Monday, June 30, 2014

It's The Greed

I always learn something new when I go to a conference.

In this instance it was the California Applicant Attorney's Association annual summer conference, held this year in Reno, NV.

Sometimes, amid all the hustle and bustle of a conference it's hard to find the lesson - that's why I try to get outside for a power walk or hike - so Friday before my participation in the ethics panel presentation that afternoon I sped up and down the Truckee River Trail at 4.8 miles per hour, covering 9 miles in just under 2 hours.
Truckee River Trail towards the Grand Sierra Resort
I had some time to reflect on the polarity that defines workers' compensation in California and other states. In the past I have opined that the workers' compensation system is driven by mistrust. It seems that none of the interests that are required to make workers' compensation operable trusts any other interest that has a stake in the system.

For instance, applicant attorney after applicant attorney conveys to me tales of carriers (almost always carriers by the way - self-insured, self-administered employers never seem to draw their ire) instituting what easily could be perceived as unreasonable claims practices that would seem to have no other purpose than to starve out injured workers so that they go away to some other benefit system like Social Security, state disability, or now with the Affordable Care Act some general health plan.

Carrier and their representatives rebut with tales of applicant attorneys unnecessarily inflating claims and engaging in back-handed legal tactics to gain some litigation advantage to increase the value of permanent disability.

Physicians complain about getting their bills unreasonably adjusted downward by claims offices even if they are actually selected by the carrier, and then having to wait 6 months or more to receive payment and even being told to file a lien although originally chosen by the carrier to do the work.

Defense attorneys regale tales to me about shady physician practices that seem designed only to inflate fees or commit fraud.

Employers don't trust either their insurance company OR their injured workers believing that everyone is out to game the system on their dime.

And NO ONE trusts the politicians or regulators to actually understand workers' compensation dynamics or to pass laws or regulations that actually make the system do what it was originally intended to do...

Workers' compensation is big business, with big money, and a compulsory nature that maddens nearly everyone with any sense of democratic value whatsoever because discretion is removed from nearly every process.

In the end, there is more mistrust to throw around in any particular workers' compensation gathering, conference or seminar to make me wonder if there can ever be any salvation.

Why is this? Why does no one trust anyone else?

Reform after reform after reform happens, and still no one is happy with anything going on in workers' compensation. Why do all of these changes simply churn more mistrust and legal activity, and nearly never result in any long term cost containment or benefit delivery efficiency?

It occurred to me, as I walked past a couple of fly fishermen on The Truckee, that the answer is simple, but the solution is impossibly complex: all of the mistrust that is workers' compensation today is the product of greed.

Wikipedia entry on greed states: As a secular psychological concept, greed is, similarly, an inordinate desire to acquire or possess more than one needs. The degree of inordinance is related to the inability to control the reformulation of "wants" once desired "needs" are eliminated. Erich Fromm described greed as "a bottomless pit which exhausts the person in an endless effort to satisfy the need without ever reaching satisfaction." It is typically used to criticize those who seek excessive material wealth, although it may apply to the need to feel more excessively moralsocial, or otherwise better than someone else.

It's human nature to want more, but wanting more in the context of limited resources means that someone feeding in the same chain gets less - and that creates tension, which rises to mistrust once the one getting less perceives that there is an inordinate amount going to the one getting more.

Inordinate is in the case of greed a subjective factor because it is based on perception.

When greed intercedes into any closed system the system itself revolts and soon becomes unmanageable.

It doesn't take a lot of greed - the old theory that just a few ruin it for the majority is firmly established as the working model in workers' compensation.

One only need to refer to the recent stories about the Landmark Medical and Drobot schemes, or the more dated stories about carrier failures in the light of Unicover, or AIG's manipulation of accounting to avoid premium taxes.

And of course there are the daily stories of some fraudulent injured worker claiming disability while working or unscrupulous employer mischaracterizing the payroll; or any other number of just plain greedy behavior exhibited by just a few folks who can't seem to get enough, or unwilling to honestly work for what they want.

Workers' compensation is about dividing up a limited resource - a dollar. The division of that dollar is to accomplish two things: relieve the pressure on the employer presented by the risk of a work place accident and provide assistance to the victims of a work place accident.

Ostensibly involving just a few dozen bad actors in the system, these events drive emotions high (see above - the subjective determination of what is an inordinate amount is perceptive; the relative value is exacerbated by the constriction of a limited resource) and ultimately ensnare the innocent because laws, rules and regulations come out of these misdeeds that makes life difficult for the honest folks trying to do things right.

At the end the entire system suffers.

I don't have an answer. This is just a walk-down-the-river observation.

Perhaps the next time a reformist starts with vigilante rhetoric he or she should take a walk down The Truckee for a bit of reflection, and maybe the rest of us should tag along too. The scenery is splendid.

And it may be that if everyone walked the same river trail there'd be less jealousy and greed, and a greater appreciation of the limited resources available.

Friday, June 27, 2014

Close The Formulary

I was in line for a cocktail at the exhibit hall reception at the California Applicant Attorneys Association annual summer convention yesterday evening in Reno, NV talking with ... you guessed it, an applicant attorney.

The line was moving slowly because patrons, like me, were asking for more complicated drinks that required formulating, rather than just a beer or glass of wine.

He was telling me about a physician that he no longer refers cases to, because that particular physician could not be trusted to manage a case properly. In fact, it seemed, the few cases that were referred seemed to be managed solely for physician profit.

The attorney told me that he referred less than a half dozen cases for treatment, but each case was run amok with inside referrals to associated physicians who were re-referring the patient to oodles of diagnostics and, most concerning to this attorney, were prescribing all sorts of medications including opiates, compound drugs, topical creams, etc.

When he found out about this activity he pulled his clients from treatment with those doctors.

Perhaps it is not serendipity, then, that the Workers' Compensation Research Institute just recently released a report on prescription drug formularies.

The latest study, Impact of a Texas-Like Formulary in Other States, examines Texas, the first multi-payor to adopt a closed prescription drug formulary, and 23 other states in a comparison. Some of the study states have been linked in previous studies to copious prescriptions of pain medication.

The Texas formulary includes all drugs approved by the FDA except for investigational and experimental drugs and drugs with “N-drug” status in the current Official Disability Guidelines. Physicians may prescribe drugs that are included in the formulary without preauthorization from the payor; drugs that are excluded require prior authorization.

The formulary went into effect on Sept. 1, 2011 for new claims and became effective for legacy claims on Sept. 1, 2013.

Citing 2013 numbers from a Texas Department of Insurance report, WCRI reports that that new claims with non-formulary drugs that required preauthorization decreased by 67% from 2010 to 2011. Prescriptions written for non-formulary drugs decreased by about 70% for those new claims, and non-formulary drugs’ share of the total prescription drug costs for new claims decreased by more than 80%. Prescriptions for drugs included in the formulary fell by 4%, and total opioid prescriptions fell by 10%.

WCRI's interest was whether other states could benefit like Texas by adopting a similar drug strategy.

The WCRI researchers found that in most of the other study states, non-formulary drugs were at least as prevalent as in Texas. Sixteen states had higher percentages of all prescriptions that were for non-formulary drugs in a time period notated as “2011/2012.” New York had the highest prevalence at 17%, followed by Louisiana at 16%. Missouri had the lowest percentage among studied states in that measure at around 10%.

“Considering that the prevalence of non-formulary drugs was similar to or higher than Texas in other study states, the potential impact of a formulary could be at least as large as Texas if physicians in these other states respond to the formula as Texas doctors did,” the study said.

Researchers noted two other factors could influence the impact of a Texas-like formulary in other states: how much physicians are likely to seek preauthorization and continue to prescribe non-formulary drugs, and how much they are likely to substitute drugs that do not require preauthorization in place of drugs that do.

Going through different scenarios of physician behavior, the study concluded that even, "states with a relatively lower percentage of [non-formulary drug prescriptions] could also reduce the utilization of non-formulary drugs by a least 7 percentage points (from 10% to 3%).”

Texas experienced a drop of 70%...

Alex Swedlow, president of the California Workers’ Compensation Institute, told WorkCompCentral that CWCI is working on the second part of a study on opioid drugs that was recently published.

That first study showed that beginning in 2008 and continuing through the first half of 2013, Schedule II and Schedule III opioids accounted for about one-quarter of workers’ compensation prescriptions in California and 30% of prescription costs.

CWCI found that in the first half of 2013, Schedule II opioids – medications the U.S. Drug Enforcement Administration considers “dangerous” because of the high potential for abuse, but that still have a legitimate medical use – accounted for 7.3% of prescriptions in California and 19.6% of prescription drug costs.

In 2012, these drugs accounted for 7.2% of scripts and 19.1% of prescription costs, and one year earlier they accounted for 7% of prescriptions and 20.1% of prescription costs. The use of Schedule II opioids such as OxyContin, Fentanyl and morphine has increased each year since 2005, when they accounted for 1.4% of prescriptions and 4.1% of costs.

Schedule III drugs – primarily Vicodin and other drugs that include a combination of hydrocodone and a non-narcotic painkiller such as acetaminophen – accounted for 19.3% of workers’ compensation prescriptions in the first half of 2013 and 10.3% of prescription drug costs. The utilization of these medications has been relatively steady since 2002, never accounting for less than 17.7% or more than 20.9% of prescriptions. Costs for Schedule III ranged from a low of 8.3% of total pharmaceutical spending to a high of 11.3% reported in 2007.

Part two of CWCI's study models the formularies for both Texas and Washington state and the potential impact of a similar formulary in California. Swedlow told our reporter that study will be released in a few weeks. I don't think the results will be all that surprising.

This is all highly relevant, particularly to California, in light of recent stories about multi-million dollar kick back schemes involving compound drugs and tying together dozens of physicians, pharmacies and other people and entities, and New York and Louisiana, both of which had the highest rate of non-formulary prescriptions in all of the study states.

WCRI’s study can be purchased here.

Thursday, June 26, 2014

Report Card on OK

The Oklahoma non-subscription option is alive and moving forward with four employers recently announced approved by the state's Department of Insurance to provide benefits for injured workers outside of the traditional workers' compensation system.

Although employers must still meet minimal benefit levels that at least match what would be provided under the normal work comp system, the allure of the Oklahoma opt-out program is greater control over the process.

When I see what is happening in states across the nation, with new frictional costs associated with every attempt to "reform" programs, it's easy to understand that allure.

According to Workers’ Compensation Director James Mills, there are currently three insurers approved to write policies for the Oklahoma Option: OneBeacon Insurance Co., Safety National Casualty Corp. and Great American Security Insurance Co. All three were approved in April.

Whether more carriers offer packages will obviously depend upon market appetite for this new program, though Midlands Management representatives told WorkCompCentral that the company is working on the final stages of filing to become an approved carrier to offer its own Oklahoma Option policy.

Tom Hebson, vice president of development and government relations, business development, for Safety National, told WorkCompCentral that the company has also received five "submissions" to opt out, though none of those employers fit Safety National's employer profile. Hebson also said that there have been "well over" another 10 "inquiries" from much larger companies exploring their options.
In CA, 11% of cases comprise almost 78% of costs.
“That doesn’t sound like a lot, but in the state of Oklahoma, that’s a lot,” he said. "We’re getting activity. It’s just a matter of streamlining it, and these organizations have, I would characterize it as a little bit lower-risk payroll, and that doesn’t really generate enough premium for where we’re attaching. But I suspect that they’re getting proposals from other companies.”

What is happening in Oklahoma should be of high interest to the workers' compensation industry - escaping what sometimes seems to be ponderous regulation is very attractive to the folks that ultimately have to pay the cost of providing some work place protection - employers - and could spur a whole new cottage industry, particularly if other states follow Oklahoma's lead.

While Texas does not mandate employers subscribe to the workers' compensation system, most businesses do.

According to Rod Bordelon, who will be retiring as Texas Workers' Compensation Commissioner August 1, over 80% of the state's employees are covered by workers' compensation policies in the state.

Texas' reform in 2005, HB 7, greatly altered the landscape in that state. According to Bordelon, injury frequency and severity are down by big numbers.

Bordelon told the House Business and Industry Committee last April that injury rates are down 27% since 2004. Claims have fallen 22% since that same year. Requests for benefit review conferences, the initial step in dispute resolution, have also gone down, although statistics showed an increase in the number of disputed issues within benefit review conferences and contested case hearings in recent years.

According to Bordelon, 93% of all claims now get resolved without going through the dispute resolution process in Texas.

Workers’ compensation insurance rates fell 50% from 2003 to 2011, and the percentage of employers who don’t subscribe to Texas’ voluntary workers’ compensation system fell from 38% in 2004 to 33% in 2012, according to Bordelon.

The Texas experience from the past has reflected that when workers' compensation premiums are stable and at acceptable levels to business, more employers go with the system rather than alternative risk systems or completely "going bare."

In addition to allowing employers to engage an alternative risk system, when Oklahoma introduced it's option the state also introduced significant changes to it's traditional system.

If Oklahoma experiences a decrease in its workers' compensation costs, it will be interesting to see how many employers that are opting out now stay with those programs.

And with other states feeling tremendous pressure of reformation promises that aren't being realized, namely California, it may come to pass in a few years that the business lobby will seek similar options. There's no question when I go out in the field and talk to employers in California that there is huge disappointment with SB 863 and discontent overall with the state's work comp system.

California, representing over a quarter of the entire nation's workers' compensation market, would be a huge plum for carriers and brokers with an appetite for providing alternative risk coverage.

Certainly nothing will happen in California without a tremendous fight from all of the special, virtually protected, interests that comprise the industry, but the single best argument in favor of controlling California's cost of work injury protection is market competition - i.e. the ability to take one's business elsewhere.

And Texas has shown that good market competition puts pressure on a system to be competitive. Though some in Texas contend that system savings were put on the backs of injured workers (and anecdotal evidence does reflect that Texas injured workers now have a much harder time getting attorney representation to assist with disputes) the fact remains that subscription rates are up.

The more employers that subscribe, the more capital there is in the system, which brings costs down for everyone participating in the system, which puts pressure on alternative systems to keep costs down in order to compete for that premium dollar.

At the end of the day, all that really matters is whether employees have some reasonable protections in place in the event of an unfortunate work place accident, and that the risk of having to pay for those protections is spread out sufficiently so that no one single business is overly burdened.

It's a nearly impossible ideal to achieve. An Oklahoma report card in a few years will tell us whether that state has hit upon a reasonable and sustainable method of resolving the conflict between the social mission and the business mission of workers' compensation.

Wednesday, June 25, 2014

Don't Forget Lehman Bros.

Just as California's State Compensation Insurance Fund was rebounding from the Unicover induced crisis in the workers' compensation market, which forced SCIF to protect more than 50% of the market by year 2000, the monolithic carrier succumbed to enticing bond purchases that was part of the precipitous mortgage backed securities debacle that plunged the country into the worst recession in history by 2008.

Insurance companies routinely invest in bonds because they are relatively safe investments and not generally subject to the vagaries of the market - they are fixed income securities upon which an investor can usually expect the represented return of both interest and the underlying capital.

SCIF alleged in a 2011 federal lawsuit that financial services giant Lehman Brothers misrepresented the risk associated with more than $85 million in investment bonds the Fund purchased between 2004 and 2008.

Those bonds, which were to mature between 2010 and 2014, were allegedly sold in 2009 for $19 million.

The carrier just recently dismissed from that lawsuit three Lehman executives it alleged steered the brokerage into selling these misguided investments all the while misrepresenting to customers, SCIF and others, the true extent of the firm's financial degradation and concealing the worthlessness of the mortgages underlying the purchased bonds.

WorkCompCentral's Mike Whiteley reports this morning that a joint stipulation filed in U.S. District Court for the Southern District of New York June 3 dismisses former Lehman Brothers Chairman and Chief Executive Officer Richard S. Fuld Jr., former Chief Financial Officer and former Global Chief Risk Officer Christopher M. O'Meara and former Chief Financial Officer Erin Callahan as the three "officer defendants" in the lawsuit.

The joint stipulation cites a confidential, $1 million settlement agreed to by Fuld, O'Meara, Callan and SCIF last October. As part of the settlement, which was later filed in district court, the officers admitted no wrongdoing and denied any wrongdoing by Lehman Brothers.

The lawsuit originally named as defendants the three executives, nine former directors of Lehman Brothers and 19 firms that underwrote the Lehman Brothers bonds. Cabrera Capital Markets, Citigroup Global Markets, Mellon Financial Markets, and Wells Fargo Securities were among the underwriters named in the lawsuit.

The only remaining defendant now is Lehman's auditors, Ernst & Young, which was added to the case in a Jan. 5, 2012, amended complaint. That filing alleges the auditor was intimately familiar with Lehman's operations but turned a "blind eye" to Lehman's shenanigans.

Ernst & Young had previously agreed to pay $99 million to Lehman Brothers investors to settle a class-action case alleging Lehman Brothers understated its risk in the commercial real estate mortgage market and overestimated its financial solvency.

When Lehman Brothers filed for bankruptcy, it listed $619 billion in debt and $639 billion in assets. The company was liquidated in 2011 and had distributed about $56 billion to outside creditors by last month.

The case is illustrative of the deep ties that workers' compensation has to the overall economy besides just providing a risk distribution system against work place injuries.

It is also a microcosmic look at how even the most sophisticated investors can get duped.

But it is also demonstrates the risks involved in providing insurance - for a smaller carrier a net $66 million loss in the value of an investment is disastrous. SCIF has the financial muscle to absorb that loss, but losses like this eventually make the way down to the policy holder.

SCIF has done a remarkable job diversifying its portfolio and keeping expenses low for such a large institution, albeit many disagree with its current course of financial restructuring.

Nevertheless, it's easy to see the lingering effects of the mortgage based securities meltdown that put the world's financial systems to their knees.

By the way, the lawsuit states that Lehman CEO Fuld received $111.8 million in salary, bonuses and restricted stock unit awards between fiscal year 2003 and 2007.

Just saying...

Tuesday, June 24, 2014

New York's Acupuncture Experiment

My dad was a pioneering dentist in California while I was growing up.

He was the first in the state to have any automation in his dental office, with a computer system that cost thousands of dollars more than the top of the line systems offered today, with about one-one hundredth of the computing power...

I recall when I was a young lawyer practicing work comp law and was confronted with the first of what became a short lived trend of temporomandibular joint disorder cases. I asked my dad about the "disease" because I had to depose a physician about it for the first time, and in typical Dad fashion, when I tried to get some meaningful insight into the theory of the disorder he just replied, "It's bulls*#t."

And that was it - no further explanation given by Dad. (And now those of you who know me can understand where my abbreviated sense of conclusory commentary comes from.)

He always sought to broaden the scope of his practice to make sure he could offer his patients as much service as possible.

Dad's practice was one of the first in the state to offer nitrous oxide for low grade anesthesia and his partner, my then brother-in-law, was the first in the state to be certified to dispense NO2 and taught and certified many dentists over the years.

In his pioneering spirit my dad also tried acupuncture for dental anesthesia. He spent months studying the Eastern medicine discipline, brought home all sorts of dolls with dots and lines signifying the path of chi and where needles could either stop or divert the flow to provide various different physical consequences - but primarily some sort of anesthetic effect, be it for headaches, toothaches, whatever.

After a certain level of mastery Dad's enthusiasm for a new technology usually ended up with an experimentation on the kids ... 8 year olds have a very simple mechanism for displaying honest opinion in uncomplicated mono-syllabic style.

Sure enough, when I complained of a headache at that young age Dad sought to "treat" me with acupuncture. He had, by that juncture, been studying the practice for a couple years and had received his certification (or whatever they did back then) signifying that he was an acupuncture expert.

So he showed me the model, explained to me the path of chi, and how he was going to interrupt it.

The needles went in - and I recall a small pin prick sensation - but that was about it. Dad did some maneuvering of the needles, small minor adjustments, and waited the prescribed period of time.

The details are, of course, a little fuzzy after the passage of 37 years, but I recall the outcome quite clearly - completely ineffective. I still had the headache. Failed experiment.

I think that Dad had the same experience with acupuncture in his dental practice as he gave up the technique a couple of years after that.

That was my only experience with acupuncture, so my view of the concept is jaundiced. Perhaps some have faith in its restorative capacity, but to my honest and permeable 8 year old perception, acupuncture had no validity.

New York Governor Andrew Cuomo must have had a similar experience when he was a kid as he had vetoed a bill authorizing acupuncture as a reimbursable workers' compensation treatment expense last year.

A similar bill is before the governor this year and there is debate between interested groups about whether this new bill threads the needle (pun intended) between proponent's desire for alternative medicine and business' concern about cost effectiveness.

“The reason for the veto was the Business Council (of New York State) said acupuncture was not cost effective," James Shinol, president of the New York Acupuncturist Association, told WorkCompCentral. "We’ve met with both the Business Council and the governor’s office to explain why that argument is not correct.”

But the Business Council wrote a memo June 19 urging the governor to veto this year’s bill too (A9721 and S7634).

“While this bill has attempted to correct some of the deficiencies in the previous bill,” the memo said, “the underlying issue, that this bill would greatly broaden the scope and breadth of services provided under the workers’ compensation system, remains the same."

The Business Council is concerned that the bill would lead to a proliferation of acupuncture clinics which would increase the cost of workers' compensation.

Acupuncturists counter that the technique is a valid compliment to physical therapy and other modalities or drugs, and that the bill limits how acupuncture is billed, how many treatments are authorized and what it can be used for.

The Workers' Compensation Board’s proposed third edition medical treatment guidelines for neck injuries, dated May 27, 2014, noted that acupuncture is commonly used as an alternative or in addition to traditional Western pharmaceuticals.

“Acupuncture is a procedure used for the relief of pain and inflammation, and there is some scientific evidence to support its use,” the proposed guidelines said.

The proposed neck injury guidelines call for a maximum of 10 sessions. Effects are said to be most likely to occur after three to six sessions. The optimal frequency is one to three times per week, and the optimal duration is one month.

“Treatment beyond 10 treatments must be documented with respect to need and ability to facilitate positive symptomatic and functional gains,” the proposed neck guidelines stated.

The proposed medical treatment guidelines for mid- and lower-back injuries, also dated May 27, 2014, recommend up to 12 acupuncture sessions, though only under certain circumstances.

New York licenses acupuncturists and requires them to have national certification, meet state educational requirements and have extensive clinical experience in general health problems, diagnosis and treatment, according to a memo that accompanies the bill, and would be prescribed by a physician. 

That New York's proposed guidelines recognize acupuncture as valid treatment in certain circumstances should be compelling, at least to the extent that there is something to the practice. Like many modals of treatment, some work, some don't.

For me, acupuncture wasn't valid, but I tried it only once and it was administered by an Italian dentist. For others it might work. The point is to provide enough relief to an injured worker so that he or she can return to work, if in fact that is the motivation of that person.

Like anything else, particularly in work comp, it's not necessarily the treatment that should be questioned, but the motivations surrounding the treatment decisions. The Business Council has, in my opinion, valid concern about exploitation of the authorization of acupuncture in work comp, but on the other hand there are plenty of check points in the system to control abuse of that authority.

It all comes down to the experienced discretion of the professionals making the judgment calls on whether to authorize acupuncture for a particular claimant, or not. Like many medical techniques, there may be efficacy up to a point after which the practice should be discontinued. Those who abuse the privilege of receiving this modality will ruin it for those who receive therapeutic benefit from it.

Monday, June 23, 2014

No Conflict

Brianna has end stage renal disease.

That's when the kidneys stop working.

Brianna has already had two transplants and is in line for a third.

She's 18 and doesn't look sick. She doesn't act sick. She just seems like a normal recent high school graduate.

But going to The Painted Turtle camp has been, except for last year when fires in the area torched the camp grounds, a very welcome, exciting, annual event for her since she was little.

Painted Turtle is a free camp for children, ages 6-17, with serious medical issues. A week of kids with similar fates in life getting together to share joyful moments without the trappings of regular, daily, difficult life.

Camp and kids are a routine summer activity. The kids get away from parents and visa-versa. Everyone has a magical week of vacation from the daily travails. I remember my camping days with fondness, and I'm sure most of us do. Imagine the life of a child with a serious medical condition - summer camp has got to be a short wonderful Shangri-La.

Brianna wasn't going to be a camper though - she's 18. But she was excited to participate as a counselor-in-training (she had another term for it but I can't remember).

Getting Brianna to the camp was a matter of serendipity. Two days before the California Society of Industrial Medicine and Surgery convention in Sacramento this past week I noticed a plea for an Angel Flight West transport originating out of Sacramento to Lancaster - this was Brianna's request.
Brianna is holding her little sister...
I was scheduled to speak at the CSIMS convention and my plan was to fly N6641M up to Sacramento for my scheduled slot and then return that afternoon - taking a passenger along the way back down was perfect timing!

The social mission is uncomplicated, at least at the donation level. In this case, show up with an airplane and transport someone in need.

There isn't a business mission to conflict with - at the ground (okay, sky) level, there's only one thing to accomplish: the safe transportation of this 18 year old girl. It's about as pure a mission can get.

Unlike workers' compensation, where the business mission gets in the way of the social mission. Businesses cheat on their workers' compensation obligations; government conflicts with employers about various requirements that may or may not make sense from either the social or the business mission perspective; circulating money to cover risks involves complex management commitments which can steer objectives off course; and of course there are court rulings and illegal shenanigans to contend with - all of these are born out of business missions that are at odds with the social mission.

After I got done talking to the doctors and other medical professionals attending the CSIMS lunch break about my family, open rating, Unicover, SB 899 and SB 863 (no, I don't see a rosy picture for the future of California workers' compensation - which is what the folks in the audience wanted to know) it was time to get Brianna down to camp.

Though some rearranging had to be done to accommodate my schedule, everything went as planned - I arrived at KSAC exactly at 2 p.m., as promised to Brianna's mom, and Brianna and her step father, and brother and sister, were waiting.

Hunter, Brianna's youngest brother, was interested in seeing the plane, particularly from the cockpit with all the switches and dials.

Brianna's youngest sister, Sun, wasn't interested in much at all.

Which is ironic because Brianna during flight told me that Hunter wasn't interested in flying at all and that her sister was the polar opposite.

The flight was uneventful. We experienced some turbulence as we descended into the Lancaster area over the mountains, which I expected and which didn't bother Brianna one bit though she had told me that on another flight she had felt a little green.

We arrived exactly as estimated - pulling up to the terminal at KWJF at 4:30 p.m. (I love to be punctual). Awaiting Brianna were a couple of camp counselors, themselves having obvious medical and disability issues, ready to whisk her off to the camp.

Though Brianna's mom had advised that Brianna was introverted and a minimal conversationalist, there wasn't any shortage of communication between us. The entire flight was filled with conversation. I explained to her procedures through the entire phase of flight, taught her how to help me out on the radios, and answered her geography questions as we passed over various landmarks.

She told me things about herself and her family - her mom was an Irish immigrant, and she has a brother and other relatives still in Ireland. She enjoys hunting and fishing with her step father, particularly hunting pheasant, which she also likes to eat.

I told her about my daughter's recent graduation from Humboldt State University and Brianna told me about her friends that got accepted and will be attending there, and her last family vacation where they visited and camped in the redwoods there.

She was a delightful passenger. She did not evidence any hint of entitlement or sorrow for herself. She was just enjoying life as much as possible. She was looking forward to counselor training and working at the camp.

Brianna was just going to live life as much as she could.

Brianna's mom emailed me after I confirmed Brianna's safe arrival at Gen. William J. Fox Field: "There is one picture that captured her smile as she was in the cockpit and I haven't seen it for a very long time, pure unbridled happiness."

This is what happens when the social mission doesn't conflict with the business mission.

Friday, June 20, 2014

Trusting Mistrust

The sub-theme of my talk to the California Society of Industrial Medicine & Surgery on Saturday is, "You can't trust a system built on mistrust."

A couple of stories in this morning's WorkCompCentral News provide substantial evidence (you knew I had to work that in!) of that concept.

A grand jury indictment was unsealed yesterday alleging a huge financial kickback scheme involving compound drugs, doctors and pharmacists, some of whom are "regular" names in California workers' compensation and within the Greater Los Angeles area (recall that recent studies reflect dramatically higher costs in that geographic zone compared to the rest of the state).

Kareem Ahmed, the president and chief executive officer of Landmark Medical Management, is charged in the indictment with paying doctors more than $25 million in kickbacks to prescribe and dispense to California injured workers three compound creams he had formulated to use the most profitable ingredients.

The indictment alleges that Ahmed, acting in concert with pharmacist Mike Shah, Landmark Marketing Manager Evette Charbonnet and former Landmark Vice President Bruce Curnick, to identify and recruit physicians who treated injured workers to prescribe and dispense these three medications.

The way the kickbacks were concealed was for Landmark to purchase accounts receivables from physicians; the purchase of receivables was allegedly contingent upon the physician prescribing the “remaining month supply” to the patient from a pharmacy that had a contract with Ahmed.

Ahmed through his attorney has denied any wrongdoing.

Posting bond and also named in the indictment are:
  • Dr. Daniel Capen, who faces nine counts and posted a $1 million bond on Wednesday. He received $2.5 million from Ahmed between 2010 and 2013, according to the indictment.
  • Dr. Eduardo Anguizola, who faces nine counts and posted an $800,000 bond Thursday. He allegedly received $2 million from Ahmed.
  • Michael Barri, a chiropractor and owner of Tri-Star Industrial Medical Group Inc., who allegedly received $1 million from Ahmed. He faced nine counts and posted a $400,000 bond Wednesday.
  • Dr. Randy Rosen, who allegedly received $600,000 from Ahmed, faces nine counts. He posted a $300,000 bond Wednesday.
  • Curt Hauge, who is accused of receiving $8 million from Ahmed for referring business to Landmark subsidiaries, faces five counts. He posted a $100,000 bond Thursday.
  • Bruce Curnick, a former vice president of Landmark who is accused of a single count of conspiracy. He posted a $100,000 bond on Wednesday.
Other defendants charged with accepting payments from Ahmed in connection to the alleged scheme include Dr. Rahil Khan who is alleged to have received $1 million; chiropractor Robert J. Villapania, owner of Regional Associates Medical Group, who allegedly received $1 million; and Dr. Arsalan Pourteymour and chiropractor David Evans, who are accused of accepting more than $650,000 through Performance Medical Group.

Dr. Craig M. Chanin, is accused of accepting payments in exchange for referring patients but the indictment does not say how much he is alleged to have been paid.

The details, comments by Ahmed's attorney, and allegations of involuntary manslaughter against a half dozen of the defendants are in this morning's story by WorkCompCentral reporters Greg Jones and Sherri Okamoto. You can trust me that they did a fantastic job of uncovering and reporting this story.

Along the same trust theme, the Workers' Compensation Research Institute released the first of four multi-state studies that point to a factor that we all knew impacted return to work success but has never been measured: trust....

WCRI’s Predictors of Worker Outcomes is Phase 1 of a four-phase, 20-state study looking at the factors that influence injured worker outcomes. The first phase of the studies examined data from Indiana, Massachusetts, Michigan, Minnesota, North Carolina, Pennsylvania, Virginia and Wisconsin, and broke out each into its own state-specific study, which also featured the data collected across all states.

Though the reports caution against making conclusions because of the small sample size, they are nevertheless groundbreaking in that they are the first that I know of to delve into the impact of the employment relationship psychology post injury on injured worker recovery success.

For example, workers who were strongly in fear of being fired after their injury were found to return to work a median of four weeks later than those who weren’t concerned about being terminated.

Of the 3,200 sampled workers, interviewed in 2013, and who were injured in 2010 with more than seven days of lost time, 21% who were not working at the time of the interview predominantly due to their injury “strongly” agreed that they were concerned about being fired. 

For that subset of workers, the median time from their injury to their initial return-to-work lasting at least 30 days was 13 weeks.

The 10% who were not concerned about being fired took a median of nine weeks to return to work lasting at least 30 days.

WCRI's study also found that workplace trust factored into recovered earnings.

Sixteen percent of workers who were strongly concerned about being fired reported large earnings losses at the time of the interview predominantly because of their injury, compared to just 3% who weren’t concerned about being fired. Those worried about being fired also had lower average health-and-functioning recovery scores, and were more likely to report problems with access to health care.

There are numerous other factors of course that contribute to the return to work survey results, such as co-morbidities, and WCRI is lining up other states for more study and reporting.

Former president of the Workers’ Injury Law & Advocacy Group, Andy Reinhardt, a claimant attorney in Richmond, Virginia, told WorkCompCentral yesterday, when queried about the study findings, "It’s not a normal employment relationship.”


The WCRI studies can be purchased here. Trust me, this is good stuff...

Thursday, June 19, 2014

The Opera Ain't Over

The first appellate decision in what likely will be ongoing challenges to the California Independent Medical Review process introduced by SB 863 was a summary denial.

Frances Stevens had worked as a magazine editor before suffering an admitted industrial injury to her feet in October, 1997. She underwent a series of surgeries, but her condition did not improve. Stevens wound up dependent on a wheelchair for mobility, and she consequently became severely depressed.

The Workers' Compensation Judge found Stevens to be permanently and totally disabled last August.

Thereafter, Stevens' treating doctor issued her prescriptions for home health care services and a variety of pain medications. State Compensation Insurance Fund, carrier on the case, denied the treatment request.

The matter was sent to IMR and Maximus Federal Services, the contractor which provides IMR services in California, upheld the SCIF's decision in February. 

Stevens then file a petition for writ of review and writ of mandate asking the California 1st District Court of Appeal to find that IMR denies injured workers their due process rights by prohibiting meaningful judicial review of decisions.

A final IMR decision can be appealed only for an obvious mistake of fact or allegations of bias, fraud or conflict of interest. Stevens argued that the anonymity of the reviewing physician renders it impossible to substantiate any such allegations. Additionally, Stevens argued, if an IMR decision is set aside, the worker is not automatically entitled to the recommended treatment but has to go through the process again.

The California Division of Workers’ Compensation countered that Stevens lacked standing to pursue writ relief since she had not exhausted her administrative remedies. The DWC noted that Stevens could still appeal the IMR decision and, if unsatisfied with the outcome of the appeal, petition the WCAB for reconsideration. Until the WCAB rules on the petition for recon, there is no final order subject to a writ of review, the DWC said.

SCIF asserted a similar argument, and moved for dismissal of the writ petition.

Before other interested organizations were allowed to file amicus briefs the 1st DCA summarily denied Steven's petition.

It's important to note that the court is not ruling on any merits of the case, and since there was no opinion filed with the dismissal it's impossible to know what the court was thinking, though it would seem, particularly in light of respondents' briefs, that the court determined the matter simply wasn't "ripe" for their review.

Since there was no actual decision from the Workers' Compensation Appeals Board denying review of the IMR decision, Stevens may have to go through the entire process to get to the WCAB level and then be formally rejected by the WCAB, and then the case can be brought back up to the 1st DCA for the court to review its merits and the constitutional arguments.

In the meantime other challenges to IMR and other SB 863 processes are making next week's California Applicant Attorneys Association annual summer convention of particular interest.

CAAA President Jim Butler told WorkCompCentral Wednesday that the group thinks the IMR process "should be workable," but "in its current incarnation there are more questions than answers."

The translation is that the process will continue to come under attack unless there's some capitulation on the review standards and process from the employer/carrier side.

And my guess is that's not likely in the near term.

Wednesday, June 18, 2014

The Mission and The Business

I've been involved in workers' compensation for 30 years now. You'd think by now I'd have things figured out, but I realize that I don't.

Because, as I assume most of us do, I confuse the mission of workers' compensation and the business of workers' compensation.

These are two different concepts and while they coexist, they are not synonymous and in fact are completely antithetical.

Which is why we have so much friction within workers' compensation.

The mission of workers' compensation is relatively simple - spread the risk of employment injury against a big pool of employers so that the few who do experience injury or death on the job can be reasonably taken care of.

It's a big job. In fact, I like to remind people that the United States workers' compensation system(s) is/are the largest privatized social benefit system(s) in the world.

But because people need to put food on their tables and roofs over their heads (okay, and maybe a nice car) they have to get paid to do the job of spreading the risk and taking care of the injured or the decedents.
If only we could trust each other...
That's why this is also an industry: the aggregate of technically productive enterprises in the particular field of workers' compensation (though some may argue that many are not "productive").

And there's the disconnect - the people that get paid to do the job of workers' compensation have an inherent conflict of interest because every dollar that goes to someone doing their job in the system is one dollar less that could otherwise go to the injured or decedent.

Or every dollar that goes to someone doing their job could be going to someone else that wants to do some other job in the industry.

Not that this is bad, but we tend to forget this. Workers' compensation's social mission conflicts with capitalism.

For instance, a regular reader of pretty much everything workers' compensation and friend of mine groused the other day that the insurance industry "lies" to the public when it talks about combined ratios and investment returns when rates are raised.

His objection is that the industry uses accrual accounting methods internally, but puts the facts out to the public in cash accounting rules, so that the public, not really knowing the difference, thinks that because the combined ratio is 113 (or whatever it might be) that the industry is losing thirteen cents on every dollar.

As my friend says, "they collect 100% of the premium in the first year; they pay out (on average) 14% of that premium in the first year, yet, they accrue 100% of 'projected' losses as actual losses that year."

And that's true, but it's not lying, and it's not even misstating the situation. It's no different than my friend charging $100 for every hour of his consulting expertise, except that he probably uses cash accounting in recognizing that $100.

The insurance industry has to use accrual accounting because income and expense to a carrier do not occur simultaneously. In other words, a dollar has to come in to the carrier before a dollar goes out - that time line can not be altered. When it is altered then the carrier goes out of business (which is what happened in the late 90s and early 2000s when so many primary carriers got suckered into the Unicover reinsurance scandal).

The objection my friend has, I think, is that insurance companies making money, or frankly anyone in this industry making money, is discordant with the mission.

The mission of workers' compensation is altruistic.

The business of workers' compensation is capitalistic.

When new legislation comes down the pipeline it is generally first examined for its capitalistic influence - generally how much it's going to cost in dollars.

There typically is very little discussion on the altruistic influence unless it is an increase in indemnity, and even then that's tied to the "cost" of providing that increase; i.e. no altruistic discussion in workers' compensation occurs without a capitalistic consequence review.

Often, though, a capitalistic discussion downplays, or ignores altogether, any altruistic consequence.

Which is why in Wisconsin the Green Bay Packers have successfully lobbied to have football classified as a "non-contact" sport so that rates are about 7 times lower than a "contact" sport, such as soccer.

Or why Alabama practitioners are surprised at a recent court ruling giving family members pay for taking care of a severely disabled injured worker at home.

It's why micro-management of sects within the industry typically back-fires (California's SB 863) unless a sect is just eliminated entirely (witness removal of vocational rehabilitation from the California system years ago).

Each and every one of us complains about someone else getting that dollar: could be a doctor complaining about an attorney, could be an attorney complaining about an insurance company, could be an interpreter complaining about a copy service, could be a bureaucrat complaining about ... every body!

But each and every one of us (and that includes me and the bureaucrat) makes a living off the system. Each and every one of us "sees" the mission of workers' compensation but must navigate the conflict that the business of workers' compensation imposes.

That's just the way it is.

Now, get back to work and do your job. You have a mission to fulfill.

Tuesday, June 17, 2014

The TFR of SB 863

As you likely know, President Obama was in the Southern California area this past weekend to give a commencement speech at UC Irvine, among other political agenda items.

When the president comes to town a funny thing happens to the airspace in the area - it becomes restricted.

These limitations are call Temporary Flight Restrictions and carry with them certain special rules that govern access, including when and where.

All VIP TFRs, as a presidential TFR is known, have 3 basic rule components of compliance if a flight is intended within the geography and time of a TFR: there must be a flight plan on file which must be activated, the aircraft must be in constant communication with Air Traffic Control, and the most misunderstood part of TFR compliance, the aircraft must have a discrete "squawk code" prior to take off.

A squawk code is a transponder signal that is picked up by ATC radar. The general squawk code, i.e. one that says you are an aircraft though not a specific plane, is 1200. A discrete code is one that is particular to your aircraft for the flight.

These three basic rules are misunderstood, or not understood at all, by a lot of pilots and as a consequence the offending pilot is asked to talk to someone with disciplinary authority from the FAA.

The worst cases are those where the aircraft is not in any communication with ATC - that's when an F-16 from the Air National Guard makes its presence known by flying formation alongside the transgressing plane, rocking it's wings.

You don't want to see this when you fly...
This means two things: 1) you're in trouble and you'd better follow me to the nearest airport and land, and 2) if you don't there's another F-16 behind you that you can't see with it's missiles armed and ready to shoot you down if you don't comply.

In order to fly as slow as most general aviation aircraft (think a Cessna 172) an F-16 needs to be at near full thrust to counter all the drag necessary to fly at 80 knots or so ... basically the only think keeping it in the air at that speed is jet thrust, which you can imagine is a deafening roar.

This past Saturday, well aware of the TFRs, I filed my plan, got my code, and talked to ATC all the way down to see Mom. Along the way I overheard on the radio a couple of pilots getting directions from ATC to call the FAA when they landed - and all of them sounded surprised.

Their plight was the same - they took off from an unrestricted airport, likely aware of the TFRs (they are highly publicized), and called up ATC for flight following, which is a courtesy service of ATC to provide traffic and hazard information, or to open their flight plan in the air. My guess is that these pilots assumed that if they were communicating with ATC for flight following and/or opening their flight plans that this was sufficient to comply with the TFRs.

They were wrong.

Regardless of communicating and regardless of having a flight plan, the biggest detail failed was obtaining a discrete squawk code prior to take off, i.e. on the ground.

The reason for this requirement is so that ATC can be sure of exactly who is departing when and where they are going at all times and all phases of flight. This assures no flight transgressions, and if there were, you could be certain of a couple of F-16s intercepting and doing some military type things...

So it is with California workers' compensation - for some reason people are surprised that there has been an increase in cumulative trauma claims, particularly in the greater Los Angeles area, but there should be no surprise because it's just attorneys following the detailed instructions in the most recent work comp TFRs.

Employers and their carriers are acting like they've been wing-rocked by California applicant attorneys, but employers failed to get their discrete squawk code on the ground.

At last Thursday's Workers Compensation Insurance Rating Bureau annual meeting the Los Angeles area was again identified as having significantly greater frequency of larger claims involving multiple body parts and cumulative trauma.

Cumulative trauma accounted for approximately 8.9 of every 100 indemnity claims in the Los Angeles area in 2012, compared to 5.7 in the San Francisco Bay Area and 4.9 in the rest of the state. Since 2010, the percentage of indemnity claims involving cumulative trauma coming from Los Angeles has been about 50% higher than in the Bay Area and 80% higher than the rest of the state.

Participants in a panel discussion Thursday afternoon said that cumulative trauma claims seem to be the main culprit for the frequency increase, particularly post-termination cumulative trauma claims.

Cumulative trauma gets around the post-termination defenses by establishing a date of injury prior to date of termination.

But I think Gary Nelson, an applicants’ attorney in Modesto on the panel, figured out why.

He said the increase in CT claims is at least partially attributable to the 1st District Court of Appeal decision in Benson v. WCAB, which requires multiple work-related injuries to be separately rated, and the requirement under Senate Bill 899 that doctors apportion how much of the injured worker’s disability is attributable to the injury and how much is caused by degenerative conditions.

“Any self-respecting applicants’ attorney is going to ask where that degeneration came from,” he said. If a doctor says part of that deterioration was attributable to work, “you have a new claim.”

That a higher percent of this activity is in the L.A. area may be more attributable to the size of the population compared to Northern California rather than any particular nefarious activity by certain groups. If a Northern California attorney knows and understands the rules of engagement there'd be no reason not to assert that strategy - the panel did not address whether this activity was also seen in NoCal claims, just that there were more in SoCal.

The alphabet soup organizations are in the process of studying this phenomenon, but I don't think it's all that mystical.

The legislative and regulatory TFR's have been instituted, applicant flight plans filed and activated, written and oral communications occurred, and discrete case codes were obtained on take off.

There's no enigma here. Just the roar of an F-16's engine near maximum thrust keeping the plane in the air while wing rocking the transgressive. Follow it or be shot down...

Monday, June 16, 2014

Time To Talk

Exploitation of immigrants
Recalling my defense attorney days, it seems that by far and away the vast majority of the claims I was referred involved undocumented workers.

Back then the use of someone else's Social Security Number was just a nuisance - background checks were unproductive, tracking for other injuries or claims was impossible.

Otherwise, for the most part, if someone was injured and the medical reports supported the claim, compensation was paid.

In the years that have passed since I actively practiced workers' compensation law, however, false identification and illegal immigration status have taken on much greater significance as employers and their carriers use (or abuse) immigration status to deny benefits or take advantage of fears and customs.

WorkCompCentral correspondent, Michael Whiteley, in this morning's news, explores the dangerous paradox of immigration and workers' compensation with an in-depth report on a growing problem affecting a huge part of the national economy.

It's mostly a faceless population - the National Employment Law Project reported last year that, as of March 2010, 8 million undocumented workers were living in the United States. They accounted for 5.2% of the U.S. labor force.

The Public Policy Institute of California estimated that illegal workers comprised up to half of the nation's farm workers as of 2010.

Citing studies by the Urban Center, the Pew Research Center and other sources, NELP reported that, as of 2004, two-thirds of documented workers earned less than twice the minimum wage – compared to one-third of all workers. The median household income of undocumented immigrants in 2007 was $36,000 – well below the $50,000 median household income for U.S.-born residents.

NELP reported that failure to report injuries by immigrant workers was "a serious problem" across low-wage industries because of language barriers and a fear of being disciplined or fired.

The U.S. Occupational Safety and Health Administration reported that Hispanic workers suffer a disproportionate number of workplace injuries and deaths. For instance, in New Jersey, 17% of that state's workers are of Hispanic origin, but accounted for 24% of workplace deaths in 2009.

Whiteley reviews numerous case anecdotes where undocumented workers suffer severe, debilitating injuries but get ensnared in the immigration system, and their lives, and the lives of their families, are ruined.

There is a vocal minority that claims that undocumented workers are taking jobs away from citizens, but I think that most people don't truly believe those claims - not with two-thirds of them earning less than the minimum wage doing back-breaking physical labor tending the nation's crops or building your next house...

WorkCompCentral columnist, Peter Rousmaniere, has been following immigration and its relationship to workers' compensation for years. In his latest column he writes:

"James Baldwin, debating William Buckley at Cambridge University in 1965, described the legacy of slavery as the tragedy of "when one has absolute power over another person." To the undocumented worker, her or his employer holds nearly absolute power over safety."

I get lots of mail and comments from injured workers criticizing workers' compensation as a non-responsive, discriminating system that fails to live up to expectations for prompt medical relief and adequate indemnification. These are from people who have a good command of the English language.

Imagine if those with limited language skills, afraid of deportation or worse, complained about workers' compensation and the tactics and exploitation of those less concerned with decent treatment and the dignity of human beings over the Almighty Dollar. I suspect my inbox would be a lot more full.

It's unfortunate that the defeat of U.S. House Majority Leader Eric Cantor, R-Virginia, last week is going to delay or divert the discussion on immigration reform.

Workers' compensation is supposed to be about providing for the health and welfare of people, all people, who get injured doing their jobs.

It's time to talk about whether we're really serious and committed to making that happen.

Carriers should not be so inclined to use false identity or illegal residency to deny or reduce benefits, but instead should be seeking expatriation of the employers who illegally hire undocumented workers and don't pay workers' compensation "tax" on them.

Law enforcement shouldn't be so vigilant in prosecuting the injured worker lacking legal immigrant status but rather should be seeking those at the root cause of the dilemma - the "employers" who seek unfair competitive advantage with undocumented labor.

And instead of deporting illegal aliens, we should instead seek to enforce criminal sanctions against those who exploit them, particularly those in the field of workers' compensation who prey upon the fears and lack of knowledge or education of the illegal population to use them for unscrupulous financial gain.

Friday, June 13, 2014


The message I heard at the California Workers' Compensation Insurance Rating Bureau's Annual Meeting yesterday in San Francisco was a mixed one, but my ultimate conclusion isn't positive.

The bottom line - frictional costs associated with the most recent reform effort seem to have introduced more frictional costs than savings, and the likelihood is that when Oregon does it's rate normalized bi-annual survey, California may just come out on top as the most expensive state with a troublesome delivery history and questionable profitability for carriers.


Here's a sort of good news, bad news synopsis, not necessarily in any particular order:

While there has been a dramatic reduction in claim frequency (fancy insurance-speak for the number of injuries per given period), down some 80% over the past 40 years, California has seen frequency level off and even grow a small percentage where the rest of the nation continues to experience continuing declines. It seems that this frequency deviation is attributable to the Greater Los Angeles area - a geographic bubble driving the state's negative claims picture.

It seems that the frequency trend in indemnity claims in the LA area is attributable to continuous trauma claims. Los Angeles carries the highest percent of CT claims - about 82% higher than rest of state and 50% higher than Bay Area. There's still speculation about why this anomalous situation exists, with blame going to a larger attorney population than the rest of the state, or a larger overall population in the state, or limits on post termination claims driving more creative pleading, or attempts to make up for the decimation of PD indemnity after SB 899's routing, or physician's requirement to report anything apportionable which raises the specter of earlier indications of potential industrial exposure, or ....?

The one exception to the frequency trend is 2010 when both national and California experienced a sudden spike. One industry researcher I spoke with believed that spike is attributable to the recession - as unemployment benefits ran out people suddenly remembered that injury they had at work...

That explained 2010, but what remains troublesome is that after 2010 frequency continued on its downward trend (based on National Council on Compensation Insurance stats) but California frequency, though down from 2010, is bucking the trend.

According to Berkeley Research Group's study more recently, 85% of injured workers in California were able to see a doctor within 3 days of reporting an injury and 80% said they were satisfied with the care and attention they received.

And while the statistics reflect that nearly 90% of all injured workers return to work post injury, the issue is how long it takes them to get there; significantly longer than the national average - California workers are out of work and on temporary disability 36% longer than the national median, based on Workers' Compensation Research Institutes' numbers.

Though California has the third most generous temporary disability payments in the nation, when adjusted for cost of living California is down around 30th of all states.

The average rates carriers charged employers was $2.91 per $100 of payroll, which is just under the those charged in 1978 ... but rates have gone up 35% since 2008 (when rates bottomed) and is 70% higher than the national median.

California's work comp market is by far and away the largest in the nation, which explains the attraction to carriers and others vending to the system, comprising 25% of the total market with an estimated 2014 written premium of $12 billion.

This premium growth is partly from increasing payrolls as the economy recovers and more people return to the work force, but some of it is just carriers increasing rates as investment returns sag and carriers take advantage of the current market's willingness to absorb increases.

In terms of diversification of carriers, there's no threat of monopolization by any single carrier, though State Compensation Fund continues to be the largest, albeit slipping considerably since 2004 with private carriers nipping the heels of SCIF for the top spot.

And since open rating began in 1996 national carriers have come to dominate the California market.

But if the California workers' compensation market were examined by a rational Wall Street it would not survive financier's scrutiny, with a terrible historic return on capital rate, the system being called "return challenged" when the industry is compared to other industries on a return on net worth basis.

Payments on the medical side of the balance sheet comprise nearly 67.5% of all claims dollars now, but California has the sorry distinction of being among the slowest of all states to pay the doctors - with days to payment nearly twice as long as the national average.

But inflation for workers' compensation medical treatment, though existent, has remained far below the inflation experienced in the general health system (where premiums have tripled since 2001).

The system spent $15.5 billion at the last measure, 2/3rds going to benefits and the other third spent on administration of benefits. This ratio is not appreciably changed from prior years though.

Lou Shields, part of the afternoon panel on the real world experience with SB 863, and Vice President IT Application Integration for Maximus Federal Services, corrected the WorkCompCentral report of the other day telling me that while the overall payroll of Maximus' doctors reflected 40% from California, 70% that do the California work are California licensed presently and that they intend to increase that ratio.

So if I had to describe my perceptions of California workers' compensation following this meeting it would be, "troubled."

While Christine Baker, Director of the Department of Industrial Relations and at the meeting but not part of the presentation, said that SB 863 needs to be given time, the short term prognosis is not good.

Still we have to remember that there are a lot of balls up in the air: lien process challenges pending at the appellate court level, adjustments to the IMR process, roll out of the $120 million supplemental fund, interpreter and copy service fee schedules, etc.

From my jaundiced view though, what is pending doesn't represent any meaningful chunk of system savings, and if, for example, the lien fee challenges are upheld costs will actually increase.

Thursday, June 12, 2014

Brakes And Friction

Traveling to the California Workers' Compensation Insurance Rating Bureau's Annual Meeting yesterday I got talking with a workers' compensation attorney about the state of the industry, specific to California.

I told him that I didn't think it was in good shape and that SB 863 has ended up doing more harm than good, and likely won't offer any relief from claim costs, and in fact may stimulate costs even more, at least in the short term.

The reason, I offered, was because SB 863 did more to micro-manage the system than any prior reform attempt and consequently is causing more friction.
Brakes work because of friction.
The evidence, I said, is in the rise in defense attorney fees over the past couple of years to nearly a billion dollars annually today.

It seems, I said, that workers' compensation has become much more about process rather than substance. The reason litigated claims consume so much of the claim dollar is because more time and energy is spent maneuvering to take some perceived advantage of procedure: objecting to Medical Provider Networks, Qualified Medical Examination panels, Utilization Review decisions, etc., rather than get to the meat of cases to get them settled.

My traveling friend, a defense attorney, agreed. He told me it seems most of his time is now spent at the Workers' Compensation Appeals Board District Offices on expedited hearings over some medical control issue rather than dealing with the case in chief and getting claims resolved.

He also said that he has seen a dramatic increase in cumulative trauma and post termination claims - the applicant's bar has figured out the weaknesses in the law, in the procedures, and in the court opinions interpreting this whole mess, and are exploiting those weaknesses to get to the pay day.

These actions beget defense exploitation of procedure as well. The carriers and their attorneys have also found where the narrow paths are in claim management that give some control over where and how money gets distributed.

Fingers can be pointed, and blame can be assigned, but the way an applicant attorney is going to look at it, these latest experiments at workers' compensation "reform" are simply problems and obstacles towards getting the ultimate goal, which is a healthy permanent disability rating.

Likewise, there are some that are going to deny and delay as much as possible for capital preservation, but for the most part those in control of the claim dollar are simply modulating the outflow in accordance with what the law says is the obligation.

Honestly, I can't fault either side (when motivations are pure and not ethically or morally questionable) because that's how the system is set up.

But at some point in time one has to ask what is enough.

What is enough?

What stimulates workers' compensation reform, the push and the pull, is that question - at various intersections of the financial equation that drives conflicting motivations there is push back. Someone along the line has had it, and says "this is enough," and the brakes are applied.

With SB 899 the applicant bar said "enough" to the indemnity reductions. With SB 863 the employer community said "enough" to open ended medical treatment.

And so on.

All along the way the brakes are put on.

Brakes work due to friction. The pads squeeze on the rotor, and friction slows the rotor, usually in a controlled fashion.

Friction causes heat. This is the necessary by-product of braking and is one of those basic theoretical dynamics we all learn in grade school - Sir Isaac Newton's theory that all actions have a equal, but opposite, reaction nicely describes braking.

Engineers, particularly those in the mechanical fields, have to deal with friction all of the time in their designs and problem solving. They know that the more moving parts there are, the more energy is needed to accelerate and maintain action, and more force (i.e. friction) is needed to slow or stop the action.

In general there are two ways of dealing with friction: reduce the moving parts or increase the amount of lubrication (or perhaps a combination of the two).

Workers' compensation has lots of moving parts. It's a complex, social benefit system with parts related to capital collection (premiums), investment, redistribution, administration, medical treatment, litigation, evidence, indemnity, rehabilitation - the number of moving parts in workers' compensation is extraordinary.

Unfortunately, with each workers' compensation reform we have been successful in neither reducing parts or friction. In fact it seems that we have increased the amount of moving parts, and have failed to increase a corresponding amount of lubrication.

All of this is to say that I don't expect much good news to come out of the WCIRB Annual Meeting today.

Perhaps I will have something different to say tomorrow. Perhaps not enough.