Tag Archives: independent medical review

Napoleon's Corporal And The Implementation Of Senate Bill 863

SB 863 was passed on the last day of August 2012. It is the largest and most comprehensive change to the California workers compensation system since April 2004 when SB 899 passed.

To make sure that the new law is implemented properly, the California Division of Workers Compensation and the Workers Compensation Appeals Board have both promulgated extensive regulations. Some of the regulations, by their nature, were considered “emergency” and were approved by OAL on December 31.

Because of the extensive impact of the various articles in the legislation, there will be ongoing regulatory efforts at least through the first six months of this year.

I strongly encourage all claims operations to review these regulations and provide their insight, thoughts, and comments on a timely basis to the Division of Workers Compensation. You can find all of the regulations on the California Department of Industrial Relations web site or the California Division of Workers Compensation web site.

Implementing SB 863
On the front lines there are many legitimate questions, such as:

  • How much of the new law applies to my existing cases?
  • If I have started Permanent Disability (PD) advances, and if the employee has returned to his/her regular work, do I still need to advance Permanent Disability?
  • What is Independent Medical Review (IMR)?
  • How will I pay for the Independent Medical Review evaluation?
  • Under what circumstances will I have to use Independent Medical Review?
  • What happens if I have an old case and the applicant attorney claims a sleep disorder?
  • What are the new ways to rate Permanent Disability?
  • What happens if the lien holders have not paid their lien filing fee?

To assist with helping claims operations and claims departments implementing the new law, I have provided an SB 863 Implementation and Survival Guide, organized by Mark Webb. It is intended to assist claims operations in the day-to-day implementation of SB863.

The original wording of the bill can be viewed here.

Napoleon's Corporal
Napoleon Bonaparte conquered most of Europe and North Africa. Many do not know the inside story of why he was a successful a military leader. One reason was his unique and extensive use of cannon. However he also had a secret weapon … His advantage was his use of a corporal.

Napoleon realized that war was a complex endeavor. When his generals outlined the battle plan, he had a random corporal assigned to shine his boots. After the plan was explained to Napoleon, he would look down at the corporal and ask if he understood the plan. If the corporal (who had been listening to the explanation of the plan) understood, Napoleon would then authorize the attack. However if the corporal was confused or did not understand the plan, then Napoleon had his generals re-do the plan to simplify it.

Napoleon understood that it was his front line that needed to execute the battle plan. If the plan was confusing, the front line would not be successful.

I recommend that this concept be considered when implementing SB863.

Here are some additional comments and observations on developing claim procedures to implement SB 863:

  • Usually the best and the brightest are used to develop procedures in claims departments. That does not always result in simple processes. This is because the focus is usually only on compliance with the new laws (which does not include simplifying the existing processes or the new process).
  • When the claims departments are developing their policies, rules and procedures, front line claims assistants and examiners should be included in the development of the processes and should also review the proposed plans to determine if they can be understood and implemented.
  • Unfortunately many times the new procedures result in processes that reflect the axiom “we have always done it this way.” Include folks who think “out of the box” and allow their voices to be heard.
  • SB 863 will result in major changes within the claims offices procedures and claims handling. Now is the time to take advantage of the change and embrace the change rather than to resist the change.
  • The focus on implementation should be: Benefit provision, Compliance, Cost Savings, Simplification, Documentation, Training.
  • For many claims adjusters, this will be the third system that they will be working with (Pre-899, 899 and 863).
  • Segregating claims by system may help but is not a panacea (because many of the provisions of SB863 apply to all existing claims).
  • Claims systems will also have to be changed. Limitations of some of the claims systems will result in problematic work-around procedures for awhile.
  • Sometimes working out a manual process first allows one to identify efficiencies. Do not be afraid to use a manual process for awhile (as the bugs are worked out).
  • Regular reviews of the implementation team specifically focused on simplification are productive.
  • The team should have a dedicated focus on the new law's cost-saving provisions.
  • The team should keep track of its costs and also develop an analysis of costs of implementing the laws.
  • The new laws may change the claims staffing model.
  • Third Party Administrators should notify their customers of the potential increased costs (Permanent Disability, for example) and also projected savings (lien reduction and resolution).
  • Third Party Administrators should review their contracts with their customers to determine if the changes in the laws impact their current pricing models and are best for their clients and for their success.
  • Bill review vendors and Utilization Review companies both have major changes to implement.
  • Special Investigations Units and Fraud Reporting have new issues to report because of the increased conflict of interest provisions in the law. Include the Special Investigations Unit as part of the implementation team.
  • I recommend an implementation team include: A senior claims executive, a senior claims supervisor, a claims examiner, a claims assistant, a bill specialist, a hearing representative, a finance person, a claims system expert, an attorney who knows the new law, and a person who is responsible for documenting the discussions, processes and procedures.
  • Training of the entire staff will take more than just one meeting and more than one month. Assume that there will be a need for re-training on a regular basis for the first nine months.

Workers' Compensation In California: No Longer Just Permanent And Stationary

Senate Bill 863 was passed on August 31, 2012 and signed into law by Governor Brown on September 1 for a January 1, 2013 effective date. This bill not only affects the workers’ compensation system in California but also has far reaching effects for employers under the California Fair Employment and Housing Act (FEHA) and the Americans with Disabilities Act of 1990 (ADA). With lengthy delays for treatment and outcomes, the old system wasn’t working.

In this author’s opinion, the most significant issues that employers face with the changes in SB 863 are with the supplemental job displacement vouchers, increases in permanent disability, and the independent review process.

The bill increases permanent disability and an independent medical review process (IMR), which may be problematic for an employer because claims that are not causally related or where there is no injury accepted can have a significant impact on the employer. In fact, an independent medical review can only be requested by an injured worker following a denial, modification, or delay of a treatment request through the utilization review (UR) process. The catch is that employers and insurance carriers cannot request review of treatment authorizations.

There is a right to appeal an independent medical review determination to the trial level Workers’ Compensation Appeals Board on the basis of fraud, conflict of interest, or mistake of fact. The reviewer’s underlying medical decision-making, however, cannot be overturned by a judge. The remedy, if an appeal is granted, is a referral to a different reviewer for another evaluation. In short order, the employer is stuck with the decision. Please note that this does not apply if the injury is in question!

What does this mean in terms of federal law for California?

To best answer this question one must understand the basis of these federal laws. Numerous states have anti-discrimination laws which can differ from federal law but are designed to encompass the spirit of the federal laws. These laws are provided in addition to the federal law in order to offer more desirable avenues for victims of harassment and discrimination. California is one state that has enacted such laws.

For the purpose of SB 863, we need to explore the California Fair Employment and Housing Act. This law prohibits discrimination based on race, color, religion, national origin, physical or mental disability, medical or related medical condition, marital status or sexual orientation. The act applies to all employers, labor organizations, employment agencies and any other entity or person who engages in or compels an act of discrimination. It also allows for the imposition of punitive damages when a corporate defendant’s officers, directors or managing agents engage in harassment or discrimination. In fact, the definition of disability under the California Fair Employment and Housing Act is more broad than Federal law as something that “limits” a major activity where the federal law states that it must “substantially limit” a major activity.

The enactment of SB 863 will pose an important question for employers; “where does workers’ compensation end and discrimination start?” As of January 1, 2013, California employers need to have the answer to that question because newly added Labor Code Sec. 4658.7 addresses that problem and ties into SB 863.

Under the current system, injured workers may be offered supplemental job displacement vouchers that can be used to pay for job retraining. Currently, the vouchers range from $4,000 to $10,000 and the permanent disability award is often determined a long time after the last date of temporary disability payable, so the use of the vouchers has been low. The amount is based on the permanent disability rating for the injured worker and does not have to be paid until a final determination of the permanent disability rating has been determined.

For injuries after January 1, 2013, under SB 863 the voucher amount will be fixed at $6,000 for all qualifying injured workers, and it is to be offered when the injured worker reaches permanent and stationary status and the treating doctor reports on work abilities and limitations resulting from the injury.

With Labor Code 4658.7, the trigger for a voucher will be when an employer does not offer regular, modified or alternative work within 60 days of receipt of a P&S report finding that the injury has caused permanent partial disability. Under state and federal law, employers must provide “reasonable accommodations” for disabled workers. This obligation includes a requirement to engage in a good faith “interactive process,” in which the parties discuss the employee’s limitations and explore possible accommodations.

A good case in point is the $1,571,500 lesson learned in Cuiellette v. City of Los Angeles (California Court of Appeal, Second Appellate District, 4/22/11). The significant point from this case is that if an employee seeks reassignment as a reasonable accommodation, the employer must consider if the employee can perform the essential duties of the position sought, rather than those of his current or prior position.

The only way for an employer to level the playing field and avoid potential landmines is with objective baseline testing such as the Electrodiagnostic Functional Assessment Soft Tissue Management baseline program, which provides employers the data necessary to only accept claims that arise out of the course and scope of employment.

The State Of Workers' Compensation

There are three major concerns and opportunities that must be considered. First, is the impact of SB 863, the major reform legislation bill passed late in this year’s session of the legislature. Second is the continued increase in loss cost on prior years’ claims. Lastly, will the weak economy improve enough to start bringing new workers into the workplace and what impact will that have on Workers’ Compensation costs?

SB 863 holds the promise of lower claims costs, improved efficiency in claims processing procedures, and ultimately rate relief for California employers. At issue is the time frame for writing new regulations that will implement the new law. They are scheduled to take effect on January 1, 2013 which may lead to rushed procedures and unintended consequences. Also major parts of the law will be challenged in court. The Independent Medical Review procedures raise the issue of right to appeal. The injured employee attorneys have already indicated they will challenge this portion on constitutional grounds. Time will tell what the ultimate impact of the new legislation will be on the system, but immediate reduced costs are not expected.

Unfortunately, increasing premiums and rates will almost certainly continue into 2013. The Workers’ Compensation carriers are spending 138 cents for every dollar of premium. The overly competitive marketplace coupled with medical cost inflation has led to large developments in claims settlements beyond case reserves. The collapse of the economy has also led to decreased premiums, while claims have increased.

It will take at least 24 months for this cost bubble to work its way through the system. The most recent actuarial review of past years’ claims cost indicates that rates are over 9% lower than they should be. While the Workers’ Compensation Insurance Rating Bureau governing board, in a purely political move, decided to recommend no increase in rates to the Department Of Insurance, underlying costs continue to increase.

Finally, as the economy slowly recovers and payrolls increase, we will see hiring pick up. While it seems like this would lead to lower loss ratios as premiums go up, just the opposite is true. As you add employees in general, they will be less skilled, need more training and will be less able to work safely immediately. Increasing workforces will lead to increased accident rates and increased loss ratios.

The carriers will always compete for very clean, well-managed and low loss ratio accounts, so now is the time to redouble efforts with safety programs, training and claims management.

Changes In California Workers' Compensation

Out of the Frying Pan And Into The Fire — Jumping Into SB 863

As we look toward 2013, one thing is certain — it will be a year of change for California workers’ compensation. With the passing of the hotly debated reform legislation, SB 863, which takes effect on January 1, 2013, proponents are hopeful that the changes will have a positive impact on the current state of California’s workers’ compensation system. While SB 863 was drafted to reform the workers’ compensation system, its intent is different than that of SB 899, legislation passed in 2004. SB 899 revamped and reduced workers’ compensation benefits. SB 863 increases benefits to the injured employees while decreasing system costs by improving efficiency and eliminating “waste” in the form of excessive medical and legal costs.

There is no question that SB 863 addresses key issues that have been on the forefront of debate following the implementation of SB 899, many of which are positive for both employers and injured employees. While most agree that reform was needed, the net effect that the SB 863 changes will have on California insurance rates is also hotly debated because of other factors that need to be considered including carrier loss ratios and economic factors. While the regulations are still being drafted, the following summarizes some of the highlights, possible challenges and the potential impact on California workers’ compensation rates.

Indemnity Benefits
While successfully addressing a number of failings in the workers’ compensation system, it is widely accepted that one of the failings that SB 863 will address is one of the unintended results of the implementation of SB 899 in 2004 — that permanent disability rates provided inadequate compensation to some injured employees. The SB 863 legislation:

  • Increases permanent disability payouts over a 2-year period with annual adjustments
  • Eliminates “add-ons” to permanent disability, including sleep disorder and sexual dysfunction, though psych will be allowed for catastrophic injury or violent workplace incident
  • Addresses Diminished Future Earnings Capacity (DFEC) via a standard multiplier to the permanent disability rating formula
  • Creates a Return to Work Program for those injured employees whose permanent disability is disproportionately low for their loss of earnings capacity
  • Caps the Supplemental Job Displacement Benefit (SJDB) at $6,000 — currently at $10,000

The increases in permanent disability benefits are expected to cost $310M next year and almost double in 2014. However, the elimination of some of the add-ons to permanent disability and changes to the impact of diminished future earnings capacity under the Ogilvie case are expected to save $210M per year. The Return to Work Program will be funded through employer assessments at a cost of $120M per year.

The Independent Medical Review (IMR) Process
SB 863 places California on the burner with what many consider a radical approach to addressing medical treatment disputes. The new Independent Medical Review Process contemplates the following:

  • The Workers’ Compensation Appeals Board will no longer have jurisdiction to hear medical disputes directed to Independent Medical Review.
  • The Independent Medical Review process is binding on all parties with only limited appeal.
  • Employers shall fund the Independent Medical Review process, based on a fee schedule to be established by the Administrative Director of the Division of Workers’ Compensation.
  • Implementation will be staggered, beginning January 1, 2013 and being completed by July 1, 2013 and will apply to all Utilization Review decisions.

The Independent Medical Review process is expected to eliminate excessive costs and delays in litigating medical disputes. However, the savings attributable to the implementation and the costs to employers have not yet been quantified, as the process is still being defined. The California Applicants’ Attorneys’ Association is questioning whether the Independent Medical Review process meets due process requirements and it is likely that it will be challenged in court.

Historically, liens have been one of the biggest cost drivers in the workers’ compensation system, creating bottlenecks in litigation and an administrative burden on carriers and administrators. Following are some changes to the lien process under SB 863:

  • Firm time limits for filing liens
  • $150 lien filing fee — recoverable if the lien provider prevails
  • If not correctly filed, liens are null and void
  • Bundling of liens is prohibited
  • Prevents filing if lien is subject to the Independent Medical Review process

This aspect of SB 863 is applauded by most as defining a clear process for addressing liens while virtually eliminating unnecessary litigation and frivolous liens. A preliminary analysis by the Workers’ Compensation Insurance Rating Bureau states that these changes should result in a $450M annual savings to the industry.

Although many of the changes arising from SB 863 are positive for the future of California’s workers’ compensation system, there are still potential challenges and uncertainty. It is likely that the constitutionality of the Independent Medical Review process will be challenged in court. While the effect of Ogilvie has essentially been eliminated, Guzman is still active case law. Add-ons could become an issue again, depending on how “catastrophic injury” and “violent workplace incident” are defined. Further, carriers and administrators have new processes to implement by January 1, 2013, some of which have not yet been defined and will require specialized staffing.

The passing of SB 863 holds the promise of lower claims costs, improved efficiency and ultimately rate relief for California employers. Initial reports from the Workers’ Compensation Insurance Rating Bureau estimated savings at $1B the first year and $270M annually thereafter. However, these savings figures have been recently reduced in their latest report. The Workers’ Compensation Insurance Rating Bureau also reports a 0% increase to pure premium rates effective January 1, 2013, but there are other market factors that need to be considered when looking at the overall impact. Many carriers still have loss ratios around 130%, which along with medical inflation, was contributing to about an 18% rate increase without SB 863. With claim development still an issue and the potential increased cost of implementing some of the processes and benefits set forth in SB 863, it is likely that California will not see the immediate reduction in rates that it experienced following SB 899. Instead, there is hope that the provisions of the new reform will quell the burning increases in rates and bring some relief to employers in the form of stabilization and predictability.

InterWest Insurance Services is on the forefront of this legislation and has had representatives attend many of political hearings regarding SB 863. In early 2013, as part of the InterWest Employer’s School, we will hold several seminars on the SB 863 reform laws for our clients and prospective clients, focusing on its impact on California businesses and the insurance market.

Jennifer Weathersbee collaborated with Chuck Coppage in writing this article. Chuck Coppage manages the Alternative Markets Division for InterWest Insurance Services where he assists in identifying clients who would benefit from insurance solutions involving risk transfer as part of their overall financial management strategy.

Great Expectations

The overwhelming passage of Senate Bill 863 (De La Torre) in the waning moments of the end of the California legislative session set the workers’ compensation community abuzz with the thoughts that this major overhaul will reduce insurance rates, put more money into the pockets of injured workers, and make the system work more efficiently and effectively for labor and employers.

While it should be noted that workers’ compensation reform always has these goals in mind, the breadth of the changes in this legislation, addressing key issues that have been on the forefront of commentary for several years, should be roundly commended. There were clearly defined problems in the system that this legislation addresses head on. For that, the proponents, and the Governor and legislative leadership, deserve much credit.

The response to these changes from the Workers’ Compensation Insurance Rating Bureau (WCIRB), regarded as tepid by many commentators, should be looked at in the context of what the Bureau can and cannot do when evaluating legislation — especially on legislation that hasn’t even become effective.

Benefit increases are called “hard dollar” costs. Their impact can be reasonably and immediately calculated and added to the mix when determining the pure premium rates for the coming year. Similarly, several of the changes to workers’ compensation medical fee schedules can be priced with reasonable certainty. Schedules for interpreters and for copying services, however, cannot be priced prospectively because there is no reference point upon which to base savings or cost increases that may arise from how these fee schedules are developed.

Three major reforms: changes to permanent disability, creation of independent medical review (IMR), and the many changes in the area of liens have each had a degree of cost savings assigned to them as well. When all elements in this bill are combined, the cost of the $700M plus in benefit increases is offset by system improvements.

All in all, this is set up to be a bill that should benefit employers, insurers, and workers. The fact that not every change that could result in savings has been assigned savings today underscores the difficulty in evaluating reforms that are dependent on regulatory implementation or upon everyone in the system affected by the reforms behaving as expected by those who advanced the reforms.

Recent history shows us that expectations run high upon enactment of reform legislation and usually are diminished if not dashed within three years thereafter. Whether that will be the case this time remains to be seen. This is in no way a criticism of the bill that Governor Brown signed. It is, however, a cautionary note that there is more than one of these reforms that will be shaped by the courts. For each opportunity for savings and creating efficiency in SB 863 there is also a trap that litigation may or may not spring open. No one involved with the last major reforms would have expected Almaraz/Guzman or Ogilvie. While litigation is inevitable when major reforms occur, it can also be fairly said that SB 863 invites it in several key areas.

All of us in the system are tasked to make our best efforts to assure the original bargain between labor and employers is protected. SB 863 is the latest iteration of that effort. As it becomes operative, and the various regulatory agencies adopt necessary rules to implement its provisions, and as disputes arise that the Courts are asked to resolve, let us all remember that reforms, and the expectations they generate, require constant scrutiny and protection. Without it, we’ll be back in Sacramento sooner than expected.