The following chart shows a significant decrease in litigation
of workers' compensation claims, as measured by the numbers
of opening documents received by the Division of Workers'
Compensation in 1996.
This decrease in total opening documents resulted from decreases
in every type of opening document -- applications for adjudication
of claim, original stipulations and original compromise and releases.
The decrease from 1995 to 1996 is in marked contrast to the trend
observed from 1991 to 1995, when the total opening documents received
by DWC nearly doubled.
Note that the Opening Documents chart does not include preapplications
-- liens and other documents -- as opening documents to preclude
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||1996|
|Decision on Merit:|
Finding & Award
|Decision on Merit:|
Finding & Order
Compromise & Release
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:
Vocational Rehabilitation Reform Provisions
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 1998. The Commission published an interim report
in August 1997 containing findings to-date.
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
Vocational Rehabilitation Study - Preliminary Findings
Preliminary information in the July 1997 interim report addresses
the question of whether the reforms saved employers money, but
the study data is still a little premature to assess the impact
on injured workers.
These interim findings are based largely on data available from
the DWC Rehabiliation Unit files, the WCAB-Rehabilitation on-line
system, and the American Business Index data base. Consequently
they focus on changes in costs. This only tells half the story
concerning the impact of reforms. Important questions about the
outcomes of injured workers remain to developed and analyzed.
This preliminary data shows significant changes in vocational
rehabilitation costs from the pre-reform period (1992 and 1993)
to the post-reform period (1994 and after).
Preliminary estimates show that the total direct accident year 1
cost of the vocational rehabilitation benefit will decline by
$274 million (49%) between 1993 and 1994. Current estimates are
that the 1993 claim cost will eventually be $563 million, while
for 1994 total cost will be $289 million. Total costs for 1992
are estimated to be $663 million (57% higher than 1994).
Source of Savings
Between 1993 and 1994, approximately 70% of the decline in total
cost is a result of a reduction in costs for all types of claims
(modified or alternate work (M/A), plans, and declines). About
26% of the improvement is due to a change in the mix of case types,
with a shift away from plans towards M/A offers and declinations.
Less than 4% of the improvement is due to a decline in the frequency
of claims. Savings in costs between 1992 and 1993 are the result
of a decline in the estimated number of claims.
Average Cost per Claim
The decline in average cost per rehabilitation claim due to reform
is dramatic. Prior to reform, claims were averaging just over
$13,000 in total costs. In 1994, the mean total cost per claim
had dropped to about $7,200 - representing an average savings
of 45% over pre-reform years.
QRR cost per claim
Post-reform, Qualified Rehabilitation Representative (QRR) costs
-- composed of evaluation, plan development, and monitoring and
placement -- dropped substantially. Average QRR charges were
in the $4,000 range for 1992 and 1993. In 1994, such fees were
on average just $1,800.
Approximately four-fifths (79%) of this decline is due to moderation
of charges by QRRs and imposition of caps on QRR costs. About
one-fifth (21%) is due to the shifting of case types away from
plans to M/A or declination. QRR costs were the component of VR
costs most affected by the reforms.
1994 claims have shown a substantial increase in the portion of
vocational rehabilitation claims with no reported costs. In 1992
and 1993 approximately 5% of claims had no reported costs. In
1994 this jumped to almost 23%.
Interaction of Workers' Compensation and State Disability
Two important issues have been raised concerning costs imposed
on the State Disability Insurance system (SDI) by occupational
injuries and illnesses.
Under the current regulations and statutes, Qualified Rehabilitation
Representatives (QRR) are writing vocational rehabilitation plans
that use funds from SDI to supplement or replace the Vocational
Rehabilitation Maintenance Allowance (VMRA). This situation has
arisen since the 1993 reform imposed a cap of $16,000 on the total
VR benefit, which under the previous statute had no limit.
The State Disability Insurance system provides a safety net for
injured workers, paying benefits on an interim bases when payment
in the compensation system is delayed or AOE/COE is in dispute.
SDI recovers from the insurer or the worker, often through a
lien filed with the WCAB. With approximately 60,000 lien filings
a year, substantial funds are tied up in disputed cases. Significant
time and money are expended pursuing recoveries. The Employment
Development Department (EDD), which handles SDI, often settles
for a fraction of the total lien. This results in a substantial
but unknown cost on the worker supported SDI system.
Each of these situations suggests that substantial resources are
being shifted between the SDI system and the workers' compensation
system. This may result in higher taxes on -- or lower benefits
to -- workers who are taxed to support the SDI system.
The Commission is developing an Issue Paper on cost shifting between
the State Disability Insurance system (SDI) and the workers'
compensation system, expected at the end of 1997.
Industrial Disability Retirement Issue
The Commission was made aware that disability definitions and
methods of determining disability differ among the various compensation
An injury can result in payments from more than one system as
the claim matures. Since definitions and determination methods
differ, benefits can be delayed and costly additional evaluations
required. Also, if benefits are substantially delayed, the injured
worker may be forced back to inappropriate employment that could
result in additional injury.
While competing demands lead to legitimate delays, complaints
are common that the interaction of the various systems has become
subject to excessive delays and inefficient levels of additional
medical evaluations. As an example, the California Correctional
Peace Officers' Association (CCPOA) has been particularly
frustrated over delays in PERS disability retirement determinations.
The Commission is developing an issue paper regarding the interaction
among industrial disability retirement determinations in various
systems, expected to be issued in late 1997.
The Permanent Disability Rating Schedule
Enacted by the 1993 reform legislation, Labor Code Section 4660
directs the administrative director of the Division of Workers'
Compensation 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.
The Commission has also encouraged the Industrial Medical Council
to develop training programs for physicians regarding improving
the quality of physician reports for the rating of permanent disabilities.
CHSWC Physician Report Study
The Commission has contracted with UC Berkeley Survey Research
Center to determine the nature and magnitude of the physician
report problem, ascertain who is producing incomplete reports
and why, and develop quantitative analysis, provide recommendations
for improving the quality of the reports, and calculate the cost
benefit obtained from the system.
The evaluation is being done on a random sample of reports drawn
from the Disability Evaluation Unit. The sample is drawn in conjunction
with the Industrial Medical Council, who determines the status
of the reporting doctor -- QME or treating physician -- and participates
in the evaluation of the reports done by QMEs. The costs of reports
are 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 1997.
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 latest revision of the Permanent
Disability Rating Schedule is not a long term solution for either
promptness of rating or equity in permanent disability monies
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
CHSWC 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:
CHSWC 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 State's competitive Request
for Proposals process.
The study is evaluating how workers' compensation permanent
disability benefits are currently determined and delivered in
the California workers' compensation system. It examines
the extent to which the current system meets the goals and objectives
set forth in the constitutional mandate and whether the system
can be improved to better meet those goals.
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 meetings have been well
attended and well received. The latest meeting of the Advisory
Committee was held in July 1997.
RAND will produce a report of preliminary findings from this study
of workers' compensation permanent disability in September
CHSWC Public Forum on the Permanent Disability Study Findings
The Commission will host a public forum on the RAND report of
preliminary findings on workers' compensation permanent
disability in November 1997.
This public forum will provide the opportunity for experts, members
of the community, and the public to discuss the report and share
observations and opinions. The RAND report and the reaction to
its findings will support Commission recommendations for legislative
and/or administrative changes to the permanent disability program.
This public forum entitled "Summit on California Workers'
Compensation Permanent Disability" is scheduled to take
place on Friday, November 21, 1997 at the South San Francisco
Conference Center near the San Francisco Airport. Further information
about the PD Summit is available by contacting the Commission.
Commission/Community Recommendations on Permanent Disability
The Commission plans to create blue-ribbon advisory committees
to assist in the development of feasible recommendations and workable
plans to improve the permanent disability system.
These policy and technical committees, comprised of experts and
community members, will work together to determine the feasibility
of and further detail the recommendations of the CHSWC-sponsored
study of permanent disability conducted by RAND.
The goal is to develop a consensus report, including recommendations,
action plans and proposed legislation based on the preliminary
findings of the RAND study and input from the community.
The Official Medical Fee Schedule 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 these concerns.
California Labor Code Section 5307.1(a)(1) states:
"The administrative director, after public hearings, shall
adopt and revise, no less frequently than biennially, an official
medical fee schedule which shall establish reasonable maximum
fees for medical services provided pursuant to this division.
No later than January 1, 1995, the administrative director shall
have revised the schedule. By no later than January 1, 1995,
the schedule shall include services for health care facilities
licensed pursuant to Section 1250 of the Health and Safety Code,
and drugs and pharmacy services. The fee schedule for health
care facilities shall take into consideration cost and service
differentials for various types of facilities."
Official Medical Fee ScheduleOfficial 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.
Pursuant to Labor Code Section 5307.1, the fee schedule is to
be reviewed and revised every 2 years.
During 1996 and into 1997, DWC reports that a fee schedule advisory
group was convened through the Industrial Medical Council, in
cooperation with the Division of Workers' Compensation.
In July 1996, the IMC contracted with Medicode to compare the
current OMFS with other payment schedules. Medicode submitted
its analysis in late 1996 amidst questions of the methodology,
and discussion continued in the advisory group.
IMC reports that the Official Medical Fee Schedule Advisory Committee
conducted a page by page review of the Official Medical Fee Schedule.
Among the topics covered in committee deliberations were: 1)
to use the 1997 CPT to update the OMFS; 2) numerous clarifications
to the fee schedule groundrule language; 3) allow for reimbursement
for copies of medical documentation; 4) allow for reimbursement
for the treating physician's permanent and stationary report;
5) provide for written confirmation of verbal authorizations
for treatment; and 6) whether to increase the conversion factors
for payment for medical services.
DWC reports that it expects to hold hearings in the fall of 1997
on changes recommended by the advisory group and other changes
proposed by the Division, in order to have a new fee schedule
available in 1998.
Medical-Legal Fee Schedule
To address the costs of medical legal reports, Labor Code Section
5307.6 was enacted mandating that the DWC administrative director
adopt and revise a medical-legal fee schedule at the same time
that the Official Medical Fee Schedule is adopted and revised
pursuant to Labor Code Section 5307.1.
The current medical-legal fee schedule -- CCR §9795 -- went
into effect on August 3, 1993, and applies to all medical-legal
evaluations, not just the initial evaluation.
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. The IMC
is required by the Labor Code to recommend to the Administrative
Director reasonable levels of fees for physicians who treat and
evaluate industrial injury in the California workers compensation
system. In response to this mandate, the IMC hosted an advisory
committee, the Medical/Legal Fee Schedule Task Force, comprised
of representatives of major workers compensation insurers, employers,
bill review companies and provider groups from throughout California.
The Medical/Legal Fee Schedule Task Force studied the potential
for developing an entirely new basis for assessing the complexity
of and for compensating for medical/legal evaluations and formulated
clarifying amendments to the existing Medical/Legal Fee Schedule
regulations. It was the conclusion of the committee that the
proposal for a new medical/legal complexity scale should be studied
and tested for another year prior to being considered for adoption.
The topics reviewed by the Task Force included: 1) providing
for a missed appointment fee; 2) clarifying and adding complexity
factors for ML 103's and ML 104's; 3) clarifying
the language of modifiers; and 4) whether to increase the conversion
factors or the RV for each ML level.
The IMC reviewed the recommendations of the two task forces and
forwarded to the Administrative Director its endorsement of the
Hospital Fee Schedule
The reform legislation requires that the Division of Workers'
Compensation issue a Hospital Fee Schedule by January 1, 1995.
The enabling legislation specified that DWC should consider cost
and service differentials for various types of facilities.
The Division held public hearings in December 1995 on the proposed
schedule. During the hearings and the subsequent comment period,
the Division received constructive feedback on alternatives and
suggested modifications to the schedule.
New regulations to establish an inpatient hospital fee schedule
were promulgated in December 1996 and were scheduled to take effect
April 1, 1997 for all hospital admissions involving workers'
compensation cases in California. Outpatient services provided
by hospitals were previously covered by DWC's Official
Medical Fee Schedule.
The fee schedule as set forth in Title 8, California Code of Regulations
Sections 9790.1 and 9792.1 applies to inpatient services where
the date of admission is on or after April 1, 1997. The new schedule
provides that maximum payments to hospitals for specific diagnoses
are calculated by applying a constant "composite"
factor assigned to each hospital and derived from the federal
Medicare program, along with a weight based on the injury diagnosis.
However, on March 31, 1997 the Community Care Network, Inc. obtained
a temporary restraining order preventing the administrative director
from "computing, administering, or implementing the 'Instructions
for Payment of Inpatient Hospital Bills" pending a hearing
on April 9, 1997. At the hearing on April 9, 1997 the Superior
Court Judge extended the temporary restraining order.
On May 9, 1997, the Superior Court denied Community Care Network's
request for a preliminary injunction. In a subsequent hearing
on May 16, 1997, the judge upheld his earlier hearing but granted
CCN a 45 day "stay" in order for them to appeal the
ruling. An appeal has been filed, and further action on implementation
of the inpatient fee schedule remains on hold.
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
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
Director. Plans themselves need not be submitted to the Division,
but a summary of the program must be made available to DWC upon
Since the regulations were promulgated, approximately 100 claims
administrators have filed notice of use of utilization review
with the Division.
DWC reports that implementation of the utilization review regulations
has raised issues, including how to allow for telephone authorization
of medical treatment, while assuring that authorized treatment
is paid for; and how to reduce the paperwork required in current
requirement that every written request for authorization be responded
to in writing.
During 1996 and 1997, the Industrial Medical Council (IMC) completed
the project of adopting guidelines to be used by treating physicians
in the California workers' compensation system. Seven
new treatment guidelines for the treatment of common industrial
injuries were adopted, after extensive public hearing and input.
In 1994, when the mandate in Labor Code § 139(e)(8) to adopt
treatment guidelines became law, the IMC identified eleven common
industrial injury conditions to be addressed by the guidelines.
These injuries included: occupational asthma, contact dermatitis,
low back problems, injuries to the neck, knee, shoulder, elbow
and four conditions related to the hand and wrist (Carpal Tunnel
Syndrome, De Quervain's Tenosynovitis, Hand & Wrist
Tendonitis/Tenosynovitis, Chronic Wrist Pain). The IMC subsequently
added post traumatic stress disorder as another condition warranting
a treatment guideline. Each guideline was reviewed and adopted
by the IMC after a statewide public comment and hearing process.
The treatment guidelines became effective as regulation in Title
8 of the California Code of Regulations, as follows:
|Treatment Guideline Topic||Effective Date|
|§ 70||Low Back Problems||July 3, 1997|
|§ 71||Neck Problems||August 18, 1997|
|§ 72||Occupational Asthma||October 18, 1995|
|§ 73||Contact Dermatitis||October 18, 1995|
|§ 74||Post-Traumatic Stress Disorder||February 23, 1997|
|§ 75||Shoulder Problems||August 15, 1997|
|§ 76||Knee Problems||June 13, 1997|
|§ 76.5||Elbow Problems||August 15, 1997|
|§ 77||Problems of the Hand and Wrist|| August 16, 1997|
During 1997 and 1998, the IMC will devise and initiate a "Continuous
Quality Improvement" (CQI) review of the guidelines, in
order to update the guideline text. The CQI process will begin
with the earliest guidelines, treatment of asthma and contact
dermatitis. The IMC expects to review and update each treatment
guideline at least every 18 months.
Forensic physicians in the California workers' compensation
system are required to perform medical/legal evaluations in conformity
with the guidelines for doing such evaluations adopted by the
Industrial Medical Council. In prior years, the IMC adopted into
regulation guidelines for evaluating psychiatric disability, immunologic
disability, neuromusculoskeletal disability, as well as cardiac
and pulmonary disabilities.
During 1997, the IMC initiated the "CQI" process
to update and revise two existing evaluation guidelines: §
44 Method of Evaluation of Pulmonary Disability and § 45
Method of Evaluation of Cardiac Disability. Public hearings on
each guideline were held in southern and northern California in
late June 1997. At the close of the fiscal year, the IMC was
reviewing the comments received for possible amendments to the
proposed guideline text. The updated guidelines should become
regulation by the fall of 1997.
24-Hour Care Pilot Project
Labor Code Section 4612, adopted in 1992 and amended in 1993,
established three year pilot programs of 24 hour health care in
California. These programs were set up to test the administrative
efficiencies, cost control potential, and service capabilities
of having a single system provide health care for occupational
and nonoccupational injuries and illnesses.
Under traditional workers' compensation law, workers often
have different sources of medical care, depending on whether an
injury occurred at work or was not work-related. Typically, workers
choose their own physician for care provided under their nonoccupational
health plan (if they have health coverage). When injured on the
job, employers typically determine the primary care provider.
Under the pilot programs, workers have a single network of providers
for both on- and off-the-job health problems. Employees signing
up for the program agree to receive all medical care for on and
off the job injuries from an "exclusive provider"
of health care for up to one year, in contrast to the 30 day period
of medical control that employers have under traditional programs.
Employees have a choice as to whether to enroll or maintain
their traditional system.
Four individual pilot program designs were approved after the
application period in 1994. Since their approval, one of the
four has dropped its participation, and another has experienced
low enrollments. The vast majority of participating employers
and employees are under two related projects, emanating from the
northern and southern regional offices of the state's largest
health maintenance organization.
Implemented in 1994 with the participation of five employers in
San Diego County, the program now includes over 65 employers in
four counties. Enrollments in pilot programs have grown steadily
and currently stand at nearly 8,000 employees in participating
A comprehensive evaluation, largely funded by external foundation
grants, is now underway to test a series of questions. The evaluation
is being conducted by a consortium of the UCLA School of Public
Health, the Rand Institute, and UC-Berkeley's Survey Research
Center. The bulk of the financing comes from the Workers'
Compensation Health Initiative of the Robert Wood Johnson Foundation,
with other funding from the Rand Institute and from assessments
on participating employers. The survey instruments and study
methodology are likely to be put to use in evaluating other statesí
experience in 24 hour health care programs.
In March 1997, the Division of Workers' Compensation issued
the "Interim Report to the Legislature: 24 Hour Pilot
Programs under Labor Code Section 4612", which provides
further information. A final report to the Legislature is due
at the end of 1998, one year after the close of the pilot programs.
In early 1997, Senate Bill 410 (Johnston) was proposed to extend
the 24 hour coverage pilot programs from 36 to 60 months. SB
410 failed in committee.
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:
At least one of the HCOs must offer a fee-for-service option.
Employees may still predesignate any physician as their primary
treating physician and thereby avoid having any period of employer
control over medical care for work-related injuries.
As of August 1997, DWC reported that there were ten entities certified
as Health Care Organizations:
|FHP Life Insurance Co.|
|Greaney Medical Group|
|Eisenhower Medical Center|
|Health Plan of the Redwoods|
|Kaiser Foundation Health Plan,
|Medex HealthCare Inc.|
Efforts have been made to streamline the regulatory process by
locating HCO certification and monitoring in a single agency,
the Division of Workers' Compensation.
Senate Bill 1063 (Peace), eliminating the role of the Department
of Corporations in the HCO certification process, was passed by
the Legislature and signed into law by the governor in August
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.
CHSWC Medical-Legal Study
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
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 first study report and findings
were published in July 1996.
The Commission elected to extend the Medical-Legal study for another
year and a second report, incorporating findings for the 1995
accident year, was published in July 1997.
Total Cost of Medical-Legal Exams
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 2 , has dropped 85 percent from a high of $394.5 million for the 1991 accident year to an estimated $58.8 million for the 1995 accident year.
Sources of Savings
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.
Number of PPD Claims
The number of PPD claims decreased from about 137,000 in 1989
to an estimated 85,000 in 1995. This decrease was driven by a
decline the number of reported injuries. Also, a substantial portion
of the decline in PPD claim frequency may be the result of a steep
drop in the number of claims with a psychiatric component, efforts
to reduce fraudulent claims and restrictions on post-termination
Average Cost of Medical-Legal Exams
The average cost per medical-legal exam has dropped 48 percent
from a high of $987 for 1990 accident year claims to an estimated
$518 for 1995 accident year claims.
The study team determined that the decrease is the result of three
Number of Exams per Claim
The average number of medical-legal exams per claim has dropped
more than half from 2.3 in accident year 1990 to an estimated
1.1 in accident year 1995.
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, coverage
of all issues in a single "comprehensive" evaluation,
and an aggressive effort to reduce psychiatric exams.
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 claims.
As shown in the following chart, the total cost of psychiatric
medical-legal exams dropped from a high of $93.8 million for the
1991 accident year to an estimated $5.8 million for the 1995 accident
year. This represents a savings of $88 million, or 94 percent,
in the cost of psychiatric-related medical-legal exams. This
reduction accounts for 26% of the overall reduction in all medical-legal
costs between the 1991 and 1995 accident years.
Improvement on Represented Claims
When these data are further disaggregated, it is clear that the
decline in the number of exams is being driven primarily by the
improvement on the represented claims. The following chart shows
the data disaggregated by represented/unrepresented and major/minor
Regardless of whether the injury is major or minor, the represented
cases in this period have had more exams than the unrepresented.
This gap is, however, narrowing. While the frequency of exams
on unrepresented claims has changed little, the change on represented
cases has been substantial.
"Minor" means a claim with a permanent disability rating of less than 25%.
Time to Case Resolution
There has been no significant improvement in the rate at which
cases close. The study team determined there are no significant
differences in the time taken to case resolution in the 1990s.
After controlling for injury severity, the number and type of
specialty exams, and presence of employee legal representation,
there is no statistically significant improvement in time to case
resolution between 1990 and 1993, despite the variety of reforms
which have been enacted during that time. Indeed, the only statistical
difference between any particular accident years that was found
is that cases following 1989 appear to be resolved more slowly
than cases arising during the 1989 accident year.
The 1996 report by the Commission evaluating the reforms to the
medical-legal process found dramatic improvements since 1989 in
the cost and frequency of medical-legal reports. Much of that
analysis required projections for the 1993 and 1994 accident years.
The current report, using more recent data, confirms those savings
and the accuracy of the projections.
These more recent data also suggest that the substantial savings,
especially for the 1993 and 1994 accident years, continue into
the 1995 accident year. The 1996 report found that substantial
savings resulted from changes in the Medical-Legal Fee Schedule
and the decline in psychiatric exams and claims. These trends
continue to be demonstrated in the 1997 report's findings.
In addition, data for the 1994 and 1995 accident years suggests
an additional source of major cost savings, the reintroduction
of the role of the treating physician. This legislative change
is likely responsible for a substantial portion of the decline
in the average cost and frequency of medical-legal reports on
claims occurring after January 1, 1994. However, these data for
1994 and 1995 injuries come from special panels that are smaller
than the full panels drawn for 1989-1993. The survey conducted
during the current year, with a full panel of 3500 claims for
1994 injuries, will be important in analyzing this trend.
Finally, analysis of the time required to resolve PD claims continues
to demonstrate the resistance of the system to more rapid claim
resolution. The full 1994 panel, available late in 1997, will
be critical to determining if the 1993 reforms have finally been
able to achieve the goal of speeding up the claim resolution process.
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 1998.
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 as of March
25, 1997, nine carve-out agreements have been reached.
For the 1995 calendar year, DWC reports that 242 employers were
participating in the carve-out program. By the end of 1996, DWC
reports that preliminary statistics show that this had grown to
277 employers under 9 general programs.
DWC also indicated that growth in the amount of experience under
the program was more dramatic. In 1995, the program covered approximately
6.9 million workhours and $157.6 million in payroll. Preliminary
results show that during 1996, the program covered over 11.6 million
workhours, with $272 million in payroll.
Carve Out /Alternative Workers' Compensation Programs
The Commission is carrying out an evaluation of collectively bargained
workers' compensation programs in the California construction
industry, also known as "carve-outs".
Originally proposed by The Center to Protect Worker' Rights
in Washington DC, the study is being independently conducted and
funded by the Commission.
This independent, outside study is taking an important first step
for the long term evaluation of the effectiveness of alternative
workers' compensation programs. This identification and
establishment of baseline measurements could form the foundation
for a nationwide study of such programs.
The first phase of this study is to describe the carve-out programs
that have been established and to determine the acceptability
of these programs through interviews with unions and employers,
program administrators, workers who have incurred claims, employers
who are covered by the programs and service delivery providers
engaged by the programs. This first phase is scheduled to be
completed in December 1997.
As with all Commission projects, an advisory group has been formed
to assist in this endeavor. The Center to Protect Workers'
Rights is serving as an ex-officio member, and interested members
from the California workers' compensation community are
serving on that committee.
Reform Anti-Fraud Provisions
The reform legislation included provisions to deal with suspected
fraud in workers' compensation claims. 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 legislation also established the Fraud Assessment Commission
(FAC). The FAC is funded by an assessment on California employers.
The FAC 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.
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 was derived 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 attorneys' offices.
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. The Fraud Division established a performance audit
process to determine whether they are in compliance with the code
and regulatory requirements to combat fraud.
CHSWC Public Hearing/Open Forum on Workers' Compensation
As partial fulfillment of its responsibilities to evaluate the
impact of the worker' compensation reform legislation,
the Commission on Health and Safety and Workers' Compensation
decided to examine California's workers' compensation
To assist in this examination, CHSWC conducted a public fact-finding
hearing on workers' compensation anti-fraud activities
on Thursday, February 20, 1997 at the Junipero Serra State Building
in Los Angeles.
The purpose of the fact-finding hearing was to bring representatives
from the California workers' compensation community and other
interested persons together
Review and Comments
From the oral and written testimony at the fact-finding hearing,
CHSWC developed draft findings and recommendations for legislative
and/or administrative changes to improve anti-fraud activities.
Since specific responsibilities for dealing with workers'
compensation fraud are assigned to the Fraud Assessment Commission
and the Department of Insurance, the draft findings and recommendations
were shared with those agencies for review and comment.
The Commission has adopted those findings and recommendations
supported by the Department of Insurance and the Fraud Assessment
The Commission will host an "Anti-Fraud Roundtable"
for the community and the public to discuss those draft findings
and recommendations not supported in their current form by the
DOI and the FAC.
Findings and Recommendations
The Commission has the following findings and recommendations
on the current status of workers' compensation fraud:
The Commission also adopted findings and recommendations regarding
deterring fraud, detecting fraud, incentives/barriers in fighting
fraud, roles in fighting fraud, administration of the fraud assessment,
distribution of the fraud assessment, and measuring effectiveness
of anti-fraud efforts.
CHSWC Anti-Fraud Roundtable
As noted above, the Commission will host an "Anti-Fraud
Roundtable" for the community and the public to discuss
those draft findings and recommendations from the CHSWC Fact-Finding
Hearing not supported in their current form by the Department
of Insurance (DOI) and the Fraud Assessment Commission (FAC).
Tracking Illegally Uninsured Employers
The Commission recognizes that employers who are insured for workers'
compensation are placed at a competitive disadvantage with respect
to illegally uninsured employers. Especially in industries with
high premium rates, the illegally uninsured employer is able to
underbid the insured employer.
Insured employers are again disadvantaged when taxes are raised
to cover costs shifted to government services to assist the injured
workers of employers who are illegally uninsured. In addition,
regulations have made it increasingly more difficult for injured
workers to obtain benefits from the state-supported Uninsured
Several states, including Wisconsin and Colorado, have been using
proactive programs to identify uninsured employers using computerized
lists of employers and their workers' compensation policies.
These have proved very successful at bringing uncovered employers
CHSWC Issue Paper on Illegally Uninsured Employers
The Commission has developed an issue paper on its project to
identify and bring into compliance various employers who are illegally
uninsured for workers' compensation. By reducing the number
of illegally uninsured employers, this project aims to provide
proper workers' compensation coverage for workers, to reduce
the cost to the Uninsured Employers Fund and the state's
General Fund, and to level the economic playing field for insured
As with all Commission projects, the Commission staff, in cooperation
with the University of California, convened an advisory committee
composed of interested persons from the workers' compensation
The following are two of the major findings in the uninsured employers
To address these and other findings, the issue paper includes
the following recommendations:
The Commission recommended other possible legislative actions,
Executive Summary: Findings and Recommendations
Section I The Commission on Health and Safety and Workers' Compensation
Section II Reform Legislation Impact on the Workers' Compensation
Section III Workers' Compensation Issues
Section IV Health and Safety Issues
Section V Program and Agency Operations
Section VI Commission's Future Activities