Young: 2016 California Workers' Comp Top 10 List

Friday, January 13, 2017 | 0

Now that 2016 is done, it's time to look at the top 10 developments in California workers’ comp during the year.

Julius Young

This post updates my July 2016 list of top developments and reflects events through the close of the year. Here are the events and trends that stood out in 2016:

1. DWC regulatory activity continued, although at a slower pace than prior years. 

The primary 2016 regulatory developments were the adoption of medical treatment utilization schedule chronic pain and opioid guidelines (in effect as of July 2016) and the ongoing development of a prescription drug formulary. After a February forum on the formulary and a midyear interim report on its creation, in August 2016 the Division of Workers' Comp posted a draft formulary online. With the DWC required to meet a July 2017 statutory deadline for operation of the formulary, rule-making will begin early this year. Guidelines on occupational asthma and MTUS mental illness/stress were the subject of DWC forums during 2016, but not yet at the formal rule-making stage. Further proposed amendments to draft home health care fee schedule regulations were posted in September but apparently not finalized in 2016 (and curiously, are no longer on the DWC website as of this posting). And at year’s end the DWC forwarded to the Office of Administrative Law proposed emergency rules to comply with AB 1244, which requires that fraudulent doctors be suspended from participation in the comp system.

2. 2016 was a relatively slow year for workers’ comp in the California appellate courts.

Cases that stood out for special mention included the following:

• King v. Comppartners Inc., where the California Supreme Court has granted a hearing following a Court of Appeal decision in an appeal from a dismissal after demurrer in a tort case. In King, the 4th District Court of Appeal held that the plaintiff could file an amended tort complaint and that a utilization review physician who rejected certification of Klonapin (a medication that if abruptly curtailed could have severe consequences) may owe a duty to the injured worker. Extensive amicus briefs on the case have been filed with the Supreme Court, but no argument was set as of the end of 2016.
• Travelers Casualty & Surety Co. v. WCAB (Dreher), where the Court of Appeal held that a slip and fall on a wet concrete walkway was not a “sudden and extraordinary” event exception under LC 3208.3(d), so that worker employed for fewer than six months was barred from entertaining a psychiatric compensable consequence claim.
• Rodas v. WCAB, a death case where the Court of Appeal rejected a Workers' Compensation Appeals Board panel determination that had overturned the workers' compensation judge’s opinion that the death was industrial. The WCAB panel had held the unwitnessed arterial bleeding death non-industrial, concluding that a physician’s opinion was based on surmise, speculation and conjecture. The court found that the determination of causation by the medical expert was based on reasonable circumstantial evidence, and met the death causation standard of the 2015 case South Coast Framing v. WCAB.
• Matthews v. Liberty Assignment Corp., where the Court of Appeal upheld a superior court decision denying assignment of structured workers’ comp benefits to a factoring company.
• Larsen v. Securitas, where a worker’s injury from being struck by a vehicle was deemed a “violent act” so as to come within the exception to the ban on compensable consequence psych claims for post-Jan. 1, 2013 injuries.
• Capital Builders Hardware v. WCAB (Gaona), where the 2nd DCA annulled a writ of review on the basis that a WCAB order without prejudice on admissibility was not a final order, and remanded to the WCAB in a case involving issues of admissibility of a panel qualified medical evaluator report when there were allegations of ex parte communications.

There are a number of other cases listed on the WCAB’s website where writs have been granted but no appellate decision rendered yet.

3. Many California employers continued to enjoy reduced rates in 2016. 

Although a number of variables determine the rates California insured employers pay for workers’ comp coverage, rates continued to decrease for many. In December 2016 the Workers' Compensation Insurance Rating Bureau noted that the average charged rate decreased 7% as of the third quarter of 2016 when compared to the first half of 2016 ($2.65 per $100 of payroll vs. $2.89 per $100 of payroll for the first quarter), and 13% less than the average charged rate for the first half of 2015.

In May 2016, Insurance Commissioner Dave Jones approved an advisory 5% “pure premium rate” reduction, recommending a non-binding rate of $2.30 per $100 of payroll. Jones also noted that the workers’ comp insurance market was healthier, insofar as in 2015 the “combined ratio” was 99%, a level that had not been reached since 2007.

Thereafter, in August 2016 the WCIRB recommended to Jones an advisory pure premium rate (for 2017) of $2.26 per $100 of payroll ($0.28, or 11%, less than the industry average filed pure premium rate of $2.54 per $100 of payroll) and which would be $0.06, or 2% less, than the $2.32 mid-2016 advisory pure premium rate. Among the factors leading to reduced rates mentioned by the WCIRB was “favorable loss development” (including lower-than-expected medical loss development and medical loss severity) and increases in forecast wage growth due to an expanding California economy.

In October the WCIRB filed an amended 2017 rate recommendation, asking that an advisory rate be set at $2.22 per $100 of payroll.

On Oct. 27,2016, Jones adopted a proposed decision and order of Department of Insurance counsel Patricia Hein, thus setting an advisory rate of $2.19 per $100 of payroll. As Hein’s decision noted, the term rate can be confusing, since it measures claim costs rather than what rate insurers may charge. And indeed, at midyear 2016 insurers were using an average rate level of $2.54 rather than the WCIRB-recommended level of $2.22.

Putting the apples-to-oranges comparisons aside and factoring in the reality that what many employers pay is affected by discounts, claims experience and other factors, the bottom line is that generally, rates were not trending higher. This will undoubtedly make the governor and California businesses happy.

What continues to be troubling, however, is the administrative costs of the system. According to the WCIRB’s 2016 “State of the System,” out of a 2015 system cost of $16.8 billion, 18% of the pie was taken by the cost of administering claims, and another 18% by general expenses, taxes, commissions, etc. Therefore, the system was paying out only 64% to workers (i.e., 27% of system costs went to indemnity payments, and 37% to medical expenses).

4. Concerns continued about the operation of the $120 million Return to Work Fund.

In April 2016, the DWC held a public hearing on what changes might be needed for the fund, created during the SB 863 negotiations to compensate workers with disproportionate wage loss. Statistics had shown that the fund is underutilized, and applicant attorneys believed that the fund was under-publicized and difficult to access. In late October the DWC held a public hearing on a proposed modification to the fund’s eligibility for workers who were issued a supplemental job displacement benefit voucher prior to Dec. 1, 2015.

In December 2016, State Sen. Tony Mendoza wrote to the Commission on Health and Safety and Workers' Compensation, asking that it conduct a review of the RTW Fund, focusing on whether there is a gap between the number of workers who were awarded supplemental job displacement vouchers and the number who applied for the RTW fund, “and if such a gap exists, if the gap is growing or shrinking over time.”

5. Prominent figures passed from the workers’ comp scene in 2016.

Change occurs due to death, resignations, new hires and other types of attrition.

Two individuals widely regarded in the California workers’ comp community passed away in 2016. In May 2016 the death of former DWC Administrative Director Rosa Moran was announced. At the time of her death, Moran was on medical leave from her post as a WCJ in Oakland. And in July 2016, the comp community was shocked by the sudden demise of WorkCompCentral publisher David DePaolo.

Departing their posts this year were DWC Administrative Director Destie Overpeck (replaced by George Parisotto, who became acting AD) and WCAB chairperson Ronnie Caplane. At year’s end, Gov. Jerry Brown had still not filled two vacancies on the WCAB, including the chairperson slot.

A new chief judge, Paige Levy, was appointed in January 2016. And a new executive medical director, Dr. Raymond Meister, was appointed in May 2016.

Also leaving the workers' comp scene in 2016 were a number of physicians whose qualified medical evaluator status was not renewed by the DWC for various reasons. Dozens were notified of this over the summer in letters from the DWC.

6. UR and independent medical review continued to generate some controversy.

System medical costs were on a downward trend, with the WCIRB actuary noting in December 2016 that medical service payments had dropped 7.3% from 2013 to 2014 and then dropped 5.4% from 2014 to 2015. An October 2016 WCIRB report on 2016 insurer experience noted that the projected average medical cost of a 2015 indemnity claim was 9% below the projected average medical cost for 2011, “largely a result of medical cost savings arising from SB 863."

Cost-containment costs continued to be a rising concern, however. In October 2016, the WCIRB noted that “the projected average [allocated loss adjustment expense] cost of a 2015 indemnity claim is 20% higher than the average ALAE severity for 2012, despite forecast reductions in ALAE costs expected to arise from SB 863.”

IMR was costly, as approximately 40,000 eligible IMRs were filed each quarter of 2016, costing an estimated $62.5 million for the year. Around 85% of the time, IMR upholds the UR denial. The WCIRB noted that a number of SB 863 components contributed to medical costs per claim that were flat or declining, and concluded that though it was not possible “to isolate the impact of IMR on the utilization of medical services,” it was “clear that IMR as well as the other SB 863 components have had a significant impact on medical treatment levels and medical costs.”

But numbers that might look good to employers and insurers continued to enrage many injured workers and their advocates. Allegations of UR gone amok generated headlines. In late 2016, the press began to cover problems that victims of the San Bernardino terrorist attack were having with UR denying the treatments they needed. Firefighters in San Jose, Stockton and Rialto used a variety of methods to attack third-party administrators they alleged were failing to approve treatments their members need. Earlier in the year, it was revealed that Sedgwick Claims Management had paid fines of more than $1 million to resolve administrative penalties over UR handling in one of its offices.

7. Concerns about fraud and abuse continued to plague the comp system. 

There are various types of workers’ comp fraud, including employer premium fraud. But a 2016 series by the Center for Investigative Reporting gained much attention as it painted a picture of widespread medical provider fraud and abuse. As in the past several years, there were high-profile indictments and some plea deals, including Michael D. Drobot, former state senator Ron Calderon, and several rings of physicians and chiropractors in Southern California. And as of August 2016, it appeared that convicted or indicted physicians were pursuing more than $600 million in liens.

As a result of these concerns, legislators called for a state audit or CHSWC investigation. Those requests were withdrawn after the Brown administration assembled a June 2016 group of comp community stakeholders, district attorneys, representatives of the California Department of Insurance and others. Following up with focus group meetings, the DWC developed a plan of action, as SB 1160 and AB 1244 wound their way through the legislative process toward eventual signature by the governor.

8. 2016 turned out to be a significant legislative year for workers’ comp.

Brown again demonstrated that he would wield a veto pen, nixing AB 1642 (aimed at fixing alleged gender discrimination in certain ratings and apportionment); AB 2086 (aimed at restoring neuropsychology as a QME specialty); and AB 897 (additional year of full salary for certain safety officers in the event of a catastrophic injury).

But there were several significant bills that were signed by the governor. The most significant are AB 1244, which effectively suspends various medical providers and vendors who have been convicted of fraud or abuse in state and federal health care systems from participating in the California comp system. At year’s end, the DWC promulgated emergency regulations to implement the bill. Formal rule-making will be undertaken in 2017. Also at year’s end, the DWC promulgated a new attorney disclosure form (DWC-3), which must be executed by the applicant attorney, who must now certify he or she has discussed the form and venue with the claimant.

The other major bill was SB 1160, which amends as many as 12 sections of the Labor Code. The bill has far too many components to list in detail here, but among its key provisions are:

• For post-Jan. 1, 2018, injuries, a provision for a loosening of prospective UR (for some but not all types of treatments and procedures) during the first 30 days from injury.
• Financial incentives for UR denials are prohibited.
• Cross referrals to entities in which the insurer or TPA has a financial interest are banned unless previously disclosed to the DWC.
• Formulary disputes are to be covered under IMR, and IMR timelines are set forth.
• MTUS updates are exempted from the complete formal rule-making process.
• Liens claims of physicians charged with fraud are stayed while their criminal case is pending.
• A declaration under penalty of perjury is added to lien filing requirements.
• Lien assignments are prohibited except under specific circumstances.
• The DWC is required to set a range of reasonable attorney fees for depositions.
• Interpreter credentialing is to be regulated by the DWC by Jan. 1, 2018.

Other notable bills that were signed by Brown include the following:

• AB 2503 (requires rule-making on where the primary treating physician is to send the request for authorization form).
• AB 2883 (requires that corporate officers and directors own 15% of stock before being excluded from comp coverage).
• SB 482 (requires physician to check the prescription drug monitoring database before prescribing and renewing certain controlled medications).
• SB 1175 (requires employers to accept electronic bills and places a 12-month requirement on bill submission).
• SB 914 (deletes authorization to use American College of Occupational and Environmental Medicine guidelines as IMR standards).

9. Although not actually California workers’ comp stories, the advance of marijuana legalization in California, the ongoing expansion of the gig economy and likely changes to "Obamacare" all have implications for California’s system.

Last year will be remembered as a year that marijuana legalization made big inroads in California. Prop 64, the “Adult Use of Marijuana Act,” aims to bring the marijuana market above ground. Federal legality concerns continue, and marijuana is not currently supported by MTUS. But pervasive above-ground distribution and usage of marijuana will probably increase the likelihood that the substance gets intertwined in comp case issues.

Meanwhile, there is still no definitive answer as to whether many of the gig economy workers will be treated as employees or independent contractors for comp purposes.

And the Republican trifecta under a Trump presidency is almost assured to create some further disruptions in the health insurance markets. This may make some workers think twice about settling their medical awards rather than keeping medical open.

10. Studies continue to provide data that may become fodder for future changes in California’s system.

Here is a roundup of some of the major studies that were published in 2016:

• From CWCI, “Trends in the Use of Opioids in California Workers’ Compensation System;” “1st Quarter 2016 IMR Outcomes;” “California Workers’ Comp Claim Monitoring, Medical & Indemnity Development AY 2005-2014;” “Inpatient Hospitalization Utilization in California WC 2008-2014;” “The Changing Nature and Cost of the Medical-Legal Process in California WC;” “Impact of the RBRVS Schedule;” regional analyses of comp claims in Los Angeles, the Central Valley, and Inland Empire/Orange County;" and “Cumulative Trauma in California Workers’ Comp.”
• From Rand, “Benefits and Earnings Losses for Permanently Disabled Workers in California: Trends Through the Great Recession and Impacts of Recent Reforms.”
• From WCIRB, “Analysis of Changes in Indemnity Claim Frequency: January 2016."
• Another from WCIRB, “Report on 2015 California Workers’ Compensation Losses and Expenses.”
• Also from WCIRB: “Senate Bill No. 863 WCIRB Cost Monitoring Report-2016 Retrospective Evaluation.”
• One more from WCIRB, “2016 State of the System.”
• From Center for Investigative Reporting, a series of articles that can be found here, here, here and here. 
• From UC Berkeley LOHP, “Aging in the Workplace.”

You can find my 2016 midyear Top 10 list here.

Check back soon for my annual workers’ comp quiz on the likely occurrences in the system in 2017. As always, you can subscribe to the blog by entering your email in the “sign up” box on the upper right corner of the blog.

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