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IMR Practices May Be Legal, Yet…

There is one element of human behavior that is not very well appreciated by most people — for the most part, socialized humans follow the law.

However, people acting completely rationally will also take advantage of the law. They will not break the law, but nearly all of us will push the boundaries to accomplish our missions.

We do this every day driving our cars. We exceed the speed limit all over the place — maybe not by much; as we know, police officers are rather tolerant of someone going five miles per hour over the limit and much less tolerant of someone going ten over.

Part of this behavior stems from the fact that, with very little exception, laws, rules and regulations are restrictive — they tell us what we can’t do but don’t tell us what we can do. For the most part, this is because it is really very hard to determine what will be allowed — it’s much easier to describe what won’t be allowed.

When we combine law-abiding people who want to get their job done along with restrictive laws, we end up with what are commonly known as loopholes.

Loopholes exist because someone who needs to get something accomplished found a way to do so regardless of some proscription.

Take California’s independent medical review (IMR). IMR was conceived to expedite medical decisions outside of the court system. (Whether this mission is accomplished is the subject of much debate — and is not the subject of this post.) But IMR has produced an unintended consequence that arises from people doing their jobs, and doing the job well, within the constricts of the law.

There is a faction of the workers’ compensation industry whose job is to minimize ultimate claims costs. These are good, law-abiding, citizens. They follow the law … carefully and considerately.

What they have discovered is that an IMR denial of treatment is a final determination, and a final denial of treatment within the workers’ compensation context means that item can be removed from consideration when establishing a Medicare Set-Aside trust. In other words, something that a workers’ compensation payer would have been liable for before IMR is no longer a continuing liability to either the injured worker or to the federal government.

This also means that the cost of treatment is shifted from worker’s comp to Medicare.

Although this may be perfectly legal, and certainly even prudent from the workers’ compensation payer’s viewpoint, my bet is that this was not intended by the authors of SB 863, nor any other medical treatment limitation law in any other state.

The unintended consequence challenges the future of workers’ compensation. The purpose of workers’ compensation, as we have said time and time again, is to make it affordable for an employer to take care of injured workers.

We all get that. But I think we forget a fundamental concept: The obligation is the employer’s.

We don’t fulfill this mission when we shift the responsibility to someone else, such as the federal government via Medicare or Social Security.

Doing so, regardless of legality, invites scrutiny. And when there’s enough scrutiny there’s inquisition. And when there’s enough inquisition, there’s interference.

We’re on the cusp of that now. The public image of workers’ compensation couldn’t be lower. There are many talking about skimpy benefits, of wrongfully denied medical treatment, of passing the buck and of otherwise shirking responsibility.

These are acts that are, for the most part, the product of people working within the law to accomplish their missions and jobs without regard or even an idea of negative consequences.

This is now playing out with California IMR.

California IMR has been under attack since inception. The California Third District Court of Appeals, in Ramirez v. WCAB (SCIF), No. C078440, has granted review to test its constitutionality. Ramirez joins a case already pending at the 1st DCA, Stevens v. WCAB (Outspoken Entertainment), No. A143043, which also seeks to have IMR declared invalid. The basis of these cases is that fundamental rights of due process are violated because there is no legal review process.

Perhaps those challenging IMR have an argument. And just because someone is acting within the bounds of the law doesn’t make that action right, correct or good policy.

When OSHA released its recapitulation of prior research on the adequacy of workers’ compensation, it was seen by many as overreaching based on faulty research. Maybe, but this industry should be fearful, because OSHA’s report is, in reality, the dog barking because someone is intruding on its property and territory. It may not be trespassing, and there may be invitation, but the dog doesn’t know that and doesn’t care.

Eventually, the dog will bite. The states won’t like that at all.

Work Comp Outlook for California in 2015

The California Workers’ Compensation & Risk Conference in Dana Point opened with a session featuring employers and stakeholders in the industry weighing in on the current state of California workers’ compensation and the outlook for 2015. Panelists were: moderator Mark Walls, vice president of communications and strategic analysis at Safety National; William Zachry, vice president of risk management at Safeway; Tim East, director of risk management at Walt Disney; Bill Mudge, president and CEO at WCIRB California; Kurt Leisure, vice president of risk services/asset protection at Cheesecake Factory; Seeta Ambati , a defense attorney who is a partner at Laughlin, Falbo, Levy & Moresi; and James Butler, a plaintiff attorney with Butler Viadro.

The panel began with a look at where California workers’ compensation is today:

• California holds a quarter of the nation’s workers’ compensation business.
• To date, 80 new carriers have entered the California market since 2004.
• California is among the top three states in terms of average medical costs per claim.
• California has experienced double-digit increases in premiums over the last two years.

Cost drivers to the California workers’ compensation system include:

• A high frequency of claims handling in the state relative to payroll, with Los Angeles County having the most claims in the region.
• A multitude of expensive permanent disability claims that include attorney involvement.
• Opioid prescriptions, which have doubled in frequency.

SB 863 is California’s answer to addressing these costs, but it is too early to provide tangible data on whether the reform has been successful. Some early data shows that costs related to liens are down, but costs related to independent medical reviews (IMR) are significantly higher than expected.

Panelists were split. Some say that, although it is too soon to judge, they are seeing the following indications that SB 863 is working:

• Generally, rate increases have been cut in half because costs are showing a downward trend.
• The highest costs are coming from old medical claims rather than recent claims.
• Because this is the first time that California has experienced cost decline in quite some time, panelists thought that the cost cuts may make the state appear more employer-friendly, which will encourage companies to return.

Panelists said there are still some kinks to work out in the reform. One stated that the IMR process, which has been designed to take non-medical professionals out of the medical decision-making process, is working well. On the other hand, the opioid decision-making process in place is not currently solving the costly opioid problem. Overall, people are still learning the new process, but panelists said they think that outcomes will be positive over time. They think that the measures are in place to help get the injured worker healthy and back to work. Most on the panel felt that peer-to-peer review is the right approach and that the system is better than it was.

The California Applicants Attorney Association (CAAA) strongly disagrees, however, and views the reform as a failure that is harming citizens. A representative said that the CAAA saw more employees returning to work before the reform and that the system is averaging 4.3 medical denials per patient. The CAAA cites the cost of administering workers’ comp as one of the largest costs that a business can endure. In addition, the CAAA believes that peer-to-peer review is not working efficiently. CAAA thinks that legislative efforts to reform workers’ compensation are aiming at the worst-case scenarios, rather than the majority and, therefore, have not provided the best solutions for most companies.

Panelists were asked what changes they would make to the California workers’ compensation system if they were governor for the day. Ideas included:

• Take a fresh look at the 101-year old system, which is overloaded with rules, legislation, audits and controls. It is time to simplify a system that has layers of new rules on top of old rules and, as a result, enormous costs related to it all.
• Do away with cumulative trauma, which is a major cost driver that creates complexity. Some states have already done this.
• Make use of alternative dispute resolution. California has gone from incentives and positive reinforcement for providing prompt payments and benefits to a system focused on penalties. It needs a system that rewards promptness and minimizes disability.
• Address the opioid abuse and CURE system to make every effort to avoid addiction.
• Look at the system through the eyes of the injured worker and simplify accordingly. Employees can’t understand the current complex system, which is why they seek legal representation.

The session served as a great kickoff for the conference, providing both an overview of the current workers’ compensation cost drivers and offering suggestions for improving the system.

A Key Ruling on Workers’ Comp in California—and What It Means

The workers' compensation community watched anxiously for months as the U.S. District Court for the Central District of California considered a constitutional challenge to the lien activation fee — an important component of the 2012 reforms in Senate Bill 863. In the case (Angelotti Chiropractic, et al. v. Christine Baker, et al.), Judge George Wu ruled on Nov. 12 that the fee is indeed unconstitutional based on the Equal Protection provisions of the U.S. Constitution. His reasoning was that there was no rational basis for exempting large institutional lien holders (health care plans, union trusts, etc.) from the activation fee and that all lien claimants should either be in or out when it comes to filing fees.

The injunction against enforcing the lien activation fee took effect on Nov. 19. In anticipation, the Division of Workers’ Compensation notified the community Nov. 15 that it would no longer be requiring the fee be paid for liens filed prior to Jan. 1, 2013.

It is important to note that there are two filing fees enacted in SB 863. The one that applies to liens filed prior to Jan. 1, 2013, is the lien activation fee and is the subject of the federal lawsuit. The other is the lien filing fee, which is not affected by this litigation. In addition, statutory and regulatory changes made in SB 863 and the regulations adopted by the Division of Workers’ Compensation eliminate liens for most service providers that are subject to a fee schedule for dates of service on and after Jan. 1, 2013.

That is not to say that the injunction against enforcement of the activation fee is inconsequential, for it most certainly is not. In the last two calendar quarters of 2012 alone, more than 800,000 liens were filed. Of those, almost two-thirds are in Los Angeles County. Most of these have not moved through the system, undoubtedly because some lien claimants were waiting to see whether the activation fee was going to be upheld. It is assumed that many of these liens were never going to be filed because of the activation fee. As such, many liens would have expired by operation of law on Jan. 1, 2014. That, too, is now part of the unknown that comes from the Court’s decision.

Obviously, the Department of Industrial Relations and claims administrators are not happy with this ruling. To a certain extent, neither are the plaintiffs in the case, who saw two of their three claims summarily dismissed by the court. Whether these issue now go up to the Ninth Circuit U.S. Court of Appeals remains to be seen. Plaintiffs, and indeed all lien claimants regardless of whether they were parties, have secured the relief they sought – enjoining the activation fee—but that could be put at risk if there is an appeal. Conversely, while the Department of Industrial Relations disagrees with the finding that the activation fee is unconstitutional, the fact that Judge Wu dismissed the claim that the activation fee constituting a “taking” of private property is a big win for proponents of SB 863 – for the taking argument has much broader implications than does the Equal Protection argument that Judge Wu found persuasive.

Because the Jan. 1, 2014, dismissal by operation of law date on old liens has been enjoined, it is not automatic that there will be a flood of activity on liens filed before Jan. 1, 2013, at the Appeals Board before year end. It is a fair observation, however, that liens many in the community thought would be extinguished by operation law won’t be. Whether those liens are going to be the subject of Appeals Board hearings and ultimately paid, however, remains uncertain. And uncertainty is a chronic symptom of our oft-ill but rarely cured workers’ compensation system.

And in case no one noticed, on Nov. 14 a new federal lawsuit was filed challenging both the lien activation fee and the lien filing fee. The plaintiff, who is seeking class action certification, is also demanding disgorgement of fees paid and reinstatement of any lien dismissed for failure to pay the appropriate fee. That case is Kancilia v. Brown, et al. and was filed in a different federal district court than Angelotti.

The transition from one set of rules to another on the heels of major legislative changes is never easy, regardless of the subject matter. In time, because of the other changes wrought by SB 863, the disruption caused by these suits will work its way through the system. Relief from the costs associated with the lien process will be delayed, and the income the fees provide to the Division of Workers’ Compensation will be less than anticipated, but ultimately the lien problem will be solved – just later than most had hoped.

The Real Challenge for Reforming Workers’ Comp

Sifting through the claims and complaints of those involved in California’s complex workers’ compensation system could leave both the casual observer and the seasoned veteran wondering when, if ever, this multibillion-dollar program will ever get properly aligned. It would be fairly easy to say, “Not during our lifetime.” But that would be too cynical even when discussing a system that for the past several decades could easily invoke cynicism.

Every participant in workers’ compensation has two faces. Some employers provide benefits, have a compliant return to work program and enforce a culture of safety at the workplace, while other employers view employees as a necessary evil. These latter employers view adherence with the legion of local, state, and federal laws and regulations regarding the workplace as burdens that need only be acknowledged if employers are required to do so, generally in the form of a legal proceeding against them.

We have seen the abuses in the medical system from unnecessary surgeries, overuse of Schedule II medications, and downright fraud in billing insurers and other payers, and yet if there is one indispensable party in the workers’ compensation system beyond labor and management it is medical providers. As recent events have demonstrated, we have yet to figure out how to empower the noble practitioners of the healing arts while keeping the venal away from injured workers.

Claims administrators vary in expertise, motivation, and professionalism, as do the various service providers and the tactics they employ to provide services and collect fees. “Insurers” have borne an unfair brunt of criticism largely because it is an easier talking point to cast such a broad brush than to single out any one bad actor or group of them. Without the ability to transfer risk, however, the workers’ compensation system could never be sustainable.

Each system participant has a particular grudge against the others. We allow policyholders to sue insurers for claims handling practices, and, in far narrower circumstances, an injured worker may pierce exclusive remedy and sue a claims administrator when conduct is so egregious that it goes beyond the grand bargain that is at the core of workers’ compensation.  Periodically, claims administrators and service providers resort to the civil courts with a variety of complaints over unfair business practices.  And, of course, the Workers’ Compensation Appeals Board is the forum where all participants flock with even the slightest provocation.

The appellate courts weigh in on a wide range of benefit delivery challenges, as well. Their decisions in Guzman and Ogilvie were two of the main incidents inciting changes in permanent disability benefit determinations codified in Senate Bill 863 (De León). Even today, we are litigating issues over the apportionment changes brought about in Senate Bill 899 (Poochigian) enacted almost a decade ago. Litigation in federal court is rare, although not unprecedented, as the current challenge to the lien activation fee in SB 863 demonstrates.   State-imposed fee schedules have periodically worked their way into federal court on the theory that reimbursement rates are so low that they are confiscatory – a challenge unlikely in California while the fee schedule is not mandatory, but still possible given the breadth of authority that the Division of Workers’ Compensation has been given to develop fee schedules for virtually all service providers.

“Well, that’s just California workers’ comp.”  That may be the case, but such resignation does tend to take the focus away from core problems that magnify the multiple personality disorder that plagues this system. As we work our way through the implementation of SB 863, we must also recognize that not every solution to the high cost of comp, both in dollar and human terms, can be put down on paper in Sacramento or Oakland.

While compliance is part of best practices, it does not define them exclusively. To be sure, the new costs associated with complying with SB 863 are consequential. As is inevitably the case when new comprehensive workers’ compensation laws are enacted, there will be considerable friction moving from one set of rules to another. The threat of litigation will hang over the changes made in this legislation just as it has in prior iterations of reform. It will take years to sort this all out.

In the meantime, there is much work to be done to improve the system even if it is not in  reaction to a new law or regulation or judicial decision. As has been the case all too often over the past two decades, laws are driven by anecdote. The adage “bad facts make bad law” applies equally to the legislative, regulatory, and judicial processes. Navigating California’s complex system is never easy. If claims administrators expect the process by which laws are made and interpreted to provide the necessary clarity and simplicity we crave to do our jobs, then we are all sadly mistaken.

Yet, when we commit to best practices both as employers and claims professionals, we can create better outcomes than Sacramento could ever hope to achieve. The challenge, therefore, is not what legislators or regulators or justices will do for us, but rather what will we do for ourselves?

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.