2016 is half done, so it’s time for my annual mid-year look at California workers’ comp. Here, in no particular order, are the events and themes that seemed to stand out in the first half of 2016, with a bit of commentary:
1. Regulatory activity in the first half of 2016 was quiet. By mid 2016 a handful of important regulatory measures were still being developed. The most significant regulatory measures under contemplation include a medication formulary (legislatively mandated to be implemented by July 1, 2017), a home health care fee schedule, MTUS chronic pain and opioid guidelines, and interpreter services. In April 2016 the DWC held a public hearing to solicit ideas for proposed modifications to the $120 million Return to Work Fund. Employee benefit notice regs went into effect 1/1/16 and WCIS regulations on 4/6/16. Meanwhile, the DWC is apparently proceeding with translation of workers’ comp information and materials as required under last year’s AB 438. And in March 2016 DIR Executive Director Christine Baker indicated that MTUS regs on occupational asthma are being worked on as well as MTUS mental illness and stress guidelines.
2. Changing of the guard at the WCAB and DWC. WCAB Chairperson Ronnie Caplane retired from the WCAB in April 2016, leaving yet another vacancy on the board. Earlier in 2016, Administrative Director of the DWC Destie Overpeck resigned, taking a job with the California State Bar. George Parisotto was named DWC Acting Administrative Director.
2016 has seen other comings and goings. Judge Paige Levy was appointed Chief Judge of the DWC. Dr. Raymond Meister, who previously served as associate medical director for the DWC, was named as Executive Medical Director.
And many in the comp community mourned the sudden and untimely passing of former DWC Administrative Director Rosa Moran, who at the time of her death was on medical leave from her post as a WCJ in Oakland.
3. At mid-year it was unclear whether 2016 would be a significant year legislatively. In 2015, Governor Brown had vetoed two bills that gained wide legislative support, one dealing with alleged gender bias in workers’ comp ratings and apportionment (AB 305) and the other restoring a QME specialty in neuropsychology (AB 1542). Both bills are back in 2016, though in slightly different forms, as AB 1643 (Lorena Gonzalez) and AB 2086 (Cooley & Mathis).Some of the following bills may not move further, but those worth monitoring at mid year include:
SB 482 (Lara)(requiring controlled substance providers to consult CURES)
AB 2883 (requires CHSWC to do a study of paperless medical treatment request system and defines the status of certain officers and directors for purposes of comp coverage)
AB 2503 (Obernolte) (requires claims administrator notify physician of contact information re where RFAs must be sent)
AB 1244 (Gray) (would suspend certain providers from participating in workers comp)
SB 563 (Pan) (prohibit certain UR physician financial incentives based on treatment denials)
SB 897 (Roth) (additional year of full salary for certain safety officers in the event of a catastrophic injury at the hands of another)
SB 1379 (Mendoza) (regulates identification of deposition interpreters)
SB 1160 (Mendoza)(requires accreditation of UR plans and penalizes failure to submit claims data)
SB 1175 (Mendoza) (requires medical providers to file invoices within one year of date of service)
Some observers have predicted that we could see existing bills gutted and amended in August, with more comprehensive changes dumped into those bills. And 2015 taught the lesson that this governor is willing to veto comp bills he does not favor even if the measure has widespread (and bipartisan) support.
4. Workers’ comp costs were not increasing for most employers. On May 27, 2016 Insurance Commissioner Dave Jones approved a 5% decrease in the non-binding/advisory only “pure premium rate” (note that what is actually paid by an employer may depend on experience modifications, nature of business, discounts and other factors). Adopting the recommendation of the WCIRB rather than a slightly lower figure from the public members’ actuary, Jones recommended $2.30 per $100 of payroll, a drop from the $2.74 that was recommended in early 2015. Jones noted that the average charged rate is $2.86 per $100 and the average filed pure premium rate is $2.57, some $0.27 higher than the recommended $2.30 rate.
Jones also noted that in 2015 there was a combined ratio of 99%, below 100% for the first time since 2007. Therefore, he concluded that “Current price levels are near long-term sustainable levels, assuming that benign medical cost trends continue.”
Things are never stagnant in workers’ comp, however, and early in the second half of 2016 the WCIRB will be making its recommendation for a pure premium rate to be effective 1/1/17.
If employers are enjoying stable rates or even lower rates and carriers are making money, the system appears to be in favorable place for major stakeholders. As the more people are working as the economy has bounced back over the last few years, overall premiums increased (just under 8% in 2015).
But how is the allocation of resources going for workers?
The May 2016 Department of Insurance actuarial evaluation noted (1) a decreasing medical rate component and (2) an indemnity component that “is almost at the pre-SB 863 level in spite of the substantial permanent disability (“PD”) benefit increases from SB 863, and (3) the LAE rate component of the WCIRB approaches the level of the indemnity component.
One is led to wonder whether the PD increases under SB 863 are panning out to the degree expected. Also, what does it say about a system when loss adjustment costs are almost as much as indemnity payments?
A June 29, 2016 WCIRB Report on 2015 California Workers’ Compensation Losses and Expenses confirmed that CY 2015 medical losses paid decreased by $.1 billion as compared with CY 2014 and pharmaceutical costs decreased by $.1 billion while hospital and med-legal costs remained flat. But the total paid cost of medical cost containment programs increased from $471 million in CY 2014 to $511 million in CY 2015, an increase of 8.5% year over year, a figure which clearly stands out.
According to the 2016 WCIRB report, CY 2015 indemnity payments were $.1 billion higher than in CY 2014 (or 41% of total loss payments in CY 2015 versus 40% in CY 2014).
5. 2016 is not shaping up to be a major year in the courts for California workers’ comp. 2016 has been a dramatic year for workers’ comp in some states. In Florida, the Supreme Court found a cap on TD benefits unconstitutional, and in Oklahoma an “opt-out” law was declared unconstitutional. But in California, workers’ comp developments in the courts have been more modest. There were no notable en banc decisions. There are some cases that stand out, however, including the following:
King v. Comppartners, Inc., where the California Supreme Court has granted a hearing following a Court of Appeal decision in an appeal from a dismissal after demurrer in a tort case. In King the Court of Appeal held that the plaintiff could file an amended tort complaint and that a UR physician who rejected certification of Klonapin (a medication whose abrupt cessation could have consequences) may owe a duty to the injured worker.
Travelers Casualty & Surety Co. v. WCAB (Dreher), where the Court of Appeal held that a slip and fall on a wet concrete walkway was not a “sudden and extraordinary” event exception under LC 3208.3(d), so that worker employed for less than 6 months was barred from entertaining a psychiatric compensable consequence claim.
Rodas v. WCAB, a death case where the Court of Appeal rejected a WCAB panel determination which had overturned the WCJ’s opinion that the death was industrial. The WCAB panel had held the unwitnessed arterial bleeding death non-industrial, concluding that a physician’s opinion was based on surmise, speculation & conjecture. In Rodas the court found that the determination of causation by the medical expert was based on reasonable circumstantial evidence and met the death causation standard of the 2015 case South Coast Framing v. WCAB.
Matthews v. Liberty Assignment Corp., where the Court of Appeal upheld a superior court decision denying assignment of structured workers’ comp benefits to a factoring company
Larsen v. Securitas, where a worker’s injury from being struck by a vehicle was deemed a “violent act” so as to come within the exception to the ban on compensable consequence psych claims for post 1/1/13 injuries.
Stevens v. WCAB , where the California Supreme Court denied a petition to review the Court of Appeal decision upholding the constitutionality of California’s IMR system. However, two cases remain pending which involve challenges to the constitutionality of IMR, Ramirez v. WCAB (at the 3rd DCA) and Zuniga v. WCAB (at the 1st DCA).
6. Issues as to how workers’ comp would be handled in the new “gig economy” remained unresolved.
Proposed class action settlements are pending approval by U.S. District Court Judges in both the Lyft and Uber cases. Preliminary approval has been given to a Lyft settlement but in the Uber case the judge has set a July 2016 hearing due to questions about the settlement.
If approved, the cases would be resolved and there would be no federal class action trial on the issue as to whether Lyft and Uber employees are independent contractors or employees. Those employers are examples of the new “gig economy”, but the terms or arrangements vary widely from company to company among many of the new “disruptor” companies that use different workforce models.
So it seems likely that “gig economy” cases may well be resolved for California workers’ comp purposes by an employee filing a claim and then taking the case all the way through the WCAB and appellate court gauntlet. One of the issues raised by Judge Edward Chen in the Uber case on June 30 is that the proposed settlement apparently assigned no value to various issues, including the denial of workers’ compensation benefits.
7. Concern about medical provider fraud and abuse continued to build. In the last few years there has been scandal after scandal about avaricious and abusive schemes by medical providers. Resulting indictments and pleas in criminal cases and discovery in civil cases have taken the lid off a number of the schemes, resulting in exposure of provider criminal networks and ensnaring well known physicians and a handful of politicians. For example, in June 2016 former State Sen. Ron Calderon signed a plea agreement admitting to kickbacks as part of a scheme involving workers’ comp spinal surgeries and hardware. And some of the indicted physicians have reached settlements in a RICO action filed by SCIF.
A series by the public interest journalism site Center for Investigative Reporting publicized the increasingly troublesome issue of provider fraud.
And so there were May 2016 legislative calls for an audit (request by Assemblyman Daly, later withdrawn) or a CHWSC investigation(request by Senator Mendoza), followed by the Brown Administration’s decision to assemble a June 2016 stakeholder working group, with multiple focus group meetings. It appears that the DWC is developing options over the summer. This is explored in more depth in my June 22 blog post on “The California Conundrum” , a June 7 post titled “Welcome”, and a April 6 post “Holes in Oversight”.
8.UR and IMR continued to generate controversy. Utilization review continued to generate controversy. Generally, employer and payor stakeholders continued to support UR. However, concerns about whether claims administrators were complying with UR rules led the DWC to issue a newsline in February 2016 advising that the DWC’s Audit and Enforcement Unit would be doing more target audits in 2016 to address UR complaints. In early 2016 news broke that the DWC was proposing over $8 million in administrative penalties on a number of claims administrators for failing to submit medical records to Maximus on a timely basis.
In February 2016, RAND issued a report to CHSWC, suggesting among other things that exempting select services from pre-authorization would improve program efficiency. RAND also recommended new UR performance measures for audits, electronic submission of RFAs, considering accreditation of UR providers, and combining RFA and progress reports into a single form. At mid year it did appear that the DWC is considering whether tweaks to UR may be in order.
IMR remained controversial. Several WCAB panels had issued conflicting opinions about whether under LC 4610.6(b) it was “mandatory” or “directory” that Maximus “shall” issue a determination within 30 days of the receipt of the request for review and supporting documentation. That issue is still pending at the 3rd DCA in the case of Hallmark Marketing v. WCAB (Southard), but in June 2016 the 2nd DCA ruled in CHP v. WCAB (Margaris) that as used in LC 4610.6(d), “shall” is directory, not mandatory.
In the first half of 2016 the DWC did unveil two technology-enabled advances in 2016: an online search tool for researching a database of IMR decisions and an online portal to submit IMR applications and medical records to Maximus.
One of the reasons that UR & IMR remained controversial was the continuing sense that medical cost containment costs were unreasonably spiraling. According to a WCIRB State of the System Report for 2015 (note that the 2016 report is not yet available), the ratio of claims adjustment expenses to benefits paid was 28.2%, the highest in the nation. Loss adjustment expenses were 17.7% of the total system costs.
In his May 2016 rate decision, Insurance Commissioner Jones instructed the WCIRB to continue to study the effect of the IMR process on system costs in California.
9. RTW fund remained problematic. At an April 2016 hearing the DWC took public comments about possible changes that might be needed for the $120 million Return to Work Fund that was mandated by SB 863. The DWC has been criticized for administering the fund in a way that resulted in it being under publicized, difficult to access (kiosks at district WCAB offices) and underutilized. At mid-year it was not clear how the DWC intended to increase worker access to the fund designed to compensate workers with disproportionately high earnings losses.
10. As always, there were notable studies and reports on aspects of California workers’ comp. Studies are often cited as policymakers dream about the next round of changes. These studies included the following:
-From CWCI, papers on “Trends in the Use of Opioids in California Workers’ Compensation System”, “1st Quarter 2016 IMR Outcomes”, “California Workers’ Comp Claim Monitoring, Medical & Indemnity Development AY 2005-2014”, “Inpatient Hospitalization Utilization in California WC 2008-2014”, and “The Changing Nature and Cost of the Medical-Legal Process in California WC” http://www.cwci.org/research.html
-From RAND, “Benefits and Earnings Losses for Permanently Disabled Workers in California: Trends Through the Great Recession and Impacts of Recent Reforms” http://www.dir.ca.gov/chswc/Reports/2016/WageLossReport_2016.pdf
-From WCIRB, “Analysis of Changes in Indemnity Claim Frequency: January 2016” https://vimeo.com/151813941
-Another from WCIRB: “Report on 2015 California Workers’ Compensation Losses and Expenses” , http://www.wcirb.com/sites/default/files/documents/2015_ca_wc_losses_and_expenses_report-complete.pdf
-From Center for Investigative Reporting: A series of articles that can be found here https://www.revealnews.org/article/holes-in-oversight-leave-california-workers-comp-vulnerable-to-fraud/ and here https://www.revealnews.org/episodes/billion-dollar-scam/ and here https://www.revealnews.org/article/profiteering-masquerades-as-medical-care-for-injured-california-workers/ and here https://www.revealnews.org/article/how-californias-health-care-system-for-workers-forgot-about-fraud/
That’s my top 10 list for the past 6 months. Stay tuned for my year end summary. You can have the blog delivered to your in-box by subscribing on the upper right column.
Julius Young
510.835.8870