California Regulations 10107.1

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§ 10107.1 Notice of Audit; Claim File Selection; Production of Claim Files; Auditing Procedure.

History:




For audits conducted on or after January 1, 2003:


(a) Once a subject has been selected for an audit, the Audit Unit shall serve a Notice of Audit on the claims administrator. The Notice of Audit shall inform the claims administrator of its selection for audit, and may include a request to provide the Audit Unit with a claim log or logs. If the Audit Unit has requested claim logs, the audit subject shall provide two copies of each requested claim log within 14 days of the date of the receipt of the Notice of Audit. Only one copy of the requested claim log or logs shall be provided within 14 days of the date of the receipt of the Notice of Audit by the claims administrator if the copy is provided via electronic submission to the Audit Unit mailbox at DWCAuditUnit@dir.ca.gov.


(b) At least 14 days before the audit is scheduled, the Audit Unit shall send the audit subject a Notice of Audit Commencement identifying the claims to be audited. The audit shall commence no less than 14 days from the date the Notice of Audit Commencement was sent, unless the audit subject and Audit Unit agrees to earlier commencement. Claims selected for audit that are administered at the home of a telecommuting adjuster must be presented for audit at a California office location of the administrator, at a California location of the self insured employer, an Audit Unit office, or a Workers' Compensation Appeals Board district office. Other arrangements may be made as agreed between the audit subject and the Audit Unit.


(c) For profile audit reviews conducted pursuant to Labor Code section 129(b)(1), the Audit Unit shall randomly select samples of indemnity claims from the most recent three years of the audit subject's claim logs or from the list of claims for those years as reported to the Division of Workers' Compensation pursuant to Labor Code section 138.6 as part of the Workers' Compensation Information System. Claim samples randomly selected under this subdivision shall not include claims with a single indemnity payment that cannot be classified under the profile audit review performance standards set forth in subdivision (c)(3)(A) through (C)(3)(E). If any of the years have been the subject of a previous audit, claims will be randomly selected from the most recent unaudited year(s).


(1) The initial number of indemnity claims randomly selected for audit will be determined based on the following table:




Population Sample Size




5 or less all


6-10

1 less than total


11-13 2 less than total


14-16 3 less than total


17-18

4 less than total


19-20 5 less than total


21-23 6 less than total


24

17


25-26 18


27-29 19


30-31

20


32-33 21


34-36 22


37-39

23


40-41 24


42-44 25


45-48

26


49-51 27


52-55 28


56-58

29


59-62 30


63-67 31


68-72

32


73-77 33


78-82 34


83-88

35


89-95 36


96-102 37


103-110

38


111-119 39


120-128 40


129-139

41


140-151 42


152-164 43


165-179

44


180-197 45


198-217 46


218-241

47


242-269 48


270-304 49


305-346

50


347-399 51


400-468 52


469-562

53


563-696 54


697-905 55


906 - 1,272

56


1,273 - 2,091 57


2,092 - 5,530 58


5,531 + 59




(2) In addition to the randomly selected indemnity claims, the Audit Unit may audit any claims for which it has received a complaint or information over the past three years that indicate a failure to pay indemnity, including any companion claim needed to ascertain the extent to which benefits have been provided. Claims with complaints that are randomly selected will be audited as part of the random sample and included in the performance rating.


Complaints not involving a failure to pay indemnity will be provided to the audit subject, if confidentiality has not been requested, for review and corrective action, if warranted. Within 30 days of receipt of the report of audit findings issued pursuant to subdivision (f) of this section, the audit subject shall provide a written response to the Audit Unit, stating its review findings and corrective actions, if any.


(3) After reviewing the claims selected pursuant to subdivision (c)(1), the Audit Unit shall calculate the audit subjects profile audit review performance rating based on its review of the randomly selected claims. The profile audit review performance rating will be calculated as follows:


(A) The factor for the failure to pay accrued and undisputed indemnity shall be determined by:


1. Dividing the number of randomly selected claims with violations involving the failure to pay indemnity [pursuant to California Code of Regulations, title 8, section 10111.2, subdivisions (a)(1), (a)(2), (a)(3), (a)(4), and (a)(10)] by the number of randomly selected claims with accrued and payable indemnity, to produce a frequency rate.


2. Dividing the total amount of unpaid indemnity in randomly selected claims by the number of randomly selected claims with accrued and payable indemnity, to produce an average amount of unpaid indemnity per file with the obligation to pay indemnity.


3. Dividing the average amount of unpaid indemnity per randomly selected audited claim with the obligation to pay indemnity for the audit subject by the average amount of unpaid indemnity per randomly selected audited claim for all audit subjects for the three calendar years before the year preceding the year in which the current audit was commenced, to produce a severity rate.


4. Multiplying the frequency rate by the severity rate by a modifier of 2 to determine the factor for the failure to pay accrued and undisputed indemnity.


(B) The factor for the late first payment of temporary disability indemnity shall be determined by dividing the number of randomly selected claims with violations involving the late first payment of temporary disability indemnity [pursuant to section 10111.2, subdivisions (a)(5), (a)(8), and (a)(10)], or in claims that involve salary continuation, failure to comply with the requirements for first notices advising the injured employee of the provision of salary continuation in lieu of first temporary disability payments [pursuant to section 10111.2, subdivisions (b)(8)(B) and (b)(8)(C)], by the number of randomly selected claims in which temporary disability payments or first notices advising the injured employee of the provision of salary continuation in lieu of first temporary disability notices were required. In any claim that involves the payment of both salary continuation in lieu of first temporary disability payments and temporary disability payments, each benefit type paid will be considered in calculating this factor.


(C) The factor for the late first payment of permanent disability indemnity, vocational rehabilitation maintenance allowance, and death benefits [pursuant to section 10111.2, subdivisions (a)(6), (a)(7), (a)(8), and (a)(10)] shall be determined by dividing the numbers of randomly selected claims with violations involving late first payments of those benefits by the numbers of randomly selected claims with payments for those benefits. In calculation of this factor, claims shall be counted for each type of exposure and late first payment.


(D) The factor for late subsequent indemnity payments [pursuant to section 10111.2, subdivisions (a)(8), (a)(9), and (a)(10)] shall be determined by dividing the number of randomly selected claims with violations involving late indemnity payments subsequent to first payment by the number of randomly selected claims with subsequent indemnity payments.


(E) The factor for failure to comply with requirements for notices advising injured employees of the process for selecting Agreed Medical Examiners and/or Qualified Medical Examiners, and for injured workers with injuries prior to January 1, 2004, failure to comply with the requirements for notices advising injured workers of potential eligibility for vocational rehabilitation, or for injured workers with injuries on or after January 1, 2004, failure to comply with the requirements for notices advising injured workers of the right to the supplemental job displacement benefit, shall be determined by dividing the numbers of randomly selected claims with violations involving the failure to comply with the applicable requirement to issue the notices by the numbers of randomly selected claims with the requirement to issue the notices. In calculation of this factor, claims shall be counted for each type of exposure and violation.


(F) The audit subject's profile audit review performance rating will be determined by adding the factors calculated pursuant to subdivisions (c)(3)(A) through (c)(3)(E).


(4) If the audit subject's profile audit review performance rating meets or exceeds the worst 20% of performance ratings for all final audit reports issued for audits commenced in the three calendar years before the year preceding the year in which the current audit was commenced, the Audit Unit will issue Notices of Compensation Due pursuant to California Code of Regulations, title 8, section 10110 but will assess no administrative penalties for violations found in the profile audit review.


(5) If the audit subject's profile audit review performance rating fails to meet or exceed the rating of the worst 20% of performance ratings as calculated based on all final audit findings as published in the Annual DWC Audit Reports over the three calendar years before the year preceding the year in which the current audit was commenced, the Audit Unit will conduct a full compliance audit by randomly selecting and auditing an additional sample of indemnity claims pursuant to subdivision (d). Written notification of the Audit Units findings from the profile audit review, the calculation of the profile audit review performance rating, and intent to proceed to a full compliance audit, will be provided to the audit subject in time for the timely filing of an objection. The audit subject may dispute whether or not a full compliance audit is merited under this subdivision at a post-profile audit review conference. Unless the audit subject demonstrates that the factual basis for the Audit Units calculation of the profile audit review performance rating is incorrect within two working days of the receipt of the rating or at the post profile audit review conference, the Audit Unit may complete the full compliance audit. The audit subject may appeal the issues pursuant to California Code of Regulations, title 8, section 10115.1 following the issuance of the final audit report. Failure of the audit subject to raise factual issues related to failing to meet or exceed the profile audit review performance standard within two working days of the receipt of the profile audit review performance rating or during the post-profile audit review conference shall constitute a waiver of appeal on those issues.


(d) If the audit subjects fails to meet or exceed the profile audit review performance standard, the Audit Unit shall conduct a full compliance audit by selecting and auditing an additional sample of indemnity claims.


(1) The total number of indemnity claims randomly selected for audit, including the number audited pursuant to subdivision (c)(1), will be determined based on the following table:




Population Sample Size




8 or less all


9-15

1 less than total


16-19 2 less than total


20-23 3 less than total


24-27

4 less than total


28-30 5 less than total


31-33 6 less than total


34-36

7 less than total


37-38 8 less than total


39-41 9 less than total


42

32


43-44 33


45 34


46-47

35


48-49 36


50-51 37


52-53

38


54-55 39


56-57 40


58-59

41


60-61 42


62-63 43


64-65

44


66-67 45


68-70 46


71-72

47


73-74 48


75-77 49


78-79

50


80-82 51


83-84 52


85-87

53


88-89 54


90-92 55


93-95

56


96-98 57


99-101 58


102-104

59


105-107 60


108-110 61


111-114

62


115-117 63


118-120 64


121-124

65


125-128 66


129-131 67


132-135

68


136-139 69


140-143 70


144-148

71


149-152 72


153-156 73


157-161

74


162-166 75


167-171 76


172-176

77


177-181 78


182-187 79


188-192

80


193-198 81


199-204 82


205-210

83


211-217 84


218-223 85


224-230

86


231-238 87


239-245 88


246-253

89


254-261 90


262-270 91


271-279

92


280-288 93


289-298 94


299-308

95


309-319 96


320-330 97


331-342

98


343-354 99


355-367 100


368-381

101


382-396 102


397-411 103


412-427

104


428-444 105


445-463 106


464-482

107


483-503 108


504-525 109


526-549

110


550-575 111


576-603 112


604-633

113


634-665 114


666-700 115


701-739

116


740-781 117


782-827 118


828-879

119


880-936 120


937 - 1,000 121


1,001 - 1,072 122


1,073 - 1,154 123


1,155 - 1,248

124


1,249 - 1,356 125


1,357 - 1,483 126


1,484 - 1,633 127


1,634 - 1,814 128


1,815 - 2,036 129


2,037 - 2,315 130


2,316 - 2,677

131


2,678 - 3,163 132


3,164 - 3,852 133


3,853 - 4,904 134


4,905 - 6,710 135


6,711 - 10,530 136


10,531 - 23,993 137


23,994 +

138




(2) In addition to the randomly selected indemnity claims, the Audit Unit may audit any claims for which it has received a complaint or information over the past three years that indicate a failure to pay indemnity or late-paid indemnity, including any companion claim needed to ascertain the extent to which benefits have been provided.


Complaints not involving a failure to pay indemnity or late paid indemnity will be provided to the audit subject, if confidentiality has not been requested, for self-review and corrective action, if warranted. Within 30 days of receipt of the report of audit findings issued pursuant to subdivision (f) of this section, the audit subject shall provide a written response to the Audit Unit stating its review findings and corrective actions, if any.


(3) After reviewing the claims selected pursuant to subdivision (d)(1), the Audit Unit shall calculate the audit subject's full compliance audit performance rating.


(A) The audit subject's full compliance audit performance rating will be calculated pursuant to subdivision (c)(3), except that it shall be based on the review of all claims selected pursuant to subdivision (d)(1).


(B) If the audit subject's full compliance audit performance rating meets or exceeds the worst 10% of performance ratings for all final audit reports issued for audits commenced in the three calendar years before the year preceding the year in which the current audit was commenced, the Audit Unit will issue Notices of Compensation Due pursuant to section 10110 and will assess administrative penalties only for violations involving unpaid and late paid compensation, pursuant to Labor Code section 129.5(c)(2).


(e) If the audit subject's full compliance audit performance rating fails to meet or exceed the rating of the worst 10% of performance ratings for all final audit reports issued for audits commenced in the three calendar years before the year preceding the year in which the current audit was commenced, the Audit Unit will audit all claims selected for audit for all violations, and also randomly select a sample of denied claims. Written notification of the Audit Unit's findings from the full compliance audit, the calculation of the full compliance audit performance rating, and intent to audit a sample of denied claims and assess penalties pursuant to Labor Code section 129.5(c)(3), will be provided to the audit subject in time for the timely filing of an objection. The audit subject may dispute whether or not it met or exceeded the full compliance audit performance standard at a meet and confer audit review conference. Unless the audit subject demonstrates that the factual basis for the Audit Unit's calculation of the full compliance audit performance rating is incorrect within two working days of the receipt of the rating or at the meet and confer audit review conference, the Audit Unit may complete the full compliance audit. The audit subject may appeal pursuant to section 10115.1 following the issuance of the final audit report. Failure of the audit subject to raise factual issues related to failing to meet or exceed the full compliance audit performance standard within two working days of the receipt of the full compliance audit performance rating or during the meet and confer audit review conference shall constitute a waiver of appeal on those issues.


(1) The number of denied claims randomly selected for audit will be based on the following table:





Population Sample Size




6 or less all


7-10

1 less than total


11-14 2 less than total


15-17 3 less than total


18

14


19-20 15


21 16


22-23

17


24-25 18


26-27 19


28 - 29

20


30 - 31 21


32 - 33 22


34 - 36 23


37 - 38 24


39 - 41 25


42 - 43 26


44 - 46

27


47 - 49 28


50 - 52 29


53 - 55 30


56 - 59 31


60 - 63 32


64 - 67 33


68 - 71

34


72 - 75 35


76 - 80 36


81 - 85 37


86 - 90 38


91 - 96 39


97 - 102 40


103 - 109

41


110 - 116 42


117 - 124 43


125 - 132 44


133 - 141 45


142 - 151 46


152 - 163 47


164 - 175

48


176 - 189 49


190 - 205 50


206 - 222 51


223- 242 52


243 - 265 53


266 - 292 54


293 - 323

55


324 - 360 56


361 - 405 57


406 - 461 58


462 - 531 59


532 - 623 60


624 - 749 61


750 - 931

62


932 - 1,217 63


1,218 - 1,731 64


1,732 - 2,934 65


2,935 - 8,990 66


8,991 + 67




(2) In addition to the random samples of indemnity and denied claims, the Audit Unit may select for audit all claims for which the Division received complaints or information over the past three years that indicate the possible existence of any claims handling violations, including any companion claim(s) needed to ascertain the extent to which benefits have been provided.


(f) Following the conclusion of the audit, the Audit Unit shall issue a report of audit findings which may include, but is not limited to, the following: one or more requests for additional documentation or compliance, Notices of Intention to Issue Notice of Compensation Due, Preliminary Notices of Penalty Assessments, Notices of Compensation Due, or Notices of Penalty Assessments. If any additional requested documentation is not provided within thirty days of receipt of the report, additional audit penalties may be assessed under California Code of Regulations, title 8, section 10111.2(b)(23) of these Regulations.


(g) The audit subject shall pay all expenses of an audit of an adjusting location outside the State of California, including per diem, travel expense, and compensated overtime of audit personnel.


(h) The audit subject shall make each of the claim files selected for audit available at the audit site at the time of audit commencement. Claims will include but not be limited to the required contents of California Code of Regulations, title 8, section 10101.1. If claim files are maintained in an electronic or other non-paper storage medium, the claims administrator shall, upon request, provide to the Audit Unit, at the Audit Units discretion, direct computer access to electronic claim files and/or legible printed paper copies of the claim files, including all records of compensation payments. If a randomly selected indemnity, medical-only, or denied claim has been incorrectly classified as to type by the audit subject, the Audit Unit may randomly select an additional correctly designated claim file for audit, and may also assess penalties as appropriate in the misdesignated claim initially selected. If the audit subject fails to produce a claim selected for audit, the Audit Unit may assess a penalty for failure to produce the claim pursuant to section 10111.2(b)(3) and may also select for audit another claim of the same type to complete the random sample. If, after the issuance of the Notice of Audit Commencement that notified the audit subject that the claim was selected for audit, the audit subject has transferred a claim to a different adjusting location of the company being audited, the audit subject shall nonetheless produce the claim for audit within five working days of request, unless additional time is agreed upon by both the Audit Unit and the audit subject.


(i) The Audit Unit shall have discretion to audit claims in addition to those identified with the Notice of Audit Commencement. The audit subject shall make each of the additional claims selected for audit available at the audit site as follows:


(1) Open claims and closed claims stored on site within one working day of request;


(2) Closed claims stored off site within five working days of request, unless additional time is agreed upon by both the Audit Unit and the audit subject.


(j) The audit subject shall provide the auditor(s) an adequate, safe, and healthful workspace during the audit, which allows the auditors a reasonable degree of privacy. If the Audit Unit determines that this workspace is not provided, the Audit Unit may require the audit subject to deliver the files to another California office location of the audit subject, an Audit Unit office, or a Workers Compensation Appeals Board district office, for completion of the audit. Other arrangements may be made as agreed between the audit subject and the Audit Unit.


(k) The Audit Unit may obtain and retain copies of documentation or information from claim files to support the assessment of penalties.


(l) The audit subject shall have the opportunity to discuss preliminary findings and provide additional information at a post-audit conference.


(m) The Audit Unit may at any time request additional information or documentation related to the claims being audited in order to complete its audit. Such information may include documentation demonstrating that, as specified by Labor Code sections 3751 and 3752, compensation has not been reduced or affected by any insurance, contribution, or other benefit due to or received by or from the employee. The audit subject shall provide any requested documentation or other information within ten working days from the Audit Unit's request, unless the Audit Unit extends the time for good cause.


Authority: Sections 59, 129, 129.5, 133, 5307.3, Labor Code.


Reference: Sections 11180, 11180.5, 11181, and 11182, Government Code. Sections 111, 124, 129, 129.5, 139.5, 3751, 3752, 4658.5 and 4658.6, Labor Code.