CHSWC, created by the workers' compensation reform legislation, is charged with overseeing the health and safety and workers' compensation systems in California and recommending administrative or legislative modifications to improve their operation. CHSWC was established to conduct a continuing examination of the workers' compensation system and of the state's activities to prevent industrial injuries and occupational diseases and to examine those programs in other states.

From its inception in 1994, CHSWC began the process of assessing the impact of the 1993 workers' compensation reform legislation -- a package of several bills that made widespread and significant changes to the California workers' compensation system.

The Commission has engaged in several projects and studies to evaluate how certain areas of the California workers’ compensation system have been affected by the reform legislation and other influences, such as the economy. This past year, CHSWC has also emphasized occupational health and safety, especially the prevention of industrial injuries. The Commission hosted the California Forum for Workplace Health and Safety, a public educational program devoted to workplace injury prevention, safety and return-to-work.

The Commission has directed its efforts to identify and assess problems and to provide an empirical basis for recommendations and/or further investigations. The Commission contracts with independent researchers to insure objectivity, incorporate a balance of viewpoints, and produce the highest quality analysis and evaluation.

CHSWC activities involve the whole community – employees and employers, labor organizations, insurers, attorneys, medical and rehabilitation providers, administrators, educators, government agencies and members of the public. These individuals and organizations have participated in CHSWC meetings, fact-finding hearings and have served on advisory committees to assist CHSWC and independent researchers on projects and studies. The common goal of all the parties in these efforts is to achieve a system that delivers the proper benefits to injured workers in a prompt and cost-effective manner.

These concerted efforts, combining rigorous analytical approaches with real world data and experience, have yielded insightful findings on important programs. The Commission’s recommendations for system improvements are based upon the results of these activities.

The following pages contain the Commission’s recommendations for legislative or administrative changes and/or for further study. In some instances, where recommended changes have widespread support and do not require legislative action, the Commission and the community have continued their work together by developing and implementing corrective actions. In addition, some project findings have formed the basis for community members to take action in the legislative arena.

The Commission is recommending that the Legislature and the community consider the following actions to enhance and sustain the health, safety and workers’ compensation systems in California.

Consider Workers’ Compensation Benefit Increases

        Increases in benefits should be targeted
        Utilize Workers’ Compensation Benefit Simulation Model

          Promote Return to Work

        Focus on returning the injured worker to the same or an alternate job with the same employer
        Consider increasing incentives for returning permanently disabled workers to jobs with the same employer
        Consider increasing options for injured workers entitled to the vocational rehabilitation benefit

Improve the Workers’ Compensation Medical Delivery System

Reconsider the Treating Physician Presumption
Revise the Inpatient Hospital Fee Schedule and establish an Outpatient Surgery Fee Schedule
Revise the workers’ compensation pharmaceutical cost structure for potential savings

Improve Workers’ Compensation Information

Establish requirements for the provision of information to injured workers
Improve the Workers’ Compensation Benefit Notice program

Eliminate the ‘baseball arbitration’ provisions of Labor Code Section 4065
Clarify Labor Code Section 5814 regarding penalties for ‘unreasonable’ delays
Clarify workers’ compensation coverage liability for persons in training programs

Ensure the Solvency of the California Workers’ Compensation System
Ensure Ongoing and Objective System Evaluations

Monitor Workers’ Compensation Benefit Levels
Revise the DWC Workers’ Compensation Audit Function
Amend Labor Code Section 138.7 to allow CHSWC access to data
Revise Labor Code Section 78(b) to change the funding mechanism for the Commission on Health and Safety and Workers’ Compensation

Continue anti-fraud activities in the workers’ compensation system

Coordinate and focus anti-fraud efforts
Establish requirements to identify illegally uninsured employers and bring them into compliance
Require workers’ compensation anti-fraud notices or warnings be given to employers and insurers, similar to those given to workers

Continue improving the DWC/WCAB judicial function
Consider utilizing technology to support and manage office operations
Improve DWC information systems
Consider statutory time limitations on lien filings

Establish a California Occupational Research Agenda
Protect and educate young workers
Consider recommendations from the ‘California Forum for Workplace Health and Safety’

These recommendations are discussed in detail on the following pages.

The Commission wishes to ensure that workers sustaining industrial injuries and illnesses and their dependents, if the injury is fatal, receive adequate workers’ compensation benefits in a timely manner.

The Commission’s ongoing study of workers’ compensation permanent disability has been evaluating how well the PD benefit compensates for wage losses sustained by injured workers. The study has found that on average, even with the 1994 reform increases, permanently disabled injured workers sustain significant uncompensated wage loss. This remains true even when their PD rating is small.

Through this study of permanent disability and other aspects of the system, the Commission and the community realize that the levels of workers’ compensation benefits over the years have not kept pace with the economic consequences incurred by industrially injured workers.

CHSWC recommends that the stakeholders and the workers’ compensation community work together to address this issue. The Commission recommends a dual approach to reducing uncompensated wage loss:

Permanent disability benefit payment levels have been adjusted several times since 1984. These adjustments have included changing both the weekly maximum and the number of weekly payments. In addition, greater distinction was drawn between disability levels by adding higher maximum benefit levels for more severe claims. The very highest disability levels received the greatest increase in the maximum weekly benefit level.

However, the impact of the increases since 1991 for the majority of PD recipients have been more than offset by the effect of inflation on the value of the benefit.

The permanent partial disability benefit has lost more than a quarter of its value in the last 17 years. After adjustment for inflation, the average permanent disability benefit in 2001 was only about 73% of its value in 1984.

The temporary disability benefits are adjusted systematically and periodically in most states to address the effects of inflation. This approach also minimizes the negative impacts on employees and employers.

CHSWC recommends that PD benefit increases be targeted and that the "Workers’ Compensation Benefit Simulation Model" be utilized in this process. In addition, consideration should also to given to making ongoing adjustments to mitigate against temporary disability benefit value erosion.

Permanent disability benefits both compensate workers for their losses and provide income to those in need. CHSWC studies have shown that many workers are not compensated well (low-rated claims, whose replacement rates are too low) while other workers have real unmet need (high-rated claims, whose uncompensated losses are high).

The erosion of the value of the permanent partial disability benefit has been most seriously felt by the more than 40% of all permanent disability recipients with ratings under 15%. For this group of lower rated claims, no benefit increase has been enacted since 1984 and the inflation-adjusted value of the benefit is 57% of what it was in 1984.

Concerns have been expressed that proposed increases in workers’ compensation benefits would have a negative impact on the California economy and on California employers and employees.

The Commission engaged in a project to analyze workers’ compensation benefit costs in relation to the larger California economic picture. Data utilized in these analyses were derived from a variety of sources, including the Legislative Analyst’s Office, the Office of Economic Research, the Department of Finance, the Division of Labor Statistics and Research, the Workers’ Compensation Insurance Rating Bureau of California, the California Workers’ Compensation Institute and other organizations. The Survey Research Center at the University of California at Berkeley contributed expertise and technical models.

A Commission-DIR-UC Berkeley project team developed a PC-based Benefit Micro-Simulation Model to assist in the analyses of potential legislative changes to the workers’ compensation benefit levels. The model can prove to be very useful to policymakers and the workers’ compensation community by serving as a tool:

• To test the impact of any benefit change or combination of benefit changes on the distribution of benefit replacement rates
• To estimate the cost of benefit changes.

The workers’ compensation community has expressed concern that significant numbers of injured workers in California do not return to work as early as feasible, nor do they return to work with appropriate work restrictions. These workers experience unnecessary and often permanent losses in their functional capacity and their ability to work. Employers lose valuable employees and incur increased costs.

In promoting return to work, CHSWC emphasizes

Consider increasing incentives for returning permanently disabled workers to jobs with the same employer

The Commission study of permanent disability, conducted by RAND, has found that permanently disabled workers who return to work at the same employer have reduced levels of uncompensated wage loss over a five-year period.

The Commission’s study of the vocational rehabilitation program also found that injured workers have greater success at rehabilitation when they return to alternate or modified work with the same employer.

Vocational Rehabilitation (VR), a mandatory workers’ compensation benefit established in 1975, is intended to return qualified workers to "suitable gainful employment". VR provides for vocational counseling, training, and "return to work" services.

The legislature enacted a series of reforms in 1993 meant to improve the workers’ compensation system. A major component of the legislative package was a set of reforms to the Vocational Rehabilitation benefit, aimed at reducing the cost of VR while maintaining or improving the outcomes for these seriously injured workers. The reform legislation made major changes affecting the level and delivery of the vocational rehabilitation benefit:

The Commission contracted for a study to help evaluate the impact of the workers’ compensation reform legislation on the vocational rehabilitation system. The study found that as a result of reforms, the cost of the Vocational Rehabilitation benefit was cut in half. Nearly three-quarters of the saving was a result of the cap placed on total cost, the cap placed on QRR services and the limitation placed on the number of plans. Over one-quarter (28%) of the savings resulted from shifting workers from use of vocational rehabilitation services into modified and alternate work with the at-injury employer.

However outcomes for seriously injured workers remain poor. Much remains to be done to improve post-injury employment outcomes for all seriously injured workers, especially for particularly hard-hit segments of this group. The preliminary results from the Commission’s study highlight substantial problems for older workers, seriously injured workers, and workers who suffer injuries that result in substantial levels of chronic pain.

Some of the 1993 changes sought to reduce judicial discretion and increase the consistency of case outcomes. While many of the measures were successful in reducing costs, the perception remains that the system is still too complicated and inefficient.

During the 1990s, medical care under workers’ compensation was modified in a number of ways.

Legislation enacted as part of the 1993 workers’ compensation reforms 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. Other reform innovations include a pilot project to test the feasibility of merging occupational and nonoccupational medical care into one insurance product offering ‘24 hour’ coverage. The reforms also mandated revisions to the Official Medical Fee Schedule and the development of a hospital fee schedule.

Before 1993, whenever a medical issue arose in a workers’ compensation case, many medical reports were involved in the resolution. In addition to the reports of the treating physician, the applicant and the defendant were each entitled to procure a medical-legal evaluation and report, in each appropriate medical specialty.

In the 1993 reforms, the treating physicians were required to report on all medical issues necessary to determine eligibility for compensation. In addition, whenever another medical evaluation is obtained, the findings of the treating physician are presumed to be correct. The intention was that this would reduce the cost of medical-legal reports and give less biased opinions.

The Commission contracted with the University of California for a project to evaluate the role of the treating physician, the quality of treating physician reports, and the cost-benefit of the presumption of correctness of treating physician reports. At the request of Senator Patrick Johnston’s office, the Commission has continued the study to update the initial findings.

The CHSWC studies of Treating Physician Presumption by UC Berkeley:

• Indicated that changes to the status of the treating physician made during 1993 reforms have resulted in medical-legal decisions based on poorer quality reports without apparent cost savings.
• Examined how the presumption has affected costs of the workers' compensation system for claims 1993 through 1996 that settled by the end of 1998. The study found that the presumption seems to have an impact on temporary disability duration -- there was a 15-day increase in duration when the worker is represented (by an attorney) and has control of the doctor than when the worker is represented and does not have control.
• In addition, there seems to be consensus within the WCAB that the presumption has increased litigation and curtailed the discretion of the Workers’ Compensation Judges to craft reasonable decisions within the range of evidence.

Revise the Inpatient Hospital Fee Schedule and Establish an Outpatient Surgery Fee Schedule Based on Reliable Data

Until the current Inpatient Hospital Fee Schedule (IHFS) became effective in April of 1999, the California workers' compensation system included an Official Medical Fee Schedule that covered physician services, but did not cover hospital facility fees. The schedule, mandated by Labor Code Section 5307.1, is used for payment of medical services required to treat work-related injuries and illnesses. According to the Labor Code, the Administrative Director is required to adopt and revise the medical fee schedule every two years.

The IHFS takes into account cost and service differentials for various types of facilities based on the federal Medicare Fee Schedule. As in Medicare, reimbursement for each hospital differs depending on a number of factors that have an impact on the hospital’s costs and services. Diagnostic Related Groups specify global fees for certain procedures and are designated by numbers. DRG weights are assigned by the Health Care Financing Administration (HCFA) for the purpose of determining reimbursement under Medicare. The maximum reimbursement rate for inpatient medical services is obtained by "multiplying 1.20 by the product of the health facility’s composite factor and the applicable Diagnostic Related Group (DRG) weight".

Since the implementation of the IHFS, the Division of Workers’ Compensation has received several letters from hospital and physician expressing their dissatisfaction with the Schedule. Some of the problems reported are:

The study is being conducted in two phases. The first phase is an analysis of the adequacy of the current Fee Schedule methodology, including comparisons by Diagnostic Related Groups (DRG) to payments for Medicare, Group Health and workers’ compensation. The second phase of the study will develop recommendations regarding instituting an outpatient or ambulatory surgery fee schedule.

In the meantime, DWC has adopted amendments to the fee schedule regulations regarding reimbursement for the costs of implantable instrumentation and hardware for spinal related surgeries under DRGs 496-500. Hospitals will also be reimbursed a supplemental outlier fee when charges exceed an allowed amount plus a predetermined hospital-specific outlier factor. These changes were filed with the Secretary of State on March 14, 2001 and will be effective for admissions that occur on or after April 13, 2001.

Preliminary findings of the Commission’s study have shown that:

The 1993 reform legislation amended Labor Code Section 5307.1 to require that the Administrative Director of the Division of Workers’ Compensation include ‘drugs and pharmacy services’ in the Official Medical Fee Schedule (OMFS).

In response to that mandate, the 1993 Official Medical Fee Schedule included a "Pharmaceuticals" section which provides that reimbursement for the dispensing of all pharmaceuticals shall be the lesser of

The formulas for establishing fair and reasonable fees and charges for brand-name and generic pharmaceuticals are specified in the Official Medical Fee Schedule:

Brand Name Pharmaceutical Formula:
    Average Wholesale Price (AWP) times 1.10 plus a $4.00 dispensing fee.

Generic Pharmaceutical Formula:
    Average Wholesale Price (AWP) times 1.40 plus a $7.50 dispensing fee.

When a generic pharmaceutical costs more than a brand name pharmaceutical, according to these formulas, the fair and reasonable price will be the brand name equivalent, as calculated by the formula.

At the request of the Commission, staff performed initial research, which indicated that California’s workers’ compensation system has high reimbursement rates for pharmaceutical bills relative to Medicaid, employer health benefits, and other states’ workers’ compensation systems reviewed. The Workers’ Compensation Insurance Rating Bureau (WCIRB) reports that medical benefits paid to pharmacies increased 37% between 1999 and 2000.

The Commission then engaged in a project to assess workers’ compensation pharmaceutical costs and identify potential savings. The key question of the study was to determine changes in pharmaceutical costs within workers’ compensation under different fee schedule structures. The research team has made recommendations to the Commission on which fee schedule structures are most consistent with reasonable reimbursement to pharmacists and reasonable costs to employers.

When an employee files a claim for worker’s compensation, the employer or insurer is responsible for communicating the status of the claim to the employee by means of a series of benefit notices. The benefit notice program is intended to be a key communication tool between the claims administrator and the injured worker, keeping the worker informed about important changes in the status of his or her workers’ compensation claim.

The workers’ compensation community has long criticized the benefit notice system as confusing and ineffective. Through its various studies and analyses, the Commission has confirmed that:

• The Benefit Notice system is complex, cumbersome, and not currently designed to provide meaningful information to injured workers regarding benefit levels or to collect appropriate data to monitor prompt delivery of proper benefits.
• Current benefit notices are not readily comprehensible and result in confusion to injured workers and all parties.

Final offer arbitration – also known as ‘baseball arbitration’ – was introduced into the workers' compensation decision process as a result of the 1993 reforms.

Labor Code Section 4065 provides that where either the employer or the employee have obtained evaluations of the employee's permanent impairment and limitations from a qualified medical evaluator under Section 4061 and either party contests the comprehensive medical evaluation of the other party, the workers' compensation judge or the appeals board shall be limited to choosing between either party's proposed permanent disability rating. The employee's permanent disability award shall be adjusted based on the disability rating selected by the appeals board.

However, the result of the use of such ‘baseball arbitration’ is often perceived as unfair. Experienced triers of fact in the workers' compensation field believe that more often than not an applicant's true disability lies somewhere between the description of permanent disability obtained by the applicant and that procured by the defendant. Concern has been expressed that under Labor Code §4065 the workers’ compensation judge may be "forced" to award too much or too little in permanent disability benefits to the injured worker.

In April 1999 the Commission requested a report on the effectiveness and experience of baseball arbitration in the WCAB. CHSWC staff collected data and information in the WCAB district offices. The Commission was informed that Workers’ Compensation judges are having problems with the application of Section 4065 and that many are reluctant to use it. This is confirmed by the reported cases in the CHSWC study. The parties are equally adept at avoiding baseball arbitration. The literature review, the preliminary data analysis, and legal and anecdotal evidence all indicate that there are problems with the implementation of final offer arbitration in workers' compensation.

A report entitled "Preliminary Evidence on the Implementation of ‘Baseball Arbitration’ in Workers' Compensation" was issued in November 1999.

Labor Code Section 5814 provides when payment of compensation has been unreasonably delayed or refused, either prior to or subsequent to the issuance of an award, the full amount of the ordered decision and award shall be increased by ten percent. The question of delay and reasonableness of the cause thereof shall be determined by the Appeals Board in accordance with the facts.

The purpose of the statute, adopted as part of the 1945 reforms, was first to provide incentive to claims administrators to pay benefits promptly by making delays costly, and secondly to some extent, to compensate the injured worker for the hardships resulting from the delay. Except for a minor amendment as part of the 1965 reforms transferring the jurisdiction of the Industrial Accident Commission to the WCAB, Section 5814 has not been modified by the Legislature.

As early as 1959, however, the appellate courts began a continuing series of decisions interpreting and reinterpreting the section. Some of the results of the judicial interpretation can find no direct support in the language of the statute. The problems that the workers’ compensation community continually encounters with Section 5814 have been discussed over the years but no serious legislative efforts have been made to resolve them.

In October 1998 the Commission issued a ‘call for information’, requesting input from the workers’ compensation community and the public for an issue paper on the Section 5814 penalty provisions. Responses were received from throughout the community. There were general criticisms of the statute that it was confusing, difficult to interpret and complicated to apply. Specific criticisms from the insurer and employer community indicated there was no clear standard of what constituted unreasonable conduct and that penalties imposed were disproportionate and unfair. Concern was also expressed regarding the possible effects of the Stuart and Moore decisions by the California Supreme Court. Applicants and the applicants’ attorneys view Section 5814 as ineffective as indicated by the number of penalty claims filed and imposed, and also that whenever an unreasonable delay occurs and continues, there is no further sanction.

These various responses indicated a need to study Labor Code Section 5814 with an aim for providing an adequate deterrent against unreasonable delay or refusal, but at the same time providing penalties that bear some relationship to the claims administrators' culpability.

At the Commission’s direction, the project staff reviewed workers’ compensation proceedings at the district office, reconsideration and appellate levels to determine the frequency that delay issues were raised and penalties assessed. A draft report was prepared containing proposed findings and recommendations. The most significant finding was that penalty petitions are raised in one out of four cases – indicating the possibility of substantial delays to injured workers, unnecessary expenses to employers and carriers, and a litigation cost to injured workers, to employers and to the system itself. It was also apparent that there is a higher number and frequency of penalty claims in Southern California than in Northern California.

In December 1999, the Commission released the draft report for public comments. The Commission also offered to serve as a clearinghouse for any suggestions for legislative language to revise Section 5814. The Commission convened an Advisory Committee to review the public comments and submit recommendations.

The Commission recommends that focus be placed on maintaining the integrity of the workers’ compensation system, to the benefit of California workers, employers and taxpayers.

Maintaining system integrity includes

• Ensuring that the workers’ compensation system is solvent,
• Maintaining objective and ongoing system evaluations, and
• Continuing the fight against fraud by any and all parties in the system.

The Commission wants to ensure that the California workers’ compensation system will have the ability to provide benefits to injured workers, irrespective of factors such as the current volatility of the insurance market.

Until a few years ago, California’s workers’ compensation insurance rates were regulated by the Insurance Commissioner under the minimum rate law. Under this law, an insurer could not issue, renew or continue workers’ compensation insurance at premium rates that were less than the rates approved by the Insurance Commissioner. The Commissioner, through its statistical agent, the Workers’ Compensation Insurance Rating Bureau, gathered and analyzed premium and losses data, classified businesses, did actuarial projections, assessed market conditions and competitive forces and determined final, fully developed, premium rates that included all the costs of benefits and administrative overhead.

The California Reform legislation of 1993 repealed the minimum rate law as of January 1, 1995 and replaced it with an open-rating system of rate regulation in which insurers set their own rates based on advisory loss costs developed by the Workers’ Compensation Insurance Rating Bureau. Under open rating, the Commissioner sets recommended, non-mandatory pure premium rates that are expected to cover the costs of benefits and loss adjustment expenses.

After the elimination of the minimum rate law, many carriers shifted the risk of their claims to other insurance companies many of whom were inexperienced with California workers’ compensation insurance market.

Currently, several insurance companies are experiencing problems with payment of claims. For example, Superior National Insurance Companies have been liquidated and several other insurance companies have been placed either under regulatory supervision or conservatorship by the Department of Insurance. At least fourteen independent insurer/insurer groups, which collectively wrote over one-quarter of the total California market in 1994, are under regulatory action by the Department of Insurance.

Created by the California Legislature, the California Insurance Guarantee Association (CIGA) settles unpaid claims of injured individuals when an insurance carrier is unable to make payments because of an insolvency. The Executive Director of CIGA has proposed to increase the regular 1% surcharge on workers’ compensation carriers to 2% to be able to repay claims of Superior National companies.

The cooperative studies of the Commission and the community have proved the value of objective and ongoing evaluations of the California workers’ compensation system.

The Commission recommends that the following actions be taken to ensure the continuation of these evaluations.

In the past few years, increases in workers’ compensation benefits have been more than offset by the effect of inflation on the value of the benefit. For example, the permanent partial disability benefit has lost more than a quarter of its value in the last 17 years -- the average permanent disability benefit in 2001 was only about 73% of its value in 1984.

The 1989 California workers’ compensation reform legislation established an audit function within the Division of Workers’ Compensation (DWC) to monitor the performance of insurers, self-insured employers, and third-party administrators to ensure that industrially-injured workers were receiving proper benefits in a timely manner. The purpose of the audit function is to provide incentives for the prompt and accurate delivery of workers’ compensation benefits to industrially-injured workers and to identify and bring into compliance those insurers, third-party administrators, and self-insured employers who do not.

In April 1998, the Senate Industrial Relations Committee and the Assembly Insurance Committee jointly requested that the Commission undertake an evaluation of the effectiveness of the audit function of the Division of Workers’ Compensation.

This legislative initiative was in part a response to considerable concern raised by some members of the workers compensation community. These concerns focused on the results of recent annual audits that showed substantial numbers of violations and found what many felt were excessive levels of unpaid compensation. Some observers also interpreted these data, when extrapolated to the entire population of claims locations, to indicate a trend toward poor performance in the delivery of benefits to injured workers.

The Commission project team researched the issue and conducted thoughtful discussions with DWC Audit Unit management and staff, the Audit Advisory Committee and other community members. The study determined that the current audit procedure did not include all insurers within a reasonable period of time, did not focus on the worst performers and concentrated penalties on relatively inconsequential violations.

The study participants concluded that although much time and effort was being expended by the DWC Audit Unit in performing audits of workers’ compensation insurers, a redirection of these activities would produce more effective outcomes.

The Commission is recommending revisions to the audit function, in order to:

CHSWC’s scope and responsibilities are set forth clearly in Labor Code Section 77(a): "The commission shall conduct a continuing examination of the workers’ compensation system … and of the state’s activities to prevent industrial injuries and occupational diseases." In fulfilling its statutory mandates, the Commission may require the use of individually identifiable information.

Labor Code Section 77(a) also provides: "All state departments and agencies … shall cooperate with the commission and upon reasonable request provide information and data in their possession that the commission deems necessary for the purpose of carrying out its responsibilities."

Labor Code Section 138.7(a) states that "Except as expressly permitted in subdivision (b), a person or public or private entity not a party to a claim for workers' compensation benefits may not obtain individually identifiable information obtained or maintained by the division on that claim." The Commission must be specifically included in subdivision (b)(3) to obtain such data.

Limited access to data under Labor Code Section 137.8(b)(4) is not adequate for the Commission’s needs and may also prohibit the Commission from conducting its business in a timely manner. Section 137.8(b)(4) provides that the DWC "Administrative Director shall adopt regulations allowing reasonable access to individually identifiable information by other persons or public or private entities for the purposes of bona fide statistical research." However, the regulations adopted -- Title 8 California Code of Regulations (CCR) Section 9703(d) – include limitations that would make it very difficult for CHSWC to conduct necessary and timely research.

CHSWC and the workers’ compensation community recognize that fraud can occur at every stage and in every sector of the workers’ compensation system.

The Commission and the community have determined that there is currently a need for more balance, focus and coordination with respect to anti-fraud activities in the workers’ compensation system.

Employers that are not covered for workers’ compensation impose a burden on injured workers, on employers that comply with the workers’ compensation insurance requirements, and on the state’s taxpayers.

DIR and DWC have implemented ongoing procedures to identify illegally uninsured employers and bring them into compliance, based on CHSWC’s successful pilot projects. These activities involve data matching and coordination among DIR, the Employment Development Department (EDD) and the Workers’ Compensation Rating Bureau of California (WCIRB). EDD is providing DIR with quarterly address files that are used to identify employers who appear to be illegally uninsured for workers’ compensation. Results from these data matching efforts thus far include the following:

Various laws are on the books prohibiting workers’ compensation fraud by all parties and requiring that anti-fraud warning notices be given to employees. However, there are no statutory provisions that anti-fraud notices or warnings be given to other parties, such as employers or insurers.

In order to broaden the campaign against all types of workers compensation fraud and to promote a more evenhanded approach to the problem, the Commission is making the following recommendations.

California’s workers’ compensation (WC) system, since its inception during the early 1900s, has been the subject of ongoing discussions and negotiations between California employers and employees. Legislation is periodically enacted to address system difficulties, including agency performance.

Some of the 1993 reform changes sought to reduce judicial discretion and increase the consistency of case outcomes. While many of the measures were successful in reducing costs, some changes may have had unintended consequences that have made the system increasingly complicated to administer.

The Division of Workers’ Compensation/Workers’ Compensation Appeals Board (DWC/WCAB) judicial function has been the focus of criticism by all parties in the system. Lack of uniform policies and an inadequate infrastructure have led to serious system problems.

At the November 1999 CHSWC meeting, DWC Administrative Director Richard Gannon proposed that a study be conducted of the DWC judicial function by an independent group with the credibility and expertise, such as the Commission.

DIR and the Commission agreed that an independent study and evaluation of the DWC judicial process would be very helpful in addressing problems. The Commission approved a study proposal to identify possible statutory changes to make the system work more efficiently and look at rules and practices of other jurisdictions that have addressed problems such as calendaring, casefile movement, proper staffing ratios, and other issues of concern. The goal of this effort is to assist in meeting the Constitutional mandate to "accomplish substantial justice in all cases expeditiously, inexpensively, and without incumbrance of any character…"

Since the beginning of the project in October 2000, the study team has familiarized itself with the WCAB on-line system, has made on-site visits to WCAB district offices and established a resource group comprised of representatives involved in California’s worke