At midyear, it’s time to assess the top developments in California workers’ comp during the first half of 2021.
Separating the signal from the noise is not always easy. But here is my assessment of the important developments and trends, in the California system, in no particular order:
1. WCAB Commissioner Juan Pedro Gaffney has departed, opening up a WCAB slot for Governor Newsom to fill
Gaffney was never a major presence on the WCAB. Lacking any comp or legal experience, his selection by Governor Brown was widely seen as the Governor covering for an old friend. Gaffney’s departure does present Governor Newsom with the opportunity to select a replacement. Workers’ comp has not been an issue that required much attention from Newsom during his campaign and his administration, so it will be interesting to see who has the Governor’s ear as he makes this replacement appointment.
2. By midyear, the scope of 2021 California legislative activity became more clear
An effort to create a statewide physician network to treat injured workers (a California MPN) stalled. That bill, AB 1465 (Reyes), is currently advancing as a study bill, requiring a CHSWC study of a statewide MPN be done by 1/1/23.
A bill to prohibit discrimination in apportionment, SB 788 (Bradford), continues to advance. Discrimination in apportionment based on race, religious creed, color, national origin, gender, marital status, sex, sexual identity, or sexual orientation would be banned by an amendment to Labor Code 4663. However, language banning apportionment based on age or genetics was removed from the bill.
The fate of another contentious bill, SB 335 (Cortese), was not clear at mid year. That bill would shorten the time to investigate and accept or deny a claim from 90 days to 45 days. Facing strong employer and insurer opposition, the bill was scheduled for hearing in July.
Other bills that appeared to be advancing included AB 872 ((Wood) (salary continuation for California Division of Forestry employees), AB 404 (Salas) (requiring review of the MLFS every 2 years), AB 334 (Mullin) (skin cancer presumption for some public employees who work outdoors), and SB 284 (Stern), that would prospectively expand the previously enacted presumption of PTSD for certain first responders to cover various other public employee groups specified in the bill.
3. The comp community continued to adapt to changes caused wrought by COVID
The California Workers Compensation Institute has tallied 29,398 California workers’ comp COVID claims filed between January 2021 and May 2021. The numbers dropped precipitously, from 21,797 in January 2021 to 585 in May 2021.
In 2021 conferences and trials continued on the LifeSize platform, although district offices were reopened.
Most depositions continued to be held on Zoom, to the delight of many attorneys and court reporters who found that the video deposition process generally worked quite well.
Some QME evals continued on video, while other resumed in person.
As the Governor and local areas issued orders “opening up”, some comp community stakeholders began to bring workers back to the office, while others allowed workers to work remotely altogether, and some proposed a hybrid approach for their staff.
As with many employers across the country, workers’ comp stakeholders were studying their operations. This included assessing the efficiency of their employees who worked remotely, examining the cost of their real estate footprint, and considering how their organizational culture could best be sustained while meeting the changed preferences of some workers. Some believe that things will be “back to the pre-pandemic usual” within a year and others believe that things have changed forever, with much work done remotely.
Meanwhile, at mid-year there was growing concern about the Delta variant and the unvaccinated.
4. At midyear the workers’ comp industry awaited a determination from Insurance Commissioner Lara as to whether advisory comp rates would increase or decrease
A CDI hearing was held on proposed non-binding advisory workers’ comp rates that would go into effect as of September 1, 2021. Commissioner Lara and CDI staff heard dueling recommendations. On the one hand was the WCIRB, recommending a 2.7% increase in advisory rates, to $1.50 per $100 of payroll (from the 1//1/21 approved rate of $1.46 per $100 of payroll). In opposition, actuary Mark Priven suggested that advisory rates decrease by 8.2%, to $1.34 per $100 of payroll.
After six years of decreasing advisory workers’ comp rates, Lara will determine whether advisory rates should finally increase or whether there is room for further declines. Among the factors explaining the difference in projections are different assumptions regarding claim frequency, medical cost inflation, and loss adjustment expenses. Of course, insurers are free to make their own pricing decisions so the CDI recommendations carry only limited weight.
5. After years of study, the DWC finally amended the Medical-Legal Fee Schedule
Amendment of the fee schedule for QMEs had been an elusive DWC target for several years, despite repeated drafts, comment forums and stakeholder meetings. 2021 was different. A new Medical-Legal Fee Schedule was adopted effective April 1, 2021, and online Zoom sessions were held in early April by Medical Unit staff, explaining the regs.
The new schedule jettisons QME compensation based on complexity factors. Instead, it creates flat fees and a per page document review compensation scheme.
Some period of adjustment and friction was to be expected, and by mid year there were reports that some stakeholders were having disputes over what records should be forwarded to QMEs. Getting a reliable estimate on the systemic cost of the MLFS increase was difficult.
6. 2021 reports make it clear the California workers’ comp system shrunk in 2020
It isn’t surprising the comp system shrunk in 2020. After all, consider the economic turmoil caused by COVID-19, with high unemployment and shrinking payrolls. And comp rates have been falling for a number of years.
Although it only covers insured employers, not self insureds, a June 25, 2021 WCIRB report “2020 California Workers’ Compensation Losses and Expenses” shows that the system shrank considerably in 2020. Calendar year 2020 insurer earned premium shrank to $14.1 billion from $16.1 billion in 2019 and $17.4 billion in 2018.
Insurer total 2020 paid losses declined ($7.8B vs. $8.3B in 2019), but losses as a percentage of earned premium rose from 43% in 2018 and 48% in 2019 to 51% in 2020, given the smaller total premium paid.
Atttorneys were affected as well. Defense attorney fees were $828 million in 2020 vs. $903 million in 2019. Applicant attorney fees were $402 million in 2020 vs $446 million in 2019.
Loss adjustment expenses declined in 2020 to $1.7B, from a figure of $2.1B in 2019.
At mid-year 2021, with the California economy starting to rebound from COVID lockdowns, it is difficult to have confidence that 2020 stats on the system reveal longer term trends.
7. Concerns about California MPNs continued to surface in 2021
For years applicant attorneys and worker advocates have complained that injured workers have trouble finding doctors on MPNs who are available and willing to provide treatment in a reasonable timeframe and geographically appropriate manner. Countering this, insurer advocates claim that most injured workers receive timely treatment, and they question the need for reform.
In opposition to the proposal for a statewide MPN network, CWCI produced a position paper questioning the need, “AB 1465 and Medical Provider Networks” : https://www.cwci.org/document.php?file=4858.pdf
Assuming it is passed and signed by Governor Newsom, AB 1465 will require a study of some of these issues.
Meanwhile, there has been increasing concern among many physicians that MPN contracts & lack of transparency in discount agreements are discouraging physicians from participating in the system, leading many to refuse workers’ comp cases and others to complain about contracted rates. This is an issue which pits doctors against insurers, billing companies and MPN network assemblers.
Readers who want to learn more about “the murky world of contract discounts” should take a look at the Daisy Bill blog: https://blog.daisybill.com/CA-SB-537-discount-reimbursement-contracts
On July 1, 2021 the DWC unveiled a new form which requires (pursuant to Labor Code 5307.12, effective 7/1/21) that entities providing physician network services disclose a contracted discount rate which is less than 80% of the Official Medical Fee Schedule (OFMS). That form can be found here: https://wcc-public-news-storage-4081.s3.us-west-2.amazonaws.com/21/06-June/DWC-5307-12.pdf
8. 2021 is not a big year in the courts for workers’ comp
There were interesting WCAB panel decisions on issues involving permanent total disability, the definition of a violent act, the QME process, application of the Kite doctrine, cancer presumptions substantial evidence,and more.
But there were very few significant cases coming out of the California Appellate courts so far in 2021. Exceptions included the following:
•Town of Los Gatos v. WCAB (Hart) (unpublished decision on start date of COLA under LC 4659(c))
• Applied Materials v. WCAB (published decision dealing with disability arising from treating doctor’s sexual misconduct with applicant)
9. Regulatory action was limited
Aside from the adoption of a new QME fee schedule, regulatory activated was very limited.
In March 2021 the DWC extended the emergency regs for evaluation and reporting in response to COVID, allowing those to remain in place til October 21, 2021.
As noted above, a new QME fee schedule was finally adopted.
Online forums were held in the first half of 2021 regarding possible QME regulations (dealing with education requirements and discipline, among other things) and Disability Evaluation Unit (DEU) regulations. There was no public activity in the first half of 2021 on the topic of Copy Service Fee Schedule Regulations despite an October 2020 forum on that topic.
10. As usual, there was a flood of studies on the California system
Studies often influence policymakers, so the following recent studies are worth noting:
From the California Division of Workers Comp:
• Report on 2020 IMR data: https://www.dir.ca.gov/dwc/IMR/reports/IMR-Annual-Report.pdf
• Report on IBR: https://www.dir.ca.gov/dwc/IBR/Reports/IBR-Report.pdf
From the California Workers’ Compensation Institute (CWCI):
• Report on IMR 2014 to 2020: https://www.cwci.org/document.php?file=4849.pdf
From the WCIRB:
• Report on prescription drug trends: https://www.cwci.org/restricted_document.html?id=4826&referer=/research.html
• Report on the cost impact of California’s prescription drug formulary: https://www.wcirb.com/sites/default/files/documents/rb-drugformulary-2021-ar.pdf
• Report on California claims and costs as of 4thQ. 2020: https://www.wcirb.com/sites/default/files/documents/wcirb-quarterlyexpreport-2020-4q-ar_0.pdf
• A June 2021 report on 2020 Workers’Comp Losses and Expenses: https://www.wcirb.com/sites/default/files/documents/2020_ca_wc_losses_and_expenses_report-complete.pdf
Workerscompzone will continue to cover these issues and trends as 2021 progresses. Stay tuned.
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Boxer & Gerson LLP