SB 863 Bad Idea; Lien Review Board Good Idea

California, among other unique qualities in the workers' compensation industry, allows medical providers and others to "lien" a case that is pending adjudication in the state's administrative review process - commonly referred to as the WCAB, though technically the trial level is at Division of Workers' Compensation District Offices.

The California work comp "lien" process does not operate in the technical legal sense in that a lien takes on a life of its own because most of the time a lien is paid independently of net proceeds to the injured worker. A lien in any other legal setting acts against net proceeds of an asset - such as a lien against a pending house sale.

As a consequence liens and those who file them acquire independent legal rights, and these rights entitle those asserting the lien (aka "lien claimant") to hearings separate and apart from those that determine the rights of the injured worker, albeit by law ostensibly only after the injured worker's case in chief has been resolved.

So it should come as no surprise that liens are a huge adjudicatory problem in California, taking up an enormous amount of resources, at the WCAB and within the business processes of carriers, providers, and others in the system contributing a large frictional cost component to the system.

One of the legislative answers making its way through the halls of Sacramento is Senate Bill 863 by Sen. Ted Lieu, D-Torrance. SB 863 require all liens to be in writing and filed within three years of the date of service for procedures performed before July 1, 2012, and with 18 months from the date of services rendered on or after July 1, 2012. A private health insurer, health care service plan or self-funded employee welfare benefit plan providing medical benefits on a nonindustrial basis would have five years from the date of service to file a lien under Lieu's bill.

This is a bad idea.

First, liens already have to be in writing. Second, there already is a complex (this is California after all) statute of limitations on the books for the filing of liens. Third, all SB 863 really does is shorten the statute of limitations for the filing of liens, which will only PROMOTE lien filing rather than curtail it because, if I'm a potential lien claimant facing a deadline, I'm going to file regardless of its efficacy so I don't get procedurally estopped if my lien has substantive merit.

An idea that is floating around the state, though, is to establish a separate administrative review process.

I like this idea.

According to the Commission on Health and Safety and Workers' Compensation (CHSWC) a survey of lien filers found that medical liens account for about 62% of liens filed. Disputes over the fee schedule details are present in 37% of medical liens and 17% of medical liens are solely about the proper application of the fee schedule.

Workers' Compensation Judges (WCJs) don't have the time, nor the inclination, nor the expertise, to deal with the technical application of the very complex, mind-numbing intricacies of the medical service fee schedule with all of its codes, definitions, procedural exceptions, etc.

The single biggest question to creating a separate administrative review process is who does it, and how does it get paid for.

There are two "who does it" alternatives: a new unit within the DWC, or an outside third party service.

An outside third party service is a bad idea because of the potential for abuse, or in the least, "appearance of impropriety".

A new unit within the DWC is the best alternative because of independence. But how does it get paid for, especially in these times when the allegedly independent funds of the DWC are constricted by battles over the budget and General Fund (that's another set of columns and one of my biggest pet peeves...)?

My proposal is to establish a fee to be paid by the loser in the lien dispute, payable to the DWC. The fee would be need to be incrementally based so that low end liens are shut out of the system, but big enough so that the parties are encouraged to think twice before proceeding with litigation.

I'm sure there are flaws with this idea too, especially in the implementation details. But it is surely better than imposing a more strict statute of limitations that will only increase the burden of liens on the system.

Federal Debt & CMS Points to Bigger Cost Issues

New Jersey work comp lawyer and prolific blogger (and photographer!) Jon Gelman opined yesterday on the devastating effects on state workers' compensation systems if the federal government goes into default.

Gelman said payments in the state-run workers' compensation systems are so intertwined with the national system that a debt crisis will have a number of major consequences:

• Centers for Medicare and Medicaid Services (CMS) and its contractor will be unable to provide conditional payment information, bringing negotiations in workers' compensation settlements to a halt.
• CMS will be unable to approve settlement compromises and releases in advance of disposition of state claims.
• Chaos will erupt in states where the U.S. Social Security system takes a reverse offset on permanency payments. Insurers and employers could become responsible for the entire amount to be paid.
• The U.S. Department of Veterans Affairs will be unable to provide information concerning medical treatment of veterans. Records will be held up and will delay evaluations in adjudication of workers' compensation claims.
• Federal insurers, such as the military health plan Tricare, will be unable to provide benefit information to parties in state workers' compensation cases. The lack of reimbursement data will stymie medical evaluations.

Gelman told WorkCompCentral in an interview that "You don't know what the administration is going to next do to bring it to a new level of chaos. Everybody is postured all over the place, and you don't really know what buttons they're going to push next."

Indeed, one element of escalating workers' compensation costs that is unknown to the industry is the effect over the past five years of CMS' increasing aggressiveness regarding workers' compensation settlements, and the added burden of obtaining approval on a Medicare Set Aside Trust Agreement (MSA) and/or foregoing early claim closure and not settling out future medical components (for those states that permit the settlement of the future medical liability).

There are many different cost components that are within the purview of state legislators and regulators to control, but one that is out of the control of the industry is the federal governments intervention in an otherwise state specific system.

CMS has never had a solid system in place for the expeditious approval of MSAs or any other system in place that would provide the industry with a stability and efficiency to satisfy the federal government's right to reimbursement for medical obligations that should not be covered by Medicare.

I think it would behoove the industry to fund a study to determine just how much the federal government, and specifically CMS, costs employers and carriers on a per claim basis, then use that information to lobby for a more efficient, stable and predictable, process.

As it stands now, the only way to truly avoid the CMS uncertainty is to not settle out future medical. Some states don't allow such settlements anyhow, but for the states that do, this is an important consideration because of the ability to put final numbers on a claim - i.e. sum certains - reducing risk, and shortening the employer's exposure to escalating experience modification adjustments.

Peace Officer Case Illustrates the Danger in Presumptions

I think California leads all other states in the nation with various presumptions for finding injury in a workers' compensation system. There is pending legislation making its way through the legislature, without much opposition I might add, that would give privately employed nurses an AOE/COE presumption with regards to certain infectious diseases (AB 375, Skinner).

I have opined in the past that I did not feel this was good policy. A very recent Workers' Compensation Appeals Board (WCAB) case illustrates why this is not good policy.

One of the existing presumptions is for cancer in police officers (Labor Code 3212.1).

Subsection (b) of 3212.1 states:

The term "injury," as used in this division, includes cancer, including leukemia, that develops or manifests itself during a period in which any member described in subdivision (a) is in the service of the department or unit, if the member demonstrates that he or she was exposed, while in the service of the department or unit, to a known carcinogen as defined by the International Agency for Research on Cancer, or as defined by the director.

Subsection (a)(3) applies the presumption of injury to:

Peace officers, as defined in Section 830.1, subdivision (a) of Section 830.2, and subdivisions (a) and (b) of Section 830.37, of the Penal Code, who are primarily engaged in active law enforcement activities.

The issue in Thompson v. LAUSD, No. ADJ6822166 is whether a school district police officer is one of those employees under Labor Code 3212.1 entitled to a presumption of injury for cancer. The Board found that Thompson was not because the Labor Code was specific in the statutory references as to exactly which employees are "peace officers" despite the fact that a school district officer gets peace officer training, has a marked car, carries a gun, has powers of arrest, wears a uniform and otherwise acts, looks, and feels like a police officer.

From a purely legal standpoint, the WCAB's opinion is correct. Thompson is not a "peace officer" as statutorily defined.

But from a functional standpoint, is there any difference in the duties of a school district officer and any other peace officer?

Presumptions of injury are artificial. Their purpose is purely political - to satisfy the public perception that  certain classes of workers have made a case of exemplary sacrifice such that they deserve special treatment.

And I have no problem with the concept, except that where does it stop?

For instance, California Labor Code 3212.11 provides a presumption of injury for life guards who contract skin cancer either during employment (which must be for at least 3 consecutive months in a calendar year - presumably to cover the summer months) or within a period of up to 5 years from last date of service.

3212.11 applies only to public service life guards as defined in that section - why not career privately employed life guards? Presumably they would have the same exposures, if not more, than public service guards. And only to "skin cancer" - which is not defined in the code section. Why not other cancers that may be contracted through exposure to polluted waters, for example?

I know I'm being a bit extreme, but certainly not far fetched. In the world of litigation, the limits of applying a presumption are restricted only by the imagination and creativity of the lawyers articulating an interpretation that may, or may not, have been considered by the Legislature.

TX Surgical Audit Not Properly Focused

While I think it's a good idea to perform an "audit" to determine the success or failure rate of lumbar fusion surgery in workers' compensation patients, it is a mistake to place blame entirely on the physicians who perform such procedures.

The Texas Division of Workers' Compensation (DWC) plans to audit doctors who perform lumbar fusion surgeries in order to:

• Promote delivery of quality health care “in a cost-effective manner, including protection of injured employee safety.”
• Assure that health care providers “adhere to medically accepted standards of care for conducting lumbar fusions.”
• Assess return-to-work outcomes for workers who undergo lumbar fusions.

There are many studies internationally over the past 30 years that have documented poorer health outcomes in workers' compensation spinal surgery patients versus the general population.

Indeed, there are several studies which conclude that spinal surgery results in poorer return to work outcomes when controlled against groups that don't get surgery.

So part of DWC's audit objectives have already been well documented in the medical literature.

What we really don't know is why there are such disparate results in workers' compensation spinal surgery cases versus the general population.

Is spinal surgery more likely to be prescribed in a workers' compensation setting? Are physicians more receptive to performing spinal surgery if it is a workers' compensation case, and if so, why? Are spinal candidates more carefully screened for successful outcomes in the general population than in work comp, and if so, why? Are work comp patients in poorer general health than the general population? There are many other such questions that have never been answered, or for which we may never know the answer.

There are likely a number of complex, interrelated reasons why spinal surgery in a workers' compensation setting might result in overall poorer health outcomes.

One big factor that requires study is the injured worker him/her self - our society is a quick fix society, and surgery is part of that mentality. We see in the news and on television every day athletes who have major injuries get surgery to return to their sport in almost no time at all.

The problem is that most people are not athletes, either in body OR mind! Surgery is a very small part in the injury recovery process for athletes (or any surgical patient for that matter). The biggest factor is the post surgical rehabilitation, which requires a lot of work, and a lot of PAIN - the very element for which most patients seek surgery in the first place.

The Texas DWC states that the audit plan is intended to set out the basis for the DWC to take action against providers who perform large numbers of particular procedures, or when a large number of procedures are unsuccessful.

I can understand singling out a few physicians who are out of control with spinal surgeries - but really the goal of the audit should be to educate the injured worker population about the RISKS of spinal surgery.

Perhaps taking action against those few physicians who are determined by DWC to violate standards of care may make physicians more careful who they choose as surgical candidates, but DWC also needs to ensure that injured workers know, themselves, whether they are a surgical candidate and that they take responsibility for their own outcomes.

Its easy to place blame on the provider. Don't forget, though, that a physician can't perform surgery unless there is a willing patient.

The real question is how do you make a patient responsible for his/her own health outcome? This is much more vexing, much more difficult, and much more controversial than placing blame on doctors.

Before Discussing Reform, Define the Mission

Panelists at the California Coalition on Workers' Compensation's 9th annual Educational Conference on Friday all had points of cost elements that they felt should get attention as loss ratios accelerate and impair the business of insurance in the state.

Each of the items mentioned by the panelists have been topics in this blog: discounting of policies by carriers, legal provisions that are regressive reward systems rather than providing progressive rewards, inefficiencies in medical care delivery that make injured workers get legal counsel, vagaries in the determination of disability indemnity benefits, friction in the legal system that makes adjudicating a work comp dispute complex and unnecessarily long, etc.

One theme that came out of the conference should meet nearly universal acceptance - whatever happens with workers' compensation should be focused on improving the system for the employer and employee.

This is a very difficult proposition to uphold because as the system is dissected and then put back together those in the legislative and regulatory bodies tend to focus on details and the big picture tends to get cloudy.

When you are a legislator or regulator, how do you define what is in the best interest of the employer and the employee? Do you define it in costs? Benefits? Some statistical element such as return to work ratio? Medical care access? 

Perhaps when we start talking about "reform" again, those who are entrusted with leading the discussion should first step back and define what it is that workers' compensation should be in an all encompassing, very broad, statement.

Sort of like a mission statement for the system.

California already has something that is akin to a mission statement, albeit in more legal terms - Article 14, Section 4 of the state Constitution. 

The problem with the Constitution is that it focuses on government - "The Legislature is hereby expressly vested with plenary power" to create a workers' compensation system. It doesn't define the mission of those most immediately affected, employers and employees, other than stating that the system will be no fault, provide full medical, provisioned by an insurance industry and an adjudicatory system.

Getting consensus on a workers' compensation mission statement would in the least be a very interesting experiment in social policy development, and at most would drive a very powerful discussion on just what the business of workers' compensation should be all about.

Before we start tinkering with the workers' compensation system again, I think we should step back and define what we want that system to be, and then ensure that whatever we do, we ask ourselves if a legal change fits the mission as defined. This is very hard to do, and I suspect may not fit within our society's penchant for instant gratification, but may be the only way we get a system that provides some stability and reliability to those most affected: the employer and employee.

TAW and the Real Cost Driver

Recently appointed California Department of Industrial Relations (DIR) head, Christine Baker, says that an increase in permanent disability indemnity benefits is forthcoming, but not until a corresponding offset in either frictional or medical costs have been identified and dealt with.

The increase in permanent disability will likely come from the SB 899 mandate passed in 2004 that the PD rating schedule be amended every 5 years to ensure parity with actual wage loss measurements. The Division of Workers' Compensation (DWC) had proposed an amended schedule, but the law was basically ignored by the Schwarzenegger Administration because doing so, they said, would jeopardize the economy.

There are many frictional costs in the present workers' compensation system, and most of those frictional costs are the product of its mind-numbing complexity.

For instance, the entire process of soliciting, choosing and obtaining medical-legal opinions for use in benefit disputes not only takes too much time, but adds a layer of gamesmanship that previously did not exist.

Spinal surgery requests has an entirely different medical-legal process. The original reason was to expedite the process for getting approval for surgery, but the complexity, attendant extra paperwork, utilization review, appeal process just increased the time and expense rather than make the system more efficient.

When things are taken to the basics, there really are only two major areas where costs to employers can be positively affected: medical costs, and time away from work costs.

Medical costs are always under attack - just see my columns on the RVRBS debate. In my opinion medical costs are more the product of frictional costs than the actual cost of providing services - indeed most physicians would agree with that position based on the surveys that I have reviewed in the past couple of weeks.

Time away from work (TAW) costs are more broad and are inclusive of indemnity. But indemnity is a sub-cost in the broader context.

TAW affects more seriously the employer's experience modification factor - a real driver in the employer's premium. The hidden TAW costs are things like lost production, hiring temporary help, shifting employee resources to make up for the injured worker's absence, increased health insurance costs, over-time for other workers to maintain production, etc.

How can the state legislate or regulate TAW? This is a huge challenge because workers' compensation has evolved over the years with layer upon layer of complexity added to address various sub-issues raised in response to outlier abuses.

The average indemnity claim, according to the California Coalition on Workers' Compensation, now tops $60,000. But the amount of permanent disability indemnity to injured workers has gone down. This suggests that frictional costs - costs associated with the complexity of getting from injury to claim closure - have increased ... dramatically.

The friction in processes that affects TAW also affects medical costs - paperwork, receivables collection, reporting requirements, etc.

TAW and medical costs can be positively affected by taking the system back to basics, in my opinion. A hard look needs to be taken at the law and regulations that govern the process of claims - the amount and context of paperwork, the procedures for getting medical attention, the back and forth debates concerning legal minutiae, i.e. frictional costs - all need to be looked at relative to the ultimate question: how do these laws and regulations affect TAW?

If the industry can focus on TAW and how laws and regulations impact TAW we may find more savings than previously thought.

Pendulum Swinging Can be Stopped - Get Rid of Open Rating

The California Coalition on Workers' Compensation (CWCC) began its 9th Annual Educational Conference yesterday, and according to a WorkCompCentral News story, speakers were telling attendees to brace for new "reform" legislation in the next couple of years as Democrats take more hold of the state's politics, injured workers gain increased benefits, rates increase and medical costs continue unmitigated.

Speakers advised that California is rapidly climbing to top status, again, as the most expensive workers' compensation state and that the average indemnity claim now costs upwards of $60,000 with combined ratios nearing 130.

Anyone who has been in this industry more than 10 years will recognize the characteristics that make this system untenable and wildly unpredictable: complaints of costs, special interest maneuvering, attempts at surgical correction, restatement of costs based on said correction, quiet solicitude for about 4 years while the surgical correction develops scarring tissue, re-initiation of complaints of costs as the scarring starts to hurt then protest and "reform".

However, since 1992, the pendulum has been swinging more wildly and to greater extremes.

Missing from the pendulum debate is, what I believe, the single ultimate "reform" item that initiated the wild physics of the workers' compensation cycle in California, and that is "open rating".

Prior to 1992 California floor rates were set by the Department of Insurance (DOI). DOI was responsible for ensuring that the market for work comp insurance remained vital and vibrant by reviewing system costs and establishing the bare minimum rates that any carrier could establish premiums on. Carriers could charge more, but not less, than the rate established by DOI.

The effect of this system was that carriers competed on claims servicing because since no one could under price the competition the way to keep costs down was to ensure a high level of claims servicing so that the experience modification factor (x-mod) would not be adversely affected, thus keeping long term premiums down.

The market effect of this system was a very robust market for workers' compensation insurance with many small specialty insurers covering highly technical risks and using that special knowledge to manage safety and claims most efficiently.

Starting with 1993, the effective start date of "open rating", things got wild. Price competition blew away half of the capacity in California, and while employers enjoyed record low premiums for several years, the cat got out of the bag around 2000 when capacity dried up, supply became scarce, and premiums skyrocketed at hyper-inflationary rates nearing 50% annually.

I have observed as well a much more dramatic swinging of the pendulum in our industry and that has begat increased legislative and regulatory burden impacting all system participants. We now have a mind-numbingly complex system with networks, exceptions, presumptions, etc. that is nearly impossible to navigate with out special expertise.

In addition we are seeing market contraction with large carriers stating that they are not interested, again, in writing California business because the risks are just too difficult to gauge to ensure some profitability.

While prices are climbing, premiums will again skyrocket as supply diminishes, and since demand is constant because work comp is mandatory, prices can only go up.

As the debate for more "reform" starts heating up, I urge those shaping the dialogue to go back to 1992 and return to a rate floor.

I'm an open market type of guy - I like market competition. But it only works where there truly is a market. Where the market is the product of a legal mandate it is not open, and must be highly regulated. That is workers' compensation. I think the proof is in the history - yes we had swings in workers' compensation prior to "open rating" but since then the swings have become perilously uncontrollable.