Wednesday, July 31, 2013

The Lien Lawsuit & Instability

The wraps have finally come off the threatened lawsuit by lien claimants against SB 863's lien fees and automatic dismissal process.

Plaintiffs include:
  • Angelotti Chiropractic Inc., which operates as Taft Chiropractic in Woodland Hills. 
  • Mooney & Shamsbod Chiropractic Inc. of Palmdale. 
  • Christiana Arana & Associates Inc. of Studio City. 
  • Joyce Altman Interpreters Inc of Tustin. 
  • Scandoc Imaging Inc. of Costa Mesa. 
  • Buena Vista Medical Services Inc. of Calabasas. 
Defendants are Gov. Jerry Brown and Attorney General Kamala Harris; Department of Industrial Relations Director Christine Baker; Division of Workers’ Compensation Acting Director Destie Overpeck; and Workers’ Compensation Appeals Board Chairwoman Ronnie Caplane.

The lawsuit alleges:
  • Enforcement of the lien activation fee constitutes a taking of private property for public use without just compensation in violation of the 5th Amendment. 
  • The fee violates the due process provisions of the 5th and 14th Amendments because it “effectively eliminates plaintiff’s right to seek administrative and judicial vindication of the property rights secured by” the liens. 
  • The fee violates the equal protections provisions of the 5th and 14th amendments because it is arbitrarily and with no legitimate governmental purpose applied to independent service providers while insurance companies, health maintenance organizations and certain employer-sponsored benefit plans are exempt. 

The Workers’ Compensation Appeals Board has ruled that a lien must be dismissed if the activation fee is not paid before the time a lien conference is scheduled to start. A provision of Senate Bill 863 also says all liens that have not been activated will be dismissed by operation of law on Jan. 1, 2014.

According to the complaint filed, the plaintiffs have collectively filed at least 32,433 liens, and say many of which are for small amounts in proportion to the amount of the filing fee. One plaintiff has 20,800 liens and can’t afford to pay $2.1 million by the end of the year, the lawsuit says.

I won't get into the merits of this case. There are some issues that I think are winners for the plaintiffs, and I think there are some volatile issues that may entirely destroy the case.

But what about those promised savings in SB 863? A lot of the money (the WCIRB estimated about $480 million) that was estimated to be saved by SB 863 is now in jeopardy.

And what happens if lien fees are deemed unconstitutional, thus drying up a source of income to the Workers' Compensation Revolving Fund, but potentially creating a deficit if those fees are ordered reimbursed to the lien claimants (of course with interest)?

Department of Industrial Relations chairperson, Christine Baker, told the audience at the California Coalition on Workers’ Compensation's 11th annual Conference that the Division of Workers' Compensation has collected more than $15 million in lien fees, and that if the pace of lien fee collections continues then the employer assessment could be reduced by 7.6%.

Plaintiffs at this point are only seeking an injunction against the law, but damages can certainly be entertained in the future, and does not have to be part of this lawsuit - request for reimbursement may occur through several different channels and/or lawsuits.

I've examined before the likelihood of a Constitutional challenge to the lien fee program, and I'm quite certain that the authors and supporters of the program looked at this very carefully before putting it into place.

I don't think anyone can say with any degree of certainty whether or not the court, in this case the United States District Court for the Central District of California, will rule for or against the government or the lien claimants.

I do feel quite strongly, however, that the court will issue at least a preliminary injunction against the process on two points: summary dismissal of liens on 1/1/14, and the automatic dismissal of liens that fail to pay processing fees.

The court will need time to take argument, do research, and understand whether or not a workers' compensation lien arises to the same level as liens for work on ships, or whether any such constriction can apply to liens that had been filed before SB 863.

To rule otherwise would lead to increased chaos, and costs, associated with the unwinding of the process in the event that it is found unconstitutional.

It will be much simpler to provide for the prospective payment of fees in the event that the law is upheld.

But the bigger picture is the credibility of the negotiators of SB 863. Here is a bill that was the product of negotiations between Big Business and Big Labor. There was no input from the community. There was no analysis or opinion sought from those involved in the industry on a daily basis (except for the 6 week road show that, to me, seemed largely ceremonial). There was no communication about alternative plans in the event that this whole thing blows up.

And then we're left with an even bigger mess trying to clean up what gets destroyed by judicial fiat.

The supporters of SB 863's lien provisions state that to the extent SB 863 is delayed or put in doubt more uncertainty about costs going forward is created. I don't buy that argument - this certainly was considered when the bill was being negotiated and drafted. The creators knew there would be challenges, and knew that there was the possibility of judicial intervention, which is why they included a clause that if any part of SB 863 were declared invalid the balance of the bill would still be valid.

No, those involved in SB 863's lien provisions knew that it was a risk, and knew that it, in itself, would create instability. They brought it upon themselves.

The lien problem was a big one before SB 863. If the lien fee and summary dismissal of lien provisions are overturned by the court, liens will be an even bigger problem than ever before, and the pain is going to be wide and acute.

Tuesday, July 30, 2013

FL and Rodney King Comp

We're in the middle of summer time and the South, particularly Florida, gets real hot and sticky this time of year.

And so does Florida workers' compensation, just in time for the state's annual Workers' Compensation Institute's 68th conference.

Sure to be discussed is the latest in the battle between claimant and defense attorneys in the state.

The WCI conference is infamous for huge suite parties hosted by some of the big Florida defense firms. It's hard to set yourself apart in that competitive legal market.

One firm seeking to set itself apart that has challenged the borders of ethics, taste, and maybe even the law, is getting sued for posting a picture on its website depicting a partner of the firm holding a baseball bat and declaring "a claimant is a fraud until proven injured."

Claimant attorney Robert Winess filed suit in Circuit Court in Broward County, Fla., April 19 against Stanley Steemer Carpet Cleaner Co. and its law firm, McFarlane and Dolan Law Center, alleging the law firm's website violates a section of Chapter 440 of the Florida Statutes prohibiting the intimidation of injured workers by employers.

The suit faced summary dismissal so it was amended to allege violations of the state's Deceptive and Unfair Trade Practices Act by misleading consumers.

The baseball bat page is still up but others have been removed.

One of the web pages removed showed the baseball bat in a case with the slogan, "At McFarlane & Dolan, we litigate claims with a baseball bat." Another depicted a pair of binoculars and included the slogan, "At McFarlane & Dolan, a claimant is a fraud until proven injured."

Florida Statute 440.205 states, "No employer shall discharge, threaten to discharge, intimidate, or coerce any employee by reason of such employee's valid claim for compensation or attempt to claim compensation under the Workers' Compensation Law."

Winess argues that McFarlane is acting as an agent of the employer.

From a technical legal standpoint, the lawsuit faces big hurdles and I don't see a whole lot of merit to it. I suspect summary dismissal will follow.

From a professional standpoint the advertising does stretch the boundaries of ethics, and certainly good taste. In my opinion though, it is McFarlane's free speech prerogative and is not legally actionable.

But, this is Florida, and the heat of the summer season, when good taste isn't necessarily driving decisions.

Regardless of whether it is Florida, New York, California or Texas, the practice of workers' compensation law has become much more contentious, competitive and "civil" since I was in the game.

"Civil" as in the lawyers seem to have taken pages out of the civil trial lawyer's play books - i.e. brutal discovery actions, unprofessional conduct in and out of the court room, seemingly fighting for the sake of fighting.

The sad commentary is that professionals would not behave in this manner if it did not garner business. The fact that lawyers feel the need to hold themselves out as particularly tough, fighting fraud with baseball bats, and otherwise trying to impart the impression of hired thugs, is reflective of the deterioration of professionalism in workers' compensation.

Work comp wasn't intended to be a battlefield between employer and employee. Work comp was the white flag, the truce, the peace accord, between business and labor. There is supposed to be a common meeting ground where everyone has an obligation and they play by the rules, congenially, and with good consciousness.

But contention captivates the bigger audience. Statistically, so few cases end up in the dispute resolution process, yet so much effort, time and attention is paid to them that there is a huge increase in the cost factor of such cases.

I think that much of this emotion is driven by a lack of understanding by and between employers and employees.

Employers in general have absolutely no understanding of just how their premium is calculated - they don't understand experience modification factors nor the risk split points and how industry codes affect their scores. When a claim comes through the door, and then later the premium bill comes in the mail, the natural reaction is to equate a claim with an increase in premium, when that is not necessarily the case.

This makes employers angry.

The claim may have some part of the premium calculation, but there are many other moving parts that are difficult to understand unless the employer is large enough to have a risk management professional or someone who is trained in underwriting on staff.

Employees in general don't understand that once a claim is filed its management is taken completely out of the hands of the employer. The employee is thrown into a maelstrom of adjusters, doctors, and other vendors with little to no communication from the employer, trying to walk that thin line between additional injury and discrimination, etc.

Employees will thus feel like the employer doesn't care, that they are just numbers.

This makes employees angry.

So we get disputes, and these disputes get to lawyers who are tough, have baseball bats, and are going to battle for the "rights" of their clients.

But honestly, these ads are no different than the late night television ads directed towards automobile accident claims.

Yep, I guess we have stooped that low.

I'm tempted to paraphrase Rodney King and ask why we can't just get along - but even Rodney King had more run-ins with the law since the Los Angeles riots in 1992, demonstrating that while you can dress up a troubled character, you can't hide the character's trouble.

And so it is with workers' compensation.

Monday, July 29, 2013

Government Must Follow Its Own Rules

A process is only as good as the people that are entrusted to make that process work.

How, then, can Independent Medical Review be any good if it is going to function without adequate review or enforcement?

I'm speaking of WorkCompCentral's discovery that since the beginning of IMR, not even 8 months old yet, there have been at least 5 denials of care even though the IMR reviewer did not receive medical records from the claims administrator, as mandated by law.

The law, in this case emergency regulation section 9792.10.5, is clear - the claims administrator shall submit all medical records upon request by the IMR reviewer within 15 days of request (12 days if requested electronically).

What's more troubling than the denial of care without any documentation is the failure to fine offending entities as dictated by emergency regulation section 9792.12(a)(23), which provides for a mandatory fine ("shall"):

"For the failure to timely provide all information required by section 9792.10.5(a) and (c): $250.00 for each day the response is untimely under section 9792.10.3(c), up to a maximum of $5,000.00."

The contractor for the IMR process, Maximus Federal Services, should not even be making any IMR decision where there is no documentation and/or there is a failure to supply requested documents - this is Maximus' own internal policy, according to what Tom Naughton, vice president for Maximus, told the audience at the recent California Coalition on Workers’ Compensation conference in Anaheim.

Naughton said that if Maximus receives only a Utilization Review denial letter with the IMR application and nothing from the administrator, the company will identify the records it needs and the timeline for submitting them, which it apparently did in these instances.

But if no records are forthcoming within the timeframes set forth in the regulations, then there is no IMR decision to be adopted by the Administrative Director according to Labor Code 4610.6 - the section of SB 863 that introduces IMR.

4610.6(a) says that an IMR shall be conducted in accordance with "this article and any regulations" adopted by the Administrative Director. Clearly, if no records are forthcoming from the claims administrator under regulation 9792.10.5, which is a mandatory regulation, there is no IMR.

It's pretty simple.

Yet, the Administrative Director, in the five cases identified by WorkCompCentral reporter Greg Jones, went ahead and adopted as final the decisions of inadequate, and in my opinion illegal, IMRs - and in each case the decisions were against the injured worker.

I don't care if the requested treatment is outside the scope of the Medical Treatment Utilization Schedule, or are requests that make no medical sense - we have a law in place with specific parameters.

What's good for the goose, so to speak, is good for the gander.

Sure, the injured worker can appeal the adopted decisions of the AD - in these five cases it is clear to me that the AD acted without or in excess of her authority because there should not have been any IMR decisions - they were defective on their faces.

But why are we further burdening the system with such appeals, why is the injured worker waiting for requested treatment, and why is the claim being delayed on the account of IMR that's defective on it's face?

IMR can work. It can be a good way of managing questionable treatment requests.

It can also destroy a system. If the people of California can not rely upon the government to follow its own rules, how can the people put its trust in the government?

DWC spokesman Peter Melton advised Jones that the Labor Code section does not delegate to the DWC the power to determine what is a valid IMR appeal.

Fair enough.

The Labor Code DOES, however, delegate to the DWC the authority to determine what is a valid IMR decision in the first place. The DWC built rules for that - and the DWC needs to follow its own rules.

Here's what DWC needs to do:

1) Revoke or rescind its orders in those five cases to take them out of the appeals process - the entire structure of the IMR process is built on the theory of keeping medical treatment issues out of the courts, so do it.

2) Fine the offenders. Seems to me DWC is now owed $25,000. Issue the fines, collect the money, publicize the results, make system participants know that this is serious business.

3) Refine the regulations to make it abundantly clear to Maximus, and any other company that might be engaged in the future of IMR, that any failure by the claims administrator to provide records as requested takes the matter out of IMR AND invalidates the underlying UR.

We have a system in place. It needs to be followed by everyone, including the government. If government won't do its job, then the people won't do theirs, and then anarchy will rule.

And the "savings" that are estimated to arise from this tumult won't be realized.

Figure it out boys and girls - you put a new system into place. You better make it work.

Friday, July 26, 2013

NC Reforms Its WCJs

If you can't reform workers' compensation into the system you want, then you reform the underlying judicial process to make sure that judges on disputed cases rule the way you want.

That's how North Carolina Republicans are going to reform that state's system by exempting the state's 20 workers' compensation judges and other top officials of the state Industrial Commission from civil service protections.

The Senate on Thursday voted 27-19 for preliminary approval of House Bill 74, the Regulatory Reform Act of 2013. The House voted 76-36 for preliminary passage of the legislation.

The proposal was part of an overhaul of state regulations proposed by a House-Senate conference committee on Wednesday.

All of the eight members of the House-Senate conference committee are Republicans.

Chapter 126 of North Carolina General Statutes, the State Personnel Act, prohibits the firing of state workers with at least two years of service except for "just cause" and establishes an appeals process through the state Office of Administrative Hearings.

This law apparently inhibits workers' compensation reform because judges can't be relieved of duty unceremoniously. Failing to rule in the manner expected by politicians apparently isn't "just cause."

Leonard Jernigan, a Raleigh claimants' attorney and former chairman of the Workers' Compensation Section of the North Carolina Bar Association, told WorkCompCentral the Industrial Commission reforms are a GOP-backed attempt to give Gov. Pat McCrory, North Carolina's first Republican governor since 1993, to replace workers' compensation judges at will.

McCrory campaigned on a platform of regulatory reform.

Regardless, it is a despicable and underhanded manipulation of what is to be an indendent fact finding, legal ruling tribunal.

The Rule of Law is greatly compromised when those who are entrusted with indendence in the finding of fact and application of law are looking over their shoulders every day wondering if a particular case is going to determine the employment relationship.

There is no place in America for the judiciary, be it Superior Courts, appellate courts, or administrative courts, to be subject to the whims of a governmental leader.

There is a reason why federal judges are appointed judges for life - and that is because the triangle of United States government mandates that checks and balances be in place to curtail abuses in any one of the governmental functions.

The legislature makes the law. The executive branch leads the people, and makes policy.

And the judicial branch interprets the law and metes out reward or punishment.

They are independent for a reason - to avoid dictatorship or tyranny.

The way to reform workers' compensation in North Carolina, or any state for that matter, is through the legislature. Not by hamstringing the judiciary.

At least this proposal won't become law this legislative session.

House Regulatory Reform Committee Chairman Tim Moffitt, R-Asheville, told the House during debate on Thursday that the conferees agreed to the delay civil service exemptions to find out whether such exemptions would be allowed for state workers' salaries are set by North Carolina General Statutes.

"If we need to make changes during the short (2014) session we can," Moffitt said.

Both the House and Senate voted late Thursday to adjourn the 2013 session today and to return on May 14, 2014.

Thursday, July 25, 2013

Incredibly Contentious

Don't retaliate against workers who make a claim for benefits and don't offer bonuses or prizes for meeting safety goals if doing so can result in deterring the reporting of injuries.

That's what the US OSHA office is telling employers around the country as it steps up efforts against employers it feels are letting too many injuries go unreported.

The Wall Street Journal a couple of days ago reported that while the number of workplace injuries over the past 10 years has declined by 31%, the number of lawsuits against employers alleging retaliation against injured workers has doubled.

As far as OSHA is concerned, that means that too many employers are discouraging injured workers from making claims, which is illegal.

And OSHA's position is that work injuries are not usually the caused by careless workers, but that unsafe work conditions are the predominant cause.

The agency reports that for private-sector employers, the number of injuries involving missed work days, job restrictions or transfers to different chores dropped to 1.8 per 100 full-time workers in 2011 from 2.6 in 2003.

The article notes that while some of that decline is attributable to better safety, it is also noted that changes in work comp laws making qualification for benefits (we like to call that "reform" in our industry parlance) is also responsible.

The combination, according to the well known John Burton, economist and emeritus professor at Rutgers University who has studied work place injuries and workers' compensation most of his professional life, has resulted in a 33% decline in the average cost of insurance from a high in 1994 of $2.67 per $100 of payroll, down to $1.79 last year.

The WSJ article includes some vignettes on questionable "safety initiatives" at some companies, and cites a US Government Accountability Office report in 2009 that concluded that more than a third of health practitioners surveyed were asked by company managers to provide treatment that wouldn't necessarily require a formal injury or illness report.

Burton's sometime scholastic partner, Emily Spieler, a law professor at Northeastern University and former head of the West Virginia workers' comp program, however, got the closing quote.

She says that despite the original intent of workers' compensation to ameliorate legal costs and delays in work injury disputes, "it's become incredibly contentious, to nobody's benefit."

Maybe society has just become too spoiled. Perhaps because there just aren't enough 100 year old people around any longer who remember what it was like when work comp first came around such that employers and employees have forgotten what it was like before workers' compensation was in place.

Which is why I think sometimes that we should just suspend workers' compensation for a few years to allow people to realize just how good they have it with the system in place, rather than without.

Wednesday, July 24, 2013

MEMIC and Success

It's not often that there's a positive story to tell in workers' compensation. We are usually consumed with what's wrong, cost pressures, political turmoil and what not.

Every once in a while, though, there is a story about something going right.

MEMIC is one of those stories.

Maine Employers Mutual Insurance Co. was established through state legislative action on Nov. 13, 1992, to replace Maine’s workers’ compensation residual market pool.

Unlike other state funds, MEMIC does not enjoy tax-exempt status, contradicting the argument by some standard market carriers, who believe the resulting exemption from federal income taxes provides the funds an unfair competitive advantage that allows them to build up their surpluses.

Despite being subject to income taxes, MEMIC has grown a $350 million surplus, and continues to serve as a guaranteed fund in Maine, with approximately 96% of its 2012 premiums from Maine accounts. MEMIC also controls about a 62% share of the commercial market in Maine.

The company's 2012 combined ratio, after dividend amounting to more than 10% of premium, was 96.3%.

In addition, the company has grown aggressively outside of Maine.

In 2012, MEMIC reported direct written premiums of $202 million. Subsidiaries, MEMIC Indemnity Co., which was formed in New Hampshire in 1999, and the Vermont-domiciled MEMIC Casualty Co., accounting for business income from Connecticut, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania and Vermont.

In April, the company opened an office in Tampa with the goal of driving up new business in Florida.

The company focuses on the hospitality industry, light manufacturing, colleges and schools, and health care.

Michael Bourque, senior vice president for external affairs, tells WorkCompCentral, "We are not a traditional state fund.”

No kidding.

“We’ve taken the experience we’ve had here in terms of injury prevention and service and made that model come outside of Maine. While we’re not going to have anywhere near the dominant market share we have in Maine, we know that for a certain percentage in almost every market, service is going to matter,” said Bourque.

That's the key - service. Pricing may matter to employers that wrongfully focus on the premium bill once a year, but account service is what makes the difference for employers over the long term.

Much of the industry has lost the touch for proper account service and that may indeed be where MEMIC's competitive advantage lies. Slipping out of the bureaucratic state fund role and into a competitive mindset of a mutual insurance company, where the policy holders are also essentially the share holders, seems to have made a difference for this company.

I like business success stories, particularly in our industry. We don't get to read or hear many. It's gratifying to know that there is an insurance company that meets its obligations and does so efficiently in an insurance environment so many others find challenging.

Tuesday, July 23, 2013

Detroit's Work Comp Question

The nation's largest ever municipal bankruptcy filing includes $86.5 million on current workers' compensation liabilities.

Detroit, MI made news last week with its filing, seeking Chapter 9 protection and restructuring of its debt of $18.5 billion.

The city is self insured for workers' compensation.

And unlike the automakers that call Detroit home, reliance on the state self-insured security fund may be necessary to keep workers' compensation benefits flowing to injured workers and to meet new obligations that may arise during bankruptcy pendancy.

In 2009, General Motors and Chrysler went through their restructures, but did not call upon the self-insured security fund, because trustees at the time felt that doing so would also bankrupt the fund, and would result in more cost than could be saved due to the companies' cross-jurisidiction liabilities.

Those arguments are invalid in the city's case. The city's workers' compensation liabilities are limited to the state of Michigan, and the workers' compensation liabilities of the city are much smaller than either GM or Chrysler at the time.

In the meantime, the city's retired employees are seeking to block Detroit's Chapter 9 filing, saying it violated the state’s Constitution because it could cut city workers’ pensions in violation of the Michigan state constitution.

The city of course argues that the lawsuit belongs in the bankruptcy court.

While the Supremacy Clause of the United States Constitution would generally make the bankruptcy court supreme over any state court, Samuel J. Gerdano, the executive director of the American Bankruptcy Institute told the New York Times that Chapter 9 bankruptcy does have a provision that prohibits proposing a bankruptcy plan that violates state law, which in Michigan’s case could include making changes to accrued public employee pensions and benefits.

It is unclear whether workers' compensation would be included in this context.

Fellow blogger, New Jersey attorney Jon Gelman, said on Friday that the bankruptcy filing "is a sentinel event marking the end of a booming industrial era for the US, and its disability and retirement programs, and demonstrates the consequences of a benefit scheme built on empty promises for injured workers."

While the city's filing is certainly the largest of municipal bankruptcies in history, I'm not sure it is the end of an era, nor reflective of an empty promise.

What the filing does show is how intricately woven workers' compensation is into the overall economy.

By its nature, workers' compensation is designed to allocate risk over a broad base so that any individual action can be absorbed by the population at large.

That is why there are security funds in place to accommodate situations where an employer can no longer meet its financial obligations.

Yes, the risk is then spread to the general population which ultimately may result in increased taxes or assessments (and in Michigan's case, there is declining population upon which to spread that risk, which means greater proportional share by each individual tax payer).

But the promise to employees is that there is a system in place upon which we can all rely in the unfortunate event of a work place injury.

When the city of Vallejo, CA submitted its bankruptcy plan in 2009, resolution of workers' compensation claims were subject to a hefty discount according to the Wall Street Journal. I suspect, however, that the reporter of that story was confused about "compensation" and mixed up the city's actual workers' compensation program with its other retirement and benefit systems.

According to broker/consultant James Moore, when Stockton, CA filed for bankruptcy protection last year, then the largest municipal filing in the country, its workers' compensation obligations were secure because the city's program was fully funded as a stand alone program.

Detroit's case is much, much bigger though, and by early reports its workers' compensation program is not well funded. 

I don't know how all of this is going to play out. Nobody does.

But I do feel confident that the support inherent in Michigan's workers' compensation system will continue to injured workers. 

I hope I'm right.

Monday, July 22, 2013

New York, Guidelines and Culture

It took 3 years since New York's workers' compensation reform was signed into law mandating treatment guidelines.

It took another 3 years for the first basic set of guidelines to be issued by the state's Workers' Compensation Board.

And it took another 3 years for the first level of appellate review to tell New Yorkers that times have changed and that evidenced based medicine is the law of the land.

In The Matter of Kigin v. State of New York Workers' Compensation Board, No. 515721, is creating noise in New York workers' compensation circles as the first appellate case to consider how the guidelines should be applied.

The New York 3rd Appellate Division ruled that an insurer could deny a request by an acupuncturist to exceed the number of treatments called for by the guidelines to relieve neck and back pain suffered by injured worker Maureen Kigin.

In March 2011, Kigin's doctor, a board-certified osteopathic surgeon, requested authorization to exceed the allowance for acupuncture treatments to treat Kigin's ongoing neck and back pain from a work-related car accident some five years before.

Liability for that claim had been assigned to the Special Fund for Reopened Cases. The fund denied the doctor's request on the basis that the doctor had not demonstrated the medical necessity of the extra treatments.

A workers' compensation law judge upheld the fund's decision, as did the Workers' Compensation Board.

The Appellate Division's 3rd Department rejected Kigin's challenge to the board's pre-authorization scheme, arguing that the board had exceeded the Legislature's grant of authority in enacting the regulations, and that the regulations were in conflict with their enabling legislation.

The court said that "medical necessity has always been a prerequisite to the employer's obligation to pay for medical tests and treatment," and since the Legislature "purposefully conferred the authority on the board to predetermine medical necessity for medical care, and its scope and duration," the board "acted within its legislatively conferred authority when it devised a list of pre-approved medical care deemed in advance to be medically necessary for specified conditions."

Kigin's attorney has vowed to take the matter up to the state's highest court.

In the meantime the board continues to be burdened with requests for variances.

According to the Workers' Compensation Alliance (a statewide coalition of injured workers and other stakeholders chaired by Kigin's attorney Robert Grey of Grey & Grey) website, the board also holds about 2,000 hearings per month on variance applications and spends about $60 million annually dealing with all the work associated with the requests from doctors.

That's a big charge on the system, but points to a troubling and difficult culture in New York.

It's taking time. Lots of time. But the culture of New York's workers' compensation system is changing.

Lots of state workers' compensation systems go through this culture shock. There is denial, then resistance. Eventually there is resignation, and ultimately acceptance and adjustment.

New Yorkers are a hearty, tough bunch of people. Change doesn't come easy, but change is coming. While it's taken eight years for the state to come to grips with guideline based treatment, ultimately the population will adjust.

The stark reality is that treatment guidelines are necessary because people don't know how to behave themselves, and for the vast majority of cases they are the right thing at the right time.

General health has guidelines. The Affordable Care Act initiated guidelines on a federal level. Nearly any state of any consequence has workers' compensation guidelines. Guidelines promote efficient medical practice and efficient workers' compensation case management because of stability and predictability.

If the WCA is right, that the state is spending $60 million a year on variance requests, then there is a huge issue and one that needs to be addressed with more court opinions affirming the legislature's intent, and affirming the power of the board, to implement and enforce standards in medical treatment.

Some people aren't going to be happy with this restriction, but it is reasonable, and it is necessary.

New York may have to take a lesson out of Texas' and California's play-books and come up with an independent medical review system that follows utilization review.

Time to pick some other argument. ACOEM, ODG, Reed - there are many others. There may be some variance between the different treatment guidelines, but not much. The reason is because evidence backs these works, and doesn't back an individual physician's recommendation of acupuncture on an ongoing basis for 5 years.

That's just the way it is.

Friday, July 19, 2013

Liens and the 5th Amendment

An interesting conflict has arisen with regards to California's handling of its lien issues under SB 863.

The massive reform bill instituted new fees for the filing of liens. The presumption was that many liens would simply go idle and their owners would not seek enforcement because they did not want to pay either the $150 filing fee, or for liens already in the system, the $100 activation fee.

But the government has plans to use this income to offset employer assessments.

So far, according to Christine Baker at the California Coalition on Workers’ Compensation's 11th annual Conference, the Division of Workers' Compensation has collected more than $15 million.

The total amount of money that the DIR collected from employers in 2013 was $391.4 million, and a $15 million reduction would result in a 3.8% reduction in the overall assessment. If the pace of lien filing and activation fee payments remains constant, there will be $30 million for offset, or a 7.6% reduction in charges.

Thereafter, DWC expects that lien filing/activation fees will taper off to represent about $7 million per year.

Baker said about 44,000 liens were filed each month in 2012, but that has fallen to about 4,000 liens a month since the start of the year. Projected throughout 12 months, that would be about 48,000 liens, which at a cost of $150 each, would generate $7.2 million.

So we can't count on lien fees to offset employer assessments for much into the future - this may actually be a one time event.

But I'm curious whether the reverse will be true if there is a challenge to the automatic dismissal of liens that have not been activated by Jan 1, 2014.

There is word in town that some who will have standing as of that date will challenge the new law on the Constitutional ground of an impermissible taking of property.

The Fifth Amendment to the US Constitution provides that private property shall not be taken without just compensation.

Case law through the years is ambivalent on this issue.

Doug Linder, Professor of Law at University of Missouri-Kansas City School of Law writes:

"It is clear that when the government physically seizes property (as for a highway or a park, for example) that it will have to pay just compensation. It is also clear that serious, sustained physical invasions of property (as in the case of low overflying aircraft, for example) require payment of compensation equal to the difference between the market value before and after the invasion. The difficult cases are generally those where government regulations, enacted to secure some sort of public benefit, fall disproportionately on some property owners and cause significant diminution of property value."

The best we're going to get on this topic is looking at cases regarding property liens filed by those who perform work on property, also known sometimes as mechanic's liens.

The US Supreme Court in 1960 found that shipbuilder contractors whose liens were unenforceable when the government took over uncompleted boats and materials on hand for their construction when the general defaulted constituted a taking under the 5th Amendment.

In Armstrong v. United States, 364 U.S. 40 (1960), a shipbuilder defaulted on its contract to construct certain boats for the United States, so the Government, exercising an option under the contract, required the shipbuilder to transfer to the Government title to the uncompleted boats and the materials on hand for their construction. This made it impossible for the lien claimants to enforce their materialmen's liens which had attached under state law to the boats and materials when the materials were furnished to the shipbuilder. Petitioners sued for compensation for the taking of their liens by the Government. Held: Petitioners are entitled to recover whatever value their liens had when the Government took title to the boats and materials.

The court said:

"The total destruction by the Government of all value of these liens, which constitute compensable property, has every possible element of a Fifth Amendment "taking" and is not a mere "consequential incidence" of a valid regulatory measure. Before the liens were destroyed, the lienholders admittedly had compensable property. Immediately afterwards, they had none. This was not because their property vanished into thin air. It was because the Government for its own advantage destroyed the value of the liens, something that the Government could do because its property was not subject to suit, but which no private purchaser could have done. Since this acquisition was for a public use, however accomplished, whether with an intent and purpose of extinguishing the liens or not, the Government's action did destroy them and in the circumstances of this case did thereby take the property value of those liens within the meaning of the Fifth Amendment. Neither the boats' immunity, after being acquired by the Government, from enforcement of the liens nor the use of a contract to take title relieves the Government from its constitutional obligation to pay just compensation for the value of the liens the petitioners lost and of which loss the Government was the direct, positive beneficiary."

In United States v. Security Industrial Bank, 459 U.S. 70 (1982) the US Supreme Court found that a provision of the Bankruptcy Reform Act of 1978, 11 U.S.C. 522(f)(2) (1976 ed., Supp. V), which permits individual debtors in bankruptcy proceedings to avoid nonpossessory, nonpurchase-money liens on certain property, including household furnishings and appliances, did not apply retroactively to liens already in place.

This of course is just a cursory look at the taking argument. I'm not a Constitutional Law scholar and I don't have the time to thoroughly research or vet this issue. 

All I'm saying is that DWC, employers and insurers should not get smug about the lien filing/activation fee statutes or estimated savings upon automatic termination of liens on Jan 1.

Assuming some lien claimants are successful in a fight against the Jan 1 automatic dismissal, then there is going to be quite a bit of pain to spread around within the California work comp market.

DWC has estimated hundreds of millions of dollars in "savings" when all of these liens vaporize. Add to that the filing fees that may become invalidated on the same grounds - there may be a sizable obligation to meet.

It will be years before we get to this point. By then, workers' compensation in California will be facing some new crisis.

For instance, another panel at the CCWC Conference warned that SB 863 has several litigation time bombs that may increase friction costs.

The changes to utilization review time limits to accommodate Independent Medical Review will trip up claims processors. And the panel said that employers should expect to see litigation over provisions in SB 863 that say an injured worker can’t use sleep, sex or psych disorders to increase their impairment ratings.

And we can be certain that unscrupulous vendors are already strategizing on how to trump new fee schedules and restrictions on interpreters and copy services.

The old colloquialism "it ain't over until the fat lady sings," certainly applies. The problem the comp community has is, we don't know who the fat lady is...

Thursday, July 18, 2013

Do Your Job, Then I Don't Have to Do Mine

An interesting thing is coming out of Independent Medical Review in California: information that should prevent medical disputes from getting to IMR in the first place, and improve medical treatment standards.

Tom Naughton, vice president of Maximus, the medical review company that has contracted with the state for IMR under SB 863, told the audience yesterday at the California Coalition on Workers’ Compensation 11th annual Conference that one of the most important things that IMR will do is educate California’s workers’ compensation community about patterns involving certain procedures and diagnostic tests.

Naughton said Maximus is gathering data about the IMR requests that it is processing and plans to report any trends that it identifies to the state.

Citing an example about routine rejection of bariatric surgery requests by group health plans, and those rejections being overturned by IMR, Naughton said that the health plans changed their policies so those disputes are rarely seen.

“Where we’re able to identify a pattern of practice either of cases that are going to be upheld always or overturned always −we work with that to educate people,” he said. “That’s what we’re going to do with the IMR here, as well. It’s not just about making the decisions.”

In addition to reducing the quantity of challenged medical requests (and thus speeding up treatment of injured workers) Naughton said that Maximus is continuously updating its procedures because it is constantly looking at medical journals for the most up-to-date studies.

This information is then relayed to the Division of Workers' Compensation so that the state's Medical Treatment Utilization Schedule can remain up to date.

The potential benefit is that the IMR program can help cut down on the percentage of workers’ compensation dollars that are spent on medical cost-containment programs.

I sat as part of the Blogger's Panel at the conference, chaired by Marsh's Mark Walls (founder of the popular Work Comp Analysis LinkedIn group). Participating along with me were Roberto Ceniceros, Senior Editor, Business Insurance magazine, applicant attorney and LexisNexis author Robert Rassp, and Rebecca Shafer, President, Amaxx Risk Solutions, and author of the ReduceYourWorkersComp blog.

Though we went through various issues and prognostications about workers' compensation in California, there was one very poignant comment made by Rassp that I think gets to the heart of Naughton's observations.

To paraphrase Rassp, "If you do your job, I don't have to do mine."

IMR may very well work out to reduce the number of treatment disputes, and may very well improve treatment outcomes.

But only if the behavior of those of us on the front lines change, and only if the information that comes out of IMR is utilized properly by the payer community and the state to improve rules, regulations and procedures.

There will be an education period - I have cited in the past IMR Decision 13-35 where UR denial of a Salonpas patch was overruled by Maximus. The patches sell for $10 online and can be picked up in retail stores for about $15. However the employer will end up paying for the requested medication, as well as the $350 cost for utilization review and another $560 for IMR.

More than likely, the only reason this $15 treatment was subjected to $910 of "cost containment" services was because of some claims department policy essentially mandating UR on every treatment request.

Or it was just easier for the claims examiner to automatically send the request to UR.

Regardless - behavior needs to change in order to realize the potential benefits of the program. Otherwise, IMR just becomes yet another part of "cost containment" bloat.

Wednesday, July 17, 2013

Apportionment Frustrations

Apportionment is one of those aggravating legal concepts that befuddle everyone with its technical intricacies, and is particularly frustrating to employers who feel unfairly penalized for disability not entirely caused by their industrial claim.

WorkCompCentral News this morning highlighted the confusion with a story on two similar claims with very different outcomes, likely to cause a bit of consternation to the employer community.

The first case is Acme Steel et al. v. WCAB, No. A137915, where the 1st District Court of Appeals in California rejected a ruling that did not apportion any part of Michael Borman's disability for progressive hearing loss when there was a pre-existing Findings and Award for hearing loss due to a 1993 explosion at work.

Borman had received a stipulated award based on a 22% permanent disability rating for the 1993 injury. As time passed, however, his condition worsened.

Borman filed a claim for benefits asserting he was permanently and totally disabled because his total hearing loss left him without any future earning capacity.

The Workers' Compensation Judge ruled that he was entitled to a Permanent Total Disability award because there was no possible job that could accommodate Borman's difficulty with oral communication and other physical limitations. The WCJ rejected apportionment to Borman's prior hearing loss claim since he had suffered no loss of earnings as a result of that injury.

I will stop the discussion here to pause and reflect on this rationale.

I know that permanent disability is a legal fiction. But that legal fiction has some basis in fact, otherwise it would not become a part of the culture.

That legal fiction is that, at least with regards to why permanent disability indemnity exists for injuries in the 1993 era, there is some diminution in the ability of the injured worker to compete in the open labor market.

Obviously, then, a 22% permanent disability award was incorrect for the 1993 injury, because there was no diminution in Borman's ability to compete for a job since he maintained his job ... for many years, likely getting pay raises along the way.

The definition of permanent disability in California has changed over the years. Now it is supposed to be reflective of a loss of earning capacity. Under this theory, Borman should not have received any permanent disability indemnity for the 1993 injury because there obviously was no loss of earning capacity.

Okay - so we see the folderol of permanent disability. If we accept that it is simply fiction, that it is a concept that is not based on fact, but is simply society's way of placating one who encounters misfortune at the work place, then there should be no problem. Pay and move on.

But we don't accept permanent disability as simply fiction. We ascribe fact to this fiction. And thus, fact must become reality in the long term so one who gets a permanent disability award but successfully continues employed life after a work place incident is seen as dichotomous.

Back to the story - the 1st DCA, in an unpublished decision Tuesday, ordered the WCAB to return the case to a judge for additional proceedings on apportionment since the expert's unrebutted opinion was that the causative sources for Borman's hearing loss could be apportioned between industrial sources and nonindustrial sources.

In other words, substantial medical evidence was ignored at the trial level.

Compared and contrasted in the WCC article was another case that was taken to the California Supreme Court - and rejected.

In Pacific Compensation Insurance Co. v. WCAB (Nilsen), Gregory Nilsen had a significant documented history of treatment for his lumbar spine, degenerative joint disease, chronic pain and anxiety disorder before his industrial injury, but the WCJ reasoned that none of these conditions contributed to Nilsen's total loss-of-earning capacity after a February 2007 workplace accident.

The WCJ ruled that liability for Nilsen's permanent and total disability fell entirely upon Nilsen's employer and its carrier, the Pacific Compensation Insurance Co.

Pacific petitioned up the appellate chain to the Supreme Court without success.

The probable reason (we'll never really know since no appellate review resulted in an explanatory opinion) why there was no apportionment in Nielsen's case was because there wasn't any hard evidence of prior disability - like an earlier Findings and Award as in the Borman case.

The attorney for Nilsen explained to WCC how he distinguished the two cases: "You can have a preexisting disability and then have a new injury which in and of itself creates a total disability, notwithstanding that there was previous disability," he said, "but you have to be able to differentiate the cause of that total disability from the preexisting disability."

Evidence. It all comes down to the evidence, whether it is credible, believable, substantial.

And sometimes even that doesn't count.

In the end, apportionment remains incalculably frustrating for employers despite years of reform attempts to tighten the standards.

Tuesday, July 16, 2013

Attorney Fees and Interests

The lawyer's job is to zealously represent the client's interests to the best of his or her abilities, no matter what "side" it is.

Most people don't get that. Most people feel that a lawyer's representation is indicative or underscores that lawyer's general philosophy, and are surprised if a lawyer in workers' compensation switches sides periodically.

A debate opened up by the Texas Division of Workers' Compensation has lawyers for both claimants and the defense pitted against insurance companies - one of those times where it is graphically demonstrated that the lawyer job is not isolated to what side the lawyer represents.

I'm talking about the matter of getting paid, and what is a fair hourly rate.

The Texas DWC announced an informal rule proposal to change the state's attorney fee caps for the first time in 20 years. Since 199128 Texas Administrative Code §152.4 has set the maximum attorney fee rate in the state's workers' compensation system at $150 per hour and the maximum legal assistant rate at $50 per hour.

Carriers in the state are objecting to any rate increase, which would apply to both defense and claimant counsel. Unlike most states, defense lawyer's hourly rate is also capped. Claimant attorneys fees are also subject to a 25% maximum limitation against income benefits.

There are a number of competing interests in the attorney fee rate debate.

Insurance/employer interests rightly argue that increasing fees paid to lawyers increases lawyer participation, which, ergo, increases claim frequency and severity. Let's face it, when claimants can hire lawyers litigation increases, and generally the amount of indemnity, and sometimes medical care, also increases because a lawyer emphasizing workers' compensation legal practice is going to know the subtleties of the law, the people behind the decision making processes, and how to navigate complex systems.

Those whose primary interest are injured workers argue that artificially restricting attorney fees, claimant or defense, but in particular claimant attorney fees, denies injured workers of adequate legal representation against entities with much greater resources, thus artificially suppressing costs at the expense of individuals who rightly deserve greater benefits but for the inability to navigate the system competently.

And of course the truth lies somewhere in the middle.

Many state work comp systems have fee caps. Some are hourly based, some are contingency based - most however apply only to claimant attorneys. The philosophy is that defense attorneys are a market component that carriers can freely negotiate with against retaining house counsel or competing defense firms.

I was practicing law in 1990. The hourly rate charged by my firm then was around $85 per hour for defense work. Applicant work was 12% of an award, and of course subject to approval by a judge. Over time, until my exit from the active practice of workers' compensation law, the hourly rate went up to $125 for a senior partner - that was in 1999.

So Texas, compared to California, paid relatively well and particularly well if one considered the cost of living in Texas compared to California.

But I think the debate is irrelevant - a cap on attorney fees, or any fees for that matter, simply invites creativity in billing, and of course that begets bill review and adjustment - more expense. At some point capitalism interjects a variable into the equation to generate as much money as possible given any constriction, natural or artificial, for any given particular service.

The debate should not be about what the maximum hourly rate should be for attorneys. The debate should be whether the system adequately compensates legal representation to ensure a balance of representation for competing interests.

In other words, is the fee structure sufficient to ensure that those who need legal representation actually get it? Because lawyers aren't going to participate in the system if there isn't any money in it - and if this acts against the better interests of injured workers who are unfairly, or unreasonably, being denied benefits they are otherwise entitled to under the law, then there is a problem.

Capping hourly rates is simply a red herring. DWC should be asking if there is a problem in legal representation, and if so, what is causing the problem. And if the answer is that there is a problem because lawyers won't participate due to inadequacy of fees, then it's time to examine how to structure appropriate compensation for legal representation in most cases.

This may or may not entail adjustment of the hourly cap.

Regardless, comments received by DWC from both the defense bar and the claimant bar are aligned in seeking some increase in the hourly rate. Lawyers may represent one interest or another, but have the same interests when it comes to the bottom line.

Monday, July 15, 2013

Zurich, DOI and Out-of-State Arbitration

If you're going to do business in California, then you must follow California law.

That's what the California Department of Insurance (DOI) essentially said to Zurich American Insurance Co. and Zurich Insurance Co. of Illinois (collectively "Zurich") who have entered into a settlement agreement with DOI that revokes mandatory arbitration in policy disputes outside of California.

Zurich agreed not to enforce contractual provisions requiring large-deductible policyholders to arbitrate disputes with the carrier in its home state, and Zurich said it will not enter into or amend future deductible agreements with California employers unless the agreement forms have been submitted to the Workers’ Compensation Insurance Rating Bureau (WCIRB) and the Insurance Department, and the forms have not been disapproved.

What sparked this action was the failure of Zurich to file workers’ compensation large-deductible agreements with the DOI or the WCIRB  as required by law. The large-deductible agreements mandated that policyholders resolve all disputes through arbitration in Schaumburg, Ill., where Zurich is headquartered, and use New York law.

The settlement was signed July 9.

DOI agreed not to require Zurich to obtain approval for agreements that are already in effect. It also said that “its rules and requirements regarding deductible agreements will be applied evenly to Zurich and its competitors on a level playing field basis” and that it will approve the terms and conditions in any proposed Zurich deductible agreement or endorsement “that it has been approved for use by Zurich’s competitors.”

For policies already in place, Zurich has waived its rights to require arbitration in Illinois or the application of New York law to those disputes. Arbitration will take place in California, using California law, unless the parties agree to the application of another law or venue.

The waiver will not apply to any dispute that has already been resolved by a settlement or finalized through arbitration. However, for current disputes – defined as any request for arbitration or any issues pending arbitration prior to May 1, 2013 – Zurich will grant a one-time option to adhere to the binding arbitration provisions or to litigate disputes in a California civil proceeding.

This is huge win for companies in California using large deductible agreements.

I'm not a big fan of binding arbitration, particularly if there is an unequal bargaining position between parties. While employers with large deductible provisions are generally going to be well financed, the fact that workers' compensation insurance is mandatory places the employer's relative negotiating strength against carriers in a weak position.

It's no secret that binding arbitration provisions mandating alternative jurisdictions to California are popular because they make it less likely that an employer will pursue a complaint due to costs, and provide an uneven playing fields in other states. In this situation, arbitration would occur in Zurich's domicile using New York law, which is considered favorable for insurance companies.

“Zurich’s practices required California employers to resolve disputes in Zurich’s backyard, under unfavorable law and circumstances and at added expense to employers,” Insurance Commissioner Dave Jones said in a statement. “This settlement gives California employers the opportunity to level the playing field by arbitrating disputes in California, under California law.”

Bravo to the California DOI for doing its job.

Friday, July 12, 2013

IMR Costs

One of the fastest growing costs in workers' compensation claims is cost containment services.

Ironic, isn't it?

SB 863 in California introduced a whole new category of costly cost containment: independent medical review (IMR) and independent bill review.

This morning, WorkCompCentral reporter Greg Jones reviewed the current status of IMR results in a monitor of results to determine if there is any bias.

What he found is that about 65% of treatment requests sent to IMR have been decided in favor of California employers, based on his review of the 124 decisions posted on the Division of Workers’ Compensation website.

This shows an ameliorating trend compared to the last WorkCompCentral analysis of the IMR decisions, which found that in the 26 decisions published as of May 21, the utilization-review determination to deny a treatment was affirmed in 25 of the 34 IMR decisions, an affirmation rate of 73.5%.

But what caught my attention was not the fact that there are still 2 out of 3 requests being denied, but that in this small sampling there were so many failures to supply requested information.

Jones cites at least 3 denials based on failure of the claims administrator to supply medical reports and other information despite repeated requests.

The emergency regulations currently in effect provide that after DWC determines a request for IMR is valid, the claims administrator is required under Regulation 9792.10.5 to send to Maximus documents including:
  • All treating physician reports regarding the employee within one year prior to the date of request for authorization.
  • All reports and records of the employee’s medical treatment that are identified in the request for authorization in the UR determination.
  • A copy of the UR determination.
  • A copy of all information provided to the employee concerning the UR decision.
  • A copy of any materials the employee or employee’s medical provider submitted in support of the request for authorization.
  • A copy of all other relevant documents.
The division also allows the employee or a designee to submit to Maximus the treating physician’s recommendation or other information indicating the disputed medical treatment is necessary and any newly developed or discovered medical records that are relevant to the treatment being disputed.

Additionally, if Maximus asks for additional information, the DWC says the party “must send the requested information to Maximus with concurrent service on all other parties within five business days of a regular review or within one calendar day of an expedited review.”

Emergency rule 9792.12(a)(23) provides for mandatory fines of $250 for each day that a claims administrator fails to provide a copy of all reports of the employee’s treating physician for the past year, up to a maximum of $5,000.

Jones notes that in one case, IMR Decision 13-35 overturned a UR decision denying a Salonpas patch on the grounds that it is recommended by both the American College of Occupational and Environmental Medicine and the Official Disability Guidelines. The patches sell for $10 online and can be picked up in retail stores for about $15.

In this case, however, the employer will end up paying for the requested medication, as well as the $350 cost for utilization review and another $560 for IMR.

I have two observations:

1. Is DWC serious about fining non-compliant claims administrators? If so, then we should see some publication of such enforcement action so the rest of the community "gets it."

2. How much is IMR going to add to the expense of "cost containment"? My prediction - like bill review, utilization review, and all of the other reviews out there, this is just another cottage industry expense that ultimately will increase overall costs with minimal impact, if not a negative impact, on quality in claims management.

Thursday, July 11, 2013

Just The Way It Is

Workers' compensation is a statutory creature, created by special interest factions representing various elements of society in a politically negotiated manner for whatever may benefit any particular group of similarly situated constituents.

When all is said and done at the end of the day, workers' compensation simply works the way it is intended by those responsible for putting the language in the books.

There may be details that get overlooked, "loopholes" that allow some previously unanticipated activity, but overall the system operates as intended the vast majority of the time.

That is, employers pay into a risk allocation system that finances as efficiently as humanly possible the distribution of resources for medical care and income support to the few employees that sustain injuries or incur disease on the job.

Employers complain that it costs too much. Workers subject to the system complain that they don't get enough when they need it. Vendors complain that they are underpaid and under-appreciated. Insurers complain about compliance and complexity. Administrators complain that legislators don't appreciate the difficulty executing the laws.

That's just the way it is.

And the other 99% of the voting population doesn't care. They just want their football. Or baseball, basketball and hockey, as it may be.

Which of course leads us back to the national trend of limiting the rights of certain professional athletes to pursue workers' compensation claims, particularly in California.

Business loves California because it is such a huge economy. A lot of people with a lot of money live in California and that simple fact makes the state nearly irresistible to many businesses.

So business either imports goods and services to the state, which of course requires some sort of logistics and/or distribution system (typically employing people in California either directly or indirectly) or requires establishing operations in California, likewise engaging in employment activity in the state.

Which means that there is exposure to California law.

California law irritates a lot of people. Some complain it is too liberal. Some complain that it is too sloppy. Some complain that it is too complex.

When California law irritates enough people with enough money and power then there is pressure to change the law to fit the interests of those complaining, regardless of the impact on other interests, regardless of the logic or philosophy or culture of the state.

That's just the way it is.

AB 1309 is one of those laws. It is the California professional athlete workers' compensation constriction bill sponsored by Assemblyman Henry Perea, D-Fresno. This is the bill that would limit the ability of football, baseball, basketball and hockey players to seek redress for claimed continuing trauma injuries in California unless the athlete can prove some minimal connection, as defined by the bill, with the state.

The bill is progressing nicely through the legislature with the Senate Committee on Labor and Industrial Relations on Wednesday unanimously passing an amended version of the bill.

The amendments seek to clarify its operation and application.

Professional sports businesses support the bill. Professional athletes and employees oppose the bill.

And the vast majority of citizens, including lawmakers, really don't care.

That's just the way it is.

Public service unions typically have had a lot of power in the California legislature which is why there are workers' compensation laws granting presumptions in favor of law enforcement and fire fighting occupations.

Professional sports player unions don't have that kind of clout.

At this point in time in history, professional sports businesses have the legislative power and momentum to secure their interests into law, riding on the coattails of Big Business' success with SB 863.

I have no doubt in my mind that AB 1309 will be law. The bill's ultimate shape and form may still be tweaked, then it will be subject to the interpretive forces of the judiciary.
The workers' compensation industry, the carriers, administrators, vendors, will respond as best it can with the tools provided.

And we will move on to the next special interest demand seeking to address some other complaint because the system doesn't work the way they want it to.

That's just the way it is.

Wednesday, July 10, 2013

Lawyers, Guns and Money

One of my cycling buddies I was chatting with in the peloton the other day mentioned that he has finally amassed what he deemed a sufficient collection of various firearms.

As you likely know, the threat of greater gun control, the hysteria created by the Sandy Hook (and other) mass shootings, and just media releases by gun control/rights zealots, has created a "hard market" for firearms and ammunition.

A lot of people who are afraid guns might be difficult to acquire in the future have created a sharp demand for these articles. And of course guns are made to be fired, so shooting ranges are also seeing boom times along with big increases in ammunition sales.

According to the Federal Bureau of Investigation, more than 16.8 million background checks for gun purchases were recorded in 2012, the highest number since the agency began publishing the data in 1998. According to the National Shooting Sports Foundation, firearm retailers have been reporting a 20% to 25% increase in sales in the past few years, driving up utilization of both indoor and outdoor shooting ranges.

Isaac Newton's third law of physics is applicable to workers' compensation. To paraphrase - for every economic action, there is an equal and opposite workers' compensation reaction.

So it seems that in the gun world, the current boom in sales is being countered with a shortage in available workers' compensation coverage.

Specialists in firearm business coverage note that political pressure and anxiety surrounding gun-related accidents are a big part of the reason carriers are not eager to write comp for shooting-sports establishments despite the fact that the industry has excellent loss experience because they are typically manned by highly skilled professionals and have very low incident rates.

“My book of business now is less than a half-percent loss ratio on my work comp on my shooting ranges – a half percent. There is not a work comp company out there that will not die to have a half-percent loss ratio on their book of business. That is a profit margin that everybody would want to have,” Scott Wilson, president of Chesterfield, Mo.-based Best Shot Insurance, a division of Charles L. Crane Agency, told WorkCompCentral.

A few days ago I posted some questions and comments about the role of brokers and commissions in workers' compensation. One of the roles is just finding insurance; understanding the industry and business risk, pitching the acceptability of that risk to a carrier, and creating programs to service the industry in order to maintain risks within acceptable parameters to the carrier.

The current gun fad demonstrates this broker role in the system.

Chuck Holdren, president and chief executive officer of Holdren Group,whose Oregon-based agency places workers’ comp for indoor and outdoor gun ranges, sporting clays, skeet and trap fields, archery clubs, public or private ranges and clubs, as well as stand-alone retail gun stores and upland bird-hunting operations, started his agency in 2010 because he saw a market opportunity.

Holdren found that it took a lot of education on the part of carriers to understand and accept the misunderstood risk of covering gun related businesses.

According to Holdren, more than 90% of shooting sports operations are insured for workers’ compensation by state funds or assigned risk pools.

Other forces beyond not understanding the risk are at work too - such as reinsurance treaties that bar primary carriers from insuring shooting-sports operations.

In our workers' compensation professional lives, we focus so much on claims (aka losses) because that's where the action is. Losses define risks, and insurance is about spreading the risk to minimize impact on a single insured.

The many nuances of workers' compensation reflect the broad, diverse economy of this nation. I'm always amazed at how uniquely this industry responds to the needs of the economy.

Tuesday, July 9, 2013

TX G-Code Billing A Surprise

Texas is getting a lesson in state independence.

Like many workers' compensation systems, Texas has tied its medical treatment reimbursement schedule to Medicare's schedule.

The Texas Division of Workers' Compensation issued a memo on June 17 that its medical fee guidelines require the use of Medicare billing policies and it was legally required to implement the Centers for Medicare and Medicaid Services' new rule requiring physical therapists, occupational therapists and speech pathologists to use "G-codes" on their medical bills.

That new rule took effect on July 1.

Texas providers are concerned that, because some providers don't bill Medicare they will need to pay for expensive upgrades and may be forced to resort to paper billing in the interim before billing systems are compatible with the Medicare billing rules.

Mary Daulong, the chairman of the payment policy committee for the Texas Physical Therapy Association, told WorkCompCentral that physical therapists who specialize in Medicare patients had plenty of notice to prepare for the requirement and recently completed a six-month trial period that ended on June 30.

Conversely, physical therapists who specialize in workers' compensation patients did not anticipate having to comply with the requirement, because they believe that the G-codes are largely unrelated to workers' compensation, she said. As a result, the DWC memo requiring use of the G-codes in the Texas workers' compensation system came as a surprise to some physical therapists.

Because of the late notice, physical therapists who specialize in workers' compensation patients may have billing software that is incapable of plugging the G-codes into a bill. Physical therapists with incompatible software would need to modify their systems to comply with the rule and may have to resort to paper billing until they do.

The software upgrades are being estimated at between $10,000 to $80,000 - that's a lot of dough for a small business like most physical therapy practices.

The Texas DWC could choose to closely audit and punish providers and payers who do not comply with the G-code requirement. DWC would not comment to WorkCompCentral whether it intends to strictly enforce compliance, stating only that, "The memo posted on June 17 correctly states that the new CMS billing and reporting requirements became effective July 1, 2013, and as a result, also apply to services furnished on Texas workers’ compensation claims on or after July 1, 2013."

The question is applicable to payers as well as providers - payers also have to process these bills in a timely manner according to the law to avoid penalty.

The Insurance Council of Texas is warning carriers to prepare for an increase in paper billing and to ensure that systems are prepared for, and people educated about, G-code billing.

So there you have it - tightly integrating one system into another can pose problems when the law dictating that integration is interpreted inflexibly.

Whether or not this particular problem escalates into a systemic issue depends upon the level of cooperation of two, generally, disparate factions: providers and payers.

Trey Gillespie, senior workers' compensation director of the Property Casualty Insurers Association of America, commenting on the issue to WorkCompCentral said, "The desire on everybody's part is that timely services will be provided and paid for."

If that theme indeed carries through, then this is much ado about nothing other than playing out another scene in the screenplay for "Unintended Consequences."

Monday, July 8, 2013

Commissions, Comp and Quantum Theory

A friend of mine, Bill Cobb asked about brokers and commissions in workers' compensation the other day.

Pointing to data from the Workers' Compensation Insurance Rating Bureau he noted that the rate of the commissions have varied greatly as well as the gross amount of commissions paid.

­Brokers were paid about $1.37 billion in 2004 and $941.6 million in 2012.

At the same time, the rate of commissions has varied widely as well – ranging from 7.9% in 1999, to a low of 5% in 2005, maxing out at 8.2% in 2011, and settling at 7.8% in 2012.

Bill had some questions. In a regulated market, where work comp insurance is mandated, why pay the brokers a commission at all? And, what does a broker do to earn the commission – what services do they provide? And why do the rates and gross amounts of commissions vary so much?

So I called up another friend, Don Chambers, CEO of brokerage Colonial Western Insurance Agency in Camarillo, CA (near WorkCompCentral luxuriously appointed world wide headquarters).

Don explained that virtually all carriers distribute their product, insurance, through brokers. The direct model doesn't seem to work for employers with more than just a couple of employees. So, in the first instance, brokers produce the market for carriers - they are a necessary market intermediary to enable the distribution of insurance product to the consumer, i.e. employers.

Brokers analyze the risk and exposure of an employer and then match up those characteristics to certain, appropriate carriers. Don explained that not all carriers will take just any business; the appetite for risk is different between different carriers with the carriers having different expertise in certain risk categories or having certain levels of comfort for expanding into new categories. The broker needs to know the employer's risk and be able to match that risk to the correct carrier.

The broker also analyzes an employer's losses, serving as the advocate for the employer in reviewing individual losses, claim activity, loss payments, return to work processes, etc. as against the carrier's claim management. It is the broker's oversight that helps to ensure a lower experience modification factor, if the broker is doing its job in advocating for the employer during reviews with the carrier claims staff.

The broker, in the same instance, provides an analysis of the flow of losses; i.e. safety controls and loss controls. This is different from what carriers do; while carriers may provide some safety consulting, their services are not focused on changing behavior at the employer level - i.e. analyzing and finding out and implementing strategies to correct the underlying reason for the safety/loss lapses.

Don also explained that brokers review unit statistical filings for employers. While carriers report what's on the books, the broker wants to know why a claim was not closed because the only true way to save an employer money in the long run is to control the experience modification factor.

How about the fluctuations in commissions? Don said that commissions depend heavily on the availability of coverage and the flow of the market. Look at the graphic above and you will note that during the "hard market" in the early 2000s, when California experience a shortage in capacity, commissions shrank in both rates and gross payments. When an insurance market constricts, as it dramatically did during that period of time (i.e. carriers not taking business) then commissions shrink as well - this is because carriers don't want brokers bring them business to write.

On the other side, though, when times are good and carriers want to write more business then commissions are more generous.

Bill noted that the almost $1 billion brokers were paid in 2012 is neutral to the economy. The carriers mark up the premiums to cover the commission. The employer rolls the cost of the premium into the cost of his goods and passes it on to the public. The brokers spend that money in the economy. So, in the long run it is just a re-distribution of wealth – take from one group, give it to another group, who eventually spends it on the first group.

Macro-economics aside, Bill said, it’s important for the public to understand that almost $1 billion (almost 8%) of the cost of work comp premiums are going to a group of people that service the employers as their representative to the insurance carriers.

Bill's take away from his foray into broker commissions are really applicable to nearly any business. They are:

1. Cannibalize your industry before someone else does. Rip out all the costs and return them to the customer – think Charles Schwab, Amazon, and Expedia.

2. Outsource to the customer. Let them perform all the administrative tasks. Not only does this cut administrative costs, it gives the customer more control and satisfaction.

3. Create learning interfaces. Show them how to manage their own accounts.

4. Give away as much information as possible. An educated client is, by far, much easier to handle and profitable to deal with.

So there you go - another little lesson in workers' compensation dynamics. And you thought quantum mechanics was interesting.

Wednesday, July 3, 2013

Sports Fans - Don't Stipulate in California

In many workers' compensation litigated disputes, much of the factual issues are stipulated because the legal issues are so limited.

But sometimes a stipulation will work against a party when the existing law is shifting in scope and context.

One of the noted trends sweeping the workers' compensation world is the constriction on professional athletes taking their cumulative trauma claims to California for adjudication despite minimal physical contacts to the state.

The National Football League has been aggressively seeking legislation in key states to impose jurisdictional limitations and the California Workers' Compensation Appeals Board (WCAB) this year issued two en banc decisions turning away football players who sought to bring cumulative trauma claims in California.

In fact just two weeks ago, the WCAB issued an en banc decision in which it found it did not have jurisdiction over a cumulative trauma claim by Wesley Carroll, a wide receiver who had played for the New Orleans Saints and Cincinnati Bengals, even though Carroll was time-barred from bringing a claim in Ohio.

The WCAB in that decision ruled that California's workers' compensation laws could not govern a claim by an employee who was hired outside of the state and who was only temporarily within the state to perform work for an employer.

But the WCAB ruled against the New York Knicks in asserting jurisdiction over a claim brought by power forward Jerome Williams to adjudicate his claim in California. The Knicks filed an appeal with the 4th District Court of Appeal, Division 3, on Monday.

There was debate about the Williams case in the applicant attorney circles - some stating that the WCAB was sending a mixed message.

But there isn't any mixed message - the WCAB was simply following the facts of the case as stipulated by the parties.

And one of those facts that the Knicks, rightly or wrongly, stipulated to was a continuing trauma injury in California:

"Defendant Federal Insurance Company, the insurer for the New York Knickerbockers, petitions for reconsideration of the September 17, 2012 Findings and Orders. In that decision, the workers' compensation administrative law judge (WCJ) found that the Workers' Compensation Appeals Board (WCAB) has jurisdiction over applicant's claim and that applicant was a professional athlete, occupational group 590, for purposes of compensation. The parties had stipulated that applicant sustained an industrial injury to his back, neck, shoulders, knees, right elbow and right foot from 1996 through April 20, 2005." [Emphasis added.]

In fact, the WCAB simply adopted the WCJ's report and recommendations on reconsideration because there was no dispute on the salient facts. The WCJ's report states:

"The relevant facts are not in dispute. Applicant Jerome Williams was a professional basketball player who played for four NBA teams from 1996 through April 20, 2005, most recently the New York Knickerbockers (Knicks) from November 8, 2004 through April 20, 2005. Applicant filed an Application for Adjudication alleging multiple injuries as a result of cumulative trauma throughout his career. Applicant was never hired in California and played his entire career with Eastern Conference teams. He currently lives in Nevada and has never resided in California. His agent was based in Washington, D.C. Applicant's only contacts with California, and his sole basis for asserting California jurisdiction, were 24 games played in California during his nine-year career, including three games in California during his final season with the Knicks. (Report, p. 2.)"

It is emphasized again in the WCAB's opinion that the "parties stipulated that applicant sustained a cumulative industrial injury to his back, neck, shoulders, knees, right elbow, and right foot from 1996 through April 20, 2005 at various locations in California."

There was dispute about some other body parts.

"At trial, defendant stipulated to industrial injury in California. (Citation.) Although defendant argues incorrectly that the de minimis standard precludes jurisdiction, it concedes that applicant sustained 'mictrotraumas' in California which contributed to his cumulative injury. (Citation.) The WCJ therefore properly exercised jurisdiction over applicant's claim." [Emphasis original.]

The WCAB also noted that there was no forum selection clause governing industrial injury claims.

The WCAB did its job correctly in the Williams case. If the defendant didn't feel that there was an injury in California, microtrauma or not, it should have not stipulated to such.

But it did and as a consequence, based on long standing, well established California law, jurisdiction was asserted.

I doubt the Court of Appeals will find differently.

Tuesday, July 2, 2013

CIGA and Competing Public Policies

I'm sure that the good people that work at the California Insurance Guarantee Association (CIGA) are busy folks, but someone there needs to get a good diary system to avoid losing meritorious cases on procedural lapses due to expiration of time limits.

Follow these facts and let me know if you don't agree that CIGA has some file management issues.

JoAnn Lutz suffered industrial injuries in 1999 and 2000 while working as a personal assistant and caregiver for Linda McDonald, one of the owners of Roto Rooter. Lutz injured her right shoulder, neck and back, as well as the right side of her head, right upper extremity and right lower extremity in both accidents, which involved falls at McDonald's home.

The Paula Insurance Co. and the Fremont Insurance Co. carried coverage for Roto Rooter at that time, and State Farm provided homeowners insurance to McDonald.

Paula, Fremont and State Farm stipulated to the compensability of Lutz's injuries in 2002, and State Farm agreed to contribute 25% of the benefits payable to Lutz.

Paula and Fremont, however, were liquidated shortly after the agreement, and CIGA assumed liability for their covered claims.

Under the Insurance Code, CIGA is liable for "covered claims" of insolvent member insurers, but code Section 1063.1(c)(9) says the phrase "covered claims" does not include any claim to the extent it is covered by any other insurance policy.

In September 2003, CIGA petitioned to be relieved from the obligations incurred by Paula as part of the stipulated award since Paula had not provided workers' compensation coverage for residential or domestic employees of Roto Rooter.

Though State Farm opposed the petition, the parties took no further actions related to CIGA's petition.

Five years later (what caused this to happen?), CIGA filed another petition to be relieved of its obligations to Lutz, and that request was heard by a workers' compensation administrative law judge on April 4, 2008.

The judge denied CIGA's position, concluding that the WCAB lacked jurisdiction to rescind or alter the stipulated award because more than five years had passed from its issuance.

No party appealed from or sought reconsideration of that decision.

In June 2008, CIGA again sought to discharge its liability, asserting that State Farm's policy to McDonald provided "other insurance" to cover Lutz's claim. A workers' compensation administrative law judge rejected CIGA's motion, ruling the nonappealed April 2008 decision had become the law of the case.

CIGA petitioned the WCAB for reconsideration and removal of the judge's ruling, but the board denied CIGA's petition in September 2009. Again, CIGA did not seek judicial review of that decision.

In January of 2010, CIGA proceeded to trial on Lutz's claim of permanent disability, future medical treatment, a lien claim by the Employment Development Department and other related issues.

The workers' compensation administrative law judge determined that Lutz had a permanent disability of 39% and ordered CIGA to pay for her future medical treatment.

CIGA sought reconsideration, arguing again, that State Farm should be jointly liable for all the benefits due to Lutz.

The judge recommended that reconsideration be granted in part to correct certain miscalculations he had made in the amount of permanent disability and to eliminate CIGA's obligation to reimburse the EDD. However, he recommended denial of CIGA's reconsideration petition in all other respects.

The WCAB adopted all of the judge's recommendations, and once again, CIGA did not seek judicial review.

In April 2011, CIGA filed a declaration of readiness, renewing the issue of reimbursement. A workers' compensation administrative law judge held a hearing and then denied CIGA's request for trial of its claim for reimbursement and/or contribution from State Farm.

The judge found that the respective liabilities of the parties had previously been finally determined and could not be "relitigated by way of seeking contribution or reimbursement."

CIGA then petitioned the WCAB for reconsideration, and this time, curiously, the WCAB reversed.

The WCAB reasoned that the 2002 stipulated award did not change State Farm's joint and several liability to Lutz "because agreements between employers and/or their insurers cannot diminish or eliminate an applicant's right to recover benefits from the employers and insurers that are jointly and severally liable for the injury."

The board further posited that when Fremont and Paula became insolvent, State Farm became "available" to Lutz as "other insurance" under Insurance Code Section 1063.1(c)(9).

Finally, the WCAB concluded that there was no basis for denying CIGA's petition for reimbursement on the grounds of res judicata or collateral estoppel, since there had been no earlier final decision on CIGA's petition to obtain reimbursement from State Farm.

Well, at least CIGA was persistent. But persistence in the face of procedural rules and limitations on time only go so far, as it found out when State Farm petitioned for writ review in April.

On appellate review, the 2nd District Court of Appeal (DCA) determined that CIGA's entitlement to reimbursement was expressly raised in the proceedings in 2008, 2009 and 2011. Since CIGA did not seek judicial review after adverse decisions were returned, the court said those decisions were final and conclusive.

Thus, "CIGA is barred by res judicata from relitigating its right to reimbursement," the court said.

The 2nd DCA acknowledged the public policy behind the Insurance Code's limitation on CIGA's liability, but it said that this public policy could not outweigh the public policy interests in an expeditious and inexpensive system of workers' compensation as well as the importance of there being an end to litigation.

The case is State Farm General Insurance Co. v. WCAB (Lutz), No. B240742, 07/01/2013, unpublished.