Up A Tree Without A Ladder

Business owners often complain about workers' compensation and this story from Oregon highlights exactly why.

A tree trimming and landscape maintenance business was started by Robert and Jannai Cornett in 1998 with a pickup truck, "a chainsaw and a rake, a little blood and a lot of sweat."

R&R Tree Service grew from there to a 30 employee company with trucks, equipment, and an office.

At some point in time the company switched from a private workers' compensation carrier to SAIF Corporation, Oregon's state fund.

The company had a program by which volunteers would come out and collect the wood from trees that R&R had cut down to give to the needy to use as firewood.

As in many things in life, trying to do good just results in trouble, and that's where the trouble started for R&R - SAIF didn't like this arrangement and smelled "underreporting" of payroll.

Up the proverbial tree...

It should be noted that the volunteer program had started long ago and R&R's prior carrier had no issues with it...

So SAIF started auditing the company's payroll with multiple audits of records from 2007 until 2011.

Robert Cornett had kept a daily log of employee hours based on verbal reports from each crew at the end of each work day. For each job, Robert would record the person or business being billed, the crew members assigned to the job, the number of hours worked per crew member and whether the work performed was "above ground" or with "boots on the ground."

He made this division because SAIF had assigned two risk classification codes to R&R for its non-office and sales staff. Workers doing tree and shrub pruning above ground level were assigned code 0106. Workers doing lawn maintenance performed from the ground level were assigned code 9102.

The above ground ("AG") and below ground ("BG") designations were then input into the payroll records on a weekly basis - but there was no other "verifiable" payroll records to support this input.

It should be noted that SAIF didn't have an issue with this system during four audits between 2002 and 2007. In fact, one auditor even said R&R had "an excellent system of tracking work and time."

But later SAIF assigned a particularly aggressive auditor to review the company's records for years 2007 and 2008, and he took issue with the payroll tracking methodology.

That auditor found R&R's records did not meet the requirements for verifiable records under OAR 836-042-0060.

Under OAR 836-042-0060(4), payroll records are "verifiable" if they establish the time worked and duties performed by each employee, and they are supported by original entries from other records, including but not limited to time cards, calendars, planners or daily logs prepared by the employee or the employee's direct supervisor or manager.

Based on the auditor's findings, SAIF assigned the entire payroll to the highest rated classification.

For the year audited, 2007-2008, this raised the company's premium by over $67,000.

The company objected, and of course this incited further auditing, ultimately resulting in a claim by SAIF of over $386,000 in additional premiums.

R&R went through all of the appellate procedures for contesting the additional assessments and lost all of them all the way to a state appellate court.

According to WorkCompCentral's news report on the story, R & R likely will close its doors and terminate all of its employees, putting another 30 people on the unemployment rolls.

And that's a shame.

Sure, those of us up in the ivory tower of workers' compensation insurance compliance will say, "that's the law," or "they should have hired an expert to help," or "where was their broker in all of this?"...

That's besides the point. Here we have a well intentioned, seemingly compliant business taking care of people, putting value into the economy for 15 years, and they're taken out by The System.

What's wrong with the picture is that what should be a cooperative relationship turned adversarial.

I'm sure SAIF has its own position on the matter, but all they said to WorkCompCentral was that they were "pleased with the ruling" and the Court of Appeals' determination that "SAIF followed the correct process and acted appropriately in determining the policyholder's premium."

SAIF's media relations department needs some lessons in how to conduct good public relations. Their response exacerbates the adversarial perception of business versus carrier and the industry doesn't need that.

Maybe SAIF was legally correct and that it's auditors and employees were doing their jobs.

But maybe at some point a senior executive could step in and see the PR mess this kind of case creates, figure out a compromise and then media relations could proclaim the carrier's great willingness to help small business comply.

Instead, like most large corporate bureaucracies, nobody really cares - and if a customer goes out of business, there will be plenty more in the pipeline to collect premium from.

Why I Don't Believe in Presumptions

A recent Oregon case provides an interesting perspective on statutory presumptions, and is demonstrative of why I generally don't believe in these statutory creatures.

Alan Hull worked as a fire district chief for the Estacada Rural Fire District.

In June 2007, the Clackamas County Sheriff's Office informed him that it suspected one of his long-term employees had embezzled $1.9 million from the fire district during the course of several years. The sheriff's office asked him to go undercover and gather evidence against the employee.

Hull agreed to do so, and the employee was later arrested.

The embezzlement, however, became the subject of public concern and anger. Some members of the public demanded that Hull be removed from office.

He suffered a heart attack in October 2007, shortly after asking his wife if she had overheard a comment by a nearby individual about the embezzlement.

Hull filed a claim for benefits, contending his heart attack was the result of stress from his undercover work and the community anger directed at him.

An administrative law judge ruled that Hull was not entitled to benefit from the statutory "firefighter's presumption," which provides a rebuttable presumption that a firefighter's cardiovascular condition is a compensable occupational disease.

The judge reasoned that since Hull's heart attack was caused by his stress, his claim was for a "mental disorder" and not a cardiovascular condition. The judge then proceeded to apply the heightened standard of proof for the compensability of mental disorder claims and denied Hull's request for benefits.

After the Workers' Compensation Board reversed the Court of Appeals Court of Appeals said it read Oregon's statutory scheme as providing that when a cardiovascular disease is caused by a stress-related mental disorder, the firefighters' presumption does not apply.

Since it was undisputed that Hull's heart attack was caused by his work-related stress, his heart attack had to be treated as a mental disorder, the court said.

In my mind, and I'm no doctor obviously, stress from fighting fires and saving lives, dealing with death, doom and destruction on a regular basis is no different than stress from engaging in a job activity that is generally outside the scope of defined duties but nevertheless results in considerable damage to the heart.

I'm no expert on Oregon work comp law, but Hull's claim wasn't for psychiatric or psychological injury - it was specifically for a heart attack and the Workers' Compensation Board's decision was the correct application of the law.

The applicable statutory presumption, ORS 656.802(4) reads:

"Death, disability or impairment of health of firefighters of any political division who have completed five or more years of employment as firefighters, caused by any disease of the lungs or respiratory tract, hypertension or cardiovascular-renal disease, and resulting from their employment as firefighters is an occupational disease. Any condition or impairment of health arising under this subsection shall be presumed to result from a firefighters employment. However, any such firefighter must have taken a physical examination upon becoming a firefighter, or subsequently thereto, which failed to reveal any evidence of such condition or impairment of health which preexisted employment. Denial of a claim for any condition or impairment of health arising under this subsection must be on the basis of clear and convincing medical evidence that the cause of the condition or impairment is unrelated to the firefighters employment."

In comparison, the Court of Appeals found that Hull's myocardial infarction was a physical event that was the product of a mental disorder under 656.802(1)(b), and thus applied 656.802(3) dealing with "mental disorders":

Notwithstanding any other provision of this chapter, a mental disorder is not compensable under this chapter unless the worker establishes all of the following:

"(a)The employment conditions producing the mental disorder exist in a real and objective sense.

"(b)The employment conditions producing the mental disorder are conditions other than conditions generally inherent in every working situation or reasonable disciplinary, corrective or job performance evaluation actions by the employer, or cessation of employment or employment decisions attendant upon ordinary business or financial cycles.

"(c)There is a diagnosis of a mental or emotional disorder which is generally recognized in the medical or psychological community.

"(d)There is clear and convincing evidence that the mental disorder arose out of and in the course of employment."

The Court said that the mental disorder provision was an exception to the firefighter's presumption and said that the legislative history supported this interpretation.

Because there was no dispute factually that Hull's heart attack was either induced or aggravated by mental stress, the Court said the injury must be analyzed under the mental stress statute.

My suspicion is that had Hull and his attorney anticipated that stress would trump the heart attack presumption that the case would have been worked up differently and that there would not be case law on the issue.

This is one of the reasons why presumptions lead to increased litigation, perhaps unfair denial of benefits, and are just plain troublesome.

Had Hull known that his case would be analyzed as a mental case rather than a physical case he would have presented sufficient evidence that such was the case. Rather, Hull relied up on a presumption that turned out to be inapplicable.

But it makes no sense because it is undisputed that Hull's heart attack was cause by work issues!

Perhaps technically the Court of Appeals is correct, but in the application of this case the analysis is backwards. One way or another it is undisputed that Hull's heart attack was industrially caused but for an incorrect application of the evidence.

The case was remanded, presumably for further work up. In the meantime a firefighter who went above and beyond call of duty suffers not only indignity, but a real injury, real disability, and further delay. 

And the employer may get to pass the buck onto other social systems for its ultimate responsibility.

OR Study - Take It With a Grain of Salt

It's that time of year again, or I should say, every other year again.

The 2012 Oregon Department of Consumer and Business Services (DCBS) “Premium Rate Ranking Summary” was released on Wednesday and of course the survey declared winners and losers in the race to be cheapest, and reactions are predictable with winners boasting and losers bemoaning.

Oregon has been publishing its study comparing average premium rates for all 50 states and the District of Columbia since 1994.

Many folks take the survey as gospel, in particular politicians, who like anything that can convey a complex message in simple terms regardless of accuracy or context ("See, in my line of work you got to keep repeating things over and over and over again for the truth to sink in, to kind of catapult the propaganda."—G. W. Bush, May 24, 2005).

One criticism of the survey is that states' economies and mix of hazards are very different, so drawing comparisons among states would not be an accurate representation. But Oregon officials have said in the past that their survey controls for the differences in industry mix among the states by comparing premiums for identical classification codes.

What the survey can not control for, however, is the relative cost of living among states, and the huge impact payroll (i.e. the economy) has on rates, which translates to premiums.

In the summary DCBS advises that, "Rates vary by classification and insurer in each state, and actual cost to an employer can be adjusted by the employer’s experience rating, premium discount, retrospective rating, and dividends. Nevada’s index rate dropped significantly since the 2010 study, due in part to inclusion of a payroll cap adjustment in 2012"

The last sentence is very informative of how the data can be manipulated by an economic force that is not a direct class code to class code comparison - an artificial limitation on payroll adjustment put Nevada's rate much lower than 2 years ago, even though Nevada's economy remains stubbornly stuck with recessionary artifact.

In addition, the rankings are weighted against class codes that officials in Oregon have determined to be most important to that state: "Of approximately 450 active classes in Oregon, 50 were selected based on relative importance as measured by share of losses in Oregon."

What if the ranking were determined by ranking classes based on "relative importance" as the share of losses in California, or Oklahoma, or Nevada...?

I'm not saying that the Oregon survey is meaningless. Far from that. In fact the Oregon study is the only study that I know of that at least attempts to rank states on their relative workers' compensation costs. This can be good and this can be bad depending upon what argument you want to make.

Each state has a different set of workers' compensation laws that presumably are reflective of each state's different personalities, different cultures, different industries and economies (and politics). And high cost states are high cost in many other respects - e.g. Alaska just plain costs more to live in than Oregon. Same with other top ranking states: California, New York, etc.

One thing that has me most curious is that the 2012 median premium cost per $100 of payroll was $1.88, which is a drop of 8% from the $2.04 median in the 2010 study. While the high cost states get more costly, apparently that inflation is offset by the low cost states getting cheaper - at least that's my interpretation.

Even more interesting though is that the spread among the highest and lowest cost states has thinned considerably.

Mike Manley, a research coordinator for the Oregon Department of Consumer and Business Services (DCBS) and co-author of the 2012 study, said in 2004 average premiums in the most expensive state were six times what was being charged in the cheapest state.

“One thing that this tighter distribution does is make state rank values more volatile from one study to the next, particularly for the states near the middle,” he said in an email to WorkCompCentral. “There are 20 states in the latest study that are within plus or minus 10% of the median. Fairly minor differences can bounce rankings around by several places.”

What would be a very interesting study would be to match the Oregon survey numbers to carrier profitability - my guess is that we would see some very different results from state to state with not much correlation between costs and profits.

The Oregon survey is good - it just has to be taken with the proverbial grain of salt.

OR Cases Highlight Complex Fee Relationships

Oregon passed this year, effective January 1, 2012, an interesting law in an attempt to regulate the complex relationship between medical providers and those responsible for paying for workers' compensation medical bills.

The law gives the Workers' Compensation Division authority to fine an individual or firm for attempting to direct care without proper certification. The only option for directing the care of injured workers in Oregon is through managed care organizations certified by the Department of Consumer and Business Services, the parent agency of the Workers' Compensation Division.

There are only five certified organizations operating in Oregon, but they provide about 40% of the treatment to injured workers.

In addition to directing care, managed care organizations can negotiate discounted rates with providers pursuant to ORS 656.248.

The Division implemented rules prohibiting carriers from using PPO rates for workers' comp without a contract signed by the provider and filed with the division. The contract must apply only to workers' compensation treatment, and the discount can't exceed 10%.

Providers were complaining in 2008 that preferred provider organization rates for group health were being applied to workers' compensation payments without their knowledge.

These laws are interesting because according to lawsuits recently filed insurance carriers in Oregon were improperly contracting for reimbursement rates below the state's medical fee schedule.

The suits allege that carriers are reimbursing procedures for treating injured workers at rates negotiated for group health. Providers agree to the discounted rates for group health because insurers are allowed to direct care, according to the attorney who filed these cases in an interview with WorkCompCentral.

But that is not the case in workers' compensation - as noted above, only in managed care organizations can the carrier direct care.

So the key to discounting of medical fees is, according to this logic, who gets to direct care. If the provider gets to direct care then the provider must be paid at fee schedule. If the carrier directs care then the provider gets paid according to the contracted rate.

I'm not sure I understand this logic and I'm sure someone will enlighten me.

I point out this situation as an example of how something perceptibly simple - paying the bill - can get convoluted and complex well beyond the lay person's understanding when the term "workers' compensation" intervenes.

The lawsuits are Lincoln City Physical Therapy LLC v. Travelers Casualty and Surety Co. et al., filed Dec. 2, and Erhardt Physical Therapy and Sports Medicine P.C. v. Liberty Mutual Fire Insurance Co. et al., filed Nov. 29.