The analysis presented in this report is based on the Workers' Compensation Insurance Rating Bureau's (WCIRB) Permanent Disability Claim Survey (survey). It is not meant to duplicate the valuable research done on the survey by the WCIRB for the annual, "1989 Reform Act - Cost Monitoring Report." Rather it is intended to:
The survey 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 what method of settlement was employed.
Individual claims are stratified by injury severity based on second level individual case reports submitted to the WCIRB. Claims with estimates of permanent disability equal to or greater than 25 percent are considered "major" disabilities, while claims with ratings under 25 percent are considered "minor" disabilities . A stratified random sample of 3,500 permanent disability claims is drawn from all Permanent Partial Disability (PPD) claims on a selected subset of policies, with 1,500 claims coming from the "major" disabilities, and 2,000 claims coming from the "minor" disabilities. This survey has been conducted on claims from the 1989, 1990, 1991, and 1992 accident years.
The data available for 1993 and 1994 accident years comes from "special panels." These were drawn at 28 and 16 months respectively from the beginning of the accident year. Both of these special panels consist of only 350 claims.
These claims are drawn from insured employers. All data and all analyses apply only to the portion of the compensation system that is covered by insurers reporting data to the WCIRB. Self-insured employers and public agencies do not report to the Rating Bureau and data from this group of employers are not included in this report.
The cost of medical-legal exams on PPD claims has shown a steep decline 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 beginning of the accident year, has declined from a high of $394 million for the 1991 accident year to an estimated $64 million for the 1994 accident year. This is a decline of 84 percent in the cost of medical-legal reports and represents a saving of $330 million.
This decline in costs reflects changes in all the components of the cost structure. Consider medical-legal exam costs on PPD claims as comprised of the following components:
Total Cost = Number of PPD Claims * Average Cost/Exam * Average Number of Exams/Claim
Then as Chart 2 displays, thirty-five percent of the decline in medical-legal costs can be attributed simply to a decline in the number of PPD claims. Twenty-seven percent is due to a decline in the average cost per exam. And the other thirty-eight percent of the savings results from a decline in the average number of exams per claim.
Table 1 shows the number of PPD claims for the 1989 through 1992 accident years based on WCIRB second level individual case reports. Projections of PPD claim levels for the 1993 and 1994 accident years at a similar level of maturity (30 months following the beginning of the policy year) were made by UC DATA for comparison. The frequency of claims is broken out by major and minor disability.
The decline in PPD claims is driven by a decline in the number of covered workers, and the number of reported injuries. As we will discuss below, a substantial portion of the decline in PPD claim frequency may also be the result of a steep drop in the number of claims with a psychiatric component.
The average cost per exam has declined from a high of $987 for 1990 accident year claims to the current estimate of $606 for 1994 accident year claims. This change in exam cost is driven by two important changes. First, the Medical-Legal Fee Schedule underwent several revisions. The fee schedule in effect after 8/3/93 attempted to substantially reduce the cost of exams by restructuring the schedule and reducing the level of acceptable charges. The schedule under which fees are set is determined by the service date of exams rather than the date of injury. Most 1993 and all 1994 exams have service dates in the period following Aug. 3, 1993 when the lowest fee schedule amounts were in effect. Only a fraction of 1991 and 1992 accident year claims have exams in this period.
Second, the average cost of exams is also determined by the mix of specialties of the reporting doctors. Some provider specialties have higher than average costs. The larger the proportion of costly exams the higher the average cost. Psychiatric exams are substantially more expensive than exams by other specialties. The dramatic decline in the number of psychiatric exams is responsible for 17 percent of the decline in the average cost of all exams. If the proportion of exams that were psychiatric had remained steady at the 1991 accident year level, the average cost of medical-legal exams would have been $56 greater for the 1993 accident year.
Chart 3 illustrates
the decline in the number of exams per claim. This 46 percent decline since 1991 is in
part a result of changes made that were meant to reduce the "dueling docs"
syndrome. Other changes include establishing treating physician findings as presumed
correct except with a preponderance of evidence, limiting the number of exams allowed per
specialty in litigated cases, and, as noted below, an aggressive effort to reduce
Much of the improvement in the average number and the average cost of medical-legal exams per claim is a result of reductions in the number and the cost of psychiatric claims.
Psychiatric claims were subject to specific legislation that impacted these claims separately from other types of claims.
As shown in Chart 4, from a high for the 1991 accident year to the 1993 accident year, the total cost of psychiatric exams dropped by $87.6 million, a saving of approximately 93 percent on the cost of psychiatric related medical-legal exams. This represents 28 percent of the overall reduction in all medical-legal costs between the 1991 and 1993 accident years.
Between 1991 and 1993, over a third (36%) of the reduction in the average number of medical-legal exams per PPD claim is a result of a drop of 87 percent in the average number of psychiatric exams per PPD claim.
The decline in the total cost of psychiatric exams is due to both a drop in the number of psychiatric claims and a decline in the cost/exam. As shown in Chart 5, the number of psychiatric claims (PPD claims with at least one psychiatric medical-legal exam) has declined by 93 percent between accident year 1991 and 1993. It should be noted that for injuries occurring after 1/1/94, a single physician (or single physician for each side) evaluates all open issues. Consequently, for 1994 and later injuries, the survey may no longer allow us to determine cases with a psychiatric component. This will often be obscured when the evaluating physician chosen is from another specialty.
Part of this decline in number of psychiatric exams is driven by the overall decline in
all types of PPD claims. In addition, as Table 5 indicates, the decline is driven by
factors specific to psychiatric claims that reduced the portion of PPD claims that have a
psychiatric component. Anti-fraud efforts, crackdowns on "mills" and similar
efforts may be the most important factors in the declining frequency of psychiatric
claims. Limits on post-termination stress claims introduced in 1991 and improvements in
the California economy that reduced mass layoffs may have also played a role. The number
of psychiatric exams per claim peaked in the period from 1990 through the first half of
1991. The decline in psychiatric exams per claim began in mid-1991 and accelerated in
1992. Legislation requiring that work be the "predominant" cause of a
psychiatric complaint may also play a role in the decline in psychiatric claims in late
1993 and 1994.
Unlike PPD claims in general, the decline in total medical-legal costs on psychiatric claims is not due to a reduction in the average number of psychiatric exams per psychiatric claim. It is early, and 1993 and 1994 samples are small, but indications are that the average number of psychiatric exams on psychiatric claims has not declined sufficiently to show a clear improvement. The number of psychiatric exams per psychiatric claim, when valued at 16 months after the beginning of the accident year, has held steady at an average of approximately 1.4-1.5 exams on each claim. At 28 months, 1993 psychiatric claims had more psychiatric exams on average than psychiatric claims in the preceding years.
The survey data indicates a decline in the number of reports requested per claim. Using claims that have been resolved within 40 months and 28 months after the beginning of the accident year, it is clear that the decline in the number of exams is being driven by the improvement on the represented claims.
Regardless of whether the injury is major or minor, the represented cases have always had more exams than the unrepresented cases. However, this gap is narrowing. While the frequency of exams on unrepresented claims has changed little, the change on represented cases has been substantial.
The 1989 and 1993 reforms attempted to reduce the number of medical-legal reports resulting from applicants' and defense attorneys bolstering cases with multiple reports by forensic doctors. This was often referred to as "dueling docs." The survey data indicates that these efforts have been successful. The percent of PPD claims with applicant and defense medical-legal exams by doctors in the same specialty has declined by 1/3 from the 1989 accident year to the 1992 and 1993 accident years. The percent of claims with both applicant and defense exam requests, regardless of the specialty, declined over the same period by nearly half (45%).
The introduction of mandatory settlement conferences was meant to reduce the need for hearings and decisions, and to speed the resolution of cases. Data from the survey show the new resolutions mechanisms have not accomplished these goals.
While the number of PPD claims has declined. The likelihood of DWC/WCAB intervention to resolve claims has increased, possibly as a result of the new resolution methods. Instead of reaching voluntary settlements that do not involve active involvement by the DWC/WCAB, parties are increasingly using one or more dispute resolution methods.
There has been a decline in the percentage of cases where a voluntary agreement was reached without intervention by the DWC/WCAB and an overall increase in the cases where the DWC has been involved. This is true for both major and minor injuries.
Some claims that would have settled voluntarily are now using at least one dispute resolution mechanism. The movement of cases 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.
These resolution methods may have had unintended impacts on the frequency of medical-legal reports. While the frequency of reports done on claims resolved within 28 months or 40 months has declined, the apparent movement of cases from voluntary settlement to other resolution mechanisms may be attenuating some of the savings to the system. Claims using one or more resolution methods average 15-40% more medical-legal exams. This gap has widened even as claims have apparently moved from the voluntary processes into dispute resolution.
There has been no significant improvement in the rate at which cases close. Except for a decline between 1989 and 1990, the percent of PPD claims closing within 40 months of the beginning of the accident year has shown no change through 1992. After controlling for injury severity, the number and type of specialty exams, and presence of employee legal representation, we do not find statistically significant improvements in time to case resolution in the 1990s. Indeed, the only statistical difference attributable to year that we find is that cases following 1989 appear to be resolved more slowly than cases in the 1989 injury year.
Increased use of arbitration and mediation has not resulted in a more rapid settlement of cases. Consequently, costs incurred by the DWC are not being offset by gains to the parties from quicker resolution
During the analysis of the WCIRB data several issues emerged. Among these issues are:
The sampling scheme for the WCIRB survey does not result in a random sample of claims and may provide a biased picture of PPD claims. The sampling method causes over-sampling of cases incepted in summer months and under sampling of injuries in winter months. This problem can be resolved by correcting the sampling method. Alternatively, one could use weighting to adjust for the over-sampling and under-sampling.
The Permanent Disability Claims Survey was designed following the 1989 reform legislation. The design was well thought out, but should be updated to satisfy issues arising from the recent legislative reforms. Several issues need to be addressed by adding:
We are proposing a slight redesign for the PD survey to deal with the issues indicated above.
Source of request for medical-legal reports: Two new sources of request are proposed for the table in Question 3. The legislative reforms created and strengthened the importance of the QME panels for unrepresented workers. Reforms also increased the importance of treating physician reports in the medical-legal process. The current survey does not distinguish QMEs from panels and treating physicians acting as medical-legal evaluators from other sources of request.
The addition of two codes for reports by QMEs from a panel and by treating physicians would improve the value of the survey.
Fee schedule billing code: The addition of a column for the code under which the report was billed would improve our information. Under prior law, specialty and date of service determined the applicable rebuttable maximum in effect. Under the current law, the codes ML-101 to ML-104 in combination with the date will be necessary to evaluate reports after 8/3/93 against the amounts indicated in the fee schedule.
Geographic Variable: A geographic variable should be added at the top of the survey. This should be the current zip code of the worker. The first three digits of the zip code are sufficient. Often, there are issues raised about Northern v. Southern California or Los Angeles against the rest of the state. Most often, LA and Southern California are considered as having high and costly litigation rates and medical-legal report costs. Rural and urban is another distinction in analysis that is often requested. The current survey does not allow any analysis of these data based on a geographic variable.
Data from the survey indicate that the recent reforms to the medical-legal system have had a dramatic impact on the costs and frequency of exams. These changes seem to have accomplished most of the goals of the legislation. Additional changes to the system may be necessary. However, until full panel data is available to evaluate the 1993 and 1994 claims at greater maturity, it may be premature to undertake additional changes.
This survey represents a valuable but under utilized tool for analyzing the system. The Commission should consider publishing an annual evaluation of the system using the survey data. This evaluation would:
* track certain data each year creating an ongoing analysis of important variables
* present new analysis each year on one or more topics of current interest.
This method would be relatively inexpensive and easy to establish using the Permanent Disability Survey data.
 By 40 months after the beginning of the accident year, approximately 97 percent of all medical-legal exams have been conducted.
 Data available from the WCIRB courtesy of Larry Law.
 There is no way to tell, from the PD Survey, the level of causality in a psychiatric claim attributed to occupation. As legislation raised the threshold of causality, the subset of claims, the ones where work was predominate cause, that remain in the system may have had higher or lower rates of psychiatric exams per claim then the claims that were eliminated by reform.
 Resolution types are defined as:
True Voluntary: All cases where the method of resolution was either "Voluntary Payments," "Compromise and Release," or "Stipulated Award" and the only dispute mechanisms listed are either "settled with attorney" or "none of the above."
Judicial : Resolution type was "Take Nothing," "Finding & Award," or "Dismissal."
All Other: The method of resolution was "Compromise and Release," "Stipulated Settlement," or "Voluntary Payments" and a dispute mechanism other than a decision or "Settled with attorney" was involved.