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Young: 2017 California Workers' Comp Top 10 List

  • State: California
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What were the top developments in California workers’ comp during 2017?

Julius Young

Julius Young

Every year (and at mid-year) I compile a list of my picks for readers. I’ve included links to some of the primary source material as well as links to some of the in-depth posts I did on these various topics.

Here, in no particular order, are my picks for noteworthy happenings and trends during 2017:

1. California finalized plans for a prescription drug formulary to debut in 2018

After multiple rounds of regulatory drafting and public comment, the Division of Workers’ Compensation adopted final formulary rules that went into effect Monday. Under the new formulary, some drugs will be exempt from prospective review while others are non-exempt.

Proponents believe that the formulary will promote better quality of care and help curtail some of the volume of utilization review/independent medical review disputes, since a large percentage of those involve pharma issues. In any case, the formulary is likely to be a sea change for many treating physicians and their worker patients.

In comments on the proposed regulations, the California Applicants’ Attorneys Association and others cautioned that the rules as written could cause confusion about termination or weaning of some medications.

The new formulary regs can be found here.

Here is my post on the formulary.

2. California adopted revised treatment guidelines, effective Dec. 1

In 2017 the DWC adopted a major revision to the Medical Treatment Utilization Schedule, known as MTUS. In doing so, the DWC updated the MTUS by adopting 14 sections from guidelines established by the American College of Occupational and Environmental Medicine.

MTUS revisions do not need to go through public comment procedures.

In addition to updated guidelines for many specific body parts, the revised regs also include updated guidelines for chronic pain treatment and use of opioids.

Since most treating physicians have had little to no training in the new guidelines, the system is entering a period of significant adjustment. Some treatment modalities such as spinal stimulators will likely be severely cut back, if not eliminated, under the new guidelines.

Here is a link to the MTUS revision.

3. Workers’ comp costs continued to moderate

In its July 1 pure premium rate filing, the Workers’ Compensation Insurance Rating Bureau noted that there was “downward medical loss development, acceleration in claim settlement, decreasing indemnity claim frequency, lower-than-projected accident year 2016 losses, increasing projected wage inflation and lower-than-projected allocated loss adjustment expenses (ALAE).” 

So-called “pure premium rates” are an advisory benchmark only but do provide a snapshot of trends. The “pure premium” approved by Insurance Commissioner Dave Jones for mid-2017 was $2.02 per $100 of payroll, a cut of 7.8% from the earlier $2.19 per $100 of payroll.

In October, Jones approved a “pure premium” rate cut to $1.94 per $100 of payroll after Jan. 1. This is less than half of the 2003 “pure premium rate,” which spiked to $4.27 per $100 of payroll.

The flip side of the rate story is more complicated, however. On average, insurers are pricing coverage at higher rates than the “approved pure premium.” For example, according to the California Department of Insurance analysis of insurer rate filings as of July 1, “insurers are using an average pure premium rate level of $2.34 per $100 of employer payroll.”

According to the WCIRB 2017 State of the System report, average charged rates may have been as high as $2.58 per $100 of payroll during the first quarter of 2017. That is quite higher than the $2.02 approved as a benchmark for mid-2017.

So with it becoming consistently apparent that actual charged pricing is higher than the justified “pure premium,” Jones issued a call that the insurance commissioner be given the power to regulate and reject rates. Current law gives the commissioner no power to actually regulate charged rates. As 2017 ended it was not clear that Jones’ call would have much traction in the Legislature.

Here is the press release issued by Jones calling for increased CDI regulatory authority.

4. The 2017 legislative session was a dud for workers’ comp

Many workers’ comp bills failed to advance to the governor’s desk, and even fewer gained his signature.

Brown vetoed AB 570, the latest installment of an effort by Assemblywoman Lorena Gonzalez Fletcher, D-San Diego, and workers' advocates to address perceived gender-related inequities in calculation of permanent disability. In prior years Brown vetoed two slightly different bills targeting gender discrimination, AB 305 and AB 1643.

Measures to prohibit apportionment based on genetics (SB 617, Sen. Steven Bradford, D-Gardena); a bill to require that the Department of Industrial Relations spend all of the $120 million Return to Work Fund each year (AB 553, Assemblyman Tom Daly, D-Anaheim); and a bill that would eliminate a comp exemption in order to provide coverage to day laborers (AB 206, Gonzalez Fletcher) each got kicked into 2018 as “two-year bills.”

This year will be the last lap of the Brown administration, and any legislative activity will be complicated by the fact that it is an election year, as well as the recent turmoil over sexual harassment in California’s Capitol, which has embroiled some key legislators in sex scandals.

Among the most significant bills that did make it into law in 2017 include:

  • AB 44 (Assemblywoman Eloise Reyes, D-San Bernardino), a bill arising as a result of complaints from workers injured in the San Bernardino terrorist attack. This bill requires that in the event of a terrorist attack (if certified by the governor), employers must provide nurse case managers.
  • SB 189 (Bradford), a cleanup bill following 2016's AB 2883. SB 189 lowers the threshold for a partial corporate owner or director to waive workers’ comp coverage and sets forth the terms of a valid waiver.
  • AB 1422 (Daly), plugging several loopholes in the 2016 anti-fraud measures.
  • SB 306 (Sen. Bob Hertzberg, D-Van Nuys), giving the Division of Labor Standards Enforcement power to investigate, and issue citations and penalties, where there is suspected retaliation for exercising workplace rights. Here is the post I did on this bill.
  • SB 430, broadening the ability of California Insurance Guarantee Association to purchase reinsurance.

5. A dispute between some QMEs and the DWC continued to simmer

In late 2017, several groups of qualified medical evaluators sued the DWC in Los Angeles County Superior Court, alleging in part that the DWC had adopted underground regulations that resulted in delay and denial of QME recertification.

The background for this dispute is that in 2016 the DWC Medical Unit delayed or chose not to recertify scores of QMEs. In many cases this was due to alleged problems with QME billing under a new Medical Unit interpretation of the requirements for billing ML 103 and ML 104 codes. The Medical Unit has been slow to set hearings on appeals of the recertification denials.

Though the Superior Court denied a request for injunctive relief, it scheduled further proceedings on the matter for early 2018. The QME plaintiffs have charged that the DWC Medical Unit delays scheduling hearings on the reappointments, denying due process and stalling as their economic interests are harmed.

The dispute over the proper interpretation of ML billing codes also arose in 2017 in the context of a new Medical Unit online training module for QMEs.

Here is my post on this QME billing recertification issue.

6. The 2016 anti-fraud bills continued to have significant effect in 2017

The DWC made efforts to root out provider fraud a central theme in 2017 as the provisions of two 2016 legislative anti-fraud provisions (SB 1160 and AB 1244) took effect.

Labor Code §139.21(a)(1)/AB 1244 requires the DWC to suspend any medical provider, physician or practitioner from participating in the workers’ compensation system where:

  • The provider has been convicted of a felony or misdemeanor involving fraud or abuse of the Medi-Cal or Medicare programs or the workers’ compensation system, fraud or abuse of a patient, or related types of misconduct.
  • The provider has been suspended due to fraud or abuse from the Medicare or Medicaid (including Medi-Cal) programs.
  • The provider’s license or certificate to provide health care has been surrendered or revoked.

By late December the DWC had issued 131 orders suspending medical providers from participating in the system as a result of fraud, criminal convictions and loss of medical licensing. An online list is maintained by the DWC.

In 2017, the DWC posted a list of criminally charged providers whose liens are stayed pursuant to Labor Code 4615. And in late December, the DWC posted online a full list of lien claimants whose liens have been flagged as potentially subject to a stay under Labor Code §4615.

The latter was ordered by Federal District Judge George H. Wu as part of hearings on a challenge to the constitutionality of the 2016 anti-fraud reforms.

The rules surrounding provider suspensions and lien stays could still change depending on the outcome of court challenges that are underway. It should be noted that the DWC, currently operating under emergency regs, is still in a rule-making process on provider suspensions, having held a December public hearing on a 45-day version of provider suspension rules.

And late in 2017, the California State Auditor issued a report on fraud-fighting that makes pointed suggestions for improvement by the DIR/DWC and the California Department of Insurance. The CDI agreed with the audit suggestions, but the DIR/DWC issued a rebuttal letter, to which the State Auditor filed a rejoinder.

The audit report can be found here, and my blog post can be found here.

7. In 2017, there were a handful of notable court decisions on workers’ comp

From the California Court of Appeal, there were a handful of potentially important workers’ comp opinions:

  • Hikida v. WCAB — disability resulting from medical treatment for which employer is responsible is not subject to apportionment. Here is my post on Hikida.
  • City of Jackson v. WCAB (Christopher Rice) — allowing apportionment of disability caused by genetics. My post on the Rice case is here.
  • Southern Insurance Co, v. WCAB (Berrios-Segovia) — rescission of comp coverage after injury where employer misrepresented job duties in application for insurance. My post on this case is here.
  • Ramirez v. WCAB — 3rd DCA rejects challenge to the constitutionality of IMR.
  • County of Riverside v. WCAB (Sylves) (4th DCA) — application of Labor Code §5500.5 in cumulative trauma cases.
  • Baker v. WCAB (Sierra Pacific Fleet) — 3rd DCA determines that untimely IMR decisions are still valid as time limits held to be directory, not mandatory.
  • Stevens v. WCAB (Outspoken Enterprises) — 1st DCA granted a writ but later dismissed the grant; the petition had challenged the WCAB’s voiding of a 2009 MTUS version of home health care guidelines.
  • Baker v. WCAB (Guerrero) — 6th DCA finds proper starting date for Subsequent Injuries Benefit Trust Fund payments to begin at date of entitlement to permanent disability benefits.
  • Zhu v. WCAB (2nd DCA) — injury while bicycling between caregiving work sites held compensable.
  • Ly v. County of Fresno (5th DCA) — workers’ comp “take nothing” award held to preclude Fair Employment and Housing Act award on the same facts.
  • Pearson Ford v. WCAB (Hernandez) (4th DCA) — fraud conviction did not preclude recovery where there was actual injury and medical evidence showed disability was independent of the fraud.
  • The People ex. rel. Mahmoud Alzayat v. Hebb (4th DCA) — qui tam action under the Insurance Frauds Prevention Act/Insurance Code §1871 against an employer who made false statements causing a workers’ comp claim to be denied.

There were many noteworthy WCAB panel decisions to include in this year-end recap, but in 2017 the WCAB issued only one en banc decision that is notable:

  • Maxham v. California Dept. of Corrections — clarifying the distinction between “communication” and “information” as used in Labor Code §4062.3 that addresses what contacts parties can have with QMEs. My post on the case is here.

In 2017, an attempt to sue the DIR, DWC and various Brown administration officials fell flat. The Los Angeles County Superior Court lawsuit alleging gender discrimination, filed by public interest law firms, was dismissed without leave to amend.

The California Supreme Court has still not issued a ruling in King v. CompPartners, a case widely watched on the issue of whether UR reviewers may owe a medical duty of care to an injured worker that can be the source of civil tort liability.

Oral argument is set for early 2018 in an important case, County of San Diego V. WCAB (Pike), a case I discussed in the blog.

8. The DIR/DWC announced large increases in employer assessments for 2018

The amount of assessments for 2018 will increase from $324 million, to $506 million, an increase of more than 56%.

California workers’ comp is not funded out of the general state budget but is “user-funded.”

The increased assessments are spread across many of the DIR’s efforts, including the Subsequent Injuries Fund (now known as the SIBTF); the Fraud Assessment Commission Account; the workers’ comp general administrative fund known as the Revolving Fund; the Uninsured Employers Benefits Trust Fund; Cal-OSHA; Division of Labor Standards Enforcement; and the $120 million Return-to-Work Fund.

At year’s end it was not clear whether there would be any political fallout to the projected assessment increases. Generally, California employers have been very happy with the Brown administration’s efforts on workers’ comp. Given that insurance rates have declined, California employers may have to swallow these increased assessments.

An interesting twist is that since 2013, lien filing fees had masked some of the costs of the DWC doing business. But as lien filings have declined, so has income from the lien filings, leaving a hole in the DIR/DWC budgets.

9. As usual, there were studies and reports that may drive the workers’ comp agenda in the future

In past years we have seen that studies and reports become the fodder for policy debates in the Legislature and the regulatory apparatus. In 2017 there was the usual raft of studies.

WCIRB issued a 2017 State of the System report. Here is my post on that report.

The Commission on Health and Safety and Workers' Compensation had commissioned a study of trends in the QME system, and a report issued from UC Berkeley's Frank Neuhauser.

The Neuhauser report, which is currently posted but not approved by CHSWC, can be found here.

Neuhauser’s report generated public comment, which can be seen here.

Here is my post on the Neuhauser QME study.

The California Workers’ Compensation Institute (CWCI) did studies on a number of topics, including the following:

  • Opioids and Medicare Set-Asides, here.
  • IMR volume, here.
  • Opioids and mental health disorders, here.
  • Spinal fusion claims, here.
  • The potential impact of a formulary, here.

A report from the California Orthopaedic Association highlighted difficulties that surgeons are having getting pre-operative testing authorized.

The National Academy of Social Insurance (NASI) produced its annual comparison of state workers’ comp programs.

And from the Boston-based Workers Compensation Research Institute, there was one of its CompScope papers that analyzed decreasing medical payments per claim in California after the 2012 reforms.

10. Injured workers continue to complain about treatment denials and access to treatment

This last pick isn’t so much a new development as it is a steady theme that emerges when workers embroiled in contested cases voice their experiences. For years now, there has been an ongoing debate between CWCI and CAAA over whether UR and IMR denials are a small slice of the overall medical approval universe or a significant chunk of sought-after treatments in non-first aid claims.

Ultimately it appears that IMR volume remains incredibly high as of 2017, though the volume of disputes may be driven by a relatively small number of providers. At year’s end it is unclear how other emerging changes in the system, such as the formulary, the revised MTUS, DWC data mining, and provider suspensions will affect the number of disputes.

At mid-year 2017 I listed the top 10 developments in 2017 through June 2017. And here is my end-of-2016 top 10 list.

In early 2018 I’ll be doing my annual soothsayer quiz on likely developments in workers’ comp. Stay tuned.

Julius Young is a claimants' attorney for the Boxer & Gerson law firm in Oakland. This column was reprinted with his permission from his blog, www.workerscompzone.com.

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