Physical, Mental - It's All One Body

When the law changes and makes a distinction between physical and psychiatric or psychological injuries, what should one do?

If you're a creative California lawyer, you simply argue that there isn't any distinction.

That's the trend that's being discussed at the California Applicant Attorneys Association Summer Conference in Las Vegas.

SB 863 added to Labor Code section 4660.1 language saying, "There shall be no increases in impairment rating for sleep dysfunction, sexual dysfunction and compensable psychiatric disorder, or any combination thereof, arising out of a compensable physical injury." An exception to the rule allows the use of psychiatric conditions to increase an impairment rating when the worker was injured by or exposed to a violent act.

Dr. Mark Kimmel, a qualified medical evaluator in psychological and neuropsychological assessment, called the distinction between mental and physical injuries "artificial" because research shows that there are changes in the brain related to conditions that would have been thought of as purely psychological.

He pointed to imaging studies finding some people with post traumatic stress disorder have a decreased hippocampus volume, while some with major depressive disorder have brain tissue atrophy.

He also illustrated the concept that amputees experience phantom pain in the limb that is no longer present.

Consequently, it may be possible to argue that a worker's complaint of pain is a "direct injury" and not a compensable consequence of an injury, panel moderator Arjuna Farnsworth of Boxer & Gerson in Oakland suggested.

The history of mental injury claims being distinguished from physical injuries in California goes back to the addition of Labor Code section 3208.3. That section of law was added in the early 1990s in response to med-legal mills and treatment clinics that found every injury had a mental component that required diagnostics, evaluations and treatment, even when the claimant did not complain of any psychiatric issue.

Back then the legal arguments seemed to be more about whether a claim arose out of some disciplinary action or termination, or a traumatic event. Not about whether there was any distinction between mental and physical.

Certainly, to the extent that the brain is an organic element and part of the biology of the human body, the argument may have some merit.

Regardless of merit, though, it seems that whenever there is an attempt at "fine-tuning" the law there end up a myriad of ways to argue alternatives to achieve the same, if not better, desired result.

In law school we're taught "the law." Then we're taught "exceptions" to the law. Finally there were always "exceptions to the exceptions," which if one just analyzed things without getting too fancy, were just "the law" stated another way.

So is there any difference between mental and physical injuries? Only if there is an advantage to claiming such depending upon the legal claim being made.

TX Case Highlights Importance of Comp

The common theory in Texas, and maybe Oklahoma soon, is that the employer has an advantage when a nonsubscriber using benefit plans and arbitration to govern dispute resolution.

But that's not entirely true and an employer will be paying damages, perhaps significant damages, if the trier of fact, even an arbitrator, finds that the employer has a responsibility to an employee for work injuries.

Ricky Guzman, a machine operator for Forged Components, was hit by a forklift by a coworker who accidentally backed into him, crushing Guzman's lower left leg. Emergency personnel flew Guzman to a Houston hospital, where he stayed for 27 days as doctors performed a fasciotomy and grafting to repair Guzman's leg.

Forged quickly obtained a urine sample while Guzman was in the hospital, which tested positive for marijuana and cocaine. The employer raised an intoxication defense and denied medical benefits.

Guzman filed a negligence suit against the nonsubscribing employer, and Forged Components filed a motion to compel the case into arbitration, citing its benefit plan. The trial court denied the motion to compel.

One week later, the parties agreed to arbitrate the claim anyway and decided to formalize the agreement under Rule 11 of the Texas Rules of Civil Procedure. Forged's attorney sent Guzman's attorney a "Rule 11" letter stating that they had agreed to submit the matter to Judge Katie Kennedy of Judicial Workplace Arbitrations. The letter agreement was signed and returned to Forged's attorney, but despite creating the letter, Forged never signed the Rule 11 agreement.

Months later, Kennedy awarded Guzman $1.3 million, after determining that the plaintiff was not intoxicated at the time of his injury because the presence of THC metabolites does not establish intoxication at the time of injury and there was no evidence to indicate such.

Forged didn't like the outcome of the arbitration, so it filed a motion asking the 55th District Court of Harris County to vacate the award. The court denied the motion and awarded Guzman interest on the award.

Forged appealed, and on Tuesday, the 1st District Court of Appeals affirmed the $1.3 million award but denied Guzman interest on the award.

Forged contended that the Rule 11 agreement was unenforceable because the Texas Arbitration Act requires both parties to sign an arbitration agreement, and Forged had never signed the agreement.

The appellate court determined that the Federal Arbitration Act did apply, however, which did not require both parties to sign the Rule 11 agreement, and deemed it enforceable.

Forged also argued, in what I would characterize as a desperate attempt to avoid the award, that the trial court should have granted its original motion to compel arbitration under its nonsubscriber plan, rather than the arbitration under the Rule 11 agreement.

The appellate court said that there was no difference between the two and that both arbitration proceedings were essentially the same.

In Texas, you either have workers' compensation insurance, or you don't. If you don't, then you have to face liability as determined by civil law.

And this is what makes Texas such a great state in modern times because it serves as a reminder to all of the employers out there that complain about workers' compensation - just look at the alternative...

Workers' compensation schemes are nothing more than a mechanism for allocation of risk. We may tweak how that risk is determined, or what the size of that risk is, or whether one employer's operation constitutes a greater risk than another - but at the end of the day it's all about sharing the burden.

What makes modern economies hum is that humans are social in nature. We all need each other and collectively we create an order that is much bigger than the sum of its individual parts.

Everyone shares the risk of building an economy - the support system that enables mankind to live longer, fuller lives and advance the species to new levels of function and prosperity.

As a consequence, everyone also shares in the rewards - no single employer is, theoretically, burdened by a single catastrophic event that would put people, who otherwise may have nothing to do with the catastrophe, out of work.

I had lunch with an industry friend the other day - someone that has been in workers' compensation even longer than me and someone that is, in my opinion, much more intelligent than me.

My friend offered, between bites of his tri-tip sandwich, that he felt that workers' compensation was truly an important piece to modern, progressive economies and that without this mechanism of sharing the risk (and reward) business would be much less predictable, and much more volatile - ergo the economy would also share those same characteristics.

I tend to believe that is a truism - workers' compensation is a small industry in the grand scheme of things, but is essential to successful, global economies. The form, shape, operative rules, etc. may differ from one economy to another, but in the end it is this obligation to the social order that provides economic vitality.

The Texas case above is out of the 1st District Court of Appeals, titled Forged Components v. Ricky Guzman, NO. 01-11-00563-CV (06-25-2013).

My Talk With David North; Preventing A Romano

David North, Chief Executive of Sedgwick Claims Services, gave me a call the other day. I wasn't around to take his call, so I rang him back yesterday.

Mr. North was, of course, calling about my blogging on the Charles Romano case.

Assuring me that he, and Sedgwick in general, had the utmost compassion for the Romano family, Mr. North acknowledged quite forthrightly that there were no excuses for the events that led to the death of Mr. Romano.

Here's what has happened at Sedgwick since the Romano case took a turn for the worse: a massive internal investigation was launched to identify the how and why; the claims adjuster managing the claim and her supervisor were separated from the company; new internal processes have been developed (and are under continuous examination) to improve claims handling and the management of those responsible; the Romano family has been compensated (I did not ask for particulars) and North said the matter was "closed."

Sedgwick has used the opportunity to further educate its claims management staff and revisit its best practices.

North, of course, defends his company noting that this last year Sedgwick managed 2.2 million claims involving $11 billion in loss costs, so inevitably there are going to be mistakes, but the firm has been ranked very high in state audits the past 5 years.

But North did not discount the fact that in all claims, attention to detail is critical.

North also denied the rumors that Sedgwick had any financial "interest in the claim," stating that in fact the incentive is the reverse - to do good on claims; Sedgwick earned a good reputation in the claims community by treating every claim on its own merits, that culturally and ethically the emphasis within the company is on doing the right thing.

Regardless, North returned frequently to state that he and the company had a deep felt regret for what happened, had compassion and empathy for the Romano family but that, unfortunately, the case HAS led to the healthy dialogue.

Okay - so we spent some time lamenting about the claim, what led to it and its outcome.

But what came next did demonstrate why Mr. North can be counted on to lead Sedgwick, and the industry, towards more responsible, effective, claims management, answering my challenge.

The one enforcement mechanism that is universal in claims handling is audits. For a large third party administrator like Sedgwick, audits are a part of every day life. There are audits by the state, of course, audits by the employer, audits by CPAs, internal audits. There are individual claim audits, supervisory audits, department audits.

Everything is audited in multiple ways by multiple parties investigating multiple factors.

But all of these audits have a single, common, characteristic that makes them relatively ineffective on the management of claims in real time: all of these audits are retrospective in nature.

The audit process does not result in current claim management decision review or prospective planning or re-engineering of a claim handling plan.

And in this illuminating thought, North I think is on to a big revolution in claims management - what I would call Active Claims Auditing (ACA).

The industry needs to think about audits in a different way - presently audits are retrospective and penalizing in nature, rather than proactive to catch mistakes and errors before they mushroom into catastrophe.

Claims adjusters become more concerned with passing an audit, retrospectively, rather than correcting real time decision making; the focus of the adjuster is on protecting decisions made in the past rather than guiding decisions in the future.

In aviation, the overwhelming majority of accidents are the product of not just a single mistake, but an accumulation of mistakes that compound a situation ultimately leading to catastrophe.

There are always red flags along the accident chain; little elements of error that would otherwise be benign unto themselves, but when chained together these little errors affect the active decision making process resulting in incorrect assumptions and/or understanding of a situation. Thus, the decision maker is led down the wrong path.

And the direction to the correct path is blocked because the mind can not overcome the initial incorrect assumption.

I think North is on to something. The audit process really needs to start early during the claim life, e.g. first 90 days, rather than retrospectively, so that red flags can alert decision makers up the chain of command about a potential problem.

Current claims management computer systems automate many of the tasks that, just 10 years ago, required manual intervention - dates, numbers, forms, alerts, etc.

But while these systems save labor and increase efficiency, they were not designed to engage the complex business rules that encompass the myriad of possible fact combinations affecting claims management decisions. They are not designed around a risk management decision making matrix.

If upper management at Sedgwick could have been alerted early on in the Romano claim that a relatively simple injury had started down the wrong path, an intervention could have been summoned and likely Mr. Romano would be here today, and quite possibly back at work.

I get asked often to speak at industry events about trends that I see in workers' compensation.

I think one of the trends that we will see emerge as a consequence of the Romano case is the development and deployment of more active claims management systems using sophisticated rules that provide earlier "audits" and alarms up the command chain to permit a more active management role.

I agree with North - audits should not just be retrospective in nature. By then it's too late. Sure, the claims manager will "learn" from the audit, but by then the injured worker has already been harmed beyond the initial injury. And as I stated, the mind-set of the adjuster is wrong under the current system because the motivation is to avoid a penalty, not to actively challenge the decision making process for proper guidance.

If the auditing process is initiated earlier in a claim, and the motivation is for proper decision making rather than penalization, then there is a greater opportunity for better claims handling, better outcomes for the workers, and less expense for the employer.

An ACA system would enable companies to stop bad things from happening in a claim before it's too late.

I commend Mr. North for stepping up to the plate and meeting the challenge - in the least communicating that he and the rest of the company are going to work on improving the claims management experience and work on early identification systems to prevent incorrect decision making that could lead to disaster.

The real challenge, of course, will be the execution of the plan because designing, building and deploying an ACA system, whether manual or computerized, will be tremendously complex and expensive.

But the long term return on investment - the investment in human lives - could be the biggest influence in workers' compensation claims management since the processing of indemnity checks via computer was introduced.

Sedgwick has a great opportunity to distinguish itself as THE leader in workers' compensation claims by building and deploying on a wide basis an ACA system and sharing that knowledge with the industry.

North said to me that at the end of the day the job is to protect workers with health care and an opportunity to return to work, and that "I believe strongly in that mission."

I have no reason to doubt Mr. North.

Other cases will come along that will challenge other administrators in the same manner that the Romano case challenged Sedgwick.

When we change how, when and why audits are performed, that strong belief in that mission will be more evident.

One Chapter Than Never Ends

Premier Medical - those who follow history in California workers' compensation will recall the name.

Premier Medical was a medical management company in Southern California that gained notoriety when, in 2002, an investigation was instigated by the California Insurance Guarantee Association (CIGA) on allegations of billing fraud and other illegal conduct.

Then in 2008 the district attorney's office joined the party bringing charges against the company and its owners, David Wayne Fish and Birger Greg Bacino, for filing fraudulent claims for payment, tax fraud and illegal receipt of compensation for patient referrals.

Premier Medical, during its operations, had filed upwards of $70 million in liens for services by its providers, and as a collection agency for other medical and service vendors.

Insurance companies joined CIGA in fighting Premier Medical and the volume of liens that had to be dealt with caused then Division of Workers' Compensation (DWC) regional manager, Workers' Compensation Judge Mark Kahn, to consolidate for hearing all of the Premier Medical lien cases.

This consolidation resulted in Kahn's order that all of the liens for the "Premier Providers" be dismissed with prejudice (meaning they could no longer be prosecuted in any form or fashion) over the objections of Premier's collections customers.

In addition, Fish and Bacino entered into a plea agreement in 2010 with the district attorneys office, accepting a deal to pay $1.5 million in fines and serve three years of probation in exchange for their no-contest pleas to the fraud charges against them. In addition Premier agreed to withdraw the liens it had filed.

Premier's collections customers sought review up the judicial chain and on Friday the Second Appellate District ruled in an opinion not certified for publication (meaning it can not be used as binding precedence) that the Premier did not present any evidence that it had the authority to dismiss the liens of at least one of its customers, Universal Psychiatric Medical Center, Inc.

The court noted that there was a "substantial question" as to whether Judge Kahn's order dismissing all of the "Premier Provider" liens even applied to Universal since the order "refers only to the Premier and the Premier Providers and never mentions Universal by name."

Although Universal assigned a number of liens to Premier for collection, the court pointed out that Universal never engaged Premier as a business agent the way the Premier Providers had.

"The evidence that allegedly supports the finding that Premier had the authority to dismiss Universal's liens is evidence that pertains to Premier Providers," the court said, so if Universal were not a Premier Provider, then "the WCJ's opinion simply does not apply to Universal."

There are several items of interest in this development.

First, and most compelling to me, is that the perceived value of Universal's liens must be tremendous - or at least of sufficient value, even after discounting for various applicable legal arguments - to provoke the company into years of litigation with no guarantee of return on investment.

I have to assume that the company has spent hundreds of thousands of dollars in legal fees to get to this stage - from initial hearing to an appellate review is a lengthy, costly endeavor. We must be talking about well over a million dollars in face value on the liens to justify this kind of expenditure.

Second, since this fight was instigated the landscape has changed a couple of times, with the most recent being the radical changes to lien enforcement law in California, not to mention the applicability of the lien activation fee system. Since the cases were consolidated long ago by Kahn does this mean that Universal need pay only one lien activation fee to return to hearing? Or is a fee due on each, single, lien?

And what about statutes of limitations? Are those tolled because of the pendancy of the Premier litigation and Universal's appeal?

Third, we often hear of the long tail of workers' compensation claims and the effect such have on rates and premiums. Here's a classic example where carriers will have to reopen files that likely were long ago closed and reserves were released, raising havoc on claims departments balance sheets and staffing plans.

Finally, of course, is how many other of Premier's collections customers will take up the cause and seek reinstatement of lien litigation rights.

The entire situation is emblematic of the perverse lien culture that had permeated California (and in particular Souther California) workers' compensation culture.

This just seems to be one of those chapters in workers' compensation history that just doesn't conclude...

Bangladesh Is The US 100 Years Ago

Workers' compensation had its beginnings in the United States during the Industrial Revolution. This was when the US led the world in manufacturing in nearly everything from clothes to big machines.

We in the workers' compensation industry tend to forget the roots of workers' compensation since systems have changed dramatically from 100 years ago. Economies have changed, several generations have been born and died, several wars have been fought.

Through it all the standards of living in the United States have grown tremendously, affecting our culture, and the perceptions, and expectations, of current generations.

Imagine, then, if you were a teenage seamstress who survived the collapse of a large factory building in which more than 1,100 died, spent 20 days in the hospital recovering from the loss of a foot.

Imagine that, just five weeks from enduring such unbelievable trauma and hellish conditions, returning to that same job because at 16 years old you are the only person in the family capable of an income to support a family.

Imagine that bosses would lock doors to prevent pilfering and enforce work ethic, that workers routinely would be yelled at, or even hit, if a boss didn't feel she was working fast enough.

Imagine that this situation was cultural norm - that you are not the only one facing such hardship and difficulty; where survival is the daily chore.

The Wall Street Journal (WSJ) this weekend published a story about this 16 year old (actually, the author notes that 16 years is a guess - that it is common in Bangladesh for official documents denoting a person's age to be falsified or trumped, and that even the mother of the subject didn't know her real age) factory worker who survived the Rana Plaza building collapse to return to work, still in pain, with significant disability, because that country does not have the social support system that first world countries do.

The universal truth is that third world countries, like Bangladesh, rely upon the labor of an impoverished working class to build themselves into a better society.

The WSJ notes, for instance, that the growth of the garment industry in Bangladesh has led to a significant drop in the number of people living in poverty in the country and the story of Mahinur Akhter typifies the experience.

Labor intensive industries are usually the first-tier towards third world countries climbing up the income ladder and Thailand and Sri Lanka are held out as examples where the garment industry helped people move up.

"Continued growth in Bangladesh will depend on the efforts of Ms. Akhter and other workers, whose relatively low wages help give Bangladesh an international trading advantage, despite the country's rickety transportation system, power shortages and political instability," the WSJ notes.

Akhter's father died in a motor vehicle accident last year after moving the family to a different city where he was fortunate enough to get a job in a saw mill leaving Akhter, his wife and two young boys to fend for themselves.

Akhter's $90US per month goes mostly to her family. She send most of that money home to pay for the well being of her mother and 6 year old daughter, and to pay for her brother's schooling.

The WSJ chronicles the difficult times and brutal demands placed on garment workers in Bangladesh - there are beatings, sexual harassment, 16 hour days and failure to meet production quotas means termination.

In Bangladesh 80 percent of the garment workers are female, and their ages aren't really known because, despite laws in the country against child labor most are able to forge official documents with the help of officials to get work at an early age.

Yet, despite the conditions, factory workers nonetheless feel fortunate to have a job.

"I wish I could stay here," Akhter is quoted as saying in the WSJ story. "People my age should be in school, not at work. But because my family is poor, I need to have a job."

So, just 5 weeks after the Rana Plaza building collapse and still with haunting memories and nightmares about her experience, Akhter returned to work sewing buttons.

In 1911 there was a disastrous garment factory fire that killed 146 laborers, many of them children as young as 14 years of age.

The managers of the factory had locked the doors to prevent pilfering and unauthorized breaks. Because of this, workers could not escape when fire broke out.

Normally there were about 500 workers at the factory, sewing and producing women's blouses, earning between $7 and $12US per week for 9 hour days plus 7 on Saturdays. Most of the workers were immigrants of Jewish or Italian descent.

Because the doors were locked, and escape routes inadequately erected, people tried to escape the fire on the 9th through 11th floors by jumping.

William Gunn Shepard, a reporter at the scene, is quoted as saying, “I learned a new sound that day a sound more horrible than description can picture the thud of a speeding living body on a stone sidewalk."

The Triangle Waist Company fire is largely credited as the progenitor to modern day safety regulations and workers' compensation in the United States. Like Bangladesh now, the production of clothing using cheap labor in forced conditions allowed a generation or two to climb the socio-economic ladder out of poverty, and helped produce a working class of people with sufficient resources to jettison poverty and low-wage work.

The United States in many ways has come a long way since 1911. Low wages are now considered to be $8 an hour. We have OSHA and state safety rules. There are labor unions and minimum wage laws.

And there is workers' compensation.

By many accounts Bangladesh is the United States a hundred years ago. Labor intensive industries helped people in the US move up and then those jobs were exported to other countries which, in turn, also resulted in the migration of workers up the socio-economic ladder.

The old saying, history repeats itself, is evident but also prescient as well. We can "look back" in modern times simply by examining the evolution of mankind in other countries and learn in real time. And likewise, leaders in third world countries can look at history and see how first world countries attained success.

And in it all, both first world and third world can examine workers' compensation at its most elemental state - a system for distributing the financial burden of protecting workers against a large base of employers, to ensure resources are available to provide medical treatment and indemnification to workers facing the misfortune of injury or death.

Officials in Bangladesh will certainly learn from the Rana Plaza disaster just as we in the United States learned from the Triangle Waist Company fire. I might add that we, in the United States, can also learn from the Rana Plaza building collapse.

A Lesson In Facing Reality

"We really haven't changed anything. We offered to be a market for them and the school districts are coming in line with the pricing," Jon Stewart, president and chief executive officer of Kentucky Employers' Mutual Insurance (KEMI) said to WorkCompCentral reporter Mike Whiteley. "That market was significantly underpriced, and it's been underpriced for a very long time."

Stewart was reacting to Whiteley's reporting on the nearly defunct Kentucky School Boards Insurance Trust (KSBIT) and regulators grappling with the issue sometime this fall whether to put the trust into run-off or transfer the remaining $60 million in liabilities to a private reinsurer.

Kentucky Department of Insurance, which has scheduled a public hearing for Sept. 25-26 on the trust deficit.

The League of Cities took over the failing trust in January 2010 and hired outside auditors Dean Dotton Allen Ford and consultant Practical Actuarial Solutions to reassess the liabilities of the trust's Workers' Compensation Self-Insurance Pool and the Property and Liability Self-Insurance Pool. Prior estimates put workers' compensation liabilities at $4.5 million and unpaid property and liability claims at $933,000.

Auditors reported last January that liabilities from unpaid workers' claims had reached $28.1 million and liabilities from the Property and Liability pool had totaled nearly $5.4 million.

Practical Actuarial Solutions this month posted a list of proposed assessments to the state's school districts ranging from a "best estimate" of $34 million to a high estimate of $42.6 million.

Jonathan Steiner, executive director of the Kentucky League of Cities, said a $55 million bond issue proposed by the Kentucky School Boards Association will help school districts pay off the assessments over a 20-year period.

But first the total debts of the member districts must be resolved.

Steiner said the total debt will range between $50 million and $60 million and depends on some pending variables such as reinsurance and potential third party administration of claims.

The KBSIT has been facing a two pronged attack over the years - first, it has been underpricing risk for some time in response to budgetary pressures on its member districts; second, as troubles began to arise with the trust member districts started fleeing, putting more financial pressure on the remaining members and the trust itself.

KSBIT stopped accepting new business after January 2013 and will end coverage for existing members on June 30.

Over the past two years, 55 school districts have switched their policies to KEMI during the past two years. Stewart said another 48 districts have been issued KEMI workers' compensation policies effective this July 1.

Worse, according to William Scott, executive director for the School Boards Association, the association unsuccessfully attempted to correct the deficit with surplus notes, which now will have to be repaid.

While the Kentucky Department of Insurance will obtain its own actuarial analysis of the trusts' problems and needs, there are no easy answers and the situation is a reminder that deferment of workers' compensation obligations only exacerbates the underlying problem of inadequate financing.

This is a tough situation for the KBSIT and a good lesson for other trusts created to manage governmental entity workers' compensation obligations - eventually the chickens come home to roost.

Or as Steiner told Whiteley, "It took 20 years for them to get into this mess, so it's only fair to give them 20 years to get out of it" (referring to the proposed bond issuance).

What Sedgwick Should Do About Romano

The Central Coast Chapter of the California Applicants Attorneys Association (CAAA) is holding a press conference this morning at the Ventura County District Attorneys office urging the DA to file criminal charges in the death of Charles Romano.

If you recall, Charles Romano sustained an injury on Dec. 20, 2003, while stocking shelves for Ralph’s in Camarillo, CA (coincidentally only a couple miles from WCC headquarters). After undergoing surgery on Aug. 29, 2005, he contracted methicillin-resistant staphylococcus aureus (MRSA) that caused his lungs and kidneys to fail and paralyzed him below the shoulders.

Sedgwick refused to authorize the treatment for MRSA. Even after a judge ordered Sedgwick to pay for treatment in October of 2006 Sedgwick failed to authorize critical services, or pay for any services.

Sedgwick allegedly continued to delay and deny care until Romano died. Sedgwick failed to authorize his hospitalization at Community Memorial Hospital where he died on May 2, 2008, from cardiorespiratory arrest, respiratory failure and pneumonia brought on by his MRSA infection, according to the board's findings.

Sedgwick didn’t make any payments for medical care until June 23, 2008.

These were the findings of fact in a review of the case by the California Workers' Compensation Appeals Board (WCAB), which issued a scathing opinion on the matter, stating:

“We have rarely encountered a case in which a defendant has exhibited such blithe disregard for its legal and ethical obligation to provide medical care to a critically injured worker. Sedgwick CMS, acting as claims administrator for the Kroger Co./Ralph’s Grocery Co., demonstrated a callous indifference to the catastrophic consequences of its delays, inaction and outright neglect. In light of defendant’s repeated, unreasonable delays and denials, and its willingness to ignore a 2006 finding and award issued by the Workers’ Compensation Appeals Board, we will refer this case to the Audit Unit of the Division of Workers’ Compensation.”

I was highly critical of Sedgwick's behavior in this case. I said:

"How can this industry profess to be laudable and above reproach - going after fraudulent claimants, employers and vendors - when we can't even keep our own house clean? I don't care that YOU wouldn't do such things - the fact is that someone in our industry does, and it is all of our jobs to call them on it, to make them accountable, to make them PAY for ruining the lives of others, when it is our job to help improve those lives."

In that editorial I called for revisiting the issue of penalties, and the enforcement powers of the Audit Unit.

But perhaps CAAA is on to something. Or perhaps not - there is a possibility that the statute of limitations for a criminal prosecution has lapsed.

I was told by a defense attorney close to Audit Unit issues that indeed carriers and administrators are very concerned with these penalties because they come off the bottom line - and that may be true, but apparently Audit Unit penalties weren't a sufficient deterrent in this case.

Through all of this I have yet to see anyone from Sedgwick deal with this publicly. Search the news, go on their website, look for press releases, any public acknowledgment whatsoever - no one from that organization has said anything about this tragedy. Indeed, at least with regard to WorkCompCentral news, the only reference to communication is, "Sedgwick did not respond to calls or emails on Wednesday" or something similar.

Likely, Sedgwick and its employees have been told by counsel to keep quiet, lest something be said that can (and will) be used in a court of law.

A criminal case out of workers' compensation homicide is very, very rare. So rare, in fact, that I was not able to find any news or legal cases in either the WorkCompCentral database, or on Google, about such an occurrence.

But criminal charges HAVE been brought against big companies and their executives for callously causing the death of another - and just because the Romano case falls under the exclusive remedy of workers' compensation doesn't mean that there is protection against homicide charges, barring statute of limitations protection.

If criminal charges are what it takes to get a company whose responsibility it is to take care of people, not kill them, and to own up to its responsibilities, then so be it.

It is in tragedy when real leadership comes through to guide those affected and provide direction to a company and an industry - and it is in this regard that I find the leadership of Sedgwick lacking.

I'm quite certain that the Romano case has made it all the way to the top of the executive suite. I'm also sure that heads have rolled, that Sedgwick is doing all it can to make things right for its client, Kroger, Inc., parent of Ralphs Grocery, behind the scenes. 

This is a huge public relations mess and in my experience silence exacerbates negative feelings in emotionally charged issues, such as this Romano case, which can make public relations even worse.

I respect and admire Sedgwick's CEO, David North. He is an excellent business man, very intelligent, astute at the science of insurance, and has built Sedgwick into a global powerhouse claim administration firm.

NOW is the time, though, for Mr. North to come forth publicly, take the blame for what has happened under his leadership, and make things right for the Romano family - if that is even achievable.

North has the opportunity right now to be a true leader of the workers' compensation industry, to publicly demonstrate that Sedgwick does care about the injured workers it is tasked to serve, to show the industry what to do and not just give a keynote speech at a conference.

This is a tragic, lamentable event and I'm sure that Sedgwick management is putting into place controls to make sure this doesn't happen again.

But that doesn't fix things in the court of public opinion, and doesn't put Sedgwick into a good place relative to this claim, the bad press that will evolve or the possibility of facing criminal prosecution and all of the distraction that will follow.

If I were counsel to Sedgwick and Mr. North I would advise coming out publicly now to apologize to the Romano family and to the workers' compensation industry at large; I would ambitiously seek to provide monetary compensation to the Romano family for this egregious mistake; I would aggressively pursue a media relations campaign owning up to this mistake in judgment and demonstrate to the world that lessons have been learned, that corrections have been made, and that Sedgwick can be trusted to do the right thing.

The only way to control bad press is to participate in the editorial process and to provide opinion and explanation. Sedgwick has this opportunity and can take a leadership position within the industry to demonstrate how to execute the right thing in the face of tragedy.

Now is the time to lead, not to cower.

Sometimes It's A Draw

There is an old workers' compensation maxim as it relates to the employer - employee relationship: The employer takes the employee as he/she is.

An extreme case in Louisiana recently demonstrated this maxim when a 600 pound warehouse clerk sustained an injury and failed a weight loss program that was prescribed by his treating physician, but the employer was denied any reduction in benefits because the employee's failure was not an intentional disregard for the treatment program.

The Louisiana Court of Appeals upheld a workers' compensation judge's finding that William Jones had been cooperative and compliant with the weight-loss rehabilitation offered to him after his 2010 back injury, so his employer could not cut his benefits pursuant to Louisiana Revised Statute 23:1226(B)(3).

In Amerisure Insurance Co. v. Jones, No. 2012 CA 1267, Jones injured his back in December 2010 while lifting some pallets. His doctor prescribed medication and physical therapy, but neither course of treatment alleviated his back pain.

The doctor then issued him a prescription to join Weight Watchers.

The facts of the case indicate that Jones followed the Weight Watchers program – regularly attending meetings, eating foods with less than the allotted number of "points" he was supposed to consume each day, and even taking his iPhone to the grocery store to scan items with a Weight Watchers app to make sure they were appropriate for his diet.

Still, after eight months, Jones remained the same weight as before.

Amerisure then filed a motion seeking to have his indemnity benefits reduced, retroactive to the date his doctor told him to sign up for Weight Watchers, contending that Jones had failed to comply with the rehabilitation prescribed. In the alternative, Amerisure requested that any future benefits be conditioned on Jones' participation with the recommended rehabilitation of weight loss.

Louisiana Revised Statute 23:1226(B)(3) allows an employer to seek a 50% reduction in a claimant's weekly compensation based on a claimant's refusal to accept rehabilitation that has been deemed necessary by a workers' compensation judge.

The Workers' Compensation Judge (WCJ) denied Amerisure's motion, finding Jones had not refused to cooperate with the rehabilitation services offered.

The Louisiana 1st Circuit Court of Appeals found no error in the WCJ's findings.

It explained that the statutory reduction in weekly compensation for a claimant's refusal to accept rehabilitation "is penal in nature and should be strictly construed."

As "the statute expressly states that the penalty of reducing the claimant's benefits by 50% can only be invoked in the event the claimant refuses to accept rehabilitation that the WCJ has deemed necessary," and the workers' compensation judge had made no finding that weight-loss rehabilitation was necessary, the court said, "we find the WCJ did not err in refusing to reduce the claimant's indemnity benefits pursuant to the statutory provision."

The fact that a prescription for weight loss was issued was not enough to show that the weight loss was "necessary," the court said, especially since the Weight Watchers prescription was Jones' idea.

The court acknowledged that there was medical evidence that Jones' injury should have resolved within a few months of the accident and that his pain symptoms persisted due to his morbid obesity, but the court said this was no indication that Jones had willfully refused to avail himself of the means for his recovery furnished by his employer prolonging his disability.

Quoting from a 1957 decision by the 1st Circuit called Guillory v. Reimers-Schneider Company, the court observed that "'the Lord who created some of mankind fat and some lean, also created men with unequal abilities to gain or lose weight, through different metabolisms, degrees of will-power, practical opportunities to follow different diets,'" and so a worker's failure to lose weight cannot, in itself, be regarded as a willful failure to cooperate with a medical treatment plan.

Amerisure's intentions may have been altruistic - seeking to return to good health, and good employment, a worker with a life long obesity issue by financial motivation. Or maybe it was just an issue of fairness - not wanting to pay for a condition over which there was no control and for which the employer did not cause.

And maybe Jones really has no conscious control over his weight so any motivation, financial or otherwise, is going to be ineffective.

Here's some lessons from this case:

1) each claim is different because each claimant is different, so what motivates one claimant may not motivate another claimant for treatment and return to work;

2) a treatment plan is only as good as the execution of the plan - there is no assurance other than the claimant's word that the Weight Watcher's regimen was followed and if the claimant's word is the only evidence then there is not much else a trier of fact can do; and

3) speaking of evidence, as the court noted, just because one doesn't lose weight when on a weight loss plan doesn't mean one wasn't following the plan.

Those in claims need to pick their battles. A person does not become morbidly obese overnight, and is not going to lose weight overnight either, or even over the course of eight months as with Jones.

Jones tried but couldn't do it. Amerisure tried but couldn't do it. Perhaps this case should not have been contested, but at least it seems that both sides tried.

Sometimes you win, sometimes you lose, and sometimes its a draw. That's just the way it goes.

Glad I Don't Have That Job

The hornet's nest that was started with the $120 million excess disability fund created by SB 863 in California is finally starting to take shape, and as many figured, this last minute, ambiguous provision raises more questions than it satisfies.

SB 863 says eligibility to the fund is to be determined by the director of the Department of Industrial Relations and that any director determination shall be subject to review at the trial level of the Workers’ Compensation Appeals Board “upon the same grounds as prescribed for petitions for reconsideration.”

WorkCompCentral reported this morning that a budget trailer bill, AB 76, now awaiting Gov. Jerry Brown's signature, limits application of the fund to injuries on or after Jan. 1, 2013, allows for the carryover from one year to the next any unspent money in the account, but doesn't restrict that money to only financing the fund, doesn't dictate what happens when the fund goes short, and doesn't set up an allocation system to prevent first in line preferential treatment.

The fund measure is part of a much broader budget bill, affecting the Water Code, Public Utilities Code, Harbors and Navigation Code, as well as the Labor Code, setting up partisan political fighting.

AB 76 passed through the full Senate on Friday, 23-11 with all Republicans opposed. The Assembly then followed with a 53-25 vote, with Republicans opposing the measure again.

What's funny to me is that Republican leader Bob Huff of Diamond Bar told the Senate, “Colleagues, ask yourself how comfortable you are with a final product produced by three people in a closed room that neither you, nor your constituents have had a chance to review.”

I thought that's how most legislation goes through the legislature...

California's lawmakers have given the director of DIR an incredible amount of power, and responsibility, since neither SB 863 nor AB 76 give her much direction in terms of operating procedures and rules for the fund.

Employer advocates are concerned that the fund will be volatile, since there are no rules regarding excess monies or fiscal shortages.

Employee advocates worry that allocations can't be firmly projected setting up first come, first served disputes.

The arguments are uniquely aligned - the number of cases that will qualify for the fund from one year to the next is obviously not fixed and there is no way to predict exactly how many are to get how much year in and year out.

The DIR is currently waiting for a Rand Corp. wage-loss study before it sets the criteria for workers to receive payments from the fund. Assuming timely release of that report, DIR hopes to get draft regulations out by the end of summer.

The Rand researchers are smart people. It will be interesting to see how they put the numbers out there that will allow some sort of reasonable predictability to fund allocations, and to annual employer assessments.

Both sides are rightly concerned that fund monies will end up the fodder of future legislatures looking to plug budget gaps, and the director will not be able to override such legislative raids with her rules in such situations.

In the grand operational scheme of things, the fund doesn't represent a whole lot of money. But to injured workers with significant wage loss, the fund may make a huge difference.

The DIR, and in particular its leader, Christine Baker, have a very difficult, delicate task ahead. I expect the regulatory process enabling the $120 million excess disability fund to be particularly contentious.

Baker is a strong leader. Implementation of the fund is going to be a huge challenge.

And in all of the SB 863 drama, the how and what of such regulations will likely be the defining moment of Baker's career.

I'm glad I don't have that job.

We Can't Make the World Right But Can Do the Right Thing

Yesterday was Father's Day. Most consider the day a tribute TO fathers. I prefer to celebrate with tributes FROM a father. That's how this Father's Day weekend played out for me.

I told my Dad, who will be 91 this year, is in excellent physical health, and is incredibly sharp of mind, a couple of years ago that when I grow up I want to be a philanthropist.

I still do. But I'm still growing up and philanthropy requires a certain status in life, and a certain level of financial success, both of which I have yet to attain, but the goal of being a philanthropist drives me every day.

So charity is as close as I can get at this stage in my life, in particular if it is to help children or animals.

So many children and so many animals are without - without good homes, without basic needs, without love or attention. Some have been through such difficult times and just need some generosity.

I was fortunate this past weekend to give a little back to this world that has been so kind to me by using the gifts of my success to transport a couple of children who had sustained burn injuries from Champ Camp to their homes using my airplane.

Champ Camp is a week-long, residential summer camp experience for child burn survivors ages 5-16. It's free to all burn survivors and the camp usually hosts about 130 children.

Arrisa and Daniel - my two Champ Camp passengers. 

A lot of these kids don't have transportation to the camp, which is in Wonder Valley in Sanger, California (near Fresno), because they come from families without the means to get them there.

That is where Angel Flight West comes in.

Angel Flight West is a nonprofit, volunteer-driven organization that arranges free, non-emergency air travel for children and adults with serious medical conditions and other compelling needs.

Because of Angel Flight West, many kids that wouldn't get a break from their difficult daily lives would not be able to enjoy the camaraderie of other children with similar issues. Being with others that share the common thread of burn trauma is hugely restorative to these kids - it literally changes their outlooks on life because know that they are not alone.

It was a long day of flying. My assistant and I had to go from Oxnard, where my plane is hangared, to Fresno to pick up my passengers, then to San Diego's Montgomery Field, then back to Oxnard.

We covered just shy of 600 nautical miles on Saturday with about 4.5 hours of flight time, 3 take offs and, fortunately, 3 uneventful landings!

My passengers were delightful, very polite, and very appreciative. Both had obviously enjoyed their time at Champ Camp, coming back with various projects that they had completed at camp. And both had unbelievably bright outlooks on life despite the trauma of their injuries.

The boy passenger, interested in aviation (like a lot of 15 year old boys!) asked a couple of questions about my aircraft and he was completely non-plussed when I explained that it was, "a 1979 Beech Bonanza A-36 with a Continental IO-520 fuel injected 6 cylinder engine rated at 285 horsepower that had been rebuilt by Victor Aviation in Palo Alto, the same shop that builds all of NASA's piston aircraft engines...".

He liked that. It was factual and satisfied his curiosity.

The girl wasn't as interested in aviation, but she was curious why the passengers faced rearward. She was okay when I told her that we could put the seats facing forward but that would reduce the amount of room in the back of the plane.

When we dropped the boy off in San Diego, he said to the girl that he hoped to see her back at Champ Camp next summer. That touched me. Their only real connection was this Angel Flight, and their common injuries. Champ Camp gave both of them a bigger, brighter outlook on life.

Then that evening, just as I was about to serve up dinner, the doorbell rang. It was Ella and Eligh - a couple of the neighborhood kids. They are 8 and 6 years old respectively. I can't say that they come from the best family background...

They come over to visit us often. They like our great dane puppy, and are fascinated with our 26-toed cat, and of course are always more than happy to sample the fresh chocolate chip cookies my wife makes or help out with projects in the garage.

Both kids had obviously been crying. Their eyes were puffy and swollen from tears. I don't know what kind of trauma they were subject to, but I guess it doesn't really matter - they just needed a short period of stability and safety. And they also wanted some pasta...

So they shared the dinner table with my wife and I - a couple of unexpected, albeit delightful, guests who were so happy to sit at a family dinner table and share their days with some adults they trusted.

I'll be 54 this year. I often find myself a bit weepy with sentiment thinking about the plight of those who are put into difficult circumstances through no fault of their own.

I felt like a father on Father's Day because some children touched my heart. I honestly can say that there is no greater gift a father could experience.

The little world of workers' compensation has its own charity for children, Kids' Chance.

Kids' Chance creates and supports programs that provide educational opportunities and scholarships for the children of workers seriously injured or killed on the job.

We can't make the world "right," but as individuals we can all do right things for the world. If that guides us in our daily work, workers' compensation will achieve its original goals.

What Value In Progress Reports?

Alex Swedlow, president of the California Workers' Compensation Institute, noted researcher and all around great guy, challenged me yesterday at the annual WCIRB meeting in San Francisco: What is the single medical billing procedure that is the most common in California's workers' compensation system?

Physical therapy? Nope.

Prescription drugs? Not close.

Laminectomy? Please...

How about progress reports?

Yep, progress reports.

And what is the most frustrating, and burdensome procedure for physicians in workers' compensation?

Progress reports (Alex didn't tell me that - I've garnered that from years of talking with physicians).

Why is the industry so focused on medical reporting, and in particular the ubiquitous progress report? Simply because it is mandated in the Labor Code and regulations.

Take a look at the Treating Physician's Progress Report, PR-2 - what do you see?

First off, a request for lots of unnecessary, redundant, and valueless information. For example, why, if we know the injured worker's name and claim number, do we need to know his address, date of injury, date of birth, occupation, phone number, etc.?

Why do we need to know all of the same information about the claims administrator? Who gets this report? The claims administrator - do you really think that the claims administrator doesn't know who he, she or it is?

And why is the employer's phone number required? The employer doesn't want to be bothered - this is a matter that's being handled by the claims administrator.

Note in the grey box at the top - the options for the reason for this report. The very first option is, "Periodic Report (required 45 days after last report)".

Talk about a cost driver! Why does the law mandate a report every 45 days regardless of status? What value is derived from this activity other than billing for an office visit and preparation of a report that calls for lots of redundant, time consuming, valueless information? Why must the patient information and claim administrator information be included every single time a progress report is submitted and what is so magical about 45 days?

The report then asks for subjective complaints, objective findings, diagnosis, and treatment plan - the use of additional pages in narrative format is encouraged.

What is the purpose of this form? What value is derived from mandating this reporting? The content of the form does not drive statistical understanding of cost drivers in workers' compensation because the data on the form doesn't go beyond the claims adjuster or, perhaps now, independent medical review.

Data on a claims progress is kept in other, more accessible, less burdensome and more easily understood format.

I think about when I was practicing workers' compensation law and rifling through files getting an understanding of a claim and the medical condition and history of an injured worker. I never, ever, paid much attention to the progress report because there simply wasn't any valuable information provided. The progress report did not help me manage the claim - in particular the mandatory 45 day reporting which basically was always a status quo report.

Everything in the progress report is transmitted to the claims administrator in different fashions via more efficient communication systems.

There is always much consternation about the cost of the medical component to workers' compensation. The negotiators of the latest California reform put a lot of effort into medical treatment controls and now we have independent medical review, bill review, limitations on treatment protocol, etc.

But no one has taken a look at the ponderous reporting requirements in workers' compensation and whether any of this mandatory report writing returns any value to the system.

I suspect that we'll see some research in the future on this cost aspect - but is that even necessary? Why not just tackle the issue now?

A lot of time is spent in the legislature about restricting continuous trauma claims from workers with minimal contact with the state, about funding prescription drug monitoring programs, and excess disability slush funds.

Not much time is spent looking at existing procedures and systems to question whether any of this is really necessary in order to administer claims and whether any of these activities returns value to the system.

Time to start...

Work Comp Is Like the Weather

A friend of mine quipped the other day that workers' compensation is like the weather - everyone complains about it but no one does anything about it.

At dinner last night another workers' compensation acquaintance commented that workers' compensation is such a dysfunctional system that one really need not go far at all to find some element of abuse, failure or leakage.

Then this morning I read the latest edition of the Workers' Compensation Executive and the lead story that State Compensation Insurance Fund's downsizing was so dramatic that claims administration services incurred 300,000 penalties last year for a total of $21,858,570.

That's a lot of claims adjuster positions...

According to the story, most of the penalties were late payments to providers.

I hear and read complaints all of the time about late payments, and underpayments, to providers so this news is not surprising.

Worse is that there were 7,849 instances of penalties for failure to properly compensate injured workers, resulting in $1,989,629 in penalties last year.

The cycle continued into this year with the carrier reporting that for the first four months of 2013 it had incurred another 2,122 penalties for late payments to injured workers.

And those are only the ones that were caught or reported.

Observers note that the issue is the downsizing of the claims departments at SCIF. Last year the carrier famously announced a sharp consolidation of its offices, reduction in work force and liquidation of properties or termination of leases.

As a consequence the carrier, according to the report, has increased the work loads of remaining adjusters who are still tackling with computing systems that require more labor and effort beyond the adjusting of claims.

Unfortunately I don't see what SCIF is doing as anything that any other business in a similar situation wouldn't do. In grand truth, it makes better business sense to incur these penalties because it is cheaper than fully staffing across the state in multiple offices. It may not be in keeping with the carrier's mandate, but, as they say, "business is business."

The real shame is the complete ineffectiveness of the penalty system that has become the primary enforcement tool against carriers since Labor Code 5814 was eviscerated in 2004.

LC 5814 was gutted in response to the perception that applicant attorneys were using the section to unfairly, and unreasonably, gain profit against carriers for simple mistakes.

Before the section was amended the penalty enforcement section was interpreted as being applicable to every single instance of error, and thus there was the potential of a compounding effect on penalties. The complaint by the payer sector was that simple mistakes that would normally cost a dollar would get pumped up by the use of this section and cost five dollars, or more.

The legislature was persuaded that there was sufficient enforcement capabilities within the Division of Workers' Compensation Audit Unit to keep carriers on the straight and narrow.

But this has not turned out to be the case. The fact is that the Audit Unit itself is understaffed, and inadequately armed, to be of any threat to a payer.

I'm not saying that carriers see Audit Unit penalties as just a cost of doing business - but certainly the risk of an audit and penalty order isn't as threatening as a huge, compounding penalty under the pre-2004 section 5814.

The tendency in workers' compensation reform is to over-reform, to swing so far from the middle in a reaction to a perceived injustice that the exact opposite occurs.

Workers' compensation may be like the weather in that everyone complains about it. But unlike the weather, people have the power to do something about it.

Reform will cycle through again - this seems to be an immutable fact about workers' compensation. And in the next cycle you can bet that there will be a push to build stronger private-based penalties into the Labor Code.

Medical Board's Review of Review Physicians

One of the big controversies that has surrounded utilization review (UR), and now independent medical review (IMR) is whether the physicians conducting these reviews were engaged in the "practice of medicine" and thus subject to review, and possible discipline, from the medical board in the state where the case originates.

At least in California, the Medical Board has recently opined that UR and by extension IMR is the practice of medicine subject to review by the board.

The California Medical Board has been under review by the legislature recently on allegations of lax enforcement against physicians.

As part of the review legislators specifically asked the board whether it felt it had powers over UR and IMR physicians.

As a consequence of a treating doctor's complaint to Assemblyman Henry Perea, D-Fresno, the legislator initiated an inquiry into the board's position on the issue.

After informal discussion failed, Perea sent a letter to Dr. Sharon Levine, president of the Medical Board at the time, asking whether the board considers UR the practice of medicine and how it arrived at its conclusion that it has no oversight of UR doctors.

The letter in addition asked whether contracts with insurance carriers, specifically in this case the State Compensation Insurance Fund's (State Fund) letter to its medical provider network physicians (MPN) requiring physicians to agree not to prescribe more than a 60-day supply of compound drugs or opioids without prior approval as a condition of enrolling in its network.

Medical board staff counsel issued an internal memo opining that historically the board did not investigate complaints that are “not based upon an attempt to leverage the outcome of a UR treatment decision or compensation claim, but rather to ascertain whether the standard of care is being followed.” The April 10 memo says the board classifies such complaints as “non-jurisdictional.”

The memo also details how the Labor Code trumps other law and that the Workers’ Compensation Appeals Board “has exclusive jurisdiction over any controversy relating to or arising out of the medical treatment of an injured employee.”

The Medical Board's response to Perea was that it considers utilization review to be practicing medicine and also states that it will “not automatically deem UR complaints non-jurisdictional” and that “a physician is not insulated from potential discipline from the board simply because he or she is under contract to a (workers’ compensation) insurer, private or otherwise.”

There is renewed interest in requiring UR and IMR physicians to be licensed in the state as a consequence because then the Medical Board would then have disciplinary jurisdiction over such physicians.

In 2011, Gov. Jerry Brown vetoed AB 584, which would have required work comp UR physicians to be licensed by the Medical Board of California.

This year, Sen. Jim Beall, D-Campbell, introduced SB 626, which included provisions requiring all doctors doing utilization review and independent medical review be licensed in California. Beall pulled his bill in April and plans to pursue it again in 2014.

But in the meantime, while the Medical Board undergoes its review, Sen. Curren D. Price, D-Los Angeles, who is chairman of the Senate Business, Professions and Economic Development Committee, has filed SB 304, a bill that would transfer medical board investigators to the state Department of Justice and give the department the authority to investigate and discipline doctors.

Price has been critical of the Medical Board's investigation, enforcement and discipline record.

The question is whether the Medical Board's current position, that it will investigate complaints that a utilization-review physician has fallen short of established standards of care, something it has previously not done, is in response only to attacks on its survival, or because the board truly feels it has a duty to the public to do so.

Either way, the board is in a tough position. It is basically admitting ipsa loquitur to a failure in the recognition of its duties in the past.

Sometimes workers' compensation drama occurs outside the direct workers' compensation world but can have far reaching impact. How the Medical Board review drama plays out will steer how the industry conducts UR and IMR going forward.

How A Federal Take Over Could Occur

Last week I wrote about the expanding influence, and perhaps, jurisdiction of the federal government over our lives, and in particular (of course) workers' compensation.

Yesterday I argued that California Assembly Bill 1309 was bad law and should not get to the governor's desk.

The two may come together - when we look at the various legal and legislative/ regulatory actions going on regarding professional athlete injuries and the politics across the nation concerning the limitation of jurisdiction - we see argument why workers' compensation may need uniformity and consolidation; ergo, federal control.

I'm not saying I'm in favor of a federal take over of workers' compensation, but look at these facts and tell me whether or not, if you were a federal legislator, you would be inclined to mandate a federal system of workers' compensation, at least for professional sports that cross state lines whether via live participation or virtually via television or other media, and other migratory industries.

After arbitrator Michael H. Beck on Dec. 12 issued a decision saying football players signed contracts agreeing to file work comp claims in the state where the team was located, rejecting the player's arguments that the order violated a federal court ruling stating that there needs to be an opportunity to demonstrate where the injuries occurred, a federal judge has granted a hearing on a proposed order that would overturn Beck's decision.

In July, a federal judge in Philadelphia is expected to rule on whether former players can sue the National Football League about concussion-related injuries. An estimated 4,300 former players have filed lawsuits that have been consolidated in the U.S. District Court for Eastern Pennsylvania but the NFL seeks dismissal on the argument that the suits are preempted by the collective-bargaining agreement between the league and the NFL Players Association.

In April, Arizona Gov. Jan Brewer signed a bill similar to California's AB 1309 that prohibits people working for employers in the state from filing work comp claims for injuries sustained while working temporarily in another state.

Other states have also passed laws limiting the ability of professional sports athletes to seek redress in states other than that of the players' contractual domicile, most recently Florida and Tennessee.

Then on Thursday a district court judge in Washington, D.C., allowed Bryan Namoff, a former soccer player to proceed with a $12 million civil suit against his former team for medical negligence alleging his former team, D.C. United, allowed him to play too soon after a head injury.

Judge Natalia M. Combs Greene said D.C. United didn’t have insurance and wasn’t exempt from suit as a consequence.

“The liability of D.C. Soccer is clearly outside the coverage of the WCA,” she wrote. “D.C. Soccer failed to secure workmen’s compensation insurance coverage for Namoff and the WCA grants an employee the right to bring a case at law against an employer who fails to secure such coverage.”

Don't forget the disparity between state jurisdictions on how to handle the ongoing issue of opioids and other prescription drugs.

Some states have drug monitoring programs, others don't. Some states restrict drug repackaging, most others don't.

The migration of drugs across state lines occurs as soon as a neighboring state implements restrictions that impede the prescription, procurement, delivery or ingestion of drugs.

Where's the Food and Drug Administration in all of this?

And don't forget the financial impact of big insurance across state lines, in particular when an insurance company is "too big to fail" and the federal government is inclined to bail that company out, all while evidence mounts that there was surreptitious use of questionable financial instruments to avoid premium taxes and other state obligations.

Still to this day, there are fights between states regarding failed workers' compensation carriers - New York's Liquidation Bureau has filed a petition in New York Supreme Court seeking to be appointed ancillary receiver of Ullico Casualty Co. while in Illinois the Circuit Court of Cook County has refused to stay proceedings involving Ullico despite a Delaware court order to the contrary.

Fights between jurisdictions, big money on the line, worker rights over safety and benefits, inconsistency in awards or order enforcement, migratory claims and drugs - the list can go on why some federal lawmakers may want to carve out certain jobs and industries and make them subject solely to federal jurisdiction.

Combine the above with a federal agency examining workers' compensation across the nation, a federal insurance oversight office, and overall expansion of the federal government and it's not hard to see how a federal take over of at least a portion of state workers' compensation systems could occur.

I'm not saying this is inevitable, desirable or reprehensible. I'm just saying ...

AB 1309 Fails the Common Sense Test

The California Society of Industrial Medicine and Surgery and the California Neurology Society have come out to formally oppose California Assembly Bill 1309.

AB 1309 is the professional sports athlete exclusion bill that would remove the ability of designated professional athletes in football, basketball, baseball and hockey from utilizing California's continuing trauma theory if the athlete can not prove sufficient contacts within the state, as prescribed by the bill.

The bill is promoted by Assembly Member Henry Perea (D-Fresno). Perea says the ability of professional athletes not based in California is a "loophole" in the state's workers' compensation laws. He is joined by Senator Ted W. Lieu (D-Torrance) as a principal co-author and Senator Mark Wyland (R-Escondido) who has also agreed to co-author the bill.

Perea says that AB 1309 "would set clear jurisdictional standards on claims from professional athletes and close the loophole that currently allows out-of-state players to file cumulative trauma claims in California, regardless of whether they played for a California team or ever actually entered a California field to play. It would also close the loophole that allows out-of-state athletes to place 100 percent of the cumulative trauma liability on California-based teams despite having played a minimal amount of time for that team – while playing for multiple non-California teams in subsequent years."

Perea says that the "loophole" fails the "common-sense test."

The irony is that AB 1309 itself fails the common-sense test.

First off, AB 1309 targets ONLY professional football players, hockey players, baseball players and basketball players. What about other professional athletes? How about motocross racers? What about jockeys? Why not professional cheerleaders? And why are the coaches, assistant coaches, managers and back office people still able to avail themselves of this "loophole"? All of these workers cross state lines and may file for benefits, including continuous trauma injuries, in California without restriction.

What is most despicable about this proposed law is that it is SO arbitrary and discriminatory.

The ONLY difference is that the pro athletes get REAL, life altering injuries - particularly football players that the NFL would just like to keep quiet so that this modern day version of the Roman gladiator entertainment factory remains anesthetically pleasing to the consumers so they will continue to purchase ridiculously priced tickets and support outsized television commercial contracts.

The single biggest threat to the NFL now is the growing recognition that the sport considerably shortens athletes' lives and contributes substantially to organic brain disease. Constant sustained head trauma is the single most life-altering injury these athletes face, and it is a tragedy that the NFL would like to keep away from the public the fact that so many end up with dementia, Alzheimers, Parkinson's and other serious maladies tied directly to continuously sustained brain trauma.

The argument for this ridiculous bill is that athletes rarely step into this state. That argument is absurd.

Every time a television broadcast of an NFL game occurs in California before MILLIONS of California based fans those athletes have stepped into this state.

Every time an NFL game is broadcast into the television sets of California fans to entertain the masses the NFL receives MILLIONS of dollars in television broadcast rights.

And the same can be said for every other state too.

The NFL has no problem taking revenue from broadcast rights where their employees are placed virtually into this state across millions of television sets, but apparently does not like to recognize the fact that the millions of dollars received in broadcast rights would not exist but for the fact that they are placing their athletes into California.

There is no difference between playing a game live or via television where the same net result is that millions of people contribute millions of dollars in revenue for that entertainment.

Forum conveniens is a long standing, time honored legal principal that should not be discounted. Just because California offers a legal remedy that other states don't recognize does not mean that it is out of line, out of touch, irresponsible, or wrong.

Just the opposite - California's long standing tradition of being non-traditional, thinking outside of the box, leading the way, has created the most resilient, most robust, most diverse economy of the United States and one of the most vigorous economies of the entire world.

Why would 38 million people live here otherwise, and why would California have the greatest concentration of wealth in the world? Because California does things differently and the state traditionally recognizes the contribution of working people regardless of their income, their status, their location, their domicile.

Perea says that "the bill would not limit the ability of professional athletes or any other worker to file for cumulative trauma benefits in their home state or principal state of employment."

Hey, that's a great argument ... NOT! Because no other state recognizes "cumulative trauma benefits" like California does; because no other state recognizes the contribution of PEOPLE, aka The Working Class to its economy (and yes, despite large salaries for very short careers, professional athletes are largely working people putting their bodies on the line for the entertainment of the masses).

If California politicians had ANY balls (and there aren't too many of them left in the legislature) then this state would set a precedence and tell the NFL, "No F*cking Legislation" that would alter this state's long standing tradition of recognizing that employers need to own up to their use of workers in hazardous occupations no matter where they live.

California's great economy is built on one simple fact: that as a world class economy we rely on the sweat equity of everyone that contributes.

When the NFL is in town (whether in person, on television or any other medium), the town spends. It's okay if the NFL and the other sports franchises return the favor. They can afford it. The workers' compensation obligation to California's workers is particularly acute when an employer takes so much money from willing consumers.

The NFL and other professional sports franchises owe it to their workers to protect them, regardless of their incomes, regardless of their status, regardless of their jobs.

To allow otherwise is an affront to the working people of this state.

Insurance and Deployment of Capital

I get asked to talk about trends in workers' compensation all of the time. Usually what's on folk's minds is trends in claims and claims processing because most of the legislative and regulatory action concerns cost controls.

Sometimes, though, cost control legislation and regulation isn't the topic of the day when it comes to trends, because sometimes there are forces acting outside of the claims department that have trending influence on the industry.

One of these influences is the general economy and how it affects investments.

Workers' compensation, as I've said many times here and which will be familiar to regular readers, is a cash flow business. A dollar comes in the door from the employer and as it migrates its way through the system to the injured worker, parts of that dollar bill are trimmed off for various reasons.

Some of those reasons are to pay for administration, some of it is to pay taxes and government fees, some of it is to pay vendors for services or goods - in the end there are a few cents left over for investment.

When investment returns are low and the insuring entity (either insurance company be it private or state run, or self insured program) is not seeing the net gains reasonably necessary to keep people interested in the game, then more money needs to come in the door.

I know this is a very basic view of the workers' compensation financial game, but I think it fairly explains how this all works.

Some may take issue with whether this is efficient, whether the insuring entity seeks unreasonable or unfair gains on the investment money, and whether more should be diverted to the injured worker and/or returned to the employer.

I'm not raising any of those issues - it is what it is and in the grand scheme of life, motivating someone to risk capital in an insurance scheme means that there needs to be a return on that investment that motivates continuing investment.

And that is the system that has largely been in place for 100 years.

Workers' compensation insurance rates and pricing seems to trail the general economy by 18 to 24 months. This is not a hard and fast rule, it is just a general observation I have noted in my 30 years of participating in this industry.

Like the general 7 to 10 year cycle of the industry - it is just an immutable fact but something for which I lack either the knowledge or skill to define.

Regardless, if the trend in rates and premiums is any indication, then the overal U.S. economy is gaining strength.

Because the trend in rates and premiums is up. Not in dramatic fashion, but the days when an employer could open up the insurance bill and be pleasantly surprised by a discount from the previous year are over.

Like it or not, a big part of rate structure is dictated by Wall Street. Most of the big insurance companies are publicly traded corporations. Those that aren't public companies invest in Wall Street, albeit in the less volatile bond market.

Nevertheless, as the cash flows through the system, and makes its way to Wall Street, it's up to the financial wizards to make that cash work sufficiently to keep investors motivated.

The recession introduced a prolonged period of low interest rates. Low interest rates are really good for consumers - the drivers of the economy.

For example, I refinanced my house this past year (what a chore that was!) to get an interest rate that even my parents were jealous of, 2.85% - in 50 years mortgage rates have never been that low.

Contrast that with interest rate in my passbook savings account which has held steady at around 0.05%.

Nobody can make money on that interest rate. Current inflation, which is mild, is still around 3% - so every month I don't use that money to buy something I'm losing out to inflation. I save money by using debt, and lose money by saving - how perverse is that?

Most insurance type investments are in bonds. Bonds are safer, less volatile, and typically generate sufficient returns to satisfy the bean counters at the end of the day.

But bonds have life limits - essentially they are loans and the purchaser is buying the interest rate return on those loans modified by a risk factor of non or late payment over a set period of time which means the overall investment return is stable and reasonably reliable.

When the life of a bond extinguishes, then that investment must be replaced. Remember that my passbook savings rate of 0.05% can't keep up with inflation. So the insurance-based investor isn't going to keep much cash around because the losses are too great.

But the new bonds are reflecting these low interest rates too, because bonds have to compete with traditional debt financing (remember my mortgage, which is traditional debt, is 2.85%).

So the bonds that are being purchased to replace expiring bonds have significantly lower rates of return.

If the insuring/investing entity can not get an adequate return in bonds to keep investors settled, then other sources of money have to be found.

That's why rates and premiums have to go up, nationally.

This is essentially what experts at the Standard & Poor’s Annual Insurance Conference said this week.

S&P’s base-case forecast is for the 10-year Treasury bond (a popular investment vehicle for insurance) rate to remain low, but to increase to 2.1% in 2013 and 2.6% in 2014, from 1.8% in 2012. That's not a whole lot of return folks.

So the forecast is that rates will continue to increase, albeit modestly - we won't see any short term shocks. Cash needs to come into the system to make up for the low investment rates of today. At least the forecast is that there won't be any shocking increases. Mild increases are okay - people can manage that.

The bright side, if you're on Wall Street, is that insurance is a good investment. The big companies are behaving well financially with their own investment practices and claims (i.e. expenses) management.

Arun Kumar, a managing director of global credit research for J.P. Morgan, said at the conference that, from an investor point of view, the insurance industry is one of the best positioned in the fixed-income market.

“It is one of the better performing in terms of where the bond valuations are. Pricing is definitely positive for the sector, capital is at an all-time high, and if you look at credit ratings, notwithstanding a few names, most of them have been generally stable. Even AIG I think is stable at this point, and Hartford is getting there,” Kumar said.

A friend of mine explained this game very well:

"Insurance companies are not in the business of providing insurance – that is, collect premiums sufficient to pay for losses and costs, along with a reasonable profit. Hell, anyone can do that.

"Insurance companies are a vehicle for ‘deploying capital’. There are trillions of dollars circling the Globe, looking for a place to safely invest at the highest yield possible. There is no vehicle like work comp insurance that meets that need (Stocks, Bonds, and Mutual Funds are all ‘high risk’ investments with the potential for loss). It is regulated (forcing compliance on every employer in the United States). It guarantees a profit (return on investment) to those that participate."

Is there risk? Of course. Life itself is a risk. But if we put all of this together, the trend is that rates and premiums are going up modestly and the insurance industry, and in particular workers' compensation, is managing just fine.

How Far Will the Ripples Travel?

One time, I figure it's an anomaly.

But twice. In the same state. Just weeks apart - something is going on.

I'm talking of course about Florida and the sudden penchant for that state's first court of review in workers' compensation cases, the 1st District Court of Appeals (1st DCA), to find various elements of Florida's workers' compensation laws violative that state's constitution.

First there was the Westphal case which found that the current time limitation on payment of temporary total disability indemnity created an unconstitutional situation for workers who had not reached maximum medical improvement by that time and thus could not be rated for permanent disability.

Now the 1st DCA has found in Jacobson v. Southeast Personnel Leasing Inc./Packard Claim Administration that a statute that prohibits workers' compensation claimants from hiring attorneys to represent them against motions to tax costs is unconstitutional.

There are going to be numerous news reports, prognostications, advise pieces and other musings about this precedential case so I won't go into the facts here (here's the opinion) - needless to say that the court's activity is noteworthy not just for finding statutes unconstitutional, but twice and in such short order.

The actual ruling in the Jacobson case is quite narrow and in the long run may actually benefit the Florida system by providing claimants with counsel in disputes over cost petitions by employer/carriers, which may in fact reduce the quantity of such litigation. Certainly the opinion that is being widely accepted is that the Jacobson case is not really going to be much of anything.

But to me, the real question is whether the court's willingness to review a constitutional challenge denotes an emerging trend.

State constitutions are, by nature, limited in application to the particular state for which the constitution was drafted, so making some grand pronouncement about a trend is not going to happen. There are too many variables from state to state to say that something is up on the constitutionality of laws in workers' compensation because work comp is a statutory creature - there are no "common law" elements that would trigger a United States Constitutional challenge.

But a court hearing and ruling on constitutional challenges on a particular topic within just weeks of each case challenge is very unique, and the 1st DCA has yet another constitutional challenge it will be hearing in Davis v. Nascar Holdings.

Davis had reached MMI for her physical injuries in March 2011, but she has not yet reached MMI for her psychological injuries. Her employer, however, stopped paying for her psychological care six months after she reached physical MMI, based on Section 440.093 which provides that a worker can receive indemnity benefits for a mental injury for only up to six months from the date the worker achieves MMI for the physical injury.

Davis is relying on the court's holding and the arguments in Westphal to make her case. Whether the 1st DCA finds in favor of Davis of course is subject to speculation, but it seems to me that the Westphal logic is applicable and that Davis has a good chance of prevailing given the 1st DCA's current track record.

Speculation in Florida is that claimant attorneys are attacking the 2002 reform law, SB 50A (which was implemented over the 2 year period from 2003 to 2004), in piece meal fashion by challenging the constitutionality of small parts of the law.

Get enough unconstitutional rulings against the law, the theory goes, and there is a real possibility that the Florida Supreme Court could eventually declare the entire act unconstitutional forcing a renegotiation of the grand bargain.

I don't know whether this is a viable strategy or even whether these rumors have an iota of validity - certainly though claimant representatives in other big states that have seen significant changes to their systems (e.g. California, New York, Illinois) are looking to the Sunshine State for inspiration and perhaps strategic education.

Westphal and Jacobson were heard and written by different panels of justices working in the 1st DCA. Westphal has been granted rehearing before the 1st DCA En Banc (meaning the entire court will weigh in on the issue), so the issue in Westphal is far from over. There is no indication that Jacobson will go any further.

But if you're a work comp wonk, what's going on in Florida is fascinating. California stirs things up in the legislative ring and 3500 miles away Florida is stirring things up in the judicial ring.

Is there a trend towards constitutional challenge to work comp reforms? Certainly it is too early to tell.

But one can't deny that these are indeed interesting times.

As Chief Workers' Compensation Judge, David Langham, in his blog on the subject has written, "The stone is in the pond, whether a pebble or boulder, how far the ripples travel, and their effect on the distant shores remains to be seen."

New Acronyms: FSOC, SIFI and CWCS

A few days ago I wrote about the increasing power, reach and control of the federal government and the rising fear of federalization of workers' compensation.

Two stories this morning in WorkCompCentral reiterate those concerns.

The first and most alarming development is the federal Financial Stability Oversight Council’s (FSOC) decision to designate American International Group and Prudential Financial as significantly important financial institutions (SIFI) under the Dodd-Frank Act, meaning the government believes they could pose a risk to the broader financial system.

AIG and Prudential are among the largest insurance companies in the United States based on assets.

Under rules set up by Dodd-Frank, a SIFI designation enables the Federal Reserve Board to require increased levels of capital and supervision. When a company receives such a designation it is given 30 days to challenge the designation and request a hearing. Barring a challenge, FSOC has 40 days from the date of its designation to undertake a second vote to finalize its decision.

AIG's chief executive, Robert Benmosche, told shareholders that because of the 2008 federal bailout of the company that the government has since learned a lot about the business and that this designation should not extend pro forma to other insurance companies.

According to rating agency Fitch, AIG and Prudential can expect higher capital standards and increased costs upon their SIFI designation, although the positive credit aspects of higher capital requirements are likely to be offset by competitive pressures from non-SIFI insurers.

The other development is that the National Institute for Occupational Safety and Health (NIOSH) on Tuesday launched a new virtual center focused on workers' compensation with the mission of matching federal injury and safety data with statistics kept by state regulatory agencies and the National Council on Compensation Insurance.

The purpose is to help NIOSH scientists come up with ways to prevent workplace injuries.

Steve Wurzelbacher, director of the new Center for Workers' Compensation Studies, told WorkCompCentral in an interview Tuesday that the program was launched in partnership with the Ohio Bureau of Workers' Compensation (BWC), the National Council on Compensation Insurance (NCCI) and the International Association of Industrial Accident Boards and Commissions (IAIABC).

"The idea is not to duplicate the research that NCCI is doing, but to apply data, such as that gathered by the Bureau of Labor Statistics for the North American Industrial Classification System, to workers' compensation data across a wide range of industries," Wurzelbacher said.

Some say that this new agency will help the workers' compensation industry better understand, prevent and regulate underreporting of injuries or claims.

For instance, OSHA reported in November 2011 that about half of the 350 workplaces it inspected for record-keeping violations as part of a pilot emphasis program launched in 2009 were found to be underreporting injuries and illnesses. How those are defined (either injuries/illnesses, or underreporting) I don't know, but this statistic seems questionable to me and we all know Mark Twain's take on statistics.

According to the center's website, research will cover jobs in construction, health care, manufacturing, public safety, maintenance, transportation, warehousing, the wholesale and retail trade and the service industry.

This past decade and a half is witnessing a huge expansion of the federal government - from oversight of our travel, communication, finances, housing, medicine and now even workers' compensation.

I'm not comfortable with this growing concentration of power. While AIG (and other institutions) were not allowed an organic demise which may have prevented even more financial pain in the country, the creation of laws intended to prevent another financial industry led recession inevitably have gone too far.

Much like regulation of travel and the Department of Homeland Security - I'm sure the extra 280,000 jobs created by this massive bureaucracy helped temper the unemployment numbers, the huge cost to American taxpayers for questionable security has to be examined.

We don't know what the cost of federal health care mandates will be, but if we just look at other federal programs we can assume it will be significant.

I have no hope that the federal government's push into regulating the insurance industry, or expanding its oversight of workers' compensation will save anyone any money. Just look at the intrusion of the Centers for Medicare and Medicaid into personal injury and workers' compensation settlements - more time, more money and an unproven net benefit to society.

I often get asked to speak or comment on trends in the workers' compensation industry. This is one trend I'm not happy about.