Thursday, August 9, 2012

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.


  1. David,
    I just can’t see how anything of substance can come out of any ‘smoke and mirrors’ action by the Legislature.

    Consider this:

    1 – Indemnity benefits, in order to be politically correct, will have to increase or, at a minimum, remain at the same level.

    2 – There’s a hope that, by some ruling of fiat – fee schedules, suppression of lien claims, choking the copy service – we can get some cost savings from the medical side.

    3 – No one has mentioned anything about the LA&E part of the equation. So, the carriers are going to continue to get their ‘bite of the apple’ regardless of what the other two pieces do.

    According to the latest WCIRB figures (requesting another rate hike for January 2013), the carriers spent 46% of every premium dollar. Medical and Indemnity also spent approximately 40%+ each (combined loss ratio was 126%).

    Do the math – it works out to 1/3rd – 1/3rd – 1/3rd (not exactly, but let’s round for argument’s sake).

    Indemnity will go up, or stay the same. LA&E is the ‘sacred cow’, so it won’t change.

    We’re left trying to choke savings out of the last 1/3rd – Medical. If we could extort a 20% savings, we’re talking about 20% of 33% - a maximum of 6% (more or less).

    Either we reduce medical benefits to the injured workers – or we get little (or no) savings from the Medical piece.

    No matter how it gets ‘dressed up’, anything the Legislation would (or could) do is just ‘lipstick on a pig’. As we say here in the South, ‘That dog won’t hunt.’

  2. Bill - you miss the point! It's POLITICS. It does not matter whether it actually works.