Friday, August 30, 2013

The Sensitivity of Exclusive Remedy

I got a LinkedIn post notification yesterday that gave me some pause for concern...brief pause.

The LinkedIn post referenced an article that was authored in large part to promote a company's product for baseline testing, but used the threat of the possible demise of workers' compensation's exclusive remedy in the threat of several RICO lawsuits that had been making the rounds in the country.

RICO, as you may know, is the Racketeer Influenced and Corrupt Organizations Act and was made law way back when I was a young lawyer so that government and private parties could take gangsters to court and civilly remove the fruits of their corruption.

But the law was broadly drafted and soon was being used against "ordinary" citizens and businesses who ran afoul of its conscriptions.

The article said that the exclusive remedy of workers' compensation faced compromise because of the ability to pierce that protection where it could be shown that there was collusion between, for example, an employer, a carrier and a physician to deny benefits to a claimant.

Curiously, and quite surprisingly, it was announced yesterday that the National Football League has entered into a huge settlement to provide compensation to players that have demonstrated evidence of brain injury.

Under the terms of the proposed agreement between the parties, $675 million will go to the players and their families if the player presents medical evidence of severe cognitive impairment, dementia, Alzheimer's, or Lou Gehrig's disease.

Any of the league's approximately 18,000 former players would be eligible for an award, but the size of that award will depend upon the player's specific diagnosis, as well as other factors, including the player's age, the number of seasons he played in the NFL, and other relevant medical conditions.

If a retired player's condition worsens over time, he can apply for a supplemental payment.

The settlement also allocates $10 million toward medical, safety, and injury-prevention research. A portion of this amount will be used to support joint efforts by the NFL and retired NFL players to promote education and safety initiatives in youth football.

The rest of the money will go towards the cost of administering baseline medical exams to the players, legal fees, and the costs of administering the settlement.

I thought this was entirely interesting.

So what gives? Is the exclusive remedy of workers' compensation dying?

I don't think so. There have always been exceptions.

The RICO cases basically deal with criminal conduct - if parties to workers' compensation claims collude illegally to deny benefits then certainly they can not escape penalty by hiding under the veil of exclusive remedy. That has been the state of the law for some time. RICO or no RICO.

The NFL settlement could be more problematic relative to exclusive remedy, except for the fact that the NFL is NOT the employer of the players. Workers' compensation applies only to the teams that employ the players.

So there is no exclusive remedy threat there either.

I think that what these two stories have in common is that there are still many pitfalls for business other than workers' compensation. While work comp is a concern to business, there are a multitude of larger, more serious risks to manage that some workers' compensation issues.

The NFL settled the case before the discovery process, which in my mind is quite telling. Three quarters of a billion dollars committed before any interrogatories, any medical testimony, any reports, any depositions?

Perhaps the NFL and its teams were afraid of some RICO action themselves.

Or perhaps the NFL doesn't want to wait to find out what a jury thinks.

Regardless, from my vantage point, the exclusive remedy of workers' compensation has become stronger over the years.

While it seems that the legislative trend across the nation is to make qualification for workers' compensation benefits more difficult, once a claim gets into the work comp system, or it is determined that it should have been in the work comp system, it stays there.

The cost of workers' compensation is always going to generate debate, and there will always be friction due to the many moving parts.

By the same token, the premium dollar buys a good amount of risk management - the risk of getting side blinded by a big negligence suit is hugely ameliorated.

We tweak work comp from time to time seeking to curb abuses, rein in certain costs, smooth out the trends - but we can count on the century-long concept of exclusive remedy to stay the course.

Exclusive remedy isn't dying. We're just more sensitive to it now.

Thursday, August 29, 2013

Cost Shifting vs. Cost Fixing

There have always been allegations of cost shifting either to or from workers' compensation and general health. Now Massachusetts is going to study just whether or not this is true, and if so, by how much.

The Massachusetts Department of Public Health is expected to release a report to the state Workers' Compensation Advisory Council in October or November on practices that regulators warned last May may be shifting costs from workers' compensation carriers primarily to MassHealth and to some private health care providers.

The alleged problem seems to be three-fold:

  • Employers pressure workers not to report injuries as job-related.
  • Employees use private insurance because of fears they will lose their jobs or suffer some form of retaliation for filing a workers' compensation claim.
  • Some doctors check for secondary insurance and send out bills to all carriers to ensure they get paid.

  • At a meeting of the Advisory Council last May, Massachusetts Department of Industrial Accidents Deputy Director George Noel said the regulatory agency had indications that some workplace injuries are being processed through MassHealth and that community health centers reluctant to accept workers' compensation claims are shifting cases to "other places."

    Mickey Long, a member of the advisory council and an attorney for the Massachusetts AFL-CIO, said "There are an increasing number of anecdotes going back a decade involving contractors, where a worker is told by the owner of a company to handle the claim through their health insurance," Long said. "If the contractor can avoid workers' compensation claim, then the contractor is going to have a lower mod rate."

    I know we've been down this road before: universal care, 24 hour care, one-stop care. Whatever you want to call it, concerns of cost shifting would not occur if there were a single source for medical benefits, regardless of causation of injury or incurrence of disease.

    There are many, legitimate, arguments against universal care - probably the most compelling argument is that our federal laws are prohibitively complex and full of traps discouraging development of such plans.

    California under the leadership of then Insurance Commissioner John Garamendi studied the issue, but plans ran out of steam before he moved on to other political positions.

    Massachusetts is a compelling study because that state's general health plan was essentially the model for the Affordable Care Act, aka derisively ObamaCare. But there was no integration between workers' compensation and general health care.

    Some Texas non-subscribers provide for universal care in ERISA sponsor plans, but then again, that's not workers' compensation. And while single-source, universal care is expensive, the successful Texas employers get better medical and claim control while employees enjoy largely hassle-free care for themselves and their families.

    It just seems to me that cost shifting is a distraction to the real problem that we just can't seem to get a handle on: who is paying takes precedence over the care that needs to be provided.

    Listen, I understand that - I don't like paying for something that isn't my problem any more than anyone else. At some point in time, though, in the national debate about health care, we have to come to terms with the reality that there are areas where our inefficiency costs more than just paying the damned bill.

    But this is a hugely emotional topic, which means there are no easy answers and there is always going to be someone dissatisfied.

    Wednesday, August 28, 2013

    November Determines CA Savings

    Whether or not California workers' compensation payers will realize the savings predicted by proponents of SB 863's lien management techniques, and ergo, whether lien claimants will know whether or not they have an Hades chance, likely will come about in November.

    That's because plaintiffs and defendants in the federal lawsuit challenging the lien activation fees will request the judge, variously, for either a dismissal of the lawsuit or a preliminary injunction bringing lien fee enforcement to a halt.

    WorkCompCentral yesterday received a fax from the parties of a stipulation dismissing Gov. Jerry Brown and Attorney General Kamela Harris from the suit and acknowledging that they have nothing to do with the regulatory enforcement of SB 863.

    The stipulation, more importantly, sets forth key dates for management of the case:
    • The defendants will answer the complaint by Sept. 12.
    • Attorneys representing the defendants will file a motion to dismiss the lawsuit on Sept. 13.
    • The plaintiffs will file a response to the motion to dismiss on Oct. 3.
    • Replies to the brief in opposition to dismissal and a motion for a preliminary injunction to halt collection of the lien-activation fees will be filed on Oct. 17.
    • A hearing on the motion for a preliminary injunction and the motion to dismiss will be held on Oct. 31.
    The stipulation filed Tuesday leaves Department of Industrial Relations Director Christine Baker, Division of Workers' Compensation acting Administrative Director Destie Overpeck and Workers' Compensation Appeals Board Chairwoman Ronnie Caplane as defendants in the suit.

    The suit was filed by Angelotti Chiropractic, Mooney & Shamsbod Chiropractic, Christina-Arana & Associates, Joyce Altman Interpreters, Scandoc Imaging and Buena Vista Medical Services.

    This case will determine if there are really any savings in SB 863. I've heard the arguments on both sides and, frankly, the ball is up in the air.

    The plaintiffs say that the government is instigating an unconstitutional taking of property. There is some merit to this argument, but the first thing that needs to be evaluated is whether workers' compensation liens in California are a vested property right.

    If it is found that they are not, then the case is a loser.

    But if liens are found to be vested property rights (and at what point in time do they become "vested"?) then the defendant's argument, that the government can do whatever it wants to do regarding workers' compensation because work comp is a product of legislative desire with no common law attribution, will have to be decided.

    And I'm not so sure that is a winning argument in the face of vested property rights.

    In the meantime we already know that the cost of medical treatment is going to go up over the next few years as the administration implements the change to a Resource Based Relative Value Scale even though the California Workers' Compensation Institute recently found that there has been a slight decline in medical costs over the past couple of accident years.

    All of this uncertainty is exactly NOT what California business needs. Business and financial planners like to know what the future holds because budgets can be more accurate and executives can figure out whether there's going to be enough cash to pay the bills and maybe even some dividends and distributions.

    Uncertainty creates anxiety.

    The meteoric raise in premiums in the early 2000s that precipitated SB 899 caused consternation for California business, not because of excess cost, but because of excess RELATIVE cost; there was no ability from one year to the next to predict or understand what the cost of insurance was going to be.

    Keep your eyes on November when the Honorable Judge George H. Wu should issue his ruling on plaintiff's request for a preliminary injunction. If it in fact issues, the likelihood of a permanent injunction is great - it is my understanding that statistically in government interdiction cases that when a preliminary injunction issues 92% of the time a permanent one follows.

    In my mind, then, the proponents and opponents of SB 863's lien management provisions should sit down and figure out a reasonable compromise so that California can go about with its business with some certainty.

    Tuesday, August 27, 2013

    Not The Average Case

    The workers' compensation system "efficiently disposes of the average case," claimant attorney, John Gibson, of Lubbock, told the Houston Chronicle. However, he said, "the system is not set up to take care of the more significant medical issues. The worse the injuries, the more hurdles there are, instead of the other way around."

    Gibson was interviewed for a story about former Harrison County deputy sheriff Mike Freeman.

    Freeman was gravely injured in a June 2007 high-speed chase. Due to alleged delays in his medical care, his condition deteriorated to the point that he is on a ventilator and the family is preparing for his death.

    Gibson has sued the third party administrator in civil court on the grounds that they have a pattern of routinely denying or delaying required care and as a consequence induce needless suffering on those workers' compensation claimants with serious injuries.

    We've seen that story before in other states.

    Not coincidentally, in other news, a New Mexico appellate court last week ruled that the widow of an off-duty tribal police officer who died more than a decade ago after he rescued a child from the Rio Grande river is entitled to workers' compensation benefits.

    "Because of the unique nature of law enforcement duties, we conclude that law enforcement officers may recover workers' compensation benefits in some instances for off-duty injuries occurring in response to circumstances reasonably calling for police officer assistance," the court said.

    Kevin Schultz took Aug. 17, 2002, off of work in order to chaperone a church youth group fishing trip near the small community of Pilar, which is outside the boundaries of Pojoaque Pueblo lands. His wife and two other adults also came on the trip.

    A 12-year-old boy from the group fell into the fast-moving waters of the Rio Grande, and Schultz leaped into the river to save him.

    After pulling the unconscious boy to safety, Schultz collapsed in shallow water and drowned.

    Though he was off work, the Schultz family was told by numerous officials of various agencies that they would do all they could to secure workers' compensation death benefits for the family since Schultz received accolades, commendations and awards, posthumously, for his heroic act "in the line of duty."

    Despite these promises, officials failed to take care of the filing in a timely manner, and other delays ensued because Schultz' wife relied on the promises of these officials. She ultimately took care of the claim herself but had to overcome various procedural and substantive arguments related to statutes of limitation and compensability.

    After going to the state Supreme Court, which remanded back to the Court of Appeals finding for Schultz on AOE/COE the appellate court overrode earlier rulings denying the claim.

    "Given the unique nature of law enforcement duties, including the fact that in some circumstances an off-duty police officer may be required to respond in an official capacity to incidents arising in the officer's presence, courts have struggled with determining the compensability of off-duty police officer injuries using traditional interpretations of the 'arising out of and in the course of employment' test," Judge Cynthia Fry said, in writing for the court.

    I remember Alex Rossi, risk manager for Los Angeles County, explaining to attendees of the annual California Workers' Compensation Institute meeting in 2012 several years ago that managing the risk of first responders is much different than for private enterprise.

    Paraphrasing Rossi, when there's a fire privately employed employees run away. In public safety, when there's a fire, employees run to it.

    Which is why many states have various laws with presumptions in favor of public safety workers.

    Society has determined through its laws that those in the first line of emergency response get special treatment.

    That philosophy needs to be carried through to claims administration.

    Sure, there's always someone trying to take unfair advantage of the system - understandably those cases will be vetted, reviewed, denies properly, etc.

    But there seems to be this overall theme that has developed over the past decade or so of deny first, until later reversed. There's seems to be a lack of sensitivity to the social promise.

    In the Freeman case, no lawyer was necessary until the TPA cut off supplemental income benefits because his wife missed filing paperwork with it on time. In fact the paperwork was filed timely but the adjuster failed to notify Freeman's wife that the fax number had changed...

    In the meantime, Freeman's serious injuries degraded to the point of numerous surgeries and hospital trips. Almost universally his various physicians prescribed specialize powered wheel chair, and bed, so that he wouldn't develop bed sores and require further hospitalization.

    Those recommendations didn't pass utilization review so they were denied.

    And Freeman ended back in the hospital, some 30 times.

    Now he's on a ventilator awaiting death.

    And in Schultz' case the widow was assured, not only by his direct employer, but also by various other governmental officials, that his death would be covered.

    Until the matter got to the TPA. Then all bets were off and if it wasn't for the dogged efforts of Schultz' widow for over 10 years that she will get some closure.

    These are both tragic circumstances, made unnecessary by insensitive claim handling.

    Some call for stronger penalties in the wake of reforms that have shifted the balance of power.

    Others call for better training and oversight.

    Some say that these are just aberrations.

    Regardless, Gibson has a point - workers' compensation remains pretty efficient at dealing with routine injuries.

    But we need to get better at dealing with the tragic, catastrophic situations.

    Monday, August 26, 2013

    ACA's Impact on Comp - Lessons Learned

    “You can be afraid of the health care regulation that is going to take place or you can take advantage of it," Dan Cacchione, senior vice president at AmTrust Underwriters, told audience members at the 68th Annual Workers' Compensation Educational Conference in Orlando last week.

    A session was held on the Affordable Care Act at the conference sponsored by the National Association of Professional Employment Organizations.

    Indeed, the ACA was a topic in several sessions at the conference, and most of the time the content was speculative on how the ACA was going to affect workers' compensation.

    And most of the time the answer was resoundingly uncertain. A wait and see attitude on whether there would be cost shifting, physician shortage, or healthier workers seemed to be what was on the minds of various presenters.

    But some executives were much more proactive and looking at how they could leverage the ACA for benefits to both injured workers and employers.

    One Chief Claims Officer that I spoke with at length was engaged in devising strategy to enable sufficient premium in a settlement so that ACA care through an exchange for several years post work comp settlement could be purchased for the injured worker.

    Another senior executive was optimistic about the ACA's health quality outcomes based standards and reward system spilling over into workers' compensation systems.

    The general health system, for all of its costs and expense problems, has lead the workers' compensation system in several respects, and generally by years.

    Examples include treatment guidelines and protocol, billing standards, electronic records and reimbursement systems, etc.

    Several years ago, at this same Orlando conference, Dr. David Dietz, Chief Medical Officer for Liberty Mutual started off one of his presentations with a question to the audience, and I thought the response was profound.

    Dietz asked if given the choice between general health and workers' compensation, how many would choose workers' compensation for their overall medical care.

    Not one hand went up.

    And that is telling of the confidence we have in our own system; a health care system that is so bad that we, in our own industry, wouldn't avail ourselves of it.

    So what will the impact of the ACA be on workers' compensation? 

    In terms of statistically relevant impact on costs and expenses, who knows.

    But the eternal optimist in me says that there are a lot of lessons still to be learned from general health and that there is quite a bit of opportunity in the ACA for workers' compensation systems to learn and improve, and perhaps leverage, to make lives better for injured workers.

    And incidentally these strategies and lessons will likely help control employer costs overall.

    The ACA is here, it is going to stay despite the GOP's threats to either repeal it or defund it. We'll live with it. We'll learn from it. And in the end, hopefully, we'll be better off for it.

    Friday, August 23, 2013

    OK's True Cost Control Feature

    Most of the attention Oklahoma's reform is getting in the work comp world is about opt-out.

    But another minor provision of that law may be something more meaningful for traditional work comp systems to keep an eye on.

    Oklahoma for some time has had a "value added" provision on its books for attorney fees.

    In short, claimant attorneys fees are capped at 30%, but in the past that cap was available only if the employer admitted the claim, provided medical coverage and made a written settlement offer.

    Under Senate Bill 1062 all that is required now is that the employer make a written settlement offer, then the claimant attorney fee is capped at 30% of the difference between what the settlement offer is, and what the award actually ends up being.

    For instance, if an employer offers an injured worker a settlement of $10,000, the worker hires an attorney and obtains a $15,000 settlement, the claimant's attorney would only be entitled to attorney fees of up to 30% on the $5,000 difference between the two awards.

    Because the law in the past required admitting liability and providing medical services, many employers deferred making settlement offers, thus prolonging case adjudication, ergo expense.

    Since employers would have to admit the claim in order to invoke the cap on attorney fees, claimants' attorneys began adding additional body parts to increase the value of the case and make it more difficult for employers to admit the claim - employers were loath to admit to body parts that they didn't feel were part of the original compensable injury.

    Consequently there would be no cap on attorney fees so the "value added" provision of the law was not as effective as had been hoped.

    Now the employer need not admit to liability and can make an offer of settlement without jeopardizing its position on various claim elements.

    Another provision of the law is intended to incentivize claimants to accept offers.

    Under SB 1062's deferred Partial Permanent Disability program, an injured worker with a court-issued PPD award who returns to work would have his benefits reduced by each week he is back at his pre-injury job. However, employees who accept pretrial settlements will not face the risk of having their PPD awards reduced by returning to work.

    The thinking is that many injured workers will be tempted to accept an early settlement, rather than risk losing part of their PPD award by returning to work.

    Claimant attorneys have told WorkCompCentral that they don't believe the changes will cut the number of cases being filed, and they're probably right.

    But the theory is that many more cases will settle early on with these incentives.

    Whether or not these new provisions actually achieve what is intended - more cases settling earlier - depends upon how well the state educates injured workers and employers/carriers about these provisions.

    And my guess is that most of that education will come from actual cases going through the adjudication gauntlet.

    Nevertheless, I find these provisions very interesting and something to keep an eye on to see if, in fact, cases actually do settle earlier.

    Regardless of whether the value of cases goes up or down is not the point. The biggest threat to an employer in any work comp case is duration - the longer a case stays open regardless of the extent of disability, the more expensive it becomes.

    I'm excited about Oklahoma's originality in this regard and look forward to seeing the results in a few years. This small provision may prove more effective in claims management than any opt-out systems.

    Thursday, August 22, 2013

    Letters? Whoop-De-Doo

    Well you KNEW this was going to happen, and I'm sure you can also predict the outcome.

    A couple weeks ago the Los Angeles Times ran a front page, blockbuster, story about its investigation of Purdue Pharma.

    Purdue manufactures the popular pain medication Oxycontin.

    In short, the LA Times revealsed that Purdue kept a list of 1800 doctors who were highly suspect of over-prescribing the drug.

    The list was kept for the company's sales team. Purdue attorney Robin Abrams told the Times in a series of interviews that the company created the database to steer its sales representatives away from risky doctors. Policing physicians, she said, was not Purdue's responsibility.

    Abrams told the Times that Purdue had alerted law enforcement or medical regulators to 154 of the prescribers — about 8% of those in its database.

    And she gave an example of one case in San Fernando where a physician made $1.5 million a year prescribing OxyContin and other painkillers. That physician is now serving a 25 year sentence after being tied to the deaths of six patients.

    But otherwise, Purdue did not provide this information to any governmental authority.

    Maybe it should have, maybe it shouldn't - that's a tough ethical decision to make.

    Of course there's going to be argument that the company's profits (Purdue purportedly has made $27 billion off Oxycontin since 1996) overrode the company's morals.

    Certainly there is suspicion that profits overrode the morals and ethics of 1800 physicians.

    Now California state Sen. Ted Lieu, chairman of the Committee on Business, Professions and Economic Development, and Nevada state Sen. Richard “Tick” Segerblom, chairman of the Judiciary Committee, have both sent letters asking Purdue to turn over its list of doctors.

    “If Purdue Pharma is going to sell a highly potent, highly addictive narcotic in California, then the company has a duty to inform authorities in California of those doctors the company believes may be irresponsibly prescribing OxyContin,” Lieu wrote. “This duty may not be a legal one, but at the very least, the company has an ethical duty to let authorities know about dangerous drugs.”

    Segerblom said during an interview with WorkCompCentral on Wednesday that if Purdue, which has a vested interest in selling OxyContin, has deemed some doctors too risky to do business with, then that would be a good indicator that state regulators should also take a look at the prescribing patterns of those providers.

    “If the company has identified people it thinks are a problem, then the state should, too,” he said. “I’d like to see if our monitoring program is actually working.”

    Will something actually come of this or is this just political grandstanding?

    And even if something actually comes of the list disclosure, is it really going to make any difference?

    In 2007, Purdue agreed to pay $634 million to settle a federal lawsuit accusing it of fraudulently promoting the time-release formulation of OxyContin as being a less-addictive alternative to short-acting opioid painkillers - claims the U.S. Food and Drug Administration did not approve.

    That settlement represents 0.03% of Purdue's sales of the drug...

    In May 2012, the U.S. Senate Finance Committee sent letters to Purdue, Endo Pharmaceuticals and Johnson & Johnson requesting information about the companies’ ties to medical groups and physicians, saying it was exploring the possibility that organizations such as the American Pain Foundation, American Academy of Pain Medicine and American Pain Society, have “promoted misleading information about the risks and benefits of opioids while receiving financial support from opioid manufacturers.”

    Committee members have not reported the results of their investigation and have not responded to phone calls and emails from WorkCompCentral asking whether the drug makers even responded to the request for information.

    The response to the Times article is easily predicted. The outcome perhaps less so, but my guess is that nothing really substantive will come of this. Perhaps Purdue will pay its way out of this little public relations mess, maybe publish some advertising somewhere in the guise of a public service announcement.

    The politicians will get some good press and be able to cite action against big business when they go to the voters.

    And business will carry on as usual.

    Wednesday, August 21, 2013

    Trusting Relationships

    One of the things that I am always impressed with at large conferences like the Workers' Compensation Institute's in Orlando, FL every year is how much of a "people business" the industry is.

    In what I like to refer to as the largest little industry in the financial world, relationships matter.

    "Largest" because, based on the latest estimates, some $60 billion in premium was written in 2012.

    That's almost as much as the net worth of Carlos Slim Helu.

    "Little" because, when it really comes down to it, not that many people are in control of this industry.

    That relationships matter makes sense in workers' compensation because the industry is itself a people business; the business of workers' compensation, in the end, is taking care of people.

    Relationships matter between vendors, between lawyers, between brokers, between employers and employees. We don't sell a product, we sell relationships and relationships are based on trust.

    The employer trusts this industry to take care of claims made against it for injury or illness on the job.

    The employee trusts this industry to provide services and money to return to health and work.

    Vendors and providers trust carriers and employers to pay them for services and products.

    Carriers and administrators trust employers to pay them for protection and service.

    Somewhere along the line there occur fractures in this relationship maze. Sometimes there are breaches of trust between industry vendors, between employers and employees, between all myriad of the complex web of various relationships.

    Of all the relationships, though, trust in the government overrides all. Employers, employees, providers, vendors, carriers, administrators -  all put trust in the government to develop the work comp system in accordance with the intent and desires of the legislature.

    One of the more complex relationship chores in the industry is taken on by government, and more specifically the regulators who are tasked with implementing legislative intent to keep order in the system.

    Some of the folks I talked to at the WCI conference came away from the regulator's session astounded that Georgia had passed a 400 week cap on the provision of medical treatment benefits.

    HB 154 was signed into law by GA governor Nathan Deal on May 6 and is effective as of July 1.

    The 400 week cap on medical treatment does not apply to catastrophic injuries as defined by GA law.

    As far as I know, GA is the only state at this time to implement a wholesale capitation on medical treatment benefits. There are states, such as CA regarding chiropractic services, where segments of the medical vendor industry are capped.

    And there are other medical benefit provisions that have other caps, such as the prescription drug formulary in TX.

    Regulators in GA, as described at WCI, face quite the task in implementing HB 154 in light of the statutory language, "which in the judgment of the State Board of Workers' Compensation shall be reasonably required and appear likely to effect a cure, give relief, or restore the employee to suitable employment." (This language appeared in the prior code section affected, but not with a duration cap.)

    The law change also mandates a 15 day payment period for medical services and goods.

    There is also an exception to the general rule where an attempt is made to return the claimant to work but it is unsuccessful, and the employer then needs to prove that the injured worker is not entitle to a reinstatement of benefits.

    At WCI the GA presentation (as did many of the other less acutely affected state presentations) remarked how difficult the job is to draft and get approval of regulations that comply with the intent of the law.

    In CA, regulators are burdened with a huge new panoply of legislative implementation, not the least of which is the new Resource Based Relative Value Scale for medical services.

    Employer groups and carriers are upset with the Division of Workers' Compensation because they believe that DWC's proposed regulations are outside the legislative intent of SB 863 and will increase costs.

    Some medical groups believe that segments of the medical vendor population won't receive fair compensation for services, and others believe that more attention needs to be paid to services that are "by report."

    In TX, carriers and providers both agree that utilization review objections need to be in writing in comments provided to DWC's proposed UR rules.

    In each of these situations, and countless more, dialogue is initiated between interests, either in cooperation or competition, and the government is in the middle, listening to the various arguments and trying to understand where regulatory action will put the workers' compensation system into the best position to maintain the critical relationship between the employer and employee.

    And it is the relationships between all of us, whether there is agreement or discord, that makes all of this happen.

    All of this sometimes seems insanely complex. But we put trust in the government, and in each other, to make things happen.

    We may not agree all of the time and we may differ in interpretations, but most of the time we trust each other, and we trust the government, to do the best that can be done in the interests of system outcomes.

    Without this trust, and without these relationships, chaos and anarchy ensue, which does nothing for anyone.

    Tuesday, August 20, 2013

    Do We Focus On Short Term Too Much?

    If there was one theme that over road any other in the Blogger's Panel session at the 68th Annual WCI Conference in Orlando, FL yesterday, it was that workers' compensation in general has become so complex, so micro-managed by regulation and law, so distant from its original purpose, that there is no where for the cost of maintaining the system but to go up.

    Mark Walls commented that in his prior life as an adjuster he did everything on a claim file - from arranging medical appointments for treatment and/or evaluation, to determining "fair and reasonable" in payment of bills, to both telephone and in person interviews of claimants to get their stories.

    I recall a case early in my lawyer career that was clear to me to be a disaster case where the claimant, who had prior significant psychological trauma but had "recovered" and operated in the labor market without impairment or disability for 20 years, decompensated during an unfortunate situation with her trusted employer.

    Three months into that claim I was able to take the claimant's deposition, which was an all-day, trying affair. It was clear to me that this was a case of significant liability and I was able to settle the case THAT day by calling the adjuster and securing $70,000 for a compromise and release.

    These vignettes DON'T happen today. Indeed, these vignettes WON'T happen today - not with all of the peripheral players involved spawned by "cost control" laws and regulations that have the intent of regulating vendor behavior but also have the inverse effect of creating more steps in claim management and removing more control from the claim adjuster to essentially micro-manage claims from a distant, less-human, hands-off style.

    This comes at a cost - and I think a big cost that workers' compensation needs to deal with. These costs were introduced, in my opinion, because of problems and issues that arise over a relatively short period of time given consideration to the evolution of law, regulation and jurisprudence, so that remedies and solutions don't mature before there is something new introduced that may or may not be necessary.

    Now the National Academy of Social Insurance, a sort of think-tank of scholars, academicians, lawyers, doctors, researchers, etc. from around the country, has released a report on the cost and benefit trends of workers' compensation from a national perspective.

    Here are snippets from their press release:

    Total benefits from 2010 to 2011 rose by 3.5 percent to $60.2 billion. The benefits include a 4.5 percent rise in medical care spending to $29.9 billion and a 2.6 percent rise in wage replacement benefits to $30.3 billion. Total costs to employers rose by 7.1 percent to $77.1 billion.

    The new report shows changes in coverage, benefits, and employer costs for all 50 states and the District of Columbia. State-level changes in 2011 include: 
    • Coverage and wages increased in all 50 states and the District of Columbia.  
    • Total benefits paid to injured workers increased in 29 jurisdictions. However, benefits as a percent of total wages increased in only 17. 
    • Employers' costs of workers' compensation as a percent of total wages increased in 31 states, and remained unchanged in four. 
    • The share of benefits paid for medical care exceeded 50 percent in 33 states. 
    Workers' Compensation Benefits, Coverage, and Costs, 2011

    Aggregate Amounts
    Percent Change
    Covered workers (in thousands)
    Covered wages (in billions)
    Workers' compensation benefits (in billions)
        Medical benefits
        Cash benefits
    Employment costs (in billions)
    Amounts per $100 of covered wages
    Dollar Change
    Benefits paid
        Medical payments
        Cash payments to workers
    Employer costs
    Source: National Academy of Social Insurance estimates.

    There were also 22 states identified where the change in benefits paid went down.

    "'Workers' compensation often grows with the growth in employment and earnings, said Marjorie Baldwin, chair of NASI's Workers' Compensation Data Panel and Professor of Economics in the W.P. Carey School of Business at Arizona State University. When benefits and costs are measured relative to total covered wages, then benefits remained unchanged, and costs to employers rose very modestly (to $1.27 per $100 of wages) after declining in the previous five years."

    So here's the anomaly - benefits have remained, on a national scale, relatively flat, at least according to NASI. And so have employer costs.

    This may conflict with other agencies data and reports.

    And it occurs to me that perhaps in observing workers' compensation that too much focus is on the short term; that over the long term costs and expenses may not need radical changes.

    Wall Street is criticized because it focuses on the short term. Trends are measured against quarterly reports. If there is a downtick in profitability from one quarter to the next there is panic and stocks get sold at decreasing values. If there is profit growth from one quarter to the next there is purchasing, and demand constricting supply which causes share prices to increase.

    Wall Street, for better or worse, doesn't generally focus on the long term.

    I think that most of us - legislators, regulators, administrators - in workers' compensation don't focus on the long term - at least not much past the general seven to eight year "cycle" that begets typically reform. We come up with solutions to problems when solutions already in place aren't allowed to mature to be effective.

    NASI recognizes that long term analysis is important when looking at workers' compensation trends:

    "Workers' comp benefits that are paid out are actually paid out for injuries that were caused in the years prior (to the study)," Ishita Sengupta, director of workers' compensation for NASI, said. For instance, the 2011 report on total workers' compensation benefits paid includes claims for injuries that occurred during years such as 2009 and 2010, when fewer workers were employed.

    "There is a slight lag in (the data), because of the way workers' compensation payments are made," Sengupta said.

    Monday, August 19, 2013

    Bloggers Disagree or Not

    This morning I'm part of a panel of "bloggers" at the WCI 68th Annual Conference in Orlando, Florida.

    My fellow bloggers, Bob Wilson of, Mark Walls of Marsh and the LinkedIn Work Comp Analysis group, and I are going to be asked to give opinion on several topics including the Affordable Care Act's impact on work comp, opioids and the nation, state reforms, and the cost of medical in the system.

    Folks expect us to battle with disparate opinions. While sometimes I admit that we don't align on some details, in the couple of years that each of us has been in the workers' compensation "public" eye with our musings, I'd say we are more aligned in opinions than we are not.

    Though I speak for myself, and not my fellow presenters, they would probably agree that workers' compensation is what it is: a collection of laws that, particularly in the past two decades, have modified the original underlying premise to fit the particular needs of various interests which had sufficient political power to influence lawmakers and regulators for the benefit of a few.

    So we're going to opine on various topics, such as the Affordable Care Act, opioids, physician drug dispensing, reform across the nation, and probably a few other topics.

    But really: Affordable Care Act? What the heck do I know about the ACA? Just as much, I suspect, as you reading this, which is to say woefully little.

    I know what some are saying the ACA will do to work comp, but in actuality none of us really know what the impact is going to be, if any. And my guess is that this is a red herring to the system; the ACA is going to provide some additional medical insurance coverage to a demographic that didn't have it before.

    That's about all.

    Will there be a doctor shortage? I don't know. What I do know is that a lot of doctors don't like doing industrial medicine already because of the paper work and additional administrative hassle. So whether there are fewer doctors likely won't be felt in work comp - there are some docs that will put up with our demands, and there are many that won't. Those that decide to stay in the system will figure it out.

    Perhaps one aspect of the ACA that the industry is overlooking, except for the underwriters, and that is the payrolls of the medical industry should expand dramatically making for a ripe market for the carriers that write that line of business.

    What about opioids and physician dispensing? We'll be aligned in our opinion - yep, narcotics left uncontrolled are bad for the system and physician dispensing is part of that issue. And of course it all comes down to money. Trace the dollars and you'll find the root cause.

    The Los Angeles Times last week ran a front page news story on Purdue Pharma's maintenance of a list of 1800 doctors who were prescribing more than what was expected so that sales people would be aware of the unusually high amount of drugs. But Purdue didn't do anything other than alert sales people to the phenomenon, presumably because the company has sold more than $27 billion worth of the drug since its introduction in 1996 so why ruin a good thing.

    Don't want to derail that profit train before the patent expires...

    And some physicians hired by pain management clinics were making millions of dollars a year issuing and filling prescriptions, paid on a per prescription basis, with incredible profit margins for the clinic owners (some now serving jail time).

    We also know that the physician dispensing bill that was made law in Florida this past session was the product of a last minute deal in the legislative hallway when Sen. Alan Hays, R-Umatilla, and Brian Ballard, the chief lobbyist for South Florida-based Automated Healthcare Solutions, brought a compromise to the issue that allowed AHS to continue its operations and make a profit, albeit under a more controlled situation.

    Company lobbyists have been very successful deterring other attempts to impair profit margins in Hawaii, Georgia and other states.

    Reform states are sure to be highlighted in the session, most notably California with its SB 863 and Oklahoma with the move to an administrative dispute resolution system and the new regulated opt-out program. Are these programs good, bad, or indifferent?

    I've opined before that the Oklahoma experiment should prove to be the catalyst of a change agent in the industry providing the companies that qualify with an opportunity to show the work comp community that they can manage claims better than the industry can, returning workers back to gainful employment and minimizing medical and indemnity costs along the way.

    The jury is still out on the California reform - much of the savings were predicated on summary dismissal of hundreds of millions of dollars of liens but a pending lawsuit may derail the optimists' expectations, at least in the short term. Carriers and the rate making agency in California have thus far been pessimistic about savings...

    I'm sure there's more that will end up in the debate, but I know one thing for sure - each of us remains committed to the premise that workers' compensation is a vital element to strong, viable economic and social activity. All we have to do is look at countries like Bangladesh or India to understand how the protection of workers and employers is important to sustained economic growth and social order.

    While we may be divided in how we return to work comp Shangri-La, there is a basic theme that I think we are united on: if we as individuals performing our various duties and functions in the industry stay focused on a singular cause - providing medical treatment and reasonable indemnity to injured workers while ensuring that all employers participate with their fair share of the risk allocation - then we're doing as good as can be expected.

    Friday, August 16, 2013

    TX OIEC Stats Point to Anomaly

    I've highlighted Texas in the past as a state where workers' compensation is actually a profitable line of insurance business, with the implication of course that the state has things figured out for an efficient, well run, system.

    But a couple of reports released this week from the Texas Office of Injured Employees Counsel challenge the notion that the Texas system is any good for the injured workers who have disputes about benefits.

    OIEC provides ombudsman services to injured workers who either can't, or don't, get an attorney when a benefit dispute arises. They have limited resources and, like any governmental agency, must fight for budget dollars.

    According to OIEC, it is only winning 29% of its cases, and that the number of disputes in contested case hearings are on pace to double in only three years.

    Part of the problem, OIEC says, is that the agency lacks the money to pay medical experts to rebut defense attorneys who argue that injured workers must explain how their injury was caused by work.

    As a consequence, OIEC argues that the system may violate constitutional notions of due process and equal protection.

    "In the majority of cases where the injury is serious and the medical treatment extensive, the denial is made that the expert did not explain how the event caused the injury," the OIEC wrote. "Not only do the courts not require that explanation − except in complex medical situations where there is a valid cause-and-effect issue − OIEC is not provided resources to recruit and pay medical experts to make that causal connection. Taking into consideration that the Supreme Court has abolished the good faith and fair dealing remedy because OIEC assistance was available, the lack of authority or resources provided to OIEC brings into question the constitutionality of the dispute resolution process."

    Hearing officers and the Appeals Panel are imposing an unreasonable burden of proof, based upon a 2010 Texas Supreme Court decision in Transcontinental v. Crump, the OIEC wrote. The high court ruled that a claimant must prove that the work-related incident was a "substantial factor" in causing a work-related injury.

    "The causation requirement and the standard that it establishes has been so misconstrued and misinterpreted by hearing officers and the Appeals Panel that it has become unattainable by any reasonable interpretation," the reports state.

    There are of course those who dispute this perception.

    They say that regardless of whether or not OIEC had money to pay for experts, the culture of Texas work comp litigation doesn't normally include paying medical experts for further testimony on causation because it is unlikely that the fees would be reimbursed.

    And treating physicians not trained in writing medical reports generate opinions that can not meet the relatively lax standard of substantial evidence.

    The Texas Division of Workers' Compensation tracks the number of contested case hearings that were concluded per calendar year (note that there can be multiple disputes during a single contested case hearing).

    According to DWC's website, the number of concluded contested case hearings increased significantly from 4,157 in 2011, to 6,083 in 2012, a 32% increase in one year.

    The statistics also showed a significant increase in concluded contested case hearings requiring the OIEC's help during the same time period. OIEC helped claimants conclude 1,791 contested case hearings in 2011, and helped claimants conclude 2,772 contested case hearings in 2012, a 33% increase.

    Whether or not OIEC has money for experts, and whether or not disputes are being unfairly determined or are wrongfully being denied, that the burden of OIEC has increased so dramatically points to issues that may be bigger than having money for medical experts.

    Such dramatic rise in the number of cases being handled by OIEC raises a number of other questions: Why are disputes increasing so dramatically? Is there a correlation between the low percentage of favorable outcomes in OIEC represented cases to the increase in volume being handled by OIEC? What about the quality of the cases? And what are the disputed issues that are being litigated?

    In my mind the OIEC reports are not conclusive, and as I point out, raise more questions than they answer. But the fact of such a dramatic increase in the demands on OIEC in such a short period of time should alert DWC and the Department of Insurance that something is amiss and should be investigated.

    We know from past history that anomalous variations in statistical patterns usually means some operational aberration. This should be cause enough for a DWC investigation.

    *********Post Script*********

    I'll be in Orlando, Florida this coming week from Sunday through Wednesday for the Workers' Compensation Institute's Annual Conference and will be part of the Blogger's Panel on Monday at 10 a.m. ET. I hope to see you there. 

    Thursday, August 15, 2013

    RVRBS and Quality - Does Anyone Care?

    Paying for medical services is hugely complex because of competing interests.

    Factor in the added complexity of workers' compensation's indemnification factors, which ultimately rely on the execution, delivery and interpretation of medical services, and the complexity increases substantially.

    California's conversion to a Resource-Based Relative Value Scale fee schedule, which has been in the works for years, is drawing out these competing interests more acutely as the time for implementation draws near.

    Some physician groups have been saying that moving to an RVRBS system will alienate doctors even further and constrict access to care because specialists will not be reimbursed sufficiently to encourage their participation.

    Others argue that an RVRBS system, which according to reports will increase reimbursement for primary care physicians, will actually increase access and improve outcomes by redirecting the motivations of practitioners.

    And of course there is the old debate about how costs to employers will be affected.

    Earlier this week the California Workers’ Compensation Institute that the division’s plans for annual inflation adjustments to its proposed medical fee schedule will eventually exceed 120% of Medicare and will cost the employer community much more than legislatively intended due to the way the Division of Workers' Compensation is interpreting the law and implementing the regulatory framework.

    The DWC says that the way CWCI has calculated costs is erroneous, and that DWC's application of RVRBS, which ties rate structure to Medicare rates, will maintain medical costs within the Labor Code's mandate of no more than 120% of Medicare.

    At the heart of the various arguments is how Medicare adjusts rates over time with annual inflation adjustments.

    CWCI says that DWC's proposed methodology will result in total allowable fees for physician services to increase by $250.23 million during the DWC’s proposed four-year transition to RBRVS.

    They say the Labor Code allows the DWC to adopt conversion factors and other adjustments affecting physician payments that are different than those used by Medicare so long as total aggregate fees in the work comp schedule don’t exceed 120% of Medicare’s total allowable fees for the same services.

    “Unless this section of the law is applied in the physician fee schedule regulations adopted by the DWC, the compounding effect will drive up allowable physician fees beyond the 120% cap and undermine reform savings intended to pay for increased disability benefits for injured employees,” CWCI said.

    DWC says CWCI is interpreting the law incorrectly and that SB 863 says aggregate fees under the RBRVS fee schedule can’t exceed 120% of aggregate fees under Medicare as of July 1, 2012, and as adjusted for the Medicare Economic Index and relative value scale adjustments.

    DWC's interpretation is that this is a legislative mandate that the workers’ compensation fee schedule diverge from Medicare, but that the update factors in the proposed fee schedule regulations utilize Medicare’s MEI and Medicare’s relative value scale adjustment factors as required by SB 863.

    I don't know who is correct in this debate.

    I'm not even sure it matters.

    Once again, the workers' compensation world revolves around the cost of the system, rather than the delivery of quality care to injured workers.

    The debate should really be about whether this conversion will: a) promote efficient, effective medical care to injured workers; and b) provide sustainable access to care by encouraging good medical participation.

    The debate about costs arises only within the context of the payer community, be it insurance companies or self-insured employers, whose focus, in my opinion, is short-sighted.

    The "long-tail" of workers' compensation claims has direct relationship to the quality of medical care delivered: timeliness, appropriateness, effectiveness - qualitative factors that can not be measured by a reimbursement schedule but which have direct impact on the duration and extent of disability.

    In other words, the indemnity part of a claim.

    The RVRBS debate is unfortunate, because it distracts the industry from a more robust, healthier (pun intended) debate about medical care payment and delivery - how to motivate both the doctor and the patient towards better outcomes.

    So long as the industry makes costs its focal point there won't be any sound strategy, investigation, imagination, or development of methodologies to encourage quality over quantity, to the chagrin of the injured worker waiting to get the care needed to return to work, and the employer whose experience modification factor is unnecessarily inflated due to claim duration.

    Wednesday, August 14, 2013

    IMR, Records and The Unintended Oversight

    The following was posted by a represented injured worker in the WorkCompCentral Forums as a letter the editor. The author has confronted an anomalous situation with the new California Independent Medical Review process, not foreseen by legislators or regulators, but which nevertheless presents a significant problem if this process is to succeed in its mission to quickly, efficiently and effectively deal with treatment requests and disputes.

    The situation described can be summarized thusly: IMR is requested but there is a lack of records provided to the reviewing physician; while the law allows that the injured worker may provide records, the injured worker is denied records, or is charged for them, by the treating physician's office - ergo the injured worker is not able to make his case for the treatment request to IMR.

    The following is his letter to the editor, with minor editing for clarity and grammar.

    ********************TEXT OF LETTER********************

    The new IMR process is not fair for California injured workers

    by injured7825 on Mon Aug 12, 2013 9:09 am

    I am writing this letter in regards to the new IMR process that was enacted with SB 863. I am a represented injured worker who has deep concerns about how I will be able to get medical records to the IMR.

    This is my situation. My primary treating physician’s office charges me $35 to get my report. Since I cannot be copied on these reports I have no idea when they are actually written or sent to utilization review. I have a secondary doctor who is a pain management doctor, and their office policy is not to give reports to the injured worker. Again, I have no idea after my exam when the report will be transcribed or sent to utilization review. Both doctor’s offices cannot “cc” me on my reports, as I have requested. My attorney is very busy as well, so getting reports sent to me can be challenging. I do not have a complete file of my records. I would think most represented injured workers do not have copies of all their medical reports and tests.

    With the new IMR process there are strict deadlines for sending the request for IMR and the records accompanying them. I am aware that the requesting doctor, injured worker, applicant attorney and claims adjuster can send records. The temporary guidelines do state the claims adjuster must send the past 6 months of records. A study of the IMR results has shown that some claims adjusters are in fact not sending the records.

    This was reviewed by a judge who did not overturn those IMR denials even after it was found records were not sent. The claims adjuster also did not receive a fine for not sending the records. HOW could that happen as fines were listed against claims adjusters who do not send records to the IMR doctor? Now claims adjusters know they will not be penalized for not sending relevant records to the IMR, or any records. You now have a fox in the henhouse situation, with patient’s health at stake.

    How is it a fair system for injured workers who are represented and do not have access to their medical records and/or do not receive them timely? I have heard of some applicant attorneys who are sending the records, however many are too busy. There is no such rule that state’s they have to. They also do not get paid to do so. I have discussed this with other injured workers and they are in the SAME situation as I am. Can the system be fair if we do not have access to our records if the claims adjuster does not have to follow the rules and send the records?

    I am also concerned at the amount of records the guidelines state have to be sent. I have read it was one year, and then I read it was six months. For many injured workers, they have important test results that should be sent, that go beyond those dates. For a spinal injury for example, we do not get MRIs every six months, or a year. For injured workers who have secondary conditions such as urological, tests such as urodynamic and cystoscopy may only be done once in a claim. These are tests that can not nor should be done yearly. If that injured worker had those tests two years prior, which showed significant damage, the claims adjuster does not have to send them per the temporary rules. How would that IMR review be fair to the injured worker who desperately needed surgery to restore bladder function, but those records were not sent?

    There is another problem with this new process that no one seems to be addressing. Many times the claims adjuster does not send the doctor’s request to UR in the first place. What does an injured worker do in that situation? He cannot even request an IMR until there is a UR denial.

    I am asking this as many of my doctor’s requests are not sent by my adjuster to UR, and not approved by her either. I have talked to other injured workers and this happens all the time to them too. One recently had their doctor request spinal surgery. The adjuster did not send it to UR, and did not approve it.

    I know very well that applicant attorneys are supposed to take non-compliant requests that were not sent to UR to an expedited hearing. From my own personal experience, and talking to many other injured workers, that does not happen. Applicant attorneys cannot take all non-compliant UR issues to court. They do not have the time and don't get paid to do so.

    There are countless injured workers who are not aware of their rights or the new IMR laws. I am aware that injured workers will receive notification of their rights to request an IMR after they receive a UR denial. I believe MOST injured workers in California are not aware of SB 863 and the complicated IMR process. Yes, it is on the state’s web-page however many injured workers either do not have access to that or are even aware where that site is.

    I think the state should send out a booklet about the IMR process to all California injured workers giving a detailed explanation of how to request an IMR, their rights to send medical records and how to get access to their medical records. If they are not holding claims adjusters accountable for not sending records, they need to find a way to copy reports to represented injured workers, and send them a copy of past records.

    The bottom line is an injured worker will have to be copied on their doctor’s reports and tests and if they are aware of how the new IMR program works with being able to also submit records to the IMR reviewer they can defend themselves since the claims adjuster will not always send the requested records for a proper IMR review. An injured worker who is represented has a hard time obtaining their medical records and when some claims adjusters are not following the law by sending the records (even after the IMR reviewing doctor had ask for them) there is little chance of getting the proper medical treatment authorized with a 65% denial rate going on with the IMR.

    If the State of California is going to also ask the injured worker to send records as well as the adjusters for the new IMR then all injured workers should by law also be copied as well as the adjusters and attorneys, for the system to be fair and not one sided for the insurance companies.

    ********************END TEXT OF LETTER********************

    This letter to the editor could not have been more timely, as the Workers' Compensation Appeals Board seeks comments on pending regulations on procedural rules involving IMR.

    The comments received by the WCAB are predictable. Employer and carrier groups object to the regulations as overly broad, with enforcement mechanisms and penalties that are too harsh.

    Medical providers and the applicant attorneys say the exact opposite.

    That means to me that the WCAB has it right and reflects a little lesson from negotiations classes in law school - if any one side or the other is happy with the deal then it is not fair, but if both sides express discontent then you know that neither side gets an unfair advantage.

    This injured worker makes a very good point and is a succinct lesson in what Mark Walls of Marsh said recently in an article published in Business Insurance - we need to return to basics.

    In this sense, basics means remembering the object of workers' compensation is to ensure that injured workers receive treatment and indemnity as appropriate.

    injured7825 reminds us that once an injured worker submits to the workers' compensation system, he or she loses all essential control over his or her destiny to the point that even his or her own medical records may not be available.

    The fight over what the WCAB promulgates as procedural regulation is another special interests battle over control. The injured worker gets lost in the arguments.

    I think the WCAB has much of the regulatory detail right. The employer/carrier community don't like them; the medical community doesn't like them; attorneys don't like them.


    Tuesday, August 13, 2013

    Comp Drives Business Out?! PUHLEEZE

    Two things in this morning's WorkCompCentral news that, in my opinion, demonstrate what a political scapegoat of a red-herring workers' compensation is to legislators who pander to special interests, be it business, labor, medicine or whom-ever.

    It was disclosed that in Texas, where workers' compensation is optional, the Workers' Defense Project pushed for Apple to require the builders of its new $300 million facility to obtain workers' compensation coverage as part of the group's general stance that construction workers tend to fare better under Texas' workers' compensation system than under nonsubscriber plans.

    Emily Timm, policy director for the group, told WorkCompCentral that the project has successfully negotiated with other employers to obtain workers' compensation coverage for their construction projects, too.

    "Most of the construction industry in Texas does not have regular health insurance," Timm said. "Without workers' comp and without health insurance, you have absolutely no insurance provider to pay for medical bills, which means the family ends up with them or - what is very common - is that the hospitals that provide emergency care end up with large, uncompensated care costs."

    Apparently Apple does not see the cost of workers' compensation as being an impediment to its expansion into Texas. Maybe that's because Apple is a California corporation and used to high workers' compensation bills. But that's another story.

    Or, maybe the cost of workers' compensation to Apple is like the proverbial pimple...

    And apparently neither does Boeing see the cost of workers' compensation in California as an impediment to relocating about 375 engineers who work on modifications, such as performance upgrades, interior refinishing and passenger jet-to-freighter conversions, from Puget Sound, WA to Long Beach, CA.

    Much to my amusement, Sen. Rodney Tom, a Democrat from Medina, WA and leader of the bipartisan Majority Coalition Caucus, issued a statement following Boeing’s announcement that said the inability of the Legislature to “control labor negotiations” is driving Boeing out of the state.

    “Instead of taking action, we allow common sense workers’ compensation reform to languish – reform which would have saved both workers and the company money,” Tom said in his statement.

    In the last Oregon Dept. of Labor study, Washington ranked 13th in workers' compensation costs, compared to California's third ranking. Apparently Tom didn't review the Oregon survey before engaging the propaganda machine.

    Said former Washington state Rep. Brendan Williams, a Democrat who held office from 2005 to 2011, in an opinion-editorial published in the Everett Herald:

    “Trying to understand why a multi-national corporation does things is not easy,” Williams wrote. “Washington’s workers’ compensation costs are considerably below California’s, which were the third-highest in the nation in 2012. We ranked 13th, with the employer burden even less given we are the nation’s only state requiring workers themselves to pay a share of premium costs.”

    Everyone talks about a "broken system." Everyone talks about "reform." Everyone has an answer that generally means they want some special treatment (for example the NFL's professional athlete's jurisdiction restriction campaign across the nation).

    What it all really comes down to is one simple fact that we, as professionals in the industry, need to come to grips with lest we drive ourselves crazy: workers' compensation is a political construct that uses legal fiction to obfuscate medical science to underwrite a financial proposition.

    What this means is that workers' compensation only becomes an issue when some interest is seeking some special advantage, usually financial. Otherwise, in the grand scheme of things, it is just another expense that gets passed through to the ultimate consumer.

    By the way, I'm not saying this is bad. It is just reality and without this reality none of us would have careers in workers' compensation.

    Or, as I often tell my employees, "now, get back to work!" You know what to do...

    Monday, August 12, 2013

    Legal Fees and Reform

    Take a look at WorkCompCentral job ads.

    What do you see?

    Lots of employment opportunities for lawyers, primarily those on the insurance/employer defense end.

    Some firms are even taking out full display ads for recruitment days and other practices that are typically the province of Corporate America.

    Indeed, this does appear to be anecdotal evidence of a larger trend in California workers' compensation - as recent Workers' Compensation Insurance Rating Bureau data shows, spending on lawyers this past year totaled $1.2 billion and has been increasing at a dramatic rate, particularly for defense legal fees.

    That's a lot of legal fees, which represents a lot of benefit contestation.

    Break it down even further, though, and the anecdote of job ads for lawyers becomes even more salient - defense fees are double what applicant attorney fees are.

    Here's the graphical depiction based on the WCIRB numbers:

    The chart is interesting in a couple of aspects.

    Note that following the 2004 reform, SB 899, defense fees skyrocket from $368 million in 2003 to nearly double at $642 million in 2006, while applicant attorneys, whose fees are largely pegged to permanent disability indemnity, lost some ground, but essentially remained flat.

    Things stabilize a bit after 2006 until 2011 when the lawyers on both sides, start taking home a bit more pay, such that 2012 legal fees are double what they were in 2002 for both defense and applicant.

    Compare to the Consumer Price Index rate of inflation - $100 in 2002 would only be $126.56 in 2012.

    Either a lot more people are getting hurt, or a lot more disputes on benefits are being filed, or there is a surge in hourly rates and/or PD, or a combination of everything together is conspiring to increase this cost component.

    We know from other WCIRB data and information from other sources that there was a spike in frequency in 2010, but that has largely normalized, so any increase in the number of people getting hurt doesn't explain this phenomenon.

    Hourly rates for defense work has increased, but so has legal billing controls at the carrier - so we can't lay the blame on any price gouging or over-billing. There is just too much oversight on defense billing for the carrier/employer community to get taken by legal fees.

    There is some compelling evidence that reform drives attorney fees, in particular defense fees. This is pretty clear from the spike following the 2004 reforms which provided fertile grounds for denying claims of all sorts. And it appears that such is the case in 2012, likely tied to those pesky lien claims - many defense firms have their own specialized lien claim defense departments.

    The proponents of SB 863 were looking for about $500 million in savings - well, seems to me that money is right there being paid to defend against paying injured workers and their providers.

    I'm not just picking on lawyers here - remember that I am cut from the same bolt of cloth having done primarily defense attorney work for 18 years.

    But everyone in this system has a contribution to the cost of the system, and "reform," or perhaps more accurately, "deform," seems to do more to increase expense, burden and costs more than it resolves.

    Cartoonist Walt Kelly (1913-1973), famous for the strip "Pogo," first used the quote "We Have Met The Enemy and He Is Us" on a poster for Earth Day in 1970.

    Or, to put it another way, the more regulation there is the more regulators there are, which increases the cost of regulation.

    Make the system a game and the players will game the system, regardless of whether the perception is good, bad or neutral.

    Friday, August 9, 2013

    Texas Pointing Way to Healthy Market

    The health of the workers' compensation industry has direct ties to the health of the economy.

    This makes absolute sense - an employer's premium is calculated in large part by the size of an employer's payroll, modified by the type of jobs that are being performed by the employees represented by that payroll.

    Texas' had not been as hard hit by the recession as the other large states, and now it appears that the state is really taking off, economically, if the adage that workers' compensation reflects the economy is to be believed.

    Here's the good stats:

    Written premiums increased 13.1% from 2011 to 2012 according to the Independent Insurance Agents of Texas.

    The state's dominant carrier, Texas Mutual, saw its share of the market increase by 3.3% over the same period, from 33.8% in 2011 to 37.1% in 2012.

    The even better news for Texas is that, based on Texas Department of Insurance statistics, Texas Mutual wrote $244 million in premium during the fourth quarter of 2012, with the residual market accounting for only $1.4 million in premium. According to the same report, Texas Mutual's residual market premiums have stayed relatively stable since 2007, the first year in the report.

    Texas is an optional state. I take this information two ways: either more employers are opting in and qualifying outside of the risky, residual market underwriting standards, or those with high risk and, ergo, high potential premium, are going bare and never entering the work comp market.

    But the kicker is the growth in voluntary premium - which is directly correlated to growth in payroll, which is a direct descendant of employment.

    Written premium is the highest in the state since 2008, when almost $2.6 billion in premium was written, compared to $2.4 billion in 2012.

    Most of the growth is in commercial building, and the oil and gas industry.

    Terry Frakes, senior vice president of public affairs for Texas Mutual, confirmed that economic growth – not the residual market – drove the insurer's market share.

    "A large amount of our new submissions have been new business," he said to WorkCompCentral. "With the growth of the economy, we have seen a large increase in payroll."

    He noted that the residual market accounts for less than 1% of Texas Mutual's overall written premium, with about $3.9 million in premium a year.

    Not all states are experiencing this good news.

    quarterly report by the National Council on Compensation Insurance released this week shows that none of the 21 states where NCCI manages the residual market had less than 100 policies.

    Florida's residual market observed a 106% increase in premiums in 2012. The Florida Workers' Compensation Joint Underwriting Association, which is Florida's residual market carrier, saw its market share increase from 0.5% to 0.9%.

    Representatives from Texas Mutual and IIAT told WorkCompCentral that, when comparing Texas to other states, it is important to remember that about 30% of the state's businesses are nonsubscribers, which means that Texas' workers' compensation statistics do not include a significant number of employers.

    Texas Mutual also prides itself on its ability to improve the loss ratios of troubled employers and return them to the voluntary market, which suppresses the number of participants in the residual market.

    And one thing that I believe that other big states can learn from Texas is its rate structure, which permits carriers to be much more flexible and thus much more competitive in pricing, which helps keep employers in the system.

    "Part of that is because we have a lot more flexibility in the rating structure in Texas," Jim Gavin, the director of insurance information services for IIAT said. "I know that in Texas, most carriers are allowed to file credits or debits to the base rates themselves. So if they need more money, they can get more money basically. Or if they think that the rate is too high for a certain risk, then they can lower the rate for a certain risk."

    This flexibility does not exist in California, Florida, New York, or Illinois - and I've said it before and I'll say it again: any attempt to reform the claim administration part of the work comp equation must also deal with the risk allocation part; Texas has done this.

    Is Texas work comp perfect? Of course not. You hear the same complaints about the system as in other states: delays in medical, chintzy indemnity, and employers still complain about costs.

    But this is all relative. Texas has remained one of the very few states where carriers actually make an underwriting profit. And Texas employers don't need to participate, so the fact that the vast majority of them do is testament to the state's system.

    According to Gavin, first quarter 2013 is up again 12%. But he is not taking this as a trend without corroboration from subsequent quarters.

    Still, the fact that it is up is an indication of optimism in the state's economy. Hopefully Texas is a leading indicator in the health of the overall market, and the overall economy.

    Thursday, August 8, 2013

    Saving Money for 2014

    There was good news and not so good news (but not completely negative news) coming out of the California Workers' Compensation Insurance Rating Bureau's Governing Committee meeting yesterday.

    The not so good news is that the committee approved a a 2014 advisory pure premium rate of $2.62 per $100 of payroll, 3.4% higher than the average filed rate of $2.53.

    SB 863's influence apparently wasn't impressive to the committee and they are waiting to see if projections come true.

    The good news is that the committee also approved changes to the dual-wage threshold for seven job classifications and a 25% cap on the maximum amount an employer’s experience modification can go up as the result of a single claim, though the committee rejected a proposal to establish maximum X-Mods for some smaller employers.

    SB 863's impact is still too uncertain relative to employer costs for the WCIRB to make any changes, and the Bureau has no updated its savings projections on the bill since October 2012.

    In those projections, increases to permanent disability indemnity (projected at $1.2 billion) are offset by independent medical review, which is expected to save $390 million a year, and lien-filing fees and statutes of limitations that are expected to save an additional $480 million a year.

    The totality of savings was projected at $1.7 billion, so the net savings projected $520 million a year starting in 2014.

    Of course the lien savings are tenuous now given the pending lawsuit against the government to, in the least, temporarily enjoin the lien filing and activation fees while a court reviews the constitutionality of those new laws. While the fees themselves don't affect costs and rates, if the fees are unenforceable then there may be an increase in lien filings which affects overall costs.

    Another unknown in the calculation of rates is the switch to a Resource-Based Relative Value Scale medical fee schedule.

    The current rules proposed by the Division of Workers’ Compensation would increase total allowable fees to $981.6 million when the RBRVS fee schedule is fully implemented in 2017, 11.9% more than the $867.88 million in aggregate fees allowed under the current schedule, according to the WCIRB.

    WCIRB stats reflect that severity has moderated, but that frequency has stayed flat since 2010, which contradicts the long term trend of a 3 to 4% decline in frequency year after year.

    Chief Actuary, Dave Bellusci, said the filing represents a 2.7% deterioration in loss costs since the Jan. 1, 2013, filing, of which about one-third can be attributed to loss inflation.

    The dual-wage threshold system gives premium discounts to employers in certain industries who pay wages above the threshold on the theory that employees who are paid more have more training, more experience and are less likely to be injured on the job.

    The seven job classifications affected by the dual-wage threshold are electrical wiring, plastering/stucco work, plumbing, refrigeration equipment, sewer construction, sheet metal work and water mains or connection construction.

    These changes should provide relief to one of the state's back bone industries (construction) as it struggles to recover from the recession and the severe decline in construction activity that followed the mortgage meltdown, and should help keep the industry competitive, at least in the small part that workers' compensation plays.

    The limit on the amount an employer’s X-Mod can increase of 25% will provide help to government construction contractors who generally can not bid on jobs if their X-Mod is greater than 100%. The smaller contractors often find themselves out of the bidding process due to a single claim, which can take the X-Mod from 85% to 138%.

    Another proposal that was intended to assist the small contractor was a limit on X-Mod increases for a year. The proposal would have set a cap of 200% for employers with expected losses of less than $22,760 during the three-year rating period, which is about $12,000 in annual premiums, 300% for employers with annual premiums of about $100,000, and to 500% for businesses with $250,000 in annual premiums.

    The argument against this type of cap is that employers would have less incentive to maintain safe workplaces and that it would subsidize the employers who are generating more losses than others in their industry.

    The complexity of rate determination is a fascinating process, at least for someone like me who has no actuarial education or experience, and who's mathematical skills are only partially enhanced by calculators and computers - trust me I was lucky to get out of Algebra 1 alive in high school and completely avoided anything to do with numbers in college (unless, of course, it was preceded by a dollar sign...).

    The employer community, which had been primed to see a decline in rates from the SB 863 propaganda machine, is going to be disappointed though. While the rate increase is not monumental, and likely isn't going to make too much difference on most employer's premium bill when that arrives in January, the psychology of failing to attain instant savings from the bill is going to have an impact on employer perceptions and perhaps the voting machine come election time.

    Unless you are a self-insured employer - in which case the two-thirds of SB 863 dedicated to restructuring self-insured retentions, offsets, capital requirements and other financial esoterica will provide substantial relief (and for which there is no accounting in WCIRB numbers).

    Which all goes to my point when SB 863 was first proposed: one can not change just the claims administration rules without also changing the risk allocation rules if one expects any long term savings for the majority of employers in California.

    Only time will tell whether the claim administration rule changes from SB 863 will reduce rates over the long term. I'm just not putting my money on it because I need to save it for my 2014 premium increase.