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Why California Workers’ Comp Is So Hard to Manage: A Snapshot of the 52nd Annual CWCI Conference

March 25, 2016 (8 min read)

If one was trying to track hot topics and trends in California workers’ comp, a good place to start would have been a recent March conference in Oakland attended by many prominent stakeholder representatives.

Oakland’s Marriott Hotel was the site of the recent 52nd annual meeting of members of the California Workers’ Compensation Institute. This meeting, open to members and invitees, featured commentary on recent CWCI research and a panel on identifying and reducing frictional costs.

CWCI produces a steady stream of research reports and along with RAND has been a source of ideas that have been adopted in some of the periodic comp reforms in California. Recent CWCI studies have focused on the cost of the Medical-Legal process, the IMR system, the cost of drug testing, ICD-10s, and MPN networks.

What follows is a snapshot of some of the more important or intriguing things that this observer heard in the conference presentations.

Kicking off the conference was CWCI Senior VP Rena David, who referenced many research charts and noted that according to CWCI’s research methodology:

-inpatient hospital rates have declined

-spinal surgeries declined 8.4% in 2013 and 13.6% in 2014

-MPN network costs per claim are lower than non-network claims

-medical-legal costs reflect a continuing shift from flat fees to time based services

-pharmacy as a percentage of all medical benefits has been climbing but flattened in 2013

-opioid prescriptions and payments have trended downwards somewhat since 2009

-most of the savings from using generics over brand name meds has already been realized

-medication unit pricing is an issue given large unit pricing variations

-urine testing skyrocketed between 2007 and 2014 as did the associated costs

-almost 85% of medical services are said to be paid with no RFA

-in 2015 88.6% of UR denials/modifications were upheld and 11.4% overturned

-in 2015 pharmacy issues accounted for 49.6% of IMR decisions

-a small number of medical providers accounted for a large percentage of IMR disputes, and many of these are in the Los Angeles area

Following Ms. David was CWCI President Alex Swedlow, presenting on “The High Cost of Delivering Benefits”. Among his key claims were these:

-liens are down, there are fewer spine surgeries, fewer opioids, and the medical trend is down, but in a national comparison California is high in rate, frequency and expense categories

-loss adjustment expenses are much higher than other western states or large states

-there is little relationship between medical fee schedules and medical costs per claim, but there is a correlation between attorney involvement and comp costs

-citing a Chamber of Commerce 2015 lawsuit climate survey, some of the high loss adjustment costs are said to be related to the legal environment and some to “unexplained deviation”

-of overall California benefit delivery expense, 41% is medical cost containment, 31% defense attorney costs, 11% medical-legal costs and 11% “other”

-compared to other states, California is #2 in attorney involvement, #1 in claims with medical cost containment, and #4 in medical cost containment cost per claim

-based on WCIRB figures it is estimated that of overall costs in 2016 , indemnity is 24%, medical 37%, loss adjustment expense 21% and other expense 18%

-administrative costs for SDI are 4%, 2% for SSDI, 20% for California group health (target), but 39% for workers’ comp

-from 2002 to 2013 medical cost containment costs rose by 269% and the proportion of costs associated with utilization review has more than doubled since 2002

After presenting these figures, Swedlow raised the issue of why California workers’ comp is so hard to manage. Calling UR both essential and costly, he argued that without “shared risk” (such as co-payments and deductibles) UR is one of the few options for cost control. In that context, he noted that while some stakeholders feel UR/IMR has over-reached, change in UR may occur but elimination is not likely. One option he suggested was shared risk, presenting various slides comparing fee for service systems with pay per performance systems and systems that blend capitation payments with provider incentives. Another option would be payment based on bundling medical “episodes’ or straight capitation reimbursement based on patient numbers.

Wrapping up his presentation, Swedlow noted that there are many factors that lead to problems in the system. Employers have misconceptions about HIPAA and about return to work. Injured workers may mistakenly believe that more is better when it comes to tests and care. Declining worker loyalty and increased job dissatisfaction as well as co-morbidities influence some claims. Outsourcing by employers leads to lower job loyalty. Providers are affected by the growing influence of pain management and pharma. Payors find themselves dealing with increasing complexity and “sub-optimal communication with workers.”

An afternoon session was presented by David Bellusci, Executive VP and Chief Actuary of WCIRB California and Rena David of CWCI. The focus was on documenting the outsized number of costly claims originating in the Los Angeles metro area and how claim frequency and other claims measures there differed from other regions in the state. Much of this was a rehash of a widely distributed November 5, 2015 WCIRB study of geographic differences in claims costs that is available on the WCIRB website.

And there was a presentation by Bellusci and Ms. David on the preliminary results from a joint CWCI-WCIRB study on cumulative trauma claims.

So how to address some of these trends? That was the topic of a lightning round panel discussion “Identifying & Reducing Medical & Legal Friction Costs.”

Participating were DIR Director Christine Baker, Katherine Mueller, Medical Director of the Colorado DWC, defense attorney Saul Allweiss, Dr. Roman Kownacki of Kaiser Permanente, Dr. Jill Rosenthal, Senior VP and Chief Medical Officer of Zenith Insurance, and Julius Young of Boxer & Gerson LL, the author of this article.

Baker’s presentation highlighted some general ideas for reducing friction costs. In process are revisions of MTUS, development of several fee schedules and the design of a medications formulary. Among a number of things also in process are efforts to combine the RFA form and the PR-2, establishment of online portals/filing options including one for the Return-to-Work Supplemental Fund, translation of materials required under AB 438, and info on MTUS for doctors.

Future areas of emphasis were noted in one of Baker’s slides to include streamlining and reducing unnecessary UR, “elevate transparency of information and documentation of diagnosis and MTUS alignment to expedite provision of care”, and exploration of electronic IMR and UR issues. She also indicated interest in “getting to the root cause” with respect to medical cost containment.

Adding a different slant to the panel discussion was Ms. Mueller, the Colorado Medical Director. Colorado has UR, but a variety of different rules that make it a bit more flexible and user-friendly. UR physician reviewers are expected “to consider the ramifications of their decision on the entire case process”. Mueller’s slides noted for example that if a surgical procedure was not generally recommended but the only logical next step was surgery, the reviewer may logically approve the procedure. Colorado apparently allows some flexibility for things such as physical therapy if functional progress is shown even though the treatment is beyond guideline limits. Medical reviewers must be Colorado licensed, accredited, and take a short course and test that covers guidelines and Colorado rules.

Prominent Southern California defense attorney Saul Allweiss provided some comic relief, bringing to the podium a stuffed critter known as “Larry the lien collector” whose motto is “I will accept 50% on any lien any time, anywhere”. Over the years “Larry” represented medical-legal mills, chiropractic mills, acupuncture mills, ambulatory surgery center mills, and pharmacy compounding and repackaging mills. “Larry”, Allweiss noted, is expert at the Whack-a-Mole game, using his resourcefulness to exploit technicalities in the law to maximize profit. Allweiss cautioned the audience against making changes in the law such as IMR changes that might create profiteering opportunities for Larry and his ilk.

Dr. Rosenthal’s presentation focused on how lack of communication between doctors, workers, carriers, employers and UROs triggers disputes. Also triggering disputes are misperceptions and stereotypes, lack of knowledge, and misaligned incentives. Calling for increased transparency, she sounded an optimistic note, calling on parties “to never lose sight of the truth and the power of the workers’ comp system to take care of injured workers”. Specifically, she suggested that carriers recognize a subset of their MPN as providers who do not require preauthorization. And she suggested that carriers identify some procedures that are exempt from formal UR.

Your author, Julius Young, noted that based on WCIRB figures for 2015, the ratio of claims adjustment expenses to benefit payout was 28.2%, the highest in the USA. The percentage of the “medical dollar” spent on actual treatment has been decreasing (from 81.8% in AY 2002 to 66% in AY 2012, for example) as cost containment expense rose. The loss expense to loss ratio may be as high as 35% in 2016. This is a problem that can’t be ignored. Recent figures show lien filings are up significantly.

Attempting to provide specific measures that could be undertaken to reduce frictional costs, I noted over sixty possible actions which could be taken, such as actions under the following big headings: creating roadblocks to bad behavior, tightening advertising restrictions, conducting further studies to answer specific concerns about MPNs, cost shifting, UR and IMR quality and effects on RTW and TD duration, focusing on education of UR and IMR docs and MTUS education for treating doctors, changes in the QME process, RFA changes, UR reform, and IMR reform. Readers may wish to look at my article titled “Taming the Beast” to see the specifics of the suggestions on these broad headings.

Dr. Kowanicki, who heads the occupational health program at Kaiser Permanente in Northern California, delivered a mixed message on UR and IMR, noting that doctors in the Western Occupational and Environmental Medical Association had reviewed IMR decisions and agreed 80% of the time, noting that some abusive or useless care was blocked. But the WOEMA doctors believed that the other 20% of the time there was an overly rigid application of treatment guidelines. Kowanicki noted that there needs to be a look at the trajectory of the case and posed the question, who reviews the reviewers? Kowanicki also noted that there is a need for more transparency so that workers can choose the best treatment. For example, the state of California Office of Patient Advocate runs a website where patients can rate the care they are getting from their medical group.

That’s a snapshot of the conference. It won’t be surprising if we see some of these themes continuing to arise in research, regulations or legislation. The one thing we know about California workers’ comp? It’s not static.

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