen in the shower – resulting in a 10-second loss of consciousness, head trauma and concussion – two years before his fall at work.

The JCC said that Caputo had no pre-existing conditions which may have caused his fall, but that there was also no objective medical evidence to support a finding that his work caused his fall either. Somehow the defense convinced the JCC that there was no evidence Caputo's injuries arose out of employment (the AOE part of AOE/COE - there was no dispute that the injuries were incurred in the course of employment).

The DCA got it right - how could there be medical evidence that work caused the fall - why would a doctor have any opinion about that? That is not a medical question, it is a causation question and the fact that Caputo was at work, fell off a ladder at work, hit is head at work and required medical treatment because he fell off a ladder and hit his head at work should be sufficient.

The DCA said that Caputo established a sufficient connection between his work and his injury by producing evidence that he was performing one of his job duties at the place of his employment.

Now, let's move on to the decision by ABC to deny Caputo's claim in the first place because this is something that I find particularly offensive.

The decision by ABC to fight Caputo strikes me as irresponsible employer behavior. This is not a case where someone is trying to take advantage of a system or of the employer - the guy fell off a ladder and that is, based on the JCC's review of the evidence, undisputed.

It is also undisputed by the medical evidence that at least some of Caputo's impairment was the product of hitting his head on the floor.

To me, that is where the analysis should have stopped and the claim admitted. The medical evidence was clear that a brain hemorrhage arose out of the fact that Caputo hit his head on the floor at work.

In my opinion ABC can't complain later on about its experience modification factor. The delay in denying the claim will impact quite negatively that calculation. ABC would have done much better had it owned up to its responsibilities, admitted the claim, and provided benefits.

The case title includes Alternative Service Concepts (ASC) - a third party administrator. Apparently ASC was responsible for managing the claim. I can not tell whether there was a carrier providing the insurance, or whether ABC was self-insured. It is unclear from the DCA opinion who was steering the ship on this claim.

Regardless, this was not a case for denial.

Wednesday, July 11, 2012

X-Mods and Risk Allocation Reform

Some states are talking "reform" this year, California most notably. Reform talks always center around "costs" but "costs" are not the same to insurance companies as they are to employers.

Carriers see lots of costs that comprise the total rate that is going to be the basis of the premium requested of a particular risk (employer).

On the other hand, employers see only one cost (unless the employer is self-insured, self-administered...) and that is the premium that comes across the desk with the generic policy declarations page once a year.

When regulators and politicians talk about "reform" they typically are talking about the costs that are experienced by carriers, and they assume that control of those costs will trickle down to employer premiums.

Sometimes they do, to a certain extent. The 2004 California reforms saw carrier costs cut in half. Employers saw a benefit, but not a 50% reduction in their premiums. Most employers saw a reduction of about 25%.

The mid-2000 reforms throughout the nation were the product of a dissatisfaction with spikes in premiums - or in other words, lack of stability in the employer costs to maintain legal compliance. While there is some concern with now much a workers' compensation policy may cost in any one particular scenario, the employer community gets most vociferous when there is lack of stability in the pricing and particularly when there are severe spikes in premiums from one renewal to the next.

Imagine then the uproar we are about to experience if and when states adopt the National Council on Compensation Insurance (NCCI) proposed changes to the formula it uses to calculate premium credits or debits based on previous claims, aka experience modification factor, known in some states as the x-mod and other states as the e-mod.

Presently NCCI uses an experience rating split point to calculate experience modifiers. NCCI uses the full amount of a loss up to $5,000, known as the primary loss, and discounts the amount of a loss greater than $5,000, known as the excess loss.

The $5,000 “split point” has not been adjusted since 1991, despite the fact that the average cost of a claim has tripled over the past two decades, NCCI said in a document explaining the changes. Because the split point hasn’t changed, the portion of each claim classified as the primary loss is smaller than it was 20 years ago and the Experience Rating Plan now gives less weight to each employer’s actual experience and the plan has become less responsive.

NCCI is proposing to increase the split point over the next three years starting Jan. 1, 2013 and pending regulatory approval in NCCI states. If approved, on 1/1/2013 the split point will double to $10,000. NCCI is also proposing to increase the split point to $13,500 in 2014 and to about $15,000 in 2015. The split point for the third year will also include an adjustment for inflation.

Non NCCI states are also considering tinkering with the x-mod.

The New York Compensation Insurance Rating Board (NYCIRB) is also planning to ask for approval to increase the split point to $10,000 in 2013 as part of its 2013 loss-cost filing, Ziv Kimmel, vice president and chief actuary, told WorkCompCentral news.

In California minutes from the last meeting of the Workers’ Compensation Insurance Rating Bureau's (WCIRB) Classification and Rating Committee indicate consideration of raising the split point from $7,000 to $9,000.

Regardless, this is a cost factor that DOES concern employers.

When talk of reform circulates it is typically involved with the benefit delivery system. X-mod tinkering is a reform that involves the risk allocation system. Savings in the benefit delivery system might migrate down to the employer's premium, but not directly, and not in a dramatic fashion that most employers are going to notice.

Changes to the risk allocation system are direct, and will be noticed by employers.

How much a change to the risk allocation system is noticed will depend on how dramatically any particular employer's premium will spike. Most can only speculate what the effect will be because the x-mod is so claim specific, ergo employer specific.

Tuesday, July 10, 2012

TX Case Proves Employee Leasing Too Good to be True

Mom used to say that if something seems too good to be true, then it is.

Unfortunately this happened to a Texas employer with tragic consequences.

In July 1999 Jackson Brothers Hot Oil Service entered into a contract with Business Staffing, Inc. (BSI) for a variety of administrative services, and this contract provided that BSI was responsible for acquiring "workers' compensation insurance coverage and/or benefits" for BSI's employees.

BSI was the holder of the only policy issued by Transglobal Indemnity, which had an annual premium of $4,100 for coverage of up to $1,000,000 per accident to cover all of BSI’s 150 client companies' 2,000 leased employees.

My guess is that Jackson Brothers didn't know how much BSI "paid" for its insurance at the time, or that the premium was unrealistically low for the risk being covered, or that they cared at all - they were saving money.

They probably also didn't know at the time that Transglobal was created in the 1990s by Harry Sewill and Richard Chapman, the partial owners of BSI. It was set up to be headquartered in Turks and Caicos in the Caribbean, but it maintained no office or employees there.

Jackson Brothers also probably didn't know at the time that neither Sewill, Chapman, BSI nor Transglobal was licensed to conduct insurance business in the State of Texas.

That all changed in 2005 when an oil field fire set a truck driven by 27-year-old Cody Jackson ablaze.

Cody suffered deep second- and third-degree burns on 65% to 70% of his body. After 18 surgeries and 77 days in intensive care, he "made a remarkable recovery" and is now back to work at his old job as a hot oil truck driver. Cody was the son and nephew of the Jackson Brothers. One can only imagine the grief the family went through while Cody recovered.

After Cody's injury, BSI paid him weekly temporary disability benefits for 18 weeks. It also paid approximately $13,000 of his incidental medical bills until Dec. 6, 2006, but as of that date, still owed $1,016,000 in medical costs for his treatment by Texas Tech University Health Sciences Center and the University Medical Center Hospital burn unit.

When BSI failed to respond to Cody's demand for payment on the outstanding hospital bills, he joined Jackson Brothers in a lawsuit against the company, its directors, Transworld, Sewill, Chapman and others in the District Court of Andrews County. The plaintiffs asserted claims for fraud and violations of the Deceptive Trade Practices Act (DPTA).

After a week long trial, a jury returned a verdict for Jackson Brothers and Cody against BSI.

The jury awarded Cody Jackson $1,016,000 in past medical costs, $5,000 for future medical costs, and $1,161,000 in unpaid lifetime income benefits.

The trial judge ordered an additional $700,000 in damages against BSI and an additional $1,000,000 against Transglobal for their violations of the DTPA, and exemplary damages of $250,000 against Transglobal; $250,000 against BSI, and $37,500 against Chapman and against Sewill.

He also awarded Jackson Brothers $47,000 as a disgorgement of the fees it had paid BSI.

The defendants appealed, but the Texas 8th District Court of Appeals on Thursday rejected their arguments.

I can only hope that Jackson Brothers and Cody are successful in collecting - my guess from the actions of BSI and related entities is that there is no reasonable chance of getting anything close to the court awards because once a fraudster, always a fraudster.

Small employers however should take heed when "leasing" employees. I had posted the other day that I doubted very many employees give any thought whatsoever to whether a prospective employer is properly covered. Likewise, I doubt small employers give any thought to whether they have proper coverage, making them particularly susceptible to schemes perpetrated by unscrupulous service vendors.

Work comp flies under the radar for the vast majority of workers and employers ... until tragedy hits. Then reality serves up some grave lessons.

Monday, July 9, 2012

Salas, FEHA and the Supreme Court

If there's one topic that generates as much, if not more, debate in workers' compensation than the Affordable Care Act (ACA), it's undocumented workers.

In this morning's WorkCompCentral news, legal editor Sherri Okamoto reviews national trends and issues concerning various claims that have been made by undocumented workers involving either workers' compensation or other employment disability or discrimination scenarios in light of a pending California Supreme Court case, Salas v. Sierra Chemical.

Salas involves a worker's claim for violation of the Fair Employment and Housing Act (FEHA) premised on his employer's refusal to re-hire him and offer him modified work after he suffered an industrial injury. Sierra Chemical defended its action on the basis that Vicente Salas had originally obtained his job by using a false Social Security number to establish his eligibility to work in the United States.

The biggest trap that employers fall into in California FEHA cases is not failure to re-hire or discrimination, but the failure to engage in the "interactive process" - a statutorily mandated process whereby the employer's obligation is to take various steps along with the employee prior to making any employment or re-hiring decision.

Under FEHA, the big no-no is NOT failure to rehire, but the failure to EXPLORE re-hiring in a formal process that includes participation of the employee.

This, I think is a very significant distinction as you will see.

In the Salas case at the trial level, summary judgment was granted in favor of Sierra, and the 3rd District Court of Appeal unanimously affirmed, concluding that Salas "cannot be heard to complain that he was not hired" since he "was not lawfully qualified for the job."

The facts of Salas are summarized in the 3rd DCA opinion:

Sierra Chemical manufactures, packages, and distributes chemicals primarily used for water treatment. Demand for Sierra Chemical's products rises in the spring and summer due to the increased use of swimming pools, and declines during the fall and winter. Because of this, the company employs a number of seasonal production line workers.

In May 2003, Sierra Chemical hired Salas to work on its production line, filling containers with various chemicals. Salas provided the company with a resident alien card and a Social Security card. After Salas signed a Department of Homeland Security employment eligibility verification form (I-9 form), on which he wrote the Social Security number, Sierra Chemical's general manager used the resident alien card as verification of Salas's identity and eligibility to work in the United States. Salas also signed State of California employee's withholding allowance certificate (W-4 form), which included the same Social Security number. Salas also printed this number on his employment application and signed the application verifying the truth of the information contained therein and acknowledging that any false statements would be grounds for dismissal.

In October 2003, Salas was laid off as part of Sierra Chemical's annual reduction in production line staff. He was recalled to work in March 2004, laid off in December 2004, and again recalled to work in March 2005. When Salas was rehired in 2004, he provided Sierra Chemical with the same resident alien card and Social Security card used to secure his initial employment. He also filled out and signed I-9 and W-4 forms, both of which included the same Social Security number. By December 2005, Salas had accrued enough seniority to avoid being laid off that year.

In March 2006, Salas injured his back while stacking crates at the last stage of the production line. He reported the injury to Leo Huizar, the production manager, and went to Dameron Hospital Occupational Health Services (Dameron Hospital) for treatment. The next day, Salas returned to work with the following restrictions: "1) no lifting over 10-15 pounds, 2) no prolonged sitting, 3) no prolonged standing or walking, and 4) limited bending, twisting or stooping at the waist." Sierra Chemical accommodated these restrictions by allowing Salas to sweep the work area, rinse empty containers, and perform other production line duties that did not require 34*34lifting crates. When Salas provided Huizar with a doctor's release in June 2006, he was returned to full duty.

In August 2006, Salas again injured his back while stacking crates at the end of the production line. He returned to Dameron Hospital for treatment and was placed on the same work restrictions. Following this injury, Salas brought a workers' compensation claim against Sierra Chemical and its insurance carrier, State Compensation Insurance Fund. In December 2006, Salas was again laid off as part of Sierra Chemical's annual reduction in production line staff.

In May 2007, Salas received a letter informing him that Sierra Chemical was recalling employees who were laid off the previous year. The letter instructed Salas to contact Huizar to "make arrangements to return to work" and also stated: "Bring a copy of your doctor's release stating that you have been released to return to full duty." According to Huizar, Salas contacted him after receiving this letter and stated that he could not return to work because he had not received a medical release, but that he expected to receive such a release following his doctor's appointment in June. Huizar agreed to hold the job open until Salas received the release, but never heard back from Salas.

However, according to Salas, Huizar contacted him in March 2007. When Salas said that he wanted to return to work, Huizar asked whether he was "100% recovered" from his back injury. Salas informed Huizar that he was "not completely healed," to which Huizar responded that allowing him to return to work would violate Sierra Chemical's policies. After receiving the recall letter in May 2007, Salas again talked to Huizar, who said that "he wanted [Salas] to work with them but only if [he] was fine, a hundred percent well with [his] back. If not, then [he] should not show up to work." Salas did not return to work.

Salas sued Sierra Chemical, alleging among other causes of action disability discrimination in violation of FEHA by failure to make reasonable accommodation for his disability and failing to engage in an interactive process to determine such a reasonable accommodation.

The California Supreme Court accepted review of the 3rd DCA decision in November and briefing by the parties is underway.

Attorneys representing Salas told Okamoto that a "majority trend" in the federal courts and state courts of last resort has been "by and large to preserve the rights and remedies available to undocumented workers."

The biggest controlling case is a U.S. Supreme Court ruling from 10 years ago called Hoffman Plastic Compounds Inc. v. National Labor Relations Board which limited the remedies to undocumented workers under National Labor Relations Act. Since then the courts have distinguished Hoffman on the basis of facts and other legal elements related to the specific law under which an immigrant is seeking a remedy.

Indeed, it appears that the real basis for the granting of any relief to an undocumented worker under any particular employment law, workers' compensation included, is what remedy is being sought by the worker.

One of the attorneys that represented Hoffman Plastics before the Supreme Court was Ryan D. McCortney of Sheppard, Mullen, Richter & Hampton.

The remedy being sought "is the key to Hoffman Plastics," McCortney told Okamoto. "If the remedy is reinstatement and lost earnings, post-termination, then Hoffman Plastics should bar that case," he explained. "If the remedy is something else, like wages for work already performed, then Hoffman is not going to bar that."

The 3rd DCA in Salas went through a very detailed, thorough analysis in upholding the trial court's grant of summary judgment in favor of Sierra Chemical. But I think the 3rd DCA's analysis is flawed and that flaw is evident by the court's characterization of the case as "a refusal to hire case."

And this is why the California Supreme Court has taken the matter up.

Because the Salas case is really about FEHA and failure to engage in the interactive process - the single biggest legal fear any California employer could face.

In the "good old days" FEHA was not a concern in workers' compensation cases because vocational rehabilitation essentially fulfilled the requirements of an "interactive process." The elimination of vocational rehabilitation as a benefit in 2004 opened the door for unwitting employers who failed to recognize the liability of such a simple, yet mandatory, legal requirement.

The Salas case is an important case for California because the remedy being sought would not be reinstatement to work, though that is one of the potential remedies under FEHA. No, the remedy would be the penalty provision of FEHA, punitive damages, that has nothing to do with future wages or other employment dependent damages.

I think the public policy of most of the United States, as reflected in various court opinions through out the nation and California, is that an undocumented worker may not get relief where the remedy is based on wages or benefits that would not be available had the worker's true status been known, but that remedies not determined by actual employment status are available.

The simple theory supporting this position is that an undocumented worker should not be rewarded for working illegally, and the employer should not be rewarded for hiring illegally. The line gets drawn at the point where undocumented status becomes known to the employer. If the employee can not legally work then return to work laws necessitate rejection of the employee. But the portion of the law that mandates formal procedures that are designed to keep employees informed, and employers honest, do apply.

And if the employer knows of the employee's true status, and maintains an employment relationship with the employee, then the employer will have the book thrown at it.

FEHA requires some process to determine ability to return to work; that process must be followed and that position has been upheld over and over again in California courts regardless of the employment status of the complaining worker.

I suspect the Supreme Court will follow this line of reasoning.

Friday, July 6, 2012

North Carolina, Hardware Stores, and Compliance

North Carolina is working with a new law that it hopes will help the state deal with illegally uninsured employers more effectively.

House Bill 237 was widely supported after its introduction this year and was signed into law by Gov. Bev Purdue last weekend. But the measure became controversial as some state lawmakers and news outlets realized in the 11th hour the bill would close public access to the kind of information that allowed the Raleigh News & Observer to expose the problem of uninsured employers, which led to the bill's introduction in the first place.

The bill amends the state's workers' compensation laws to require the North Carolina Rate Bureau, which maintains policy data for insured employers in the state, to provide workers' compensation coverage information to the Industrial Commission, which enforces the state law requiring employers to be insured. It exempted information shared between the Rate Bureau and Industrial Commission from public record laws.

The intent of the exemption was not to close access but to prevent "orphans" in the system, as was the case before, when the Industrial Commission often learned a company was uninsured only after a worker was hurt on the job, according to Rep. Dale Folwell, R-Winston-Salem. A new bill was passed out of the legislature on July 3, Senate Bill 847, comprised of technical amendments to various laws, including the newly adopted workers' compensation bill, which allows for certain public access.

Sue Taylor, director of insurance operations for the rate bureau, said the technical amendment will keep employers' policy effective dates, cancellation dates and reinstatement dates public information. However, other information shared between the two agencies, such as companies' proprietary information, Social Security numbers, payroll information, names and addresses, will be exempted from public disclosure under the new law.

The draft regulations propose new requirements for employers to submit proof of insurance to the Industrial Commission and post workers' compensation insurance carrier information at work sites. There are other requirements intended to keep workers informed about their employer's compliance.

A statement by a workers' compensation attorney in that state though highlights the disconnect between us in the industry and those on the street, and why our our hopes that new laws to deal with industry issues may not have the impact that is intended.

Larry Baker, attorney for Cranfill Sumner & Harzog law firm and president of the North Carolina Association of Defense Attorneys (NCADA), said, "As an employee, I think you want to know your employer is covered. But most workers probably don't look up their company's insurance information in the Industrial Commission's website."

Actually, my guess is that most workers don't even think about workers' compensation until after they are injured and even then may not realize that there is supposed to be coverage.

I certainly didn't as a young college student working in a hardware store in Lemon Grove, CA.

The best job I ever had (well, not monetarily...) was my introduction to workers' compensation. Working as a retail clerk selling hardware included fixing things that people brought into the store. Lots of fun.

Part of fixing things was repairing screen doors - basically installing new screen material. I had installed new screening material on a door and was trimming the excess when I missed and inflicted a nice clean laceration on my hand with a box knife.

Ouch. There was blood all over the place. My employer was very concerned. It was a decent sized cut. He shuttled me to the store's vehicle to take me to the hospital to get me sewn up.

I didn't have my medical insurance card, nor cash to cover the deductible and expressed that to my boss. He gave me that "Mr. Crabbs" look and said the bill would be covered by workers' compensation. Being the good employee that I was, I didn't understand the whole complex arrangement and didn't want to cause any problems for the store - after all this was the best job in the world!

I got repaired, I assume the hospital got paid, and likely there wasn't much impact on my boss' workers' compensation premium since it was a minor medical only claim - but I suspect at the age of 20 that I was like most workers are today: completely oblivious to workers' compensation insurance and laws.

So with all due respect to Mr. Baker - as an employee, not only did I not care that my employer was covered, I didn't even know what workers' compensation was, and still didn't understand anything even after I was treated.

All I knew was that I got hurt, everything was paid for and taken care of without any money out of my pocket, and I thought that was pretty cool because my employer took care of me.

I suppose the lesson is that we can all wish for better compliance and put into place laws that we hope will accomplish that, but unfortunately employees will not have an appreciation for workers' compensation until an injury occurs, and then it might be too late.

Thursday, July 5, 2012

OK, Costs and Reform

Oklahoma continues to intrigue me with its workers' compensation issues.

While proponents of an attempt to create a non-subscription feature in the state lost in the state House on a narrow margin due to Senate amendments that expanded the number of employers potentially eligible to offer the alternative plans, they are encouraged that the House did pass the original proposal. They have promised to return in 2013 with a new attempt.

In the meantime ten Oklahoma state senators have asked for an interim study, before the Legislature convenes again on Jan. 8, to consider implementation of an administrative system for workers’ compensation in the state.

Oklahoma is one of the few states left where workers' compensation disputes are dealt with in the civil court system. Most states have in place an administrative adjudication system which generally deal with disputes in a much more efficient and expeditious manner.

Senators asking for the study of converting to an administrative system include Mark Allen, Spiro; Josh Brecheen, Coalgate; Rick Brinkley, Owasso; Kim David, Porter; Eddie Fields, Wynona; David Holt, Ralph Shortey and Greg Treat, Oklahoma City; Rob Johnson, Kingfisher, and Frank Simpson, Springer.

The study would be conducted through the Senate Judiciary Committee, which is chaired by Sen. Anthony Sykes, R-Moore.

Allen owns an oil well drilling business with operations in both Oklahoma and neighboring Arkansas. Like most business owners dealing with workers' compensation, the big focus is the premium.

Allen told WorkCompCentral that his premium in Arkansas is 30% lower than in Oklahoma. He thinks that the reason is related to the fact that Oklahoma's dispute resolution system is handled through the civil courts.

I am of the belief that workers' compensation disputes are better dealt with in an administrative system due to the specialized nature of workers' compensation.

I am not convinced that this would lower the employer's premium 30%, and that Allen is not seeing everything that goes into the work comp premium.

In work comp the legislative debate is always about "costs". But "costs" don't inure to the detriment or benefit of employers necessarily. They are the burden of the insurance company.

Whether insurance passes those costs down to the employer through premiums is a convoluted and mysterious process for most employers. Employers know one thing - the annual bill they get for their insurance coverage. How that bill is assembled is not understood leading the employer community to grasp onto simplistic theories on how to reduce "costs".

Costs to the employer means how much the premium is - distinctly different than costs to the carrier.

Very, very few workers' compensation claims end up in litigation. Litigated claims do account for an outsized proportion of overall costs - but not to the extent that converting to an administrative system will save employers 30% on their bills.

Maybe carriers will see cost savings of 30%, but that likely will not translate down to employers.

Still, any program that creates a more efficient system without detracting from the core mission of providing benefits to injured workers should be examined closely.

Tuesday, July 3, 2012

Texas, Bad Faith & Attorney Communications

Texas has been generating a lot of workers' compensation bad faith law lately.

A couple of weeks ago the state's Supreme Court essentially put the lid on bad faith arising out of workers' compensation claims with its Ruttiger opinion.

Now the same court ruled that there is no attorney-client privilege applicable to communications between an insurer's lawyer and the employer.

In Re XL Specialty Insurance Co., 10-0969, 06/29/2012 involved Jerome Wagner who sought workers' compensation benefits for an injury while working for Cintas Corp. XL Specialty insured Cintas with a policy that included a $1 million deductible per claim.

XL's third-party administrator, Cambridge Integrated Services Group, denied Wagner's claim. The Division of Workers' Compensation (DWC) ruled in favor of Wagner and granted medical and temporary income benefits.

During administrative proceedings, XL's outside counsel, Rebecca Strandwitz, sent communications to Cambridge and to Cintas.

After the administrative dispute was resolved, Wagner sued XL, Cambridge and claims adjuster Melissa Martinez for breach of the common law duty of good faith and fair dealing and violations of the Insurance Code and Texas Deceptive Trade Practices Act. During discovery, Wagner sought communications between Strandwitz and Cintas.

XL and Cambridge argued that the communications were protected by attorney-client privilege. The trial court, however, held that the privilege did not apply.

The Court of Appeals denied the petition of XL and Cambridge for relief. The insurer and employer then appealed to the Supreme Court.

XL argued that Section 503(b)(1)(C) of the Texas Rules of Evidence, known as the "joint defense" privilege or "common interest rule," was applicable. The rule protects confidential communications between a lawyer and client and also discourse among their representatives.

While the joint defense rule applies when multiple parties to a lawsuit, each represented by different attorneys, communicate among themselves to form a common defense strategy, in this case Cintas was not represented by an attorney in the workers' comp proceedings.

In addition XL and Cintas were not joint clients of Strandwitz. While XL argued that Cintas was a representative of the insurer, it did not submit any evidence that Strandwitz was authorized to represent both parties.

A dissent was penned by Justice Don R. Willett who argued, what one would think: that Ruttiger obviated the need to even rule in the case and that such issues were moot since a workers' compensation claimant may not pursue a bad-faith action against a workers' compensation insurer unless he shows that the insurer misrepresented provisions of its policy.

Two lessons I learned from this most recent case: 

1) if you're a defense attorney for a carrier and wish to communicate with the employer in a protected, privileged manner then get authorization to represent both carrier and employer (with the caveat of an appropriate waiver of conflict of interests); 

2) Justice Willett may be right technically, but the Texas Supreme Court didn't nail the coffin shut in Ruttiger - the prospect is still alive that a misrepresentation of the policy bad faith argument could arise and evidence may be found in carrier/employer communications so be very, very careful with what is committed to writing in such cases.