TOP 10 EVENTS IN CALIFORNIA WORKERS' COMP 1ST HALF 2014

2014 is half done. What were the most significant events/themes in California workers’ comp in the first half of 2014?

Here, in no particular order, are my top picks:

1. CONTROVERSY OVER UTILIZATION REVIEW AND INDEPENDENT MEDICAL REVIEW CONTINUES

Utilization review and independent medical review continued to generate controversy during the first half of 2014. California injured workers, doctors, and applicant attorneys complained that it was increasingly hard to get consistent treatment for work injuries, as many adjusters used utilization review to deny treatments. Prominent attorney advocates called for reform of utilization review statutes and regulations.

However, there were disputes about the raw numbers. A January 2014 study by CWCI (the California Workers’ Comp Institute) (http://cwci.org/research.html) claimed that only about 4.7% of treatment requests are ultimately denied or modified.

According to the CWCI around 75% of treatment requests were approved without being sent to UR (“elevated review”). These numbers were in line with a 2011 study done by RAND. In response, a January 2014 analysis )of 2013 sample UR audit data prepared by CAAA consultant Mark Gerlach documented that some insurers were denying as much as two of every three treatment requests. Reviewing audit data, Gerlach noted that there was a wide range in approval rates of different claims administrators.

Overall, Gerlach’s analysis was that “nearly one of every five claims administrators audited in 2013 had a denial rate of more than 50%” and that “if as many as 50% of treatment requests are self to elevated UR and over 35% of those requests are denied, the ratio of treatment denials in UR could be almost 18%”. Gerlach postulated that in a system with 20 million treatment requests each year, that would translate into a UR denial of over 3.5 million treatment requests annually.

Whatever is an accurate analysis of numbers on UR denials, it became clear in 2014 that the volume of IMR requests being filed continued to be substantially above DWC projections, coming in at some 4 to 5 times over the expected numbers.

Meanwhile, employers and insurers expressed alarm that system savings anticipated from UR and IMR were unlikely to materialize, given the volume of IMR appeals and the attendant costs. In early 2014 a headline on the Workers’Comp Executive newsletter read “Workers’ Comp IMR Program Failing: Planned Changes May Be Naive”.

As 2014 proceeded, Maximus and the DWC were widely criticized for failing to handle IMR requests in a timely fashion. According to figures reviewed by workcompentral.com, as of April 2014 Maximus had issued decisions in only about 26% of the cases eligible for review. Many cases eligible for IMR review were not being decided within the 45 day time frame mandated by the law. At the end of May 2014 DIR spokesman Peter Melton was quoted by workcompcentral’s Greg Jones as saying that Maximus had received 146,022 IMR applications and issued only 33,327 decisions.

However, Maximus has pledged that by the end of 2014 it will catch up and meet the 45 day time frame. Reports have been surfacing that Maximus is subcontracting IMR reviews in an effort to catch up with the volume.

In the Spring of 2014 controversy arose as to whether Maximus would retain the contract to be the IMR provider for the California DWC. After Maximus was awarded the contract, two bidders filed challenges. Meanwhile, in May 2014 the DWC announced that Maximus was reducing fees for IMR by 25%.

At the time SB 863 was passed, advocates for IMR had promised that it would do high quality reviews. Yet, many doctors, workers and attorneys continued to complain that with IMR upholding UR denials in a rough 4 to 1 ratio, IMR was being administered in a harsh fashion. Statistics revealed in the Maximus contract bid show that only about 40% of Maximus reviewers are California doctors.

In April 2014 attorney Joe Waxman of San Francisco filed a petition for a writ seeking a declaration that the IMR process established by SB 863 was unconstitutional. In June 2014 this constitutional challenge, known as Stevens v. WCAB, was summarily denied by the California Court of Appeal 1st District, without a written opinion.

Another issue with IMR began to surface, as the Medical Board of California announced in June 2014 that they would investigate complaints about utilization review physicians rather than refusing those complaints on non-jurisdictional grounds. It remains to be seen how active the Medical Board will be in the UR arena.

2.WCAB ISSUES DUBON DECISION

Asserting jurisdiction over the utilization review process, in Februrary 2014 the en banc California Workers’ Compensation Appeals Board issued a ruling in Jose Dubon v. World Restoration & SCIF. The WCAB noted that issues of timeliness and compliance with statutes and regulations governing UR are legal disputes within the jurisdiction of the WCAB.

In determining that the UR decision in Dubon was invalid, the WCAB ruled that a UR decision is invalid if it is untimely or suffers from material procedural defects that undermine the integrity of the UR decision. Under those circumstances, the WCAB found that the issue of medical necessity would be determined by the WCAB based on substantial medical evidence, but the employee would still have the burden to show the treatment was reasonably required.

Reaction to Dubon was predictable. Doctors and worker advocates applauded. Employers and carriers reacted negatively.

In May 2014 the WCAB granted SCIF’s petition for reconsideration of the decision. As mid 2014 arrived, Dubon still remains in effect and is binding. However, it is not clear what the board will do going forward. One factor is that the WCAB has a new member, Commissioner Kathy Zalewski, appointed to the WCAB by Governor Brown in May 2014. Zalewski had previously been Department of Industrial Relations Chief Counsel.

Meanwhile, California’s workers’ comp judges and the WCAB itself are dealing with a number of different disputes over whether UR was performed in a valid way.

Various WCAB panel decisions have been rendered which examine various aspects of alleged UR irregularities. For example, in Weilmann vs. United Temporary Service a WCAB panel upheld a workers’ comp judge finding that an unsigned UR denial and failure to provide AME reports that explained the necessity for treatments undermined the integrity of the UR decisions and rendered the UR determinations invalid.

On the other hand, in Torres-Ramos vs. Marquez a WCAB panel ruled that a doctor’s request for authorization of treatment that was non-compliant with the rules did not even trigger an obligation to do UR in the first place.

3. ALLEGATIONS OF BAD BEHAVIOR PLAGUE THE COMP SYSTEM

Is California workers’ comp a cess-pool of corruption? A casual reading of the 2014 headlines might be forgiven for thinking so.

Waves of disturbing news continued to emanate from Southern California.

In October 2013 an FBI affidavit had been leaked to Al Jazeera America, implicating State Senator Ron Calderon in a scheme to delay implementation of controls over workers’ comp spinal hardware implants. Calderon’s actions to preserve the so-called spinal “pass-through” are alleged to have preserved the costly billing for an extra year. Calderon has attempted to implicate other legislators, though at the moment it is unknown what if any evidence he may have to back up his allegations.

In February 2012 Ron Calderon and his brother Tom Calderon pleaded not guilty to a range of federal charges.

Michael Drobot, former owner of several Southern California hospitals and pharmacies, pleaded guilty to federal bribery and kickback charges in February 2014. Drobot was alleged to have paid as much as $15 to 20 million in bribes associated with the workers’ comp schemes.

Lawsuits have been filed against Drobot ,his associates, and various Southern California doctors and hospitals for schemes to overkill and implant phony spinal hardware in operations on injured workers. Meanwhile, a RICO action filed by SCIF against Drobot resulted in multi-million dollar settlements.

Golia vs. Akmakjian, filed in June 2014 by Cotchett, Pitre & McCarthy LLP , Knox Ricksen LLP, and Kabateck Brown Kellner LLP, alleges battery, fraudulent concealment, intentional misrepresentation, breach of fiduciary duty, breach of express and implied warranties, and intentional infliction of emotional distress, among other causes of action against various doctors and hospitals.

Southern California hospitals which have been involved in these cases include Olympia Medical Center in Los Angeles, Riverside Community Hospital, St. Bernardino Medical Center, Tri-City Regional Medical Center, and Pacific Hospital of Long Beach.

The bad apples in workers’ comp seemed to be multiplying.

In early 2014 there was an Orange County indictment against Aspen Medical Resources and Abrexis Orthocare for alleged overcharging for durable medical equipment supplies for injured workers.

And in June 2014 a Orange County grand jury indicted Kareem Ahmed, president and CEO of Landmark Medical Management, and a number of prominent Southern California doctors who treat workers’ comp patients.

The allegations revolve around kickbacks to prescribe certain compound medications.

But it gets worse. A minor child is alleged to have died after somehow ingesting one of the topical analgesic creams.

These fraud allegations against medical providers are only part of the picture, however.

Problems with employer misclassification of employees and wage theft continue to plague California. For example, Riverside County prosecutors have filed against a local business for workers’ comp premium fraud and stealing wages from employees to the tune of $2 million by failing to pay wages at the mandated public works prevailing wage. Moreover, a 2014 WCIRB report found misclassification errors 13.3% of the time.

Prior state studies had shown that misclassification and premium fraud hurts honest employers and workers.

By mid 2014 some applicant attorneys in Southern California were said to be debating whether and how to inform clients who may have been referred to or treating with some of the doctors charged with these scams. And at its 2014 Reno conference CAAA members debated whether and how CAAA might ask its members to sign some sort of ethics pledge.

4. INCREASED FOCUS ON GENDER ISSUES IN WORKERS COMP

A February 2014 symposium on women and California workers’ comp was held in Sacramento.

It appears that many legislators and regulators are starting to give more attention to the impact of workers’ comp on women.

At the conference, DIR Director Christine Baker noted that women are more likely to have receptive motion claims and mental stress claims as well as certain other types of physical injuries. Legislators including State Senators Hannah-Beth Jackson and Toni Atkins expressed concern about the impact of work injuries on women.

5. WORKERS COMP RATES STABLE; INDUSTRY REMAINS HEALTHY

If one looks at a range of statistical benchmarks from a business perspective (in contrast to a claimant’s standpoint), it appears that workers’ comp in California is at a relatively stable point. Figures must always be taken in context, and there is lag time in measuring some of the benchmarks, but consider these snapshot points:

–FREQUENCY: According to the Office of Self-Insurance Plans (OSIP), private self-insured employers reported that the number of claims reported in 2013 declined by 2%. Over the last 9 years private self -insured claim frequency has remained stable. For insured employers the picture may be a bit less rosy. According to the WCIRB, claim frequency at insured employers has increased by 4.9% in 2013 and 4.6% in 2014. Estimated indemnity claims per 100,000 workers was significantly higher than the countrywide number or the numbers from other key industrial states. This was particularly true for claims originating out of the Los Angeles area. The WCIRB noted that as of 2012 the percentage of cumulative claims actually decreased from 2011 and 2010.

–PREMIUMS: Workers’ comp premiums paid by employers were $14.8 billion (before deductibles) in 2013, reflecting some increase in the average charged rate, increased total wages due to increasing economic recovery in California and several smaller factors.. According to a June 2014 presentation by Dave Bellusci, the WCIRB’s chief actuary, the WCIRB projects 16.6 Billion in written premium for 2014.

–RATES: The average charged rate for 2013 was $2.86 per $100 of payroll, still very far below the rates charged during the premium spike between 2002 and 2006 when rates skyrocketed to a 2003 high of 2013 of $6.29 per $100 of payroll. The WCIRB now projects an average charged insurer rate of $2.91 per $100 of payroll. Bellusci noted, however, that using the variables Oregon applies for its rate study of comparative state pricing, California is well above the national median price.

–COMBINED RATIO: According to WCIRB figures, despite growth of losses and loss adjustmentexpense, premium growth has allowed insurers to reduce their so-called combined ratio to 113% of premium. In recent years there was some alarm as the combined ratio of losses to premiums appeared to be deteriorating. For example the combined ratio in 2010 was 140%. This means that California insurers are in much better financial shape.

–LOSSES PER INDEMNITY CLAIM: The WCIRB reports that as of March 2014, ultimate indemnity losses had risen only very slightly since 2009 ($25,617 per claim in 2013 versus $25,064 per claim in 2009). Indemnity costs rose 2.2% last year, a modest level despite benefit increases in SB 863.

–MEDICAL LOSSES PER INDEMNITY CLAIM: Slides presented by Bellusci noted that as of 2014 the ultimate California medical loss per claim was $49,844, a decrease of 1.3% from 2013 figures. When compared to medical cost levels indexed to 2001, California insured workers’ comp performed poorly compared to California workers’ comp self insureds, but much better than California group health premiums and even medical in other state workers’ comp systems.

–MEDICAL COSTS: According to a CHSWC 2013 Annual Report, medical costs had increased by 9% comparing 2012 to 2011. Here are some studies on medical costs that were published in 2014:

–Berkeley Research Group study March 2014 (number of inured workers treated from 2007 to 2012 declined by 28% but medical drug billing was up 55% during the same period)

–Workers Comp Research Institute study May 2014 (medical-legal costs in California were the highest among 16 states studied)

–CWCI and WCIRB February 2014 (outpatient surgery center costs declined by 28% per procedure after SB 863 mandated an ambulatory surgery center fee schedule)

–OVERALL LOSS EXPERIENCE: The April 2014 WCIRB report projects an ultimate loss and ALE ratio of 86.5% for 2013

–INSURER PARTICIPATION: Within the last year a number of insurers have increased their participation in the market, writing much more business: SCIF (23.1% increase); Berkshire Hathaway (48.6% increase); AmTrust (140.9% increase); Employers Holding (14.3% increase). Of the Top 20 insurers in the California market, only trimmed their premium volume.

-6. EFFECTIVENESS OF COST CONTAINMENT MEASURES CONTINUES TO BE DEBATED

One of the arguments made by proponents of SB 863 was that IMR, Independent Bill Review (IBR), lien reforms, copy service reforms, home health care regs, MPN reforms and other measures would generate significant cost savings. As of mid-2014 the amount of savings really generated by some of these measures appears in question but has yet to be fully quantified. The volume of IMR appeals, for instance, far exceeded the cost expectations of the DWC and employer proponents.

Information on loss containment expense can be confusing. For example, according to an introductory summary of the WCIRB report released April 4, 2014 insurer allocated loss adjustment expenses increased 88% from 2005 and are projected to be 3% higher for 2013 than 2012. Yet, slides attached to the April 4, 2013 WCIRB report on 2013 insurer expense project lower loss adjustment expenses for 2013 versus 2012 as a percentage of premium.

In a rising premium environment rising cost containment expenses can be covered, but are the cost containment measures included in ALAE calculations really worth the money?

7. ACTIVE YEAR IN THE COURTS

In the first half of 2014, the Dubon case garnered the most attention. Also getting attention was the challenge to the lien provisions of SB 863 filed by Angelotti Chiropractic and several other providers. Currently review of the TRO by Federal District Judge George Wu in Angelotti Chiropractic v. Baker against the $100 lien activation fee is pending at the U.S. Court of Appeals 9th Circuit,. Also at issue is an appeal of Judge Wu’s dismissal of claims that the lien statue violates due process and constitutes a constitutional violation of the takings clause.

But the following were particularly noteworthy as well:

–Brower v. David Jones Construction (WCAB en banc May 2014) (PD benefits based on a reasonable estimate of PD level are payable after temporary disability stops even if a worker is not P&S; decision also addressed COLA calculations)

–Neri Hernandez V. Geneva Staffing (WCAB en banc June 2014) (home health care services require a prescription and in the absence of a home health fee schedule, a showing of evidence describing the hours and services required and provided and evidence of a reasonable hourly rate)

–Kim v. B.C.D. Tofu House (WCAB significant panel decision February 2014) (an issue of whether employee must treat within MPN is eligible for expedited hearing during the 90 days that the employer has to determine whether to accept or deny the claim)

–Navarro v. City of Montebello (WCAB en banc April 2014) (Navarro has been appealed to the California Court of Appeals, but the WCAB en banc holds that the labor Code does not require an employee to return to the same panel for an evaluation of a subsequent claim of injury and that Rule 35.5(e) which required this is invalid

In the California Court of Appeals:

-County of Nevada v. WCAB (Lade)(3rd DCA Janyary 2014)(public safety officer injured while working night job that paid 5% higher shift differential was not entitled to 4850 pay while working in modified job during that did not pay shift differential)

–Regents of University of California v. WCAB (Lappi) (4th DCA) (California Evidence Code trumps WCAB authority over discovery in dispute over review of documents claimed privileged)

–White v. County of Los Angeles (2nd DCA, Div.3) (employer can request 2nd evaluation of worker after FMLA expires)

8. RELATIVELY QUIET LEGISLATIVE YEAR

Legislative activity on workers’ comp was muted in 2014. No grand bargain type legislation was proposed, and rumored employer proposals to limit cumulative trauma claims did not materialize.

As of mid 2014, prominent bills still alive in the legislative process include:

–AB 2732 (cleanup bill to address some drafting errors in SB 863)

–AB 1897 (Hernandez) (deals with legal obligations of employers who contract with temp staffing firms)

–AB 2616 (Skinner) (presumption that MRSA skin infection is work related where contracted by hospital nurses)

–AB 2378 (Perea) (allows workers eligible for 4850 time to receive that in addition to 104 week TD cap)

– AB 2052 (Lorena Gonzalez) (peace officer presumptions)

–AB 1576 (Hall) (requires adult film employers document that performers use personal protective equipment)

Bills already signed by Governor Brown include:

–AB 2230 (Cooley) (establishes cap on CIGA assessments)

–AB 1035 (Perez) (extends statute of limitations for filing by dependents of specified public safety officers)

On the Governor’s desks of 7/11/13″

–AB 1746 (Alejo) (allows workers to get on expedited hearing calendar where the employer failed to provide comp insurance)

9. REGS, REGS, REGS

By mid 2014 many of the regulations required by the SB 863 had been promulgated. Those include regs on the following: Independent Medical Review, Independent Bill Review, lien filing fees, supplemental job displacement vouchers, spinal pass through payments, physician fee schedule (RBRVS) and predesignation of personal physicians.

Still uncompleted were the following: copy service fee schedule, MPNs (medical provider networks), home health services, a vocational expert fee schedule, and rules for the $120 million fund created by SB 863 under Labor Code 139.48 to compensate workers “whose permanent disability benefits are disproportionately low in comparison to their earnings loss”.

On the copy service fee schedule, the DWC shifted its approach from the original proposal suggested by a Berkeley Research Group report. A draft proposal was circulated by the DWC for public comment. Under that proposal, a flat fee of $180 would be paid most copy assignments, with higher fees for work over 500 pages. Applicant attorneys would need to demand records and wait 30 days before seeking records via a copy service. Certain ancillary services would not be reimbursable.

A July 1, 2014 public hearing elected a wide range of comments on the copy service proposal, and further adjustments to the DWC approach are anticipated.

In May 2014 the DWC issued notice of rule making to amend the medical treatment utilization schedule (MTUS). Proposed changes include definitions of evidence based medicine, medical literature search sequences, definition of the strength of evidence,, clarification of the MTUS hierarchy of evidence and amendments to the Medical Evidence Evaluation Committee regs. This was followed by a public comment hearing on July 1,2014 in Oakland.

Perhaps the most controversial set of regulations are the MPN (medical provider network) regs. Notice of rule making by the DWC began in August 2013, and a public hearing was held in September 2013. As of May 2014 the DWC had revised the proposed rules multiple times as was on its 3rd 15 day comment period.

Many worker advocates believe the MPN regs have watered down some of the worker protections that were envisioned by SB 863.

For example, the May 2014 iteration of the MPN regs would delete a requirement to indicate if a physician is not currently taking new workers’ comp patients when the MPN posts its roster of treating physicians. The requirement that each MPN physician agree to treat workers under the MPN has been watered down.

The time allowed for an MPN to arrange specialist care for a requesting worker has been lengthened.

The proposed MPN regs would allow claims adjusters to serve as MPN medical access assistants although “if the same person performs both, the MPN medical access assistant;s contacts must be separately and accurately logged”.

As drafted, provisions for physician acknowledgements of MPN participation have been watered down as well.

Employer advocates also criticized the proposed MPN regs, particularly the proposed penalty amounts for non-compliance and network geographic coverage requirements.

Whether further changes to the MPN regs will be undertaken remains unclear as of early July 2014.

Also still pending are the rules for the $120 million fund. A 2014 RAND study by Seth Seabury and Ethan Scherer made recommendations and evaluated different scenarios for distributing the $120 million fund.

Subsequently, in May 2014 the DWC circulated a “Text of Proposed Rulemaking”, proposing to allow workers to apply to the fund within one year of receiving a $6,000 SJDB voucher. The DWC proposed to pay workers eligible for the Return-to-Work Supplement fund $5,000 each. Formal rule making has not yet been initiated.

Also on deck are proposed opioid guidelines.These would replace the current opioid treatment rules that are part of the MTUS guidelines on chronic pain. A draft of new opioid guidelines received extensive comment from various comp stakeholders in the first half of 2014.

10. OUTSIDE THEMES HANG OVER WORKERS’ COMP

2014 promised to be a year in which developments outside of workers’ comp would have a significant impact on the system.

The Affordable Care Act is one of those developments. There has been a great deal of speculation about the long term impact of the ACA on California workers’ comp. Would workers choose to not file comp claims, seeking treatment under the ACA instead? Would the ACA affect the availability of physicians to treat in workers’ comp? Would injured workers elect to settle claims that they formerly might not have settled? By mid 2014 it was hard to identify any immediate ACA impacts.

Likewise, there was concern in some quarters that the California Supreme Court case of Salas vs. Sierra Chemical could be decided in a way that could impact California workers’ comp, particularly claims for back pay under the anti-discrimination provisions of Labor Code Section 132A. Salas, actually a FEHA case, involved Labor Code 1171.5 which provides protection of state laws to individuals regardless of immigration status except reinstatement remedies prohibited by federal law.

In July 2014 the California Supreme Court reversed the 3rd District Court of Appeals, rejecting the argument that federal immigration law pre-empted claims for back pay involving undocumented immigrants. However, under Salas employees whose employers discover their unauthorized status after firing them or hiring them may not recover lost pay for the period after the discovery. However, back pay awards would still be available after the employee’s termination or adverse action until the employee discovered the undocumented status. In the Salas case there was an issue as to whether the employer had known of the undocumented status and nonetheless continued to employ the worker, and the court remanded for more evidence on that issue. Essentially, the court was noting that unclean hands by the employer might affect the employer’s defense that the employee had unclean hands.

How Salas (and potentially, a larger immigration law reform bargain) will affect workers’ comp remains a bit unclear, but it may well be that there will be very little impact.

That’s my list for the first half of 2014. Stay tuned. In coming posts I’ll look at these and other issues in more depth. I encourage readers to use the subscribe function on the right hand column of the blog. That way the blog can be emailed out to you after I complete new posts.

Julius Young