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IME: Success or Fishing Expedition?

Independent medical exams (IMEs) are widely used throughout the workers’ compensation insurance industry. However, as with any tool, you generally need a good carpenter or mechanic to get the best results. Because of the time required to arrange these medicolegal exams and because of the complexities of determining causation, pre-existing conditions, degree of impairment, etc., most insurance companies and third-party administrators (TPAs) outsource this function, which generates findings that can be used in the formal claims adjudication process.

The problem with outsourcing IMEs is that it typically removes from the process the only stakeholder who actually knows the injured worker: the employer.

The employer can make better decisions about whether to request IMEs — which are very expensive — by looking for red flags that, in many cases, only the employer could know about.

The most basic reason is if there is a legitimate question as to whether an injury or illness was caused by a work-related accident or industrial exposure. Red flags that might indicate the need for an IME include: The accident/injury wasn’t witnessed by other employees; reports of how the injury occurred are vague; or the injury was not promptly reported. Other triggers that only the employer would know include: a history of disciplinary, attendance or other HR issues; prior work history and the possibility that the employee is working a second job; or participation in sporting and recreational activities outside the workplace.

Other flags could be: Healthcare providers indicate that the employee may not be able to return to work, based on subjective complaints, or have proposed treating plans that are open-ended, with no clear-cut goals.

Other key issues that should be identified early in the claims process are: pre-existing conditions; any unauthorized medical treatment; any treatment by known “provider mills”; all litigated or potentially litigated claims; any potential subrogation opportunities; any doctor shopping; prescriptions for opioids; recommendations for elective surgery, such as on the back or for carpal tunnel issues; and any plain, old-fashioned tips from other employees.

IME providers often miss three fundamental questions: Can this injury or illness be caused by the workplace? Under what circumstances? Did these circumstances exist in this case?

Medical providers performing IMEs often make decisions in a vacuum, with little, if any, input from the employer. Leading medical experts who routinely perform IMEs state they are often “flying blind” and would have conducted a whole different physical exam or diagnostic testing if they only had more information. They tell me that they often have no idea why an IME has been scheduled. Miscommunication is common, and prior medical reports are often delayed or even lost.

IMEs should be conducted within a well-planned strategy at both the local level and the corporate level, between an employer and its insurer or TPA. The success or failure depends on active involvement and strong communications by all involved, including employers, IME providers, injured workers and insurance carriers and claims administrators.

As noted in previous articles, employers may consider using an OSHA-sanctioned “contemporaneous” medical exam – conducted at the moment of injury/illness notification but done outside the workers’ compensation system. Employers may consider this approach when they suspect a difficult or potentially litigated claim in states where they have little control over the choice of medical provider or face other jurisdictional or claim-specific challenges.

Employers, whether they are fully insured or self-insured, should ask detailed questions about how IMEs are handled on their behalf. Most insurers and TPAs outsource some, if not all, of the process of scheduling and arranging IMEs. There are dozens of questions I would ask about IME panel selection and quality assurance, including; credentialing, board certification, training, continuous education, experience, expertise, reputation, affiliation with university-based teaching hospitals or sports teams, along with knowledge and utilization of AMA impairment guidelines, evidence-based treatment protocols and application of disability guidelines from state workers’ comp, the Americans with Disabilities Act  (ADA) and others.

The only true stakeholder in what can be a very expensive, time-consuming and frustrating process to obtain quality IMEs is the employer. It is the employer that should be asking about “other” workers’ compensation costs and whether IMEs, which often include “hidden” costs, are actually having a positive outcome in successfully denying, closing or settling difficult and contentious workers compensation claims.

The 80/20 rules applies in both workers’ compensation and healthcare — 20% of claims will generate 80% of the costs. Employers need to have strategies in place both early and often to help confirm the relationship between reported injuries and illnesses and the workplace.

The employer’s ability to obtain credible and authoritative medical opinions is key to containing workers’ compensation costs from medical, indemnity (lost-wage replacement), permanent disability awards and administrative, legal and other fees.

Employers need to take a much more active role in ensuring high-quality healthcare while addressing waste, fraud and abuse in the system. Employers should avoid fishing expeditions but rather use these expensive tools wisely and put them in expert hands. If you are going fishing, make sure you have the right bait, deck hand and captain.

IMEs can be a great tool or waste of time and money. It’s more up to you than you think.

SB 863 Update: Is the California Workers’ Compensation System Better Than it Was One Year Ago?

The passage of SB 863 in California came with a promise of higher benefits for injured workers and lower costs for employers.  Just over one year later, where does this promise stand?There has been improvement, but there is still a long way to go.

I recently attended and spoke at the California Workers’ Compensation & Risk Conference in Dana Point, California, where, as expected, the major focus was SB 863.  Just over one year ago, employers and labor came together at the end of the legislative term to pass a bill designed to improve benefits for workers and reduce costs for employers.

I moderated the opening session, which was a diverse panel featuring representatives from employers, carriers, injured workers, and medical providers. My first question to the panel set the tone for the rest of the session, and for the rest of the conference. That question was: “From your viewpoint, is the California workers’ compensation system better off now than it was a year ago?”

Before you can gauge the success of SB 863, you must remember where we started.  Permanent disability (PD) benefits to injured workers had been cut significantly under prior reforms, so injured workers were unhappy with the system. Employers were equally unhappy, as workers’ compensation costs in California had been increasing steadily for years.

With a system that both injured workers and employers were very dissatisfied with, something had to be done.

SB 863 provided an immediate increase in permanent disability benefits for accidents occurring after 10/10/2013.  PD is being increased by a total of 30%, phased in over two years. There is also a $120 million fund to compensate certain workers who are unable to return to their pre-injury job because of physical restrictions.

The savings for employers are to come over time.  The largest of the savings under SB 863 are to come from changing the processes for liens and medical disputes. Thus far, these changes are receiving mixed reviews.

On the plus side, liens have fallen significantly since a fee for filing them was implemented Jan. 1. Some of the drop can be attributed to the fact that medical providers filed all the liens they could before the fee took effect. However, there clearly has been a significant drop in new liens filed.

The filing fee is being challenged, though, by a lawsuit that seeks to have it declared unconstitutional, and some of the anticipated savings from SB 863 are likely to be eroded if the courts don’t uphold the fee.

The bill also restructured the medical dispute resolution process, with the introduction of the Independent Medical Review (IMR). The IMR process was modeled after successful programs in states such as Texas. It is designed to have physicians, not judges, deciding disputed medical issues. It is also designed to expedite resolution so appropriate treatment is provided to injured workers in a timely manner. The IMR process clearly remains a work in progress. First, 10 months after implementation, the process is still operating under emergency rules. Until the final rules are in place, those participating in the process will face uncertainty. Second, it appears there is significant gaming of the IMR process. Approximately 16,000 requests were filed in both August and September of this year alone, significantly more than anticipated.  In one month, there were more disputes filed than in an entire year for the same process under group health.  Employers alone bear the costs of the IMR process, so those filing all these requests may be attempting to cripple the system at absolutely no cost to themselves.

The issues facing the IMR and lien processes illustrate what many see as the major impediment to delivering cost savings for employers in California: There are special interest groups that do not want the system to become more efficient and self-executing, because they make a great deal of money off the chaos.

In her speech at the conference, Christine Baker, director of the California Department of Industrial Relations, expressed concern about “significant gaming.” While this gaming is not unique to California, from my national viewpoint its impact on the workers’ compensation system is more profound in California than in other states.

The biggest challenge is that the workers’ comp system in California is flawed by design. No other state has issues with medical liens in workers’ compensation. Bills are reduced to fee schedule with no further disputes seeking additional payment. Treatment that is not authorized is subject to litigation over necessity. If the employer prevails, “no” means “no.”  In California, “no” means “file a lien and litigate further.”

Another issue facing California employers is continuous trauma (CT) claims, which can be filed for a 1% aggravation of a pre-existing condition. The legislature recently fixed this problem for the National Football League by passing a bill specifically limiting CT claims by professional athletes, but CT claims in California continue to be a significant cost driver for other employers, and their frequency has more than doubled over the last 10 years.  It is common in California for injured workers to file both CT and specific injury claims for the same body part.  In no other state are CT claims as prevalent and embedded into the workers’ compensation system as they are in California.

In addition, allocated loss adjustment expenses (ALAE) covering items such as bill review, utilization review, and litigation costs are higher in California than other states, and these costs are increasing at an alarming rate.

The gaming of the system significantly increases the costs for employers and delays the delivery of benefits to injured workers.  The main stakeholders in workers’ compensation, the employers and workers, need to work together so that benefits can be delivered faster and at lower cost.  SB 863 was a step in this direction, but there is more work to be done. The people who worked together to make SB 863 a reality need to continue to work together to preserve the savings elements designed into the bill.  If they can do this, perhaps California can finally achieve some stability in its workers’ compensation marketplace, which would benefit both employers and injured workers.

California Workers' Compensation Self-Insurance Update

Under the new requirements of SB 863, California private (non-public entity) workers’ comp self-insured employers and self-insured groups (SIGs) starting this year are required to submit an actuarial study and an actuarial summary form to the Department of Industrial Relation’s Office of Self-Insured Plans (OSIP). Private self-insured employers’ actuarial submissions are due on May 1 and SIGs are due on April 15. The new actuarial study and summary form must both be prepared by a qualified actuary, as defined by OSIP.

Under SB 863, the method for calculating OSIP’s required security deposits has changed from the old method involving the Estimated Future Liabilities (EFL) formula (multiplied by a factor of 1.35 – 2.00) to the new actuarial methodology. This is considered the “gold standard” by insurers, captives, and other state Guaranty Funds as well. Self insurers are still required to submit their self-insured employers’ annual reports to OSIP as they have always done. This annual report covers the self-insured entity’s open workers’ comp claims by calendar year.

Those 340+ self-insured entities in the Alternative Security Program (ASP) of the Self-Insurers’ Security Fund (SISF) are part of the annual composite deposit program wherein SISF provides OSIP with their security deposit guarantee. They post nothing. Therefore, their security deposits are “notional” since SISF covers them. SISF’s ASP member assessments in July, 2013 will be adjusted (i.e. rebalanced) to reflect the new actuarial standard. Some ASP entities may experience increases or decreases in their annual assessments as a result of their restated open claim liabilities using a uniform actuarial standard. Currently, SISF member security deposits are based on factors of 135% to over 200% of their total EFL.

SISF's excluded entities are those that are required to post collateral (cash, LOC, securities, or security bonds) with OSIP. The 25 active California SIG's already post security deposits based upon an actuarial figure, but in 2013 SIG security deposits — like individual self-insureds — is at the undiscounted “expected level” versus the previous standard of an 80% confidence level.

Each self-insured's actuarial report must include: Incurred But Not Reported (IBNR) liabilities, Allocated Loss Adjustment Expense (ALAE), and Unallocated Loss Adjusted Expense (ULAE), less any credit for applicable excess insurance. Each of these amounts will be reported on the actuarial summary form. There are currently 55 single-entity self-insureds that will now be required to post their OSIP security deposit based upon their 2012 actuarial report submittal.

The new OSIP self-insured actuarial summary form was just placed on the OSIP website on February 14, 2013. (Note: These new requirements do not apply to government entities and JPA's).

The actuarial valuation report of the self-insured's open workers' comp claims must be as of December 31 of the previous year (i.e. 12/31/2012). Actuaries may roll forward liabilities to the December 31 date instead of having a separate study performed if the self-insured already has actuarial studies that use a different valuation date.

It's important to note that with nearly 500 self-insured entities being impacted in 2013 by SB 863 changes, exceptions to the requirement to file an actuarial summary are being developed and will be contained in a regular rulemaking package that should be publically announced within the next four to six weeks. The proposed exceptions will most likely only pertain to self-insurers that have a few open claims or a very low total ELF.

David Axene, a healthcare actuary and an Insurance Thought Leadership author and advisory board member, recommends Jeffrey R. Jordan and Frederick W. Kilbourne as actuaries who would be able to help you with the actuarial study and actuarial summary form now required as a result of the passage of SB 863:

Jeffrey R. Jordan, FCAS, MAAA
Phone: 818.879.1299
Send Jeffrey an Email

Frederick W. Kilbourne, FCAS, MAAA, FSA
Phone: 858.793.1300
Website: www.thekilbournecompany.com
Send Frederick an Email

Additional Resources To Help You Find An Actuary
Society of Actuaries
Online Directory of Actuarial Memberships