California Workers Compensation Reform What Should We Expect Next - - PowerPoint PPT Presentation

California Workers Compensation Reform: What Should We Expect Next

California Workers Compensation Reform What Should We Expect Next

Dave Bellusci, FCAS, MAAA WCIRB Michele Lyons, RN, MSN, JD, CCM, MSCC Farmers Insurance Casualty Loss Reserve Seminar San Diego, California September 15-17, 2014

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California Workers Compensation Reform: What Should We Expect Next

Overview

• Pre-SB 863 Environment
• SB 863 Summary
• Post-SB 863 Trends
• What’s Next?
• Q/A

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California Workers Compensation Reform: What Should We Expect Next 3

Pre-SB 863 Underlying Cost Trends - Reforms of 2002 - 2004

• Rapidly Escalating Costs Prior to Reforms of 2002 through 2004
• 3-Year Series of Reforms in 2002 through 2004

– Evidence-based utilization standards – Unlimited employer control of medical within networks – Limits of physical therapy and chiropractic visits – New permanent disability rating schedule based on AMA Guides – 2-Year cap on temporary disability – Apportionment of permanent disability benefits

• WCIRB Retrospective Estimate of Savings: 66%, or $14 Billion

Annually in Statewide Costs

• Industry Average Rates Declined by Two-Thirds from 2003

California Workers Compensation Reform: What Should We Expect Next 4

Pre-SB 863 Underlying Cost Trends - Erosion of Impact of Reforms of 2002 - 2004

• Erosion of Reform Impacts Since 2005

– Indemnity cost per claim up 40% since 2005 – Medical cost per indemnity claim up 50% since 2005 – ALAE cost per indemnity claim up almost 100% since 2005 – Costs rising much quicker than underlying exposure

• Combined Ratios Increasing
• Industry Average Charged Rates up 22% since 2009

California Workers Compensation Reform: What Should We Expect Next

Estimated Ultimate ALAE per Indemnity Claim (Excl. MCCP)

11,756 5,977 6,060 5,671 5,529 4,997 6,018 6,772 7,509 8,639 10,053 10,889 11,329 $0 $5,000 $10,000 $15,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

• 1.4

0.7 12.5 10.9 15.0 8.3 4.0 3.8 6.8 2.6 10.7 16.4

• 10

10 20 00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12

As of December 31, 2012

% Change

Accident Year 5

California Workers Compensation Reform: What Should We Expect Next 123 121 117 113 112 110 105 100 125 147 143 139 126 121 114 105 155 100 125 150 175 2005 2006 2007 2008 2009 2010 2011 2012 (projected) Policy Year 2013 (projected) Average Wage Level Index (Based on UCLA Data) Estimated Indemnity Claim Cost Level Index Pre-SB 863

%

Accident Year

California Workers’ Compensation Claims and Wage Level Index

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California Workers Compensation Reform: What Should We Expect Next

Accident Year California Projected Combined Loss and Expense Ratios

149 134 115 89 57 37 34 45 64 83 98 100 90 82 74 23 21 18 15 12 9 10 12 16 19 24 24 33 25 23 22 20 18 16 15 14 14 16 18 20 22 23 23 20 19 50 100 150 200 99 00 01 02 03 04 05 06 07 08 09 10 11* 12* 13* Other Exps. LAE Losses

144 146 147 122 84 58 120 151 175 194 127

As of March 31, 2014

Accident Year 60 73

136% Point Improvement

• ver 6 Years

89% Point Deterioration

• ver 5 Years

116

* The cost of medical cost containment programs is reflected in LAE for accident years 2011 and subsequent. It is reflected in losses for all other accident years.

7 98

California Workers Compensation Reform: What Should We Expect Next

Estimated Average Charged Insurer Rate Per $100 of Payroll

$6.29 $5.49 $4.36 $2.85 $2.30 $2.15 $2.10 $2.25 $2.32 $2.39 $2.57 $2.84

$0.00 $2.00 $4.00 $6.00 $8.00 7/03-12/03 7/04-12/04 7/05-12/05 7/06-12/06 7/07-12/07 2008 2009 2010 2011 1/12- 6/12 7/12-12/12 2013

Policy Period 8

California Workers Compensation Reform: What Should We Expect Next

Rate Comparison Based on Oregon Studies California* vs. National Median Average Charged Rate

$3.34 $5.23 $6.08 $4.13 $2.72 $2.68 $2.87 $3.52 $2.26 $2.42 $2.58 $2.48 $2.26 $2.04 $1.88 $0.00 $2.00 $4.00 $6.00 1/1/00 1/1/02 1/1/04 1/1/06 1/1/08 1/1/10 1/1/12 1/14 - 3/14 Rate Effective Period

California National Median * The information is based on the state of Oregon biennial rate comparison and is based on the state of Oregon classification mix and, as a result, the California average rates shown on this exhibit differ from other measures of the average California rate.

Projected

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California Workers Compensation Reform: What Should We Expect Next

National Workers’ Compensation Medical Trends vs. CA Medical Costs per Fee Schedule

• Estimated $9 billion in WC spent on unnecessary medical costs
• Prices paid for nonhospital services in 2012 in Wisconsin, Indiana,

and New Jersey double the prices in California, Florida, and North Carolina

• On other spectrum if prices too low reduce the number of providers

willing to treat injured workers

California Workers Compensation Reform: What Should We Expect Next

National Workers’ Compensation Medical Trends

• Pharmacy

– Pharmacy providers becoming more sophisticated with data analytics, electronic communications, reporting and innovative drug therapy management – Opioids remain top priority – Many use “soft” programs-letters to providers, phone calls to doctors who may exhibit problematic prescribing patterns and urine drug testing – Resulting in 21% drop in pharmacy inflation in last ten years – Declines in new branded drugs, popular drugs going off-patent, and generic conversion programs

California Workers Compensation Reform: What Should We Expect Next

National Workers’ Compensation Medical Trends

• ICD-10 Codes

– 10/2014 new codes to apply – Increases medical billing codes from 17,000 to 150,000 – ICD-9 are 3 to 5 numbers long, ICD-10 is up to 7 digits with numbers and letters

California Workers Compensation Reform: What Should We Expect Next

National Workers’ Compensation Medical Trends

• Orthopedic Procedures

– Millions of dollars spent on medical procedures that are possibly unnecessary – Examples:

• American Academy of Orthopedic Surgeons issued statement

that the use of viscoelastic injections for arthritic knees is no better then placebo and very expensive

• Joint Commission-accredited hospitals have indicated that

continuous passive motion machine after knee replacements is of no benefit and has risk factors

California Workers Compensation Reform: What Should We Expect Next

National Workers’ Compensation Medical Trends

• Spinal Fusion Surgery

– Many failed back surgeries in WC – Spinal fusion was designed to treat fractures – Increasing use for degenerative changes – 1990s U.S .had rate twice of Canada and Norway, 5 times of the U.K. for spinal fusions – 1990-2001 increase of 220 percent – Cochrane Review of conservative care vs. spinal fusion with fusion group had little pain reduction or improvement in quality of life – CA-Criminal and civil actions against medical providers providing “false” hardware for spinal fusion surgeries

California Workers Compensation Reform: What Should We Expect Next

Overview

• Pre-SB 863 Environment
• SB 863 Summary

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California Workers Compensation Reform: What Should We Expect Next 16

SB 863 Summary – Legislative Process

• Consensus that 2002–2004 Reforms Cut PD Benefits Back Too Far
• Several Attempts to Significantly Increase PD Benefits Vetoed
• 2011: Governor Indicated Would Consider Balanced Solution
• 2012: Labor and Employer Representatives Attempt to Negotiate

Compromise Bill – Reduce frictional costs – Increase PD benefits – Reduce employer costs

California Workers Compensation Reform: What Should We Expect Next 17

SB 863 Summary – Bill Provisions

• Signed by the Governor on September 18, 2012
• Includes Benefit Changes Effective 1/1/2013 and 1/1/2014
• Series of Structural Reforms to Benefit Delivery System

– Lien Reforms – Independent medical review (IMR) – Permanent disability add-ons – Medical provider networks (MPNs) strengthening – Medical reimbursement levels – Future earning capacity adjustments (Ogilvie decision) – Return-to-work program – New Medical Fee Schedules – Independent Bill Review

California Workers Compensation Reform: What Should We Expect Next

WCIRB Prospective Cost Evaluation of SB 863 – Process

• WCIRB Requested by Insurance Commissioner and Director of DIR to

Provide Preliminary Cost Assessments

• Final WCIRB Estimate Reflected in Amended 1/1/2013 Filing
• WCIRB Assessments Reflect

– Review of legislative provisions – Consultation with experts – Review of relevant research and analyses – New actuarial analyses based on data and timeframes available – Judgmental estimates developed when there was consensus as to likely impact – Revisions as legislation changed or new information became available

• Develop Plan to Proactively Monitor Emerging Costs
• Measure Impact on Loss Development
• Measure Impact Size of Loss Distribution

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California Workers Compensation Reform: What Should We Expect Next

WCIRB Prospective Cost Evaluation of SB 863 Summary of WCIRB Prospective Estimates ($’s in billions)

SB 863 Provisions Impact on Statewide Claim Costs % Impact on Claim Costs 2013 & 2014 PD Benefit Level Changes +$1.2 +6.4% Elimination of PD Add-ons ($0.2)

• 0.9%

Three-Tiered Weekly PD Benefits ($0.1)

• 0.5%

Liens ($0.5)

• 2.5%

Surgical Implant Hardware ($0.1)

• 0.6%

ASC Fees ($0.1)

• 0.4%

IMR (Impact on Frictional Costs & TD Duration) ($0.4)

• 2.1%

Ogilvie Decision ($0.2)

• 1.1%

MPN Strengthening ($0.2)

• 1.0%

Total Estimated Impact of SB 863 (pre RBRVS) ($0.5)

• 2.7%

RBRVS Fee Schedule +$0.3 +1.8% Total Estimated Impact of SB 863 (post RBRVS) ($0.2)

• 0.9%

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California Workers Compensation Reform: What Should We Expect Next

130 166 171 145 155 158 128 125 120 117 113 112 110 105 100 125 145 138 138 127 122 114 105 157

100 125 150 175 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Policy Year 2014

Average Wage Level Index (Based on UCLA Data) Estimated Indemnity Claim Cost Level Index Pre-SB 863 Projected Based on Current WCIRB Cost Estimate of SB 863

%

Accident Year

California Workers’ Compensation Claims and Wage Level Index

Projected

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California Workers Compensation Reform: What Should We Expect Next

Anticipated Post-SB 863 Trends – Indemnity

• Temporary Disability Duration

– IMR and MPN provisions should accelerate claims process & reduce TD duration

• Ogilvie and Almaraz/Guzman

– Effectively eliminates Ogilvie adjustments – Does not address Almaraz/Guzman

• Permanent Disability Rating Disputes/Litigation

– Eliminates PD rating “add-ons” and 3-tiered benefit system – FEC factor replaced by 1.4 adjustment

• Increased Indemnity Claim Frequency Partly Driven by Cumulative

Injury Increase

– Not addressed by SB 863

)

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California Workers Compensation Reform: What Should We Expect Next

WCIRB Projected Indemnity Change – After Initial Prospective SB 863 Adjustments

$26,894 $26,422 $17,480

$0 $10,000 $20,000 $30,000 $40,000 Accident Year 2005 Policy Year 2013 Projected (Pre-SB 863) Policy Year 2013 (Adjusted for WCIRB Initial Propsoective SB 863 Estimate)

Average Ultimate Indemnity per Claim

+51% +2%

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California Workers Compensation Reform: What Should We Expect Next

Anticipated Post-SB 863 Trends – Medical

• Medical Treatment Costs

– ASC fees, surgical implant hardware, and MPNs provisions should reduce costs – IMR process should reduce medical treatment disputes (impact on medical costs uncertain) – New fee schedules and conversion to RBRVS (impact on medical uncertain)

• Medical Liens

– Filing fee and statute of limitations should materially reduce volume and cost

• Medical-legal Costs

– IMR process should reduce medical-legal disputes and cost

• Pharmaceutical Costs and Medicare Set-asides

– Not addressed by SB 863

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California Workers Compensation Reform: What Should We Expect Next

WCIRB Projected Medical Change – After Initial Prospective SB 863 Adjustments

$31,020 $55,498 $52,937

$0 $20,000 $40,000 $60,000 $80,000 Accident Year 2005 Policy Year 2013 Projected (Pre-SB 863) Policy Year 2013 (Adjusted for WCIRB Intital Propsective SB 863 Estimate) Average Ultimate Medical per Indemnity Claim

+79%

• 5%

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California Workers Compensation Reform: What Should We Expect Next

Anticipated Post-SB 863 Trends – ALAE

• Liens

– Lien filing fee and statute of limitations should significantly reduce volume and cost of liens – IMR should reduce lien costs related to utilization review

• Ogilvie and Almaraz/Guzman

– SB 863 effectively eliminates Ogilvie – Does not address Almaraz/Guzman

• Medical cost containment

– Not directly addressed although IMR process may reduce frictional costs related to medical disputes

• Increases in Cumulative Injury Claims and Claims with Multiple

Body Parts

– Not addressed by SB 863

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)

California Workers Compensation Reform: What Should We Expect Next

WCIRB Projected ALAE Change – After Initial Prospective SB 863 Adjustments

$5,933 $13,795 $10,981

$0 $5,000 $10,000 $15,000 $20,000 Accident Year 2005 Policy Year 2013 Projected (Pre-SB 863) Policy Year 2013 (Adjusted for WCIRB Initial Proposective SB 863 Estimate) Average Ultimate ALAE per Indemnity Claim

+133%

• 20%

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California Workers Compensation Reform: What Should We Expect Next

Overview

• Pre-SB 863 Environment
• SB 863 Summary
• Post-SB 863 Trends

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California Workers Compensation Reform: What Should We Expect Next

Permanent Disability Benefit Increase Impact on Indemnity Claim Frequency

• Total SB 863 Impact (Including 2014 PD Benefit Increases) on

Frequency Estimated to Increase Costs by 1.1% ($200M)

• Assumed Frequency Changes Approx. 0.2% for Every 1% Change in

Indemnity Benefits

• Frequency in 2012 – 2014 Emerging Much Higher than Projected

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California Workers Compensation Reform: What Should We Expect Next

Change in Estimated Indemnity Claim Frequency – Actual vs. Projected

• 1.3

2.3

• 0.1

3.2 4.1 1.9

• 5

5 2012 2013 2014 (6 Montths) Accident Year

Projected Actual % As of June 30, 2014

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California Workers Compensation Reform: What Should We Expect Next

Change in Estimated Indemnity Claim Frequency – California vs. NCCI States

• 1.5
• 3.0
• 17.0
• 13.9
• 6.4
• 2.3
• 3.8
• 1.9

7.0

• 1.0

3.2 4.1 1.9

• 4.5
• 4.1
• 3.7
• 6.6
• 4.5
• 2.2
• 4.3
• 5.9

3.5

• 1.0
• 6.1
• 2.0
• 20
• 15
• 10
• 5

5 10 15 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Accident Year

California NCCI States NCCI estimates are based on the May 8, 2014 State of the Line Presentation (NCCI 2013 estimate is preliminary and the 2010 and 2011 estimates have been adjusted to remove the impact of audit premium and other factors). % As of June 30, 2014 , 2014

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6 months

California Workers Compensation Reform: What Should We Expect Next

Estimated Frequency Changes by Geographic Region

USR 1st Report Level

• 14.2
• 5.9
• 4.9
• 8.2
• 7.9

4.0

• 3.4
• 2.2
• 16.0
• 5.5
• 2.9
• 3.6
• 0.8

8.3 0.1 7.8

• 12.8
• 6.9
• 4.3
• 7.9
• 3.2

6.1

• 0.5
• 4.0
• 20
• 15
• 10
• 5

5 10 2005 2006 2007 2008 2009 2010 2011 2012

Accident Year Bay Area Los Angeles Other Regions

%

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Preliminary

California Workers Compensation Reform: What Should We Expect Next

Partial Permanent Disability Rates

• Effective for injuries on or after 1/1/13
• PD ratings below 55%:

minimum $160/maximum $230

• PD ratings of 55% or greater but less than 70%:

minimum $160/maximum $270

• PD ratings of 70% or greater but less than 100%:

minimum $160($130)/maximum $290($270)

• Effective for injuries on or after 1/1/14:
• Single Rate Structure: minimum $160/maximum $290

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California Workers Compensation Reform: What Should We Expect Next

Impact of New Rates

Rating % 2012 2013 2014 10 6,957.50 6,957.50 8,772.50 20 17,365.00 17,365.00 21,895.00 30 30,130.00 30,130.00 37,990.00 40 46,230.00 46,230.00 58,290.00 50 62,387.50 62,387.50 78,662.50 60 80,787.50 94,837.50 101,862.50 70 116,177.50 172,042.50 172,042.50 80 160,177.50 172,042.50 172,042.50 90 203,377.50 218,442.50 218,442.50

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California Workers Compensation Reform: What Should We Expect Next

Impact of New PPD Rates on California Workers’ Compensation Industry

• Projected increase in Costs to Employers:

– $200 to $300 Million in 2013 – $600 to $800 Million in 2014 and beyond

• Likely Results:

– Result in increased PD costs for PD ratings

• Reason for increase

– Last increase in PD was 2006

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California Workers Compensation Reform: What Should We Expect Next

WCIRB SB 863 Cost Monitoring Liens – WCIRB Prospective Estimate

• Total Impact of SB 863 Lien Provisions Estimated to Decrease

Costs by 2.5% ($480M)

• Assumed 260,000 Liens (41%) Eliminated by Filing Fee and Statute
• f Limitations
• Relatively Smaller Liens Impacted
• Significant Savings in Administrative Costs

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California Workers Compensation Reform: What Should We Expect Next

398.3 135.3 166.1 292.8 465.7 63.9 25.9 35.9 40.4 35.8 41.4 65.5 19.8 21.9 30.4 47.3 5.2 4.2 5.1 5.7 5.7 5.9

100 200 300 400 500 2011 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14

Los Angeles Area Rest of State

1.2 million liens filed in 2012 190K liens filed in 2013 460K liens filed in 2011

Liens Filed Counts by Region

Calendar Year/Quarter

Source: EAMS Liens Data In Thousands

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California Workers Compensation Reform: What Should We Expect Next

Current Rules for the “Old” Lien System

• Prior to SB 863 CA Workers’ Compensation had a system where a

medical provider could file for a “Lien Hearing” to review medical bills that were not paid or not paid in full

• All those who had filed a lien on or before 1/1/14 were required to pay a

mandatory $150 activation fee and by 1/1/14 the lien if not resolved had to file a $100 reactivation fee or the lien would be dismissed

• In compliance with a preliminary injunction by the U.S. District Court for

the Central District of California in the matter of Angelotti Chiropractic, Inc., et al. v. Baker, et al., the Division of Workers’ Compensation will no longer collect lien activation fees as of Nov. 19, 2013.

• NOW-Most medical bills have to go through the new IBR process before

can file a lien

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California Workers Compensation Reform: What Should We Expect Next

Spinal Surgical Implant – WCIRB Estimates

• Elimination of Separate Reimbursements for Implantable

Hardware Estimated to Decrease Costs by 0.6% ($110M)

• Estimate Based on CWCI Study of Multiple Reimbursements

– Duplicate payments added $20,000 to each procedure

• Post-Reform Emerging Costs – Calculated Billed and Paid

Amounts for the 7 DRGs Pre- and Post-1/1/13

# Episodes % DRGS 454 & 455 Total $ Paid

• Avg. $ Paid

Per Episode Pre-1/1/13 214 84% $5,870,125 $27,430 Post-1/1/13 52 85% $628,504 $12,087 Change

• 56%

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California Workers Compensation Reform: What Should We Expect Next

• Changes to ASC Fees Estimated to Decrease Costs by 0.4% ($80M)
• Some ASC Fees Reimbursed Under Contract Levels Below Current Fee

Schedule

• Assumed Reduction in ASC Facility Fees of 25%

– Approximate average of savings if all fees are impacted (33%) and if no contract fees are impacted (20%)

• Post-Reform Emerging Costs – Examined ASC Episodes of Care for the 30

Most Highly Reimbursed Procedure Codes (67% of All ASC Costs)

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ASC Surgeries Top 30 Paid Codes % of all ASC $ in Top 30 Codes # of Episodes $ Paid $ Paid per Episode

Services Pre-1/1/13 65% 11.435 $37,628,741 $3,291 Services Post-1/1/13 68% 5,497 $13,430.373 $2,443 Change

• 26%

Ambulatory Surgical Center Fees – WCIRB Estimates

California Workers Compensation Reform: What Should We Expect Next

Independent Medical Review – WCIRB Prospective Estimate

• Total Quantifiable Impact of SB 863 IMR Provisions Estimated to

Decrease Costs by 2.1% ($390M)

• IMR Frictional Cost Saving Assumptions

– 30,000 medical liens for UR disputes replaced by IMR reports – 21,000 QMEs for medical treatment replaced by IMR reports – 9,000 expedited hearings eliminated

• Reduction in Delays for Medical Treatment Assumed to Reduce TD

Duration by 4%

• Reduced Litigation Related to Medical Treatment Assumed to

Reduce ALAE Costs by 2.4%

• No Estimate for IMR Impact on Medical Treatment Levels

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California Workers Compensation Reform: What Should We Expect Next

86 178 256 350 4,410 15,731 14,990 13,999 13,171 13,760 12,638 12,874 11,571 19,663 19,576 20,728

5,000 10,000 15,000 20,000

Number of IMR Requests by Month

Source: DWC

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California Workers Compensation Reform: What Should We Expect Next

IMR Requests to June 2014

IMR Requests Received (TOTAL) 187,248 Open IMR Requests 76,461 Closed IMR Requests *www.dir.ca.gov/dwc

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California Workers Compensation Reform: What Should We Expect Next

IMRs eligible for Review

*www.dir.ca.gov/dwc

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California Workers Compensation Reform: What Should We Expect Next

2013 Severity Changes – Projected Vs Actual

1.6% 2.1%

• 7.8%
• 12.3%

1.8%

• 3.4%

6.2% 3.8%

• 15%
• 10%
• 5%

0% 5% 10%

Projected Actual Medical ALAE ULAE Indemnity

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As of June 30, 2014

California Workers Compensation Reform: What Should We Expect Next

WCIRB Cost Evaluation of SB 863 Summary of Estimates ($’s in billions)

SB 863 Provisions WCIRB Prospective Cost Estimates

(Impact on Statewide Claim Costs)

Preliminary Monitoring Results

(Impact on Savings Estimates)

2013 & 2014 PD Benefit Level Changes +$1.2 Elimination of PD Add-ons ($0.2) TBD Three-Tiered Weekly PD Benefits ($0.1) TBD Liens ($0.5) Surgical Implant Hardware ($0.1) ASC Fees ($0.1) IMR (Impact on Frictional Costs & TD Duration) ($0.4) Ogilvie Decision ($0.2) TBD MPN Strengthening ($0.2) TBD RBRVS Fee Schedule +$0.3 TBD Indemnity Severity Small Increase Medical Severities Small Increase ALAE and ULAE Severities Significant Declines

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California Workers Compensation Reform: What Should We Expect Next

SB 863 – Potential Impact on Existing Pre-2013 Claims

• Liens

– 1.2 million liens filed in 2012 - most are still in pipeline – Activation fee on pre-2013 liens subject to court stay

• IMR, IBR and Most Other Medical-Related Provisions Effective on

Post-2013 Services on Pre-2013 Claims ($480M)

• RBRVS Effective on Post-2014 Medical Services on Pre-2014

Claims

• TD Duration on Pre-2013 Claims Projected to Decline Modestly
• IMR Backlog May Delay Any Impacts to Emerge
• WCIRB Adjusting Development Factors Modestly for SB 863 Impact
• Recent Acceleration in Claim Settlement Observed

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California Workers Compensation Reform: What Should We Expect Next

Incremental Indemnity Claim Settlement Ratio

27 27 27 24 22 21 18 18 27 28 27 26 23 23 20 19 29 30 31 29 28 27 26 24 5 10 15 20 25 30 35 15 ‐ 27 '10/'11/'12 27 ‐ 39 '09/'10/'11 39 ‐ 51 '08/'09/'10 51 ‐ 63 '07/'08/'09 63 ‐ 75 '06/'07/'08 75 ‐ 87 '05/'06/'07 87 ‐ 99 '04/'05/'06 99 ‐ 111 '03/'04/'05 Ratio of Incremental Closed Indemnity Claims to Prior Open Indemnity Claims 2nd Previous Previous Latest % Diagonal:

Source: WCIRB Quarterly Calls for Experience

47

California Workers Compensation Reform: What Should We Expect Next

Overview

• Pre-SB 863 Environment
• SB 863 Summary
• Post-SB 863 Trends
• What’s Next

48

California Workers Compensation Reform: What Should We Expect Next

Current Activity

• Fee Schedules to be Adopted – Interpreter, Copy Services, Home

Health

• Pending Legal Challenges – Lien Fees
• Legal Cases of interest

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California Workers Compensation Reform: What Should We Expect Next

Recent California Workers’ Compensation Legal Cases of Interest

• Dubon-On 2/27/14 WCAB ruled that if a utilization review (UR) is

untimely or suffers from material procedural defects of a material nature that the medical decision on the matter should be decided by the WCAB. SCIF filed a Petition for Reconsideration and accepted

• n 5/22/14 granting such.
• Impact: SB863 intent was to reduce costs of legal proceedings in

the UR/medical decisions and that final decisions for medical necessity would be determined by the IMR process. If Dubon is allowed to stand it could result in higher medical legal costs and longer tail on medical claims.

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California Workers Compensation Reform: What Should We Expect Next

Recent California Workers’ Compensation Legal Cases of Interest

• City of Sacramento-ALJ ruled in the initial proceedings that a claim for

plantar fasciitis should not result in an impairment rating because it was not “complex or extraordinary condition” as required under Almaraz/Guzman II. On second level appeal the City argued that a condition that had no

• bjective findings would not be “complex or extraordinary condition” and

should not be used for the impairment rating. The Third Court held that this condition which is manifested by subjective findings was poorly understood and would qualify as a “complex or extraordinary” and allowed the impairment rating for plantar fasciitis. – Impact: There are certain medical syndromes that are subjective in nature and difficult to prove or disapprove that could now receive impairment ratings and increase indemnity costs.

51

California Workers Compensation Reform: What Should We Expect Next

Recent California Workers’ Compensation Legal Cases of Interest

• Stevens-One of the first challenges to the validity of the IMR process.

In the original case UR denied the treatment request and upon review by IMR the denial was upheld. The injured worker challenged the IMR process on grounds of due process, the right to a fair hearing, the right to cross examine the reviewer, and no meaningful judicial review because there is no ability to contest the opinion of the anonymous reviewer. District Court of Appeals denied the request for review.

• Impact: This is likely going to be one of many challenges to the legal

validity of the IMR process. If the IMR process upholds the denial of the treatment in UR, this denial is valid for 1 year. If the IMR process would be found to be improper, it could cause increased costs and uncertainties what treatment can be denied and upheld.

52

California Workers Compensation Reform: What Should We Expect Next

Recent California Workers’ Compensation Legal Cases of Interest

• South Coast Framing-WCAB affirmed a decision that an injured

employee died as a result of medications he took while treating for an industrial injury. The District Court of Appeals over turned the decision and found that the applicant had failed to establish a causal connection between the injured party’s death of overdose of medications and the industrial injury. The case has been appealed to the Supreme Court and they accepted review and a decision with be forthcoming.

• Impact: The issue will likely be is the burden of proof one where the

alleged issue was a “material” factor contributing to the death or is it a lesser standard of “contributing” cause. If the court finds the lesser standard, higher costs of having to pay death benefits could be anticipated on cases where the death occurs after an industrial injury then is occurring now.

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California Workers Compensation Reform: What Should We Expect Next

Overview

• Pre-SB 863 Environment
• SB 863 Summary
• Post-SB 863 Trends
• What’s Next
• Q/A

54