Tag Archives: workers’ compensation reform

What Do New Workers' Compensation Reforms Sweeping the Country Have in Common?

AOECOE – Not Just Another Acronym

California Senate Bill 863 was passed in the fall of 2012 and went into effect on January 1, 2013. Senate Bill 1062 was just signed into law by Governor Mary Fallin of Oklahoma and will take effect January 1, 2014. On April 30, 2013, Tennessee Governor, Bill Haslam, signed into effect Senate Bill 200. House Bill 154 is expected to go into effect in Georgia in July, 2013. What are these bills? The first of many sweeping Workers' Compensation reforms. A common theme in these bills and other pending reforms is to level the playing field for employers and accept only those claims that arise out of the course and scope of employment, AOECOE.

A well-known term of art in the Workers' Compensation arena, AOECOE is not just an acronym. It is transitioning from a term of art to a statement with teeth, as reforms are actually including such wording into bills. The purpose of doing this is to establish whether an employee's alleged injury is work-related and happened in the course and scope of employment, or whether the injury is non-industrial or affected by third parties.

Workers' Compensation is a no fault system and thus benefits the injured worker, as, in order to receive benefits, he or she does not need to prove that the employer was negligent. However, it is the injured party's burden to show that the injury did, in fact, occur while at work, while employed as an employee and while undertaking some activity for the benefit of the employer. The injury itself must have been caused by the accident or employment conditions, and not from some other non-industrial related factors or degenerative factors.

The determination of AOECOE has long been an OSHA policy. OSHA's Injury and Illness Recordkeeping Regulation Section 1904.5: Determination of work-relatedness contained under section (a) basic requirement states in order for an injury or illness to be work-related an event or exposure in the work environment is either caused or contributed to the resulting condition or significantly aggravated a pre-existing injury or illness. Work-relatedness is presumed for injuries and illnesses resulting from events or exposures occurring in the work environment.

California's SB 863 was signed into law by Governor Brown on September 18, 2012, for a January 1, 2013, effective date. While certainly not the first bill to consider AOECOE issues, it is one of the most significant Workers' Compensation reform bills to specify AOECOE language. SB 863 calls for an Independent Medical Review (IMR). While this process may be problematic for an employer, since an IMR can be requested only by an injured worker following a denial, modification, or delay of a treatment request through the utilization review (UR) process, the bill specifically states that this does not apply if the injury is in question for AOECOE reasons.

On May 8, 2013, Oklahoma Governor Fallin signed into law historic Workers' Compensation reform, Senate Bill 1062. The bill defines compensable injury as arising out of the course and scope of employment and does not include: any strain, degeneration damage or harm to disease or condition of the eye or musculoskeletal structure or other body part resulting from the natural result of aging, osteoarthritis, degenerative process or pre-existing, except if a treating physician clearly confirms an identifiable and significant aggravation arising out of AOECOE.

On April 29, 2013, Tennessee Governor Haslam signed a Workers' Compensation reform bill into law, SB 200. It specifies that injuries arise out of and in the course and scope of employment only if proven by a preponderance of evidence that employment contributed more than 50% to causing the injury, AOECOE.

In my experience, the majority of injuries are real, but they are not AOECOE. Injured parties may exaggerate the severity and extent of their injuries or may attempt to hide pre-existing conditions. So how do any employers determine if injuries are AOECOE? The answer is simple. They need to ascertain what the employees' statuses are pre-injury. This is effectively done with baseline testing.

Baseline testing is a bookend solution. To be effective, it should be objective, meet the criteria for evidenced-based medicine, be job related and consistent with medical necessity. It needs to be specific to the metrics being evaluated. A good example of a specific baseline test that is recognized in some jurisdictions by statute is audiometric testing. Hearing tests are routinely done in environments with high noise exposure to determine a baseline that is referenced once a claim is filed. This is commonly referred to as the lock box defense.

Audiometric testing is beneficial for documenting hearing loss but is not designed to address other conditions such as musculoskeletal disorders (MSD). MSDs are the most frequent and costly claims for an employer. In order for a baseline test to be utilized for MSD, it must not only be objective and reproducible, it must contain measurements to ascertain electromyography (EMG), range of motion (ROM) and function.

In addition, baseline testing must be legally defensible. In 1990, Congress enacted the Americans with Disabilities Act that outlines what makes a legally defensible test. To be legally defensible, the testing needs to be job-related and consistent with business necessity i.e. the employer must show that it “substantially promote[s]” the business' needs. It must be repeatable, objective and address functionality. Also, since baseline testing is considered to be a medical exam, it needs to evaluate some functions of the job.

Baseline testing is not a post-offer, pre-placement test, as it can not identify disability because the data is not read and no hiring decisions are made with baseline evaluations. When a work-related injury occurs, a post loss test is conducted, at which time the baseline test is read and compared to the post loss results, hence the bookends.

When compared, the results can determine if an injury exists and if it has arisen out of the course and scope of employment, thus determining an employer's true responsibility. Good baseline testing is non-discriminatory and prevents “false” claims. The sweeping Workers' Compensation reforms allow for a new definition of “false” claim: one that is not AOECOE. A false claim no longer means fraud! A proven example of an effective baseline test is the EFA-STM.

Workers' Compensation statutes are helping employers by allowing them to accept the claims that are only AOECOE. Employers need to see that they comply with legislation, and baseline testing now gives them an objective assessment to do just that.

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.

Workers' Compensation Reform v.2012

It is sometimes difficult to remember that it was well over a decade ago — and not just a few years back — that the workers’ compensation system was teetering on the brink of collapse. The reasons for that crisis — and it was indeed a true crisis well beyond the burden of having the highest costs for workers’ compensation insurance in the nation — have been well documented.

As the Legislature is prone to do, it reacted to that crisis and in 2003-04 a series of measures were signed into law by both Governors Davis and Schwarzenegger to bring costs under control. What ensued were fundamental changes to the system that have saved employers billions of dollars. Those savings, however, have at least in part come at the expense of considerably lower disability benefits to legitimately injured workers.

Eight years out from the last of these major reform bills being enacted — SB 899 (Poochigian) — there are clear signs that the system is under stress and the goals of the system are being undermined. Those who sat at the table during the 2003-04 reforms are justifiably looking around and asking how and why did what they negotiate in good faith become unsustainable?

The answer to this is complex. Part of the reason we are where we are at today is due to judicial interpretation of the reform laws and the significant costs engendered by unanticipated court decisions. Part of the reason also lies with emerging cost drivers not fully understood in 2003-04, such as Medicare set-asides and the well documented rapid increase in the use — and abuse — of opioids and other high powered pain medication.

Other cost drivers are better understood — the various problems with the lien system, the absence of fee schedules for interpreters and for photocopying services, the woefully out of date official medical fee schedule and the frictional bill review costs that generates, and the dual charge for implantable spinal hardware and now the subject of Senate Bill 959 by Senate Labor & Industrial Relations Chair Ted Lieu. Senator Lieu is also the author of SB 863, which would address a number of the more serious problems that have caused liens to be such a burden on the system.

The challenge to lawmakers and those who would advocate for new reforms, however, is significant. First, the workers’ compensation system is one of the most sensitive lines of insurance to the overall state of the economy because of its direct relationship to fluctuations in statewide payroll. In addition, during a recession return to work opportunities diminish considerably, which results in higher temporary disability costs. These economic factors cannot be addressed by amendments to the Labor Code.

Second, the most vexing cost drivers in the system have been created by judicial interpretations of laws relating to permanent disability (Almaraz, Guzman and Ogilvie). While “PD reform” rolls off the tongue easily, crafting a solution that (1) preserves consistency, uniformity, and objectivity; (2) provides adequate benefits to legitimately injured workers; and, (3) curbs the abuses of the med-legal process is not quite so easy. After all, that’s what employers and labor thought they were doing 8 years ago and look at where we are today.

Third, not all solutions can come from making changes to the insular world of workers’ compensation. Making the Medicare Secondary Payer (MSP) process more equitable requires, literally, an Act of Congress. The Medicare Advocacy Recovery Coalition (MARC) continues to press for reform in the Congress and progress continues to be made even in this most contentious of environments in Washington D.C. Given the concerns over the ongoing solvency of Medicare, however, the fight to reform the Medicare Secondary Payer laws is far from over.

As the State of New York recently showed, and as the State of Washington has been doing for some time, efforts to curb prescription drug abuse require the active participation of both physicians and pharmacists. For California, there is a critical role for Medical Board of California and the Pharmacy Board in the discussion of how to put an end to opioid abuse. The Medical Board and the Pharmacy Board are planning a “pain summit” later this year.

We would all be well served if agencies regulating the payers of these medications, the Departments of Industrial Relations, Insurance, and Managed Health Care, participated in this forum and developed a comprehensive plan to limit the abuse — and the tragedy — that we are seeing across all health care delivery systems. There’s no law required to start that dialogue.

In the meantime, medical provider networks (MPNs) and utilization review (UR) continue to come under criticism from those who say that medical cost containment (MCC) expenses among insurers are too high, that there is excessive utilization review in the system and that insurers are not doing enough to keep “bad” physicians out of their medical provider networks.

It is fairly well understood that fee for service (FFS) medicine creates incentives for over utilization — and workers’ compensation medical care is no exception. It is also clear that prospective utilization review, according to the United States Department of Health & Human Services (HHS) in their comments on regulations implementing the Patient Protection and Affordable Care Act, is necessary because it, “…can help ensure that the most appropriate medical treatment is given in the most appropriate setting.” That there is a need for utilization review, therefore, should not be questioned.

Policy makers would be better served by first scrutinizing the way in which disputes over medical treatment and disability are resolved rather than looking to change the laws regarding networks and utilization review. Without providing a mechanism similar to that used by the Departments of Insurance and Managed Health Care to resolve treatment and billing disputes, there is a real potential that what may be saved in medical cost containment will be lost in higher treatment costs.

Texas, for example, has a similar medical provider network structure and higher medical cost containment expenses. But it also has independent medical review (IMR) and far lower med-legal costs than California.

There are aspects of the medical provider network and utilization review laws that are in need of review and change. However, the costs and delays associated with the current med-legal process have done more to erode the reforms on 2003-04 than any other part of the system. It is there that change must begin.

So will there be Workers’ Compensation Reform v. 2012? It is too soon to tell.

There are clearly problems within the system, and these problems are driving increased costs. Increased costs will be reflected in increased premiums. But it also must be noted that “problems” don’t often spur the Legislature to act, and certainly not as quickly as does a “crisis.”

The economic uncertainties in the private sector, and the fiscal distress in the public sector, are macro issues weighing far more heavily on the minds of lawmakers, businesses, and the general public than the current state of the workers’ compensation system. Is there a pressing need for more changes? Absolutely. But putting pen to paper and drafting meaningful reform this time around will be a far more difficult task than it was in 2003-04.

Labor and employers need a high degree of confidence that the right words addressing the true problems we face today are in the legislation before any of us should hope to see Governor Brown sign a bill into law. If that takes another year to accomplish, it will be well worth it.