The AIA’s Positions on Workers’ Compensation Issues— Medical Costs, AMA Guides Sixth Edition, State Funds, and California’s Left Coast Litigation: Taking a Hard Look at the Ball of Confusion

The AIA’s Positions on Workers’ Compensation Issues— Medical Costs, AMA Guides Sixth Edition, State Funds, and California’s Left Coast Litigation: Taking a Hard Look at the Ball of Confusion

 By Karen Yotis, Esq.

When Norman Whitfield and Barrett Strong penned “Ball of Confusion (That’s What the World Is Today)”, they could hardly have anticipated that the political anthem the Temptations recorded in 1970 would mirror the state of our country’s workers’ compensation system 41 years later. But in a nation with 50 states—and 50 different workers’ compensation systems —(not to mention D.C. and the federal workers’ comp system)—the ball of confusion analogy is, well, right on.

The American Insurance Association cuts through some of the morass in its article “States of Confusion,” published in the winter 2011 edition of AIA Advocate. The piece describes the new and unique challenges that most states face and outlines the ways that AIA (which is in many respects the Great Googa-Mooga of the P&C industry) fights to keep the workers’ compensation rules simple for insurers and employers.

Like the lyrics to the song, workers’ compensation has lately been all about ‘aggravation, demonstration and obligation to our nation’, but the AIA article narrows the whole hot mess down to two main employer-specific issues: rising medical costs and legislative raiding of the “surplus” money in state funds to address budget shortfalls.

Reigning in Medical Costs

The article points to a number of proposed solutions to bring medical costs in check. With ‘the sale of pills at an all-time high,’ it should come as no surprise that AIA is targeting the lack of transparency in pharmaceutical pricing, the elimination of fee schedule evasions and a broader use of generics as potential fixes for this tangled skein of problems.

Fee Schedules

AIA’s long-standing recommendation that pharmaceutical costs be subject to the Medicaid-based fee schedule tailored to each state has met with a pitiful amount of support from the states. The article singles out California as the only state to adopt this approach and bemoans the failed efforts in Florida to pass fee schedule legislation, which AIA claims would have reduced overall WC costs by 1.1 percent or $34 million.

Claimant’s attorney Vernon Sumwalt, Esq., of The Sumwalt Law Firm out of Charlotte, North Carolina, offered this possible explanation for the states’ failure (or refusal) to adopt AIA’s proposed solutions:

"As a general idea, efforts to encourage efficiency in the area of medical compensation should be applauded. In practice, however, checklist formulations on how to provide medical care are insulting to providers, who are trained and educated to exercise medical judgment when rendering treatment, and typically delay needed treatment and care for work-related diagnoses. If efforts at cost-containment did not sacrifice the quality of medical care on the front lines, both employers and employees would not be so frustrated with carriers' efforts in this regard."

Closed Formularies

In addition to advocating for greater use of the pharmacy benefit managers network, AIA encourages closed formularies as another important cost containment strategy for rising medical costs. But with Washington as the only state with a closed formulary and Texas as the only other state currently considering one, it appears as if ‘nobody’s interested in learning but the teacher.’

Defense attorney Stuart Colburn, Esq., who hails from the Austin firm of Downs Stanford, clarified the status of closed formularies in Texas:

“The Texas Legislature has mandated a Closed Formulary to reduce the overutilization of pharmaceuticals ordered by some doctors. The Texas Closed Formulary will restrict access to certain drugs identified as “N” class drugs by the ODG Guidelines, the state-mandated Treatment Guidelines. The ODG Guidelines have been instrumental in reducing overutilization of medical treatment and reducing the number of medical disputes. Texas regulators implemented the Closed Formulary rules for all dates of injury on or after September 1, 2011. Unfortunately, workers injured before that date (known as the Legacy Claims) will not have the benefit of the Closed Formulary until September 1, 2013. Some also complain the regulators took away an important tool to combat overutilization of drugs such as opiates and opiods for Legacy Claims: preauthorization. Prior to January 2011, health care providers were required to seek preauthorization for all drugs that exceed the ODG Guidelines. At the same time regulators adopted the Closed Formulary rules, they stripped the preauthorization requirement for Legacy Claims. It appears Texas employers and their injured employees will not have the full benefit of the Closed Formulary until September 1, 2013.”

Sixth Edition of the AMA Guides

And let’s not forget the AMA Guides to the Evaluation of Permanent Impairment (as if we could with the AIA leading the charge in support of the much-criticized Sixth Edition). Although only 10 states have adopted it, AIA actively promotes the Sixth Edition as “the broadest medical community consensus for rating permanent impairment,” and dismisses objections to it as “largely the product of parochial interests fed by claimants’ bar views of the impact on claimant recoveries under limited circumstances, and, not coincidentally, their own wallets.” So ‘round and around and around we go, where [this issue’s] headed, nobody knows.’

Andrew J. Reinhardt, Esq., President of the Workers’ Injury Law & Advocacy Group, had this to say about the controversial Sixth Edition:

“It is not surprising that carriers and employers are anxious for all states to promptly adopt the 6th edition of the AMA guides –and before their various legislatures are apprised of the facts. And---- these are the facts--

"Consistent with congressional testing of our nation’s top experts on not just workers' compensation benefits and trends but on the AMA guides in particular (see 1) the AMA guides impairment ratings have been used as proxy for disability determinations even though admonitions in the guides themselves advise against this usage; 2) each edition of the guides has resulted in lower impairment ratings than the one before with the most recent being more of a paradigm shift; and 3) none of the guides editions are evidence based –rather they are apparently the brainchild of a very small group of physicians whose process of development of the impairment formulas has never been vetted or explained—thereby resulting in secret private ruling make which usurps the job of workers' compensation tribunals on the disability and impairment issues.

"Our research tells us that numerous states whose legislatures have examined these true facts have either rejected the 6th edition or at least postponed adoption of same for further study—including at least CO, IA, KY, NV, UT and WA. In fact , numerous other states for similar concerns still use either the 3rd or 4th edition—including AL, AR, KS, MD, ME,SD, TX and WI. Only a decided minority of states are officially using the 6th edition—despite great efforts on the part of employer/carrier interests to sell the supposed efficacy of that guide. Those who are reluctant to adopt this latest version are clearly on the right track—and in the majority. 

"Additionally, US Congress representatives George Miller and Lynn Woolsey have jointly written to the AMA requesting an explanation as to the basis for the guides, the identity of the individuals involved in creating same and the source of funding for their work. Regrettably, the AMA has been unwilling to respond.”

Other thought leaders in the industry share the WILG’s view. One of the more vocal opponents of the Sixth Edition is California applicant’s attorney Robert G. Rassp, Esq., author of The Lawyer’s Guide to the AMA Guides and California Workers’ Compensation (LexisNexis Matthew Bender). Rassp’s specific objections are that "the Sixth Edition:

·         is "consensus-derived," which means the WPI ratings are not based on any empirical scientific data or epidemiological studies. There is no correlation between any given WPI rating and the effect of an impairment on ADL functioning, let alone work functioning;

·         contains five possible ratings for each medical condition, all DRE based, with + or - 1 or 2 WPI from a default WPI rating due to pain or improvement in ADLs;

·         uses a WHO definition of ADLs that are completely different than how ADLs are defined in the 5th edition (See Table 1-2 on page 4 of the 5th Edition). This is to sell more books in Europe and, again, there is no empirical data to support a change in the definition of what constitutes an ADL;

·         lowers the ratings for heart disease and hypertension without any scientific justification; and

·         takes the position that if a condition is not listed, then it rates 0% WPI."

Like the WILG, Rassp also advocates against the Star Chamber approach to impairment ratings and suggested instead that “[s]ome neutral body, such as the Institute of Medicine, should be commissioned by Congress to develop a scientifically based (from epidemiology studies, if possible) disability schedule, such as the one used by the Department of Defense or Social Security Disability that is based on actual science to include realistic estimates of the effects of injuries and treatment on work functioning where there is a correlation between a given WPI or disability rating standard and the actual effect on a person's future earning capacity. They need to include medical specialists and keep occupational medicine out of the discussion.”

Rassp’s grim conclusion is that “This is too bad for injured workers - the ratings will be very low and unrealistic to reflect true work disabilities.”

Legislative Interest in State Funds

The AIA has been critical of various legislatures for turning to their respective state funds for the fiscal solution to their myriad budget crises. The Advocate article bemoans the presence of legislative fingers in the reserve cookie jar as seriously misguided and explains the ways in which AIA continues to fight the good fight against growing legislative interference with state funds in the following jurisdictions:

Maryland – AIA fought S.B. 507 that would allow the Injured Workers’ Insurance Fund to become a “mutual” and maintain its marketplace advantage over private carriers in exchange for $20 million from the fund by pointing out to Governor Martin O’Malley (D) how the proposed legislation would jeopardize IWIF’s solvency and place the private market’s surplus at risk.

Colorado—AIA once again battled a proposed $330 million swap in exchange for allowing the state fund to be what AIA calls “a pseudo-private mutual insurer,” by communicating to Governor Bill Ritter (D) key points that influenced the end of legislative discussions.

Oklahoma—AIA played a role in educating legislators considering changes to the state’s WC system by making sure they knew what truly constitutes a privatization of a state fund and continues to keep its eye on developments due to the broad WC reform measures that are anticipated for next year.

Kentucky—AIA continues to speak out against legislative efforts to force the state fund to declare a $40 million dividend for its policyholders in spite of a state Supreme Court decision that found transfers from the Kentucky Workers’ Compensation Funding Commission to the commonwealth’s general fund to be unconstitutional.

Arizona—AIA ultimately supported legislation that privatized the state fund by transforming it into a private mutual insurance company owned by its policyholders, with the state fund retaining its statutory standing and marketplace preferences.

Connecticut—AIA combatted a proposed “perennial” bill to create a state fund that received much more support than in years past and continues to maintain its vigil, “particularly now that the governorship has switched to Democratic.”

AIA continues also to monitor events as they unfold in Washington (where employer-sponsored efforts to open up the system to the private market were defeated by “labor union and trial bar interests that far outspent proponents”) and in Ohio (where a Republican sweep of the governorship and legislature could improve the climate for considering a restructuring of the state’s WC mechanism).

California’s “Left Coast Legislation”

Finally, the article devotes a special section to California and highlights a number of developments from the jurisdiction that writes more WC insurance than any other state. AIA decries the confusion caused by lawmakers who have attempted to overturn legislation involving increased permanent disability benefits and limiting cost containment measures such as treatment utilization review and medical provider networks “almost as soon as the ink was dry on the 2004 Schwarzenegger reforms.” AIA also categorizes increases in the use of outpatient services, pharmaceutical costs, inpatient surgery costs and pain medications and class II drugs as the primary cost drivers and speaks out aggressively against what it deems an “out-of-control” lien system.

Not everyone buys into the AIA’s version of California events. According to applicant’s attorney Julius Young, Esq., a partner at the Oakland, CA firm of Boxer & Gerson, "AIA's analysis of 'Left Coast Litigation' misses the mark in many ways, and its article paints an untrue caricature of California's workers' comp system.”

Contrary to the doomsday scenario that the AIA portrays, Young’s view is that “California is in fact open for business and its workers' comp system is not out of control. In fact, according to WCIRB statistics the average premium rate paid by employers per $100 of payroll was $2.36 in 2009 and $2.47 in 2010, down from $6.44 in 2003.”

Young goes on to explain:

“The AIA's article claims that medical costs have increased by the decision in Guzman. Yes, costs have increased, but not because of the Almaraz & Guzman cases. Medical cost escalation is a troubling trend in the U.S. healthcare system overall and in most state workers' compensation systems, not just California's. In the latter days of the Schwarzenegger administration, 12 areas were targeted as possible sources of possible cost savings. Efforts to control costs by regulations have been completed in about half or these areas; in the remaining areas, including regionally centered problems with liens, further efforts will likely be undertaken by the Brown Administration. Some of these cost control efforts are controversial to be sure. Thorny issues of the role of compounded medications and opiates in medical treatment and adjustments to physician fee schedules will likely be subject to focus by Brown's Administrative Director.

"But generally, California court decisions have upheld the validity of properly implemented medical networks and treatment guidelines. A widely cited recent decision, Valdez, may make it harder for doctor mills to game the system. Ultimately, like many state systems, California seeks to retain access to quality care for workers who depend on good care to be able to return to work.

"One area of developing concern in California's system is the increasing expense of cost-containment measures: utilization review, nurse case management and bill review. Those transactional costs have been rising and now appear to be independent system cost drivers.

"Worries that the sky is falling due to the impact of the Almaraz-Guzman and Ogilvie cases appears to have been overblown. Several years after those decisions, industry statistics have document only a modest impact on overall system costs. Court decisions after Almaraz-Guzman have limited the application of the doctrine in many cases.

"Moreover, it's worth noting that the Almaraz-Guzman and Ogilvie cases are an outgrowth of large reductions in ratings which led to major reductions in payments to workers with permanently disabling injuries. Out of concern for system costs in difficult economic times, neither the Schwarzenegger nor Brown Administration have moved forward with revisions of the workers' comp rating schedule that were mandated by law for 2010.

"It's important to remember that workers' compensation was designed as a vehicle to deliver indemnity benefits and medical treatment to disabled workers. In the years after the 2003 and 2004 California reforms, employers did benefit from reduced workers' comp costs, but insurers also reaped historically high profits.

"In the last few years the California market has tightened, but insurer requests for advisory double digit increases were rejected by then-California Insurance Commissioner Poizner, who noted that California insurers were failing to use the legal tools they already have to control costs. Insurers have consistently failed to make a credible case for large advisory rate increases. Meanwhile, actual rate increases by carriers in the market have been modest.

"All in all, "left coast litigation" is a myth. California, one of the world's largest economies, is open for business. The workers' comp market in California continues to be healthy."

In light of the political climate change sweeping across the WC industry, the AIA will continue to gear up to protect the measures that have improved the system for insurers and employers.

And the band plays on . . .

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