The Drama is Almost Over!

Down to the wire, and the politics of workers' compensation reform gets as complicated as SB 863 itself.

According to popular workers' compensation blogger, attorney Julius Young of the Boxer and Gerson law firm in Oakland, California Governor Jerry Brown has been very active in the background the past few days working to drum up support for the bill.

The reason is that Brown needs to minimize resistance to his proposed tax plan that he is taking to the people in the form of Proposition 30. He is hoping that getting pension and workers' compensation reform passed will boost his tax plan by ameliorating objection by Big Business and Big Labor.

But Big Business isn't fully on board. The US Chamber of Commerce has taken out ads attacking Prop 30.

Young says that his information is that Prop 30 is only at about the 50% approval level in the polls, which means it won't make it by popular vote.

And as of last night the California Chamber of Commerce had not yet issued support (or objection) to SB 863.

A spokesman for Sen. Kevin de Leon, D-Los Angeles, told WorkCompCentral that an endorsement from the California Chamber of Commerce could be instrumental in getting SB 863 through the Legislature. If the Chamber supports the bill, it would allow the Republicans to vote for the measure (recall just days ago that SB 863 moved out of an Assembly committee purely along party lines with all Republicans voting "nay").

There seems to be a fait accompli sentiment among those in Labor's camp, even if there is some opposition for various reasons. Many feel that this bill, as secretive as it was and despite some objectionable defects, is better than nothing and thus there is support.

Christy Bouma, a lobbyist for the California Professional Firefighters, and who serves on the Commission on Health and Safety and Workers’ Compensation (CHSWC) along with one of SB 863's primary negotiators, Angie Wei, legislative director for the California Labor Federation, said she is “substantially uncomfortable” with the proposal, but added that “acting now is a benefit to all parties versus waiting.”

There does not seem to be any meaningful objection by Business - there are some grumblings that SB 863 doesn't go far enough in some respects, but overall the sentiment seems to be favorable otherwise Business would be more vocal.

Some have speculated that if reform doesn't pass by midnight tonight that there could be a special session to deal with the issue, perhaps as late as December.

If the political machine is operating as it is thought to be, a special session would not accomplish the overall goal because November elections will seal the fate of Prop 30.

And according to the San Francisco Chronicle, legislators understand that whatever passes will require "clean up" legislation anyhow.

Yesterday I placed my bet that SB 863 would become law - I just don't know exactly what the law will be. But Greg Hayes, communications director for de Leon, said if any amendments are made, the bill would remain “substantially similar” to what was introduced on Monday.

The Chronicle is also betting that SB 863 will become law.

I'm not changing my bet. I won't double down, but I'm holding.

A while ago a television sit com about workers' compensation had made the cable channels for a season. The producers of that show would have done much better to do a reality show to capture the drama and suspense of the SB 863 political process.

On August 13 I warned that this blog would be solely devoted to the California reform drama and called it "Reality Politics." Honestly, this turned out much more interesting than I thought it would.

But I'm not staying up until midnight - when I wake up Saturday we will either have reform or we won't.

And the drama will be over.

At least until the legal challenges start.

My Money is on Reform

California Governor Jerry Brown has said in the recent past that he will not approve piecemeal workers' compensation legislation and that he wants to see a broad reform measure.

With just one day to go in the legislative session, the broad reform measure, SB 863, is still being bandied about. Though Assembly Insurance Committee chairman Henry Perea, D-Fresno, said during Tuesday’s hearing that there would be additional opportunities for the public to provide testimony on the bill before it is sent to the governor, as of Wednesday, no hearings had been scheduled.

But three unrelated bills, with some overlap, have made it out of the legislature and are on the way to Brown's desk.

AB 2451, by Assembly Speaker John A. Perez, D-Los Angeles provides that survivors of a police officer or firefighter who dies from heart disease, hernia, pneumonia, cancer, tuberculosis, methicillin-resistant Staphylococcus aureus, or bloodborne infectious disease, must file for death benefits within 480 weeks from the date of injury, doubling the current 240-week deadline, or one year after death due to the condition.

The Assembly on Tuesday also approved AB 2493, by Roger Hernandez, D-San Gabriel Valley, that would authorize the Division of Workers’ Compensation to certify and maintain a list of interpreters for medical exams and administrative hearings, a provision that is also included in SB 863. The interpreter certification would be performed by “an independent organization designated by the administrative director.”

SB 1513 by Sen. Gloria Negrete McLeod, D-Montclair, would allow State Fund to invest up to 20% of its surplus in stocks, mortgages and mortgage-backed securities, as well as in stock of the Federal Home Loan Bank.

Will Brown sign these bills if SB 863 isn't in the same pile of papers? Last year he said he would not approve anything without broad reform, but he still found it in his heart to approve legislation that brought compound drugs under the state's pharmacy fee schedule, and requires insurers to provide written disclosure to California employers if the policy has a provision that requires disputes to be arbitrated or resolved in courts outside of California.

In the meantime, the California Department of Insurance has scheduled a public hearing on the Workers’ Compensation Insurance Rating Bureau (WCIRB) Jan. 1, 2013, pure premium rate filing for September 24 in San Francisco. It certainly will be interesting to see what numbers WCIRB sets forth should SB 863 be part of the equation.

Other measures still awaiting a final vote in the Senate include:

• AB 808 which would create a presumption that methicillin-resistant Staphylococcus aureus is compensable in hospital workers.
• AB 1687 authorizing attorney fees when an injured worker with an award of future medical care hires an attorney and successfully appeals a utilization review decision to delay, deny or modify a recommended treatment.
• AB 1454 authorizing audiologists to serve as qualified medical evaluators.

In the meantime, SB 863 continues to be divisive.

Proponents thus far include the Department of Industrial Relations, Small Business California, the California Professional Society of Specialty Contractors, School Employers Association, Schools Insurance Authority, California Association of Joint Powers Authority, California Labor Federation, United Auto Workers and California Professional Firefighters.

Some unions oppose SB 863 and many special interest groups have registered their opposition: California Teamsters Public Affairs Council, International Longshore and Warehouse Union, SEIU Local 121 and the United Firefighters of Los Angeles City, California Applicants’ Attorneys Association, California Society of Industrial Medicine and Surgery, California Hospital Association, California Orthopedic Association, California Ambulatory Surgery Center, Latino Comp, the League of United Latin American Citizens and Voters Injured at Work.

I'm not generally a gambling man. Sure, I take many, many risks, but well calculated risks. Regardless, I'm placing my bet.

Given the politics of the present situation and the power and size of the groups supporting SB 863 compared to those who oppose it, my money is that Gov. Brown's quill will ink broad reform, along with a couple of the other "piecemeal" items.

I have just a few hours to find out if I'm a winner.

Will This Be a Debs or Gompers Weekend?

Isn't it a bit ironic that the drama of California's workers' compensation reform debate, now centered on the constantly changing language of SB 863, is coming down to the wire just before Labor Day?

With projections concerning both the savings and benefits of SB 863 still quite amorphous, workers can't quite be sure whether they should celebrate or not.

The context of the drama is even more distinct given the origins of Labor Day and the apparent divide that is happening between Labor groups - with some groups supporting SB 863 and others opposed.

Labor Day was signed into law in 1894 by President Grover Cleveland following police action against railroad workers demonstrating because of wage cuts and working conditions in the Pullman Strike.

The Pullman Strike was precipitated by a unilateral decision by the Pullman Car Company, manufacturer of railroad cars, to decrease wages but not any of the mandated living expenses of its workers (Pullman established a company town, getting rent from its workers and controlling the supply of goods as well). In addition to lowering wages the company was requiring up to 16 hour work days.

Many of the Pullman employees were already members of the American Railway Union (ARU). Eugene Debs was the leader of the ARU at the time. He called for a boycott in which union members refused to run trains containing Pullman cars. This effectively shut down production in Pullman factories.

Within four days 125,000 workers had quit their jobs and refused to handle Pullman cars. The railroads hired replacement workers (strikebreakers, aka scabs) many of whom were black - blacks were fearful of the racism that had been expressed by ARU and did not want to be locked out of jobs in the future. This gave the strike even more volatility with the racist divide brewing.

The strike was broken up by United States Marshals and some 12,000 United States Army troops, sent in by President Grover Cleveland on the premise that the strike interfered with the delivery of U.S. Mail, violated the Sherman Antitrust Act, and represented a threat to public safety. The arrival of the military and subsequent deaths of workers led to further outbreaks of violence.

Though a subsequent Supreme Court decision (In Re Debs) found Cleveland's actions justified, Illinois Governor John P. Altgeld was incensed at Cleveland for putting the federal government at the service of the employers, and for rejecting Altgeld's plan to use his state militia to keep order, instead of federal troops. As the leader of the Illinois delegation to the Democratic Party Convention in 1896, Altgeld used his influence and blocked President Cleveland's bid for renomination at the 1896 Democratic National Convention.

A national commission formed to study causes of the 1894 strike found Pullman's paternalism partly to blame and Pullman's company town to be "un-American". In 1898, the Illinois Supreme Court forced the Pullman Company to divest ownership in the town, which was annexed to Chicago.

After the strike President Cleveland and Congress made conciliation of organized labor a top priority. Legislation for the holiday was pushed through Congress six days after the strike ended. Samuel Gompers, head of American Federation of Labor, which had sided with the government in its effort to end the strike by the American Railway Union, spoke out in favor of the holiday.

Debs, on the other hand, was tried and convicted of violating a court injunction, and was sent to prison for six months.

Similarly, Labor is divided over whether to support SB 863.

An "informational hearing" was held yesterday by the Assembly Insurance Committee.

Angie Wei, the legislative director for the California Labor Federation, which represents more than 2 million workers in California, said the compromise between labor and management isn’t a perfect deal, but it is better than maintaining the status quo. Wei is also Chairperson of the Commission on Health, Safety & Workers Compensation (CHSWC).

The California Teamsters Public Affairs Council, which represents about 250,000 union members, on Monday took an “oppose unless amended” position on SB 863. Their problem with the bill is that removal of the future earnings capacity modifier in determining permanent disability indemnity will reduce benefits specifically to “blue collar, high-wage earners whose injuries receive a low rating but nonetheless cannot return to work.”

Christy Bouma, a lobbyist for the California Professional Firefighters, and is also on the CHSWC board, said she is “substantially uncomfortable” with the proposal, but added that “acting now is a benefit to all parties versus waiting.”

Assemblyman Mike Feuer, D-West Hollywood, said he received a letter from the United Firefighters of Los Angeles City who are opposed to the bill and say it would curtail their due process right to get medical treatment and would make it difficult to obtain appropriate disability ratings.

The legislative session ends at midnight on Friday.

Will it be a Debs, or a Gompers, holiday weekend?

Am I Missing Something? Yes, Politics...

“Today’s WCIRB report shows there is much more work to be done in reining in California’s workers’ compensation costs and in re-balancing the system financially.”

That was the statement of Marjorie Berte, western region vice president of the American Insurance Association, on Monday in response to an analysis by California Workers’ Compensation Insurance Rating Bureau (WCIRB).

Berle also said, “Expectations of net savings of two-to-one are now put at a net cost increase of 1.4% annually.”

The WCIRB said that the version of SB 863 it had reviewed would indeed save $420 million in 2013, but would increase total system costs by $700 million in 2014.

The Department of Industrial Relations (DIR) endorsed an earlier version of the bill but also said in its statement releasing the WCIRB advisory that, “While this information is being made publicly available, reform discussions continue in an effort to find the best solution to protect employees while preventing increases in the cost of doing business in the state.”

The original draft proposal of reform was touted by DIR and other proponents as a 2-for-1 ratio of savings to benefit increases. There have since been some preliminary studies released, all without full data or information by which to completely vet the costs or savings of the proposal, none of which have come close to the 2-for-1 ratio.

The most recent vote on bill amendments on Friday by the California Assembly was split down party lines, with Democrats in favor and Republicans opposed.

Which brings me to two points.

First, the vote demonstrates that workers' compensation doesn't really make any sense - it's just a political football (well, probably more like a frisbee). That the Assembly vote was so distinctly bifurcated demonstrates to me that the state's Democratic leadership is using work comp reform to leverage its position in the 2014 elections.

There is a Democrat in the Governor's office. The Legislature is run by Democrats. Any Democrat that wants the support of the party going into 2014 will vote yes on whatever reform measure is posited by the Brown Administration.

And the Brown Administration needs to show the people of California that it can chew gum and walk at the same time - i.e. produce savings that business can embrace, and raise benefits to take care of injured workers. Work comp is a great platform for politics because the risk of offending a few thousand voters who actually do use the system is very small compared to the risk of offending all of the state's employers and the majority of voters who will never engage the system.

And the numbers are so illusory and foreign to voters that politicians can bandy about all sorts of figures without having to be completely committed to a position.

Joe Voter on election day doesn't know about, nor care about, workers' compensation. Joe Voter won't investigate much more than reading headlines and will make the election choice based on those summaries. So if the press say the Democrats pulled a miracle then it will be accepted at face value by the majority of the voters, and that's all that really matters when it comes time to harboring power in Sacramento.

Second, the vote tells me that party politics is the worst thing that can occur to workers' compensation (okay, not just workers' compensation, but that is the topic of this blog).

Workers' compensation is about spreading the cost of taking care of the few that do get injured at work against the larger population that enjoys injury-free employment. Party politics dilutes that goal because the focus is not about the operation of the system, but about whether one party can claim bragging rights over the other party. It is a charade that fails to address issues in a socially or economically responsible manner.

The numbers will be what the numbers will be when it comes time for legislators to vote and that is good enough for them. The fact that no one can really understand those numbers is irrelevant, or so they think.

One number that the Democratic leadership seems to be ignoring is that 68% of the California population is of Latino descent, according to the League of United Latin American Citizens. Thomas Gonzalez, California state deputy director for the League said that SB 863 is discriminatory against workers who make less than $15 an hour, of which the majority are Latino.

This is a voting population that politicians can not ignore in California and is a voting population that traditionally votes Democrat.

The rush to get reform passed in time to implement in 2013 may backfire politically for Democrats - and wouldn't that be a surprise: a Democrat devised social policy that shifts a normally captive vote to the Republicans.

The way I see it, Republicans have nothing to lose by voting no against reform in the present political environment and Democrats have a lot to lose.

As a political strategy, the Brown Administration may want to rethink this reform deal.

A risk management friend of mine wrote to me the other day stating his point of view that "we don't need reform and we don't need imaginary cost savings ... am I missing something?"

To which I replied, "Yes, politics."

Post script: I forgot to mention that the last Democrat governor who used the workers' compensation frisbee faced a Republican legislature and then got voted out on a recall...

Impermissible Legislature Interpretation of the Constitution

Section 4 of Article XIV of the California State Constitution states in part that the "Legislature is hereby expressly vested with plenary power, unlimited by any provision of this Constitution, to create, and enforce a complete system of workers' compensation, by appropriate legislation, ... and full provision for vesting power, authority and jurisdiction in an administrative body with all the requisite governmental functions to determine any dispute or matter arising under such legislation, to the end that the administration of such legislation shall accomplish substantial justice in all cases expeditiously, inexpensively, and without incumbrance of any character; all of which matters are expressly declared to be the social public policy of this State, binding upon all departments of the state government.

The same section, next paragraph, more specifically states:

The Legislature is vested with plenary powers, to provide for the settlement of any disputes arising under such legislation by arbitration, or by an industrial accident commission, by the courts, or by either, any, or all of these agencies, either separately or in combination, and may fix and control the method and manner of trial of any such dispute, the rules of evidence and the manner of review of decisions rendered by the tribunal or tribunals designated by it; provided, that all decisions of any such tribunal shall be subject to review by the appellate courts of this State. The Legislature may combine in one statute all the provisions for a complete system of workers' compensation, as herein defined.

The Legislature can not change the Constitution - that is a power vested ONLY to the People of the State of California. And only the Supreme Court of California can interpret the Constitution.

But the drafters of the workers' compensation reform bill (warning - this may not be final draft, as reported in WorkCompCentral the bill remains quite fluid) that has now made it to Assembly Committee, SB 863 (new author: De Leon) have took it upon themselves to INTERPRET the Constitution for us just in case there is a challenge to the bill on constitutional grounds, and the Supreme Court doesn't understand it...

They do this in the last version of the bill that I have access to, dated 8/23/12 6:54 PM, on pages 10 and 11 in SB 863 by making a declaration that the people of the State of California find that the state Constitution doesn't apply to the provisions of the proposed Independent Medical Review system.

Drafters accomplish this by first stating the obvious in paragraph (a) of the declaratory preamble - that in fact the state Constitution provides that workers' compensation legislation shall accomplish substantial justice in all cases expeditiously, inexpensively, and without incumbrance of any character, and that indeed it is expressly declared to be the social public policy of this State. 

I can't argue with that - that is language specifically out of the Constitution.

But then in paragraph (f) of the preamble, drafters go on to state that "the establishment of independent medical review and provision for limited appeal of decisions resulting from independent medical review are a necessary exercise of the Legislature’s plenary power to provide for the settlement of any disputes arising under the workers’ compensation laws of this State and to control the manner of review of such decisions".

In other words, through slight of hand, the Legislature is going to dictate how the Constitution is to be interpreted without dealing with the second paragraph of Section 4 of Article XIV: "that all decisions of any such tribunal shall be subject to review by the appellate courts of this State."

In summary: The California state Constitution specifically requires "all decisions" to be subject to review by the appellate courts. 

"All decisions." Not some, not those only procured by fraud, deceit or clearly erroneous. 

All decisions. There is no provision in the Constitution granting the Legislature the power to limit appeals of decisions resulting from independent medical review.

By the way, confirming that this most recent reform is purely a political play, the California Assembly adopted amendments to Senate Bill 863 on Friday completely along party lines - with all Democrats voting in favor and all Republicans voting against.

I find this rather amusing because those who have been most vociferous against SB 863 have been saying that it is worse than the Republican measure given us in 2004 under Governor Schwarzenegger.

Just saying...

Guest Editorial: PD Benefits by Politics, Not Data

On occasion I post opinions by others that I think have merit and should be shared. This editorial was authored by Stephen Schneider, CEO of MedLegal, LLC.

************Guest Editorial************

In 2004, SB899 established what should have been the nation’s first empirically based permanent disability system for injured workers. California had a chance to stop setting PD benefits through a political tug of war that either underpaid or overpaid injured workers, depending on which way the legislature leaned politically at the time. For once, injured workers would be compensated according to an exact empirical estimation of their losses over time. The RAND Institute for Civil Justice designed this system for the state after years of expensive study. All this research and effort is about to be thrown away by SB863 and, if passed, we are going back to setting benefits according to political bias, rather than empirical evidence and fairness. 

Unfortunately for injured workers, the Administration of the DWC failed to ever implement a PD Schedule that fully complied with the RAND findings and AMA Guides based empirical rating data. Instead, the Schwarzenegger administration kept in place their under-performing formulas and obsolete data tables that reduced impairment ratings by 28%-40% (according to a report by UC Berkeley and RAND researchers presented in January 2012 at the CHSWC public meeting). Because of the accelerated increase in benefits to impairment caused by LC 4658, and other factors in SB899, the overall reduction in PD benefits turns out to be 58%, or 2.6 billion dollars per year. 

The reason the 2005 Schedule fails to realize the RAND vision is because the Administrative Director of the DWC in 2004 had no average rating data based on the AMA Guides from which to build a proper AMA-based Schedule. Rather than perform a dubious “crosswalk” study to match estimated AMA Ratings to the existing RAND data on the previous rating system, the AD chose to make up her own compression formula and Table A that “fudged” the obsolete rating data into what we still have today. The compression formula found on page 1.6 of the Schedule has no basis in the RAND findings referred to in LC 4660(b)(2), and neither does Table A. The “empirical data” in Table B of the Schedule is from the obsolete pre-SB899 rating system, which has no correlation or scale in common with the AMA Guides impairment ratings. The Schedule was a temporary “kludge” hastily put together in the last few months between the passage of SB899 and the mandated Schedule adoption date of 1/1/2005. It served a purpose, but it should have been revised years ago and integrated with actual AMA rating data compiled by the DEU. 

Getting back to SB863, it’s flat rate FEC multiplier of 1.4 is based on the same faulty compression formula and invalid tables as the original 2005 Schedule, and doesn’t come close to restoring the benefits that injured workers have been missing for the last 7 years. In fact, it does much worse than that… it stops any chance of paying benefits empirically and fairly as designed by RAND, and instead changes the whole concept of diminished future earning capacity (FEC) to a single, unempirical, non-rebuttable and politically biased number: 1.4.  

In 2006, one of the authors of the 2003 RAND report [referenced in LC 4660(b)(2)] wrote a paper for CHSWC that was presented to the Legislature and outlined how to apply AMA-based average rating data from the DEU to the RAND findings and empirical data. This paper offered updated Future Earning Capacity (FEC) adjustment factors that were based on AMA Guides ratings, rather than the obsolete data from the previous system used in Schwarzenegger’s Schedule. These corrected adjustment factors would have increased overall PD dramatically from the 2005 Schedule, and set PD fairly, empirically, and in full compliance with Labor Code 4660. Some examples of the corrected FEC modifiers in this report are: Spine: 2.17, Shoulder: 2.93, Wrist: 2.82, Hand 1.71, and Knee: 2.35. Unfortunately, the suggested revisions were never implemented. 

SB863 proposes a Future Earning Capacity adjustment factor for ALL injuries of a single value: 1.4. We know from both RAND and the 2006 CHSWC study on PD that accurate FEC values must be unique (not a flat rate) by body part. So, by using such a flat rate, California would be calculating losses inaccurately under SB863 for nearly every injured worker. In other words, the impairment percentage calculated using a 1.4 modifier would almost always be either too low or too high compared to the correct value formulated empirically using the RAND method. 

Still, proponents of the bill might argue that using a flat 1.4 modifier in Labor Code 4660.1 raises impairment ratings adequately from the existing Schedule, which ranges from 1.1 to 1.4. We know from the RAND study that the back/spine is by far the most common impairment body part, representing the majority of the cases in the system. The FEC in the 2005 Schedule for the back/spine is 1.27, so SB863’s 1.4 FEC would provide about a 10% increase in impairment ratings. That raise compares poorly with the data presented by the researchers in January 2012 to CHSWC that shows impairment ratings have been reduced by the 2005 PDRS by 28%-40%. In other words, not only is the flat 1.4 FEC found in SB863’s proposed 4600.1(b) going to be inaccurate for most injuries from an empirical DFEC expectation, it’s also going to be a whole lot less than restoration to previous levels.

Proponents of SB863 also might argue that impairment ratings prior to SB899 were too high in the first place, so we should not be restoring average impairment rating to previous levels. RAND answered the adequacy question in their 2003 Interim Report on PD, which was that replacement benefits overall were actually lower than other states studied (because of our low return to work rates).  The problem, according to RAND, was the inconsistency of the impairment ratings across body parts, and with which party chose the physician writing the report. Adequacy of the benefits was not a problem, and was not addressed in the recommendations or findings of the report. 

If the legislature intended to reduce benefits with SB899 they would have done so in Labor Code 4658, which is the benefit payment section. In fact, minor changes to LC 4658 were made. What we are talking about here is impairment ratings (LC 4660), and not benefits paid (LC 4658).  The average impairment ratings overall should not have been reduced by the change to the AMA Guides and the corresponding RAND-based PD Schedule required by SB899… they just would have become more objective and equitable across body parts. Therefore, any reduction in average impairment ratings caused by the 2005 PD Schedule should be corrected and restored – in full.  

SB863 contains some interesting ideas and solutions to the problems we are facing in California, but it’s not ready for prime time yet. If this bill is passed and signed by the Governor “as is”, we will have missed a huge opportunity to pay benefits accurately and free of political bias. 

Stephen Schneider

Med-Legal, LLC

Lawyers Aren't the Problem; Everyone Is the Problem

There is furious activity in Sacramento as the clock winds down towards deadlines to accomplish workers' compensation reform in the Golden State.

A new amended bill was reviewed by the Office of Legislative Counsel on Wednesday. While there is a possibility that it could be introduced on the Assembly floor today or next week, the contents of the proposed bill reportedly are constantly changing, and WorkCompCentral's sources say there is no guarantee at this time that a bill will even be introduced.

The Legislature adjourns on Aug. 31.

Even Sen. Ted Lieu, D-Torrance, whose Senate Bill 863 is the presumed bill that will carry reform, had not signed off on the proposal and hadn’t even agreed to allow his bill to be amended, his spokesman, Ray Sotero, told WorkCompCentral.

The amended proposal is almost half the pages as the one that was originally obtained by WorkCompCentral and there has been, in my opinion, significant changes that severely limit the savings originally projected, and severely limit the increase in benefits originally projected.

And I presume that since the ball is constantly moving that the projections are more amorphous than ever. But that's not what I'm here to opine about. My rant is about the lawyers...

There were many comments in LinkedIn that it's the lawyers that are at fault with California - presumably the applicant attorneys (those unfamiliar with California workers' compensation, attorneys representing injured workers are referred to as "applicant attorneys" because to litigate a claim one must submit an "Application for Adjudication of Claim"). Yeah - those pesky lawyers are all about the money and damn the system.

I recall reading or hearing somewhere that one of the goals of reform was to reduce the number of attorneys in the system. Presumably the way one does this is to reduce the ability to generate income from litigating a claim. Since California by statute pays attorneys out of the proceeds of a claim then reducing those proceeds should pinch the income potential of a claim, thereby reducing the ability to make money, ergo forcing applicant attorneys out of business.

Of course this is ludicrous thinking because many of the very good applicant attorneys I know are secure in their businesses and will do what it takes to maximize the position of their clients.

This should come as no surprise to anyone. The job of a lawyer is to zealously advocate for the client and in workers' compensation this means taking full advantage of any and all benefits available by law.

Getting rid of, or penalizing, the lawyers is tantamount to getting rid of the accountants at tax season. Unless your tax situation is very basic, my guess is that most of you reading this column retain the services of a tax preparer before each April 15.

Why do you do that? Seems to me that paying your taxes is simple and straight forward - calculate your income, pay the percentage dictated by code to the government.

Oh! Wait!! You mean there are DEDUCTIONS that you believe would improve your tax positions?! What about all of the frictional costs that tax preparers introduce to the simple task of paying taxes? Why not just eliminate accountants and enrolled agents and then reduce the tax bill by the amount of money everyone saves by not hiring these experts?

I get it - so what's good for the goose should not be good for the gander...

I know I will take flack from many for stating what I believe is the obvious - lawyers cannot be eliminated from workers' compensation because benefits are money, and people fight about money. Claimants trust insurance companies about as much as you and I trust the Internal Revenue Service to look out for our better interests.

Add to that the emotional layer of not being able to generate an income, the confusion surrounding the actual process of a claim, the huge amount of paperwork with unintelligible words and terms of art, and you have a motivation for seeking legal counsel.

Want to get rid of attorneys in workers' compensation? Then just pay everything that is claimed.

Oh wait, we can't do that, critics would say, because there are people that will take advantage of that and will make claims that the payer doesn't deem reasonable or worthy.

That's called a DISPUTE: you want something and I don't want you to have it, whatever the reason.

California has about 350,000 disputes every year. When the economy was good and there was more full employment, it was closer to 500,000 disputes every year. Some of those disputes are frivolous. Some of those disputes lack merit. But many of those disputes are real, legitimate claims to benefits for which the law provides.

Tom Rowe, State Fund president and chief executive officer, on Wednesday said on the carrier’s blog that workers’ compensation is an agreement between employers and workers, and “this proposal [presumably the reform bill that has been circulating] clearly recognizes their voice and is a much needed shift back to the efficient system designed and implemented by our Legislature in 1914.”

Excuse me - this isn't 1914. We're 98 years past that. Lots of things have happened since 1914. Couple of world wars, space exploration, population growth, mutual funds and retirement accounts, the Internet ... I could go on. Thinking that a return to the "simple days" of the origination of work comp will resolve California's issues is naive.

Prior to 1914 guess what the problem was - those damned lawyers.

America got to where it is because the Rule of Law is respected and enforced. Yes, The Law is complicated and generally requires a bit of education to understand.

Want to get rid of the lawyers? Remove The Law and let society denigrate to anarchy, or worse, dictatorship.

In Russia women are imprisoned for "hooliganism" after engaging in what would be nothing more than expression of free speech in America. Guess who dictates the Rule of Law in Russia? Not the people...

Lawyers are not The Problem. No more than brokers who falsify quotes to steer business to preferred carriers. No more than doctors who unbundle procedures to maximize billings. No more than businesses who misclassify employees to reduce premiums. No more than government officials who engage in back room deals to further political agendas. No more than the carrier executive using corporate assets to enrich his personal lifestyle.

EVERYONE is the problem. Want reform? Deal with EVERYONE. This means dealing with BOTH the benefit delivery system AND the risk allocation system. Until then it's not reform; it's simply an adjustment.

CA Reform: Disassociate PD with RTW

The proposed California reform is getting a lot of attention, particularly from those who oppose it.

Some may believe that I oppose it too. Let me be clear: I am not particularly opposed to the proposed reform bill. In my opinion there are some parts that are good for the system and some parts that have not been well though out.

I AM opposed to secret negotiations, and the failure of drafters and proponents to release the real data upon which they make savings and benefit increase claims.

Be that as it may, most of the objection that I have been reading about seems to be concerning the shift in permanent disability benefits to the lower and middle tier ratings, the independent medical review process and the change in physician fee schedules.

But there are other subtle items that I think would have a profound effect on claims.

One of these is a declination of PD if the injured worker returns to work.

The operative language in the draft bill reported by WorkCompCentral is:

SEC. 52. Section 4650 of the Labor Code is amended to read:

(2) Prior to an award of permanent disability indemnity, a permanent disability indemnity payment shall not be required if the employer has offered the employee a position that pays at least 85 percent of the wages and compensation paid to the employee at the time of injury or if the employee is employed in a position that pays at least 100 percent of the wages and compensation paid to the employee at the time of injury.
Allow me to put some experienced perspective to this provision.

I live in a blue collar town. Most of my friends and acquaintances at home are thus blue collar workers and many of them are union card holders too. I have quite a bit of experience (I have lived in the same house in this blue collar town since 1987) with their thoughts, mentality and motivations, particularly when it comes to matters of work injury since most everyone in my town knows that I am in the work comp industry.

I can say with authority (albeit anecdotally, but nevertheless with sufficient frequency to be credible): telling a blue collar worker that if they don't get any money if they go back to work is tantamount to telling them it is better to stay off of work.

That's right, amending Labor Code 4650 to eliminate that payment of permanent disability indemnity when the injured worker goes back to work means the injured worker will NOT return to work until and after his or her workers' compensation case has been resolved, which means more temporary disability indemnity and/or state disability.

The motivation of this amendment is completely backwards. If employers truly wanted to motivate an injured worker to return to work then there would be a REWARD for doing so, not a penalty.

The 2004 reforms introduced a complex, one sided, "reward" to employers for offering return to work. This provision just muddied up the permanent disability indemnity process, created more complex work for the claims adjuster to a) follow up on return to work offers, b) adjust indemnity payments, c) get challenged in court with evidence of return to work offers or not.

The proposed bill does away with this, frankly, stupid provision. That's good.

But creating a disincentive to return to work is bad.

We have seen time and time again that disability has nothing to do with whether someone can work.

Disability is a legal status. It is how society defines whether someone gets money and other benefits for being on the wrong side of an injury, illness or other circumstance that affects one's ability to take care of one's self.

There are plenty of examples of folks who overcome their impairments to do remarkable things: flying airplanes with no arms, competing as an Olympic sprinter with no legs, etc.

While an injured worker may not be able to return to the pre-injury occupation, there is always something socially productive someone with a physical or mental impairment can do.

The allocation of permanent disability indemnity should be disassociated with return to work status. They have nothing to do with one another and denying indemnity when there is return to work means that people won't return to work ... at least not until they get their fair share of money.

Ivory tower thinkers may not like that, but that's reality.

Truth to the Maxim: Question Authority

Social civility comes down to whether the people trust the government.

Trust in governing comes in many different forms, but it is based upon the ability to rely upon the information that is provided by one's government, and when government is less than forthright to its constituents then one must question whether government is actually operating in the best interests of its people.

I was copied in an email string between Oakland workers' compensation attorney Julius Young (who also has a blog at http://www.workerscompzone.com/) and Department of Industrial Relations Director Christine Baker, where an issue as to the existence of sensitive and controversial memorandum concerning the constitutionality of the proposed Independent Medical Review system was raised.

Baker denied the existence of any such memorandum.

WorkCompCentral came into possession of such memorandum yesterday and published it today.

Here is the entire email string between Young and Baker:

***********START EMAIL STRING************

On Aug 13, 2012, at 4:59 PM, Julius Young wrote:

Hi Christine

I know you are quite busy whether everything going on but would like to pose a question to you that Rosa Moran was not able to answer in the meeting she attended today with a small group of East Bay applicant attorneys ( a group or very reasonable attorneys that I recall offering as a resource on these issues to both you and Angie).

Re the proposal for IMR which has no judicial review and can not be overridden by a face to face QME, it has come to my attention that the DWC or CHSWC obtained an outside opinion/consultation from a law professor at UC Hastings on the constitutionality of/due process issues concerning IMR. I think that it would be helpful to the comp community generally and legislative staffs to get that Hastings law professor analysis document.

I am copying David DePaolo at Workcompcentral and Marc Lifsher at LA Times who follows these workers comp bill issues, since I think the UC Hastings analysis may be of interest as this bill is debated.

Can you have someone forward that to one of us?

By the way, I had asked Lach Taylor whether CHSWC has studies on how IMR has worked out for other state such as Texas and others. Lach had said he was looking for that information but I did not hear after re-inquiring.

Can DIR provide that to someone in the comp community. Is it possible to share those with the comp community so these proposals can be better evaluated?

If there is someone else who needs to be asked on these issues, pls let us know

Thanks

Julius Young

On Aug 13, 2012, at 5:01 PM, Christine Baker wrote:

We did not get an opinion from Hastings or any one else. I believe the employers did. I don't have that.

On Aug 13, 2012, at 5:50 PM, Julius Young wrote:

Can you tell us all who could provide a copy of that Hastings memo. It is hard to think CHSWC was not given a copy of that but who can provide that? Clearly that is something you would want to see in your oversight role.

On Aug 13, 2012, at 5:54 PM, Christine Baker wrote:

I had not heard of this analysis until you told me. Who requested it?

On Aug 13, 2012, at 6:33 PM, Julius Young wrote:

I will look into this Hastings memo but assume you will try to get a copy as well. On the other item It would be great if CHSWC will provide the comp community access to information gleaned on IMR in other states and how that worked out. It would be a good CHSWC study item.

On August 13, 2012, at 6:40 PM, Christine Baker wrote:

I believe the medical study is posted. Imr is discussed there. I am shocked that you think that maintaining status quo is better than pouring 700 million new dollars into benefits and redirecting the dollars from certain add ons and fecs for an additional billion.

***********END EMAIL STRING************

A memorandum prepared by Daniel R. Sovocool, an attorney with Nixon Peabody in San Francisco, provides an analysis of the constitutionality of proposed Labor Code Section 4610.6. It is dated August 6, 2012 and addressed to "Client."

Sovocool says that limiting review of IMR decisions to a showing of fraud, bias or conflict of interest “may create due process concerns.”

Article IX, Section 4, of the California Constitution requires that all decisions of a tribunal, such as an industrial accident commission, must be subject to review by the appellate courts of the state, Sovocool explained. The Legislature is authorized to limit review of an IMR decision to very narrow grounds, but Sovocool said there are still potential problems with the proposal.

“Of concern, however, is that if an independent medical reviewer makes a factual error, even a glaring error, there appears to be no process for that error to be reviewed, much less overturned,” Sovocool writes. “There is no right to a hearing on that basis. Coupled with the absence of any examination, and the absence of any interaction between the injured worker seeking care and the reviewer (all decisions are made based on medical records and reports only), we think this is a significant issue, and may give rise to due process arguments.”

Is this the sort of opinion that could derail the proposed reform? Perhaps. (Remember DIR unabashedly publicly issued support for the proposed reform on August 16).

Did the DIR have this when Baker denied that DIR had heard of it when questioned by Young? I don't know.

But I think there's enough here to question the reliability of information being provided by our government.

By the way, an internal DIR memo, also published by WorkCompCentral today, was generated 8/18/2012 - 5 days after the exchange between Young and Baker and 2 days after DIR's press release supporting the proposed reform. It also questioned the constitutionality (albeit in less direct terms) of the IMR process.

CA Reform Interests Other States

Speculation in the California workers' compensation system is that the anticipated proposed reform bill will be formally released and introduced into the Legislature today with just 10 days to go in the legislative session.

Regardless of whether you are for or against the bill, this is certainly a time of very intense political interest for everyone in the industry, including those whom I talk with here in Orlando, Florida at the 67th Annual Workers' Compensation Educational Conference.

For those of you who do not make the annual pilgrimage in August to Orlando, I honestly think it is the single most important event in our industry exceeding any other conference by a large number the amount of people that attend, the quantity and breadth of educational programs and the huge networking opportunities.

But I'm always surprised by how much California can dominate the conversations and discussions.

One attendee told me that California holds intense interest to, at least, Florida because "what happens in California tends to show up in Florida about two years later."

So what are the items in the California reform proposal that may migrate East? For sure the proposals for controlling medical costs have great interest outside of the Golden State.

With medical cost inflation continuing to be an issue in nearly every state, the California's experiment holds a lot of interest for other states.

There are two ways to control medical costs: the amount billed and the resources used. In workers' compensation parlance we call these two items severity and utilization.

Utilization is controlled under the proposed law with an Independent Medical Review (IMR) system.

The proposed California IMR process puts medical disputes into another agency within the Division of Workers' Compensation (albeit the DWC may contract out for this service) and creates a near binding decision process for those disputes. Disputes can not be appealed out of the IMR system unless there is an allegation of fraud.

The IMR process is required to strictly adhere to the Medical Treatment Utilization Schedule (MTUS), which has been growing since the 2004 reforms mandated the creation of the MTUS, while the American College of Occupational and Environmental Medicine (ACOEM) treatment guidelines were the key reference source.

Severity will be controlled by shifting to Medicare's Relative Value Based Resource System (RVRBS). This system has been criticized because it reduces, dramatically, reimbursements to specialists and increases compensation to generalists. Specialists of course cost more than generalists.

Whether the services of a specialist are necessary in many cases is open to debate. If the shift of services to a general practitioner does not detrimentally affect the quality of care that an injured worker receives will be watched closely.

Like it or not, if the proposed reform for California makes law the state will be the subject of close study by the rest of the industry ... again.

Ratios, Rates, Risk Allocation and Benefits Delivery

In June the Workers' Compensation Insurance Rating Bureau (WCIRB) released its overall combined ratio analysis for carriers in California. The ratio had climbed from 117% for years 2009 and 2010 to 122% in 2011.

As you likely know, the combined ratio is how much goes out the door for every premium dollar taken in - so in the case of 2011 a carriers paid out twenty two cents more than they took in.

The combined ratio is a very broad measurement that is useful for at least trend spotting, but is very susceptible to misinterpretation because it is greatly affected by outliers - companies whose ratios that are included in the overall number that have either very high or very low individual ratios.

In general for California, while the present number itself is high, a negative combined ratio is not abnormal. Most of the time there is sufficient investment income to still make a profit despite more expense dollars going out than premium dollars coming in.

There have been some years, most notably 2005 through 2007, where the combined ratio was positive and carriers were able to make an underwriting profit in addition to investment income.

And there are years like 2012 where there is insufficient investment income, insufficient payroll base, insufficient premium ... Which takes us to rates.

The published insurance rates are an interesting phenomenon in workers' compensation because they are the product of available risk allocation resources - in other words what the size of the market's total payroll is. In the latest filing, for every $100 in payroll, the WCIRB seeks $2.68 as the basis for determining the employer's obligation.

When the economy is in the doldrums, and unemployment remains stubbornly high (Bureau of Labor Statistics reported California's July unemployment at 10.7%, still the third worst in the country), there is quite simply less wage against which to charge premium, so each unit of risk allocation resource, i.e. a wage dollar, must carry more of the risk.

Consequently carriers seek higher rates because the risk allocation part of the insurance teeter-totter was getting outweighed by the benefit delivery side. But this isn't necessarily because the benefit delivery system got heavier. Part of the problem is that the risk allocation system got lighter.

Another part of insurance fundamentals is expenses, and more directly, loss and loss adjustment expenses. These can come in either at the benefit delivery side or at the risk allocation side.

Loss is basically how much medical costs and how much indemnity is paid out.

California medical losses paid in 2011 were $4.4 billion and accounted for 60% of total payments, as they did in 2010 and 2009, when total medical losses were $4.3 billion and $4.2 billion, respectively.

Carriers paid $3 billion in indemnity benefits, with $1.5 billion in temporary disability and $1.2 billion in permanent partial disability benefits, in 2011.

Loss adjustment expenses are comprised of all of the various components that carriers use to deny or reduce claims, be it indemnity (by limiting either the rate or duration) or medical (utilization review, bill review, attorneys, and other consultants).

This is where things get interesting.

In 2005, just after the institution of SB 899's utilization review mandates (carriers were required to have systems in place, but they didn't necessarily have to use them), $197 million was spent on medical cost containment services.

In 2011 the cost of such services was $384 million - 94% more than was spent in 2005, or $187 million.

According to the analysis addressed to DIR Director Christine Baker, prepared by Bickmore actuary Mark Priven, the proposed reform bill would result in a net savings to employers of between $95 million and $375 million. The median would be $235 million - not that far off from what carriers spent on medical cost containment services last year.

And the increased spending on medical cost containment services from 2005 to present doesn't appear to be too terribly effective, given that the cost of providing medical services continues to grow by $100 million per year even though claims frequency is at an all time low (except for an anomaly in 2010 when there was a spike in claims experience).

In 1997, after "open-rating" (i.e. pure price competition by carriers without Department of Insurance oversight) was made possible by SB 30 there was justifiable concern that some carriers would not be able to exercise the discipline necessary to price risk properly, and that concern was played out over the next few years with the demise of a couple dozen of carriers that drank the Unicover KoolAid.

It seems that 2005 brought in its own medical cost containment services KoolAid.

And maybe this is what the new Independent Medical Review system will curtail - runaway utilization review and runaway medical bill review.

When DIR started on its present reformation agenda, I argued that there could be no "real" reform without also seeking change in the risk allocation part of workers' compensation. I was met with an unsupported argument that doing so would increase costs and increase rates.

So the focus on the present reform is solely about the benefit delivery system.

The fundamental flaw with the present risk allocation system is that there is no incentive for carriers to more tightly manage loss adjustment expenses and it may very well be that increased complexity of the system over the years inhibits carrier's ability to do so.  Evidence of this is the simple fact that despite a near doubling in the amount of money that was spent on medical cost containment services it has had no discernible effect over the long term. Medical costs continued to grow.

Before SB 30 carrier competition centered on tight claims management because the only way to demonstrate a savings to an employer, and thus win the employer's business, was to ensure the lowest possible experience modification factor possible. And this was accomplished by tight claims management to get the claim closed as quickly as possible thus minimizing indemnity AND medical.

And guess what, carriers didn't rely upon utilization review or bill review back then. Claims adjusters had much more discretion and made professional decisions based on experience and knowledge accumulated through years of training and dealing with claims. Good claims management got rewarded with more business volume.

Let me summarize this rambling post: the machinations that go into keeping the benefits under workers' compensation affordable to employers are complex. The present day system angst is a product of changes that go back two decades. System performance is compromised by increased complexity (to which the proposed reform bill adds in my opinion), and the delegation of individual responsibility to regulatory subsystems that are applied without appropriate discretion.

Reformists' Secrecy and Departmental Lobbying

Confirming that it is a political entity rather than an unbiased state agency, the California Department of Industrial Relations (DIR) formally announced support of the proposed reform - a deal that the department had a strong hand in brokering.

In its press release, DIR states, “The Workers’ Compensation Bureau [Workers’ Compensation Insurance Rating Bureau, aka WCIRB] approved a 12.6% rate increase on California businesses while industry analysts also predicted even greater hikes next year,” and that the proposed plan will reform the state’s comp system “before projected rate increases push California to a crisis situation.”

And rather than addressing direct inquiries about the data that is being relied upon to project a two to one cost savings vs. benefit increase estimate, the Department has continued to defer the topic and keep the subject matter close at hand.

Blogger and Oakland-based applicant attorney, Julius Young of the Boxer and Gerson law firm, asked Christine Baker, Director of DIR, quite pointedly whether an estimate of the pricing components that was divulged to employers in a recent closed meeting would be made available to the press.

Baker demurred, stating "It was not finalized, and is draft," claiming she will have an "updated estimate" Friday (today). Later Baker told Young to "coordinate questions through Dean Fryer," the departments public relations person, who quickly advised Young, "There is no document available for distribution."

Which of course is not what Young asked for.

WorkCompCentral reported that there are at least two projections - one by State Compensation Insurance Fund (SCIF) and another by Bickmore Risk Services.

According to Jennifer Vargen, senior vice president of marketing and communications for SCIF, the carrier was not part of the negotiating team, but put a “significant amount of work in pricing out various provisions.”

Brian Watson, senior vice president of government and business affairs for SCIF, said the carrier helped price components, such as eliminating add-ons for psychological claims, sleep disorders and sexual dysfunction, as well as the proposed increase in permanent disability benefits. He said Baker had a chart showing the projected costs that she presented during a meeting on Aug. 10.

Bickmore Director of Regulatory and Alternative Risk Consulting, Mark Priven, addressed an estimate report to Baker dated 8/13/2012, which was prepared "at your request" and released by the California Coalition on Workers' Compensation (CCWC) yesterday.

Noting that permanent disability indemnity has documented ties to utilization (i.e. the more PD available the more workers' compensation is "utilized") Priven estimates 2013 savings of $2.666B.

$1.536B of that estimate is saved in permanent disability indemnity, mostly by dropping the age and diminished future earnings modification factors in the rating schedule.

Acknowledging the tenuous nature of the study, the data, and conclusions, Priven admits that, "In many cases this analysis was based on sparse data and anecdotal information."

The report does not indicate how permanent disability indemnity is increased by $700M, a claim that has been promoted by Baker and others since the rumored reform was announced. In fact, this report seems to indicate just the opposite.

In the meantime, it appears that the Administration has been busy drumming up support for a reform bill that doesn't formally exist.

CCWC, a group of active employers whose pledge is "supporting and safeguarding California's economic future," came out yesterday with a press release announcing support for the proposed reform.

Using the same argument that DIR used in its press release, that costs are increasing because the WCIRB announced a rate filing increase of 12.6 percent, the CCWC says that "California employers, public and private sector, need the cost cutting measures included in the proposed reform."

The WCIRB's rate filing expressly states that a big component of the rate increase is simply the fact that there are still 2 million workers not employed - the shrink in payroll means there's less premium to support risk and operations which means that the base rate must go up.

Using the WCIRB's rate filing as an argument to support the reform proposal is mixing apples and oranges.

But at least CCWC provides Californians with access to the materials that the Department refuses to divulge.

Here's the list:

Draft Bill Language

Cost Analysis by Bickmore Risk Services

Contents by Subject

Code Section Guide

Thank you CCWC for at least providing the public with access to information and documents upon which big policy decisions are being made, because apparently the DIR (whose mission is "to improve working conditions for California's wage earners, and to advance opportunities for profitable employment in California") doesn't feel the public has a right know.

In the meantime, read the draft bill, the Bickmore analysis, and come to your own conclusions.

CA Reform Can't be Priced - So Where's the Savings?

"Saying something has to have a fee schedule doesn't generate savings."

That's what California Workers' Compensation Insurance Rating Bureau's (WCIRB) chief actuary Dave Bellusci said to WorkCompCentral about the proposed reform that would impose new fee schedules in announcing the WCIRB's pure premium rate filing yesterday.

Likewise, the WCIRB would need more time to calculate savings from a proposal to use Medicare's Resource-Based Relative Value Scale (RBRVS) or a requirement that medical disputes be sent to independent medical review.

"Even though, ultimately, those may be the biggest pieces, they're hard to price," Bellusci said.

Bellusci said the WCIRB can estimate the financial impact of an increase in permanent disability benefits and what would happen to costs if the ability to increase permanent disability awards based on an injured worker's diminished future earning capacity and age are eliminated.

The Labor Code section 4628(d) adjustment to permanent disability indemnity based on return to work status, elimination of spinal fusion hardware pass-through and reduction of out-patient surgical center reimbursement can also be estimated.

Labor and Business negotiated a deal that they claim would cut $1.4 billion in costs from the California workers' compensation system and increase permanent disability benefits by $714 million. Legislation hasn't been introduced, but Bellusci said the Rating Bureau has seen some proposals.

But the bottom line is that the people whose job it is to convert the law into money don't know what the true impact of the proposed reform would be, and they are privy to the various proposals that have been batted around Sacramento, including the version that was widely reported as the reform package headed to vote.

Which is why I keep asking how the proponents of the current reform change can claim a net savings of almost $700M while still raising indemnity by that same amount.

There is a disconnect between what employers actually pay for workers' compensation insurance and the estimates claimed by reformists.

And the reason is because of the long tail nature of workers' compensation and the fact that pricing of work comp is ultimately tied to the wage base - the higher unemployment is for any given period of time, the less wage base there is to generate premiums which means that those employers who still have employees pay more per employee than before.

In other words the risk of work injury and its financial consequences is spread out against a smaller pool of funding resources.

The WCIRB recognizes that the wage pool isn't going to grow fast any time soon. California's unemployment rate is still above 10%, representing a couple million workers and is not projected to decline for several years. That's a lot of wage base that can't be included in the risk allocation equation.

This fundamental concept is why the claim of a net savings while boosting benefits claimed by reformists must be met with skepticism.

Because at the end of the day any claim of system savings must translate to how much premium the employer pays. And reformists can't control the economy or the unemployment rate.

Reform opponents are hard at work lobbying legislators to reject the current reform proposal and they have a very powerful argument - the cost versus benefit claim being made can not be supported by real time data. And proponents failure to release their projections bolsters that argument.

Proponents of CA Reform Lack Muscle Man Strategy

The drama of California reform efforts is increasing with the cancellation of a hearing that was set for this afternoon before the Senate Committee on Labor and Industrial Relations.

The Committee was to take into consideration the proposed draft legislation that many were expecting would be amended into SB 863, a bill authored by Sen. Ted Lieu, D-Torrance, on Tuesday. As of Tuesday afternoon though, no reform legislation had been introduced.

The California Workers’ Compensation Services Association (CWCSA) called the proposed bill “the most harmful attacks on our industry since SB 899,” a reform measure passed in 2004 under the administration of Arnold Schwarzenegger.

The California Applicants’ Attorneys Association (CAAA) said the reform proposal was “worse than SB 899.”

The California Society of Industrial Medicine and Surgery (CSIMS) suggested that it would be preferable to hold off on introducing a bill this year, hold a series of stakeholder meetings throughout the rest of the year and, if necessary, introduce a measure with an urgency clause when lawmakers convene the 2014 legislative session in January.

And Voters Injured at Work (VIW) criticized while Angie Wei, legislative director for the California Labor Federation, who negotiated on behalf of labor, for consulting with VIW about any of the proposed changes and did not provide a copy of the draft legislation.

“I had to get a copy from somebody else,” Jesse Ceniceros, president of VIW told WorkCompCentral. “We’re not even considered a player in this. I guess we’re the uninvited guest.”

Proponents of the proposed bill are much more muted than the opposition.

One person in the WorkCompCentral Forums took on the opposition:

"I fail to see all - or much of anything - horrible, drastic, or making huge, radical changes, much less anything really "bad" in the proposed changes, as described by the list. 

"At some point, all those hollering so loudly need to look at how our closer neighbors - Oregon and Washington - handle comp claims and what the worker gets out of it. We've been riding a workers' and provider's gravy train here, and I've been wondering for years and years when it was all going to collapse. 

"And IMHO, most of the long-overdue collapse is due to the extent to which every reasonable change of any kind is litigated to the death, over and over, in every possible way, by those who stand to benefit, or lose, depending. As witness the outcry over the death of the ancient monster of LC 5814 when SB 899 passed. "

But as reported repeatedly in various media outlets, the proposed bill's chief negotiators, Grimmway Farms' Sean McNally and Wei, have remained silent. Both Wei and McNally are members of the Commission on Health and Safety and Workers' Compensation which Wei currently chairs.

And other than the conclusory statement by Department of Industrial Relations Director Christine Baker that the changes would increase permanent disability indemnity by $700M and reduce overall costs by $1.5B, there has been very little other marketing attempts to make the changes seem more palatable.

This is hard scrabble politics. From my chair, proponents' strategy appears to come from the "armstrong" school of thought: ram the law through via secrecy, subterfuge and brute force.

While this may indeed be a viable strategy out of the politician's playbook, it broods distrust and contempt.

Or maybe proponents just don't have their script together yet. Maybe they aren't ready to debate the merits of what was put together.

But one would think that there is some data, some study, some information somewhere that can logically support the proposed changes because that information will need to go to legislators for there to be an informed vote.

If there is, proponents should share it now - unless their strategy is indeed the "armstrong" method.

An alternative that no one is willing to debate is a complete dismantling of the system. It seems that SOME workers' compensation system is better than none.

SB 899 was passed because of the threat of voter initiatives should the Legislature take no action. Laws created by an initiative can not be changed by the Legislature - only the voters can do so - and that is a huge threat because system tweaks can not be accomplished. 

What if the proposed changes were backed by a voter initiative that got rid of work comp?

Now THAT would be an "armstrong" strategy - perhaps that's why it took a Muscle Man to push through SB 899.

Jerry Macguire's Work Comp

As one would expect, the various groups representing vendors to the California workers' compensation system have gone on full attack mode against the pending proposed reform bill.

I can't blame them - what is being proposed is a big change to how claims are to be managed from both a medical and legal perspective. The changes are big to physicians and attorneys, both of whom will likely be adversely affected by the changes.

The California Applicants’ Attorneys Association (CAAA) released an “action alert” asking members to contact state senators and assembly members to stop any reform bill from moving forward.

CAAA President Brad Chalk wrote, “We concluded that this proposed legislation is worse than SB 899” (the Schwarzenegger era reform bill that was pushed through a late night session at the last minute against the threat of a voter referendum on the issues).

Crrondeau wrote in the WorkCompCentral Forums: "The single most important question that I have for anyone who would defend SB 863 is this: "Where is the crisis?" The answer is obvious; there isn't any. This is not 2004. The business pages are not filled with stories of employers being forced out of business or out of state because of the cost of workers' compensation insurance. This bill is nothing more than a "bait and switch". The PD increases for the most severely disabled will be meaningless because they will never be able to get ratings that entitle them to what they are entitled to under current law. That is the plain and honest truth."

And in response to questions from Oakland applicant attorney Julius Young about a supposed study by a UC Hastings law school professor on the Independent Medical Review (IMR) process, Department of Industrial Relations (DIR) Director Christine Baker claimed that such a study was not procured by either DIR or the Commission on Health Safety & Workers' Compensation (CHSWC).

Baker added, "I am shocked that you think that maintaining status quo is better than pouring 700 million new dollars into benefits and redirecting the dollars from certain add ons and fecs for an additional billion."

First, I am not going to pass judgment on the proposed bill at this time, a) because it has not been formalized, and b) WE HAVE NO DATA to judge whether this law does or doesn't do what either of its proponents or opponents declare it will do.

Here's what I do know.

Governor Jerry Brown has publicly stated on numerous occasions that there will be no permanent disability indemnity increase unless there is wholesale reform of workers' compensation such that any increase is paid for out of savings.

The proposed reform was negotiated between two constituencies that represent less than 13% of the total working population and less than 5% of all employers in California, in top secrecy.

This was either during or after the DIR road show that gathered "public comment" on how to "fix" California's workers' compensation system.

Presumably these two constituencies had access to studies, numbers, spreadsheets, prognostications, actuarial analysis and other number-crunching facilities to proclaim a 2 for 1 cost-benefit ratio, but there has been great effort (if not outright subterfuge) to keep those numbers out of the hands of anyone that may review, analyze and criticize it (including WorkCompCentral's request for public records to which just an answer, let alone the actual documents, has been delayed by DIR until at least August 27 under the guise of a legal technicality that should have nothing to do with the existence of, or completeness of, such data).

The last day of this legislative session is August 31... wouldn't it be convenient if the data didn't make it to the public's hands until after the law is passed?

Tomorrow an "informational hearing" is expected to introduce the bill, which likely will be publicly released this afternoon. I have to assume that this release will be accompanied by statistical conclusions supporting the cost-benefit declarations.

But will DIR release the actual studies and data at that time?

Or will the public have to take the word of the Administration that the numbers really do work out?

In the end, does it matter? When legislation is handled in this top-secret, rush to the pen manner, it is because someone, somewhere along the food chain doesn't want too much debate or review - that delays passage and implementation.

Governor Brown may, or may not, run for reelection - but a Democrat signing legislation that could be supported by numbers, right or wrong, that brings both alleged savings to employers and an alleged benefit increase to workers is a political coup and a nice legacy.

And if the numbers prove to be erroneous - well, that's not the Governor's fault. He was relying on his experts to get the job done.

Baker may be shocked that some want to maintain the status quo.

I am shocked that the government won't be truthful or forthcoming enough to give the public access to the same information they have in pushing this law change through.

While CAAA is upset that the proposed law will eviscerate worker's due process rights, everyone should be upset that the manner in which this "reform" is being handled is an usurpation of the democratic process.

To paraphrase Cuba Gooding Jr in his role in Jerry Macguire, "Show me the data."

CA Reform - Reality Politics!

For my more national readers, this blog will probably be much more California-centric for the rest of the month than its normal Left Coast bent as the prospect of a major change to the workers' compensation system of the seventh (or eighth, depending on your source) largest economy in the world goes through the legislative vetting system on its way to becoming law.

But even those of you not from California, the entertainment value must be endless. This is reality politics! The drama surrounding California reform is better than any episode of the Kardashians.

The bill was negotiated in top secret. The first full draft was circulated to a privileged few. Some people were asked for their input then later told their help was not welcome. Some people were told their input simply was not needed at all.

In the meantime others have posted a summary of the proposed reform, and others have questioned the science and math that allegedly supports the conclusion of a 2 for 1 cost to benefit ratio.

Those who are close to the negotiations won't talk, at least not until there is a formal announcement of the bill on which the changes will ride on (rumored pretty solidly to be Senate Bill 863, a bill introduced by Sen. Ted Lieu, D-Torrance that originally would have imposed an 18-month limit for filing liens, which was passed to the Assembly last year before Lieu withdrew the measure from consideration and has been on the Assembly inactive file since Aug. 22, 2011, but was taken off the inactive file on Aug. 6).

The lastest information is that there will be a formal introduction of the bill on Wednesday with an "informational hearing."

And those of us in the audience wait, wondering, speculating - what does this mean to workers' compensation? What does this mean to my workers' compensation business? Doctors, lawyers, insurance companies, employers, interpreters, document copy services, rehabilitation schools - all of them anxious to get an analysis of this latest threat to the status quo.

Oh yeah, I forgot, workers.

According to the California Employment Development Department (EDD) there are about 18.5 million workers in the state. About 16.5 million of them are employed. The rest are presumably looking for jobs. Those that are employed average about $25 an hour. Of these, 2,379,000 belong to a union.

At least one major negotiator represented Labor, presumably looking out for the worker demographic, but 87% of the working force in California are not unionized and thus not represented in these talks.

In all honesty though, most of these 16.2 million non-union workers will never have any need for knowing anything about workers' compensation and what they may gain, or lose, in the latest reform wave.

Another major negotiator was from Big Business, presumably looking out for the employer demographic.

Speaking of which, California has 3,320,977 small businesses, according to the most current federal data available. Of those 3,320,977 small businesses in California, 1,068,602 have employees. The remaining 2,252,375 are California small businesses that have no employees. The number of self-employed persons in California (including incorporated companies that file via Schedule C) was 2,137,841. Big Business has no idea what Small Business needs.

All of which is to say... politics as usual. A minority will dictate what the majority will do.

There is nothing going on in Sacramento that those of us in the workers' compensation industry haven't been through before, and haven't experienced before. Nothing coming down the pipeline is new.

If the summaries are correct, much of what is on the table has been tried before. Much of what is going to be subject to debate has been debated before. Some of what is proposed is new, but for the most part these "reforms" are old ideas with some tweaks.

The reform is supposed to deliver $2 of savings for every $1 of benefit increase.

We'll see. My experience is that such mathematical conclusions depend on who is running the calculator.

In the end, does it all really matter? What gets to legislators for the vote may be very different than what gets presented to the public on Wednesday. For most workers in California, what happens to workers' compensation is irrelevant to their daily lives, and is not applicable because they are not union employees.

And for most employers in California what happens to workers' compensation is irrelevant until the premium notice comes in the mail and if they think it is not so much more than last year then there is no issue, and that will be the case for most employers.

Until then, only vested interests - i.e. us vendors - give a hoot. And even then its simply a matter of adaptation.

Setting Up For Reform In 2020

According to reports coming out of Sacramento, the proposed California workers' compensation reform bill would provide state employers with a $700 million net reduction in system costs while still providing up to a 67% increase in permanent disability indemnity benefits.

It's a fiscal miracle that can only occur in the face of elections!

Part of the way the proposed changes would do this would be to simplify some elements of the California system that have never made much sense.

For instance, elimination of the 15% up and down modifier to a permanent disability award based on return to work offer/acceptance found in Labor Code section 4628(d) or dispensing with the second opinion requirement on back surgery requests.

Another complexity eliminator is simplification of the Permanent Disability Rating Schedule by removing rating modifiers related to future earning capacity, age adjustment, and taking away sleep, sex and psyche add-ons.

Other provisions though will increase system costs in my estimation.

For instance there is a provision to impose a $150 filing fee for liens - the last time that was attempted the Division of Workers' Compensation (DWC) just stopped doing it because its infrastructure got in the way of collecting the fee and cost more than the fee did (albeit the fee at that time was $100).

Another example is the creation of an Independent Medical Review system for resolving treatment disputes. Presumably this activity would be paid for with a fee paid by the employer of no more than $500, but what about the administration of the IMR process, its participants and appeals (which would be limited to allegations of fraud, bias or conflict of interest)?

A built-in systemic cost is that the proposed billing and system reforms would require billing disputes go through an independent bill-review process that is set up and contracted by the Division of Workers’ Compensation. Providers would have a limited time to object to billing adjustments and there will be a limited right to appeal any bill-review decisions.

In addition interpreters have new licensing requirements and will need certification by the DWC (of course paying a fee for the privilege).

Several groups have come out to oppose the process in which the negotiations were carried out. Doctors in particular have several axes to grind as the reimbursement schedule gets changed to Medicare's Resource-Based Relative Value Scale (RBRVS) and medical provider networks (MPN) that are approved by the DWC are presumed valid for purposes of treatment control.

According to reports, the secret negotiations on the proposal occurred only between organized labor and big business.

The California Society of Industrial Medicine and Surgery, besides the opposition one would expect from the group relative to the various provisions affection doctors, said in a press release that part of its concern was the lack of inclusion of input from most of California.

“Unfortunately, the unions didn't ask any injured workers to help with the legislation and the large employers didn't ask small employers," the group said in a press release.

The Senate Republican Caucus mirrored those sentiments:

"While reports of negotiations occurring between large self-insured employers and labor groups may be an encouraging sign that California’s workers’ compensation system is on the verge of important, timely and necessary reform, the fact that insurers and non-unionized, non-self-insured/smaller employers are not at the negotiating table should be cause for some concern," the caucus said.

In the final analysis I'm not sure any of that would matter. What will happen with this "reform" is that some cottage special interests will be eliminated, some new cottage special interests will be created, there will be pandemonium and confusion for 2 years, followed by judicial shaping of the law for 4 years, along with incremental cost increases as these groups figure out ways to maximize their financial interests, followed by a year or two of complaints about costs and/or systemic failures, and a new "reform" around 2020.

See you in the future.

CA Reform: Are You On The Guest List?

Reported this morning is that a "reform" deal in California has been agreed upon by Labor and Industry, and is getting ready to ride the coattails of an existing bill via the "gut and amend" process.

Generally there are only two real avenues in workers' compensation to generate cost savings because there really are only two BIG benefits: medical services and indemnity.

We know there won't be any hair cuts to the indemnity portion of the great bargain because the Schwarzenegger reforms did that and one of the stated goals of this reform cycle is to reinstate, if not inflate, the value of being disabled.

That means medical services.

The Division of Workers' Compensation (DWC) had been moving public attention away from medical services by attacking lien claims and photocopy services.

And surely liens and photocopy services will be part of this new reform package - but those items alone can not produce any savings worthy of an indemnity increase. There simply are not enough costs (if any) that can be attributed to those two line items.

The projected cost offset will come at the expense of specialist physicians through adoption of a medical fee schedule that is based on the resource-based relative value scale (RBRVS) used by Medicare.

There have been attempts in the past to adopt an RBRVS system in California but those attempts had been defeated through strong lobbying.

And while reform observers are hoping for time to review and evaluate any proposed package, the reality is that in all likelihood we will see a process more akin to Schwarzenegger reform, where a complex package is rolled out and strong-armed through the Legislature in the midnight hours - for with only days left before the Legislature adjourns that is the only possible avenue if anything is going to the Governor's desk this calendar year.

If a reform package is introduced, it will be through a process called “gut and amend,” in which the provisions are stripped out of an existing bill and replaced with new language. The deadline for policy committees such as Assembly Insurance to review and pass bills has passed, so any amendments will have to be adopted on the floor of the Senate or Assembly.

Assembly Rule 77.2 states that any substantial amendment made on the floor of the Assembly or the Senate “may be referred by the Speaker to the appropriate committee.”

This can only mean a streamlined process if anything is going to be passed this year, which means little time for outside review, analysis and comment. It also means that whatever has been agreed upon behind closed doors is very likely what will come out of the Legislature.

It also means that while there will be politically inspired projections of savings those numbers will not have been independently vetted or critiqued.

Angie Wei, a lobbyist with the California Labor Federation who is also chairwoman of the Commission on Health and Safety and Workers’ Compensation (CHSWC), told Sacramento Bee reporter Laurel Rosenhall that, "We're going to find cost savings in the system by establishing fee schedules where they didn't have them before."

There you go - "fee schedules where they didn't have them before."

Well, there's always been some sort of medical treatment fee schedule, but not like RVRBS. And a photocopy service fee schedule didn't exist before at all, so I'm sure that's a shoe-in. I'm sure there will be a few extra add-on tweaks as well just for good measure.

In the normal world of politics that surrounds workers' compensation, it's another rush to the alter.

We won't get to see what the guest list looks like until we're at the reception.

Postscript: The Los Angeles Times also reported this morning the likelihood of a bill rushing through the Legislature and pulling savings out of a new medical fee schedule.