So much of what we talk about in work comp is related to claims, but we forget that before claims there has to be a policy covering those claims, and those policies are strictly regulated because workers' compensation insurance is a captive market.
Since coverage is compulsory and the business of insurance is complex, California regulations require that anything remotely close to an insurance policy be first filed with the Workers' Compensation Insurance Rating Bureau and the Department of Insurance for review prior to implementation and sale.
Lately Applied Underwriters through its EquityComp program has drawn fire for violating these regulations and is the subject of regulatory review as well as a number of civil lawsuits, including one class action lawsuit.
The allegations are complex, but when we strip away the technical jargon, what Applied is accused of is making promises it didn't, or wouldn't fulfill; i.e .misrepresentation. It might have gotten away with it too except that the carrier came back to the complaining employers to demand more money than they had already paid.
If there's one thing that pisses people off is not delivering what was promised, then demanding even more money for that failed promise.
The employers suing Applied say they were quoted minimum and maximum program costs that didn’t resemble what was actually charged. They claim that they entered into the EquityComp program, then were required to also sign off on reinsurance participation agreements that included provisions that allowed Applied to continue assessments after policies expired - years after policy expiration, like a revolving line of credit with no end.
In other words, the employers ended up paying far more for their work comp coverage than they thought they would be responsible for.
Shasta Linen is one of the complainants. In its lawsuit it says quoted annual costs were to be between $107,541 to $322,623. From 2010 to 2012, the company paid $934,366 - obviously on the high side of the quote. But when the policy expired in December 2012, Applied sent Shasta a bill for $77,592 and another bill in January 2013 for $166,619.
Pet Food Express signed up for EquityComp in 2009. According to its class action lawsuit, the company had actual losses of $724,231 over the three-year coverage period, which meant its premium should have been about $1.2 million according to a program summary it relied on.
Instead, the company said it has paid more than $1.6 million in premiums.
Pet Food Express also alleges other Insurance Code violations such as out of territory arbitration and enforcement of policy disputes; neither the original Request to Bind Coverage and Services nor the reinsurance participation agreement Pet Food Express claims was foisted upon it after coverage started included a notice that dispute-resolution procedures are negotiable, as required by Insurance Code Section 11658.5.
Pet Food Express also argues the reinsurance participation agreement allocates risks in an “unreasonable and unexpected manner,” rendering the agreement unconscionable and void under California Civil Code Section 1670.5. That section allows a court to refuse to enforce an unconscionable contract.
Mike Rose’s Auto Body in Concord, CA on April 11 filed a complaint with the U.S. District Court for Northern California accusing Applied Underwriters Captive Risk Assurance Co. Inc. of fraud, breach of contract and unfair business practices.
According to the complaint, the body shop in September 2009 was told it would pay between $308,796 and $1.15 million over the three-year term of coverage through EquityComp. When the three-year coverage period ended in September 2012, the company says it paid more than $800,000 for $269,075 in claims.
Mike Rose’s Auto Body said it should have about $70,000 remaining in its account, but Applied has refused to return that money.
You'd think that would give the executives at the body shop pause ... Nope, the company re-enrolled in EquityComp in September 2012 based on a quote projecting costs of $403,553 to $1.52 million.
Applied sent the body shop a statement on Oct. 7, 2015, showing the company paid a total of $1.53 million during the latest three-year coverage period. According to the complaint, the statement said the body shop owed $1.44 million, so it had overpaid by about $91,000.
However, after applying provisions contained in the reinsurance participation agreement, Applied determined Mike Rose’s owed another $70,000 in premiums, and on Nov. 9 Applied sent a new statement with $290,452 in “new charges” bringing the balance to $361,000.
Whether Applied engaged in intentional or negligent misrepresentation, the heart of the matter is that expectations were established, and then violated. If the complaints are to be taken at face value, employers thought they were buying one thing, and then were sold another.
The cycle of money in workers' compensation should be straight forward. Employer pays money to carrier, which then uses that money for various expenses and then sets some aside in case a work injury occurs; if the carrier is astute the money sitting on the side lines will generate investment returns sufficient for a profit, and if the carrier's investment savvy is lacking then it loses money.
At the end of the day, the employer should have a reasonable expectation of what its costs will be, and the injured worker should have a reasonable expectation of what his/her benefits will be.
Failing one or the other creates mistrust, disputes, lawsuits, costs and expenses. Failing both causes a fundamental breakdown of the system.
The reason we have laws mandating filing and review of insurance documents is because even the most sophisticated purchaser of insurance products can get duped.
If it sounds too good to be true, it is.
Applied would not comment for this morning's WorkCompCentral story on the cases. The company is a division of Berkshire Hathaway.
Here's a blog from one of Applied's very frustrated customers: (http://www.coyoteblog.com/coyote_blog/2015/04/beware-applied-underwriters-workers-compensation-insurance.html) - he explains how he got into this mess and why he's upset - it's pretty simple. He felt backed into a corner and signed documents he didn't understand...
Showing posts with label enforcement. Show all posts
Showing posts with label enforcement. Show all posts
Tuesday, April 19, 2016
Wednesday, March 16, 2016
Humpty Dumpty
Useless statutory mandates....
A useless statutory mandate is one that has no enforcement mechanism. The word "shall" is typical in the useless mandate structure.
The California legislature likes the word "shall," particularly in workers' compensation. It sounds tough. Too often, however, that tough-guy emperor has no clothes...
One of the most egregious examples of a useless statutory mandate was one imposed on the Division of Workers' Compensation by SB 899 to update the Permanent Disability Rating Schedule at least every five years.
Yeah, right. "Make me," was the tone from DWC, because there was no enforcement mechanism - no fine, no funding constriction, not even a slap on the wrist. The mandate was pointless, and ergo, completely ignored. The PDRS was never updated and the mandate provision was removed by the legislature in the next reform round.
SB 863 also introduced a pointless mandate - that Independent Medical Examiner firm Maximus issue decisions within 30 days after receiving a request for review and supporting documentation.
The mandate is so vague, so utterly incomplete, that there is an even split within the one-commissioner-down Workers' Compensation Appeals Board as to what it means.
Commissioners Marguerite Sweeney and Frank Brass, along with Chairwoman Ronnie Caplane, have taken the position that "shall" denotes a mandatory requirement. They say that a failure by Maximus to issue an IMR decision within 30 days means that the WCAB gets to make the decision.
But Commissioners Kathy Zalewski, Deidra Lowe and Jose Razo opine that the absence of an enforcement mechanism for the 30-day time limit is an indication that the deadline is "directory" or "discretionary," and that there is nothing in the Labor Code that makes an IMR decision invalid if its not issued within 30 days, and there is no statute that allows medical treatment disputes to be determined by the WCAB if Maximus misses the deadline.
Now there are two different appellate jurisdictions taking up the issue.
The Third District Court of Appeals had already taken up the case of Southard v. Hallmark Greeting Cards, and the Second District just announced it has granted review in California Highway Patrol v. WCAB (Margaris).
The Southard matter has been pending at the 3rd DCA for almost five months, and the court has yet to set a date for oral argument.
The 2nd DCA is moving more quickly and has ordered Margaris and her attorney to file responses to amicus briefs by Thursday. It has also directed the WCAB to respond to the State Fund writ petition by April 20, and it has set oral argument for June 13.
There's debate whether this issue is now moot since Maximus is getting better at issuing decisions timely - but that's not the point.
Forget about whether failure to adhere to the law results in a default back to the WCAB making a medical decision.
The real issue is that regardless of the law, mandates needs to be backed by an enforcement mechanism.
“When I use a word,” Humpty Dumpty said in rather a scornful tone, “it means just what I choose it to mean neither more nor less.”
“The question is,” said Alice, “whether you can make words mean so many different things.”
“The question is,” said Humpty Dumpty, “which is to be master – – that’s all.”
(Through the Looking Glass, Chapter 6)
The California legislature likes the word "shall," particularly in workers' compensation. It sounds tough. Too often, however, that tough-guy emperor has no clothes...
One of the most egregious examples of a useless statutory mandate was one imposed on the Division of Workers' Compensation by SB 899 to update the Permanent Disability Rating Schedule at least every five years.
Yeah, right. "Make me," was the tone from DWC, because there was no enforcement mechanism - no fine, no funding constriction, not even a slap on the wrist. The mandate was pointless, and ergo, completely ignored. The PDRS was never updated and the mandate provision was removed by the legislature in the next reform round.
SB 863 also introduced a pointless mandate - that Independent Medical Examiner firm Maximus issue decisions within 30 days after receiving a request for review and supporting documentation.
The mandate is so vague, so utterly incomplete, that there is an even split within the one-commissioner-down Workers' Compensation Appeals Board as to what it means.
Commissioners Marguerite Sweeney and Frank Brass, along with Chairwoman Ronnie Caplane, have taken the position that "shall" denotes a mandatory requirement. They say that a failure by Maximus to issue an IMR decision within 30 days means that the WCAB gets to make the decision.
But Commissioners Kathy Zalewski, Deidra Lowe and Jose Razo opine that the absence of an enforcement mechanism for the 30-day time limit is an indication that the deadline is "directory" or "discretionary," and that there is nothing in the Labor Code that makes an IMR decision invalid if its not issued within 30 days, and there is no statute that allows medical treatment disputes to be determined by the WCAB if Maximus misses the deadline.
Now there are two different appellate jurisdictions taking up the issue.
The Third District Court of Appeals had already taken up the case of Southard v. Hallmark Greeting Cards, and the Second District just announced it has granted review in California Highway Patrol v. WCAB (Margaris).
The Southard matter has been pending at the 3rd DCA for almost five months, and the court has yet to set a date for oral argument.
The 2nd DCA is moving more quickly and has ordered Margaris and her attorney to file responses to amicus briefs by Thursday. It has also directed the WCAB to respond to the State Fund writ petition by April 20, and it has set oral argument for June 13.
There's debate whether this issue is now moot since Maximus is getting better at issuing decisions timely - but that's not the point.
Forget about whether failure to adhere to the law results in a default back to the WCAB making a medical decision.
The real issue is that regardless of the law, mandates needs to be backed by an enforcement mechanism.
Anything less and it's not a mandate - maybe Commissioners Zalewski, Lowe and Razo are right...
*********
“When I use a word,” Humpty Dumpty said in rather a scornful tone, “it means just what I choose it to mean neither more nor less.”
“The question is,” said Alice, “whether you can make words mean so many different things.”
“The question is,” said Humpty Dumpty, “which is to be master – – that’s all.”
(Through the Looking Glass, Chapter 6)
Friday, July 17, 2015
Don't Step On It
 |
| "Whoa! Did someone step on a duck?" |
The unavoidable and necessary bane of employers is employees.
Employees simply cost more than contractors.
Laws and regulations mandate insurance requirements, overtime pay, working hours, discrimination boundaries, rights and liabilities - each of these adds up to challenge the profit goal of the business.
So business tries to classify as much labor as possible as something other than an employee.
This has been an issue since the employer-employee relationship was created. Recent examples include actions against FedEx, Uber, and other large companies where controlling compensation outflow is a significant part of satisfying Wall Street's desire for short term earnings.
Small businesses too are highly sensitive to the dent of labor on profits, which is why industries that have more cash flowing through them tend to have more "independent contractors", such as construction or restaurants.
Earlier this week the U.S. Department of Labor this week put employers on alert with a memorandum stating the Fair Labor Standard Act's standard for determining employee versus contractor status means that most workers are, in fact, employees subject to all of the withholding, tax, and other labor standards applicable in law.
While we in workers' compensation look to employer control or employer benefit in determining the relationship, the DoL says it's economic dependence.
"If the worker is in business for him or herself (i.e., economically independent from the employer), then the worker is an independent contractor," Wage and Hour Division Administrator David Weil opined in the 15 page memo, but "(i)f the worker is economically dependent on the employer, then the worker is an employee."
Other factors employers must also consider include:
Employees simply cost more than contractors.
Laws and regulations mandate insurance requirements, overtime pay, working hours, discrimination boundaries, rights and liabilities - each of these adds up to challenge the profit goal of the business.
So business tries to classify as much labor as possible as something other than an employee.
This has been an issue since the employer-employee relationship was created. Recent examples include actions against FedEx, Uber, and other large companies where controlling compensation outflow is a significant part of satisfying Wall Street's desire for short term earnings.
Small businesses too are highly sensitive to the dent of labor on profits, which is why industries that have more cash flowing through them tend to have more "independent contractors", such as construction or restaurants.
Earlier this week the U.S. Department of Labor this week put employers on alert with a memorandum stating the Fair Labor Standard Act's standard for determining employee versus contractor status means that most workers are, in fact, employees subject to all of the withholding, tax, and other labor standards applicable in law.
While we in workers' compensation look to employer control or employer benefit in determining the relationship, the DoL says it's economic dependence.
"If the worker is in business for him or herself (i.e., economically independent from the employer), then the worker is an independent contractor," Wage and Hour Division Administrator David Weil opined in the 15 page memo, but "(i)f the worker is economically dependent on the employer, then the worker is an employee."
Other factors employers must also consider include:
- Whether a worker is in business for himself and whether there is a possibility for loss.
- How the worker's investment compares to the employer's investment. Weil said independent contractors should make some investment and undertake at least some risk.
- Whether the work performed requires some special skills and whether those skills are "akin" to those of other independent contractors.
- Whether the relationship with the employer is permanent or indefinite. Weil said a worker's lack of a permanent and indefinite relationship should also be evaluated to consider whether the contractor's status derives from his own business initiative.
- The degree and nature of the control an employer exerts over a worker. He said an employer's lack of control is "particularly telling" if the contractors work from home or offsite.
The memo may signal, though, that the federal government is getting more serious about enforcement of labor laws and rules.
And one thing worse than categorizing an employee as a contractor is getting caught doing it.
If it looks like a duck, don't step on it ... "quack."
Tuesday, February 24, 2015
Bad Faith or Not?
Here's a sensitive question for the workers' compensation community that I'm sure will provoke passionate debate: should workers' compensation insurance companies and/or third party administrators be subject to civil "bad faith" lawsuits?
Or should a state's workers' compensation system remain an exclusive remedy, even if a claims payer intentionally commits egregious acts such as denying benefits that it knows are due in order to "facilitate" a settlement?
WorkCompCentral Legal Editor, Sherri Okamoto, reports that about half of the states have done away with any civil bad faith remedy either through legislative or judicial actions, and the other half of the nation retains that remedy.
The contrasts are stark.
Okamoto cites an Iowa jury award an earlier this month of $25 million in punitive damages, along with $284,000 in damages, payable by his former employer's workers' compensation carrier for its bad-faith handling of his claim. The offense was failure to pay permanent total disability benefits after a 2009 accident left the injured worker with catastrophic injuries.
Other states where there is no civil remedy rely on administrative penalties and administrative judicial enforcement, such as California, which has been criticized because those policies lack sufficient deterrence to bad behavior such as wrongfully denying medical care to the critically injured.
Okamoto notes that the states that do allow for civil remedies vary widely in the standards and definitions for reprehensible conduct.
Alaska and Arizona, for example, define "bad faith" as a refusal to pay a claim without any arguably reasonable basis. In contrast, Arkansas requires a showing of "affirmative misconduct" or “dishonest purpose” to avoid liability.
Colorado, Maine and Michigan make a carrier's failure to act in good faith a breach-of-contract claim. Hawaii and Mississippi make carrier misconduct redressable in tort.
Texas used to permit bad faith actions until the Supreme Court's decision in Texas Mutual Insurance Co. v. Ruttiger, which held there was no common-law bad-faith action in the Lone Star State for workers' compensation claims handling.
Likewise, two months after Ruttiger came out, though, the New Jersey Supreme Court held that the state's injured workers do not have a common-law right of action for pain and suffering caused by an insurer's administration of a workers' compensation claim in Stancil v. Ace USA.
Last week, the North Carolina Court of Appeals ruled that an injured worker cannot bring a tort action to recover damages from an insurance carrier for its alleged bad-faith claims handling.
The split surely raises the passions in people: civil remedies fly in the face of the concept of administrative expediency that underlies workers' compensation; yet, administrative enforcement needs sufficient "teeth" to encourage compliance and deter bad behavior.
What do you think?
**********************
At 8 a.m. this morning the pre-recorded introduction webinar to Peter Rousmaniere's ground breaking white paper, Seismic Shifts: An Essential Guide for Practitioners and CEOs in Workers’ Comp, will be broadcast on WorkCompCentral (click here to register to watch the introduction for free, or purchase one or all of the subsequent four parts of the series here, and click here to download the white paper).
Rousmaniere argues that the workers' compensation industry, despite rising costs, is actually shrinking. He explains why, and what industry executives and other professionals should be doing. If your job has anything to do with workers' compensation (and you wouldn't be reading this if it weren't) then you need to at least read the paper - better though, you need to "attend" the webinar series to get the most from Rousmaniere's work, including exclusive interviews with subject matter experts.
If this isn't convincing enough, read Tom Lynch's review of the paper and the series here.
Or should a state's workers' compensation system remain an exclusive remedy, even if a claims payer intentionally commits egregious acts such as denying benefits that it knows are due in order to "facilitate" a settlement?
WorkCompCentral Legal Editor, Sherri Okamoto, reports that about half of the states have done away with any civil bad faith remedy either through legislative or judicial actions, and the other half of the nation retains that remedy.
The contrasts are stark.
Okamoto cites an Iowa jury award an earlier this month of $25 million in punitive damages, along with $284,000 in damages, payable by his former employer's workers' compensation carrier for its bad-faith handling of his claim. The offense was failure to pay permanent total disability benefits after a 2009 accident left the injured worker with catastrophic injuries.
Other states where there is no civil remedy rely on administrative penalties and administrative judicial enforcement, such as California, which has been criticized because those policies lack sufficient deterrence to bad behavior such as wrongfully denying medical care to the critically injured.
 |
| Bad Faith? |
Okamoto notes that the states that do allow for civil remedies vary widely in the standards and definitions for reprehensible conduct.
Alaska and Arizona, for example, define "bad faith" as a refusal to pay a claim without any arguably reasonable basis. In contrast, Arkansas requires a showing of "affirmative misconduct" or “dishonest purpose” to avoid liability.
Colorado, Maine and Michigan make a carrier's failure to act in good faith a breach-of-contract claim. Hawaii and Mississippi make carrier misconduct redressable in tort.
Texas used to permit bad faith actions until the Supreme Court's decision in Texas Mutual Insurance Co. v. Ruttiger, which held there was no common-law bad-faith action in the Lone Star State for workers' compensation claims handling.
Likewise, two months after Ruttiger came out, though, the New Jersey Supreme Court held that the state's injured workers do not have a common-law right of action for pain and suffering caused by an insurer's administration of a workers' compensation claim in Stancil v. Ace USA.
Last week, the North Carolina Court of Appeals ruled that an injured worker cannot bring a tort action to recover damages from an insurance carrier for its alleged bad-faith claims handling.
The split surely raises the passions in people: civil remedies fly in the face of the concept of administrative expediency that underlies workers' compensation; yet, administrative enforcement needs sufficient "teeth" to encourage compliance and deter bad behavior.
What do you think?
**********************
At 8 a.m. this morning the pre-recorded introduction webinar to Peter Rousmaniere's ground breaking white paper, Seismic Shifts: An Essential Guide for Practitioners and CEOs in Workers’ Comp, will be broadcast on WorkCompCentral (click here to register to watch the introduction for free, or purchase one or all of the subsequent four parts of the series here, and click here to download the white paper).
Rousmaniere argues that the workers' compensation industry, despite rising costs, is actually shrinking. He explains why, and what industry executives and other professionals should be doing. If your job has anything to do with workers' compensation (and you wouldn't be reading this if it weren't) then you need to at least read the paper - better though, you need to "attend" the webinar series to get the most from Rousmaniere's work, including exclusive interviews with subject matter experts.
If this isn't convincing enough, read Tom Lynch's review of the paper and the series here.
Tuesday, January 6, 2015
The Audit Joke
Police officers and firefighters in California and Arizona in separate cases are alleging violations of the Racketeers and Influenced Corruption Act against third party administrators York and Corvel and the municipalities those companies serviced.
In California the defendant cities are Rialto and Stockton. In Arizona its Phoenix.
The California complaint say the companies "routinely and improperly chose to hurl frivolous and legally unsound roadblock after roadblock to wrongfully deny care" to injured first responders.
The plaintiffs believe that a "pattern of practice" at the defendant companies together with the involvement of certain personnel for the defendant municipalities created an enterprise to fraudulently deny benefits in violation of RICO statutes.
Michael P. Doyle, a founding partner of the Doyle Raizner law firm, which filed both complaints, told WorkCompCentral the Arizona case already survived a motion to dismiss and he anticipates going to trial by the middle of summer. The California case is just getting started, he said.
The defendant cities paid the administrators based on a flat fee per claim and a percentage of savings from utilization-review and bill-review services that were provided, creating an incentive for improper conduct, the plaintiffs claim.
The alleged pattern of denying legitimate claims allowed the defendants to "lower the liability of the city, while at the same time maximizing the TPA's revenues (and allowing the TPA to maintain and obtain contracts with other public entities based on their 'outstanding' financial performance at the expense of public servants)."
The defendant employers conspired with the defendant administrators and "denied claims in hopes that some plaintiffs will simply not continue to seek benefits under workers' compensation entirely," the complaint says. The complaint also alleges the defendants ignored California law regarding pre-existing injuries that are aggravated by a new incident, as well as statutes creating a presumption of compensability for certain conditions suffered by first responders.
Representatives for the various defendants would not comment on the cases to WorkCompCentral reporter Greg Jones because of the pending litigation or were not available prior to deadline.
But Jones reports that California Division of Workers' Compensation audits found claims shops run throughout the state by both firms had numerous violations, including late and unpaid indemnity benefits, but in all but one case, the fines were waived because the shops scored high enough to escape financial penalties under the division's profile audit review program.
York was fined $117,036 after the DWC identified 213 violations during a review of claims processed through its shop in Oxnard. Violations included 26 cases in which the company underpaid indemnity benefits by a total of $84,458.42, according to the DWC's 2010 audit report.
The DWC identified 45 violations at York's shop in Fresno in 2010.
The same year, the DWC said it uncovered 80 violations at Corvel's shop in Sacramento, including $2,147 in unpaid indemnity benefits on nine claims.
In 2011, the DWC identified $92,615 in unpaid indemnity benefits on 26 claims from Corvel's shops in Camarillo, Rancho Cucamonga and San Diego. The proposed fines, all of which were waived, for 128 violations at the three adjusting locations were $78,790.
York in the same year had unpaid benefits of $31,562 on 28 claims audited at its shops in Upland, Valencia and Concord. The proposed penalties of $51,115 for 157 auditing violations uncovered were all waived, according to the DWC's 2011 audit report.
In 2012, the latest year for which audit results are available, the DWC said York had unpaid indemnity totaling $7,347 on claims handled by its El Dorado Hills office. The audit also identified 52 cases of failing to comply with the requirements to provide notice to the injured worker of the QME/AME process. York faced penalties of $30,175 for 117 violations, but the fines were waived.
There are two things that come readily to mind.
First, the DWC audit system in California just doesn't work. That injured workers have to resort to seeking civil judicial intervention for redress that the state should be taking care of is sad testament to the respect the state gets.
Kind of like a parent that threatens taking the cell phone or Internet away from the teenager for misbehavior - puh-leeze! Oh! That's a threat...
Second, maybe there's an intentional manipulation of the system by the defendant, or maybe there's a dysfunctional culture that allows such transgression without consequence (see first observation above).
Sadly, what will happen is that the RICO cases will end up in some sort of anonymous settlement, there won't be any penalties or fines from the state auditors, there will be no change to the audit process, and the practices will continue, albeit via some other employers and other administrators.
The heavy penalization system that was so criticized by employers, carriers, TPAs and other payers (Labor Code section 5814) for unwarranted cost and expense to the system, was castrated by SB 899 ten years ago because the audit system was in place and was supposed to do the job of enforcement.
Clearly that assumption has proven incorrect.
Enforcement by the state is a joke.
I can pretty much guarantee that if the state had any cajones and actually enforced the penalties instead of waiving them all (except for one as noted) the culture would change, the behavior would change and there wouldn't be any RICO challenges surviving the initial pleading stage.
The ball is in the state's hands - the audit and penalty system is administrative in nature and doesn't need legislative backing to change. All the state has to do is NOT waive penalties.
Until then, expect injured workers to seek civil redress for performing the state's obligation.
The California complaint say the companies "routinely and improperly chose to hurl frivolous and legally unsound roadblock after roadblock to wrongfully deny care" to injured first responders.
The plaintiffs believe that a "pattern of practice" at the defendant companies together with the involvement of certain personnel for the defendant municipalities created an enterprise to fraudulently deny benefits in violation of RICO statutes.
Michael P. Doyle, a founding partner of the Doyle Raizner law firm, which filed both complaints, told WorkCompCentral the Arizona case already survived a motion to dismiss and he anticipates going to trial by the middle of summer. The California case is just getting started, he said.
The defendant cities paid the administrators based on a flat fee per claim and a percentage of savings from utilization-review and bill-review services that were provided, creating an incentive for improper conduct, the plaintiffs claim.
The alleged pattern of denying legitimate claims allowed the defendants to "lower the liability of the city, while at the same time maximizing the TPA's revenues (and allowing the TPA to maintain and obtain contracts with other public entities based on their 'outstanding' financial performance at the expense of public servants)."
The defendant employers conspired with the defendant administrators and "denied claims in hopes that some plaintiffs will simply not continue to seek benefits under workers' compensation entirely," the complaint says. The complaint also alleges the defendants ignored California law regarding pre-existing injuries that are aggravated by a new incident, as well as statutes creating a presumption of compensability for certain conditions suffered by first responders.
|
| This attitude needs correction. |
Representatives for the various defendants would not comment on the cases to WorkCompCentral reporter Greg Jones because of the pending litigation or were not available prior to deadline.
But Jones reports that California Division of Workers' Compensation audits found claims shops run throughout the state by both firms had numerous violations, including late and unpaid indemnity benefits, but in all but one case, the fines were waived because the shops scored high enough to escape financial penalties under the division's profile audit review program.
York was fined $117,036 after the DWC identified 213 violations during a review of claims processed through its shop in Oxnard. Violations included 26 cases in which the company underpaid indemnity benefits by a total of $84,458.42, according to the DWC's 2010 audit report.
The DWC identified 45 violations at York's shop in Fresno in 2010.
The same year, the DWC said it uncovered 80 violations at Corvel's shop in Sacramento, including $2,147 in unpaid indemnity benefits on nine claims.
In 2011, the DWC identified $92,615 in unpaid indemnity benefits on 26 claims from Corvel's shops in Camarillo, Rancho Cucamonga and San Diego. The proposed fines, all of which were waived, for 128 violations at the three adjusting locations were $78,790.
York in the same year had unpaid benefits of $31,562 on 28 claims audited at its shops in Upland, Valencia and Concord. The proposed penalties of $51,115 for 157 auditing violations uncovered were all waived, according to the DWC's 2011 audit report.
In 2012, the latest year for which audit results are available, the DWC said York had unpaid indemnity totaling $7,347 on claims handled by its El Dorado Hills office. The audit also identified 52 cases of failing to comply with the requirements to provide notice to the injured worker of the QME/AME process. York faced penalties of $30,175 for 117 violations, but the fines were waived.
There are two things that come readily to mind.
First, the DWC audit system in California just doesn't work. That injured workers have to resort to seeking civil judicial intervention for redress that the state should be taking care of is sad testament to the respect the state gets.
Kind of like a parent that threatens taking the cell phone or Internet away from the teenager for misbehavior - puh-leeze! Oh! That's a threat...
Second, maybe there's an intentional manipulation of the system by the defendant, or maybe there's a dysfunctional culture that allows such transgression without consequence (see first observation above).
Sadly, what will happen is that the RICO cases will end up in some sort of anonymous settlement, there won't be any penalties or fines from the state auditors, there will be no change to the audit process, and the practices will continue, albeit via some other employers and other administrators.
The heavy penalization system that was so criticized by employers, carriers, TPAs and other payers (Labor Code section 5814) for unwarranted cost and expense to the system, was castrated by SB 899 ten years ago because the audit system was in place and was supposed to do the job of enforcement.
Clearly that assumption has proven incorrect.
Enforcement by the state is a joke.
I can pretty much guarantee that if the state had any cajones and actually enforced the penalties instead of waiving them all (except for one as noted) the culture would change, the behavior would change and there wouldn't be any RICO challenges surviving the initial pleading stage.
The ball is in the state's hands - the audit and penalty system is administrative in nature and doesn't need legislative backing to change. All the state has to do is NOT waive penalties.
Until then, expect injured workers to seek civil redress for performing the state's obligation.
Wednesday, December 17, 2014
Can't Stay Away
WorkCompCentral correspondent, Michael Whitely, has been following and writing about New York-based Oriska Insurance Company for nearly a decade.
His story this morning about the principal owner's travails with regulators and the judicial system, and his new attempt to reenter the workers' compensation insurance market, show how enticing the work comp market, particularly California's "troubled" system, still is.
James Kernan was banned from conducting insurance business when he was sentenced in January 2010 in connection with a scheme by which Oriska was used as the principal underwriting agency to collect millions of dollars of premiums through bogus workers' compensation policies issued to professional employer organizations in states where it wasn't licensed to conduct business.
Whiteley describes in detail the allegations, the convictions, the statements and the positions of the government, Kernan, his colleagues and accomplices, prosecutors and a lot of other people touched by this story.
In a classic public relations move, the convicted blames others for duping him into illegal acts.
"Some of these unfortunate claimants waited nearly a decade," Kernan said in a recent press release. "Even though Oriska Insurance was victimized by con-men, we worked with the Department of Insurance to ensure duped employers or taxpayers didn't suffer. We took unprecedented action to see this process through and also to protect the Oriska insurance name."
The California Department of Insurance doesn't see it that way.
"The California Department of Insurance does not believe that Oriska Insurance Co.'s press release accurately portrays the events in the matter," Nancy Kincaid, press secretary to California Insurance Commissioner Dave Jones, said in a statement to WorkCompCentral. "Oriska issued insurance policies in violation of the California Insurance Code."
Kernan is contesting a New York State Insurance Department order that he divest his controlling interest in Oriska and hopes to re-enter the insurance business, according to officials.
And he is still embroiled in California claims, though Kernan's California attorney says those matters will be fully resolved and paid in short order.
The scheme was hatched nearly a decade ago, and continued on in several states - where Oriska was not authorized to write work comp insurance - despite several warnings, penalties and fines from state insurance departments.
A 2008 federal grand jury indictment says that Kernan, California PEO executive Robert "Skip" Anderson Sr., and several others conspired to engage in mail fraud for selling work comp policies in Arizona, California, New York and Pennsylvania through Oriska, even though the insurer was not authorized to write business in those states.
As of 2007, Oriska was authorized to write business in the District of Columbia, North Carolina, Pennsylvania, Tennessee and West Virginia only.
In the press release, Kernan contends Oriska was not aware of what he calls an "insurance-related Ponzi scheme that targeted Oriska" and stranded more than 350 medical and wage-loss claims based on "counterfeit coverages."
Kernan said California regulators and Oriska discovered the scheme when PEOs told employers with claims to contact Oriska.
"Oriska was victim of this Ponzi scheme and nearly crippled this company, but we wanted to be part of the solution," Kernan said.
Kernan is fighting regulators in New York to regain authorization to write insurance and is seeking to reverse an order that he divest his interests in the insurance company.
Whitely's examination of documents calls into question whether the ordered divestiture in fact has ever occurred.
The outcome of all this is, I'm sure, far from decided. But the story is a reminder that workers' compensation insurance is, at its heart, part of the financial services industry and all too often the numbers are just too hard to resist.
But from what I've read, frankly, this is an open and shut case. There weren't just appearances of impropriety - there was outright malfeasance. We don't need this in work comp.
James Kernan was banned from conducting insurance business when he was sentenced in January 2010 in connection with a scheme by which Oriska was used as the principal underwriting agency to collect millions of dollars of premiums through bogus workers' compensation policies issued to professional employer organizations in states where it wasn't licensed to conduct business.
Whiteley describes in detail the allegations, the convictions, the statements and the positions of the government, Kernan, his colleagues and accomplices, prosecutors and a lot of other people touched by this story.
In a classic public relations move, the convicted blames others for duping him into illegal acts.
"Some of these unfortunate claimants waited nearly a decade," Kernan said in a recent press release. "Even though Oriska Insurance was victimized by con-men, we worked with the Department of Insurance to ensure duped employers or taxpayers didn't suffer. We took unprecedented action to see this process through and also to protect the Oriska insurance name."
The California Department of Insurance doesn't see it that way.
"The California Department of Insurance does not believe that Oriska Insurance Co.'s press release accurately portrays the events in the matter," Nancy Kincaid, press secretary to California Insurance Commissioner Dave Jones, said in a statement to WorkCompCentral. "Oriska issued insurance policies in violation of the California Insurance Code."
Kernan is contesting a New York State Insurance Department order that he divest his controlling interest in Oriska and hopes to re-enter the insurance business, according to officials.
And he is still embroiled in California claims, though Kernan's California attorney says those matters will be fully resolved and paid in short order.
 |
| Bowzer smells malarky... |
The scheme was hatched nearly a decade ago, and continued on in several states - where Oriska was not authorized to write work comp insurance - despite several warnings, penalties and fines from state insurance departments.
A 2008 federal grand jury indictment says that Kernan, California PEO executive Robert "Skip" Anderson Sr., and several others conspired to engage in mail fraud for selling work comp policies in Arizona, California, New York and Pennsylvania through Oriska, even though the insurer was not authorized to write business in those states.
As of 2007, Oriska was authorized to write business in the District of Columbia, North Carolina, Pennsylvania, Tennessee and West Virginia only.
In the press release, Kernan contends Oriska was not aware of what he calls an "insurance-related Ponzi scheme that targeted Oriska" and stranded more than 350 medical and wage-loss claims based on "counterfeit coverages."
Kernan said California regulators and Oriska discovered the scheme when PEOs told employers with claims to contact Oriska.
"Oriska was victim of this Ponzi scheme and nearly crippled this company, but we wanted to be part of the solution," Kernan said.
Kernan is fighting regulators in New York to regain authorization to write insurance and is seeking to reverse an order that he divest his interests in the insurance company.
Whitely's examination of documents calls into question whether the ordered divestiture in fact has ever occurred.
The outcome of all this is, I'm sure, far from decided. But the story is a reminder that workers' compensation insurance is, at its heart, part of the financial services industry and all too often the numbers are just too hard to resist.
But from what I've read, frankly, this is an open and shut case. There weren't just appearances of impropriety - there was outright malfeasance. We don't need this in work comp.
Wednesday, September 3, 2014
Contracting Workers
One reason formal employment statistics aren't growing as robustly as economists had predicted post Great Recession is that so much of the economy has stayed underground.
Research group Economic Roundtable released a report around Labor Day in which the authors concluded that the number of "informal" employees − those either unreported or misclassified as independent contractors − working in construction in the Golden State has grown 400% since 1972 to a total of 143,900 in 2011 − 16% of the state's construction workforce. Of that number, 104,100 workers were unreported to state regulators and 39,800 were misclassified.
Construction is one of the keystone industries in California, and in many other parts of the country, that were particularly hard hit in the recession which was precipitated by bad housing loans.
After the 2007 recession, the report showed that the number of informal workers increased year-over-year while the number of formal employees dropped.
“They take these jobs out of economic necessity, which happened a lot in the great recession, or they leave the industry,” study author Yvonne Yen Liu said.
The cost to the workers' compensation industry was estimated at $264 million just in 2011 - this is a cost that the rest of legitimate, properly reporting, employers in all industries share in keeping the workers' compensation system afloat.
Probably worse, however, is that this population lacks work injury protection (though maybe, as one might gather from some of my recent posts that may not be such a bad thing...).
And of course misclassified and unreported workers create a loss of tax revenue and a lack of contributions to health care programs like Medicare.
Yen Liu said the study, which draws on 40 years of data from federal and state statistics, illustrates the informal labor issue clearer than ever before.
 |
| "Employee? Whatever ... I just want to work." |
A bill aimed at doing just that, Assembly Bill 1897, passed the Assembly in May and the Senate on Wednesday.
Contractors, of course, oppose the bill, stating that the industry doesn't need more regulation, but tighter enforcement.
Tom Holsman, chief executive officer for the Associated General Contractors of California, said California’s legal and regulatory system make it difficult for construction companies to comply with the law, citing as an example penalties for hiring undocumented workers.
He also says it's too difficult for contractors to determine whether one is an independent contractor or must be classified as an employee because California's legal test used to draw that distinction consists of 25 questions, where in other states it’s usually comprised of between six and 12.
I'm calling balderdash on Holsman's statement. The test, at least for workers' compensation purposes which is the most liberal of standards when it comes to employment relationships, is really, really easy: direction and control of the labor provided.
There are some questions that one can ask to help provide a clearer answer, but any questionable answer is easily resolved by defaulting to a liberal interpretation of employment relation.
The only time there is a question, it seems, is if a contractor is trying to improve his profit margin.
Large contractors that do government work don't seem to have this problem because they get severely penalized for lying and can be banned from government work in the future. Most construction work is done by small contractor firms.
AB 1897 is the legislature's attempt to make private industry do the government's job. My guess is that isn't going to work because the benefit of falsifying employment validation reports is greater than the potential cost.
In addition, AB 1897 doesn't apply to "employers" with work forces of less than 25 (inclusive of contracted labor), and it applies not to just contractors but to any business that might employ contract labor (my neighbor's farm for instance).
AB 1897 isn't needed. The government just needs to do its job enforcing existing laws and regulations. And contractors need to quell their profit expectations.
Wednesday, August 27, 2014
Drug Testing En Masse Risky
A federal appellate court gave a pyric victory to an employer in Tennessee, remanding a case back to the trial level because the reasons for mass drug testing of its workforce might have a reasonable basis and not be violative of the Americans with Disabilities Act; that it was an issue for the jury and not the judge.
Dura Automotive Systems is a manufacturer of glass windows for cars, trucks, and busses. Its facility contains a variety of heavy equipment and active machinery, including high-temperature injection molds, presses, air powered tools, cutting machines, die casts, fork lifts, tow motors, hi-lo lifters, and portable cranes.
Between the end of 2006 and early 2007, the company claimed, workers at its Lawrenceburg, Tennessee plant experienced substantially more work-related accidents than Dura's other facilities. Several employees allegedly also tested positive for controlled substances after their accidents.
Dura said that Lawrenceburg police had alerted its local management of illicit drug activity taking place at the plant.
The company decided to implement a new substance-abuse policy, which appeared in the March 2007 revision of the employee handbook and a July 2007 document issued by the company’s human resources department.
Pursuant to this policy, Dura reserved the right to conduct drug tests on its employees, and employees were expressly prohibited from “being impaired by or under the influence” of alcohol, illegal drugs, prescription medications, or over-the-counter drugs, if the use of such drugs endangered others or affected their job performance.
In May 2007, Dura ordered a plant-wide drug screening of the Lawrenceburg facility’s more than 400 employees. Dura hired Freedom From Self to administer the drug tests to its workforce.
Dura instructed FFS to test for 12 substances—amphetamines, barbiturates, benzodiazepines, cocaine, ecstasy, marijuana, methadone, methamphetamine, opiates,oxycodone, phencyclidine, and propoxyphene—some of which appear in prescription medications.
Velma Bates, Claudia Birdyshaw, Mark Long, John Toungett, Carolyn Wade, Richard White and Willarene Fisher had all worked for Dura at its Lawrenceburg plant.
Between them, Bates, Birdyshaw, Wade, White, Long, Toungett and Fisher, had prescriptions for oxycodone, Cymbalta, Didrex, Lortrab, Soma, and Xanax. They claimed that their use of these medications was what yielded positive results on the FFS drug test.
Dura placed all workers who tested positive on a 30-day leave of absence and instructed them to inform FFS if they were taking any prescription medications that contained the prohibited drug compounds.
An FFS employee then identified which of the medications carried a warning from the manufacturer for users not to operate dangerous machinery while taking the drug. FFS relayed this information to Dura, which informed the employees taking the medications that they would be terminated if they continued to use the drugs. However, if the employee tested negative after a second drug test, Dura said the worker would be allowed to return to work.
Wade and Fisher complied with the requirement and Dura reinstated them to their positions. But the remaining plaintiffs continued to take their medications and Dura fired them after they again tested positive.
After the drug testing, Dura claimed, the accident rate and amount of property damage at the Lawrenceburg facility decreased.
Bates, Birdyshaw, Wade, White, Long, Toungett and Fisher filed a complaint against Dura in May 2008 alleging the company had violated the ADA by subjecting them to an unlawful drug screening and then terminating them on the basis of their disabilities, or perceived disabilities.
There is some procedural history where the case goes back and forth between the trial court and the appellate court to resolve issues such as standing to sue, reclassification under different portions of the ADA and other issues.
Ultimately the trial judge found that Dura's drug testing of its workforce qualified as a medical examination or disability inquiry, in violation of Section 12112(d)(4), as a matter of law. The jury then returned a verdict collectively awarding the plaintiffs over $870,000 in damages.
On appeal, Dura argued that its drug testing had screened for substances that were "either illegal or, even if legally prescribed and used, may impair an individual’s mental alertness or motor skills" thus constituting an unreasonable business risk given the busy factory and heavy machinery, thus the drug testing was "job-related and consistent with business necessity."
The plaintiffs said that Dura's "plea for safety inside the front door of the plant," was a merely a pretense for conducting a drug test protocol that "was designed to seek information on possible weaknesses in employees." Thus, they said, the "substance screen as practiced by Dura Automotive Systems was a medical exam."
The 6th Circuit said the issue was not so clear-cut and that the issue of whether Dura violated the ADA should have gone to the jury and could not be found as a matter of law.
"Much depends on Dura’s credibility," the court said, stating it was possible a jury could see Dura’s explanation as a pretext, or find that the drug test had targeted information about employees' physical or mental health, regardless of Dura’s stated intent.
But it was not a matter of law that Dura violated the ADA.
The case is Bates et al. v. Dura Automotive Systems, No. 11-6088.
Ultimately the trial judge found that Dura's drug testing of its workforce qualified as a medical examination or disability inquiry, in violation of Section 12112(d)(4), as a matter of law. The jury then returned a verdict collectively awarding the plaintiffs over $870,000 in damages.
On appeal, Dura argued that its drug testing had screened for substances that were "either illegal or, even if legally prescribed and used, may impair an individual’s mental alertness or motor skills" thus constituting an unreasonable business risk given the busy factory and heavy machinery, thus the drug testing was "job-related and consistent with business necessity."
The plaintiffs said that Dura's "plea for safety inside the front door of the plant," was a merely a pretense for conducting a drug test protocol that "was designed to seek information on possible weaknesses in employees." Thus, they said, the "substance screen as practiced by Dura Automotive Systems was a medical exam."
The 6th Circuit said the issue was not so clear-cut and that the issue of whether Dura violated the ADA should have gone to the jury and could not be found as a matter of law.
"Much depends on Dura’s credibility," the court said, stating it was possible a jury could see Dura’s explanation as a pretext, or find that the drug test had targeted information about employees' physical or mental health, regardless of Dura’s stated intent.
But it was not a matter of law that Dura violated the ADA.
The case is Bates et al. v. Dura Automotive Systems, No. 11-6088.
Monday, July 29, 2013
Government Must Follow Its Own Rules
A process is only as good as the people that are entrusted to make that process work.
How, then, can Independent Medical Review be any good if it is going to function without adequate review or enforcement?
I'm speaking of WorkCompCentral's discovery that since the beginning of IMR, not even 8 months old yet, there have been at least 5 denials of care even though the IMR reviewer did not receive medical records from the claims administrator, as mandated by law.
The law, in this case emergency regulation section 9792.10.5, is clear - the claims administrator shall submit all medical records upon request by the IMR reviewer within 15 days of request (12 days if requested electronically).
What's more troubling than the denial of care without any documentation is the failure to fine offending entities as dictated by emergency regulation section 9792.12(a)(23), which provides for a mandatory fine ("shall"):
"For the failure to timely provide all information required by section 9792.10.5(a) and (c): $250.00 for each day the response is untimely under section 9792.10.3(c), up to a maximum of $5,000.00."
The contractor for the IMR process, Maximus Federal Services, should not even be making any IMR decision where there is no documentation and/or there is a failure to supply requested documents - this is Maximus' own internal policy, according to what Tom Naughton, vice president for Maximus, told the audience at the recent California Coalition on Workers’ Compensation conference in Anaheim.
Naughton said that if Maximus receives only a Utilization Review denial letter with the IMR application and nothing from the administrator, the company will identify the records it needs and the timeline for submitting them, which it apparently did in these instances.
But if no records are forthcoming within the timeframes set forth in the regulations, then there is no IMR decision to be adopted by the Administrative Director according to Labor Code 4610.6 - the section of SB 863 that introduces IMR.
4610.6(a) says that an IMR shall be conducted in accordance with "this article and any regulations" adopted by the Administrative Director. Clearly, if no records are forthcoming from the claims administrator under regulation 9792.10.5, which is a mandatory regulation, there is no IMR.
It's pretty simple.
Yet, the Administrative Director, in the five cases identified by WorkCompCentral reporter Greg Jones, went ahead and adopted as final the decisions of inadequate, and in my opinion illegal, IMRs - and in each case the decisions were against the injured worker.
I don't care if the requested treatment is outside the scope of the Medical Treatment Utilization Schedule, or are requests that make no medical sense - we have a law in place with specific parameters.
What's good for the goose, so to speak, is good for the gander.
Sure, the injured worker can appeal the adopted decisions of the AD - in these five cases it is clear to me that the AD acted without or in excess of her authority because there should not have been any IMR decisions - they were defective on their faces.
But why are we further burdening the system with such appeals, why is the injured worker waiting for requested treatment, and why is the claim being delayed on the account of IMR that's defective on it's face?
IMR can work. It can be a good way of managing questionable treatment requests.
It can also destroy a system. If the people of California can not rely upon the government to follow its own rules, how can the people put its trust in the government?
DWC spokesman Peter Melton advised Jones that the Labor Code section does not delegate to the DWC the power to determine what is a valid IMR appeal.
Fair enough.
The Labor Code DOES, however, delegate to the DWC the authority to determine what is a valid IMR decision in the first place. The DWC built rules for that - and the DWC needs to follow its own rules.
Here's what DWC needs to do:
1) Revoke or rescind its orders in those five cases to take them out of the appeals process - the entire structure of the IMR process is built on the theory of keeping medical treatment issues out of the courts, so do it.
2) Fine the offenders. Seems to me DWC is now owed $25,000. Issue the fines, collect the money, publicize the results, make system participants know that this is serious business.
3) Refine the regulations to make it abundantly clear to Maximus, and any other company that might be engaged in the future of IMR, that any failure by the claims administrator to provide records as requested takes the matter out of IMR AND invalidates the underlying UR.
We have a system in place. It needs to be followed by everyone, including the government. If government won't do its job, then the people won't do theirs, and then anarchy will rule.
And the "savings" that are estimated to arise from this tumult won't be realized.
Figure it out boys and girls - you put a new system into place. You better make it work.
How, then, can Independent Medical Review be any good if it is going to function without adequate review or enforcement?
I'm speaking of WorkCompCentral's discovery that since the beginning of IMR, not even 8 months old yet, there have been at least 5 denials of care even though the IMR reviewer did not receive medical records from the claims administrator, as mandated by law.
The law, in this case emergency regulation section 9792.10.5, is clear - the claims administrator shall submit all medical records upon request by the IMR reviewer within 15 days of request (12 days if requested electronically).
What's more troubling than the denial of care without any documentation is the failure to fine offending entities as dictated by emergency regulation section 9792.12(a)(23), which provides for a mandatory fine ("shall"):
"For the failure to timely provide all information required by section 9792.10.5(a) and (c): $250.00 for each day the response is untimely under section 9792.10.3(c), up to a maximum of $5,000.00."
The contractor for the IMR process, Maximus Federal Services, should not even be making any IMR decision where there is no documentation and/or there is a failure to supply requested documents - this is Maximus' own internal policy, according to what Tom Naughton, vice president for Maximus, told the audience at the recent California Coalition on Workers’ Compensation conference in Anaheim.
Naughton said that if Maximus receives only a Utilization Review denial letter with the IMR application and nothing from the administrator, the company will identify the records it needs and the timeline for submitting them, which it apparently did in these instances.
But if no records are forthcoming within the timeframes set forth in the regulations, then there is no IMR decision to be adopted by the Administrative Director according to Labor Code 4610.6 - the section of SB 863 that introduces IMR.
4610.6(a) says that an IMR shall be conducted in accordance with "this article and any regulations" adopted by the Administrative Director. Clearly, if no records are forthcoming from the claims administrator under regulation 9792.10.5, which is a mandatory regulation, there is no IMR.
It's pretty simple.
Yet, the Administrative Director, in the five cases identified by WorkCompCentral reporter Greg Jones, went ahead and adopted as final the decisions of inadequate, and in my opinion illegal, IMRs - and in each case the decisions were against the injured worker.
I don't care if the requested treatment is outside the scope of the Medical Treatment Utilization Schedule, or are requests that make no medical sense - we have a law in place with specific parameters.
What's good for the goose, so to speak, is good for the gander.
Sure, the injured worker can appeal the adopted decisions of the AD - in these five cases it is clear to me that the AD acted without or in excess of her authority because there should not have been any IMR decisions - they were defective on their faces.
But why are we further burdening the system with such appeals, why is the injured worker waiting for requested treatment, and why is the claim being delayed on the account of IMR that's defective on it's face?
IMR can work. It can be a good way of managing questionable treatment requests.
It can also destroy a system. If the people of California can not rely upon the government to follow its own rules, how can the people put its trust in the government?
DWC spokesman Peter Melton advised Jones that the Labor Code section does not delegate to the DWC the power to determine what is a valid IMR appeal.
Fair enough.
The Labor Code DOES, however, delegate to the DWC the authority to determine what is a valid IMR decision in the first place. The DWC built rules for that - and the DWC needs to follow its own rules.
Here's what DWC needs to do:
1) Revoke or rescind its orders in those five cases to take them out of the appeals process - the entire structure of the IMR process is built on the theory of keeping medical treatment issues out of the courts, so do it.
2) Fine the offenders. Seems to me DWC is now owed $25,000. Issue the fines, collect the money, publicize the results, make system participants know that this is serious business.
3) Refine the regulations to make it abundantly clear to Maximus, and any other company that might be engaged in the future of IMR, that any failure by the claims administrator to provide records as requested takes the matter out of IMR AND invalidates the underlying UR.
We have a system in place. It needs to be followed by everyone, including the government. If government won't do its job, then the people won't do theirs, and then anarchy will rule.
And the "savings" that are estimated to arise from this tumult won't be realized.
Figure it out boys and girls - you put a new system into place. You better make it work.
Wednesday, June 26, 2013
My Talk With David North; Preventing A Romano
David North, Chief Executive of Sedgwick Claims Services, gave me a call the other day. I wasn't around to take his call, so I rang him back yesterday.
Mr. North was, of course, calling about my blogging on the Charles Romano case.
Assuring me that he, and Sedgwick in general, had the utmost compassion for the Romano family, Mr. North acknowledged quite forthrightly that there were no excuses for the events that led to the death of Mr. Romano.
Here's what has happened at Sedgwick since the Romano case took a turn for the worse: a massive internal investigation was launched to identify the how and why; the claims adjuster managing the claim and her supervisor were separated from the company; new internal processes have been developed (and are under continuous examination) to improve claims handling and the management of those responsible; the Romano family has been compensated (I did not ask for particulars) and North said the matter was "closed."
Sedgwick has used the opportunity to further educate its claims management staff and revisit its best practices.
North, of course, defends his company noting that this last year Sedgwick managed 2.2 million claims involving $11 billion in loss costs, so inevitably there are going to be mistakes, but the firm has been ranked very high in state audits the past 5 years.
But North did not discount the fact that in all claims, attention to detail is critical.
North also denied the rumors that Sedgwick had any financial "interest in the claim," stating that in fact the incentive is the reverse - to do good on claims; Sedgwick earned a good reputation in the claims community by treating every claim on its own merits, that culturally and ethically the emphasis within the company is on doing the right thing.
Regardless, North returned frequently to state that he and the company had a deep felt regret for what happened, had compassion and empathy for the Romano family but that, unfortunately, the case HAS led to the healthy dialogue.
Okay - so we spent some time lamenting about the claim, what led to it and its outcome.
But what came next did demonstrate why Mr. North can be counted on to lead Sedgwick, and the industry, towards more responsible, effective, claims management, answering my challenge.
The one enforcement mechanism that is universal in claims handling is audits. For a large third party administrator like Sedgwick, audits are a part of every day life. There are audits by the state, of course, audits by the employer, audits by CPAs, internal audits. There are individual claim audits, supervisory audits, department audits.
Everything is audited in multiple ways by multiple parties investigating multiple factors.
But all of these audits have a single, common, characteristic that makes them relatively ineffective on the management of claims in real time: all of these audits are retrospective in nature.
The audit process does not result in current claim management decision review or prospective planning or re-engineering of a claim handling plan.
And in this illuminating thought, North I think is on to a big revolution in claims management - what I would call Active Claims Auditing (ACA).
The industry needs to think about audits in a different way - presently audits are retrospective and penalizing in nature, rather than proactive to catch mistakes and errors before they mushroom into catastrophe.
Claims adjusters become more concerned with passing an audit, retrospectively, rather than correcting real time decision making; the focus of the adjuster is on protecting decisions made in the past rather than guiding decisions in the future.
In aviation, the overwhelming majority of accidents are the product of not just a single mistake, but an accumulation of mistakes that compound a situation ultimately leading to catastrophe.
There are always red flags along the accident chain; little elements of error that would otherwise be benign unto themselves, but when chained together these little errors affect the active decision making process resulting in incorrect assumptions and/or understanding of a situation. Thus, the decision maker is led down the wrong path.
And the direction to the correct path is blocked because the mind can not overcome the initial incorrect assumption.
I think North is on to something. The audit process really needs to start early during the claim life, e.g. first 90 days, rather than retrospectively, so that red flags can alert decision makers up the chain of command about a potential problem.
Current claims management computer systems automate many of the tasks that, just 10 years ago, required manual intervention - dates, numbers, forms, alerts, etc.
But while these systems save labor and increase efficiency, they were not designed to engage the complex business rules that encompass the myriad of possible fact combinations affecting claims management decisions. They are not designed around a risk management decision making matrix.
If upper management at Sedgwick could have been alerted early on in the Romano claim that a relatively simple injury had started down the wrong path, an intervention could have been summoned and likely Mr. Romano would be here today, and quite possibly back at work.
I get asked often to speak at industry events about trends that I see in workers' compensation.
I think one of the trends that we will see emerge as a consequence of the Romano case is the development and deployment of more active claims management systems using sophisticated rules that provide earlier "audits" and alarms up the command chain to permit a more active management role.
I agree with North - audits should not just be retrospective in nature. By then it's too late. Sure, the claims manager will "learn" from the audit, but by then the injured worker has already been harmed beyond the initial injury. And as I stated, the mind-set of the adjuster is wrong under the current system because the motivation is to avoid a penalty, not to actively challenge the decision making process for proper guidance.
If the auditing process is initiated earlier in a claim, and the motivation is for proper decision making rather than penalization, then there is a greater opportunity for better claims handling, better outcomes for the workers, and less expense for the employer.
An ACA system would enable companies to stop bad things from happening in a claim before it's too late.
I commend Mr. North for stepping up to the plate and meeting the challenge - in the least communicating that he and the rest of the company are going to work on improving the claims management experience and work on early identification systems to prevent incorrect decision making that could lead to disaster.
The real challenge, of course, will be the execution of the plan because designing, building and deploying an ACA system, whether manual or computerized, will be tremendously complex and expensive.
But the long term return on investment - the investment in human lives - could be the biggest influence in workers' compensation claims management since the processing of indemnity checks via computer was introduced.
Sedgwick has a great opportunity to distinguish itself as THE leader in workers' compensation claims by building and deploying on a wide basis an ACA system and sharing that knowledge with the industry.
North said to me that at the end of the day the job is to protect workers with health care and an opportunity to return to work, and that "I believe strongly in that mission."
I have no reason to doubt Mr. North.
Other cases will come along that will challenge other administrators in the same manner that the Romano case challenged Sedgwick.
When we change how, when and why audits are performed, that strong belief in that mission will be more evident.
Mr. North was, of course, calling about my blogging on the Charles Romano case.
Assuring me that he, and Sedgwick in general, had the utmost compassion for the Romano family, Mr. North acknowledged quite forthrightly that there were no excuses for the events that led to the death of Mr. Romano.
Here's what has happened at Sedgwick since the Romano case took a turn for the worse: a massive internal investigation was launched to identify the how and why; the claims adjuster managing the claim and her supervisor were separated from the company; new internal processes have been developed (and are under continuous examination) to improve claims handling and the management of those responsible; the Romano family has been compensated (I did not ask for particulars) and North said the matter was "closed."
Sedgwick has used the opportunity to further educate its claims management staff and revisit its best practices.
North, of course, defends his company noting that this last year Sedgwick managed 2.2 million claims involving $11 billion in loss costs, so inevitably there are going to be mistakes, but the firm has been ranked very high in state audits the past 5 years.
But North did not discount the fact that in all claims, attention to detail is critical.
North also denied the rumors that Sedgwick had any financial "interest in the claim," stating that in fact the incentive is the reverse - to do good on claims; Sedgwick earned a good reputation in the claims community by treating every claim on its own merits, that culturally and ethically the emphasis within the company is on doing the right thing.
Regardless, North returned frequently to state that he and the company had a deep felt regret for what happened, had compassion and empathy for the Romano family but that, unfortunately, the case HAS led to the healthy dialogue.
Okay - so we spent some time lamenting about the claim, what led to it and its outcome.
But what came next did demonstrate why Mr. North can be counted on to lead Sedgwick, and the industry, towards more responsible, effective, claims management, answering my challenge.
The one enforcement mechanism that is universal in claims handling is audits. For a large third party administrator like Sedgwick, audits are a part of every day life. There are audits by the state, of course, audits by the employer, audits by CPAs, internal audits. There are individual claim audits, supervisory audits, department audits.
Everything is audited in multiple ways by multiple parties investigating multiple factors.
But all of these audits have a single, common, characteristic that makes them relatively ineffective on the management of claims in real time: all of these audits are retrospective in nature.
The audit process does not result in current claim management decision review or prospective planning or re-engineering of a claim handling plan.
And in this illuminating thought, North I think is on to a big revolution in claims management - what I would call Active Claims Auditing (ACA).
The industry needs to think about audits in a different way - presently audits are retrospective and penalizing in nature, rather than proactive to catch mistakes and errors before they mushroom into catastrophe.
Claims adjusters become more concerned with passing an audit, retrospectively, rather than correcting real time decision making; the focus of the adjuster is on protecting decisions made in the past rather than guiding decisions in the future.
In aviation, the overwhelming majority of accidents are the product of not just a single mistake, but an accumulation of mistakes that compound a situation ultimately leading to catastrophe.
There are always red flags along the accident chain; little elements of error that would otherwise be benign unto themselves, but when chained together these little errors affect the active decision making process resulting in incorrect assumptions and/or understanding of a situation. Thus, the decision maker is led down the wrong path.
And the direction to the correct path is blocked because the mind can not overcome the initial incorrect assumption.
I think North is on to something. The audit process really needs to start early during the claim life, e.g. first 90 days, rather than retrospectively, so that red flags can alert decision makers up the chain of command about a potential problem.
Current claims management computer systems automate many of the tasks that, just 10 years ago, required manual intervention - dates, numbers, forms, alerts, etc.
But while these systems save labor and increase efficiency, they were not designed to engage the complex business rules that encompass the myriad of possible fact combinations affecting claims management decisions. They are not designed around a risk management decision making matrix.
If upper management at Sedgwick could have been alerted early on in the Romano claim that a relatively simple injury had started down the wrong path, an intervention could have been summoned and likely Mr. Romano would be here today, and quite possibly back at work.
I get asked often to speak at industry events about trends that I see in workers' compensation.
I think one of the trends that we will see emerge as a consequence of the Romano case is the development and deployment of more active claims management systems using sophisticated rules that provide earlier "audits" and alarms up the command chain to permit a more active management role.
I agree with North - audits should not just be retrospective in nature. By then it's too late. Sure, the claims manager will "learn" from the audit, but by then the injured worker has already been harmed beyond the initial injury. And as I stated, the mind-set of the adjuster is wrong under the current system because the motivation is to avoid a penalty, not to actively challenge the decision making process for proper guidance.
If the auditing process is initiated earlier in a claim, and the motivation is for proper decision making rather than penalization, then there is a greater opportunity for better claims handling, better outcomes for the workers, and less expense for the employer.
An ACA system would enable companies to stop bad things from happening in a claim before it's too late.
I commend Mr. North for stepping up to the plate and meeting the challenge - in the least communicating that he and the rest of the company are going to work on improving the claims management experience and work on early identification systems to prevent incorrect decision making that could lead to disaster.
The real challenge, of course, will be the execution of the plan because designing, building and deploying an ACA system, whether manual or computerized, will be tremendously complex and expensive.
But the long term return on investment - the investment in human lives - could be the biggest influence in workers' compensation claims management since the processing of indemnity checks via computer was introduced.
Sedgwick has a great opportunity to distinguish itself as THE leader in workers' compensation claims by building and deploying on a wide basis an ACA system and sharing that knowledge with the industry.
North said to me that at the end of the day the job is to protect workers with health care and an opportunity to return to work, and that "I believe strongly in that mission."
I have no reason to doubt Mr. North.
Other cases will come along that will challenge other administrators in the same manner that the Romano case challenged Sedgwick.
When we change how, when and why audits are performed, that strong belief in that mission will be more evident.
Wednesday, June 12, 2013
Medical Board's Review of Review Physicians
One of the big controversies that has surrounded utilization review (UR), and now independent medical review (IMR) is whether the physicians conducting these reviews were engaged in the "practice of medicine" and thus subject to review, and possible discipline, from the medical board in the state where the case originates.
At least in California, the Medical Board has recently opined that UR and by extension IMR is the practice of medicine subject to review by the board.
The California Medical Board has been under review by the legislature recently on allegations of lax enforcement against physicians.
As part of the review legislators specifically asked the board whether it felt it had powers over UR and IMR physicians.
As a consequence of a treating doctor's complaint to Assemblyman Henry Perea, D-Fresno, the legislator initiated an inquiry into the board's position on the issue.
After informal discussion failed, Perea sent a letter to Dr. Sharon Levine, president of the Medical Board at the time, asking whether the board considers UR the practice of medicine and how it arrived at its conclusion that it has no oversight of UR doctors.
The letter in addition asked whether contracts with insurance carriers, specifically in this case the State Compensation Insurance Fund's (State Fund) letter to its medical provider network physicians (MPN) requiring physicians to agree not to prescribe more than a 60-day supply of compound drugs or opioids without prior approval as a condition of enrolling in its network.
Medical board staff counsel issued an internal memo opining that historically the board did not investigate complaints that are “not based upon an attempt to leverage the outcome of a UR treatment decision or compensation claim, but rather to ascertain whether the standard of care is being followed.” The April 10 memo says the board classifies such complaints as “non-jurisdictional.”
The memo also details how the Labor Code trumps other law and that the Workers’ Compensation Appeals Board “has exclusive jurisdiction over any controversy relating to or arising out of the medical treatment of an injured employee.”
The Medical Board's response to Perea was that it considers utilization review to be practicing medicine and also states that it will “not automatically deem UR complaints non-jurisdictional” and that “a physician is not insulated from potential discipline from the board simply because he or she is under contract to a (workers’ compensation) insurer, private or otherwise.”
There is renewed interest in requiring UR and IMR physicians to be licensed in the state as a consequence because then the Medical Board would then have disciplinary jurisdiction over such physicians.
In 2011, Gov. Jerry Brown vetoed AB 584, which would have required work comp UR physicians to be licensed by the Medical Board of California.
This year, Sen. Jim Beall, D-Campbell, introduced SB 626, which included provisions requiring all doctors doing utilization review and independent medical review be licensed in California. Beall pulled his bill in April and plans to pursue it again in 2014.
But in the meantime, while the Medical Board undergoes its review, Sen. Curren D. Price, D-Los Angeles, who is chairman of the Senate Business, Professions and Economic Development Committee, has filed SB 304, a bill that would transfer medical board investigators to the state Department of Justice and give the department the authority to investigate and discipline doctors.
Price has been critical of the Medical Board's investigation, enforcement and discipline record.
The question is whether the Medical Board's current position, that it will investigate complaints that a utilization-review physician has fallen short of established standards of care, something it has previously not done, is in response only to attacks on its survival, or because the board truly feels it has a duty to the public to do so.
Either way, the board is in a tough position. It is basically admitting ipsa loquitur to a failure in the recognition of its duties in the past.
Sometimes workers' compensation drama occurs outside the direct workers' compensation world but can have far reaching impact. How the Medical Board review drama plays out will steer how the industry conducts UR and IMR going forward.
At least in California, the Medical Board has recently opined that UR and by extension IMR is the practice of medicine subject to review by the board.
The California Medical Board has been under review by the legislature recently on allegations of lax enforcement against physicians.
As part of the review legislators specifically asked the board whether it felt it had powers over UR and IMR physicians.
As a consequence of a treating doctor's complaint to Assemblyman Henry Perea, D-Fresno, the legislator initiated an inquiry into the board's position on the issue.
After informal discussion failed, Perea sent a letter to Dr. Sharon Levine, president of the Medical Board at the time, asking whether the board considers UR the practice of medicine and how it arrived at its conclusion that it has no oversight of UR doctors.
The letter in addition asked whether contracts with insurance carriers, specifically in this case the State Compensation Insurance Fund's (State Fund) letter to its medical provider network physicians (MPN) requiring physicians to agree not to prescribe more than a 60-day supply of compound drugs or opioids without prior approval as a condition of enrolling in its network.
Medical board staff counsel issued an internal memo opining that historically the board did not investigate complaints that are “not based upon an attempt to leverage the outcome of a UR treatment decision or compensation claim, but rather to ascertain whether the standard of care is being followed.” The April 10 memo says the board classifies such complaints as “non-jurisdictional.”
The memo also details how the Labor Code trumps other law and that the Workers’ Compensation Appeals Board “has exclusive jurisdiction over any controversy relating to or arising out of the medical treatment of an injured employee.”
The Medical Board's response to Perea was that it considers utilization review to be practicing medicine and also states that it will “not automatically deem UR complaints non-jurisdictional” and that “a physician is not insulated from potential discipline from the board simply because he or she is under contract to a (workers’ compensation) insurer, private or otherwise.”
There is renewed interest in requiring UR and IMR physicians to be licensed in the state as a consequence because then the Medical Board would then have disciplinary jurisdiction over such physicians.
In 2011, Gov. Jerry Brown vetoed AB 584, which would have required work comp UR physicians to be licensed by the Medical Board of California.
This year, Sen. Jim Beall, D-Campbell, introduced SB 626, which included provisions requiring all doctors doing utilization review and independent medical review be licensed in California. Beall pulled his bill in April and plans to pursue it again in 2014.
But in the meantime, while the Medical Board undergoes its review, Sen. Curren D. Price, D-Los Angeles, who is chairman of the Senate Business, Professions and Economic Development Committee, has filed SB 304, a bill that would transfer medical board investigators to the state Department of Justice and give the department the authority to investigate and discipline doctors.
Price has been critical of the Medical Board's investigation, enforcement and discipline record.
The question is whether the Medical Board's current position, that it will investigate complaints that a utilization-review physician has fallen short of established standards of care, something it has previously not done, is in response only to attacks on its survival, or because the board truly feels it has a duty to the public to do so.
Either way, the board is in a tough position. It is basically admitting ipsa loquitur to a failure in the recognition of its duties in the past.
Sometimes workers' compensation drama occurs outside the direct workers' compensation world but can have far reaching impact. How the Medical Board review drama plays out will steer how the industry conducts UR and IMR going forward.
Tuesday, April 2, 2013
Anecdotes and Extrapolations Paint Troublesome Picture
The workers' compensation system is obsessed with costs. Reform legislation around the country is nearly uniformly about controlling costs.
The driving mantra behind California's last monster reform bill was costs were out of control.
High medical costs are blamed on unscrupulous profiteers. High indemnity costs are blamed on litigation and the claimant attorneys milking the system.
Ancillary vendors, such as interpreters and copy services, receive the heat as much as the more major cost contributors.
We read, hear and watch numerous reports every day about some claimant fraud, vendor fraud, employer fraud and once in a while some insurance company fraud. None of this compares, even cumulatively, to what I would characterize as outright system manipulation - intentional or not - by claims payers, which include the now publicly confirmed rumors about claims payers yanking the chains of lien claimants over filing fees.
Here are a couple of anecdotal vignettes recently posted in the WorkCompCentral Forums - they may not be typical (though as you will read below I believe that this is more representative than not) but they demonstrate some BIG issues. I have edited them for readability, but otherwise the factual contentions are as posted by the original authors.
After these short vignettes, employer consultant Bill Cobb gives us some real food for thought that demonstrates the enormity of the issue - and of course this would not be MY blog if I didn't opine one way or the other.
First Anecdotal Post:
An unrepresented applicant sets a Panel Qualified Medical Examiner (PQME) appointment and the cover letter is sent by the adjuster. The PQME sees the applicant and asks for a "consultation" from a specialist to help determine severity of damage and recommendations for further care. The PQME sends out the initial report explaining the need for the consult - not for treatment.
The insurance company adjuster does not respond to the requests for authorization for a consult - the one time he does answers his phone we explain the need for consultation arising from the PQME. The conversation goes like this:
Adjuster wants to know why we are treating...
We say we are not treating, need consult for PQME.
Adjuster states you cannot treat, you are not in the MPN...
We say we are not treating, we need authorization to consult for the PQME.
Adjuster states the consulting doctor is not in the MPN...
We say we are not treating, we need authorization to consult for the PQME.
Adjuster asks why does the doctor need a consult??
We say see his report.
Adjuster says, NO you explain to me why the doc needs a consult...
We say we cannot due to exparte communication rules -- please see report and send your questions to the PQME in writing.
Adjuster faxes note to us stating: Not authorized due to not in the MPN and UR did not approve.
Applicant was seen by the PQME in 11/2012 - adjuster has been delaying as above since then.
Second Anecdotal Post:
Patient burned, had treatment elsewhere, then was referred to us by an occupational medical group where he was treating. We contacted adjuster at the TPA, who authorized the consult. Burn needs grafting. We sent a detailed narrative PR-2 with a Request For Authorization, but now, two weeks later, we have no response. [emphasis original] After the first week, I called and spoke with the adjuster, who said that because it's going to cost so much they have to think about it!!!!!
Now it's been two weeks, and the poor guy is still doing dressing changes. This is not life-threatening, but he will have a much higher risk of scarring and need for scar revision down the road, and in the meantime, he cannot return to work because of risk of infection, which grows every day. That has all been explained to the adjuster. Patient so far is not represented.
****************************
Now that you've read, in my opinion, two alarming anecdotes about egregious claims behavior (and there's plenty more in the WorkCompCentral Forums), Bill Cobb comes along with some troubling conclusions based on extrapolations from actual Workers' Compensation Insurance Rating Bureau (WCIRB) and Division of Workers' Compensation (DWC) data.
By Bill Cobb:
Every year the DWC does an audit of the entities that do claims handling (self-administered carriers, self-insured employers and third party administrators). The results of the 2011 audit are published on the DWC web site. I’ve been following the results of the audits since 2003. It has always been a major shame and disgrace on the work comp carriers and their agents. But, for some reason, no one has given it much attention.
At the heart of the results (as you will see) is one of the primary reasons why injured workers litigate their claims. [Editor's note - from the data analytics standpoint; anecdotally see the two examples above.]
Based on figures published by the WCIRB:
· California has approximately 550,000 employers.
· There are approximately 16.5 million workers.
· Each year there are over 500,000 workplace injuries.
· Med-Only claims account for 79%.
· Indemnity Claims account for the other 21%.
· The average Med-Only claim costs $713.
· The average Indemnity claim costs $6,728 – UNLESS it litigates, then it costs $62,700.
· Litigated claims make up 43% of all indemnity claims.
· Litigated claims account for only 9% of all claims, yet they take up 82% of the costs.
The outcome is a main driver that causes the cost of work comp for employers to go up.
Let’s go over the figures:
· The DWC audited 3,410 files – out of 200,000+ open files.
· Of these, 444 (13.02%) had compensation that was owed to the injured worker, but was not paid.
· The average amount owed was $1,468.87. That represents 3 – 4 weeks of indemnity payments not paid on each of those claims.
I’m assuming the DWC chose only 3,410 files to audit because their statisticians thought it was representative of the entire population of claims. [Editor's note - the process of selecting audit subjects is found in Title 8, Regulation 10106.1 and the actual procedure is in Regulation 10107.1.] If we extrapolate those figures out over the entire indemnity realm, here’s what we would find:
· Total indemnity paid in 2011 was $2,957,000,000 – that’s accrued, not actually paid.
· That would leave $176,264,400 (yes, millions) in owed, but unpaid, benefits in the files of the carriers and TPA’s.
This is money that is owed to the injured worker, but the payer is sitting on it. This causes a tremendous hardship on injured workers that are living from paycheck to paycheck. [Editor's note - also may be vendors seeking payment on legitimately owed bills but are being ignored or delayed as in the example anecdotes.]
So, let’s take a look at what the enforcement arm of the DWC did to punish the offenders:
· The 444 files produced 4,465 violations.
· The total dollar value of the violations cited was $1,411,128.
· Of that figure, $1,209,325 was deemed ‘Not Subject to Assessment’.
· The violators paid $201,803.
As you (or anyone for that matter) can see – it pays to cheat. They will get their hands slapped with only a small financial penalty and reporting in an obscure DWC filing.
Bill's idea is to:
· Beef up the Audit Department so that EVERY file gets audited once a year.
· It would be a ‘self-funding’ program based on a small premium surcharge to fund the initial startup.
· Make EVERY violation subject to assessment and make them pay – or shut them down!
· That should bring in $50 million to $100 million in assessments which can be used to fund the program.
· Over the years, not only would the violations and assessments gradually reduce, so would litigation and, ergo, the amount of indemnity associated with litigation. The size of the audit unit could be reduced accordingly.
****************************
Radical? Yes. Objectionable by the claims community? Certainly. Effective? Beyond anyone's imagination, would be my guess.
As suggested by Bill's data, the two anecdotes above are certainly more representative than not.
So what have you Industry? Ready to put your money where your mouth is?
***********
Table of data:
Total Audited - 2011
|
All Indemnity Paid - 2011
|
||||
Total Files
|
3410
|
100%
|
Total Indemnity
|
$ 2,957,000,000
|
|
Files with
unpaid Indemnity |
444
|
13.02%
|
|||
Total Unpaid
|
$ 652,178
|
Total Unpaid
|
$ 176,264,400
|
||
Average Unpaid
|
$ 1,468.87
|
||||
Unpaid TTD
|
622.36
|
42.37%
|
Unpaid TTD
|
74,683,226
|
|
Unpaid PD
|
693.60
|
47.22%
|
Unpaid PD
|
83,232,050
|
|
Penalties
|
152.47
|
10.38%
|
Penalties
|
18,296,245
|
|
Thursday, March 7, 2013
KY Leads in Rx Controls
Kentucky has been at the forefront in the control of prescription drug abuse and took more steps yesterday when Kentucky Gov. Steve Beshear signed into law House Bill 217, sponsored by House Speaker and former state Attorney General Greg Stumbo.
HB 217 builds on last year's landmark HB 1, which gave the state's licensing boards the authority to expand the list of drugs for which doctors are required to check KASPER and to modify pharmacy reporting requirements.
KASPER is the Kentucky All Schedule Prescription Electronic Reporting system. The state requires doctors to check KASPER before prescribing drugs on Schedule II and drugs containing hydrocodone on Schedule III of the U.S. Drug Enforcement Administration's controlled substances list and required Kentucky pharmacies to upload data on all prescriptions for controlled substances every seven days.
HB 217 codifies a regulation adopted by the state Board of Pharmacy that will require pharmacies to report the filling of all controlled-substance prescriptions once every business day beginning on July 1, 2013.
In addition HB 217:
The bill mandates that all state licensing boards require fingerprint-supported criminal record checks conducted by the Kentucky State Police and the FBI of anyone applying for a license to prescribe or dispense controlled substances.
The International Association of Industrial Accidents Boards & Commissions (IAIABC) earlier this year ultimately declined to publish its model law for the control of prescription drugs but the National Organization of Insurance Legislators (NCOIL) has taken up the task. It seems that what Kentucky has done is a good model to start from.
And it also seems that the states that have database systems established for doctors and pharmacists to report to and check likewise have something to model after.
As in any legislation there are some who are not quite thrilled with the laws, but at least according to WorkCompCentral news on the bill the major players are, if not happy with the end result, at least are not unhappy with it.
The Kentucky Medical Association, Kentucky Pharmacy Association and Board of Medical Licensure have indicated that the changes made by HB 217 are workable.
And that is a pretty good endorsement for a law that has such broad and sweeping impact.
HB 217 builds on last year's landmark HB 1, which gave the state's licensing boards the authority to expand the list of drugs for which doctors are required to check KASPER and to modify pharmacy reporting requirements.
KASPER is the Kentucky All Schedule Prescription Electronic Reporting system. The state requires doctors to check KASPER before prescribing drugs on Schedule II and drugs containing hydrocodone on Schedule III of the U.S. Drug Enforcement Administration's controlled substances list and required Kentucky pharmacies to upload data on all prescriptions for controlled substances every seven days.
HB 217 codifies a regulation adopted by the state Board of Pharmacy that will require pharmacies to report the filling of all controlled-substance prescriptions once every business day beginning on July 1, 2013.
In addition HB 217:
- Requires doctors to obtain 12 months of history from KASPER before prescribing Schedule II drugs and Schedule III drugs containing hydrocodone to a patient on the first visit and every three months thereafter.
- Removes Schedule V drugs from those for which doctors must check the database. Doctors still would be required to check the database before prescribing some Schedule III and IV drugs.
- Removes a requirement by the Board of Medical Licensure that physicians conduct random urine tests for all patients receiving controlled substances. Doctors, instead, would be required to conduct the random tests they deem appropriate to check for abuse of each specific drug being prescribed.
- A doctor prescribing a controlled substance within 14 days following surgery.
- A doctor prescribing drugs in a hospital or long-term care facility, as long as the facility has obtained a 12-month drug history on the patient within 12 hours of the patient's admission to the facility.
- Prescriptions of controlled substances for hospice or other end-of-life care.
- Prescriptions for the treatment of pain associated with cancer.
The bill mandates that all state licensing boards require fingerprint-supported criminal record checks conducted by the Kentucky State Police and the FBI of anyone applying for a license to prescribe or dispense controlled substances.
The International Association of Industrial Accidents Boards & Commissions (IAIABC) earlier this year ultimately declined to publish its model law for the control of prescription drugs but the National Organization of Insurance Legislators (NCOIL) has taken up the task. It seems that what Kentucky has done is a good model to start from.
And it also seems that the states that have database systems established for doctors and pharmacists to report to and check likewise have something to model after.
As in any legislation there are some who are not quite thrilled with the laws, but at least according to WorkCompCentral news on the bill the major players are, if not happy with the end result, at least are not unhappy with it.
The Kentucky Medical Association, Kentucky Pharmacy Association and Board of Medical Licensure have indicated that the changes made by HB 217 are workable.
And that is a pretty good endorsement for a law that has such broad and sweeping impact.
Wednesday, November 7, 2012
Another Lesson in Tax Law vs. Work Comp
Staffing companies are among the most "creative" when it comes to trimming their workers' compensation costs. Their margins are so thin that every penny saved in work comp premium is a penny of profit.
So it comes as no surprise that a recent California appellate case penalized a staffing agency for underreporting wages because an "unreasonable" amount was classified as "per diem" expense reimbursement.
ReadyLink Healthcare Inc. sued the Department of Insurance (DOI) and the Workers' Compensation Insurance Rating Bureau (WCIRB) after an administrative law judge ordered that it pay State Compensation Insurance Fund (SCIF) an additional $555,327.53 in premium.
ReadyLink was insured by SCIF from 2000 until 2007. State Fund conducted a final audit of ReadyLink in 2007 for its September 2005 through September 2006 policy period. A senior auditor noted that ReadyLink was paying its nurses $6.75 an hour, plus a much higher "per diem" amount.
So it comes as no surprise that a recent California appellate case penalized a staffing agency for underreporting wages because an "unreasonable" amount was classified as "per diem" expense reimbursement.
ReadyLink Healthcare Inc. sued the Department of Insurance (DOI) and the Workers' Compensation Insurance Rating Bureau (WCIRB) after an administrative law judge ordered that it pay State Compensation Insurance Fund (SCIF) an additional $555,327.53 in premium.
ReadyLink was insured by SCIF from 2000 until 2007. State Fund conducted a final audit of ReadyLink in 2007 for its September 2005 through September 2006 policy period. A senior auditor noted that ReadyLink was paying its nurses $6.75 an hour, plus a much higher "per diem" amount.
The auditor had experience with other nurse staffing agencies insured by State Fund and knew of none where traveling nurses received more than half their reimbursement as per diem payments.
The auditor asked ReadyLink to provide documentation showing that the per diem payments represented the actual living expenses of the traveling nurses. ReadyLink did not respond, and State Fund billed the company the additional premium.
An administrative law judge ruled that ReadyLink had failed to prove that its per diem payments were reasonable, noting that the company was paying far below the market rate in hourly wages and had not produced any documentation that its per diem payments were related to actual living expenses of the traveling nurses.
ReadyLink sought review by the Los Angeles County Superior Court, which denied the petition. The company then appealed to the 2nd District Court of Appeal.
ReadyLink argued that its per diem payments comply with federal tax law and that State Fund had imposed onerous documentation requirements that federal law does not require.
The 2nd DCA didn't care, distinguishing between the federal tax system and the WCIRB's Uniform Statistical Rating Plan (USRP):
"The IRS collects tax revenue from employers and employees to fund a variety of federal programs, whereas the purpose of the USRP is to accurately recognize the amount of an employee’s real wages to ensure that the SCIF has sufficient reserves to pay a worker his or her wages if injured on the job."
An administrative law judge ruled that ReadyLink had failed to prove that its per diem payments were reasonable, noting that the company was paying far below the market rate in hourly wages and had not produced any documentation that its per diem payments were related to actual living expenses of the traveling nurses.
ReadyLink sought review by the Los Angeles County Superior Court, which denied the petition. The company then appealed to the 2nd District Court of Appeal.
ReadyLink argued that its per diem payments comply with federal tax law and that State Fund had imposed onerous documentation requirements that federal law does not require.
The 2nd DCA didn't care, distinguishing between the federal tax system and the WCIRB's Uniform Statistical Rating Plan (USRP):
"The IRS collects tax revenue from employers and employees to fund a variety of federal programs, whereas the purpose of the USRP is to accurately recognize the amount of an employee’s real wages to ensure that the SCIF has sufficient reserves to pay a worker his or her wages if injured on the job."
Lessons:
ReadyLink also sued in federal court, which is pending. I'm sure there will be a similar outcome.
To read the decision, click here.
- Don't mess with wage reporting. If you're an employer, pay market wages. If there is a per diem involved make sure that the payments can be supported as reasonably related to actual expenses.
- Don't ignore audits. When the auditor requests supporting documentation at least make a good faith, reasonable attempt to comply. If you can't - big time red flag goes up!
- Workers' compensation has NOTHING TO DO with tax law. This has been restated so many times since the beginning of work comp that it is unbelievable that any employer would attempt to raise this argument. Usually the attempt to relating tax law to work comp is in relation to employee classification - independent contractor vs. employee. Been there, done that so many times it still puzzles me that any attorney representing an employer would even attempt that argument; likely a professional that is not versed in the special character of work comp law.
ReadyLink also sued in federal court, which is pending. I'm sure there will be a similar outcome.
To read the decision, click here.
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