More Penalties Won't Improve Claims Administration

Saturday, September 23, 2006 | 0

By Dennis Knotts

The administrative director of the California Division of Workers' Compensation has once more released the utilization review penalty regulations for public comment. The reason for this re-release is the number of complaints received in a June 9 public hearing in Oakland.

There are some issues that need to be considered. Having been involved in the workers' compensation industry for more than 20 years as a claims person and having represented previous work comp claims operations in the various public hearings on regulations as far back as Casey Young's time as administrative director, it appeared that the function of the public hearings was to address problems that new regulations might create because someone did not take into account other sections of the Labor Code or regulations, or that some regulations might create more problems than they solve.

Now it seems that regulations are being created and changed to satisfy various parties in the workers' compensation system. We should now pause and ask if this is really the intent of regulations.

You cannot please all of the people, and so no matter which set of regulations you create, there will always be someone who is unhappy.

The function of regulations should be to create procedures to guide the industry in how to implement the Labor Code.

With this thought in mind, we need to take a look at Labor Code Section 4610, which was created because the Legislature was under the impression that claims adjusters were making medical decisions. This was a misconception and the reality was that when a physician's office called and asked claims adjusters, "Will you authorize ...?" it was always understood that this was an abbreviation of the question, "Will you authorize payment for this procedure?" It never fell to the claims adjuster to determine if someone needed a medical procedure, only if the claims adjuster was going to raise an issue over payment. This is vastly different from a claims adjuster deciding that an employee needed, for example, a hernia operation.

As a result of this misconception, the Legislature created mandatory utilization review. This procedure does not take into account any legal issue or issues of reasonability, such as the cost of the procedure. These are all non-medical issues and are just as valid as medical issues on the file.

The procedure was that if a claims adjuster were going to delay, deny or modify any request for medical treatment, the request had to be given to a physician who was competent to answer the question of medical necessity. The decision must be made within five to 14 days of the receipt of the request.

Now, into this process, the administrative director introduced a vast amount of procedures, mandatory statements, mandatory decisions, mandatory language and mandatory information. Four new benefit notices were created to approve, deny, delay or modify the request for treatment.

Add to this the effort of the Workers' Compensation Appeals Board (WCAB) to by-pass the presumption of correctness of the American College of Occupational and Environmental Medicine (ACOEM) guidelines through the Sandhaugen cases. When California State Compensation Insurance Fund sought to litigate the need for treatment in the first Sandhaugen case, it was told that the utilization review report was not admissible as evidence because it was not timely. This was never a penalty under the Labor Code, but it seems the WCAB created a new penalty. We now need to ask if the WCAB has the legal authority to add to the Labor Code and to create penalties and restrictions the Legislature did not place in the Labor Code.

The WCAB ignored the Labor Code sections in place. Even though this was not the decision of the treating physician and it was more than 20 days from the physician's decision (both requirements under Labor Code 4062), the WCAB sent State Fund back to get a qualified medical evaluator (QME) opinion.

Sandhaugen II now comes along where the WCAB rules that the utilization review report cannot be sent to the QME. Again, this ignores the Labor Code section that gives the employee the right to object to any non-medical documents. The Labor Code does not give the employee the right to challenge or object to any medical evidence being submitted to the QME. However, the WCAB says the utilization review report cannot be sent even though it addresses medical evidence, medical reports medical opinion and was created by a physician.

The message we are seeing from the WCAB and from the administrative director is that although utilization review is now mandatory, if the claim operation dares to use it, there will be penalties assessed. The administrative director has now made it so cumbersome and burdensome that many choose not to use it at all.

It would seem realistic to those of us in the trenches, having to use utilization review every day, that it would be better to seek a way to streamline the utilization review process to make it more user friendly. If utilization review was a product the administrative director were trying to market and sell as it is today, no one would buy it. Unfortunately, the legal decisions, the utilization review regulations and now the proposed utilization review penalty regulations are making the utilization-review process the problem and not the solution.

If we are seeking to provide benefits in a timely and accurate way, it would make sense to remove the obstacles keeping us from that goal, not add more to the roadblock.

I was with a company in 1991 that was part of the first DWC Audit Unit audit. The company was hit with a $29,000 penalty. Most of them were contested and the final penalty was $5,000, but at that time this was the second-worst audit result in the industry. In 2000, I worked for another company that went through an audit and the final penalty was $69,000. This was not considered unusual.

Correct me if I am wrong, but wasn't the purpose of the Audit Unit to ensure that benefits were being provided timely and accurately? So how can the industry digress in nine years to where $69,000 in penalties is not noteworthy of poor performance, but is acceptable in the industry?

Obviously the auditing of files by the Audit Unit is not correcting the problem. Obviously the increase in penalties is not forcing claims operations to improve their benefit-delivery processes. In short, it would seem that increasing penalties simply sends the message that we can have as poor of a claims operation as we want, so long as we pay the penalties and fines attached. I do not think that was the policy the Legislature intended.

The positive side of all this is that the administrative director is collecting a lot more money for various funds and accounts by the Audit Unit's actions. These new penalties will add to that dollar amount, but there is nothing to correct the problem of quality of claims handling.

I conducted two time and motion studies in a claims operation in 2003. Using two different methods and using highly productive claims adjusters to skew the results in favor of management, it was found at that time a claims adjuster should have a caseload of between 111 to 115 files in order to perform all the work, forms, notices and payments required on a claims file. That was before Senate Bill 899 was passed on April 19, 2004.

A quick study showed that 11 new tasks were added by the passage of SB 899 alone. This does not include all the additional tasks, notices, forms and time frames created by the new regulations since the passing of SB 899.

To date, the only official word on caseloads came from the Audit Unit in 2000, when they unofficially suggested that adjusters should handle no more than 150 files. That was three reforms ago. What should it be today?

If the administrative director wants to salvage the collapsing claims industry, a set of maximum caseload levels need to be created. So why hasn't the administrative director or the Insurance Commissioner done this? The Insurance Commissioner created a minimum level of training for the claims adjusters. Why not create a work environment for claims adjusters with maximum levels of caseloads and minimum levels of clerical support to ensure the job is done?

If all the administrative director and the Insurance Commissioner are doing to correct these problems is to increase penalties and fines, it seems that it is just sending a message that they are only seeking to take advantage of the chaos and poor working conditions in the claims operations to increase funds for their accounts.

I would suggest that their function should be to improve the conditions in claims operations and the quality of benefit delivery directly and not leave this to insurance carriers and claims operation managers who are proving that they cannot do the job, and have a vested interest in keeping their operating expenses down.

With regards to the utilization review process, why not dump all the forms, notices and other actions in the original regulations and set up a program where the treating physician deals directly with the utilization-review physician? Why not put the burden on the utilization review companies to move all of their operations back to California and use California licensed physicians where there the California Medical Board can supervise and discipline any physicians do not respond timely and follow medical standards of care?

Put back into the mix that there may be some times when medical issues are over-ridden due to legal issues. Workers' compensation is not a "pure medicine" system but it is a medical/legal system. It is based upon contracts (policies) and laws (the Labor Code) and in this industry medical issues are raised from time to time.

Rather than increasing the number of penalties and the price of penalties, perhaps the Administrative Director should work with the Insurance Commissioner to put various claims operations into a probationary status if they are not doing their job, and have the state dictate their regulations and operations until they do improve their benefit-delivery process to meet state standards. This way, those who are doing good claims handling will not be pulled down by those who are not.

Lastly, I am sorry that so many are unhappy with the current system, and that so many injured employees came forward to voice their disapproval. I know that not all claims operations are doing a good job, and when a claims operation does not do a good job, injured workers suffer. But the administrative director needs to realize that these people are free to voice their complaints, but the claims adjusters cannot rebut them because of claims confidentiality.

So there is no way to determine how many problems were due to poor claims handling, how many may have been pre-existing condition, how many may be due to poor physician treatment, or how many may have issues of credibility or other legal issues delaying the treatment. In short, it is inappropriate for the administrative director to change regulations based solely upon dissatisfaction that cannot be properly investigated.

The focus should be on the quality of benefit delivery, and should not be the focus of more fines and more penalties. The message has to change. The current message of "It's OK to do poor benefit-delivery so long as you pay the penalties and fines" must be changed into "The administrative director will no longer tolerate poor claims operations that do not do the job of benefit delivery." Put the auditors to work finding these claims operations and forcing them to change. Don't give them the option of paying a penalty or fine for poor performance. Make them perform to the level of industry standards or don't let them handle claims.

Dennis Knotts has been an instructor at the Insurance Education Association since 1991. -------------------------------

The views and opinions expressed by the author are not necessarily those of workcompcentral.com, its editors or management.