Appendix 1: Summary of Legislative and Regulatory Changes

The 1989 and 1993 workers' compensation reforms were intended to decrease system costs and the amount of time needed to settle cases. Many of these reforms were meant to directly or indirectly affect the medical-legal process.

A. Recent Legislation Affecting the Cost of Medical-Legal Evaluations

Legislation has changed the amount rebuttably presumed reasonable for medical-legal reports. Prior to 4/3/93, these were determined by specialty (Orthopedic, Neurological, Internal/Cardiology, Psychiatric, and All Other). After that time, the specialty was no longer a determinant, but the reports were separated into the following four categories:

Follow-up (ML101): Includes examination of patient within one year of initial evaluation.

Basic (ML102): All evaluations, other than Supplemental, Complex, or Extraordinary.

Complex (ML103): Includes three or more of following:

1. 2 or more hours physician face to face with patient;
2. 2 or more hours of record review by the physician;
3. . 2 or more hours of medical research by physician;
4. addressing the issue of medical causation;
5. addressing the issue of apportionment
6. monitoring after toxic exposure

Extraordinary (ML104): Used in place of ML101-103 where significantly more time is needed than the code allows. (see Title 8, CCR 9795 for conditions)

A premium above the fee schedule amount was allowed where an interpreter was necessary or the evaluator was acting as an "Agreed Medical Evaluator" (AME) code 94, multiplier 1.25.

Reports by a Primary Treating Physician under the Medical-Legal Fee Schedule, have code 92 attached and a multiplier of 0.8.

TABLE A1: AMOUNTS PRESUMED REASONABLE: MEDICAL-LEGAL REPORTS

These changes would be expected to impact the cost of medical-legal reports. The minor adjustments to the fee schedule made prior to 8/3/93 are likely to affect only the portion of exams whose cost was at or near the rebuttable maximum. Exams with costs much above or below the fee schedule targets would likely be unaffected by these small changes.

The very large change to the maximums introduced for exams conducted on or after 8/3/93 should affect a much wider range of exams, and would be expected to reduce costs more dramatically than previous reductions. Again, exams whose costs were considerably below the new maximum would presumably not be affected.

The average cost of medical-legal reports can also be affected by the mix of reports. A decrease in the relative frequency of reports by a more expensive specialty could reduce the average cost of reports even while all specialties individually were more expensive. For example, if the frequency of psychiatric reports (the most expensive reports) declined enough, that alone could reduce average cost of all reports even if all specialties, including psychiatric, had increased in cost.

Alternatively, if reports requested by employers were less expensive on the average than those requested by workers (as we will discuss below), a decrease in the frequency of reports requested by employers relative to workers would appear to drive the cost of the average report higher. This argues for an effort to disaggregate the analysis of medical-legal reports by studying them by both specialty and source of request.

B. Recent Legislation Affecting the Frequency of Medical-Legal Reports

1989 Legislation:

The Margolin bill created the Qualified Medical Evaluator (QME) and alternative dispute resolution mechanisms 1. In addition, the statute limited each party to a single medical-legal report on any issue by each appropriate specialty or subspecialty. Chapter 892 also prohibits admission into evidence of any medical opinion, other than a report from the treating physician, that was obtained before the service of the assessment by the Agreed or Qualified Medical Evaluator.

1993 Legislation:

AB 110 (Peace) 1993 Stat. Chap. 121, effective July 16, 1993 made numerous changes to the process of selecting medical evaluators, which could be expected to reduce the number of reports. Chapter 121 allows the treating physician, who is primarily responsible for the care of the injured worker, to write a comprehensive medical-legal evaluation if a dispute develops. Legislation in 1989 had restricted the use of the treating physician by requiring separate report(s) by Qualified Medical Evaluators.

Chapter 121 also provided that where an additional comprehensive exam is obtained, the findings of the treating physician are presumed to be correct except with a preponderance of evidence, unless both parties elect QMEs. This encourages one or both parties to avoid seeking additional evaluations.

Other legislation restricted medical-legal examinations during the first sixty days, except at the request of the employer, and limited the employer's financial responsibility to a single comprehensive evaluation covering all issues.

C. Recent Legislation Affecting the Frequency of Psychiatric Evaluations

Several legislative changes were expected to reduce the frequency of psychiatric evaluations by restricting the range of psychiatric injuries considered compensable. The changes modified evidentiary rules, imposing a "preponderance of evidence" requirement. A series of changes increased, over time, the degree to which the cause of the injury or illness had to be related to employment.

Assuming that the proportion of psychiatric injuries/illnesses remained steady relative to other injuries in the compensation system, these restrictions should eliminate a number of these injuries from compensability, because the psychiatric component fails to meet the threshold conditions for compensability. However, it could be argued that higher standards of proof lead to the need for more evaluations to establish whether the threshold conditions have been exceeded.

1989 Legislation:

The Margolin-Bill Greene Workers' Compensation Reform Act of 1989 made changes in the treatment of psychiatric injuries, effective for injuries that occur on or after January 1, 1990. Chapter 892 narrowed the scope of compensability for psychiatric conditions by imposing a requirement that the employee demonstrate industrial causation by a preponderance of the evidence. Under prior law, "substantially in the record as a whole" was the sole evidentiary standard for all workers' compensation issues 2. Chapter 892 further required that at least ten percent of the causation of a psychiatric condition be attributable to "actual" employment factors before the employee was eligible for benefits. This legislation also included specific language identifying the "intent of the legislature in enacting this section to establish a new and higher threshold of compensibility for psychiatric injuries."

1991 Legislation:

AB 971 (Peace), effective July 1991, made additional changes by applying a further restriction denying recovery for those psychiatric injuries resulting from regular and routine employment unless the employee has worked for that employer for at least six months. 3

1993 Legislation:

SB 223 (Lockyer), effective for injuries occurring on or after July 16, 1993, changed the causation standard on psychological injuries to require that actual events of employment must be predominant as to all causes combined. However, if the psychiatric injury results from a violent act or from direct exposure to a violent act, the employee is required to prove by a preponderance of the evidence that actual events of employment were a substantial cause of the injury. Cal. Lab. Code #3208.3(b)(3) (amended by Chapter 1242) defines substantial cause as at least 35-40%. Chapter 1242 also provided that psychiatric injuries are not compensable if substantially caused by a lawful, nondiscriminatory, good-faith personnel action. Further restrictions were also placed on recovery for psychiatric injuries following notice of termination of employment or layoff. The injury must have occurred prior to the time of notice of termination and one or more of the following conditions must exist: 4 1) sudden and extraordinary events of employment caused the injury; 2) the employer had notice of the injury prior to notice of termination or layoff; 3) employment records contain evidence of previous treatment of the psychiatric injury; 4) a finding of sexual harassment; or 5) evidence that injury occurred after notice of termination or layoff, but prior to the effective date of the termination or layoff. 5

D. Recent Legislation Affecting the Outcomes of the Medical-Legal Decision Process for Workers

Legislative changes can be expected to change outcome measures of the decision-making process by affecting the disability measurement process. The determination of permanent disability under the statutes and regulations guiding the California system is at best imprecise. This has led to numerous calls to change the way in which we determine permanent disability in our state. Different doctors can give very different evaluations to the same patient.

Doctors having "conservative" and "liberal" interpretations of the level of disability are to some extent known to informed parties. Informed parties are individuals or entities that participate in the system on a frequent basis, for example, employers, insurers, or attorneys. Workers would not be expected to know the biases of doctors since they participate once or at most infrequently. Two well-informed parties could be expected on average to reach unbiased decisions given equal levels of knowledge in choosing their experts. Workers, acting alone, might not be expected to reach a similarly unbiased outcome. Rather, their PPD awards would be expected to be biased downward if information about the evaluating doctors' interpretation is unknown to the worker and the selection is made by an informed party.

1989 Legislation:

Chapter 892 required that a notice be included with an injured worker's final payment of temporary disability stating the employer's position with respect to the employee's eligibility for permanent disability compensation. Alternate procedures for resolving medical disputes were established dependent upon whether the employee was represented by an attorney.

If an employee was not represented by an attorney, Chapter 892 prohibited the employer from obtaining an agreement on the selection of a medical evaluator. Instead, the statute required that in the event of a medical dispute with an unrepresented employee, the employer must request that the Medical Director assign a panel of three Qualified Medical Evaluators from which the employee can make a selection. This eliminated the prior common practice where the injured worker was given a medical evaluation by a doctor suggested or assigned by the employer's representative.

E. Recent Legislation Affecting the Time to Resolution

1989 Legislation:

The 1989 reform introduced new mechanisms for resolving disputes. AB 276 provided for a mandatory settlement conference conducted by a referee not less than ten days, nor more than thirty days, after the filing for adjudication. If the settlement conference does not resolve the dispute, the regular hearing will be held within seventy-five days of the filing of the application.

If an injured employee is represented by an attorney, AB 276 requires arbitration in disputes over insurance coverage and rights of contribution. Beginning 1/1/91, arbitration will be required in cases of permanent disability when there is a low percentage of disability and the case cannot be heard within 110 to 150 days of the filing of the application for adjudication 6.

The introduction of arbitration and mandatory settlement conferences (MSC) were meant to reduce the need for hearings and decisions and to speed the resolution of cases.