Tag Archives: workers’ compensation insurance rating bureau

How to Manage Legal Fees for Work Comp

Loss expenses are on the rise, at an alarming rate, according to California’s Workers’ Compensation Insurance Rating Bureau (WCIRB). The California Workers Compensation — Aon Advisory Bulletin (July 2014) indicates that “allocated costs (mostly attorney payments) increased 7.3% in 2013. Unallocated costs increased 10.3%.”

Given that legal costs are on the rise, here are nine ways that risk managers can more closely manage legal services:

Have in-house counsel monitor outside counsel (and adjuster performance). Litigation costs must be properly managed because overzealous defense counsel and untrained (or cooperating adjusters) can prolong litigation, increase costs for the employer and wreak havoc on the lives of injured workers.

Review outside counsel financial arrangements — consider capped fees, flat fees or invoice paid upon file completion. Paying at the end allows outside counsel to defend the claim but discourages unnecessary hearings and runaway fees and lets risk management easily review the ultimate fee rather than numerous monthly bills. Excessive fees are more noticeable and easier to compare against other files and law firms. Attorneys who are milking the claim become more visible.

An “invoice paid upon file completion” is a good approach if you use the same attorney frequently. However, this approach should not be used when the defense counsel only has one file. You could end up with an excessive bill, with little recourse other than to fight with your own chosen counsel over the amount.

Conduct an independent audit to assess whether defense counsel was needed in the first place, or whether she was just assigned the case to do work the adjuster, assigned too many cases, was too busy to do.

A favorite ploy of overworked adjusters (and lazy adjusters) is to allow the defense counsel to handle the claim. Legal counsel should not be paid to do the adjuster’s job, including gathering medical reports, state board records and ISO reports, arranging independent medical exams (IMEs), etc. An independent claims audit of your files will tell you whether you are paying legal fees for the work the adjuster should be doing.

Review hearing rulings. Review whether the same attorneys are requesting hearings on the same issue repeatedly or requesting hearings on issues they are likely to lose. For example, if benefits are terminated but reinstated at the hearing, and this happens repeatedly, it is an indication that benefits are being terminated without sufficient cause, thereby creating unnecessary legal expense. In insurance speak, this is called “churning” files.

Churning is any unnecessary activity undertaken by defense counsel for the sole purpose of increasing the legal services bill. It can be unnecessary research on a subject the attorney should know, unnecessary motions, unnecessary discovery, having another attorney in the firm review the case, having a paralegal or junior partner undertake an unnecessary action, etc.

Before any preparation by defense counsel for the hearing, the adjuster should phone the defense attorney and discuss the need for the hearing and what the probable outcome will be. If you know going into the hearing that you are going to lose, have counsel resolve the issue with the opposing counsel. It will save both legal fees and unnecessary claim costs (indemnity and medical costs continue while you wait for the hearing). By removing the unnecessary hearings, you move the file faster, with less overall claim cost, to the final resolution.

Review whether opportunities for agreement between counsel are ignored. Defense counsel may avoid agreement because it is more profitable to have a junior attorney attend hearings and collect a large fee.

For example, in Connecticut, a claimant’s doctor can be changed, with agreement of counsel, but defense counsel rarely agree even though knowledgeable counsel will know which doctors have reputations for overtreating and overrating disability, which doctors are known for unbiased treatment and ratings and which doctors have a reputation for being conservative in their treatment and ratings.

Review whether defense counsel makes unfounded accusations against claimant of misbehavior or wrongdoing (e.g. claimant is not credible or is trying to game the system) on every claim to obfuscate the issues and prolong the litigation.

If defense counsel is not totally objective in his assessment of both the claim and the claimant, it is time to immediately identify new defense counsel.

Look at whether the attorney charges for lots of research, on many files. Very little research is necessary except in unusual claims with issues of law, so files with legal research should be reviewed very carefully.

Adjusters — with sufficient authority — should attend all hearings with defense counsel. Sometimes, there are opportunities to settle litigation during hearings. These opportunities should be considered while someone with the requisite authority is present. In many cases, seasoned adjusters are capable of attending hearings without defense counsel. (This is not allowed in some jurisdictions.)

Risk managers (or the company human resources manager or the workers’ compensation coordinator) should attend all hearings to be available to testify about the job requirements and efforts to provide transitional duty and to show interest in the injured worker’s well-being. Specify this procedure in the account handling instructions.

To verify you are controlling your legal fees, a two-pronged approach is needed. A litigation management review by an independent claims auditor will determine the effectiveness of your adjusters in controlling legal expenses. This should be combined with an audit of the legal invoices by an experienced legal bill auditor.

State of the State: Workers’ Comp in California

On Aug. 5, 2014, the Workers’ Compensation Insurance Rating Bureau of California (WCIRB) released its first-ever “State of the System” report. This was an outstanding, in-depth look at the trends and cost drivers in California workers’ compensation. I encourage you to read the full report here. Given that California now constitutes 25% of the total nationwide workers’ compensation premiums, these issues have a significant impact on larger employers that do business in the state.

I have been involved with California’s workers’ compensation system for years, including participating in many discussions on potential legislative reforms. One thing I have always found frustrating is that California has a tendency to evaluate progress on workers’ compensation issues based on its history, alone, without comparing itself to other states. That’s why I found the most compelling information in the report to be the comparative analysis of California to other jurisdictions. This did not paint a pretty picture.

According to 2009 data, California ranks eighth in indemnity claim frequency per 1,000 employees, more than 46% higher than the median state. The recent trend makes this even worse because, since 2009, the nationwide trend has been a decrease in frequency rates while California has been increasing.

California ranked seventh in 2009 in the percentage of indemnity claims with permanent disability benefits paid – 13% above the median. Once again, the trend makes this much worse as every state that ranked higher than California has passed legislation aimed at reducing workers’ compensation costs. SB 863, passed in California two years ago, increased permanent disability benefits, and there has been a corresponding increase in the percentage of claims receiving these benefits.

Finally, California rankedthird in incurred medical benefits per indemnity claim, with costs that were more than 70% higher than the median state. SB 863 focused on reducing frictional costs to the system caused by medical treatment and billing disputes. It did nothing to change the physician behaviors that continue to drive medical costs higher. According to WCRI and CCWC research, nearly half of all pharmacy prescriptions were physician-dispensed, and prescriptions for Schedule II and Schedule III opioid pain medications have continued to rise.

Employers looking to open a new manufacturing or distribution facility are looking at comparisons between different state workers’ compensation systems, and other states are using workers’ compensation reform to make their states more attractive to businesses and job growth.

My hope is that the WCIRB report serves as a starting point for California to compare itself to other states when evaluating the workers’ compensation system and where reform is needed. We need to move past the thought that things are just done differently in California because that is the way it has always been.

Finally, the WCIRB study provides a great lead-in for the California Workers’ Compensation & Risk Conference, which is Sept. 10-12 in Dana Point. You can view the conference agenda here. I will be moderating the opening panel at this conference, which features a variety of stakeholders debating the impact of SB 863 and offering suggestions for improving California’s workers’ compensation system.

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.

Liens
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.

Summary
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.