The Mandate - My How We Have Strayed

In January I posted about Despicable Behavior, Audits & Penalties, commenting on the rumored practice of some carriers, third party administrators, and defense attorney firms (collectively "defendants"), that were taking the stance that a vendor who provided services must first file a lien (along with the filing fee) or pay an activation fee for a previously filed lien even before any negotiations could begin on bills - even if there really isn't any justifiable dispute on the amounts billed.

I had heard of anecdotes where this behavior was going on even to bills presented for payment by Medical Provider Network (MPN) physicians - in other words to defendant's own doctors!

Apparently the rumors had some validity.

Late yesterday the California Division of Workers' Compensation issued a "DWCNewsline" release titled, "Payors must negotiate in good faith with potential lien claimants - filing a lien is not a prerequisite." It states:

The Audit Unit of the Division of Workers’ Compensation has received an increasing number of complaints from individuals and entities providing services on a lien basis in workers’ compensation claims. The complainants report that some payors have adopted a policy of refusing to discuss negotiating the provider’s liens until the provider of the services demonstrates it has filed a lien with the WCAB and paid the applicable lien filing or activation fee required by the enactment of SB 863. Such a policy is both unsupported by the plain language of Labor Code sections 4903.05 or 4903.06, and directly contrary to the legislative intent of those sections and existing law.

If a claims administrator has reasonable grounds to contend that nothing is owed, then good faith negotiation does not necessarily require an offer of compromise. In the absence of a good faith contention that nothing is owed, however, a refusal to negotiate prior to payment of the filing fee would not be in good faith.

Additionally, Title 8, California Code of Regulations, section 10109(e) mandates that “[a]ll Insurers, self-insured employers and third-party administrators shall deal fairly and in good faith with all claimants, including lien claimants”.

Title 8 California Code of Regulations, section 10250(b) requires a moving party state under penalty of perjury that the moving party has made a genuine good faith effort to resolve the dispute before filing the Declaration of Readiness (DOR). Forcing a provider to file a lien and pay the filing or activation fee before the payor will discuss informal resolution of their billing amount prevents the provider from complying with this mandate. Such conduct could expose the payor to the imposition of sanctions, attorney’s fees and costs under Labor Code section 5813. This practice also exposes the payor to audit penalties for violation of Title 8, California Code of Regulations, section 10109(e). As is the Audit Unit’s existing practice, the Audit Unit will review all complaints received about this practice during the next random or targeted audit of any payor about whom such a complaint has been received.

I had said in my earlier post about this rumored (and apparently now substantiated) practice, "The carrier/administrator that is engaging in this behavior does so at its own peril, and I'm quite certain we will see an enforcement action publicized and reported in the news when one of these entities is hit with an audit and penalties..."

That DWC has issued a public warning about this practice, in my mind, validates the rumors but I'm disappointed that the Division hasn't taken a more aggressive stance.

I understand that the Division is under huge pressures to get all of the regulatory machinations in place for SB 863 implementation, in addition to the annual educational conferences (starting today in Los Angeles and Monday in Oakland), but the interests of the system need to be taken into account because the behavior described creates a "lien problem" well in excess of that previously identified by SB 863 proponents and which has not been addressed at all by the administration or legislators.

Getting the numbers on defendant's vendor denial practices would difficult, but I'd be interested to see just how much of the "lien problem" is due, and has been due, to the failure of defendants to deal with vendors in good faith, as noted by DWC's release.

In any event, if you're a vendor that has been the subject of this practice, then DWC has given you apt instruction - collect the evidence, give it to the Audit Unit.

And as I also said previously, if you're a defendant, or an individual working for a defendant, that is engaged in this practice, freshen up your contact list for a new job because you're going to cost your employer some extra money.

In the meantime defendants' collective balance sheets will clean up quite a bit come 1/01/2014 when lien genocide hits and any lien that was filed for which no Declaration of Readiness has been also filed will automatically be dismissed without recourse. I have doubts about the constitutionality of this action and think that it amounts to a "taking" without due process, but I'll let the lawyers argue that.

In the meantime, as we all knew would happen, attempts in Sacramento are already seeking to reverse SB 863 provisions, notably to allow the Workers’ Compensation Appeals Board to overturn independent medical review decisions, allow psychological conditions to be used in calculating benefits and eliminate the ban on chiropractors serving as the primary treating physician for more than 24 visits.

Filed by Sen. Jim Beall, D-Campbell, SB 626 was co-sponsored by Dolores Huerta, who co-founded the National Farmworkers Association with Cesar Chavez in 1962, was awarded the Presidential Medal of Freedom in 2012 and will be inducted into the California Hall of Fame in March.

Huerta said in a statement, "“I asked Jim Beall to introduce SB 626 on my behalf to correct several injustices and drafting errors in last year’s reform bill, SB 863. The changes I am proposing will restore a small amount of due process of law to injured workers while saving employers money.”

The opposition to SB 626 was vitriolic, as reported by WorkCompCentral's Greg Jones this morning.

Jerry Azevedo, a spokesman for the Workers’ Compensation Action Network, is quoted as saying that SB 626 is "nothing short of a total annihilation of many of the SB 863 reforms, particularly those dealing with timely, high quality medical treatment and a less litigious and more predictable (permanent disability) system.”

Mark Sektnan, president of the Association of California Insurance Companies, said SB 626 is “clearly not what SB 863 intended.”

I don't think that the tension in the California work comp system has been higher. The dysfunction has grown to an entirely new level and in my opinion the system has strayed far from the Article XIV, section 4 mandate: 

A complete system of workers' compensation includes adequate provisions for the comfort, health and safety and general welfare of any and all workers and those dependent upon them for support to the extent of relieving from the consequences of any injury or death incurred or sustained by workers in the course of their employment, irrespective of the fault of any party; also full provision for securing safety in places of employment; full provision for such medical, surgical, hospital and other remedial treat ent as is requisite to cure and relieve from the effects of such injury; full provision for adequate insurance coverage against liability to pay or furnish compensation; full provision for regulating such insurance coverage in all its aspects, including the establishment and management of a state compensation insurance fund; full provision for otherwise securing the payment of compensation; 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.

It's a mouthful, but is still the guiding principle of the system. We have moved far from those principles.

NCOIL to Take Up Model Rx Legislation

While the International Association of Industrial Accident Boards and Commissions (IAIABC) ultimately decided to punt on the issue of model legislation for the control of narcotic prescriptions, another national group of industry folks has decided to take on the task.

I applaud the National Conference of Insurance Legislators (NCOIL)'s and their Workers' Compensation Insurance Committee which will hold a special meeting with the Workers’ Health, Long-Term Care and Health Retirement Issues Committee on March 8 to consider developing a model law to address opioid-related concerns, including costs to the workers’ compensation system.

IAIABC, after a year of work on model legislation, earlier this month announced it would not release draft rules because, "it was determined that adopting model legislation and regulation on opioid use could be interpreted as too narrow and restrictive for jurisdictions."

But Tennessee Rep. Charles Curtiss, D-Sparata, the president of NCOIL, told WorkCompCentral that the NCOIL committees had expected to be reviewing a national model proposed by IAIABC. Now, while the committees likely will look at IAIABC’s draft efforts, they also plan to look at what individual states have done or are considering.

The issue of control over abuse of prescription drugs has, as you likely know, gained national attention and concern. There are calls for enhancement not only to legislation on narcotics prescriptions but also drug monitoring systems.

California lawmakers are considering a bill to supplement the funding of the state's CURES system by over $3 million to bring it more into acceptance by intended users.

In 2012 legislation was passed in Kentucky making it mandatory for doctors to register and use the state monitoring program known as the Kentucky All Prescription Electronic Reporting (KASPER), before prescribing controlled substances. The two NCOIL committees will look at the Kentucky model closely according to the report.

Vermont Rep. William Botzow, R-Bennington, chairman of the Workers’ Compensation Insurance Committee, said that “at this time, we (the committee) need to further educate ourselves” on possible options for legislation. But Botzow said NCOIL is seeing “more and more interest” from its members and other lawmakers on the opioid issue.

Fortunately IAIABC did a lot of the work towards model legislation so NCOIL does not have to reinvent the wheel. There are other states that have seen positive results from their attempts at controlling prescription drugs in both the workers' compensation context and the general health context, and those states can assist the NCOIL committees in constructing the right package.

For states that are experiencing prescription drug control issues NCOIL's work will be welcome and will provide a national forum for the debate on how to properly implement effective controls on narcotics and prescription drug distribution.

Why Chip Away at Work Comp? Let's Just Get Rid of It

California Assembly Insurance Committee Chairman Henry Perea (D-Fresno) introduced AB 1309 late Friday, February 22.

AB 1309 seeks to exempt professional athletes that are temporarily in California from coming under the state's jurisdiction for workers' compensation benefits.

The bill would amend Labor Code section 3600.5, a code section that otherwise extends extraterritorial jurisdiction on claims that arise due to causation in California, regardless of the extent of California connection and whether or not the employer is based in the state.

According to the bill preamble:

This bill would provide that an employee hired outside of this state, his or her dependents, and his or her employer shall be exempt from this state's workers' compensation laws if the employee is a professional athlete, defined, for purposes of these provisions, to include an athlete who is employed at the minor or major league level in the sport of baseball, basketball, football, hockey, or soccer, and that professional athlete is temporarily within this state doing work for his or her employer. This bill would deem a professional athlete to be temporarily within the state doing work for his or her employer if, during the 365 days immediately preceding either the professional athlete's date of injury, or, in the case of an occupational disease or cumulative injury claim, the professional athlete's last date of injurious exposure while employed anywhere as a professional athlete, the professional athlete performs less than 90 total days of required services within the state under the direction and control of the employer. The bill would provide that if the employee is a professional athlete, the date of injury in cases of occupational diseases or cumulative injuries is the date of the employee's last injurious exposure while employed anywhere as a professional athlete, or the date of diagnosis, as defined, by a licensed physician, whichever occurs later.

The bill would also provide that an employer of a professional athlete that is subject to California's workers' compensation laws is not liable for occupational disease or cumulative injury if at the time application for benefits is made the professional athlete performed his or her last year of work in an occupation that exposed him or her to the occupational disease or cumulative injury as an employee of one or more other employers that are exempt from California's workers' compensation laws or pursuant to the above provisions or any other law. The bill would provide that these changes apply to all pending claims for benefits, as specified.

The proposed amendment defines "professional athlete" as "an athlete who is employed at either a minor or major league level in the sport of baseball, basketball, football, hockey, or soccer."

According to the Los Angeles Times, Perea said that AB 1309 is expected to be a "starting point" for a lively legislative debate over whether claims from out-of-state retired players represent abuse of the California workers' compensation system and wind up hitting all California employers with higher premiums and surcharges that pay for outstanding claims left by failed insurance companies.

Puh-leez.

While some professional athletes have outsized salaries compared to the Average Working Joe (AWJ) the truth is that indemnity benefits are capped so Kobe Bryant can't get any more in benefits than the AWJ.

By the way, according to the U.S. Bureau of Labor Statistics (BLS), the average annual salary of professional athletes is only $79,460.

And do professional athletes really comprise that much of the work force that their alleged "abuse of the California workers' compensation system" really affect other employers?

What a sad, inaccurate and tired argument that is.

Again, according to the BLS in 2008, only about 16,500 held jobs as professional athletes and sports competitors.

Let's say that the BLS stats are erroneous and there are twice as many professional athletes and sports competitors than reported. Let's say that the stats are grossly erroneous and that there are ten times as many professional athletes.

Even at 10 times the BLS stats, the professional athlete population is SO small that it doesn't even represent a drop in the bucket of the total employed population. Heck, it doesn't even represent a molecule of water vapor...

In addition, according to the Times article, only about 4,500 out-of-state players have won workers' compensation judgments or settlements since the early 1980s.

So Perea's argument that there is any connection between "claims from out-of-state retired players" driving up costs for all state employers and causing the failure of insurance companies is completely preposterous.

What is really behind this legislation?

The rumors I have heard point the finger at the National Football League (NFL) in a retaliatory move against players that are seeking to hold the league, its owners and the teams accountable for some serious injuries that have more recently come to light, in particular following the suicide death of popular San Diego Chargers player Junior Seau, and news of coach suspensions in the New Orleans Saints "bounty program" case.

AB 1309 is bad law. There is no compelling social benefit from this law, and worse, I believe it opens the spigot even further towards the decimation of workers' compensation coverage for most all employees.

If employers don't want to pay for workers' compensation in California then employers should just seek to terminate the system.

Boom. Gone. Done.

Then there would be no more "higher premiums and surcharges that pay for outstanding claims left by failed insurance companies."

If that's what the employers who do business in California, or any state for that matter, want then let's just get it over with. Professional sports is leading the way in making workers' compensation irrelevant to modern society.

Let's just get it over with and end the debate - get rid of work comp.

Otherwise let's find something a bit more substantial to debate in Sacramento, or any other state capital for that matter, like our sad state of economic affairs, out of control taxation and poor financial decision making.

Perea should be truthful with us: AB 1309 is a red herring that's really intended to open the debate on the elimination of ALL continuous trauma claims and ALL extraterritorial recognition of injurious causation - not just those of professional athletes.

I'm calling BS on this measure. You should too.

SB 809 is a Rx for CA's CURE

Is $3.7 million enough?

That's the amount of money that Sen. Mark DeSaulnier (D-Walnut Creek) is seeking in sponsoring Senate Bill 809, which would impose a 1.16% tax on providers' and pharmacists' annual licensing fees, to pay for upgrades to the California Controlled Substance Utilization Review and Evaluation System (CURES).

CURES is a computer network intended to give doctors and pharmacists information about a patient's drug prescriptions.

Attorney General Kamala Harris had called for legislators to restore the $3.7 million in funding for the prescription drug monitoring program, which had been slashed amid hefty state Department of Justice budget cuts during the 2011-12 fiscal year.

In 2010, Sen. Mark DeSaulnier, D-Walnut Creek, authored SB 1071, which would have imposed on every manufacturer and importer of a Schedule II, Schedule II or Schedule IV controlled substance a tax of 0.0025 cents per pill sold. The Senate Committee on Health refused to pass the bill, and DeSaulnier withdrew the measure from consideration.

My guess is that legislators in 2010 experienced significant pressure from the pharmaceutical industry that saw the tax as a burdensome intermeddling into their business that would drive up their costs, and interfere with their profits.

SB 809 shifts the taxation/funding burden onto the individuals actually dispensing the medication. This sounds logical, but likely the real reason for this change in funding philosophy is the level of objection that would be received - pharmacists and other medication providers are going to be less organized and less funded than the pharmaceutical companies.

Sam Mahood, communications director for DeSaulnier's office, told WorkCompCentral that there are currently 12,967 registered users of the CURES program.

"This represents only 6% of the 212,631 licensed to prescribe or dispense narcotics," Mahood wrote via email. "To ensure the program is effective, it is important all prescribers and dispensers enroll and consult the CURES (prescription drug monitoring program.) SB 809 mandates that once the CURES/PDMP is capable of accommodating all prescribers and pharmacists, they must enroll and use the program. Resources are needed to upgrade the web-based CURES/PDMP system before all users can be accommodated."

I think that's a good and positive goal because I believe that a PDMP can be beneficial to society at large. As I pointed out in a previous blog post, Oklahoma has a PDMP that is more active in its notification system than CURES, has a more installed, committed, user base, and has seen notable success.

It is unfortunate that California's finances are such a travesty because I also believe that the $3.7 million estimated to bring CURES into popular usage among the intended user-audience is a drop in the bucket for the General Fund, and that this system would benefit the public at large - not just those who use or prescribe narcotics.

I don't know what the cost is going to be to assess and collect the license assessment - ultimately it will drive up the costs of acquiring services from these vendors, who are under unnatural, and rather arbitrary, rules constricting their ability to pass those costs onto the consumer.

But given the extent of the prescription drug issue, which some say has reached epidemic proportions and costs society at large a huge amount in lost time, productivity and lives, not to also say money, I'll take what I can get given California's fiscal limitations.

The Drug Debate Headed in Right Direction

The WorkCompCentral news this morning has two stories on prescription drug issues.

In one, the International Association of Industrial Accident Boards & Commissions (IAIABC) announced to the criticism of many that it was not going to publish a model law that seeks a standard for controlling narcotics.

In another a representative of the federal government's Drug Enforcement Administration (DEA) told attendees at the California Medical and Pharmacy Board's forum in San Francisco that it is working to put together a national prescription drug monitoring program.

In a press release, IAIABC said, "After thoughtful review by the Executive Committee, it was determined that adopting model legislation and regulation on opioid use could be interpreted as too narrow and restrictive for jurisdictions.

“The Executive Committee was concerned the models could unintentionally create conflict in jurisdictions that may be already taking steps to initiate regulations for appropriate guidelines.

“However, they contain valuable information, and as such the Executive Committee is asking that the issues addressed in the drafts be re-framed to offer policy considerations rather than a single policy response,” the IAIABC said.

Joseph Rannazzisi, deputy assistant administrator in the Drug Enforcement Administration's Office of Diversion of Control, told attendees at the San Francisco forum that a national prescription drug monitoring program that links together all the states is one of the things that officials in Washington, D.C., believe can help clamp down on excessive prescriptions, and that there are "a lot of proponents to get funding" for a national prescription drug database in Congress.

The IAIABC has received criticism for its position, and while perhaps disappointing the organization's announcement on the model law is consistent with its longer-term position on the topic.

In a press release in March, 2012, IAIABC said that, "This is a complex solution that will not be solved by passing a law or learning about one successful program; it can only be resolved by sustained initiatives at every level of the workers’ compensation system."

What may be more significant, in this era of the Affordable Care Act (ACA) and approaching deadlines for state compliance with its provisions, is that the federal government is taking another step towards nationalization of health care with its drug database.

It's a difficult balance between state rights and independence, and control over a national problem.

While some states have implemented successful controls over their narcotics problem (e.g. Ohio and Texas) there are other states that have not done so (e.g. Georgia) so the market shifts across borders to those states that fail to implement effective programs.

In federal terms this is called "interstate commerce" over which the federal government has some Constitutional authority.

Michael Botticelli, deputy director for the National Drug Control Policy, said at the San Francisco forum that since Florida passed legislation implementing a prescription drug monitoring program and prohibiting physicians from dispensing Schedule II and Schedule III drugs from their offices, officials have seen a spike in prescription drug shopping and overdose deaths in Georgia. A national drug monitoring program would help prevent that, he said.

Botticelli's observations are supported by federal statistics.

On Wednesday, the Centers for Disease Control and Prevention (CDC) published findings in the Journal of the American Medical Association showing drug overdose deaths increased for the 11th consecutive year in 2010.

CDC's analysis shows that 38,329 people died from a drug overdose in the United States in 2010, up from 37,004 deaths in 2009.

Overdose deaths involving opioid analgesics increased from to 15,597 in 2009 to 16,651 in 2010.

In 2010, nearly 60% of the drug overdose deaths (22,134) involved pharmaceutical drugs. Opioid analgesics, such as oxycodone, hydrocodone, and methadone, were involved “in about three of every four pharmaceutical overdose deaths (16,651), confirming the predominant role opioid analgesics play in drug overdose deaths,” the CDC said.

A federal drug control database would help to control that market in states that can't get their own issues under control. The danger of course is further independent state loss of control over the medicine that is practiced within state borders.

It's a delicate balance, but is something that is inherent in the friction between the federal and state governments. When states don't do things that the federal government sees as necessary or priority then a shift occurs in the power to govern.

IAIABC said that it will still issue some recommendations for states to be published, it hopes, as policy recommendations rather than a single model law at the IAIABC Forum in Des Moines, Iowa, April 29 to May 3. So I don't really see IAIABC's decision not to publish a model law as necessarily withdrawing from the debate, only that they are stepping back in recognition that there are several different paths to the same outcome.

Maybe there isn't any disconnect between state action and federal initiatives - maybe they go hand in hand so that states which do have effective drug policies can participate in large scale data systems that will assist in controlling drug abuse and, presumably, provide economic benefits within state borders.

And the states that don't have a policy will be able to see through IAIABC's efforts what works, what doesn't, or come up with some other novel solution.

One thing is certain - there is quite a bit of interest and activity in both state and federal governments to come to terms with effective, responsible, prescription drug policies.

It's all headed in the right direction.

OK Reform - Arbitration Lacks Protections

Yesterday I commented that the 260 page Oklahoma SB 1062 reform bill's proposal to create an administrative dispute resolution process was a good idea.

But I'm not so sure about SB 1062's provisions for permitting any employer in the state to use arbitration as a means for resolving workers' compensation disputes is a good idea. In fact, I think its lousy.

The arbitration provisions in the bill are quite extensive. I'll summarize them the best I can without, hopefully, unduly boring you.

Sections 134 through 162 of the bill establishes the "Workers' Compensation Arbitration Act".

There are three ways an employer can create an arbitration obligation: 1) provide notice to both the employee and the employer's carrier of the existence of an arbitration agreement and file an alternative dispute resolution plan with the Workers' Compensation Commission (hereafter "Commission"); 2) the employer's Certified Medical Plan files an alternative dispute resolution plan with the Commission; or 3) the arbitration agreement is subject to the Federal Arbitration Act.

This last qualifier is particularly broad as nearly any contract that provides for arbitration of disputes falls under the terms of the FAA. Thus if the employer makes use of "contracts" in its employment policies there is likely subjugation to the FAA.

Also, the "notice" is very broadly, and liberally, construed in favor of the employer in this bill - anything that  "is reasonably necessary to inform the other person" is notice regardless of whether there is actual knowledge.

The way I read the bill, while the parties may not waive the substantive provisions of the underlying workers' compensation act (i.e. provisions dealing with medical treatment or indemnity) they may otherwise waive some of the due process or legal procedure protections of the underlying act and the arbitration provisions do this quite nicely without any further agreement between the parties.

Written agreements to submit disputes to arbitration are "irrevocable except on a ground that exists at law or in equity for the revocation of a contract." From my law school days, there are three broad categories that would permit such a challenge: fraud in the inception; fraud in the performance; or mutual mistake of fact. All of them are very high hurdles to overcome.

In addition, if a party contests the validity of arbitration, the arbitration may continue pending final resolution of the issue by the Commission unless otherwise ordered which largely negates a concomitant challenge of validity.

By the way - the Commission is empowered to "summarily" decide the validity of an arbitration agreement and order the parties to arbitration "unless it finds that there is no enforceable agreement to arbitrate."

There are provisions for the issuance of provisional remedies either prior to the appointment of an arbitrator or after the appointment of an arbitrator, depending upon the circumstance, that appear to provide some protection of justiciable issues pending further procedures - I'm assuming that this is to protect, for instance, payment of temporary disability indemnity or medical treatment pending further adjudication.

While there are also provisions dealing with potential conflicts of interest or other matters that may call into question the impartiality of an arbitrator, the typical remedy in the bill is that another arbitrator is selected/appointed.

Arbitrators are given the same immunity that is bestowed upon judicial officers.

And arbitrators are given judicial powers including subpoena power, ability to hold conferences and hearings as necessary, weigh and determine admissibility of evidence, ask questions of witnesses, issue protective orders, etc.

While an arbitrator may amend, modify or correct an award on various grounds (which may be on order of the Commission), or if the Commission determines that there was some failure to abide by the law (i.e. fraud, failure to disclose a conflict, mathematical error, legal error) there is effectively no appeal. Depending upon the basis for the error the matter is either returned to the original arbitrator or a new arbitration is ordered.

Though the district court has jurisdiction hear appeals from Commission sanctioned arbitration orders, the reality is that such appeals will be ineffective because there would need to be a showing of fraud, or other similar misapplication of justice - otherwise the Commission has exclusive jurisdiction "to enforce and enter judgment confirming, vacating, correcting or modifying an award under this act."

Note that there is no employer size limit to the arbitration provision, whether union representation is present, whether an employee affirmatively assents to arbitration, and the employer pays the arbitrator's fees...

No wonder the Oklahoma Chamber of Commerce has come out so strongly in favor of SB 1062.

I like administrative dispute resolution processes for specialty legal topics, like workers' compensation.

I have disdain for arbitration in such situations though, particularly where one party (the employee in these situations) has no bargaining position prior to or during employment, and where the opposing party (i.e. employer/carrier) has far greater resources.

This is a reform item that is clearly one sided and, while it certainly will lower the cost of workers' compensation claims in Oklahoma, it lacks the protection mechanisms necessary for the fair treatment of injured workers who don't agree with medical treatment or indemnity determinations.

Finally, there is nothing that prohibits an employer, at any point in time from declaring that employment is conditional upon agreeing to work place injury arbitration - thus creating a mandatory condition.

That's certainly one way to get disputes out of the civil courts.

I hope this doesn't become a trend.

OK & TN Reforms: Someone Will Get Gored

Oklahoma lawmakers are being asked again to approve a plan that would allow employers to opt out of traditional workers' compensation and provide alternative work injury benefit plans that meet minimum statutory criteria.

Last year's attempt failed when the House of Representatives refused to approve Senate amendments to the original bill.

The opt out provision is part of a larger reform plan that was filed by Senate President Pro Tem Brian Bingman, R-Sapulpa, that would make sweeping changes to Oklahoma's system, including the creation of an administrative review system, restrictions to indemnity benefits and would also recognize the Official Disability Guidelines (ODG) published by the Work Loss Data Institute as the primary standard of reference for determining the frequency and extent of services presumed to be medically necessary and appropriate for compensable injuries..

Senate Bill 1062, the 260-page reform proposal filed by Bingman, was approved by the Senate Judiciary Committee on an 8-2 vote during a meeting on Tuesday at which the Committee did not take public testimony.

The new "Oklahoma Injury Benefit Act" differs from last year's proposal in that it does not require an employer to have a high experience modifier or a $50,000 one-year loss in order to qualify for the program. And, unlike the 2012 proposal, there is no provision specifying use of an ERISA (Employee Retirement Income Security Act) plan to provide benefits.

The bill sets out financial security requirements for the program similar to those for self-insured employers. It also establishes the "Oklahoma Option Insured Guaranty Fund" to assure continued payments to injured employees.

While I have interest in seeing whether the Oklahoma opt out provision makes progress against political headwinds this legislative season, the proposal to create an administrative appeal system for claim disputes is more remarkable, and is coincidentally what is being proposed for another state just a couple of borders away, Tennessee.

Tennessee Gov. Bill Haslam's administration is pitching House Bill 194 and Senate Bill 200 which would, among other things like tinkering with indemnity and medical treatment guides, create a new workers' compensation claims court headed by a chief judge. Judges would have to be attorneys with at least five years of experience and be at least 30 years old.

Decisions could be appealed to a three-judge panel appointed by the governor. The bill also allows either party to appeal rulings from the new DWC claims court to the Tennessee Supreme Court.

I have not hidden my opinion that an administrative dispute resolution system for workers' compensation is a preferable method over the civil courts. Workers' compensation requires a high degree of legal sophistication that is not appreciated by general civil practitioners. And if constructed properly an administrative system should speed up the dispute resolution process and get claims out of the system faster.

Should, because I have also seen administrative dispute resolution systems become so procedurally burdened over time that the speed at which disputes are resolved is not any faster than going through a civil court process.

The key is whether these states allow the administrative systems to deal with the substance of the claims over the procedural processes. Administrative informality will likely result in cases where employers are unhappy with results because details are missed, or because of tendencies to liberally construe provisions in favor of the workers, or because of loose evidentiary rules.

When these things happen employers get upset and petition their lawmakers to tighten up the rules, which then increases the procedural burdens on the system thus slowing the entire process.

It's easy to bog down an administrative system with procedural technicalities to satisfy specific interests - filing deadlines, service requirements, fees, review processes - that the efficiency of informal review is lost.

Opt out Oklahoma employers, like their Texas counter parts, likely would adopt arbitration provisions in their plans. This has huge appeal to employers, but is not well received by labor and worker advocates, because the employer is perceived to control the arbitration process since the employer generally will have the right to choose arbitrators (or arbitration companies) and pays for the process.

But it is an informal process and dispute resolution typically ends with the arbitrator's decision because generally those can not be appealed unless the appellant can prove fraud or some other misconduct on the part of the arbitrator That is a high burden of proof.

Ergo, claims are resolved very quickly compared to systems where adjudication is more thorough.

It's the old six of one, half dozen of the other, type of thing. It is very difficult to balance due process and benefit rights with speedy claim resolution. Does it matter more that all details of a claim are considered and accounted for, or that issues are quickly disposed of so the parties can move on?

It's a delicate balance that is never perfected. And can't because there are too many competing interests.

Tennessee Representative Mike Turner, D-Old Hickory, a member of the Consumer and Human Resources Committee which is expected to take up the Tennessee proposal in early March, said, "Anytime you have a change like this, somebody is going to get gored by this somehow."

Yep - that's politics.

Californians: Stop Whining and Do Something

By now you've probably heard the commercials, or read the editorials, or know someone who has heard or read either or both.

I'm talking about Texas Gov. Rick Perry soliciting California businesses to check out Texas for either relocation or expansion. Perry toured California last week to pitch businesses about relocating or expanding in Texas as opposed to California.

The Sacramento Bee took offense to Gov. Perry's statements, particularly pointing out that Texas' workers' compensation system covers only 78.6% of all employees in the state, while California mandates coverage for 100% of employees.

And Texans haven't missed the opportunity to point out that California's workers' compensation system is the third most expensive in the nation.

But let's talk brass tacks here.

Does anyone REALLY care?

California's workers' compensation system has borrowed from Texas' system, and Texas' system has borrowed from California's. These are two completely different cultures, two completely different climates, two completely different economies.

There are some aspects of life in Texas that Californians admire, and there are aspects of living in California that have Texans going West. I have friends who have moved from California to Texas and love it. I have friends who have moved from Texas to California and love it.

And I have friends regretting those moves...

But the real issue is not workers' compensation, and not business incentives, but competition.

And in this regard, Gov. Perry has to be given kudos for taking the show on the road, while Gov. Brown decides to sit on his haunches in Sacramento and call this a non-event.

Maybe it's an age difference; Gov. Brown is 74 years old, 12 years the senior of 62 year old Perry.

Maybe Brown is just too busy, maybe it's arrogance, maybe it's just plain ignorance.

I don't know what the reason is, but the real problem is that California, and this governor is illustrative, fails to engage in any business related marketing efforts at all. THAT's what has people in California wrangled.

The competition gauntlet has been thrown down and the only response is "It’s not a burp. It’s barely a fart.”

Sorry to say it People of California, but Gov. Perry and Texas leaders are doing what Californians don't - getting out and about to tell people what a great business environment their state is.

Plain, basic, marketing.

Oh - maybe Brown and associates can't get out and market like Perry does. Maybe California's business environment isn't all that great. What's to boast about?

California has some of the highest taxes in the nation (especially when considering all of the various "fees" and other assessments that are tacked on to various purchases, e.g. just look at your workers' compensation premium statement). Education, health, transit, infrastructure - the California I grew up in doesn't exist any more.

Sure, some of the most stringent environmental regulations in the world help protect Californian's air, water and food - but now my surfboard is made in Taiwan, my clothes are made in Sri Lanka, my car is made from parts outsourced from everywhere... Even agricultural products are imported, and I live in an agricultural community that has an unheard of, unduplicated-anywhere, three strawberry growing seasons a year!

California used to lead the world in aircraft design, development and manufacturing. Local names like Northrop, McDonnell Douglas, Raytheon, Bendix - all manufactured aircraft and aircraft systems in Southern California but not any more.

And don't talk to me about education. I am fortunate enough to be able to afford the tens of thousands of dollars every year to put my two children through the California State University system ... a system that, when I graduated San Diego State tuition, cost only $100 for 15 units or more.

Near my home town, Perry paid a visit to Haas Automation. Haas Automation is a big employer in Ventura County with about 1500 local jobs. According to a local news report, Haas isn't planning on relocating to Texas ... yet, but is planning an expansion and is looking at its options which include Arizona, Texas and North Carolina.

Peter Zierhut, vice president of European operations for Haas said, “We have to say we’re very impressed that a governor from another state would come to visit us.”

Did you year that Jerry? Us Californians are so smug with our sunshine and computers that our arrogance impedes good marketing, good relations, with the people that make critical purchasing decisions.

Zierhut also said that “The state of California has become a very expensive place to do business as a manufacturing company, so we are exploring other options for expansion.”

I used to shrug off those kind of comments, like most of us conceited Californians. My perspective used to be that California has one resource that no other state has: weather. Smart people will go to where the weather is good, and will figure out the rest.

That's not such a good perspective any longer.

If I were sitting in the board room making decisions, being wooed by a governor, Texas, and other competing states, end up looking very attractive for lots of reasons: cost of labor, cost of land, cost of regulatory compliance, and yes, cost of workers' compensation insurance.

The Oregon Department of Consumer and Business Services survey released in October 2012 ranked the average premium rate in Texas at $1.60 per $100.

Compare that to California's third place ranking with average premiums of $2.92 per $100 of payroll.

I just don't get why the Sacramento Bee and others are offended by Gov. Perry's tactic of coming to California to attract businesses to that state. The Bee, and other critics, should be calling out Gov. Brown for his lack of leadership, lack of motivation, lack of action.

Why isn't Brown going to Austin, Houston, Dallas and other big Texas cities to pitch California? Has he no argument? Are there no redeeming values to doing business in California?

What about the state's massive coast line with no less than 7 deep water ports that import and export more cargo than any other state?

What about California's vast Central Valley that has more productive agricultural acres than any other region in the world?

What about the high tech corridor that spawns more computing wealth than anywhere else in the world?

Kudos to Perry. He's doing what a good governor should be doing - getting out and pitching his state.

Brown can take a lesson from Perry.

I'm a life long, born here, Californian. We whine like the sniveling little brats that befit the stereotype.

It's shameful.

World Ag Expo and Work Comp - Observation

The California State Compensation Insurance Fund (State Fund) held its annual meeting yesterday, and disclosed some important industry trends - most notably that private carrier capacity appears to be shrinking and as a consequence State Fund's business is increasing.

In underwriting parlance, the market is hardening.

State Fund had a 12.9% market share as of Dec. 31, 2011, according to the state Department of Insurance.

According to State Fund President and Chief Executive Officer Tom Rowe, the company recorded three straight months of growth since November as other carriers have reduced their exposure in certain segments of the market or left the state entirely.

Rowe said competitors are not renewing high-risk policies, which is leading more businesses to buy policies from State Fund. The comments were based on the State Funds most recent three months of experience, which showed growth each month.

State Fund's net income in 2012 increased 229% to $359 million from $130 million in 2011, which Chief Financial Officer Dan Sevilla attributed to the carrier's disciplined underwriting approach. State Fund wrote 132,600 policies in 2012, about 10% fewer than in 2011, but average premiums of $7,000 per policy were about 2% higher in 2012, Sevilla said.

I went with a rancher friend of mine to the World Ag Expo, held in Tulare (you pronounce the "e" at the end of Tulare, i.e. "Too-lar-ee"), California every year since 1968 (making this the 45th year!).


This is, as the name suggests, the largest exposition of agricultural products and services in the world, with exhibits and events held over 3 days and 2.6 million square feet of exhibit space.

Exhibitors include just about anything and everything you might imagine connected to the agricultural industry: tractors, farm equipment, soil enhancements, pumps, irrigation ... you name it, it was there, including insurance.

Zenith had several booths, as did Great American. Several brokerages were in attendance. Other work comp related businesses were also present such as special payroll services that coordinate with work comp, and safety companies touting everything from equipment to record keeping for OSHA compliance, etc.

The correlation between State Fund's business and the World Ag Expo was evident by my rancher friend's latest debate with State Fund underwriting about the classification of his employees.

My friend has a relatively small ranch in the Santa Ynez Valley, and just a couple of employees. His profit margins are tight so just a few points on his rates makes a big difference to his bottom line - particularly if the weather is uncooperative in any particular growing season.

But the important part of the story is that my friend has no recourse other than State Fund to cover his employees because his payroll is too small, and ranching risks are too great, for there to be a private market appetite for his business, even though he has run his operation for years without any claims.

As I walked around the 68 acres (yeah, I was tired by the end of the day) and talked with many farmers and ranchers, I found my friend's experience is not unique.

Farming and ranching are dangerous industries. The equipment is massive, with great big pieces of steel ready to shred, rip, mangle, tear and do all sorts of other motions deleterious to human well being. And that's not taking into account the basic physical nature of harvesting, packing, shipping, etc. because there are many operations in farming and ranching that can't be done by machines.

And while there have been many technological advances in agriculture - that's what all these big toys are about - that do make operations safer and more efficient, there is still inherent danger as represented by this one two story tall, 40 foot long contraption I saw that is used to rip out tree stumps and shred them into little bits of saw dust in a single operation.

There were several large insurance companies and brokerages with booths present so I talked to them about agribusiness and their appetite for workers' compensation risk.

Without a single deviation, each of them said that they are looking for "sweet spot" payroll - generally between $1 million and $2 million. My rancher friend's operations are too small to meet that hurdle. The larger operations have more exotic programs to deal with their work comp such as high deductibles or self-insurance.

Also without a single deviation, each of them said that the changes instituted by SB 863 were causing massive operational shifts with increased staffing and new procedures, all in a very time-compressed fashion that they said were very challenging for the carriers to meet.

And though the World Ag Expo is attended by people from, you guessed it, all over the world (I saw many different displays of cultures from other states and nations and heard many different languages), the insurance businesses were mainly focused on California agribusiness - which would make sense since the Central Valley is one of the world's most productive agricultural regions, with over 230 crops. On less than 1 percent of the total farmland in the United States, the Central Valley produces 8 percent of the nation’s agricultural output by value: 17 billion USD in 2002.

Tulare County itself is the second highest in the US for agricultural sales with $3.335 billion in 2007 according to the California Research Bureau.

So obviously agriculture is BIG business when aggregated.

That big business is comprised of a few large operations, and many, many small operations like my friend's ranch.

I recall prior to "open rating" in 1996 all off the small, specialty carriers that made the Central Valley farmers their market and how well served those operations were.

I have nothing against the State Fund - thankfully it is available and healthy to provide mandated coverage for businesses that are too small, and too risky, for the current private market.

But I can't help to think that the workers' compensation risks of small farmers and ranchers, and many other businesses, would be better served by the small specialty carriers that made it a point to completely understand the risks and had programs in place tailored to mitigate those risks, and thus provide superior service in claims management thereby reducing the overall costs of claims.

In my opinion true workers' compensation "reform" should have included a review of the underwriting laws and an examination of a return to "closed rating." I'm not saying that we should blindly return to the days before open rating, but it would be worthwhile to see, if in the past 16 years whether open rating has truly been beneficial to the California workers' compensation market (i.e. the premium paying employers) and the California economy.

New Avenue for Medical Vendors?

A difficult trend may be in the making. Difficult, that is, for carriers and employers, collectively referred here as "payers."

The complex interaction of workers' compensation laws with other laws, both federal and state, sometimes create circumstances that just can't be predicted, and once these circumstances are identified they quickly morph into a trend that results in new pressures.

The Medicare Secondary Payer Act (MSPA) is mostly looked at as some pesky law that interferes with the timely settlement of claims because of the requirement to satisfy elements satisfactory to avoid liability to the Centers for Medicare and Medicaid Services (CMS).

A creative position taken by a medical vendor in a no-fault auto liability MSPA claim may open the door to future payer headaches though and start a new trend for medical vendors seeking payment on denied or partially paid bills.

Jean Ellen Warner was in an October 2010 car accident that severely injured her.

Warner underwent neurosurgery with Michigan Spine and the surgery center sent a $24,645.001 bill to State Farm, which had provided Warner with no-fault auto insurance coverage at the time of her accident.

State Farm denied payment, asserting that Warner's spinal injuries predated the October 2010 collision and were attributable to a prior workplace accident.

Warner then submitted a claim to the CMS, which made a partial payment to Michigan Spine.

Michigan Spine then sued State Farm under the MSPA's private enforcement provision, 42 U.S.C. Section 1395y(3)(A).

The MSPA pays for medical services when an insured who is also covered by Medicare is denied coverage by the primary payer. The act allows the CMS to later seek reimbursement from the primary payer if coverage was wrongfully denied. The act also has a private enforcement provision, which Michigan Spine invoked.

State Farm moved for summary judgment, arguing that Michigan Spine had no right to sue before a court or other adjudicative body has determined whether or not State Farm was in fact liable for the medical care Michigan Spine had provided.

State Farm lost at the Federal District Court level in the 6th Circuit.

The 6th Circuit acknowledged that federal courts had held that the private insurer's responsibility to pay must be "demonstrated" via a prior judgment or settlement in order for a private insurer to be liable under the act. But after engaging in a close reading of the act's "tortuous text" and studying its amendment history, the 6th Circuit ruled that a private insurer's responsibility had to be "demonstrated" only when the CMS brings a claim for reimbursement.

When a health care provider is the party seeking payment, the 6th Circuit said, it need not "demonstrate" the insurer's responsibility to pay before bringing a lawsuit under the act.

The court ruled that Michigan Spine did not need to obtain a judgment on State Farm's obligation to pay for Warner's care in order to sue the carrier for payment.

One question not addressed by the ruling is whether workers' compensation would be the exclusive remedy, since the case dealt with a no-fault automobile liability situation; clearly a conflict of authority that may provoke a jurisdictional fight in the near future.

The thinking from observers who are expert in the MSPA is that the ruling is applicable to comp since no-fault insurance and workers' compensation both fall within the umbrella of "non-group health plans" under the MSPA.

And there is close correlation between Michigan no-fault auto and workers' compensation. Both are "no fault" meaning it does not matter who or what caused the accident/injuries. Both pay for the injured/policy-holder's medical expenses, wage loss benefits and other costs. Both are mandatory.

But no-fault auto is not exclusive - if there is insufficient insurance to cover all damage claims the at-fault party may still be liable for damages in excess of policy limits. This is generally not the case in workers' compensation unless there was some intentional aspect or violation of code where by liability outside of the exclusive remedy of comp is permitted.

One thing I have learned in my 29 years in The Law, however, is never say "never."

Just when payers thought they were getting some control over medical costs...

Wow.

The case is Michigan Spine & Brain Surgeons v. State Farm Mutual Automobile Insurance Co., No. 12-CV-11329.

It's Not What IMR Costs, but the Costs of IMR

What the debate about the cost of independent medical review (IMR), and the pay schedule for IMR doctors fails to capture is that the publication of the fees and costs establish a competitive landscape so that when Maximus must compete with other firms for IMR business everyone will know what the numbers are.

This will make or a very competitive landscape when the introductory phase of IMR is over.

One of the concerns expressed by critics of the fee/reimbursement schedule recently revealed is that the physicians will not be motivated to perform IMR adequately due to the low perceived pay scale.

From the interviews in this morning's WorkCompCentral news story on the topic, the fees proposed for employers, and the pay to doctors, is similar to those paid in the general health model.

Data on the Department of Managed Health Care’s website shows that between 2007 and 2011, Maximus approved a group health plan’s decision to deny a treatment in 44.16% of the 8,529 cases it reviewed. In 36.64% of cases, Maximus overturned the decision to deny a procedure or treatment, and in 19.21% of cases, the group health plan agreed to approve the procedure before the IMR process was completed.

In my mind those statistics seem relatively neutral.

Applicant attorneys have expressed that the low pay to physicians means that doctors won't be motivated to pore over hundreds or thousands of pages of records and will miss details. Since details will be missed, and since there is no review process out of an IMR decision, then it is possible that an injured worker's treatment request will be unfairly denied.

In some cases that may be the case.

My guess, however, is that in the vast majority of cases that is not a true concern.

An IMR doctor is going to get the same records, same patient chart, and use the same treatment utilization schedule as a utilization review doctor/reviewer.

And I bet that most UR decisions don't get to the IMR stage because of the pre-IMR processes and the fact that the employer must front the cost of the IMR. There are motivations built in to promote treatment approval and dis-incentives to deny treatment requests.

As I've said before, it is the quality of reviews that will be a factor in whether any challenges to the appealability of IMR passes judicial retrospection. By the time that provision gets to the higher courts, my guess is that Maximus will be gone from the IMR picture, and if the quality of review is as poor as some critics suggest due to the low flat fees then IMR won't be around at all.

Plus, after the first year or so of testing the waters the volume of requests is going to deteriorate after claims departments versus injured workers test the waters to see how much resistance there is going to be and where the typical IMR approval/denial response rate is going to end up.

In addition I think that after a couple of years of experience carriers will have in place some fundamental operational rules developed that minimize the number of IMR requests due to the costs of obtaining an IMR (not just the processing fee, but the ancillary costs of developing and communicating the medical record and other related costs).

This process needs to become operational and the parties need to get some experience with it for a couple of years before one can claims success or failure of IMR.

I like the IMR idea, and as opined in the past, I don't think the real issue with IMR is either the fees, pay, anonymity or appealability in the process, but rather the stringent time deadlines that are in the code that don't have any meaningful enforcement mechanism.

From an earlier post:

The only enforcement mechanism is found in Labor Code section 4610.5(i):

"An employer shall not engage in any conduct that has the effect of delaying the independent review process. Engaging in that conduct or failure of the plan to promptly comply with this section is a violation of this section and, in addition to any other fines, penalties, and other remedies available to the administrative director, the employer shall be subject to an administrative penalty in an amount determined pursuant to regulations to be adopted by the administrative director, not to exceed five thousand dollars ($5,000) for each day that proper notification to the employee is delayed. The administrative penalties shall be paid to the Workers’ Compensation Administration Revolving Fund."

The key words in subsection (i) are "that proper notification to the employee is delayed."

Note that this subsection doesn't say that the review itself is delayed - it is the "proper notification" that is the triggering event for the $5,000/day penalty.

I'm assuming that the drafters of this provision mean than "proper notification" is whether or not the employee is given notice in the form prescribed by the AD of the reviewer's decision. But doesn't the penalty apply if the decision itself is delayed? What if the decision is timely and what if "proper notification" failed due to an issue with the US Mail or whatever other communication protocol is used to notify the employee? What if there is untimely action on the part of the employer that does not delay "proper notification" (i.e. engaging in some other games that are not within the spirit of proper IMR)?

The preamble to SB 863 states that "The bill would prohibit an employer from engaging in any conduct that delays the medical review process, and would authorize the administrative director to levy certain administrative penalties in connection with this prohibition, to be deposited in the Workers’ Compensation Administration Revolving Fund."

But that's NOT what the actual law says.

The reviewer has certain time lines by which to issue the decision. But the employer's obligation seems to have been confused in the legislative drafting process.

Labor Code section 4610.5(h)(3) states, "If the employer fails to comply with subdivision (e) at the time of notification of its utilization review decision, the time limitations for the employee to submit a request for independent medical review shall not begin to run until the employer provides the required notice to the employee."

But 4610.5(e) has nothing to do with notice - subsection (e) provides that a utilization review (UR) decision can only be appealed to the IMR and that there is no liability for treatment provided without authorization of the employer unless the UR decision is changed by the IMR.

It seems to me that the arguments should not be about whether IMR costs too much or pays too little, but whether employer/carriers have their processes in place sufficiently to meet the notice requirements - those are where the real costs are hidden in the reformed process.

Meeting new deadlines means overhauled processes, and usually increased staffing, until a system emerges that is as efficient as can possibly be designed given the limitations of the underlying law.

"Most people don't plan to fail; they fail to plan." John L. Beckley

Beckley's quote is as universally applicable now as ever. Anyone who wants to get into the IMR business knows what the competitive financial landscape looks like. It's a matter of quality now. In the meantime employer/carriers have more to worry about than whether a treatment request should or shouldn't be independently reviewed.

The Collision of Techno-Babble and Work Comp

There's a slide presentation circulating around the Internet about the marvelous culture of NetFlix, the video rent-by-mail company that has transformed itself into the largest video-on-demand delivery service in the world.

The presentation is pure Silicon Valley stuff - 126 slides of amorphous descriptions using lots of techno-babble about unique un-rules that promote the overriding theme: Freedom and Responsibility.

For instance, there is no vacation time recording - everyone is supposed to be self regulating and realize when they are supposed to work and when they are supposed to be leisurely and rest.

Of course nothing is said about the fact that in California vacation time is the same as wages and must be accounted for at the time of employee termination and paid. So somewhere along the way the "culture" of NetFlix collides violently with the law.

I don't know how NetFlix deals with that situation - not sure I really care frankly - the reason I bring this up is because Silicon Valley is often heralded as the originator of Big Ideas that are promoted by Smart People out to Change the World.

Because of this reputation things that happen in the Valley tend to be emulated in other parts of the country because, it seems, everyone feels that if you're going to develop software and compatible hardware you need to behave like those successful people that come out of Stanford and Berkeley, including far-fetched human resource management ideas.

Of course it's all Valley techno-babble - at a certain point in organizational scaling the ability to treat individuals individually becomes logistically impossible and expensive. Thus over the growth of a company, despite its "culture," regimentation is necessary to maintain order in processes.

I did a quick search on WorkCompCentral for "NetFlix" to see if there were any Appeals Board Panel opinions or higher court decisions concerning the company. I wanted to see how the NetFlix culture fit within the confines of workers' compensation law.

I didn't find any cases where NetFlix was the party defendant.

That doesn't mean there aren't any, just that WorkCompCentral's archive didn't contain any such cases.

There was one case where "NetFlix" did come up in the search, and that is an unpublished case out of the 5th Appellate District entitled American Home Assurance v. WCAB (Wuertz) dated 9/11/09.

Donald Wuertz worked as a machine operator for RR Donnelley in its printing business in Visalia. Wuertz commuted to work about 50 miles each way on a motorcycle from his home.

A mandatory 7:30 a.m. meeting at the worksite to address specific complaints from one of the company s customers, Netflix, was called. These meetings occur rarely but they are mandatory - everyone must attend.

Wuertz was on his way to the meeting and got into a serious motorcycle accident. Though he didn't attend the meeting he was still paid for the two hours that the meeting would have taken because his former supervisor considered that he would not have been in the motorcycle accident but for the meeting.

The workers' compensation judge, the Appeals Board and the 5th District all found compensability.

In Kansas, the state Supreme Court sent a case back to the fact finding courts to determine if an employee who was injured in a go-kart accident was in the course and scope of employment at the time.

In Douglas v. Ad Astra Information Systems, No. 101,445, Douglas had worked for Ad Astra Information Systems, an academic scheduling software program developer and administrator, in Overland, Kan. His normal duties required him to answer questions and solve customers' problems regarding Ad Astra's software between the hours of 8 a.m. and 5 p.m., Monday through Friday.

In November 2006, Ad Astra's owners sent out an email inviting Douglas and his coworkers to spend the afternoon at Sadlers Indoor Go-kart Racing. The company had reserved exclusive use of the go-kart track and covered all of the event expenses, including food.

Ad Astra deducted the cost of the event as a necessary business expense and paid the employees their normal wages for the time they spent at the event.

The company's owners said they had arranged the event primarily to show its appreciation to its employees for their recent work at a client conference, but Douglas and some of his coworkers testified that they felt pressured to attend.

Ad Astra employees were given the option of either attending the event or remaining at work. Those who attended divided themselves into teams and competed for prizes.

Sounds a bit Valley-like, doesn't it?

Douglas stated that he would normally not race a go-kart but that he agreed to race because he wanted to be a part of his team.

While Douglas was racing, he encountered another go-kart stopped on the track. He turned sharply to avoid a collision while traveling at an estimated 20 to 30 mph and crashed into a tire wall. Douglas was thrown from the cart and landed on his right side.

After the wreck, Douglas experienced pain and did not race again, although he remained at the event for the rest of the workday.

Douglas sought medical treatment that night and doctors diagnosed him with a rib fracture, pulmonary contusions, reduced pulmonary function and a lung injury that required surgery.

He sought workers' compensation benefits and obtained a 15% permanent impairment rating for his injuries. Douglas' attorney said his claim was worth about $32,000.

Up the appellate chain Douglas won each round with the majority of those opining on the situation that Kansas law held that if the employee felt participation was mandatory then a recreational activity was within the course and scope of employment.

The Kansas Supreme Court sent the case back down for further evidentiary hearings to ensure that the correct legal standard, K.S.A. 2006 Supp. 44-508(f), is used in the analysis rather than the lower court's reliance on Larson's treatise on the topic.

Whether or not Douglas' case is found compensable in Kansas is debatable. Kansas has a different culture than California.

So does Florida, and Oregon, and New York and every other state.

The NetFlix culture is laudable, if not inspirational. But at some point human resource management fails to align with the "culture" of the law. Organizations are free to do what they want to do with their employees within the bounds of the law, but at some point in time there is an intersection where proceeding before stopping and looking both ways is bound to involve a collision with how the rest of society works.

Culture is refined by a greater theme - the Rule of Law. That's when the control of a company's culture is removed from the executive suite and laid bare for societal review.

The lesson for business is, emulate but be prepared for the consequences.

No Stopping the Trend of Increasing Costs

“So, just looking at the numbers, SB 863 will help curb the pace of increasing costs, but not stop or reverse the trend.”

That's what Jerry Azevedo, spokesman for the Workers’ Compensation Action Network (WCAN), said in an email to WorkCompCentral when asked to comment about the latest findings in the Commission on Health and Safety and Workers’ Compensation (CHSWC) 2012 Annual Report about loss adjustment expenses.

WCAN was (and is) a major proponent of SB 863. Their website URL is "http://www.fixworkerscompnow.org/."

The CHSWC report shows that employers paid $6.745 billion for loss adjustment and other expenses (38%), compared to $6.672 billion for medical care (37%) and $4.506 billion for indemnity benefits (25%) in 2011.

In 2010, employers spent a total of $14.785 billion, including $6.435 billion in medical (40%), $5.343 billion for expenses (34%) and $4.235 billion on time loss (26%).

Mark Gerlach, a consultant for the California Applicants’ Attorneys Association, in my opinion hit the proverbial nail on the head with this comment to WorkCompCentral reporter Greg Jones:

“It’s an alarming wake-up call for everybody that the complications we’ve built into the system are generating such high costs that we seriously need to consider whether or not some of the changes, utilization review, MPNs, etc., are worth it to the employer community or whether they are generating such high costs that they are not achieving any net savings for employers.”

It seems that in the zeal for controlling costs the workers' compensation system in California (and other states following the example), the regulatory scheme has become so complex, so arcane, so illogical, that more money is spent on accounting compliance than delivery of benefits.

What if the system simply did away with utilization review, bill review, fraud investigation, defense attorneys, applicant attorneys, employer audits, etc.?

All of a sudden $6.745 billion in savings are realized, by simply reducing regulatory machination.

I know, I know ... there has to be some control processes in place lest the entire system gets taken over by fraudsters and sociopaths.

Still, one can't help but wonder whether we aren't just better off forgetting about all of this micro-management and just returning to operational conditions of an earlier era - when claims adjusters actually were responsible for adjusting claims; when defense attorneys were encouraged and rewarded for settling disputes as quickly as possible even if a little more money had to be paid; when there weren't fee schedules for every little possible combination of expenditures known to the work comp industry; when substance actually trumped procedure.

I edit the California Workers' Compensation Flowchart every year to account for new laws and regulations, and changes affecting the system by case law or other legal events.

And while I started 2012 with a normal male pattern baldness, the 8 weeks it took me to re-craft the Flowchart for SB 863 resulted in a substantial further recession of the hairline. The complexity introduced by SB 863 is truly staggering.

Workers' compensation is now much more about procedure than it is about the delivery of benefits, and the CHSWC numbers bear that out.

California will see a substantial savings in 2013 and into 2014 - but that is going to be a one time event due mostly to the lien genocide that SB 863 introduced.

In the meantime carriers and adjusting firms are busy implementing new processes, new systems, new computer code, more people, more paper and more management to deal with all of the new regulatory measures.

Defense firms are hiring at a record pace.

In the meantime there are dire predictions of a physician shortage already negatively impacting health care, let alone workers' compensation.

Everyone has their "fix" for workers' compensation but usually that means more legislation, more regulation, more fee schedules, more emphasis on procedure, more details, more forms...

And more expense.

Employers In Denial; Wages & Exemptions

The extent to which business owners will try to skirt workers' compensation obligations never ceases to amaze me.

In California, nurse staffing agency ReadyLink is fighting a half million dollar retroactive premium charge from a State Compensation Fund audit that determined the company was improperly classifying wages as per diem reimbursements.

In Minnesota the Amish are seeking a religious exemption from mandatory workers' compensation obligations.

Both of these arguments have been tried in the past by other employers with predictable results, but for some reason employers always seem to think they have some way out of their duties.

First the California example, which I have written about previously.

ReadyLink Healthcare Inc. sued the Department of Insurance (DOI) and the Workers' Compensation Insurance Rating Bureau (WCIRB) after an administrative law judge ordered that it pay State Compensation Insurance Fund (SCIF) an additional $555,327.53 in premium.

ReadyLink was insured by SCIF from 2000 until 2007. State Fund conducted a final audit of ReadyLink in 2007 for its September 2005 through September 2006 policy period. A senior auditor noted that ReadyLink was paying its nurses $6.75 an hour, plus a much higher "per diem" amount.

The auditor had experience with other nurse staffing agencies insured by State Fund and knew of none where traveling nurses received more than half their reimbursement as per diem payments.

ReadyLink's competitors in the same geographic region typically pay their nurses $20 to $50 an hour.

The company lost an appeal to the Insurance Commissioner, Steven Poizner. Poizner issued a precedential ruling and decided that the employer's per diem payments were actually wages for the purposes of premium assessments because there was such a great disparity between the wages actually paid and how it's competitors accounted for per diem.

Readylink has maintained that Poizner's decision conflicts with IRS "safe harbor" regulations, which ease per diem recordkeeping requirements and do not classify per diem payments as wages.

"In accordance with IRS regulations, Readylink's per diem payments were excluded from wages for federal tax purposes," attorney Seth A. Rafkin wrote to the 9th Circuit on behalf of Readylink. "Similarly, California’s own guide for determining workers’ compensation premiums, the Uniform Statistical Reporting Plan, also excludes per diem payments from 'wages' for premium purposes."

ReadyLink thus far has lost all the way up the judicial appeal chain and now it is asking the California Supreme Court and the U.S. 9th Circuit Court of Appeals to rule that the California Insurance Commissioner contradicted federal tax regulations in its ruling, apparently unable to fathom that tax law and workers' compensation law are two different things or just so completely stubborn that the company's executives can not accept the reality that they owe more than a half million dollars in premium (likely much more now after accruing interest and late pay penalties from over 6 years of wrangling).

The 2nd District Court of Appeal had put the issue quite succinctly in its opinion last November:

"The IRS collects tax revenue from employers and employees to fund a variety of federal programs, whereas the purpose of the USRP is to accurately recognize the amount of an employee’s real wages to ensure that the SCIF has sufficient reserves to pay a worker his or her wages if injured on the job."

As I said at the time, "Workers' compensation has NOTHING TO DO with tax law. This has been restated so many times since the beginning of work comp that it is unbelievable that any employer would attempt to raise this argument. Usually the attempt to relating tax law to work comp is in relation to employee classification - independent contractor vs. employee. Been there, done that so many times it still puzzles me that any attorney representing an employer would even attempt that argument; likely a professional that is not versed in the special character of work comp law."

Still applicable. ReadyLink is pushing an untenable argument.

By the way, visit ReadyLink's website and you'll see that the company lures its nurses with a promise of "highest take home" and "per diem to offset expenses". 

The company also creatively boasts that it provides insurance coverage to its nurses, including "Workers' Comp coverage" which it says is "free." The company tag line is "$ it's not what you make, it's what you keep $."

I don't think ReadyLink is going to keep about a half million dollars...

In the meantime, Members of the Old Order Amish have asked the Minnesota Department of Labor and Industry to support legislation to change current law to allow members of an established religious sect to be exempted from carrying workers' compensation coverage − if the sect conscientiously opposes receiving governmental payments or assistance.

Bloomington, Minn., attorney Philip Villaume who represents the Old Order Amish told WorkCompCentral the current system in Minnesota requires members of the Amish community to participate in a system of insurance that violates their religious beliefs. And forcing them to pay into a system from which they will never draw benefits creates an unfair economic burden.

Villaume said the Amish pay into their own system that covers the costs related to workers injured on the job. All Amish employers and workers are willing to participate in that system as an alternative to workers' compensation, according to Villaume.

Maybe the Amish should move to Texas.

There are several states that have created exemptions for both Amish and Mennonite religious groups, generally on the grounds that these groups require that "employers" pay into their own systems to cover work injuries, and there are some reporting requirements to ensure that no shenanigans are occurring that would give these groups unfair advantages when competing against similar non-exempt businesses.

Other states have rejected the conscientious objector argument.

Just last Dec. 31, the Montana Supreme Court ruled in a 4-3 decision that a Hutterite community must comply with the state’s workers’ compensation law.
The Hutterites are Anabaptist Protestants who center their lives on their religion and share a common ancestry with the Amish and the Mennonites.

The Hutterites are primarily farmers, but in recent years have also begun competing with private companies in the areas of construction and manufacturing.

The Montana court rejected arguments that the law violated religious protections.

When California was going through its workers' compensation premium hemorrhaging in the early 2000s there were broker groups placing employers under Indian reservation systems claiming exemption from state workers' compensation laws.

That didn't work. The employers were cited and fined. The brokers fought fraud charges and lost.

You know that I think that alternative work injury protection systems are a good idea if properly implemented and in conformance with laws to ensure minimal levels of protection so long as the interests of injured workers are fully accounted for. I think that properly constructed "non-subscription" systems can be very robust and more efficient than traditional workers' compensation but that there need to be minimal standards ensuring benefits to workers are no less than traditional work comp.

A pure exemption based on a religion, however, doesn't meet that test.

What happens when a member no longer subscribes to the religion? What happens when a religious sect is no longer financially capable of taking care of claims? What about "premiums" (or donations, tithing, or whatever the religion wishes to call it) are unrealistically low thus actually giving the sect a commercial advantage?

There are some things where everyone has to play by the same rules and workers' compensation is one of them.

Either this society follows work comp or it doesn't. So long as there is a level playing field and all employers and all employees are subject to the same basic requirements, whether it is called workers' compensation, work injury protection or universal care doesn't matter.

We all want a competitive advantage. But over 100 years ago society decided to compromise on the issue of expense versus protection and those same basic tenets are still applicable today.

Employers - report wages accurately. Save money by making sure your employees don't get hurt on the job and if they do take care of them quickly and responsibly. If you're going to compete for business then focus on operational efficiencies rather than risk management through accounting.

Human nature what it is, though, there will continue to be employers in denial about their social, and legal, obligations; keeps the headlines fresh...

Regulatory Implementation and Burning Hands

Proponents, and even critics, of California's landmark reform bill, SB 863, have continuously, and vociferously, stated that the success of the bill will be in its regulatory implementation.

One of the more controversial provisions of SB 863 is particularly subject to this maxim.

Independent medical review (IMR) is a great idea in concept. Borrowed from the Texas work comp system but with some twists, IMR holds the possibility of quick resolution of medical disputes to get the injured worker necessary treatment faster thus decreasing costs by reducing indemnity periods as well as unnecessary or ineffective treatments.

A really big company was tapped as the initial provider of IMR services, a company that has experience with this process in the general health realm for California's Medicaid program and other state and federal systems.

Maximus Federal Services has started the process of recruiting physicians to perform these contract services and WorkCompCentral reporter Greg Jones was able to procure a copy of a letter sent by Maximus to doctors soliciting review services for $150 per case for standard reviews, which must be completed in 30 days, and $200 for expedited reviews, which must be completed in three days.

Maximus will be paid $560 for standard review and $685 for expedited review.

This has doctors in the system, and others on the injured worker side, upset.

According to Jones, the Current Procedural Terminology code for prolonged services without direct face-to-face patient contact, pays $36.34 per 15 minutes, or $145.36 per hour.

People that Jones interviewed said that a flat fee as proposed by Maximus means that IMR is just going to be a rubber stamp affair with little to no valuable review going into the process.

Maximus didn’t return Jones' emails or phone calls inquiring about its IMR payments or how many doctors it has recruited so far.

I wouldn't expect them to, frankly. They have nothing to defend at this point. The financial people at Maximus have figured out what they need to charge, and what they need to pay, in order for California workers' compensation IMR to fit within their profit model.

And Maximus has nothing to lose, really, if IMR doesn't pan out as intended by its architects. The company recently reported that fiscal 1Q revenue grew 19% to $286.3 million compared to $239.6 million reported for the same period last year.

"During the quarter, we experienced strong volumes from our Federal Medicare appeals business and we also made steady progress in winning new work in the emerging health insurance exchange market. Internationally, we see future opportunities that dovetail nicely with our core capabilities as governments evaluate program affordability and seek solutions to control costs and improve their benefit programs,” commented Richard A. Montoni, Chief Executive Officer of MAXIMUS in the company's earnings release.

The release makes no mention of the California IMR business.

But the company increased its 2013 revenue outlook and now expects fiscal 2013 revenue to range between $1.25 billion and $1.30 billion and adjusted diluted earnings per share from continuing operations to range between $3.00 and $3.15.

The California workers' compensation IMR business is a drop in the bucket compared to Maximus' core business which is the Federal Medicare program.

So for year one of the IMR process, don't expect miracles. The quality of reviews will be a factor in whether any challenges to the appealability of reviews passes judicial review. By the time that provision gets to the higher courts, my guess is that Maximus will be gone from the IMR picture, and if the quality of review is as poor as some critics suggest due to the low flat fees then IMR won't be around at all.

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On another note, did anyone notice that a Request for Proposal (RFP) to bid on a study for copy service reimbursement schedule wasn't published? At least not before the contract was already awarded to The Berkeley Group.

According to my sources, those responsible for soliciting the work failed to "advertise it correctly." It wasn't until the lack of open solicitation for the work was brought to the attention of officials did an RFP actually appear on the state's Bid Sync system, and by then it was too late.

This is your government at work. Back door deals, phantom solicitations for public work, secret contracts, and callous disregard for legal procedure while hypocritically espousing ethical and moral superiority.

I was suspicious when SB 863 was proposed, negotiated, authored, voted, signed, etc. It was, and remains, politics of the worst order in my opinion, with little regard for the public outside of those special interests at the table at the time of negotiation.

In the way that special interests spawned SB 863, the same set of special interests may ruin any chance that the law will actually do what it is supposed to do - reduce costs and increase benefits - because myopically attempting to control processes removes the ability to see the peripheral issues and problems.

A copy service fee schedule is small potatoes in the grand order of workers' compensation things.

But the manner in which those in control exert their will upon the system doesn't bode well for a democratic society.

The regulatory process is just as subject to political machinations as the legislative process. That's why we have the courts.

When disregard for established legal procedure gets called out by a reviewing court, don't blame the court. Blame your regulators.

Even those with their hands in the fire have said it - success of SB 863 lies with regulatory implementation.

Hands are going to get burned.