The following chart and table show a significant increase in Applications
for Adjudication of Claim received by the Division of Workers'
Compensation in 1994 and 1995.
This increase may be temporary and the result of a change in legal
During the so-called "window period" from January
1, 1991 through December 31, 1993, the claim form completed by
the injured worker and submitted to the employer was the jurisdictional
document which started all formal proceedings, including discovery,
statute of limitations, depositions, subpoenaing medical documents,
etc. During this window period, the number of formal applications
filed with the WCAB declined.
Starting January 1, 1994, a formal application filed with the
WCAB was required to establish jurisdiction and commence proceedings.
Also, many window period claims became ready for litigation, and
formal applications were filed to establish cases for those claims.
Further analysis of the opening documents workload (window period
vs. post-window period) is required to determine the actual long-term
increase, if any, in applications for adjudication of claim.
Note that the Opening Documents chart does not include preapplications
-- liens and other documents -- as opening documents to preclude
|Original Compromise and Release||14,804||39,293||60,092||64,468||58,191||46,777|
The following table and chart shows certain categories of decisions
issued by the Division of Workers' Compensation.
The category of "decision on merit" refers to a decision
made by a workers' compensation judge on the merits of
a disputed case. The decision "Finding and Award"
means that the injured worker is to receive benefit(s) that were
disputed, while "Finding and Order" usually indicates
that no additional benefit is to be awarded.
The category of "settlement" refers to an approval
by a workers' compensation judge on a settlement previously
agreed-to by the parties to the case.
The category "order" refers to decisions made by a
workers' compensation judge about certain matters relating
to the case. Only two major types of the many types of orders
are shown. Therefore, please note that minor decisions issued
by DWC are not shown.
|Type of Decision||1990||1991||1992||1993||1994||1995|
|Decision on Merit:|
|Finding & Award||9,376||9,811||7,673||8,304||7,560||7,890|
|Decision on Merit:|
|Finding & Order||4,490||4,709||4,507||6,461||5,877||6,043|
|Compromise & Release||134,690||160,990||135,792||156,999||137,162||116,485|
Timeliness of Actions
It has been difficult to determine the time required for a case
to be resolved in the Division of Workers' Compensation.
However, statistics in DWC's July 1, 1996 report to the Legislature,
Governor and the Commission indicate that as of March 31, 1996,
the average time from request to conference is 88 days, while
the average time from request to trial is 208 days.
The 1993 workers' compensation reform legislation made major changes
affecting the level and delivery of the vocational rehabilitation
benefit. The most significant changes are as follows:
The Commission endeavors to measure the impact of the reform changes
on vocational rehabilitation program. In order to do so, it is
necessary to set up a model to get baseline information that will
provide comparative data in future years regarding the number
of workers undergoing vocational rehabilitation, the duration
and cost of rehabilitation programs and services and the results
produced by these programs and services.
The Vocational Rehabilitation Reform Study
The Commission contracted with the UC Berkeley Survey Research
Center (SRC) to conduct the Vocational Rehabilitation Reform Study.
The study, initiated in July 1995, is ongoing and a final report
is expected in mid-1997.
The primary objective of the study is to help the Commission in
evaluating the impact of the reform legislation on the vocational
rehabilitation system. Questions to be answered include: Did the
reforms reduce the cost of the rehabilitation benefit for employers?
How have changes affected outcomes for injured workers?
The Commission and project team are assisted in this effort by
the Vocational Rehabilitation Project Advisory Committee, comprised
of interested members of the workers' compensation community.
The study is establishing baseline data for continued monitoring
of rehabilitation services and will measure changes in the workloads
for DWC rehabilitation consultants, caseloads in the DWC Rehabilitation
Unit's dispute resolution process, and caseloads in the WCAB system.
The study also includes a review of Vocational Rehabilitation
Based on projections from current data from the DWC Rehabilitation
Unit, sixty percent of Rehabilitation claims after January 1,
1994 will not involve case make-up or closure. In addition, the
total number of claims for vocational rehabilitation is declining
due to an overall decline in permanent disability claims.
As indicated in the graph below, these two forces will combine
to reduce the workload requirements for case make-up. From a level
of approximately 4,000 cases per month, experienced during 1992
to 1995, the number of cases requiring entry into the computer
case tracking system is expected to decline to approximately 1,000
cases per month by late 1997. Another 1,500 claims per month will
be sent to the Rehabilitation Unit, but will not be made up into
cases on the computer system or the files in the Rehabilitation
district offices. While this is a projected 75% reduction in cases
entered, not all work is eliminated for unentered claims. They
still require handling by the clerical staff and sometimes, checking
against the computer system.
A decline in the number of claims in the system combined with the administrative decision by DWC not to enter on the computer system claims in which the worker is represented and there is no dispute, will reduce the workload to close cases. From an average of 4,000 case closures per month during the last four years, the number of cases closed on the computer system is expected to decline gradually to approximately 1,000 per month at the beginning of 1999.
Rehabilitation plan approvals are showing a sharp decline after peaking in 1993. This is likely the result of the decline in all reported injuries after 1991.
Also, vocational rehabilitation plans on claims that have dates
of injury after January 1, 1994 and are represented by an attorney
do not require approval by the DWC Rehabilitation Unit.
Rehabilitation plan disapprovals have shown a sharp decline since
1991. The San Francisco region seems to be running counter to
this trend in 1994 and 1995.
Plan disapprovals are likely to represent greater workloads than
approvals. Approvals can be the result of no action taken by the
DWC Rehabilitation Unit within 30 days. Disapprovals require active
review of the plan documents and notification of the parties.
Decisions and Orders (D & O) following conferences are an important
indicator of workloads in the Rehabilitation Unit. Since these
represent a conference held and a decision issued, a D & O will
represent two work intensive activities undertaken by the consultants.
The sharp rise in D & Os could indicate that despite the decline
in nearly all other measures of workload (e.g., openings, closures,
approvals and disapprovals), the Rehabilitation Unit may not be
experiencing an overall decline in manpower requirements.
This sharp rise in D & Os could be the result of an increase
in disputes due to changes made by the 1993 reforms and/or the
timing of disputes on the 1994 and 1995 injury year claims.
Alternatively, this could be an artifact of an administrative
change. Most of the increase is in the San Francisco region. The
SF region has consistently had 50% more D & Os relative to its
caseload than the state average, while the Pomona region has been
50-70% below the state average.
The percent of workers successfully returning to work at rehabilitation
plan completion has been declining since 1991 from over 57% to
under 49%. The portion of plans terminated prior to completion
has declined. Unfortunately, the percentage of workers not working
at plan completion has increased from 28% of those receiving services
in 1991 to 43% of those receiving services in 1995.
Potential Circumvention of Rehabilitation Cap
It has been reported that Qualified Rehabilitation Representatives
may be writing plans that use funds from State Disability Insurance
(SDI) to supplement the vocational rehabilitation benefit.
This situation has arisen since the 1993 reform imposed a cap
of $16,000 on the total vocational rehabilitation benefit, which
under previous statute had no limit. In order to write plans which
meet their clients' needs, QRRs are looking for resources in other
This potential circumvention of the cap raises concern. While
this circumvention may be technically legal under the current
regulations and statutes, it violates the spirit of the law and
the intent of the parties to the reform negotiations.
SDI benefits are intended mainly for nonoccupational injuries.
There are situations where, once benefits in the compensation
system are exhausted, SDI begins paying benefits for occupational
injuries. This occurs where there is a statutory limit on the
payment of workers' compensation temporary disability benefits.
Workers' compensation temporary disability (TTD) benefits are paid up to the point where:
Consequently, to receive the SDI benefits while circumventing the cap, the worker would have to be:
Representatives at EDD/SDI have indicated that SDI treats workers'
inability to return to work at their usual occupation as being
generally unable to return to work. In other words, SDI interprets
the ability to return to work as ability to return to the at injury
It appears once a worker has 'exhausted' VMRA but has not completed
a plan that would prepare the worker for return to work in a new
occupation, that the worker could be eligible for SDI payments.
The definition of exhausting VMRA is the critical issue. Two examples
will be useful to illustrate this point:
The Commission recommends that a work group be convened to develop
an issue paper on this subject, which could serve as the basis
for remedial action if needed.
The Permanent Disability Rating Schedule
The 1993 reform legislation directs the administrative director
of the DWC to revise the schedule for the determination of permanent
disabilities. A discussion of this requirement is contained in
the "Agency and Program Operations" section of this
Incomplete Physician Reports
Incomplete physician reports have been cited as a major factor
leading to inconsistency in permanent disability ratings. Many
of DWC's disability evaluators state that their largest problem
with the current system is the poor quality of medical reports
that they have to rate.
Despite the incomplete nature of these reports, it is reported
that the Disability Evaluation Unit (DEU) is rating the reports,
sending them out and is having them returned for re-rating. This
churning results in delays and additional costs to all parties
in the system.
Physician Report Study
The Commission has contracted with UC Berkeley's Survey Research
Center for a study of physician reports used in the permanent
disability rating process. The study will determine the nature
and magnitude of the problem, ascertain who is producing incomplete
reports and why, develop quantitative analysis, provide recommendations
for improving the quality of reports and calculate the cost/benefit
of possible modifications.
The evaluation will be done on a random sample of reports drawn
from the Disability Evaluation Unit. The sample will be drawn
in conjunction with the Industrial Medical Council, who will determine
the status of the reporting doctor -- QME or treating physician
-- and participate in the evaluation of the reports done by QMEs.
The costs of reports will be estimated separately using data drawn
from one or more bill review companies or carriers.
The study is expected to be completed by the end of 1996.
Summary Permanent Disability Ratings
In an effort to reduce litigation, the California's workers' compensation
reform provided a mechanism for an injured worker to obtain a
summary permanent disability rating from DWC's Disability Evaluation
Unit (DEU). The DWC is mandated to provide summary ratings within
20 days from the receipt of the medical report. With the provision
of the summary rating, the workers' compensation claim may be
settled without the need for formal litigation before the appeals
The Medical-Legal study (discussed later in this section) determined
that the summary rating process is not being used and no concomitant
reduction in litigation was observed.
However, previous DEU backlogs in the provision of summary ratings
may have impacted the full utilization of this process (See the
Agency Operations section of this report for a discussion of those
backlogs and the efforts to reduce them). The DWC Administrative
Director in essence suspended the summary rating process for a
time, by urging the workers' compensation community to self-rate
cases, develop a proposed settlement, and submit it to DWC for
review and approval.
Permanent Disability Benefit and Program
The Commission realizes that the rating of permanent disability
is one of the most difficult tasks of the workers' compensation
system. The difficulty lies in the very process of estimating
the degree of a worker's impairment and the amount of economic
loss caused by such impairment. This process more often than not
leads to disputes and litigation. The manner in which California
rates and compensates injured workers for total and partial permanent
disability has enormous impact on the adequacy of their benefits,
their ability to return to gainful employment, the smooth operation
of DWC's adjudication system and the cost of the workers' compensation
system to employers.
The Commission is also aware that the pending revision of the
Permanent Disability Rating Schedule is not a long term solution
for either promptness of rating or equity in permanent disability
The Commission decided to explore the feasibility of conducting
a study that would look at California's permanent disability benefit
levels, the rating methods and the cost of providing those benefits
in comparison to similar systems in other states. It is clear
that this issue is very complex and should be addressed carefully
Permanent Disability Fact-Finding Hearing
In January 1996, the Commission held a public fact-finding hearing
in Los Angeles to bring representatives from the California workers'
compensation community together to identify problems and propose
solutions to challenges noted in the California permanent disability
benefit structure and program.
Summarized below are key points from oral and written testimony
by employee and employer representatives, insurers, attorneys,
vocational rehabilitation and health care providers, public officials
and program administrators:
Permanent Disability Study
Pursuant to the strong support and encouragement received from
throughout the workers' compensation community to continue
its investigation of the permanent disability system in California,
the Commission issued a Request for Proposal for a study by an
independent research organization.
The Commission voted to contract with RAND Corporation, which
achieved the highest score in the competitive Request for Proposals
The Industrial Medical Council joined with the Commission in this
effort and is contributing towards the cost of the study. The
IMC is interested in the nature of impairment and evaluation,
particularly the relationship between vocational rehabilitation
and permanent disability rating.
As with all Commission projects and studies, a Permanent Disability
Study Advisory Committee composed of interested members of the
workers' compensation community, was formed to assist RAND and
the Commission in this endeavor. The first meeting of the Advisory
Committee was held in July 1996.
The study will be conducted over the course of a year; a report
is expected by mid-1997.
Psychiatric and Post Termination Claims
The 1993 reform legislation limited the ability of persons to
file psychiatric "stress" and post-termination claims
because it was widely believed that many were fraudulent and in
a great many instances were in retaliation for a lay-off resulting
from a reduction in the work force.
The Medical-Legal Study (discussed under "Medical-Legal"
in this report section) determined that the number of psychiatric
claims (permanent disability claims with at least one psychiatric
medical-legal examination) declined over 90 percent between accident
years 1991 and 1993.
Differences between Workers' Compensation and Group Health
Medical costs and utilization continue to be significant issues
in the California workers' compensation system.
The California Workers' Compensation Institute conducted a study
of medical care for back injuries in California published in January
1996. The study compared workers' compensation medical treatment
and medical care for non-occupational back injuries covered by
group health. The findings revealed significant differences between
the two in medical costs, utilization of services, and treatment
The research is based on an analysis of medical treatment provided
in 1990 and 1991 for 22,656 workers' compensation back injuries
and 14,712 group medical back claims in California.
Revision of Official Medical Fee Schedule
The Official Medical Fee Schedule (OMFS), adopted and revised
through the public hearing process by the DWC administrative director,
is used for billing medical treatment under workers' compensation.
The OFMC version in use in 1993 was criticized as outdated because
it did not cover many common procedures and did not apply to pharmaceutical
or hospital charges. The reform legislation directed the Division
of Workers' Compensation to update the fee schedule to address
The DWC issued a major revision to the medical fee schedule effective
April 1, 1994. The 1994 version was based on the American Medical
Association's Comprehensive Procedural Terminology (CPT), a standardized
coding system used by most non-workers' compensation health care
providers, and added many new procedures, outpatient hospital
charges and drug charges.
DWC reports that the OMFS was revised again. The 1996 schedule,
which contains a number of changes from the 1994 edition, must
be used for all medical treatment provided injured workers on
or after January 1, 1996. The changes in the 1996 version primarily
address issues which arose after the implementation of the major
changes contained in the 1994 version of the fee schedule.
Major changes in the 1996 OMFS include:
Hospital Fee Schedule
The reform legislation requires that the DWC issue a Hospital
Fee Schedule by January 1, 1995. That mandate has not as yet been
The Division of Workers' Compensation reports that the Hospital
Fee Schedule has proved to be both a technical and administratively
difficult subject that is still being worked out.
The Division held public hearings in December 1995 on the proposed
schedule. The Division proposed that the maximum payment will
be 1.2 times the product of a factor calculated annually for each
hospital using data published by the Health Care Financing Administration
(HCFA) and the Diagnosis Related Groups (DRG) weight. Each year
the Division will publish the hospital factors, applicable DRG
weights and other information necessary to make payments under
this fee schedule at least 45 days before any changes take effect.
During the hearings and the subsequent comment period, the Division
received constructive feedback on alternatives and modifications
to the schedule. The Division has incorporated some of these changes
into revised regulations, which they plan to release soon for
public comment. DWC anticipates that the fee schedule shall be
effective for all inpatient hospital admissions on or after January
Utilization Review Regulations
Legislative changes in 1993 required the DWC Administrative Director
to "adopt model utilization protocols in order to provide
utilization review standards" [Labor Code Section 139(e)(8)].
Pursuant to that statutory mandate, utilization review standards
-- CCR §9792.6 -- were adopted as regulations effective
July 20, 1995.
In response to the regulations, insurers and self-insured employers
choosing to implement medical utilization review as part of the
medical delivery process were required to advise the DWC administrative
director when their programs were operational. According to the
division, insurers and self-insured employers must "maintain,
and make available to the administrative director on request,
a written summary..." of their program. Any entity's utilization
review program not in compliance with the regulations by July
1, 1996 may be subject to action on the part of the Administrative
The regulations describe utilization review as a "system
used to manage costs and improve patient care and decision making
through case by case assessment of the frequency, duration, level
and appropriateness of medical care and services to determine
whether medical treatment is or was reasonably required to cure
or relieve the effects of the injury..." The adopted utilization
review regulations do not apply to medical treatment involving
AOE-COE disputes nor to fee schedule type of billing disputes.
While the regulations permit a wide variety of types of utilization
programs that a self-insured employer or insurer may implement,
minimal standards must be met to assure regulatory compliance:
24-Hour Care Pilot Project
With the passage of Assembly Bill 3757 (Bronzan) in 1992, California
established a pilot project to test the feasibility of merging
occupational and nonoccupational medical care into one insurance
product offering "24-hour" coverage.
Under the "24 -Hour" Coverage concept, all of a participating
employee's health care needs, including job related injuries covered
under workers' compensation insurance, are provided by one exclusive
provider of health care services.
Traditionally, many employers offer a health care plan as an employee
benefit, providing for the general medical needs of workers and
their families. In addition, every employer in the state must
also provide coverage for work-related injuries, either by having
a workers' compensation insurance policy or by receiving approval
to self-insure their liabilities.
Under the 24-hour care approach, insurers provide employers an
insurance option combining state required workers' compensation
coverage and managed care group health into a single benefit that
participating employers may offer employees on a voluntary basis.
The major goals of this coverage are to increase continuity of
care for workers' compensation claimants and to lower the overall
costs of medical and injury claims. Employees who opt to participate
will benefit by having the same doctor or medical facility care
for all of their medical needs, thereby assuring access and continuity
of care. Medical treatment provided for work related injuries
will continue to be provided without coinsurance, deductibles
or premium copayment by employees.
The pilot project is intended to show whether a single 24-hour
health coverage plan can reduce employers' overall health care
costs by reducing duplicative administrative costs for separate
occupational and group health care coverage and by dampening incentives
for litigation to determine which insurer is liable for treating
an employee's injury.
Four pilot projects operating in San Diego, Los Angeles, Sacramento,
and Santa Clara Counties, have been approved by the Division of
An evaluation study of the 24-hour care demonstration projects
will be conducted by the UCLA Center for Health Policy Research,
in conjunction with the RAND Corporation and UC Berkeley, partially
funded by a grant from the Robert Wood Johnson Foundation. This
study will evaluate the impact of the pilot programs on the number
and types of workers' compensation claims; claimant satisfaction
and outcomes, including return to work; utilization of health
care services; and overall costs of workers' compensation and
group health premiums and claims. The evaluation will include
an analysis of workers compensation claims, a survey of employers
and a baseline survey to examine who does or does not enroll in
24-hour pilot programs. An interim progress report from DWC is
due to the Legislature during the summer of 1996, and a final
report by the end of 1998.
The Health Care Organization Program
Legislation enacted as part of the workers' compensation reform
effort of 1993 was intended to expand the use of managed care
in workers' compensation, as a means of reducing medical costs
and facilitating better management of workers' compensation cases.
The Health Care Organization or HCO program, which came into effect
following passage of the 1993 reform legislation, expanded the
use of managed care techniques in the workers' compensation system
by allowing employers and insurers to contract with certified
health care organizations to provide medical treatment for industrially
HCOs are medical care systems that offer managed care services
for work-related injuries and illnesses. Ideally, HCOs should
offer quality medical care with occupational medicine expertise;
lower medical costs for employers through the use of managed care
techniques such as provider networks, utilization management and
case management; and coordination of medical treatment with workplace
health and safety measures and return-to-work services.
A certified HCO would:
Employers that contract with HCOs may control the medical care
of injured employees for longer than the current 30-day period
after date of injury, as follows:
HCO Certification Process
The reform legislation of 1993 enacted a complex scheme to permit
various entities to become certified as health care organizations
Health insurers, HMOs and other entities authorized as workers'
compensation health care providers (such as workers' compensation
insurers and third-party administrators) may apply to become certified
as HCOs. Health insurers and HMOs that are properly licensed by
the Department of Insurance or the Department of Corporations,
respectively, may apply to the administrative director of the
Division of Workers' Compensation for HCO certification. Other
entities must first become authorized by the Department of Corporations
as a workers' compensation health care provider organization (WCHCPO)
before applying to the administrative director to become a certified
DWC examines the application for HCO certification to insure that
the health care organizations have considered the following kinds
of issues in establishing their system for health care delivery
in the workers' compensation context:
As of July 1996, DWC reported that there were eight entities certified
as Health Care Organizations:
|FHP Life Ins. Co.||MetraComp/Conservco|
|Greaney Medical Group, P.C.||Eisenhower Medical Center|
|Little Company of Mary||Health Plan of the Redwoods|
|MetraComp Select||US CompCare|
Seven other applications have been received by the HCO program
and are in various levels of review. Four of these are applications
of insurance carriers already reviewed by the Department of Insurance,
while three are health care service plans or HMOs licensed by
and currently being jointly evaluated by DWC and the Department
of Corporations (DOC). Other applications have been pre-filed
with the DOC but have not yet been received by DWC.
Employers, insurers and health care providers are critical of
both the structure of the HCO statute and the manner in which
the DWC is implementing the law. Employers argue that the law
gives the employee too many opportunities to opt out of treatment
by the HCO, that the program is too complex and too cumbersome
to administer, that it is duplicative and burdensome to require
HCO applicants to obtain certification from two different state
agencies, that the DWC requires too much data to be reported by
HCOs, and that it is duplicative to require HCOs to offer health
and safety consultations already available from the Department
of Industrial Relations and workers' compensation insurers.
On the other hand, some observers believe that it is important
to retain the various opportunities for injured employees to opt
out of treatment from the HCO if they grow dissatisfied with their
medical care. They also believe that it is important to retain
the requirement for HCOs to offer health and safety consultation
services since there are reports that some workers' compensation
insurers are cutting back on the level of such services offered.
In the summer of 1995, the Division of Workers' Compensation (DWC)
conducted a survey of employer, insurer, medical, and other organizations
to describe current practices in the delivery of medical services
in workers' compensation, and to elicit the views of system participants
as to the effects of the reform legislation on workers' compensation
medical care. The survey found widespread use of a variety of
cost-containment and case management techniques, but little consensus
as to the definition of "managed care" in workers' compensation.
There was general agreement that the 1993 legislation is excessively
complex and has created barriers which outweigh the incentives
for the expansion of managed care through the use of certified
Health Care Organizations. Issues most frequently identified include
the required choice of HCOs, variable days of employer medical
control, and regulatory complexity. The survey identified problem
areas which, respondents contend, prevent the workers' compensation
community from more fully reaping the benefits of managed care,
such as lower costs and improved care, that were anticipated when
the HCO law was passed.
The survey included approximately a hundred participants, including
existing HCOs and applicants, workers' compensation insurance
carriers, self-insured employers, HMOs, preferred provider organizations,
medical groups, labor unions, and industry consultants. Reports
from the survey indicate a general agreement that the 1993 legislation
was conceptually good; however, respondents also felt the legislation
was excessively complex and had created barriers which outweigh
the incentives for the expansion of managed care through the use
of certified HCOs.
Issues most frequently identified in the survey include the requirement
that employers offer employees a choice of more than one HCO,
that the period of time during which the employer maintains control
of medical treatment can vary from 90 to 365 days, and that the
regulations governing the program are overly complex.
The Division of Workers' Compensation is sponsoring legislation
to address the concerns identified in the survey. The legislation
Implementation of these changes would facilitate certification
of more HCOs, make the use of certified HCOs easier for employers,
strengthen the extended length of medical control, and encourage
participation in a system which provides some assurances regarding
quality of care with expanded use of managed care in California's
workers' compensation system.
Reform legislation changes to medical-legal evaluations were intended
to reduce both the cost and the frequency of litigation, which
drive up the price of workers' compensation insurance to employers
and lead to long delays in case resolution and the delivery of
benefits to injured workers.
The concern over reasonable charges and payments for medical-legal
reports has a long history. For years, neither the Labor Code
nor the regulations provided guidance what constituted "reasonable".
Then, in 1986, the payment for the reasonable value of an initial
medical-legal report was governed by Labor Code Section 4624.
This section mandated that fees for initial comprehensive industrial
medical-legal reports were presumed reasonable, though rebuttable,
if the physician's (treating, AME, IME or QME) charges did not
exceed fee specified by the DWC administrative director. The administrative
director calculated these specified fees by using initial medical
legal report charges from the 12 months ending the previous December
31. Reasonable fees were based on the 80th percentile of the administrative
director's calculations unless the medical provider or payer proved
that the specified fee was incorrect. Effective January 1, 1990,
the 80th percentile was dropped to the 73rd.
By pegging the fee level to the amounts billed, rather than actually
paid, in the prior year, this method contained a built-in incentive
for medical-legal cost inflation as evaluators were encouraged
to bill at higher rates in order to increase payments the following
Medical-Legal Fee Schedule
Since the costs of medical legal reports was still an outstanding
issue during 1993 reform efforts, further legislative changes
took place. Labor Code Section 5307.6 was enacted and the statute
mandated that the administrative director adopt and revise a medical-legal
The fee schedule -- CCR §9795 -- went into effect on August
3, 1993. The fee schedule applies to all medical-legal evaluations,
not just the initial evaluation. While there is some discussion
as to whether the schedule uses "complexity of the evaluation"
as a dominant factor in identifying the level of service rather
than the "times to perform procedures", complexity was
intended to be the primary determinant for payment purposes [CCR
In June 1996, the Industrial Medical Council began holding meetings
with an industry advisory committee that will assist the IMC in
its efforts to update the medical-legal fee schedule.
In 1995, the Commission, with the interest and support of the
workers' compensation community, contracted with the University
of California at Berkeley Survey Research Center for a study of
The study analysis was based upon the Workers' Compensation
Insurance Rating Bureau's (WCIRB) Permanent Disability Claim Survey,
a set of data created by the WCIRB at the request of the Legislature
to evaluate the 1989 reforms. Since that time, the WCIRB has continued
to collect these data on an annual basis. The WCIRB data summarizes
accident claim activity, including such measures as the degree
of impairment, the type and cost of specialty exams, whether the
case was settled and, if so, the method of settlement employed.
The analysis covered samples of 1989 through 1994 accident year
claims from insured employers. Data from self-insured employers
and public agencies are not reported to the WCIRB and are therefore
not included in the study.
The study report and findings were published in July 1996.
The study determined that the cost of medical-legal examinations
on partial permanent disability (PPD) claims has declined significantly
since its peak during the 1991 accident year. For the insured
community, the total cost of medical-legal exams performed on
PPD claims by 40 months after the accident year, has dropped 84
percent from a high of $394.5 million for the 1991 accident year
to an estimated $64.5 million for the 1994 accident year.
Total costs are calculated by multiplying the number of PPD claims by the average number of exams per claim and then by the average cost per exam. The study determined that the decline in total medical-legal exam costs is due to a reduction in each of these components which make up the total cost.
The number of PPD claims decreased from about 137,000 in 1989
to an estimated 100,400 in 1994. This decrease was driven by declines
in both the number of workers covered by workers' compensation
insurance and the number of reported injuries. A significant portion
of the decline may also be due to the steep drop in the number
of claims with a psychiatric component.
The average cost per medical-legal exam has dropped nearly 40
percent from a high of $987 for 1990 accident year claims to an
estimated $606 for 1994 accident year claims. The study team determined
that the decrease is the result of two important changes: revisions
to the Medical-Legal Fee Schedule and the decline in the number
of the more expensive psychiatric exams.
The average number of medical-legal exams per claim has dropped
by half from 2.2 in accident year 1991s to an estimated 1.1 in
accident year 1994. Almost all of the decrease occurred in claims
with legal representation.
This substantial decline is attributed in part to reforms implemented
to reduce the "dueling docs" syndrome in the past which
contributed to complications and delays in claim resolution. Before
the reforms, applicant and/or defense attorneys could attempt
to bolster a claim by obtaining multiple reports by forensic doctors.
Changes include establishing treating physician reports as presumed
correct except with a preponderance of evidence, limiting the
number of exams allowed per specialty in litigated cases, and
limits on the compensability of psychiatric aspects.
Much of the improvement in the average number and average cost
of medical legal exams per claim is a result of reductions in
the number and cost of psychiatric medical legal exams. The total
cost of psychiatric medical-legal exams dropped from $93.8 million
for 1991 accident year claims to an estimated $5.9 million for
1994 accident year claims.
While the study showed that some of the reforms have achieved
significant changes and savings in the workers' compensation process,
not all efforts have been as successful. The introduction of mandatory
settlement conferences was meant to reduce the need for formal
hearings and decisions and to speed the resolution of workers'
compensation cases. However, data from the study suggest that
this goal has not as yet been achieved. Instead of reaching voluntary
settlements that do not necessitate active involvement by the
DWC, parties are increasingly using one or more dispute resolution
As shown in the chart below, there has been a decline in the percentage of cases where a voluntary agreement was reached without intervention by the DWC/WCAB. This movement from voluntary settlement to dispute mechanisms has not been accompanied by a reduction in the need for formal decisions to resolve claims; the proportion of cases settled through formal hearings has not changed. This has resulted in an overall increase in the cases where the DWC has been involved.
|Minor - No Attorney|
|Minor - Attorney|
|Major - No Attorney|
|Major - Attorney|
Note: "Major" means a claim with a permanent disability rating of 25% or more.
"Minor" means a claim with
a permanent disability rating of less than 25%.
This increased usage of dispute resolution mechanisms may have
unintended impacts upon the frequency of medical-legal reports.
The study found that claims which use one or more dispute resolution
mechanisms average 15 to 40 percent more medical-legal exams.
The apparent movement from voluntary settlement to other resolution
mechanisms may thus be attenuating some of the savings to the
system achieved with the overall reduction in the numbers of medical-legal
The study team also determined that there have been no significant
improvements in the rate at which workers' compensation cases
close in the 1990s. So increased use of arbitration and mediation
apparently has not resulted in a more rapid settlement of cases.
Consequently, costs incurred to the DWC for these new programs
are not being offset by gains in quicker resolution.
The Commission has contracted with UC Berkeley Survey Research
Center to continue this analysis for another year. An additional
study report is expected in July 1997.
The study team recommended that certain changes be made in the
survey document to address issues arising from the legislative
reforms. The WCIRB has indicated its willingness to work with
the Commission and the study team to make feasible modifications.
Alternative Benefit Delivery Systems
The Commission is monitoring one of the provisions of the 1993
workers' compensation reform package known informally as the "carve-out",
since certain employees and employers are carved out from the
traditional workers' compensation system. For the first time,
authorized parties may agree through collective bargaining to
alternative methods for resolving workers' compensation disputes.
The "carve-out" program was modeled on a similar experiment
in Massachusetts, where Bechtel and the Pioneer Valley Building
and Construction Trades Council had a collective bargaining agreement
governing a single construction project.
California Labor Code section 3201.5, established by the 1993
Senate Bill 983 (Leroy Greene), allows unions and employers in
the construction industry to create what is close to an alternative
workers' compensation system. Through collective bargaining, the
parties may agree on an exclusive list of medical providers and
evaluators, on return-to-work and vocational rehabilitation programs,
and an "alternative dispute resolution system" to replace
most DWC and WCAB procedures.
The statute gives the parties great leeway to establish the kind
of system they want -- but there are two important limits: (1)
the agreement may not diminish compensation to injured workers,
and (2) the final step of the "alternative dispute resolution
system" must be appeal to the Workers' Compensation Appeals
At first limited to the construction industry, in 1994 Senate
Bill 853 (Greene) expanded the range of eligible employers to
include businesses in rock, sand, gravel, cement and asphalt operations;
heavy duty mechanics; surveying; and construction inspection.
Under the original provisions of the construction carve-out, the
administrative director was to look at the proposed agreements,
see if they complied with the law, and issue comments, but the
division did not have approval/disapproval authority. The 1994
revision gave the DWC administrative director the power of approval
and allowed the division to insure that the parties were eligible
to participate. The parties must also submit a copy of the agreement,
although they do not need the DWC administrative director's approval
of the agreement itself.
Pursuant to the requirements in Labor Code Section 3201.5(i),
the DWC must report to the Legislature by June 30, 1996 and annually
thereafter on the number of employers and employees covered by
carve-out agreements, as well as other data about claims costs
and vocational rehabilitation.
The Division of Workers' Compensation reports that seven carve-out
agreements have been reached:
Supported by 1991 and 1993 legislation, efforts to combat workers'
compensation fraud continue. Besides stiffening penalties, obliging
specified parties to report suspected fraud to the Department
of Insurance (DOI) and mandating adherence to medical-legal/medical
billing and reporting requirements, the legislation created an
employer assessment to fund anti-fraud activities.
The provisions of the 1993 reform legislation:
The legislation also established the Fraud Assessment Commission.
The Commission was charged with determining the actual assessment
amount after considering advice and recommendations from both
the Insurance Commissioner and DOI's Fraud Division. The initial
fraud assessment amount was $3 million. The assessment was increased
to $10 million for fiscal year 1992/93 and then raised to $25
million for fiscal year 1993/94 and thereafter. Recently, the
Fraud Assessment Commission authorized the Department of Insurance
to distribute a total of $28 million for fiscal year 1996/97.
The additional $3 million will be funded from collected fines
and civil penalties levied because of violations, restitutions
and interest rather than from increased employer assessment. After
incidental expenses, the Insurance Commissioner with the advice
and consent of the Fraud Division and the Fraud Assessment Commission
distributes half of the funds to applying California district
The California Department of Insurance Fraud Division reports
505 arrests for workers' compensation fraud from July 1, 1992
through June 30, 1996. Forty-one percent of all of these arrests
-- 205 -- occurred during fiscal year 1995/96. Additionally, district
attorneys reported 272 arrests by the end of the 1994/95 fiscal
year for a total arrest count of 777. There have been 355 convictions
in fiscal years 1992/93 through 1994/95.
The Fraud Division counted 3,945 reports of suspected workers'
compensation fraud claims during fiscal year 1995/96, a decrease
from the all time high of 8,342 suspected claims reported in fiscal
year 1992/93. Successful efforts in combating fraud and the decline
in claim frequency often are cited as the reasons for the decrease
in the number of referrals. However, the number of case assignments
to investigators have reached an all time high -- 904 assignments
-- during fiscal year 1995/96. Since July 1992, the Department
of Insurance has assigned a total of 2,089 cases for investigation.
The fraud prosecutions funded by this new program, as well as
a renewed determination on the part of workers' compensation insurers
to fight fraud, have driven many of the most egregious practitioners
out of business and have helped reduce the number of workers'
Recognizing that insurer Special Investigative Units (SIU) are
the first line of defense in fighting workers' compensation fraud,
the Legislature in 1991 adopted statutes requiring all insurers
to maintain a SIU. The Fraud Division is responsible for overseeing
the SIUs. As of July 1, 1996, the Fraud Division established a
performance audit process to determine whether they are in compliance
with the code and regulatory requirements to combat fraud.
GO TO SECTION FOUR